SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
CYTOGENIX, INC.
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(Name of Registrant as Specified In Its Charter)
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previously. Identify the previous filing by registration statement number, or
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CYTOGENIX, INC.
3100 WILCREST, SUITE 140
HOUSTON, TEXAS 77042
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 13, 2007
To our Shareholders:
The Annual Meeting of the Shareholders (the "Annual Meeting") of
CytoGenix, Inc., a Nevada corporation (the "Company"), will be held on June 13,
2007, at the Houston Marriott Westchase, 2900 Briar Park Drive, Houston, Texas
at 2:00 pm., central standard time, for the purpose of considering and voting on
the following matters:
1. The election of one director to serve until the 2010 Annual Meeting of
shareholders or until his successor is elected and qualified.
2. The approval of the selection of LBB & Associates Ltd., LLP as the Company's
independent auditors for the fiscal year ended December 31, 2007.
3. The transaction of such other business as may properly come before the
meeting and any adjournment thereof.
The Board of Directors has established the close of business on April
19, 2007 as the record date for determining the shareholders entitled to notice
and to vote at the Annual Meeting and any adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. TO ASSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING, EVEN IF YOU PLAN TO ATTEND, PLEASE
COMPLETE, SIGN AND MAIL THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE
ACCOMPANYING ENVELOPE.
Sincerely,
/s/ Malcolm Skolnick
----------------
Malcolm Skolnick
Chairman of the Board of Directors
Chief Executive Officer and President
May 7, 2007
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CYTOGENIX, INC.
3100 WILCREST, SUITE 140
HOUSTON, TEXAS 77042
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 13, 2007
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SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of the Company of proxies from the holders of record
of the common stock, par value $.001 per share ("Common Stock"), at the close of
business on April 19, 2007, for use at the Annual Meeting to be held at 2:00
pm., central standard time, on June 13, 2007, and any adjournment thereof. This
Proxy Statement, the attached proxy and the Company's Annual Report for the
fiscal year ended December 31, 2006 are being mailed together on or about May
16, 2007 to shareholders entitled to notice of and to vote at the Annual
Meeting. The principal executive office of the Company is 3100 Wilcrest, Suite
140, Houston, Texas 77042.
Properly executed proxies will be voted as directed. If no direction is
indicated therein, proxies received in response to this solicitation will be
voted FOR: (i) the election of one nominee for director; (ii) the ratification
of the indicated independent auditors; and (iii) as recommended by the Board of
Directors with regard to any other matters, or if no recommendation is given, in
their own discretion.
A proxy on the enclosed form may be revoked by the shareholder at any
time before it is voted by filing with the Secretary of the Company a written
revocation, by voting in person at the meeting, or by delivering a proxy bearing
a later date. Attendance at the Annual Meeting will not, in itself, constitute
revocation of the proxy.
The Company will bear all costs of this Proxy Statement and the proxy
and the cost of soliciting proxies relating to the Annual Meeting. It is
anticipated that the solicitation of proxies for the Annual Meeting will be made
only by use of the mails and will cost approximately $20,000.00. The Company
may, however, use the services of its directors, officers and employees to
solicit proxies personally or by telephone, without additional salary or
compensation to them. The Company will request that the brokerage houses,
custodians, nominees, and fiduciaries forward the proxy soliciting materials to
the beneficial owners of the Company's shares held of record for such persons,
and the Company will reimburse such persons for their related reasonable
out-of-pocket expenses.
VOTING OF SECURITIES
At the close of business on April 19, 2007, the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting (the "Record Date"), there were 140,663,961 issued and outstanding
shares of Common Stock, each of which share is entitled to one vote. Common
Stock is the only class of outstanding securities of the Company entitled to
notice of and to vote at the Annual Meeting.
The Company's Bylaws provide that the presence, either in person or by
proxy, of the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting is necessary to constitute a quorum for
the transaction of business. Assuming such a majority is present, the election
of directors will require the affirmative vote by a plurality of the votes cast
at the Annual Meeting. The approval of the selected independent auditors will
require the affirmative vote of a majority of the shares entitled to vote and
that voted or abstained at the Annual Meeting. Abstentions from and broker
non-votes on the proposal to elect directors will be counted for purposes of
determining the presence of a quorum, but will not be included in the total
shares voted for or against any nominee. A broker non-vote occurs if a broker or
other nominee holding shares for a beneficial owner does not vote on a proposal
because he does not have discretionary authority to vote shares and has not
received instructions from the beneficial owner with respect to such proposal.
Thus, abstentions from the proposal to ratify the selection of the independent
auditors will have the same legal effect as a vote against the proposals, but a
broker non-vote will not be counted for purposes of determining whether a
majority is achieved.
PRINCIPAL HOLDERS OF SECURITIES AND SECURITY OWNERSHIP
OF MANAGEMENT
PRINCIPAL HOLDERS OF SECURITIES. The following table sets forth the name and
address, as of April 19, 2007, and the approximate number of shares of Common
Stock of the Company owned of record or beneficially by each person who owned of
record, or was known by the Company to own beneficially, more than 5% of the
Company's Common Stock, and the name and ownership rights of each executive
officer and director, and all officers and directors as a group.
