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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
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
[ ] Confidential, For Use of the Commission Only (As Permitted by Rule
14A-6(E)(2))
BIODELIVERY SCIENCES INTERNATIONAL, INC.
(Name of Registrant as Specified In Its Charter)
NAME OF COMPANY
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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BIODELIVERY SCIENCES INTERNATIONAL, INC.
UMDNJ - New Jersey Medical School
Administrative Building 4
185 South Orange Avenue
Newark, New Jersey 07103
September 17, 2001
To the Shareholders of BioDelivery Sciences International, Inc.:
BioDelivery Sciences International, Inc. (the "Company") is pleased to
send you the enclosed notice of the Annual Meeting of Shareholders (the
"Meeting") to be held at 10:00 a.m. (Eastern Standard Time) on Thursday,
September 27, 2001 at the offices of the Company, Administrative Building 4, 185
South Orange Avenue, Newark, New Jersey 07103.
The following business will be transacted at the annual meeting of the
Company's Shareholders:
1. To elect directors to serve until the 2002 Annual Meeting of
Shareholders;
2. To approve the Company's 2001 Incentive Stock Option Plan (the "2001
Plan") and to reserve 2,500,000 shares (before giving effect to the
reverse stock split as described in Proposal 3) of the Company's Common
Stock under the 2001 Plan;
3. To approve an amendment to the Company's Articles of Incorporation to
reverse split the outstanding shares of Common Stock and Preferred
Stock on a "one (1) share for two and sixty six hundredths (2.66)
shares" basis or such other amount as the Board of Director may
determine in the exercise of its judgment; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Please review the Company's enclosed Proxy Statement, Annual Report on
Form 10-KSB. If you have any questions regarding this material, please do not
hesitate me at (813) 902-8980.
Sincerely yours,
James A. McNulty
Chief Financial Officer
BioDelivery Sciences International, Inc.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING PLEASE COMPLETE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING.
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BIODELIVERY SCIENCES INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
UMDNJ - New Jersey Medical School
Administrative Building 4
185 South Orange Avenue
Newark, New Jersey 07103
To be held on September 27, 2001
The Annual Meeting of Shareholders (the "Meeting") of BioDelivery
Sciences International, Inc. (the "Company") will be held on Thursday, September
27, 2001, at 10:00 a.m. (Eastern Standard Time) at the offices of the Company,
Administrative Building 4, 185 South Orange Avenue, Newark, New Jersey 07103 for
the following purposes:
The following business will be transacted at the annual meeting of the
Company's Shareholders:
1. To elect directors to serve until the 2002 Annual Meeting of
Shareholders;
2. To approve the Company's 2001 Incentive Stock Option Plan (the "2001
Plan") and to reserve 2,500,000 shares (before giving effect to the
reverse stock split as described in Proposal 3) of the Company's Common
Stock under the 2001 Plan;
3. To approve an amendment to the Company's Articles of Incorporation to
reverse split the outstanding shares of Common Stock and Preferred
Stock on a "one (1) share for two and sixty six hundredths (2.66)
shares" basis or such other amount as the Board of Director may
determine in the exercise of its judgment; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board has fixed the close of business on August 20, 2001, as the
record date for the determination of shareholders entitled to notice of, and to
vote and act at, the Meeting and only shareholders of record at the close of
business on that date are entitled to notice of, and to vote and act at, the
Meeting.
Shareholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, please complete and sign
the enclosed proxy card and return it promptly. If you choose, you may still
vote in person at the Meeting even though you previously submitted a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
BIODELIVERY SCIENCES INTERNATIONAL, INC.
James A. McNulty
Secretary
Newark, New Jersey
September 17, 2001
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BIODELIVERY SCIENCES INTERNATIONAL, INC.
UMDNJ - New Jersey Medical School
Administrative Building 4
185 South Orange Avenue
Newark, New Jersey 07103
(813) 902-8980
--------------------
PROXY STATEMENT
--------------------
ANNUAL MEETING OF SHAREHOLDERS
to be held September 27, 2001
INTRODUCTION
The Annual Meeting of Shareholders
This Proxy Statement is being furnished to holders of shares of Common
Stock, $.001 par value (the "Common Stock") of BioDelivery Sciences
International, Inc., a Indiana corporation ("BioDelivery" or the "Company"), in
connection with the solicitation of proxies by the Board of Directors (the
"Board") of the Company for use at the Annual Meeting of Shareholders (the
"Meeting") to be held at the offices of the Company, Administrative Building 4,
185 South Orange Avenue, Newark, New Jersey 07103, on Thursday, September 27,
2001 at 10:00 a.m. (Eastern Standard Time), and at any adjournment or
adjournments thereof.
Matters to be Considered at the Meeting
At the Meeting, Shareholders will be acting upon the following matters:
1. To elect directors to serve until the 2002 Annual Meeting of
Shareholders;
2. To approve the Company's 2001 Incentive Stock Option Plan (the "2001
Plan") and to reserve 2,500,000 shares (before giving effect to the
reverse stock split as described in Proposal 3) of the Company's Common
Stock under the 2001 Plan;
3. To approve an amendment to the Company's Articles of Incorporation to
reverse split the outstanding shares of Common Stock and Preferred
Stock on a "one (1) share for two and sixty six hundredths (2.66)
share" basis or such other amount as the Board of Director may
determine in the exercise of its judgment; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Recommendations of the Board of Directors
THE BOARD UNANIMOUSLY RECOMMENDS ADOPTION OF ALL THE MATTERS TO BE
SUBMITTED TO THE SHAREHOLDERS AT THE MEETING.
Beneficial Ownership of Securities and Voting Rights
As of the close of business on August 20, 2001, the record date for the
Meeting, there were outstanding 16,700,000 shares of Common Stock and 2,020,000
shares of Preferred Stock (collectively referred to as "Capital Stock"). The
Company has no other shares of capital stock issued and outstanding. For more
information about the Company's authorized and outstanding capital stock, see
"OTHER INFORMATION -- Principal Shareholders."
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Proxies; Votes Required
A shareholder may revoke his, her or its proxy at any time prior to its
use by giving written notice to the Secretary of the Company, by executing a
revised proxy at a later date or by attending the Meeting and voting in person.
