SCHEDULE A14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)14a-
6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
IGI, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------ --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------------------------------------------------------------------------
5) Total fee paid:
-------------------------------------------------------------------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------------------------------------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------------------------------------------------------------------------
3) Filing Party:
-------------------------------------------------------------------------------------------------------------------------------------------
4) Date Filed:
-------------------------------------------------------------------------------------------------------------------------------------------
IGI, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 24, 1998May 13, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of IGI,
Inc., a Delaware corporation (the "Company"), will be held on Thursday, September 24, 1998May 13,
1999 at 1:10:00 p.m.a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts (the "Meeting") for the purpose of considering and voting upon the
following matters:
1. To elect eightseven directors to serve until the next Annual Meeting of
Stockholders.
2. To approve an amendmentamendments to the Company's 1991 Stock Option Plan
increasingCertificate of Incorporation,
as amended, to (i) increase the number of authorized shares of Common
Stock from 30,000,000 to 50,000,000 and (ii) authorize a new class of
Preferred Stock consisting of 1,000,000 shares.
3. To approve the Company's Common1999 Employee Stock $.01
par value per share, authorized for issuance from 2,600,000 to
3,100,000 shares.
3.Purchase Plan.
4. To approve the Company's 1999 Stock Incentive Plan.
5. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the current fiscal year.
4.6. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on Friday, August 7,
1998March 19,
1999 as the record date for the determination of stockholders entitled to notice
of and to vote at the Meeting and at any adjournments thereof.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1997,1998, which contains financial statements and other information of
interest to stockholders, accompanies this Notice and the enclosed Proxy
Statement.
By Orderorder of the Board of Directors,
ROBERTRobert E. MCDANIEL,McDaniel,
Secretary
August 28, 1998April 14, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO
POSTAGE NEEDNEEDS TO BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
IGI, INC.
WHEAT ROAD AND LINCOLN AVENUE
BUENA, NEW JERSEYWheat Road and Lincoln Avenue
Buena, New Jersey 08310
-------------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 24, 1998
------------------------------For Annual Meeting of Stockholders
To Be Held May 13, 1999
-------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of IGI, Inc. (the "Company") for use at the
Annual Meeting of Stockholders to be held on Thursday, September 24, 1998May 13, 1999 at 1:10:00
p.m.a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, and at any adjournments thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the proposals set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation to the Secretary of the Company. Attendance at the Meeting
will not itself be deemed to revoke a Proxy unless the stockholder gives
affirmative notice at the Meeting that the stockholder intends to revoke the
Proxy and vote in person.
Only the record holders of shares of common stock, $.01 par value per
share, of the Company (the "Common Stock") at the close of business on August 7,
1998March 19,
1999 may vote at the Meeting. Each share entitles the record holder to one vote
on each of the matters to be voted upon at the Meeting. On August 7, 1998,March 19, 1999 there
were 9,466,6679,526,854 shares of Common Stock outstanding.
The Notice of Meeting, this Proxy Statement, the enclosed Proxy and the
Company's Annual Report for the year ended December 31, 19971998 are being mailed to
stockholders on or about August 28, 1998.
BENEFICIAL OWNERSHIP OF COMMON STOCKApril 14, 1999.
Beneficial Ownership of Common Stock
The following table sets forth information as of July 31, 1998March 15, 1999 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known to the Company to own beneficially more than 5% of the outstanding shares
of Common
-1-
Stock, (ii) the directors of the Company, (iii) the Chief Executive Officer and
the executive officers of the Company listed in the "Summary Compensation Table"
below one of which is a former executive officer (collectively, the "Named Executive Officers"), and (iv) the directors and
executive officers of the Company as a group. Unless otherwise noted, the
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.
NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF CLASS
- ---------------- --------- --------
Stephen J. Morris ....................................... 2,254,635(1) 23.8%
66 Navesink Avenue
Rumson, New Jersey
Jane E. Hager ........................................... 1,204,815(2) 12.5%
Pinnacle Mountain Farms
Lyndeboro, NH 03082
Edward B. Hager, M.D. .................................. 1,065,815(3) 10.8%Number of Percent of
Beneficial Owner Shares Class
- ---------------- ---------- -----------
Stephen J. Morris............................ 2,319,200 (1) 24.3%
66 Navesink Avenue
Rumson, New Jersey
Jane E. Hager................................ 1,174,638 (2) 12.2%
Pinnacle Mountain Farms
Lyndeboro, NH 03082
Edward B. Hager, M.D. ....................... 1,015,815 (3) 10.3%
Pinnacle Mountain Farms
Lyndeboro, NH 03082
Mellon Bank Corporation...................... 732,801(4) 7.4%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
David G. Pinosky, M.D........................ 271,723 (5) 2.8%
Terrence O'Donnell........................... 84,565 (6) *
Constantine L. Hampers, M.D.................. 71,073 (7) *
Terrence D. Daniels.......................... 45,782 (8) *
Paul D. Paganucci............................ 47,298 (8) *
F. Steven Berg............................... 27,823 (9) *
Paul Woitach................................. 200,000 (10) 2.1%
John F. Wall................................. 30,000 (11) *
Robert E. McDaniel........................... 25,000 (12) *
Kevin J. Bratton............................. 29,750 (13) *
Stephen G. Hoch.............................. 0 (14) *
All executive officers and directors, as a
group (13 Persons)(16)....................... 2,383,652 (15) 22.5%
- ----------
* Less than 1% of the Common Stock outstanding.
-2-
NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF CLASS
- ---------------- --------- --------
Mellon Bank Corporation ................................. 881,310(4) 9.1%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
John P. Gallo ........................................... 643,397(5) 6.6%
Country Club Lane
Buena, NJ 08310
David G. Pinosky, M.D.................................... 304,900(6) 3.1%
Terrence O'Donnell....................................... 70,000(7) *
Constantine L. Hampers, M.D.............................. 63,000(8) *
Terrence D. Daniels...................................... 40,000(9) *
Paul D. Paganucci........................................ 40,000(9) *
Stephen G. Hoch.......................................... 42,250(10) *
Lawrence N. Zitto........................................ 67,500(11) *
Surendra Kumar........................................... 8,000 *
Kevin J. Bratton......................................... 26,500(12) *
F. Steven Berg........................................... -- *
All executive officers and directors, as a group
(13 Persons)........................................... 2,292,965(13) 21.8%
- ------------------
* Less than 1% of the Common Stock outstanding.