COMMON STOCK
BENEFICIALLY OWNED
NAME AND ADDRESS
OF BENEFICIAL OWNER
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NUMBER OF SHARES PERCENT OF CLASS
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Jett**..................................................... 11,800,183 8.3%
59-340 Diomana Road
Kamuela, Hawaii 96743
Roland L. Violette.........................................
70 Tolland St.
East Hartford, Connecticut 06108 10,436,320 7.4%
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**Jett is a natural person with only one legal name
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the beneficial
ownership of Common Stock as of April 19, 2007, by (i) the executive officers
set forth in the summary compensation table below who are employed by the
Company as of April 19, 2007 (the "Named Executives") and one additional
executive officer; (ii) each director and nominee; and (iii) all directors and
executive officers as a group. All persons listed have sole disposition and
voting power with respect to the indicated shares except as otherwise noted.
2
COMMON STOCK
BENEFICIALLY OWNED
---------------------------------------------------
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER OF SHARES1 PERCENT OF CLASS
------------------------- ----------------------
10,978,123 7.8%
Malcolm H. Skolnick Ph.D2............................ 4,302,698 3.1%
Yin Chen3............................................ 666,087 *
Scott E. Parazynski, M.D.4........................... 540,468 *
Cy Stein5............................................ 516,016 *
Raymond L. Ocampo Jr.6............................... 516,016 *
John Rossi7.......................................... 0 --
Pam Schertz..........................................
All directors and executive officers as a group 17,519,408 12.4%
(total of 7 persons)8
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*Less than 1% of the 140,663,961 shares outstanding at April 19, 2007.
1. Beneficial ownership is determined in accordance with the rules of the
SEC, based on factors including voting and investment power with respect to
shares. Percentage of beneficial ownership is based on the number of shares of
Common Stock outstanding as of April 19, 2007. Stock issuable upon exercise of
options within 60 days after April 19, 2007, are deemed outstanding for the
purpose of percentage ownership of the person holding such options, but are not
deemed outstanding for computing the percentage ownership for any other persons.
2. Consists of 2,248,123 shares owned directly by Dr. Skolnick and
8,730,000 shares he may acquire upon the exercise of stock options.
3. Consists of 1,084,781 shares owned directly by Dr. Chen and 3,217,917
shares he may acquire upon the exercise of options.
4. Consists of 166,087 shares owned directly by Dr. Parazynski and 500,000
shares he may acquire upon the exercise of stock options.
5. Consists of 40,468 shares owned directly by Dr. Stein and 500,000 shares
he may acquire upon the exercise of stock options.
6. Consists of 16,016 shares owned directly by Mr. Ocampo and 500,000
shares he may acquire upon the exercise of stock options.
7. Consists of 16,016 shares owned directly by Dr. Rossi and 500,000 shares
he may acquire upon the exercise of stock options.
8. Includes 13,947,917 shares that may be acquired upon the exercise of
stock options.
PROPOSAL 1. - ELECTION OF DIRECTORS
One director will be elected at the Annual Meeting. Shares or proxies
may not be voted for more than one nominee for director. In accordance with
Article III, Section 1(c) of the bylaws of the Company, the Board of Directors
is divided into three classes serving staggered three-year terms. Cy Stein has
been nominated for election at the Annual Meeting for terms of three years, to
hold office until the expiration of his term in 2010 and until his successor is
elected and qualified.
The persons named as proxies in the proxy have been designated by the
Board of Directors and intend to vote such proxy "FOR" the persons named above
in the election of the Board of Directors, except to the extent authority to
vote is withheld from one or more nominees. If any such nominee is unable to
3
serve as a director, it is intended that the shares represented by proxies will
be voted in the absence of contrary indication for any substitute nominee that
the Board of Directors designates.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEE NAMED BELOW.
INFORMATION ABOUT NOMINEES AND DIRECTORS. Set forth below, as of April
19, 2007, for each current director and for each nominee for election as a
director of the Company, is information regarding age, position(s) with the
Company, membership on committees of the Board of Directors, the period served
as a director and term of office, business experience during at least the past
five years, and other directorships currently held. Dr. Skolnick, Chairman,
President and director, is the only employee or former employees of the Company
on the Board of Directors.
NAME PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
Malcolm H. Skolnick Ph.D., JD Chairman of the Board of Directors, President and Chief 71 1999
Executive Officer. Dr. Skolnick has been the Chief
Executive Officer and President of the Company since
September 9, 1999. Prior to that time Dr. Skolnick was a
Professor in the University of Texas Health Sciences
Center at Houston serving in the Medical School Graduate
School of Biomedical Sciences and the School of Public
Health. Dr. Skolnick has been principal investigator in
five clinical trials and holds four medical device
patents. Dr. Skolnick received a M.S. and Ph.D. in
physics from Cornell University and a J.D. from the
University of Houston. He is licensed to practice law in
Texas and is a registered patent attorney. He has
practiced intellectual property law, been active in
technology transfer and licensing activities and serves on
the boards of Southwest Health Technology Foundation,
Citizens League for Environmental Action Now (CLEAN), and
Frank Evans Center for Conflict Resolution and Responsible
Community Designs (a private company).
4
NAME PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
Scott E. Parazynski M.D. Dr. Parazynski is a graduate of Stanford University and 47 2002
Stanford Medical School. He subsequently pursued clinical
training at the Brigham and Women's Hospital (Boston, MA)
and emergency medicine residency training in Denver, CO.
While an undergraduate at Stanford University, Dr.