Proxies in the form enclosed, unless previously revoked, will be voted at the
Meeting in accordance with the specifications made thereon or, in the absence of
such specifications:
The following business will be transacted at the annual meeting of the
Company's Shareholders:
1. To elect directors to serve until the 2002 Annual Meeting of
Shareholders;
2. To approve the Company's 2001 Incentive Stock Option Plan (the "2001
Plan") and to reserve 2,500,000 shares (before giving effect to the
reverse stock split as described in Proposal 3) of the Company's Common
Stock under the 2001 Plan;
3. To approve an amendment to the Company's Articles of Incorporation to
reverse split the outstanding shares of Common Stock and Preferred
Stock on a "one (1) share for two and sixty six hundredths (2.66)
share" basis or such other amount as the Board of Director may
determine in the exercise of its judgment; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The expected date of the first mailing of this proxy statement and the
enclosed proxy is estimated to be September 17, 2001.
The affirmative vote of a plurality of the shares of the Company's
Capital Stock present at the Meeting, in person or by proxy, is required for the
election of the members of the Board. The remaining matters require the
affirmative vote of a majority of the Company's Capital Stock issued and
outstanding.
Shares of the Company's Capital Stock represented by executed proxies
received by the Company will be counted for purposes of establishing a quorum at
the Meeting, regardless of how or whether such shares are voted on any specific
proposal.
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TABLE OF CONTENTS
Page No.
--------
Introduction................................................... 4
Table of Contents.............................................. 6
Election of Directors.......................................... 7
Executive Compensation......................................... 9
2001 Incentive Stock Option Plan............................... 10
Amendment to the Articles of Incorporation .................... 14
Other Information.............................................. 17
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ELECTION OF DIRECTORS
PROPOSAL 1
Introduction
The Board consists of one class of directors having two members. The
Board may determine the total number of directors and the number of directors to
be elected at any annual meeting or special meeting in lieu thereof. The Board
has fixed at four (4) the number of directors to be elected at the 2001 Annual
Meeting. At the Meeting, the shareholders will be asked to elect Francis E.
O'Donnell, M.D., Raphael J. Mannino, Ph.D., L.M. Stephenson, Ph.D. and William
Stone (the "Nominees") to serve in such capacity until the 2002 Annual Meeting,
and until their successors are duly elected and qualified.
It is the intention of the persons named in the enclosed proxy to vote
to elect the Nominees named above, one of whom is an incumbent director, and
each of whom has consented to serve if elected. If some unexpected occurrence
should make necessary, in the discretion of the Board, the substitution of some
other person for any of the Nominees, it is the intention of the persons named
in the proxy to vote for the election of such other persons as may be designated
by the Board.
Nominees, Directors, and Executive Officers
The director, officers and nominees of the Company are as follows:
Name Age Position(s) Held
- ---- --- ----------------
Francis E. O'Donnell, Jr., M.D. 51 Chairman, Chief Executive Officer,
Director and Nominee
Raphael J. Mannino, Ph.D. 54 Executive Vice President, Chief
Scientific Officer and Nominee
James A. McNulty 50 Chief Financial Officer and Director
Don Ferguson 53 Senior Executive Vice President
Leila Zarif, Ph.D., MBA 46 Executive Vice President of
Research and Development
Christopher Chapman, M.D. 48 Director of Medical and Regulatory
Affairs and Director of New
Business Development
Susan Gould Fogerite, Ph.D. 48 Director of Business Development-
Vaccines and Gene Therapy
L.M. Stephenson, Ph.D. 58 Nominee
William Stone 53 Nominee
There are no family relationships between any director, executive
officer, or person nominated or chosen to become a director or executive
officer.
Business Experience of Directors Nominated to Serve a Term Expiring at the 2002
Annual Meeting
Francis E. O'Donnell, Jr. M.D., age 51, has been CEO, President,
Chairman and Director on a part time basis since inception in October 2000. For
more than the last five years, Dr. O'Donnell has served as managing director of
The Hopkins Capital Group, an affiliation of limited liability companies which
engage in business development and venture activities. He has been Chairman of
Laser Sight Inc. (LASE), a publicly traded manufacturer of advanced refractive
laser systems since 1993. He is also the founder and a director of BioKeys
Pharmaceuticals (BKYS), a publicly traded biopharmaceutical company. Since
October 1998, he has been Chairman of APP Specialty Pharmacy, Inc., a privately
held, specialty pharmacy company. He is a founder and chairman of PhotoVision
Pharmaceuticals, Inc. and since early 2001, the chairman of RetinaPharma, Inc.
He is managing partner of Tatton Technologies, LLC, a biotechnology company and
Biotech Specialty Partners, LLC, an alliance of specialty pharmacy and
biotechnology companies. Dr. O'Donnell is a graduate of The Johns Hopkins School
of Medicine and received his residency training at the Wilmer Ophthalmological
Institute. Dr. O'Donnell is a former professor and Chairman of the Department of
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Ophthalmology, St. Louis University School of Medicine. Dr. O'Donnell holds 25
U.S. Patents and is the 2000 Recipient of the Jules Stein Vision Award sponsored
by Retinitis Pigmentosa International.
Raphael J. Mannino, Ph.D., age 54, has been Executive Vice President
and Chief Scientific Officer since October 2000. Mr. Mannino has served as
President, CEO, Chief Scientific Officer, and a member of the Board of Directors
of BDS since its incorporation in 1995. Dr. Mannino's previous experience
includes positions as Associate Professor, at the University of Medicine and
Dentistry of New Jersey (1990 to present), Assistant, then Associate Professor,
Albany Medical College (1980 to 1990), and Instructor then Assistant Professor,
Rutgers Medical School (1977 to 1980). His postdoctoral training was from 1973
to 1977 at the Biocenter in Basel, Switzerland. Dr. Mannino received his Ph.D.
in Biological Chemistry in 1973 from the Johns Hopkins University, School of
Medicine.