(1) The information reported is based on an Amendment No. 2 to Schedule 13D
dated December 29, 1997 and filed with the Securities and Exchange
Commission (the "Commission") by Stephen J. Morris. Mr. Morris has sole
voting power and investment power with respect to 1,481,000 shares and
shared voting power with respect to 773,635 shares.
(2) Includes 639,815 shares beneficially owned by Dr. Hager, as co-trustee of
the Hager Family Trust as to which Mrs. Hager as co-trustee of the Hager
Family Trust, has shared voting and investment power. Includes 140,000
shares which may be acquired pursuant to stock options exercisable within
60 days after July 31, 1998.
(3) Includes 425,000 shares which Dr. Hager may acquire pursuant to stock
options exercisable within 60 days after July 31, 1998, and 639,815 shares
(listed above) beneficially owned by Mrs. Hager as co-trustee of the Hager
Family Trust.
(4) The information reported is based on a Schedule 13G dated(1) Includes 816,300 shares which Mr. Morris owns jointly with his wife, Xenia
Morris.
(2) Includes 639,815 shares beneficially owned by Dr. and Mrs. Hager, as
co-trustees of the Hager Family Trust, who share voting and investment
power. Includes 100,000 shares which Mrs. Hager may acquire pursuant to
stock options exercisable within 60 days after March 15, 1999.
(3) Includes 375,000 shares which Dr. Hager may acquire pursuant to stock
options exercisable within 60 days after March 15, 1999, and 639,815 shares
(listed above) beneficially owned by Mrs. Hager as co-trustee of the Hager
Family Trust.
(4) On February 19, 1999, Mellon Bank Corporation filed a Schedule 13G/A with
the Securities and Exchange Commission reporting beneficial ownership of a
total of 612,801 shares, which includes 240,000 shares of Common Stock
issuable upon exercise of warrants within 60 days after March 15, 1999.
Mellon Bank reported that it has sole voting power over 482,101 shares of
Common Stock and sole dispositive power over 607,051 shares of Common
Stock. The Company entered into a Second Extension Agreement with Mellon
Bank, effective January 20,
1998, filed with the Commission by Mellon Bank Corporation. Includes
240,000 shares which may be acquired pursuant to warrants exercisable
within 60 days after July 31, 1998.
(5) Includes 325,000 shares which Mr. Gallo may acquire pursuant to stock
options exercisable within 60 days after July 31, 1998. The Company
terminated Mr. Gallo as President and Chief Operating Officer of the
Company on November 22, 1997.
(6) Includes 140,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after July 31, 1998.
(7) Consists of 70,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after July 31, 1998.
(8) Includes 60,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after July 31, 1998.
(9) Consists of 40,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after July 31, 1999, pursuant to which Mellon Bank was granted
warrants for the purchase of an additional 240,000 shares of Common Stock,
of which 120,000 shares are exercisable within 60 days after March 15,
1999.
(5) Includes 100,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999. Dr. Pinosky is not
standing for re-election to the Board of Directors.
(6) Includes 70,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999.
(7) Includes 60,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999.
(8) Includes 40,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999.
(9) Includes 20,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999. Mr. Berg is not standing
for re-election to the Board of Directors.
(10) Consists of 200,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999.
-3-
(11) Consists of 5,000 shares Mr. Wall holds jointly with his wife, Rosa Wall,
and 25,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999.
(12) Consists of 25,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999.
(13) Includes 24,250 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999. Mr. Bratton resigned in
January 1999.
(14) Mr. Hoch does not hold any shares of Common Stock or stock options of the
Company. Mr. Hoch resigned in September 1998.
2
(10) Consists of 42,250 shares which may be acquired pursuant to stock options
exercisable within 60 days after July 31, 1998.
(11) Includes 52,500 shares which may be acquired pursuant to stock options
exercisable within 60 days after July 31, 1998.
(12) Consists of 21,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after July 31, 1998.
(13) Includes 1,030,750(15) Includes 1,079,250 shares which may be acquired pursuant to stock options
exercisable within 60 days after March 15, 1999.
(16) As of July 31, 1998, John P. Gallo, a former President of the Company,
whose employment was terminated as of November 1997, beneficially owned
643,397 shares of Common Stock (including 275,000 which may be acquired
pursuant to stock options within 60 days after July 31, 1998). His holdings
constituted more than 5% of the Company's outstanding shares of Common
Stock. The Company has been unable to ascertain his current holdings by
researching the appropriate filings with the Securities and Exchange
Commission to determine if he is still a 5% security holder. However, his
attorney represents that Mr. Gallo's holdings did not change during fiscal
year 1998.
SECTIONSection 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEBeneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock ("Reporting Persons") to
file with the Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Except as
set forth below, and basedBased
solely on its review of copies of reports filed by Reporting Persons furnished
to the Company, the Company believes that during 19971998 its officers, directors
and holders of more than 10% of the Company's Common Stock complied with all
Section 16(a) filing requirements.requirements, except that Initial Statements of Beneficial
Ownership of Securities on Form 3 for F. Steven Berg, a director of the Company,
failed to fileand Robert E. McDaniel, Senior Vice President and General Counsel of the
Company, were inadvertently not filed by the Company on a timely basis a Form 3 --
Initial Statement of Beneficial Ownership of Securities.
VOTES REQUIREDbasis.
-4-
Votes Required
The holders of a majority of the shares of Common Stock outstanding shall
constitute a quorum for the transaction of business at the Meeting. Shares of
Common Stock present in person or represented by proxy (including shares which
abstain or do not vote with respect to one or more of the matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum exists at the Meeting.
The affirmative vote of the holders of a plurality of the shares of Common
Stock voted at the Meeting is required for the election of directors.directors (Proposal
1). The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company is required for approval of the amendments to the
Company's Certificate of Incorporation (Proposal 2). The affirmative vote of the
holders of a majority of the shares of Common Stock voted at the Meeting is
required to approve the amendment of1999 Employee Stock Purchase Plan and the 19911999 Stock
OptionIncentive Plan (Proposals 3 and 4) and to ratify the appointment of
PricewaterhouseCoopers LLP as independent auditors of the Company.Company (Proposal 5).