Parazynski studied antigenic variation in African Sleeping
Sickness, using sophisticated molecular biological
techniques. He has numerous publications in the field of
space physiology and has an expertise in human adaptation
to stressful environments. Dr. Parazynski is a Fellow of
the Aerospace Medical Association and a member of the
American Society for Gravitational and Space Biology.
He has received numerous special honors, including the
National Institutes of Health Predoctoral Training Award
in Cancer Biology, a NASA Graduate Student Researcher's
Award and the Research Honors Award from Stanford Medical
School. Dr. Parazynski has been an astronaut since 1992,
and has logged over 6 weeks in space, including 20 hours
of spacewalking. He is a recipient of 4 NASA Spaceflight
Medals, 2 NASA Exceptional Service Medals, and the NASA
Distinguished Service Medal.
Cy A. Stein, M.D., Ph.D. Dr. Stein is currently Professor of Medicine, Urology and 54 2003
Molecular Pharmacology in the Oncology Department of
Albert Einstein College of Medicine, New York. In
addition to his clinical (Director of Medical
Genitourinary Oncology, Montefiore Medical Center) and
faculty activities, he is co-editor-in-chief of
Oligonucleotides, sits on six editorial advisory boards,
including Clinical Cancer Research and Molecular Cancer
Therapeutics, serves on eight scientific advisory boards,
including Novosom (Halle, DE), ProNai (Kalamazoo, MI), SR
Pharma (Berlin, DE) and Gentium (Como, IT) and is an ad
hoc reviewer for over 20 peer reviewed journals. He has
authored 115 peer reviewed journal articles. He has
written 77 book chapters, reviews and editorials, and he
holds eleven patents issued and one patent pending. He
attended Brown University (BA), Stanford University (PhD
in Organic Chemistry), Albert Einstein College of Medicine
(MD), and New York Hospital-Cornell Medical Center
(Internship and Residency in Internal Medicine). Dr Stein
was a Clinical Associate and Senior Staff Fellow at The
National Cancer Institute, Bethesda, Maryland.
5
NAME PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
John J. Rossi, PhD Associate Director for Laboratory Research, City of Hope 60 2003
Comprehensive Cancer Center. John J. Rossi, PhD began his
employment with City of Hope (COH) in 1980 as an assistant
research scientist in the Department of Molecular
Genetics. He was promoted to chairman of the Division of
Biology in 1992. In 1993, COH bestowed its highest honor
upon him by naming him to its Gallery of Medical and
Scientific Achievement for his pioneering work at the
molecular level in the battle against AIDS and other major
diseases. In 1998, Dr. Rossi was appointed as the Dean of
the City of Hope Graduate School of Biological Sciences.
Dr. Rossi is an expert in ribozymes (molecular scissors).
One of his most notable projects is in the area of
ribozyme research in AIDS. He led the research team that
first suggested applying ribozymes to treat HIV. His
research in molecular genetics and microbiology has
resulted in eight patents being granted and has served as
the basis for more than 120 scientific papers. Dr. Rossi
received his bachelor's degree from the University of New
Hampshire and earned his doctorate at the University of
Connecticut. Prior to his working at COH, Dr. Rossi
completed four years of post Ph.D. training at Brown
University in Providence, Rhode Island.
Raymond L. Ocampo Jr. Raymond L. Ocampo Jr. is a lawyer and businessman who 54 2003
currently serves on the boards of directors of PMI Group,
Inc., Intraware, Inc. and Keynote Systems Inc. He
previously served on the boards of directors of various
public technology companies, including Vantive Corporation
and VitalStream Holdings, Inc. Mr. Ocampo retired in
November 1996 as Senior Vice President, General Counsel &
Secretary at Oracle Corporation after serving as its chief
legal counsel for more than a decade. Before joining
Oracle Corporation in 1986, Mr. Ocampo was engaged in the
private practice of law in San Francisco (1976-86) and was
an adjunct professor at Hastings College of the Law
(1977-83). He received his undergraduate degree form
U.C.L.A. in 1973 and his law degree from Boalt Hall School
of Law at U.C. Berkely in 1976. Mr. Ocampo authored
Surfing the Law and Technology Tsunami (American Bar
Association 2001), a collection of keynote addresses about
the intersection of law, science and technology, and
co-authored Negotiating and Drafting Software Consulting
Agreements (Glasser LegalWorks 1996). Mr. Ocampo was the
2001-02 Chair of the American Bar Association's Section of
Science & Technology Law. He co-founded the Berkeley
Center for Law & Technology, which for the past decade has
been rated the best intellectual property program in the
country.
6
MEETINGS AND COMMITTEES OF THE BOARD
During the fiscal year ended December 31, 2006, the Board of Directors
of the Company held nine meetings. Each director participated in at least 75% of
all meetings of the Board of Directors. The Board of Directors has no standing
committees (audit, compensation or nominating). These functions are fulfilled by
the Board of Directors. Because the Company has no audit committee, it has no
audit committee financial expert as contemplated by Securities and Exchange
Commission rules and regulations.