M.L. Stephenson, Ph.D., age 59, is a Nominee to the Board of the
Company. Dr. Stephenson has been associated with the University of Medicine and
Dentistry of New Jersey for more than five years where he is currently the Vice
President for Research with responsibility over developing the research
capability, research funding and intellectual property of New Jersey's medical
science campuses, including three medical schools, dental, nursing and public
health schools and a graduate school of biomedical sciences. He also serves as
the Acting Associate Dean for Research of the New Jersey Medical School where he
is temporarily responsible for managing and reorganizing the Sponsored Projects
Office. Dr. Stephenson also serves as the Director of Patents and Licensing of
the University of Medicine and Dentistry of New Jersey where he is responsible
for management of the Intellectual Property Assets, including marketing of
patents and establishment of new ventures. Dr. Stephenson is a graduate of the
University of North Carolina where he earned a BS in chemistry and was awarded
the Venable Medal for outstanding senior in chemistry. Dr. Stephenson earned his
Ph.D. in chemistry from the California Institute of Technology where he earned
the Kodak Prize for outstanding chemistry graduate student and was an NSF
Predoctoral Fellow. Additionally, Dr. Stephenson was a Research Fellow at
Harvard University.
For the past 20 years, Mr. Stone has been continuously employed with
Millinckrodt, Inc. in various capacities such as Vice-President, CIO and
Controller. Mr. Stone retired in October 2000. Mr. Stone is a graduate of the
University of Missouri-Columbia where he earned a BS and MA degree in
accounting.
Certain Transactions
The above-named Nominees, directors and executive officers have
indicated that neither they nor any of their respective affiliates has any
relationship with the Company that is required to be disclosed pursuant to Item
404 of Regulation S-B promulgated under the Securities Exchange Act of 1934, as
amended, except for the transactions set forth below.
During 2001, the Company entered into agreements with RetinaPharma,
Inc. and Tatton Technology LLC, biotechnology companies which are developing
nutriceutical neuroprotective therapies for treating neurodegenerative disease
such as macular degeneration and Parkinson's disease. To the extent that such
products utilize Bioral Cochleate Technology encapsulation, we will support
product development and will share in thirty percent (30%) of any profits from
such sales of Bioral encapsulated products. One of our shareholders, Hopkins
Capital Group II, LLC, a member of our management and a Nominee, Dr. Francis E.
O'Donnell, Jr., are affiliated as shareholders or member of the management of
both RetinaPharma, Inc and Tatton Technology, LLC.
During 2001, the Company entered into an agreement with Biotech
Specialty Partners, LLC, an early stage alliance of biotechnology and specialty
pharmaceutical companies. Under this agreement, Biotech Specialty Partners, LLC
will serve as a nonexclusive distributor of our Bioral products in consideration
of a ten (10%) discount to the wholesale price, which we believe, is
commercially reasonable. One of the Company's shareholders, Hopkins Capital
Group II, LLC, a member of the Company's management and a Nominee, Dr. Francis
E. O'Donnell, Jr., is affiliated as shareholder or member of the management of
Biotech Specialty Partners, LLC.
Certain of the Company's officers, subject to shareholder approval of
the 2001 Plan, have been granted options under the 2001 Plan. (see Principal
Stockholder Footnote 6).
Incumbent Director
Meeting Attendance. During the fiscal year ended December 31, 2000,
there were no formal meetings of the Board of the Company, however, the
incumbent director participated in each of the Company's informal meetings,
which were conducted by unanimous consent pursuant to applicable law.
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Committees of the Board of Directors. During the fiscal year ended
December 31, 2000, the Board did not create any committees. Accordingly, the
functions normally served by the Audit Committee which reviews the engagement of
the Company's independent accountants, reviews annual financial statements and
considers matters relating to accounting policies and internal control, and
reviews the scopes of audits, the Compensation and Stock Option Committee, which
establishes compensation and stock option policies, practices and procedures to
ensure that the legal and fiduciary responsibilities of the Board are carried
out and the Nominating Committee, which considers nominees to serve on the
Company's Board were retained by the entire Board which consisted of two
members. Following the 2001 annual meeting, the Board intends to create an Audit
Committee in accordance with Appendix A hereto, and a Compensation and Stock
Option Committee, a Nominating Committee and such other committees as the Board
may elect. Attached as Appendix A is a copy of the Charter and Powers of the
Audit Committee.
Directors' Compensation
The Company's policy is to pay $1,000 per diem compensation to members
of the Board for attendance at formal Board meetings or committee meetings and
no compensation for informal meetings such as telephonic meetings and written
consent actions. All directors are reimbursed for travel and other related
expenses incurred in attending meetings of the Board.
Directors are eligible to participate in the 2001 Plan, at the rate of
an option to purchase 20,000 shares of Common Stock to be granted to each
director with an additional 10,000 for each committee chairmanship, and 5,000
shares for each committee membership upon first joining the Board and subsequent
grants of options to purchase 20,000 shares upon each anniversary of such
director's appointment. Such options are granted at an exercise price equal to
the fair market value of the Common Stock on the grant date and fully vest
following one year of service after the date of grant. No such Options were
granted to any director during the fiscal year 2000.
EXECUTIVE COMPENSATION
The annual and long-term remuneration paid to or accrued for the
executive officers, for services rendered during the years ended December 31,
1999 and 2000 was as follows:
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
====================================================================================================================================
Annual Compensation Awards Payouts
====================================================================================================================================
(a) (b) (c) (d) (e) (f) (g) (h) (i)
====================================================================================================================================
Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Bonus Compensation Award(s) Options/SARs LTIP Compensation
Position Year Salary($) ($) ($) ($) (#) Payouts($) ($)
====================================================================================================================================
Francis E. O'Donnell, Jr.,
M.D., CEO, President 2000 -- - - - - - --
and Chairman 1999 -- - - - - - --
1998 -- - - - - - --
James McNulty, CFO 2000 -- - - - - - --
1999 -- - - - - - --
1998 -- - - - - - --
Raphael J. Mannino,
Ph.D., Executive 2000 $14,953 - - - - - $14,953
Vice President, 1999 -- - - - - - --
Chief Scientific 1998 -- - - - - - --
Officer
Leila Zarif, Ph.D.,
Executive Vice 2000 $26,493 - - - - - $26,493
President of 1999 -- - - - - - --
Research and 1998 -- - - - - - --
Development
Susan Gould-Fogerite,
Ph.D., Director of
Business Development 2000 $ 9,415 - - - - - --
- - Vaccines and Gene 1999 -- - - - - - --
Therapy 1998 -- - - - - - --
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Option Grants in Last Fiscal Year
The Company granted no options to purchase shares of Common Stock to
employees in the year ended December 31, 2000.