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes cast in favor of such matter, and also will
not be counted as shares voting on such matter. Accordingly, abstentions and
"broker non-votes" will have no effect on the voting on a matter that requires
the affirmative vote of the holders of a certain percentage of the shares of
Common Stock voting on a matter.
PROPOSAL 1 --- ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORSNominees for Election as Directors
The persons named as proxies in the accompanying Proxy intend (unless
authority to vote therefor is specifically withheld) to vote for the election of
the persons named below as directors to hold office until the next Annual
Meeting of Stockholders and until their respective successors are elected and
qualified. Each nominee is presently serving as a director of the Company and has consented to being named in this Proxy Statement and
to serve if elected. If any of the nominees becomes unavailable to serve as a
director, the persons named as proxies in the accompanying Proxy may vote the
Proxy for substitute nominees. The Board of Directors has no reason to believe
that any of the nominees will be unable to serve if elected. John P. Gallo, a current director
of the Company, has not been nominatedNeither David G.
Pinosky nor F. Steven Berg is standing for re-election to the Board of Directors.
3Directors
and, accordingly, the Board of Directors has voted to reduce the number of
directors of the Company from eight to seven, effective as of the date of the
Meeting.
-5-
The following table sets forth certain information with respect to the
nominees:
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
-Principal Occupation,
Other Business
Experience During
Director Past Five Years and
Name Age Since Other Directorships
---- --- -------- ---------------------------------------------------- ---------------------
Edward B. Hager, M.D. ......... 67 1977 Chairman of the Board of
Directors and Chief Executive
Officer of the Company since
1977; Chairman of the Board of
Directors and Chief Executive
Officer of Novavax, Inc. from
1987 to June 1996; Chairman of
the Board of Directors of
Novavax, Inc. from February
1997 to March 1998; Dr. Hager is
the husband of Jane E. Hager.
Jane E. Hager.................. 52Hager 53 1977 President of Prescott Investment
Corp. (real estate development),
Lyndeboro, NH since 1991;
former Treasurer and Secretary of IGI, Inc.;
Director of Fleet Bank-NH,
Nashua, NH from 1986 to 1997;1998;
Trustee and Treasurer of the
University System of New
Hampshire; Overseer of
Dartmouth Mary Hitchcock
Hospital; Incorporator of New
Hampshire Charitable Fund,
Concord, NH; Director of
Novavax, Inc. from February 1997 to March
1998; Mrs. Hager is the wife of Edward B.
Hager.
David G. Pinosky, M.D.......... 68 1980 MemberTrustee of the
faculty of the University of
MiamiDerryfield School of Medicine since 1963; Medical
Director, Psychiatric Unit, Palmetto General
Hospital, Hialeah, FL since 1986; President,
Miami Psychiatric Associates since 1971;
Medicalin Manchester,
New Hampshire; Director of
Highland Park General
Hospital, Miami, FLNovavax, Inc. from 1971February
1997 to 1986.March 1998; Mrs. Hager
is the wife of Edward B. Hager.
-6-
Principal Occupation,
Other Business
Experience During
Director Past Five Years and
Name Age Since Other Directorships
---- --- ----- ---------------------
Terrence O'Donnell............. 54O'Donnell 55 1993 Member of law firm of Williams
& Connolly, Washington, D.C.
since March 1992 and from
March 1977 to October 1989;
General Counsel of Department
of Defense from October 1989 to
March 1992; Special Assistant to
President Ford from August 1974
to January 1977; Deputy Special
Assistant to President Nixon
from May 1972 to August 1974;
directorDirector of MLC Holdings.
4
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE
NAME AGE SINCE DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS
- ---- --- -------- -----------------------------------------------
Constantine L. Hampers, M.D.... 6566 1994 Chief Executive Officer of MDL
Hampers, M.D. Consulting Associates since 1996;
Chairman of the Board of Directors
and Chief Executive Officer of
National Medical Care, Inc., a
provider of in-center and home
kidney dialysis services and
products, from 1968 to 1996;
Executive Vice President and
Director of W. R.W.R. Grace & Co. ("W. R. Grace") from
1986 to 1996; Director of
Artificial Kidney Services at
Peter Bent Brigham Hospital and
Assistant Professor of Medicine at
Harvard University School of
Medicine prior to 1968 and for
several years thereafter.
Paul D. Paganucci.............. 67Paganucci 68 1996 Chairman of the Board of Directors
of Ledyard National Bank since
1991; Chairman of the Executive
Committee of Board of Directors of
W.R. Grace & Co. from 1989 to
1991; Vice Chairman of W.R. Grace
& Co. from 1986 to 1989; Executive
Vice President of W.R. Grace from
January 1986 to 1989; Executive
Vice President of W.R. Grace from January
1986 to November 1986;
Director of HRE Properties, Inc.,
Filene's Basement, Inc. and
Allmerica Securities Trust.
-7-
Principal Occupation,
Other Business
Experience During
Director Past Five Years and
Name Age Since Other Directorships
---- --- ----- ---------------------
Terrence D. Daniels............ 55Daniels 56 1996 President of Quad-C (a structured
investment firm) since 1990; Vice
Chairman of W.R. Grace & Co. from
1986 to 1989; Director of
DSGStimsonite Corporation, Collins &
Aikman Floorcoverings and numerous
private companies.
Stephen J. Morris 66 Co-founder and General Manager of
John Morris & Sons, Inc., a hotel
and restaurant enterprise;
Co-founder and Advisor of
International Ltd., Eskimo PieScientific
Communications, a scientific
publishing company; Director of
Pure Energy Corporation, and Stimsonite Corporation.
F. Steven Berg................. 63 1998 Presidenta
developer of Bishopsgate Financial Corp., an
investment company, since 1990.alternative motor
fuels.
For information relating to shares of the Company owned by each of the
directors, seedirectors. See "Beneficial Ownership of Common Stock."
BOARD AND COMMITTEE MEETINGSBoard and Committee Meetings
The Board of Directors met sevenfifteen times during 1997. Each1998. Except for Messrs.
Daniels, Pinosky and Paganucci, each of the current directors attended at least
75% of the meetings of the Board of Directors and the committees on which he or
she served. The Board of Directors has an Executive Committee, an Audit
Committee, an Independent Committee of Outside Directors, a Financial AffairsCompensation and
Stock Option Committee and a Compensation and Stock OptionGovernance Committee.