The Company has not adopted a written procedure for the review of
related party transactions. The Board of Directors is responsible for reviewing
transactions, series of transactions or proposed transactions involving the
Company and a related person, which includes our executive officers and
directors, or any member of his or her immediate family. Examples of the types
of transactions the Board of Directors reviews includes payments made by the
Company directly to a related person (other than in their capacity as a director
or employee) or to an entity in which the related person serves an officer,
director, employee or owner, and any other transaction where a potential
conflict of interest exists. Any transactions identified are evaluated based on
the requirements of set forth in Item 404 of Regulation S-K of the rules of the
Securities & Exchange Commission. The Board of Directors has conducted the
review procedure with respect to fiscal year 2006 and has determined that there
are no reportable related party transactions other than as set forth in the
following paragraph.
The Board determines the independence of directors based a review by
the Board. No director is determined to be independent unless the Board has
determined that neither the director nor an immediate family member of the
director has had any director or indirect material relationship with the Company
within the last three years. The guidelines used by the Board to determine the
material relationship are from the NASDAQ independence standards listed at
www.nasdaq.com, select Corporate NASDAQ Manual Online, Rule 4200. Based on this
rule it has been determined that the board has three independent directors: Ray
L. Ocampo Jr., John J. Rossi, and Scott E. Parazynski. It has been determined
that Dr. Cy A. Stein is not independent as he has a direct and indirect material
relationship through his consultant agreement with the Company and through his
employment with Montefiore Medical Center. Dr. Stein's consultant agreement
requires a fee of $3,000 per month plus reimbursement of travel expenses for a
six-month period ending March, 2007. The Company has entered into a sponsored
research agreement (SRA) with Montefiore Medical Center. That SRA obligates the
Company to pay fees of approximately $205,000 to Montefiore.
7
The Board of Directors has no standing nominating committee. All
directors participate in the consideration of director nominees. The directors
are of the view that the present management structure (only one of the five
directors is an employee of the Company) does not warrant the appointment of a
Nominating Committee. The board of directors does not have a formal policy for
evaluating nominees with regard to consideration of director candidates
recommended by shareholders but will consider any such recommendation that is
submitted to the Board of Directors via its stockholder communications
procedures described below. The Company does not pay a fee to any third party to
identify or evaluate or assist in identifying or evaluating potential nominees
to the Board of Directors.
Based on the definition of "independence" set forth in Rule 4200 of the
NASDAQ Marketplace Rules, the Board of Directors has determined that all of the
continuing directors, other than Dr. Skolnick, are "independent directors." Dr.
Skolnick is an executive officer of the Company and, therefore, the Board of
Directors has concluded that he is not currently an independent director.
Shareholders who wish to recommend director candidates to the Board of
Directors or otherwise send communications to the Board of Directors for any
other reason may send a letter addressed to the individual director at:
CytoGenix, Inc.
3100 Wilcrest, Suite 140
Houston, Texas 77042
A copy of the communication will be forwarded to each of the five individual
directors.
The Company encourages each member of the Board of Directors to attend
the Annual Meeting of Shareholders. Dr. Skolnick, was the only director who
attended the 2006 Annual Meeting of Shareholders, which was also attended by
former directors Frank Vazquez and Lawrence Wunderlich.
The Board of Directors does not have a Compensation Committee.
Compensation matters are considered by the entire five-member Board of
Directors, which includes four non-employee directors and one executive officer
of the Company.
COMPENSATION DISCUSSION AND ANALYSIS
INTRODUCTION/CORPORATE GOVERNANCE
Compensation decisions are made by the Board of Directors. The Board of
Directors believes that the ability to attract and retain qualified executive
and non-executive officers and provide appropriate incentives is essential to
the long-term success of the Company.
The Board of Director's compensation plan for 2006 was designed to
provide significant incentive compensation opportunities in addition to market
competitive salaries, and to aid in the retention of executive officers and
other significant employees. The plan was intended to link individual employee
objectives with overall company strategies and results for 2006, and to reward
executive officers and significant employees for their individual contributions
to those strategies and results. The Board of Directors uses compensation and
performance data from comparable companies in the biopharmaceutical industry to
establish market competitive compensation and performance standards for the
Company's employees. Based on market information, and Company and individual
objectives, the Company's president makes recommendations to the Board of
Directors regarding the compensation of each executive and other significant
employees on an individual basis.
8
Compensation paid to executive officers and other significant employees
during 2006 consisted primarily of base salaries.
COMPENSATION PROGRAM DESIGN
Base Salaries. Base salary is designed to reward core competence for
the executive's position at the Company. The amount of the base salary paid to
each executive officer was determined by evaluating the competitive marketplace,
the scope of each individual's responsibilities, the planned and past
performance of the Company, and, to a certain extent, subjective measures of
each individual's performance. The recommendations were compiled using
information from BioWorld Executive Compensation Report. This report contains
comparative date of the proxy statements of 225 public biotechnology companies
of compensation packages for the top five senior executive management positions.
The Company's president chose those companies that are most similar to the
CytoGenix, particularly in market cap as a reference point. The base salaries
paid in 2006 to the Named Executive Officers (as defined below) were unanimously
approved by the Company's four non-employee directors based on the
recommendation of the Company's president.
Chief Executive Officer (CEO) Compensation. The base salary paid to the
CEO was determined by the Board of Directors by evaluating the competitive
marketplace, the scope of his responsibilities, the planned and past performance
of the Company, and, to a certain extent, subjective measures of performance.
Dr. Skolnick was paid in 2006 $68,000 of the bonus he earned in 2005 in his
capacity of President. In later part of 2006 and the beginning 2007 via payroll
deduction Dr. Skolnick has and intends to forego voluntarily base salary of
$68,000 in order for those funds to be available to pay other Company expenses.