Aggregated Option Exercises in Last Fiscal year and Fiscal Year-End Option
Values
No Options were exercised during the fiscal year-end December 31, 2000.
Employment Contracts, Terminations of Employment and Change in Control
Arrangements
Substantially all of the stock options granted pursuant to the 2001
Plan provide for the acceleration of the vesting of the shares of Common Stock
subject to such options in connection with certain changes in control of the
Company.
Compensation Committee Interlocks and Insider Participation
Dr. O'Donnell and Mr. James McNulty served on the Board which served
the normal function of the Compensation and Stock Option Committee during Fiscal
Year 2000. Dr. O'Donnell receives no compensation in his capacity as Chairman
and Chief Executive and Mr. McNulty receives an annual salary of $48,000 in his
capacity as Chief Financial Officer.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF FRANCIS E.
O'DONNELL, JR., M.D., RAPHAEL J. MANNINO, PH.D., M.L. STEPHENSON AND WILLIAM
STONE TO SERVE ON THE COMPANY'S BOARD OF DIRECTORS UNTIL THE 2002 ANNUAL MEETING
AND UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
2001 INCENTIVE STOCK OPTION PLAN
PROPOSAL 2
Introduction
On July 20, 2001, the Company's Board approved the 2001 Plan subject to
shareholder approval. In connection therewith, the Board has reserved 2,500,000
shares of the Company's Common Stock thereunder. (2) Subject to shareholder
approval of the 2001 Plan, options to purchase a total of 2,108,000 shares of
the Company's Common Stock have been granted to employees of the Company and
consultants who are not employees of the Company as follows:
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- ------------------------------ ---------------------------------------------- ----------------------------------------------
POSITION NUMBER OF EXERCISE PRICE VESTING(1)
NAME OF EMPLOYEE OPTIONS
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
Don Ferguson Sr. Executive Vice
Option 1 President 600,000 $0.70 per share (1)
Option 2 300,000 $2.70 per share (1)
Option 3 300,000 $4.00 per share (1)
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
Raphael J. Mannino, PhD Executive Vice
Option 1 President, Chief 200,000 $0.70 per share (1)
Option 2 Scientific Officer 100,000 $2.70 per share (1)
Option 3 and Nominee 100,000 $4.00 per share (1)
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
Leila Zarif, PhD Executive Vice
Option 1 President of 200,000 $0.70 per share (1)
Option 2 Research and 100,000 $2.70 per share (1)
Option 3 Development 100,000 $4.00 per share (1)
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
Susan Gould-Fogerite, PhD Director of Business
Option 1 Development - 75,000 $0.70 per share (1)
Option 2 Vaccines and Gene 37,500 $2.70 per share (1)
Option 3 Therapy 37,500 $4.00 per share (1)
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
Christopher Chapman, MD Director of Medical
Option 1 and Regulatory 200,000 $0.70 per share (1)
Option 2 Affairs and Director 100,000 $2.70 per share (1)
Option 3 of New Business 100,000 $4.00 per share (1)
Development
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
Catherine S. Gidlow Consultant
Option 1 100,000 $0.70 per share (1)
Option 2 50,000 $2.70 per share (1)
Option 3 50,000 $4.00 per share (1)
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
Gary M. Wesolowski Consultant
Option 1 30,000 $0.70 per share (1)
Option 2 15,000 $2.70 per share (1)
Option 3 15,000 $4.00 per share (1)
------------------------------- ------------------------- ----------------- ---------------------------- -----------------
(1) The options granted hereunder shall commence vesting at the first to
occur of: (i) 13 months following the completion by the Company of an
Initial Public Offering registered with the U.S. Securities and
Exchange Commission; or (ii) 24 months from the date of grant. Once
vesting commences, the options shall vest equally over a two-year
period.
(2) All references to number of shares and exercise prices are prior to and
give no effect to the reverse stock split described in Proposal 3.
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Purpose of the 2001 Plan
The purposes of the 2001 Plan are (i) to align the interests of the
Company's shareholder and recipients of options under the 2001 Plan by
increasing the proprietary interest of such recipients in the Company's growth
and success, and (ii) to advance the interests of the Company by providing
additional incentives to officers, key employees and well-qualified non-employee
directors and consultants who provide services to the Company, who are
responsible for management and growth of the Company, or otherwise contribute to
the conduct and direction of its business, operations and affairs. Reference is
made to Appendix B to this Proxy Statement for the complete text of the 2001
Plan.
Description of the 2001 Plan
The 2001 Plan covers a total of 2,500,000 shares of Common Stock.
Options may be awarded during the ten-year term of the 2001 Plan under the 2001
Plan to employees of the Company (including employees who are directors),
consultants who are not employees and other affiliates of the Company as defined
below. The 2001 Plan provides for the grant of options intended to qualify as
incentive stock options under Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code") ("Incentive Stock Options"), and options which are not
Incentive Stock Options ("Non-Statutory Stock Options").
Only employees of the Company or its subsidiaries (currently
approximately eight persons) may be granted Incentive Stock Options. Affiliates
of the Company, defined as employees of the Company, members of the Company's
Board, or persons associated with the Company in such other capacity or
relationship such as consultants or others as may be permitted by the Board, may
be granted Non-Statutory Stock Options.
The Board will administer the 2001 Plan, select the persons to whom
options are granted and fix the terms of such options.
The exercise date of an option granted under the 2001 Plan will be
fixed by the Board, but may not be later than ten years from the date of grant.
Options may be exercised in such installments as are fixed by the Board.
Options under the 2001 Plan will not be transferable by the Participant
other than by will or the laws of descent and distribution, although they may be
exercised during the Participant's lifetime by his/her legal representative if
he/she becomes incapacitated. All options must be exercised within three months
after termination of the Participant's affiliation with the Company, except that
options shall remain outstanding for their entire term following termination due
to death or for one year following termination due to permanent disability.
The exercise price of Incentive Stock Options granted under the 2001
Plan must be at least equal to the fair market value of the Common Stock, as
determined by the Board, on the date of grant. Non-Statutory Stock Options may
be granted at exercise prices not less than 100% of the fair market value of the
Common Stock on the date of the grant or not less than 110% of such fair market
value in the case of options granted to an employee who at the time of grant
possess more than 10% of the total combined voting power of all classes of stock
of the Company. The Option Compensation Committee is authorized to determine, in
its discretion, the exercise price of other options, including any options that
may be regranted to employees after their original grant has lapsed unexercised.