The Executive Committee, whose members are Drs. Hager and Hampers and Mrs.
Hager, has the authority to exercise the powers of the Board of Directors
between Board meetings. Mr. Gallo served on the Executive Committee during 1997,
but he is not standing for re-election to the Board of Directors in 1998. The Audit Committee, whose members are Dr. Pinosky,
Messrs. O'Donnell (Chairman) and Paganucci and Mrs. Hager, reviews the audit of
the Company's accounts, monitors the effectiveness of the audit and evaluates
the scope of the audit. The Independent Committee of Outside Directors, whose
members are Drs. Hampers (Chairman) and Pinosky and Messrs. O'Donnell, Daniels,
Berg and Paganucci, reviews and approves transactions between Novavax, Inc. ("Novavax"), the Company's former subsidiary,
and the Company and transactions between management and the
Company. The
Financial Affairs Committee, whose members are Dr. Hampers, Mr. O'Donnell and
Mrs. Hager (Chairman), advises management with respect to the investment of the
Company's liquid assets. The Compensation and Stock Option Committee, whose members are Drs.
Hampers (Chairman) and Pinosky, and Messrs. Daniels, O'Donnell, Paganucci and
O'Donnell,Berg, reviews and recommends salaries and other compensatory benefits for
5
the
principal officers of the Company and grants stock options to key employees of
the Company and its subsidiaries. In February 1999, the
-8-
Company formed a Governance Committee, whose members are Dr. Hampers (Chairman),
Jane E. Hager and Terrence O'Donnell, to ensure that principles of appropriate
corporate governance are developed and maintained. The Governance Committee also
serves as the nominating body for the Board of Directors.
During 1997, neither1998, the Executive Committee nor the Financial Affairs Committee met anddid not meet, the Independent
Committee of Outside Directors andmet once, the Compensation and Stock Option
Committee each met one timetwice and the Audit Committee met twofour times.
Director Compensation and Stock Options
The Company has no nominating
committeeBoard of Directors adopted the 1998 Directors Stock Plan (the "1998
Plan") in October 1998 and each outside director agreed to receive shares of the
BoardCompany's Common Stock as director compensation in lieu of Directors.
DIRECTOR COMPENSATION AND STOCK OPTIONS
Eachthe former practice
of payment of director not employedfees in cash, thereby encouraging ownership in the
Company by the Companydirectors. Each non-employee director receives $2,000 in value of
Common Stock for each meeting of the Board of Directors he or she attends.attends in person, $1,000
in value of Common Stock for each telephonic meeting of the Board attended, $500
in value of Common Stock for each Committee meeting attended which is held on
the same day as a Board meeting, $1,000 in value of Common Stock for each
Committee meeting attended which is not held on the same day as the Board
meeting, and up to $5,000 in value of Common Stock annually for the Chairman of
certain of the Board Committees. The fees are payable quarterly and the number
of shares of Common Stock issued to each director is determined by dividing the
fees payable for the quarter by the closing price of the Company's Common Stock
on the American Stock Exchange on the last business day of the applicable
quarter.
Pursuant to the 1998 Plan, Mrs. Hager and Messrs. Pinosky, Daniels,
O'Donnell, Hampers, Berg and Paganucci each received the following number of
shares, respectively, of Common Stock of the Company as compensation for 1998:
9,823; 6,823; 5,782; 14,565; 8,073; 7,823; and 7,298. These shares represented a
total value at the time of issuance of $119,500. Directors' fees of $18,000 were
paid in cash to directors in 1998 prior to the adoption of the 1998 Plan.
Pursuant to the Company's 1991 Stock Option Plan (the "1991 Plan"), each
director who is not an employee of the Company (an "Eligible Director") is
granted a stock option for the purchase of 20,000 shares of Common Stock sixty
days after his or her initial election as a director. In addition, the 1991 Plan
provides that each Eligible Director will be granted a stock option to purchase
10,000 shares of Common Stock on the last business day of each of the calendar
years through 1999. Each Eligible Director elected on or after March 13, 1991
received an option for the initial grant of 20,000 shares, and each Eligible
Director then serving as a director received additional options for 10,000
shares in each of the years 1992 1993, 1994, 1995, 1996 and 1997.through 1998. Options granted to Eligible
Directors are exercisable in full beginning on the date which is six months
after the date
-9-
of grant and terminate ten years after the date of grant. Such options cease to
be exercisable at the earlier of their expiration or three years after an
Eligible Director ceases to be a director for any reason. In the event that an
Eligible Director ceases to be a director on account of his death, his
outstanding options (whether exercisable or not on the date of death) may be
exercised within three years after such date (subject to the condition that no
such option may be exercised after the expiration of ten years from its date of
grant).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1990, theCertain Relationships and Related Transactions
During 1998, Company advanced $70,000 to Mr. Gallo, the Presidentpersonnel and Chief Operating Officer of the Company until the termination of his
employment on November 22, 1997. Mr. Gallo issued to the Company a note bearing
interest at the Company's bank borrowing rate plus 1/4% per annum and secured by
10,000 shares of Common Stock. As of June 30, 1998, the amount of indebtedness
outstanding was $129,083. In April 1998, the Company commenced a lawsuit against
Mr. Gallo for damages suffered by the Company for his willful misconduct in the
performance of his executive duties. As part of the lawsuit, the Company is also
demanding that Mr. Gallo repay this indebtedness. Due to the uncertainty of the
outcome of the litigation against Mr. Gallo, the Company has recorded a reserve
against the note receivable balance at December 31, 1997.
During 1997, Dr. Hager and other Company personneladvisors traveled at various times on
Company business on an airplane owned by a company which is wholly-owned by Jane
E. Hager, his wife and a director of the Company.Company and spouse of Edward B. Hager, M.D. Total
charges to the Company for its use of the airplane in 19971998 were $68,930.$82,500. The
Board of Directors authorized use of the aircraft for business travel only, and
provided that (i) the air travel rate billed to the Company for use of the
airplane be at least as favorable as the rate charged by private aircraft owners
unaffiliated with the Company, and (ii) use of the airplane be limited to 100
hours at $1,350 per hour. However,Notwithstanding these criteria, the Company was only billed
for Dr. Hager's businesssuch use of the aircraft at rates not exceeding those for first class
commercial airfare.