The Board of Directors may award future discretionary bonuses based on its
assessment of management performance and the overall performance of the Company.
Dr. Skolnick has also agreed to voluntarily forego $150,000 of his 2007 base
salary in order for those funds to be available to pay other Company expenses.
Chief Financial Officer (CFO) Compensation. The base salary paid to the
interim CFO was determined by the CEO and approved by the Board of Directors by
evaluating the competitive marketplace, the scope of her responsibilities, the
background experience and educational level, and to a certain extent, subjective
measures of performance and loyalty. The base salary was determined when the
role was assumed in December 2006.
Chief Scientific Officer (CSO) Compensation. The base salary paid to
the CSO was determined by the CEO by evaluating the competitive marketplace, the
scope of his responsibilities, the background experience and educational level,
invention achievements, and to a certain extent, subjective measures of
performance and loyalty. The CSO base salary was determine in March, 2000 and
increases have been granted by the CEO based on performance and achievements at
the discretion of the CEO.
Vice President of Legal Affiars. The base salary paid to the Vice
President of Legal Affairs was determined by the CEO by evaluating the
competitive marketplace, the scope of her responsibilities, the background
experience and educational level, and to a certain extent, subjective measures
of performance and loyalty. The qualification to be a registered patient
attorney was also a significant consideration in the salary of the Vice
President of Legal Affairs. The base salary was determined when the role was
assumed in December 2006.
9
Stock Options. Stock options to acquire 17,125,000 shares of Common
Stock were granted to the Company's employees in 2005 under the CytoGenix, Inc.
2003 Stock Option Plan and the CytoGenix, Inc. 2005 Stock Option Plan. The
purpose of long-term awards, currently in the form of stock options, is to align
the interests of the executive officers and other employees with the interests
of the shareholders. Additionally, long-term awards offer employees an incentive
for the achievement of superior performance over time and foster the retention
of key management personnel. The Board of Directors favors the granting of
equity-based awards over cash compensation for such reasons and also believes
that the granting of stock options better motivates executive officers and
others to exert their best efforts on behalf of the Company and the
shareholders. In determining annual stock option grants, the Board of Directors
bases its decision on the individual's performance and potential to improve
shareholder value. The Board of Directors, upon the recommendation of the CEO,
granted in 2006 stock options to acquire 2,004,000 shares of Common Stock to
various CytoGenix employees for their performance and dedication to the
objectives of the Company.
Review of and Conclusion Regarding All Components of Executive
Compensation. The Board of Directors has reviewed all components of Dr.
Skolnick's compensation, including salary, bonus, equity and long-term incentive
compensation, accumulated realized and unrealized stock option gains and the
dollar value to the executive and the cost to the Company of all perquisites and
other personal benefits. Furthermore, due to public concerns over the perceived
inflation of chief executive officer compensation and the divergence between
compensation paid to chief executive officers and the average employee,
generally, the Board of Directors reviewed Dr. Skolnick's total compensation
package with an eye toward internal consistency with compensation paid to the
Company's other executive officers and employees generally.
EMPLOYMENT AGREEMENTS
The Company uses employment agreements for our executive officers in
very select cases, generally when it is necessary to secure the services of a
newly hired executive. We have the entered into employment agreement with:
Malcolm Skolnick, current Chairman of the Board, Chief Executive
Officer effective January 1, 2005.
We have entered into letter agreements with each of our other executive
officers outlining the terms of their employment and the elements of their
compensation. Each of these letter agreements follows our standard employment
offer template, and provides for employment at will.
ELEMENTS OF POST-TERMINATION COMPENSATION
We have a change-in-control item as part of the agreement in place for
the Company's Chief Executive Officer, President. The rationale for this item is
that in the event of a change in control of Cytogenix, this individual is most
likely to lose their job as a result of redundancy in executive positions.
10
Change-in-control is defined in the employment agreement as:
(i) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if persons who
were not stockholders of the Company immediately prior to such merger,
consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of the
outstanding securities of each of (A) the continuing or surviving entity and (B)
any direct or indirect parent corporation of such continuing or surviving
entity; provided, however, that any financing in which the Company shall issue
and sell shares of its capital stock or securities convertible into equity
securities of the Company shall not constitute a change in control even if
person who were not stockholders of the Company immediately prior to such
financing own immediately after such financing 50% or more of the voting power
of the Company outstanding securities; or (ii) The sale, transfer or other
disposition of all or substantially all of the Company's assets or capital
stock.
Upon a change-in-control, the Company's CEO would receive (assuming the
change-in-control occurred on December 31, 2006):
o Two times his base salary ($780,000),
o Accrued vacation pay at December 31, 2006 in the amount of $11,695, and
o Cobra or equivalent of other replacement medical and dental insurance
for a period of 12 months, which has an approximate value of $7,200.
There is also a provision for severance pay for termination of the
executive for any reason other than cause or permanent disability, or if the
executive voluntarily resign following a constructive termination.
The severance pay for the Company's CEO would be (assuming termination
occurred on December 31, 2006):
o An amount equal to his annual base salary ($390,000),
o Accrued vacation pay at December 31,2006 in the amount of $11,695, and
o Cobra or equivalent of other replacement medical and dental insurance
for a period of 12 months, which has an approximate value of $7,200.