The 2001 Plan provides for automatic adjustment to the number of shares
of Common Stock issuable upon exercise of options granted under the 2001 Plan to
reflect stock dividends, stock splits, reorganizations, mergers and various
other transactions occurring after the date of grant. Payment for shares
purchased upon exercise of an option must be made in cash or, at the Board's
discretion, by delivery of shares of Common Stock of the Company, or by a
combination of such methods.
The Company's Board may at any time amend or revise the terms of the
2001 Plan, except that no such amendment or revision may be made without the
approval of the holders of a majority of the Company's outstanding capital
stock, voting together as a single class, if such amendment or revision would
(a) materially increase the number of shares which may be issued under the 2001
Plan (other than changes in capitalization), (b) increase the maximum term of
options, (c) decrease the minimum option price, (d) permit the granting of
options to anyone not included within the 2001 Plan's eligible categories, (e)
extend the term of the 2001 Plan or (f) materially increase the benefits
accruing to eligible individuals under the 2001 Plan.
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The 2001 Plan contains the following terms and conditions required in
order to permit treatment of the options granted thereunder as incentive stock
options: (i) all incentive stock options must be expressly designated as such at
the time of grant and (ii) if any person to whom an incentive stock option is
granted owns, at the time of the grant of such option, Common Stock possessing
more than 10% of the combined voting power of all classes of the Company, then
(a) the purchase price per share of the Common Stock subject to such option
shall not be less than 110% of the fair market value of one share of Common
Stock at the time of grant and (b) the exercise period shall not exceed five
years from the date of grant.
Directors are eligible to participate in the 2001 Plan. The 2001 Plan
provides for an initial grant of an option to purchase 20,000 shares of Common
Stock to each director upon first joining the Board and subsequent grants of
options to purchase 20,000 shares upon each anniversary of such director's
appointment. Additionally, directors will be granted 10,000 options for each
committee chairmanship and 5,000 options for each committee membership. Such
options are granted at an exercise price equal to the fair market value of the
Common Stock on the grant date and fully vest following one year of service
after the date of grant.
Federal Income Tax Consequences
Incentive Stock Options. In general, a Participant will not recognize
taxable income upon the grant or exercise of an Incentive Stock Option. Instead,
a Participant will recognize taxable income with respect to an Incentive Stock
Option only upon the sale of Common Stock acquired through the exercise of the
option ("ISO Stock"). The exercise of an Incentive Stock Option, however, may
subject the Participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the Participant has owned the ISO Stock at the time it is
sold. If the Participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the Participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the Participant sells ISO Stock for more than the exercise price
prior to having owned it for at least two years from the Grant Date and one year
from the Exercise Date (a "Disqualifying Disposition"), then any gain will be
treated as ordinary compensation income to the extent that it does not exceed
the gain that the Participant would have realized had he sold the shares
immediately upon exercise of the option and the remaining gain, if any, will be
a capital gain. This capital gain will be a long-term capital gain if the
Participant has held the ISO Stock for more than one year prior to the date of
sale.
If a Participant sells ISO Stock for less than the exercise price, then
the Participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the Participant has held the ISO Stock for more than
one year prior to the date of sale.
Nonqualified Stock Options. A Participant will not recognize taxable
income upon the grant of a Non-Statutory Stock Options. A Participant who
exercises a Non-Statutory Stock Options, generally, will recognize ordinary
compensation income in an amount equal to the excess of the fair market value of
the Common Stock acquired through the exercise of the option ("NSO Stock") on
the Exercise Date over the exercise price.
With respect to any NSO Stock, a Participant will have taxable income
recognized upon the exercise of the option. Upon selling NSO Stock, a
Participant generally will recognize capital gain or loss in an amount equal to
the excess of the sale price of the NSO Stock over the Participant's tax basis
in the NSO Stock. This capital gain or loss will be a long-term gain or loss if
the Participant has held the NSO Stock for more than one year prior to the date
of the sale.
Tax Consequences to the Company. The Company will be entitled to a
deduction in connection with a grant of a stock option only in the event and to
the extent ordinary income is recognized by the Participant. Any such deduction
will be allowed to the Company for its taxable year within which ends the
taxable year in which the Participant's
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recognition of ordinary income occurs. Any such deduction will be subject to the
limitations of Section 162(m) of the Internal Revenue Code.
Once income associated with such a grant is recognizable to a
Participant for Federal income tax purposes, the Participant must either pay to
the Company an amount sufficient to satisfy any federal, state and local taxes
required to be withheld or make alternative arrangements acceptable to the
Company.
The foregoing summary is not a complete description of all tax aspects
of the 2001 Plan. The foregoing relates only to Federal income taxes; there may
be other Federal tax consequences associated with the 2001 Plan, as well as
foreign, state and local tax consequences.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE 2001 PLAN
AMENDMENT TO THE ARTICLES OF INCORPORATION
PROPOSAL 3
General
On September 4, 2001, the Company's Board unanimously adopted
resolutions proposing, declaring advisable and recommending that the
shareholders of the Company authorize an amendment to the Company's Articles of
Incorporation (the "Amendment") to effect a reverse stock split (the "Reverse
Split") and to provide for the issuance of one whole share in lieu of fractional
shares otherwise issuable in connection with the Reverse Split. There will be no
increase in the number of the Company's authorized shares of Common Stock and no
change in the par value of the Common Stock.
If the Reverse Split is approved, the Board will have the authority but
not the obligation, without further shareholder approval, to effect the Reverse
Split, pursuant to which each of the Company's outstanding shares (the "Old
Shares") of Common and Preferred Stock on the date that the reverse stock split
is effective by filing the proposed Amendment to the Company's Articles of
Incorporation would be exchanged for new shares (the "New Shares") of Common and
Preferred Stock in an exchange ratio of one (1) New Share for each two and sixty
six hundredths (2.66) Old Shares. The number of Old Shares for which each New
Share is to be exchanged is referred to as the "Exchange Number". As of the
record date, the Reverse Split would have had the effect of reducing the number
of all outstanding shares of Common Stock from 16,700,000 to 6,278,196 and
reducing the number of outstanding shares of Preferred Stock from 2,020,000 to
759,399. Additionally, the proposed reverse split will have the effect of
automatically and proportionately adjusting the number of shares reserved and
the exercise price of outstanding options and stock rights, including the
options granted under the 2001 Plan.