The Company has $6,857,142 of revolving credit notes and a $12,000,000
working capital line of credit with Fleet Bank - NH and Mellon Bank, N.A. Mrs.
Hager, as director of the Company, was a director of Fleet Bank - NH from 1986
to 1997.
In connection with the April 29, 1998 Extension Agreement, the Company
issued to Mellon Bank warrants to purchase an aggregate of 240,000 shares of the
Company's Common Stock at an exercise price of $3.50 per share. On August 19,
1998, the Company and its bank lenders, Fleet Bank - NH and Mellon Bank N.A., entered into a Forbearance Agreement whereby
the banksbank agreed to forbear from exercising theirits rights and remedies arising from
covenant defaults through January 31, 1999. The Company then entered into a
Second Extension Agreement with Mellon Bank, effective January 31, 1999, whereby
the Company issued to Mellon Bank new warrants to purchase an additional 240,000
shares of the Company's Common Stock at an exercise price of $2.00 per share. As
of July 31, 1998,March 15, 1999, Mellon Bank wasis the beneficial owner of 881,310732,801 shares of the
Company's Common Stock or 9.1%7.4% of the outstanding shares.
6
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLESummary Compensation Table
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by both the Chief Executive
Officer of the Company, the four most highly compensated executive officers of
the Company who received compensation in excess of $100,000 during 19971998 and who
were serving as executive officers at the end of 19971998, and the former President
of the Companyone individual who
would have been one of the Company's four most highly compensated executive
officers, but for the fact that he was no longer employed by the Company terminated his
employment prior toat the
end of 1997.
SUMMARY COMPENSATION TABLE1998.
-10-
Summary Compensation Table
LONG-TERM
COMPENSATIONLong-Term
Compensation
Annual Compensation Awards
------------
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION(1) OPTIONS(2) COMPENSATION(3)
PRINCIPAL POSITION YEARSecurities
Other Annual Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($)(1) (#)(2) ($)
------------------ ---- ------ ----- --------------- ---------- ---------------(3)
- ----------------------------------------------------------------------------------------------------------------------
Edward B. Hager ....... 1997 $303,480Hager(4) 1998 $ -- $ -- $ -- $11,944225,000 $ 11,775
Chief Executive 1997 303,480 -- -- -- 11,944
Officer 1996 345,455 -- -- 50,000 12,864
Officer 1995 314,050 55,000Paul Woitach (5) 1998 151,442 -- 50,000 12,062
John P. Gallo (4) ..... 1997 329,172 -- 1,678 -- 12,2884,200 100,000 2,848
President and Chief
1996 345,455 -- 44,860 50,000 12,772
Operating Officer
1995 314,050John F. Wall(5) 1998 99,167 -- 4,200 50,000 41,777 50,000 12,0622,387
Senior Vice President
and Chief Financial
Officer
Robert E. McDaniel (5) 1998 106,920 -- 3,000 60,000 2,963
Senior Vice President,
General Counsel and
Secretary
Kevin J. Bratton(6) 1998 130,846 -- 3,000 53,000 9,373
Vice President and 1997 122,723 -- 6,000 -- 8,847
Treasurer 1996 116,416 3,000 6,000 5,000 10,588
Stephen G. Hoch (5) ...Hoch(7) 1998 182,572 -- 6,000 -- 6,642
Vice President 1997 218,149 -- 7,200 -- 8,166
Vice President 1996 200,293 10,000 7,200 5,000 9,128
1995 186,886 5,000 7,200 5,000 9,609
Lawrence N. Zitto (6).. 1997 166,689 -- 7,200 -- 9,381
Vice President 1996 155,138 10,000 7,200 10,000 11,562
1995 140,196 10,000 7,200 10,000 11,727
Surendra Kumar (7) .... 1997 140,947 -- 7,200 -- 7,834
Vice President 1996 130,648 5,000 7,200 5,000 9,362
1995 121,990 5,000 7,200 5,000 8,486
Kevin J. Bratton ...... 1997 122,723 -- 6,000 -- 8,847
Vice President and 1996 116,416 3,000 6,000 5,000 10,588
Treasurer 1995 113,807 2,000 6,000 5,000 10,9389,128
- ----------------------------
(1) The amounts shown in this column represent automobile allowances, medical
expense reimbursement, housing allowances and compensation for unused
vacation time. Mr. Gallo received $38,653 and $36,237 in 1996 and 1995,
respectively, as compensation for unused vacation time. Mr. Gallo received
no compensation for unused vacation time in 1997.allowances.
(2) The Company has never granted any stock appreciation rights.
(3) The amounts shown in this column represent premiums for group life
insurance and medical insurance paid by the Company and the Company's
contributions under its 401(k) plan.
The group life insurance premiums paid by(4) Dr. Hager elected to defer payment of his salary in 1998. That salary,
which amounted to $380,000 was accrued to expense in 1998. See "Employment
Agreements." Dr. Hager's options for 225,000 shares were granted to him in
November 1998 in substitution for lower-priced options for the same number
of shares pursuant to an option repricing that took place in November 1998.
See "10-Year Option Repricings."
(5) Messrs. Woitach, Wall and McDaniel joined the Company in 1998.
(6) Mr. Bratton's options for each of Dr. Hager and Messrs. Gallo, Hoch, Zitto, Kumar and53,000 shares include 28,000 shares which were
granted in substitution for existing lower-priced options pursuant to the
November 1998 option repricing. See "10-Year Option Repricings." Mr.
Bratton for
the last fiscal year were $800, $1,128, $1,230, $1,230, $1,058 and $1,023,
respectively. The medical insurance premiums paid by the Company during 1997
for each of Dr. Hager and Messrs. Gallo, Hoch, Zitto, Kumar and Bratton were
$8,581, $7,843, $4,402, $6,259, $5,047 and $6,259, respectively. The
Company's matching contributions under its 401(k) savings plan to each of
Dr. Hager and Messrs. Gallo, Hoch, Zitto, Kumar and Bratton for the last
fiscal year were $2,563, $2,579, $2,534, $1,892, $1,729 and $1,615,
respectively.