REPORT OF THE BOARD OF DIRECTORS REGARDING COMPENSATION
The Board of Directors has reviewed and discussed the Compensation
Discussion and Analysis set forth above with management and, based on the review
and discussions, recommended to the Board that the Compensation Discussion and
Analysis be included in this document.
This report is submitted by the members of the Board of Directors.
Malcolm H. Skolnick, Chairman
Scott E. Parazynski
Cy A. Stein
John J. Rossi
Raymond L. Ocampo, Jr.
11
COMPENSATION
The following table sets forth information of the year ended December
31, 2006 concerning the compensation of the President and Chief Executive
Officer of the Company, the Chief Financial Officer of the Company, two former
executive officers and the only other executive officer whose total compensation
for the year ended December 31, 2006 exceeded $100,000 for services rendered in
all capacities of the Company.
SUMMARY COMPENSATION TABLE
NON-EQUITY
OPTION INCENTIVE
AWARDS PLAN ALL OTHER
NAME AND PRINCIPAL YEAR SALARY BONUS STOCK AWARDS ($)(3) COMPENSATION COMPENSATION
POSITION ($) ($) ($) ($) ($) TOTAL ($)
- -------------------------- ---- ------ ---- ------------ ------ ------------ ------------ ---------
Malcolm H. Skolnick....... 2006 390,000 - - - - $390,000
Chairman and Chief
Executive Officer
Pam Schertz(1) 2006 13,750 - - - - $61,041 $ 74,791
Interim Chief
Financial Officer
Yin Chen.................. 2006 125,104 - - - - - $125,104
Vice President and
Chief Research
Scientist
Lawrence Wunderlich(2).... 2006 255,673 - - - - - $225,673
Former Chief Financial
Officer
Frank Vazquez(2).......... 2006 262,529 - - - - - $262,529
Former Senior Vice
President and Chief
Operating Officer
- -----------------------------------
(1) Ms. Schertz became interim chief financial officer in December 2006. All
other compensation represents salary paid to Ms. Schertz as Controller of the
Company.
(2) Messrs. Wunderlich and Vazquez terminated their employment with the Company
on November 17, 2006.
(3) Options to acquire 2,004,000 shares of common stock were granted on February
28, 2006 under the 2005 Stock Option Plan. As of December 31, 2006, on-third of
these options had vested. The fair value of the options as of December 31, 2006
was determined to be zero due to a significant drop in the share price from the
date of grant and due to no registration under the Securities Act of 1933 of the
underlying shares, which places a significant restriction on the ability to
transfer any shares received as a result of an exercise of the options.
12
GRANTS OF PLAN-BASED AWARDS TABLE
The following table sets forth information regarding the grants of
stock options to our Named Executives.
Grant
date
All Other fair
Option Exercise value
Awards: or Base of
Number of Price stock
Securities of and
Underlying Option option
Grant Options Awards awards
------
Name Date (1)(#) (2)($/Sh) (3)($)
---- ---- ------ -------- ------
Malcolm H. Skolnick 2/28/2006 390,000 1.01 344,760
Yin Chen 2/28/2006 185,000 1.01 163,540
Pam Schertz -- -- -- --
Lawrence Wunderlich4 2/28/2006 250,000 1.01 221,000
Frank Vazquez4 2/28/2006 250,000 1.01 221,000
- ---------------
(1) These columns show the awards under the 2005 Stock Option Plan as
described in the section "Stock Options" in the Compensation Discussion
and Analysis. The dollar amount recognized by us for these awards is
shown in the Summary Compensation Table in the column entitled "Option
Awards," and their valuation assumptions are referenced in footnote 3 of
that table.
(2) The exercise price per share is the closing price of the Company's common
stock on the OT Bulletin Board at the date of the option grant. The
closing price for our stock on the date of grant was $1.01.
(3) The fair value was determined using the Black-Scholes option pricing
model at the grant date using the following assumptions: dividend yield
of 0%, expected volatility of 89.36%, risk-free interest rate of 4.5% and
expected life of 10 years.
(4) These awards terminated in accordance with the 2005 Stock Option Plan due
to the resignations of Messrs. Wunderlich and Vazquez.
13
OPTIONS HELD AT YEAR END
The following table presents information concerning outstanding equity
awards held by the Named Executive Officers as of December 31, 2006.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS
---------------------------------------------------------------
NUMBER OF NUMBER OF
SECURITIES SECURITIES
UNDERLYING UNDERLYING
UNEXERCISED UNEXERCISED OPTIONS
OPTIONS (#) OPTIONS (#) OPTION EXERCISE OPTION EXPIRATION
NAME EXERCISABLE # UNEXERCISABLE PRICE ($) DATE
- ------------------------------ ----------- --------------- --------------- -----------------
Malcolm H. Skolnick........... 5,000,000 -- 0.25 June 26, 2013
2,400,000 1,200,000(1) 0.70 Jan. 29, 2015
130,000 260,000(2) 1.01 Feb. 28, 2016
Pam Schertz................... -- -- -- --
Yin Chen...................... 1,500,000 -- 0.25 June 26, 2013
833,334 416,666(1) 0.70 Jan. 29, 2015
61,667 123,333(2) 1.01 Feb. 28, 2016
Lawrence Wunderlich........... -- -- -- --
Frank Vazquez................. -- -- -- --
- -----------------------------------
(1) The options vested on January 29, 2007.