In addition, the Board will also have the authority to determine the
exact timing and the completion of the Reverse Split, which may be at any time
on or after to September 27, 2001, without further shareholder approval. The
timing and the Exchange Number will be determined in the judgment of the Board.
See the information below under the caption "Purpose of the Reverse Split." The
text of the proposed Amendment is set forth on Annex B to this Proxy Statement.
The Board also reserves the right, notwithstanding shareholder approval
and without further action by shareholders, to either: 1) not proceed with the
Reverse Split, if, at any time prior to filing the Amendment with the Secretary
of State of the State of Indiana, the Board, in its sole discretion, determines
that the Reverse Split is no
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longer in the best interests of the Company and its shareholders or 2) to
adjust the basis of the split by increasing or reducing the exchange number or
ratio if the Board, in its sole discretion, determines that the adjustment to
the exchange number or ratio is in the best interest of the Company and its
shareholders and providing any such adjustment treats all outstanding shares
proportionately. The Board may consider a variety of factors in determining
whether or not to implement the Reverse Split and in determining the Exchange
Number, including, but not limited to, overall trends in the stock market,
recent changes and anticipated trends in the per share market price of the
Company's Common Stock, business and transactional developments and the
Company's actual and projected financial performance.
Except for changes due to the issuance of one whole additional share in
lieu of fractional shares, the Reverse Split will not change the proportionate
equity interests of the Company's shareholders, nor will the respective voting
rights and other rights of shareholders be altered. The Common Stock issued
pursuant to the Reverse Split will remain fully paid and non-assessable. The
Company will continue to be subject to the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended.
Purposes of the Reverse Split
The Board proposes the reverse stock split for the purpose of
facilitating the Company's potential for raising additional capital and
conducting a potential initial public offering.
Certain Effects of the Reverse Split
The following table illustrates the principal effects of the Reverse
Split on the Company's Common Stock outstanding on the record date of August 20,
2001:
Prior to the Subsequent to
Number of Shares Reverse Split 1-for-2.66 Reverse Split
- ---------------- ------------- ------------------------
Authorized
Common Stock 80,000,000 16,700,000
Preferred Stock 20,000,000 2,020,000
Outstanding(1)
Common Stock 16,700,000 6,278,196
Preferred Stock 2,020,000 751,399
(1) Gives effect to the Reverse Split as if it occurred on the Record Date,
subject to adjustment resulting from the issuance of whole shares in lieu of
fractional shares.
Shareholders should recognize that if the Reverse Split is effectuated
they will own a fewer number of shares than they presently own (a number equal
to the number of shares owned immediately prior to the filing of the Amendment
divided by the Exchange Number, after adjustment for fractional shares, as
described below). While the Company's common stock does not currently publicly
trade, no assurance can be given as to the ultimate effect of the proposed
reverse split on the future market price, liquidity or any decline in the price
of the Company's common stock should tit be publicly traded in the future. In
addition, the Reverse Split may increase the number of shareholders of the
Company who own odd-lots (less than 100 shares). Shareholders who hold odd-lots
typically will experience an increase in the cost of selling their shares if and
when the Company becomes publicly traded, as well as greater difficulty in
effecting such sales. There can be no assurance that the Reverse Split will
achieve the desired results that have been outlined above.
If the Amendment is approved by the Company's shareholders, and if the
Board still believes that the Reverse Split is in the best interests of the
Company and its shareholders, the Company will file the Amendment
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with the Secretary of State of the State of Indiana at such appropriate
effective time for the Reverse Split. The Board may delay effecting the Reverse
Split until March 31, 2002 without re-soliciting such shareholder approval. The
Reverse Split will become effective on the date of filing the Amendment (the
"Effective Date"). Beginning on the Effective Date, each certificate
representing Old Shares will be deemed for all corporate purposes to evidence
ownership of New Shares.
Promptly after the Effective Date, shareholders will be notified that
the Reverse Split has been effected and of the exact Exchange Number. The
Company's transfer agent, which currently is the Company, will act as exchange
agent (the "Exchange Agent") for purposes of implementing the exchange of stock
certificates. Holders of Old Shares will be asked to surrender to the Exchange
Agent certificates representing Old Shares in exchange for certificates
representing New Shares in accordance with the procedures to be set forth in a
letter of transmittal to be sent by the Company. No new certificates will be
issued to a shareholder until such shareholder has surrendered such
shareholder's outstanding certificate(s) together with the properly completed
and executed letter of transmittal to the Exchange Agent. SHAREHOLDERS SHOULD
NOT DESTROY ANY STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL
REQUESTED TO DO SO.
Fractional Shares
No scrip or fractional certificates will be issued in connection with
the Reverse Split. Shareholders who otherwise would be entitled to receive
fractional shares because they hold a number of Old Shares not evenly divisible
by the Exchange Number, will be entitled, upon surrender to the Exchange Agent
of certificates representing such shares, to the issuance of one whole
additional share for the fractional share the shareholder would have otherwise
received.
No Dissenter's Rights
Under Indiana law, shareholders are not entitled to dissenter's rights
with respect to the proposed Amendment.
Federal Income Tax Consequences of the Reverse Split
The following is a summary of certain material federal income tax
consequences of the Reverse Split, and does not purport to be complete. It does
not discuss any state, local, foreign or minimum income or other U.S. federal
tax consequences. Also, it does not address the tax consequences to holders that
are subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. The discussion is
based on the provisions of the United States federal income tax law as of the
date hereof, which is subject to change retroactively as well as prospectively.
This summary also assumes that the Old Shares were, and the New Shares will be,
held as a "capital asset," as defined in the Internal Revenue Code of 1986, as
amended (generally, property held for investment). The tax treatment of a
shareholder may vary depending upon the particular facts and circumstances of
such shareholder. EACH SHAREHOLDER SHOULD CONSULT WITH SUCH STOCK OWNED
SHAREHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE CONSEQUENCES OF THE REVERSE
SPLIT.