(4) In connection with the December 1995 spinoff of Novavax, a formerly
majority-owned subsidiary of the Company, Mr. Gallo also served as Chief
Operating Officer and Treasurer of Novavax fromresigned in January 1996 to June 30,
1996. Pursuant to a Transition Services Agreement entered into by the
7
Company and Novavax to facilitate the spinoff, Novavax agreed to pay half of
Mr. Gallo's salary during this time. In November 1997, the Company
terminated Mr. Gallo for willful misconduct in the performance of his
executive duties.
(5)1999.
(7) Mr. Hoch resigned in JulySeptember 1998.
(6) Mr. Zitto resigned in April 1998.
(7) Dr. Kumar resigned in February 1998.
STOCK OPTIONS
No stock options or SARs were granted-11-
Stock Options
The following tables set forth certain information concerning option grants
during the fiscal year ended December 31, 1998 to anythe Named Executive Officers
during 1997. The following table summarizes option exercises during 1997 byand the Named Executive Officers,number and the value of the options held by such persons on December 31,
1998. The first table does not include options granted to Dr. Hager and Mr.
Bratton in November 1998 in substitution of lower-priced options. See "10-Year
Option Repricings." No options were exercised by Named Executive Officers during
1998.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Potential Realizable Value
Number of Percent of At Assumed Annual Rates
Securities Total Options of Stock Price Appreciation
Underlying Granted to Exercise or for Option Term (1)
Options Employees in Base Price Per Expiration -------------------
Name Granted (#) Fiscal Year Share ($/sh) Date 5% 10%
- ---- ----------- ----------- ------------ ---- --------- --------
Edward B. Hager -- -- -- -- -- --
Paul Woitach 100,000(2) 24.91% 2.00 5/11/08 $126,000 $318,000
John F. Wall 50,000(2) 12.45% 3.13 6/2/08 98,438 248,438
Robert E. McDaniel 50,000(2) 12.45% 3.13 6/2/08 98,438 248,438
10,000(3) 2.50% 3.00 9/24/08 18,900 47,700
Kevin J. Bratton 25,000(3) 6.23% 3.50 3/17/08 55,125 139,125
Stephen G. Hoch -- -- -- -- -- --
- ----------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUESthe option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock and the date on which
the options are exercised. No gain to the optionees is possible without an
appreciation in stock price, which will benefit all stockholders
commensurately.
(2) 50% of the shares covered by the options are exercisable on the six-month
anniversary of the option grant and the remaining 50% of the shares are
exercisable one year after the date of grant.
(3) 25% of the shares covered by the options are exercisable on the first
anniversary of the option grant date and an additional 25% of the shares
are exercisable on each successive anniversary date, with full vesting
occurring on the fourth anniversary date.
-12-
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END
EXERCISE REALIZEDAggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired On Value Options at Fiscal Year-End at Fiscal Year-End
Exercise Realized (#) (#)
Name (#) ($)
NAME (#) ($) (1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)Exercisable/Unexercisable Exercisable/Unexercisable(2)
- ---- ----------- -------- ------------------------- -----------------------------------------------------------------------------------------------------------------------------------------------------------
Edward B. Hager.......... 20,000 $ 11,950 425,000/Hager -- -- 375,000/0 $0/$0
John P. Gallo............Paul Woitach -- -- 325,000/50,000/50,000 0/0
John F. Wall -- -- 25,000/25,000 0/0
Robert E. McDaniel -- -- 25,000/35,000 0/0
Kevin J. Bratton -- -- 24,250/28,750 0/0
Stephen G. Hoch..........Hoch -- -- 42,250/8,250 0/0
Lawrence N. Zitto........ -- -- 52,500/15,000 0/0
Surendra Kumar........... -- -- 34,250/7,500 0/0
Kevin J. Bratton......... -- -- 21,000/7,000 0/0
- ------------------
(1) Represents the difference between the exercise price and the last sales
price of the Common Stock on the date of exercise.
(2) Value based on market value of the Company's Common Stock at the end of
fiscal 19971998 ($3.751.94 per share) minus the exercise price.
EMPLOYMENT AGREEMENTS
In October 1997,-13-
Repricing of Options
The following table sets forth certain information concerning the Company amended the Employment Agreement with eachCompany's
repricing in 1998 of Dr. Hager and Mr. Gallo to provide for a reduction in their annual salaries, but
extended the period for paymentoptions held by two executive officers of the reduced salaries throughCompany. No
other repricing of stock options has occurred during the year 2005.past ten years.
10-YEAR OPTION REPRICINGS
Length of
Original
Number of Exercise Option
Shares Price at Term
Underlying Market Price of Time of New Remaining
Date of Options Stock at Time Repricing Exercise at Date of
Name Repricing Repriced (#) of Repricing ($) ($) Price ($) Repricing
- --------------------------------------------------------------------------------------------------------------------------
Edward B. Hager 11/23/98 50,000 $2.125 $4.70 $2.66 1 month
Chief Executive 11/23/98 50,000 2.125 5.10 2.66 13 months
Officer 11/23/98 25,000 2.125 5.02 2.66 25 months
11/23/98 25,000 2.125 4.78 2.66 28 months
11/23/98 25,000 2.125 9.88 2.66 37 months
11/23/98 25,000 2.125 7.29 2.66 46 months
11/23/98 25,000 2.125 7.12 2.66 49 months
Kevin J. Bratton 11/23/98 5,000 $2.125 $5.10 $2.44 13 months
Vice President and 11/23/98 4,000 2.125 5.02 2.44 25 months
Treasurer 11/23/98 1,000 2.125 9.88 2.44 37 months
11/23/98 5,000 2.125 7.29 2.44 46 months
11/23/98 3,000 2.125 8.58 2.44 73 months
11/23/98 5,000 2.125 6.63 2.44 85 months
11/23/98 5,000 2.125 5.75 2.44 97 months
-14-
Report on Option Repricing
On January 19,November 9, 1998, the Compensation and Stock Option Committee of the
Board of Directors rescindedapproved a repricing of options for current employees and
consultants of the revised salary
arrangementsCompany holding outstanding stock options with an exercise
price of more than $4.00 per share, which included the two named executive
officers listed in the table above.