(2) One-half of the shares will vest on each of February 28, 2007 and 2008.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
The following table sets forth certain information with respect to our
equity compensation plans as of December 31, 2006:
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE EXERCISE PRICE OF REMAINING AVAILABLE FOR
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, FUTURE ISSUANCE UNDER
WARRANTS AND RIGHTS WARRANTS AND RIGHTS EQUITY COMPENSATION
PLAN CATEGORY PLANS(1)
Equity compensation plans 22,179,000 $0.48 11,821,000
approved by our stockholders(2)
Equity compensation plans not 0 0 0
approved by our stockholders
- -----------------
(1) Excludes securities to be issued upon the exercise of
outstanding options, warrants and rights.
(2) Includes options granted under the CytoGenix, Inc. 2003 Stock
Option Plan and the CytoGenix, Inc. 2005 Stock Option Plan.
14
EMPLOYMENT AGREEMENT. The Company entered into an employment agreement
with Dr. Skolnick on January 1, 2005. The 2006 base annual salary under the
employment agreement was $390,000. This agreement is terminable at will by the
Company. In the event the Company terminates Dr. Skolnick without cause (as
defined in the employee agreement), the Company will be obligated to pay him
severance for one year at the base annual pay rate and frequency in effect
immediately prior to termination. In the event a change in control of the
Company (as defined in the employment agreement) occurs, Dr. Skolnick will be
entitled to a lump sum payment, in addition to any severance, equal to two times
his annual base salary ($780,000) in effect immediately prior to the change in
control.
COMPENSATION OF DIRECTORS
The Company pays directors who are not employees of the Company $25,000 per year
for attending Board of Director meetings. The Board of Directors may also make
discretionary option grants to its non-employee directors under the Company's
2003 Stock Option Plan and 2005 Stock Option Plan. In 2006, we provided the
following annual compensation to directors who are not employees:
DIRECTOR COMPENSATION TABLE
CHANGES
IN
PENSION
VALUE AND
NON-EQUITY NON-QUALIFIE ALL OTHER
INCENTIVE DEFERRED COMPENSATION
FEES STOCK OPTION PLAN COMP ($) (1)
EARNED AWARDS AWARDS COMPENSATION EARNINGS
NAME YEAR ($) ($) ($) ($) ($) D TOTAL ($)
- ------------------------- ------- --------- ---------- ----------- -------------- ----------- --------------- ---------------
Raymond L. Ocampo Jr. 2006 25,000 25,000
Scott E. Paraznyski, MD 2006 25,000 25,000
John J. Rossi, Ph.D. 2006 25,000 - - - - - 25,000
Cy E. Stein, MD, Ph.D 2006 25,000 - - - - 9,000 34,000
(1) Represents the consulting fees paid to Dr. Stein in the year ended December
31, 2006.
PROPOSAL 2. - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected LBB & Associates Ltd., LLP(formerly
Lopez, Blevens & Bork & Associates, LLP), which has served as independent
auditors of the Company since August 19, 2004 as independent auditors to audit
the books, records and accounts of the Company for the fiscal year ended
December 31, 2007. The Board of Directors recommends a vote FOR approval of such
selection. A representative of LBB & Associates Ltd., LLP is expected to be
present at the Annual Meeting and will have the opportunity to make a statement,
if such representative chooses to do so, and will be available to respond to
appropriate questions.
15
AUDIT FEES; CHANGES IN ACCOUNTANTS
FEES AND EXPENSES OF INDEPENDENT ACCOUNTANTS
The following table sets forth the amount of audit fees, audit related
fees billed or expected to be billed by LBB & Associates LTD., LLP, our
independent auditors, for the years ended December 31, 2006 and 2005,
respectively:
2006 2005
------------------------ ---------------------
AMOUNT AMOUNT
Audit Fees(1) $57,065 $33,450
Audit-Related Fees(2) 0 0
All Other Fees 0 0
Total Fees $57,065 $33,450
=======
(1) Includes the annual consolidated financial statement audit,
review of quarterly reports on Form 10-Q and other services
associated with the audit. Audit fees for 2006 include fees
incurred for the audits of management's assessment of the
effectiveness of internal controls over financial reporting
and the effectiveness of internal controls over financial
reporting.
(2) During the indicated periods, LBB & Associates, Ltd., LLP did
not provide us with any information technology services
relating to financial information systems design and
implementation.
BOARD POLICY ON PRE-APPROVAL OF PERMISSIBLE NON-AUDIT SERVICES
The Board of Directors requires management to seek Board of Director
pre-approval for the engagement of an independent public accountant to perform
audit, audit-related and non-audit services. The Company's Board of Directors
approved the engagement of LBB & Associates LTD, LLP on August 18, 2004.
BOARD REPORT ON 2006 AUDIT
The Company does not have an Audit Committee. The Board of Directors
reviews the Company's financial reporting process. Management has the primary
responsibility for the financial statements and the reporting process, including
the system of internal controls. The Board of Directors is responsible for
engaging independent auditors to perform an independent audit of the Company's
financial statements in accordance with generally accepted accounting principles
and to issue a report thereon. The Board of Directors reviews and oversees these
processes, including oversight of (i) the integrity of the Company's financial
statements, (ii) the Company's independent auditors' qualifications and
independence, (iii) the performance of the Company's independent auditors and
(iv) the Company's compliance with legal and regulatory requirements.