No gain or loss should be recognized by a shareholder of the Company
upon such shareholder's exchange of Old Shares for New Shares pursuant to the
Reverse Split. The aggregate tax basis of the New Shares received in the Reverse
Split (including any fraction of a New Share deemed to have been received) will
be the same as the shareholder's aggregate tax basis in the Old Shares exchanged
therefor. The shareholder's holding period for the New Shares will include the
period during which the shareholder held the Old Shares surrendered in the
Reverse Split.
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Required Vote
The affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote on the Amendment will be required to approve the Amendment. The
Board unanimously recommends that shareholders vote FOR this proposal.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT
TO THE COMPANY'S ARTICLES OF INCORPORATION
OTHER INFORMATION
PROXY SOLICITATION
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, the officers and regular employees of the
Company may solicit proxies personally or by telephone. The Company does not
intend to utilize a paid solicitation agent.
OTHER BUSINESS
The Board knows of no other matter to be presented at the meeting. If
any additional matter should properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their judgment on any such matters.
PRINCIPAL SHAREHOLDERS
The number of shares of Common Stock beneficially owned by the persons
or entities known by management to be the beneficial owners of more than 5% of
the outstanding shares, the number of shares beneficially owned by each
director, each nominee for election or re-election as a director and each
executive officer, the number of shares beneficially owned by all directors and
officers as a group, as of the record date, as "beneficial ownership" has been
defined under rules promulgated by the Securities and Exchange Commission, and
the actual sole or shared voting power of such persons, as of the record date,
are set forth in the following table.
Securities and Exchange Commission Rule 13d-3 defines "beneficial
ownership" as voting or investment decision power over shares. Beneficial
ownership does not necessarily mean that the holder enjoys any economic benefit
from those shares.
- -------------------------------------------------------------------------------------------------------------------
Name of Beneficial Owner Position No. of Shares of Percentage of
Common Stock Owned Class as of March
(1) 31, 2001
- -------------------------------------------------------------------------------------------------------------------
Hopkins Capital Group II, LLC(1) Shareholder 13,358,000 72.1%
Francis E. O'Donnell, Jr., M.D.(2) Chief Executive Officer, Chairman 13,630,000 73.6%
and Director
John R. Williams, Sr.(3) Shareholder 13,758,000 74.2%
Dennis Ryll, M.D.(4) Shareholder 13,558,000 73.2%
James A. McNulty Chief Financial Officer and Director 325,000 1.8%
Don Ferguson Sr. Executive Vice President 400,000 2.2%
Raphael J. Mannino, Ph.D.(6) Executive Vice President and Chief -- --
Scientific Officer
Susan Gould-Fogerite, Ph.D.(6) Director of Business Development - -- --
Vaccines and Gene Therapy
Leila Zarif, Ph.D.(6) Executive Vice President of -- --
Research and Development
M.L. Stephenson, Ph.D. Nominee -- --
William Stone Nominee
All officers as a group(5) 14,355,000 77.5%
(6) Persons
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(1) Hopkins Capital Group II, LLC is owned one third by each of: (i)
various trusts of the Francis E. O'Donnell family; (ii) John R.
Williams, Sr. and his family trusts; and (iii) MOAB LLC, which is
beneficially owned by Dennis Ryll and members of his family.
(2) Includes the shares owned by Hopkins Capital Group II, LLC and 200,000
shares of Preferred Stock owned by his wife, as to which he disclaims
beneficial interest of.
(3) Includes the shares owned by Hopkins Capital Group II, LLC and 200,000
shares of Preferred Stock owned by his wife, as to which he disclaims
beneficial interest of.
(4) Includes the shares owned by Hopkins Capital Group II, LLC.
(5) Includes the shares described in footnote (2) above.
(6) In the event of consummation of a pending merger between the Company
and Biodelivery Sciences, Inc., a subsidiary of the Company, an
additional 2,273,768 shares of Common Stock will be issued to the
management of the Company. Doctors Mannino, Gould-Fogerite and Zarif
will each receive 798,000, 665,000, and 665,000 shares respectively.
(7) The number of shares reflected does not give effect to the reverse
stock split as set forth in Proposal 3.
INFORMATION CONCERNING AUDITORS
The Board has selected the firm of Grant Thornton LLP as the
independent auditors of the Company for the fiscal year ending December 31,
2001. Grant Thornton LLP has acted in such capacity for the Company since
November 17, 2000. The Company anticipates a representative from Grant Thornton
LLP present at the Meeting.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders may present proposals for inclusion in the 2001 Proxy
Statement provided that such proposals are received by the Secretary of the
Company no later than 2001 and are otherwise in compliance with applicable
Securities and Exchange Commission regulations.
ADDITIONAL INFORMATION
Accompanying this Proxy Statement is a copy of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2000. The Annual Report on
Form 10-KSB constitutes the Company's Annual Report to its Shareholders for
purposes of Rule 14a-3 under the Securities Exchange Act of 1934. Additionally,
attached is a copy of the Company's quarterly report on Form 10-QSB for the
period ended June 30, 2001.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information are
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549 at the following regional offices of the Commission:
500 West Madison, 14th Floor, Chicago, Illinois 60661-2511 and 7 World Trade
Center, New York, New York 10048. Copies of such material may be obtained upon
payment of the Commission's customary charges by writing to the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549.
Shareholders who have questions in regard to any aspect of the matters
discussed in this Proxy Statement should contact James McNulty, Chief Financial
Officer of the Company, at (813) 902-8980.
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ANNEX A
REPORT OF THE BOARD IN ITS CAPACITY AS THE AUDIT COMMITTEE
We are responsible for considering management's recommendation of
independent certified public accountants for each fiscal year, recommending the
appointment or discharge of independent accountants to the Board of Directors
and confirming the independence of the accountants. It is also our
responsibility for reviewing and approving the scope of the planned audit, the
results of the audit and the accountant's compensation for performing such
audit; reviewing the Company's audited financial statements; and reviewing the
Company's internal accounting controls and discussing such controls with the
independent accountants.
In connection with the audit of the Company's financial statements for
the year ended December 31, 2001, we met with representatives from Grant
Thornton LLP, the Company's independent certified public accountants as required
by Statements on Auditing Standards 61. In addition, we have reviewed and
discussed with management the Company's audited financial statements for the
year ended December 31, 2001.