Because of the substantial decline in the market value of the Company's
Common Stock, many of the options which were outstanding in November 1998 were
exercisable at prices that exceeded the market value of the Common Stock. In
view of this decline and in keeping with the Company's philosophy of using
equity incentives to motivate and retain qualified employees and consultants,
the Compensation and Stock Option Committee believed that it was in the best
interests of the Company and its stockholders to restore the incentive intended
when these options were originally granted.
Pursuant to the terms of the repricing, 34 option holders, holding options
to purchase an aggregate of 331,465 shares of the Company's Common Stock, which
had an exercise price of greater than $4.00 per share ("Existing Options"), were
issued new options as of November 23, 1998, at a reduced exercise price of $2.44
per share. Dr. Hager's options to purchase a total of 225,000 shares were only
reduced to $2.66 per share (the "New Options"). Except for Dr. Hagerthe different
exercise price, which is at a premium to the then fair market value of the
Common Stock, the terms of the option agreements, including the vesting schedule
relating to the New Options, are substantially the same as the terms of the
option agreements for the Existing Options that they replaced.
Compensation and restored the annual salary payable under hisStock Option Committee
Constantine L. Hampers, M.D., Chairman
Terrence D. Daniels
Terrence O'Donnell
Paul D. Paganucci
F. Steven Berg
David G. Pinosky, M.D.
Employment Agreement ($380,000 for 1997). In addition, pursuantAgreements
Pursuant to his Employment Agreement, Dr. Hager is entitled to an annual
increase of 10% of his prior year's salary each year through December 31, 1999,
the expiration date of the Employment Agreement. However, Dr. Hager has waived the 10%
increase for 1998 and agreedchose to defer the payment of his entire annual salary as
of January 1, 1998, to preserve cashfunds for the Company's cash needs. Therefore,
the Company accrued, but did not pay, Dr. Hager's 1998 salary of $380,000. Dr.
Hager's accrued and unpaid salary as of June 30, 1998February 28, 1999 was $190,000$456,667 and that
amount, plus future deferred salary payments, will be paid to Dr. Hager only at
such time as the Board of Directors of the
-15-
Company, in consultation with the Compensation and Stock Option Committee,
determines that the Company's cash position is adequate to pay the deferred
amount and to resume the current payment of his salary. Dr. Hager's Employment
Agreement also provides for continuation of his salary through December 31, 1999
in the event he is terminated without cause prior to that date.
Mr. Gallo, the former President of the Company, had an Employment Agreement
similar to Dr. Hager's. However, on November 22, 1997, the Company terminated
Mr. Gallo's employment for willful misconduct in the performance of his
executive duties, and on April 21, 1998 the Company commenced a lawsuit against
Mr. Gallo.
8
Each of Dr. Hager and Mr. Gallo is bound by certain non-compete and non-solicitation obligations
for five years after termination of employment or such longer period during
which he receives severance payments under the employment agreement.Employment Agreement.
The Company has finalized arrangementsentered into employment agreements with each of Messrs.
Paul Woitach, President and Chief Operating Officer of the Company, and John F.
Wall,
and Paul Woitach, Senior Vice President and Chief Financial Officer of the Company and President and Chief Operating Officer of the Company, respectively,
on the basic terms ofCompany. The
agreements provide for their employment by the Company that have not been
formalized into a final document. Pursuant to these agreements, Messrs. Wall and
Woitach are entitled to continuation of their respective salary for up to one
year for Mr. Wall and up to 18 months for Mr. Woitach, based upon the length of
service, if terminated without cause prior to that date. The arrangements for
Messrs. Wall and Woitach are for a one year period, which is
automatically extendedrenewed annually unless terminated by the Company by written
notice at least 9060 days prior to renewal.
REPORT OF THE COMPENSATION COMMITTEEthe renewal date. In the event their employment
is terminated without cause, Mr. Woitach is entitled to continuation of his
annual salary for up to 18 months and Mr. Wall is entitled to continuation of
his annual salary for up to 12 months.
Report of the Compensation and Stock Option Committee
Overview and Philosophy
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee") is composedcomprised of foursix non-employee directors and is responsible for
the development and administration of the Company's executive compensation
policies and programs, subject to the review and approval by the full Board. The
Committee reviews and recommends to the Board for its approval the salaries and
incentive compensation for the executive officers of the Company and grants
stock options to executives and other key employees of the Company and its
subsidiaries.
The objectives of the Company's executive compensation program are to:
o Support the achievement of strategic goals and objectives of the
Company.
o Attract and retain key executives critical to the long-term success of
the Company.
o Align the executive officers' interests with the success of the
Company.
-16-
Compensation Program
The Company's executive compensation program consists of three principal
elements --- base salary, annual cash incentive compensation and long-term
incentive compensation in the form of stock options.
The base salariessalary of Dr. Hager and Mr. Gallo werewas established pursuant to the terms of his
employment agreements between each of them andagreement with the Company. See "Employment Agreements." Base salary
levels for the Company's executive officers are generally established based on a review of
compensation for competitive positions in the market, the executives' job skills
and experience and judgments as to past and future contributions of the
executives to the Company's success. BecauseDue to the mix of the types of businesses
in which the Company is engaged, in the animal health products and skin care products,
businesses, it is difficult to makefind similar companies with which meaningful comparisons with similar
companies.can
be made. The Committee seeks to set the annual base salaries of its executives
at levels competitive with those paid to executives in these businesses. It
seeks, however, to provide its executives with opportunities for substantially
higher compensation through annual incentive awards and stock options.
The Company made no cash incentive or bonus payments in 1998. The annual
cash incentive compensation isprogram was designed to tie annual awards to Company
and individual executive performance. Accordingly, the Committee consideredconsiders a
number of factors in determining whether annual incentive awards should be paid,
including (i) achievement by the Company and/or specific business units of
approved budgets, new product introductions, progress in development of new
products and operating income and cash flow goals and (ii) achievement by the
executives of their assigned objectives. In considering individual performance,
as contrasted to Company performance, the Committee relies more on subjective
evaluations of executive performance than on quantitative data or objective
criteria. Further, the Company is in the process of implementing a variable
compensation plan for its top executives. The purpose of the plan is to directly
link management compensation to Company performance. Present plans include
expanding the application of the variable compensation plan to more upper level
managers.
Long-term incentives for executive officers and key managers are provided
through stock options. The objectives of this program are to align executive and
stockholder long-term interests by creating a
9
strong and direct link between
executive compensation and stockholder return, and to enable executives to
develop and maintain a significant, long-term stock ownership position in the
Company's Common Stock.