In this context, the Board of Directors met and held discussions with
management and the independent auditors. Management represented to the Board of
Directors that the Company's financial statements were prepared in accordance
with accounting principles generally accepted in the United States, and the
Board of Directors reviewed and discussed the financial statements with
management and the independent auditors. The Board of Directors also discussed
with the independent auditors the matters required to be discussed by Statement
on Auditing Standards No. 61 (Codification of Statements on Auditing Standards,
AU ss.380), as amended.
16
In addition, the Board of Directors discussed with the independent
auditors the auditors' independence from the Company and its management, and the
independent auditors provided to the Board of Directors the written disclosures
and letter required by the Independence Standards Board Standard No. 1
(Independence Discussions With Audit Committees).
The Board of Directors also discussed with the Company's independent
auditors the overall scope and plans for the audit. The Board of Directors met
with the independent auditors, with and without management present, to discuss
the results of their examinations, the evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting.
Based on the reviews and discussions referred to above, the Board of
Directors approved the inclusion of the audited financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2006, for
filing with the Securities and Exchange Commission. The Board also recommended,
subject to shareholder ratification, the selection of the Company's independent
auditors for fiscal year 2006.
This report is submitted by the members of the Board of Directors.
Malcolm H. Skolnick, Chairman
Scott E. Parazynski
Cy A. Stein
John J. Rossi
Raymond L. Ocampo Jr
ANNUAL REPORT
The Company's Annual Report of Form 10-K covering the fiscal year ended
December 31, 2006 accompanies this Proxy Statement. Except for the financial
statements included in the Annual Report that are specifically incorporated by
reference herein, the Annual Report of Form 10-K is not incorporated in this
Proxy Statement and is not to be deemed part of this proxy soliciting material.
Additional copies of the Annual Report of Form 10-K are available upon request.
OTHER MATTERS
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Section 16(a) of the
Exchange Act requires the Company's directors, executive officers and persons
who own more than 10% of a registered class of the Company's Common Stock to
file initial reports of ownership and changes in ownership with the SEC and to
furnish the Company with copies of all Section 16(a) forms they file. The
Company believes that all filings required to be made under Section 16(a) were
timely made other than Form 3 filings for Pam Schertz, Interim CFO, and Cindee
Ewell, Vice President of Legal Affairs, upon their becoming executive officers
of the Company.
OTHER MATTERS. At the date hereof, the Board of Directors does not know
of any other business to be presented at the Annual Meeting of Shareholders. If
any other matter properly comes before the meeting, however, it is intended that
the persons named in the accompanying proxy will vote such proxy in accordance
with the discretion and instructions of the Board of Directors.
17
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders wishing to submit proposals for consideration by the
Company's Board of Directors at the Company's 2008 Annual Meeting of
Shareholders should submit them in writing to the attention of the Secretary of
the Company no later than January 31, 2008, so that it may be considered by the
Company for inclusion in its proxy statement and form of proxy for that meeting.
A shareholder who wishes to make a proposal at the 2008 Annual Meeting
of Shareholders without complying with the requirements of Rule 14a-8 (and
therefore without including the proposal in our proxy materials) must notify us
of the proposal by March 16, 2008. If a shareholder fails to timely give notice
of a potential proposal, then the persons named as proxies in the proxy cards
solicited by our Board of Directors for that meeting will be entitled to vote
the proxy cards held by them regarding that proposal, if properly raised at the
meeting, in their discretion or as directed by our management.
By Order of the Board of Directors,
/s/ Malcolm Skolnick
--------------------
Malcolm Skolnick
Chairman of the Board and President
May 7, 2007
18
EXHIBIT A
---------
CYTOGENIX, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD JUNE 13, 2007
P The proxies are directed to vote as specified below and in their
discretion on all other matters coming before the meeting. If no
direction is made, the proxy will vote FOR the nominee listed below and
the approval of independent auditors.
This proxy is solicited by the Board of Directors.
R 1. ELECTION OF DIRECTORS - Cy A. Stein, M.D., Ph.D.
[ ] Vote FOR the nominee listed above, except
vote withheld from (to withhold authority to
vote for any individual nominee, write in
the names on the line below:)
O ---------------------------------------------------------------
[ ] Vote WITHHELD from nominee
X 2. APPROVAL OF INDEPENDENT AUDITORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Y
[ ] I plan to attend the meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
A-1
EXHIBIT A
---------
CYTOGENIX, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD JUNE 13, 2007
The undersigned appoints Pam Schertz and Cindee Ewell, and each of them, as
attorneys and proxies of the undersigned, with power of substitution, to
represent the undersigned at the Annual Meeting of Shareholders of CytoGenix,
Inc. (the "Company") to be held June 13, 2007 and at any adjournment thereof,
and to vote all shares of Common Stock of the Company which the undersigned is
entitled to vote on all matters coming before said meeting.
Dated:________________________, 2007
-------------------------------------
Signature
-------------------------------------
Signature if held jointly
THIS PROXY MUST BE SIGNED EXACTLY AS NAME APPEARS HEREON.
Executors, administrators, trustees, etc., should give full
title as such. If the signer is a corporation, please sign
full corporate name by duly authorized officer. If signer is
a partnership, please sign partnership name by authorized
person.
A-2