Specifically, we have discussed with the independent certified public
accountants the matters required to be discussed by Statements on Auditing
Standards No. 61, COMMUNICATION WITH AUDIT COMMITTEES, as amended, by the
Auditing Standards Board of the American Institute of Certified Public
Accountants. In connection with the Company's year ended 2001 financial
statements, there was one meeting with the independent certified public
accountants and management. All Board members attended this meeting
telephonically.
The independent certified public accountants' fees for audit services
and non-audit services for the year ended December 31, 2001 were $36,186 and
$43,103, respectively. We have received the written disclosures and the letter
from the independent certified public accountants required by Independence
Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as amended, by
the Independence Standards Board, and have discussed with the public accountants
the accountants' independence.
Based on the review and discussion referred to above, the Board of
Directors has included the financial statements referred to in the Company's
Annual report on Form 10-KSB for the years ended December 31, 2001.
/s/ Francis E. O'Donnell, Jr., M.D., Director
/s/ James A. McNulty, Director
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APPENDIX A
CHARTER AND POWERS OF THE AUDIT COMMITTEE
RESOLVED, THAT THE MEMBERSHIP OF THE AUDIT COMMITTEE SHALL CONSIST OF AT LEAST
TWO MEMBERS OF THE BOARD OF DIRECTORS, A MAJORITY OF WHOM (I.E.: TWO
INDEPENDENT, IF COMMITTEE CONSISTS OF TWO OR THREE MEMBERS) SHALL BE INDEPENDENT
DIRECTORS (SUBJECT TO THE COMPANY'S REMAINING A SMALL BUSINESS FILER UNDER SEC
RULES), WHO SHALL SERVE AT THE PLEASURE OF THE BOARD OF DIRECTORS.
An "independent director" means a person other than an officer or
employee of the Company or its subsidiaries or any other individual having a
relationship which, in the opinion of the Company's Board of Directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. The following persons shall not be considered
independent:
(1) a director who is employed by the Company or any of its affiliates
for the current year or any of the past three years;
(2) a director who accepts any compensation from the Company or any of
its affiliates in excess of $60,000 during the previous fiscal year,
other than compensation for board service, benefits under a
tax-qualified retirement plan, or non-discretionary compensation;
(3) a director who is a member of the immediate family of an individual
who is, or has been in any of the past three years, employed by the
Company or any of its affiliates as an executive officer. Immediate
family includes a person's spouse, parents, children, siblings,
mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, and anyone who resides in such person's
home;
(4) a director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which the
company made, or from which the Company received, payments (other than
those arising solely from investments in the Company's securities) that
exceed 5% of the Company's or business organization's consolidated
gross revenues for that year, or $200,000, whichever is more, in any of
the past three years;
(5) a director who is employed as an executive of another entity where
any of the company's executives serve on that entity's compensation
committee.
RESOLVED, THAT THE CHARTER AND POWERS OF THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS (THE "AUDIT COMMITTEE") SHALL BE:
(1) Assisting the Board of Directors in the oversight of the
maintenance by management of the reliability and integrity of the
accounting policies and financial reporting and disclosure practices of
the Company.
(2) Assisting the Board of Directors in the oversight of the
establishment and maintenance by management of processes to assure that
an adequate system of internal control is functioning within the
Company.
(3) Assisting the Board of Directors in the oversight of the
establishment and maintenance by management of process to assure
compliance by the Company with all applicable laws, regulations and
Company policy.
RESOLVED, THAT THE AUDIT COMMITTEE SHALL HAVE THE FOLLOWING SPECIFIC POWERS AND
DUTIES:
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(1) Holding such regular meetings as may be necessary and such special
meetings as may be called by the Chairman of the Audit Committee or at
the request of the independent accountants;
(2) Reviewing the performance of the independent accountants and making
recommendations to the Board of Directors regarding the appointment or
termination of the independent accountants;
(3) Ensuring its receipt from the independent accountants of a formal
written statement delineating all relationships between the independent
accountants and the Company consistent with Independence Standards
Board Standard;
(4) Actively engaging in a dialogue with the independent accountants
with respect to any disclosed relationships or services that may impact
the objectivity and independence of the independent accountants and for
taking or recommending that the Board of Directors take appropriate
action to oversee the independence of the outside auditor;
(5) Selecting, evaluating and, where appropriate, replacing the
independent auditors (or nominating independent auditors to be proposed
for shareholder approval in any proxy statement), which independent
auditors shall ultimately be accountable to the Board of Directors and
the Audit Committee, as representatives of the shareholders;
(6) Conferring with the independent accountants concerning the scope of
their examinations of the books and records of the Company and its
subsidiaries: reviewing and approving the independent accountants'
annual engagement letter: reviewing and approving the Company's
internal annual audit plans and procedures: and authorizing the
auditors to perform such supplemental reviews or audits as the
Committee may deem desirable;
(7) Reviewing with management, the independent accountants significant
risks and exposures, audit activities and significant audit findings;
(8) Reviewing the range and cost of audit and non-audit services
performed by the independent accountants;
(9) Reviewing the Company's audited annual financial statements and the
independent accountants opinion rendered with respect to such financial
statements, including reviewing the nature and extent of any
significant changes in accounting principles or the application
thereof;
(10) Reviewing the adequacy of the Company's systems of internal
control;
(11) Obtaining from the independent accountants their recommendations
regarding internal controls and other matters relating to the
accounting procedures and the books and records of the Company and its
subsidiaries and reviewing the correction of controls deemed to be
deficient;
(12) Providing an independent, direct communication between the Board
of Directors, and independent accountants;
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(13) Reviewing the adequacy of internal controls and procedures related
to executive travel and entertainment;
(14) Reviewing the programs and policies of the Company designed to
ensure compliance with applicable laws and regulations and monitoring
the results of these compliance efforts;
(15) Reporting through its Chairman to the Board of Directors following
the meetings of the Audit Committee;
(16) Reviewing the powers of the Committee annually and reporting and
making recommendations to the Board of Directors on these
responsibilities;
(17) Conducting or authorizing investigations into any matters within
the Audit Committee's scope of responsibilities; and
(18) Considering such other matters in relation to the financial
affairs of the Company and its accounts, and in relation to the
internal and external audit of the Company as the Audit Committee may,
in its discretion, determine to be advisable.
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