Stock options are granted at an option price equal to the fair market value
of the Company's Common Stock on the date of grant and will only have value if
the Company's stock price increases. In selecting executives eligible to receive
option grants and determining the amount of such grants, the Committee evaluates
a variety of factors including (i) the job level of the executive, (ii) option
grants awarded by
-17-
competitors to executives at a comparable job level, and (iii) past, current and
prospective service to the Company rendered, or to be rendered, by the
executive. It has been the Company's practice to fix the exercise price of
option grants at 100% of the fair market value per share on the date of grant.
Chief Executive Officer's 19971998 Compensation
Dr. Edward B. Hager, Chairman of the Board and Chief Executive Officer of
the Company, is eligible to participate in the same executive compensation plans
available to the other Company executives. In addition to his duties as Chief
Executive Officer and Chairman of the Board, Dr. Hager serves as Chief
Scientific Officer of the Company. The Committee has set Dr. Hager's total
annual compensation, including annual incentive awards and potential additional
compensation derived from the Company's stock option program, at a level it
believes is competitive with other comparable companies.
Dr. Hager's annual compensation is governed in large part by the terms of his employment
agreement with the Company. Pursuant to his employment agreement, Dr. Hager is
entitled to an annual increase of 10% of his prior year's salary each year
through December 31, 1999, the expiration date of the employment agreement.
However, Dr. Hager has waived the 10% increase for 1998 and agreedchose to defer the
payment of his annual salary to preserve cashfunds for the Company's cash needs. Dr.
Hager's accrued unpaid salary as of June 30, 1998February 28, 1999 was $190,000$456,667, and that
amount plus future deferred salary payments will be paid to Dr. Hager only at
such time as the Board of Directors of the Company, in consultation with the
Compensation
Committee, determines that the Company's cash position is adequate to pay the
deferred amount and to resume the current payment of his salary. Dr. Hager's
Employment Agreement also provides for continuation of his salary through
December 31, 1999 in the event he is terminated without cause prior to that
date.
The Committee did not award Dr. Hager any additional options in 1997.1998.
However, Dr. Hager did receive an option grant on January 5, 1999 to purchase
100,000 shares of Common Stock and, as set forth above, options held by Dr.
Hager for the purchase of 225,000 shares of Common Stock were repriced on
November 23, 1998 at a lower exercise price, but an exercise price higher than
that offered to other employees. See "10-Year Option Repricings."
Tax Considerations
Section 162(m) of the Internal Revenue Code enacted in 1993,of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation overin excess of one million dollars paid to its chief executive
officer and its other Named Executive
Officers. Qualifyingfour highest compensated officers. Qualified
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. While the Committee does not
-18-
currently intend to qualify its annual cash incentive compensation as qualified
performance-based compensation, it will continue to monitor the impact of
Section 162(m) on the Company. Based on the compensation received by Dr. Hager
and the other Named Executive Officers, it does not appear that the Section
162(m) limitation will have a significant impact on the Company in the near
term.
While the Committee does not currently intend to qualify its
annual cash incentive compensation as a performance-based plan, it will continue
to monitor the impact of Section 162(m) on the Company.
Compensation and Stock Option Committee
Constantine L. Hampers, M.D., Chairman
Terrence D. Daniels
Terrence O'Donnell
Paul D. Paganucci
F. Steven Berg
David G. Pinosky, M.D.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Drs. Hampers, Chairman,Compensation Committee Interlocks and Pinosky and Messrs. Daniels and O'Donnell
served onInsider Participation
No member of the Compensation and Stock Option Committee was, during 1997.
10
COMPARATIVE STOCK PERFORMANCEfiscal
year 1998, an officer or employee of the Company or any of its subsidiaries; or
was formerly an officer of the Company or any of its subsidiaries. During fiscal
year 1998, no executive officer of the Company served as a director or member of
the compensation committee (or other board committee performing equivalent
functions, or in the absence of such committee, the entire board of directors)
of another entity, one of whose executive officers served as a member of the
Compensation and Stock Option Committee, or as a director, of the Company.
Comparative Stock Performance
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the AMEX Composite Index and a peer group over the same period
(assuming the investment of $100 in the Company's Common Stock, the AMEX
Composite Index and the peer group on December 31, 1992,1993, and reinvestment of all
dividends). The peer group consists of the Company, The Liposome Company, Inc.,
Sequus Pharmaceuticals (formerly Liposome Technology, Inc.), Nexstar
Pharmaceuticals (formerly Vestar, Inc.) and Advanced Polymer Systems, Inc. [GRAPHIC]
InThe
Company's Common Stock was suspended from trading on the printed versionAmerican Stock Exchange
from March 31, 1998 to September 7, 1998 due to delays in filing periodic
reports under the Securities Exchange Act of the document, a line graph
appears which depicts the following plot points:
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
IGI Inc................................ 100 87 118 124 102 57
Peer Group............................. 100 71 72 153 154 74
AMEX Composite......................... 100 120 109 137 146 172
1934, as amended, and resumed
trading on September 8, 1998.
-19-
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Data Points
Cumulative Total Return
12/93 12/94 12/95 12/96 12/97 12/98
----- ----- ----- ----- ----- -----
IGI, Inc. 100 137 140 115 68 33
Peer Group 100 102 214 216 104 186
AMEX Market Value 100 91 115 122 148 151
PROPOSAL 2 -- PROPOSED- APPROVAL OF INCREASE IN NUMBER OF
SHARES OF AUTHORIZED UNDER THE 1991COMMON STOCK OPTION PLANAND
CREATION OF A NEW CLASS OF PREFERRED STOCK
On March 17, 1998,16, 1999, the Company's Board of Directors adopted, subject to stockholder
approval, an amendmentamendments to the Company's 1991Certificate of Incorporation to (1)
increase the Company's authorized number of shares of Common Stock Option Planfrom
30,000,000 shares to 50,000,000 shares and (2) create a new class of Preferred
Stock consisting of 1,000,000 shares. If approved by the stockholders, the
amendments would become effective upon the filing of a Certificate of Amendment
of the Company's Certificate of Incorporation (the "1991 Plan""Certificate of Amendment")
with the Secretary of the State of Delaware.
The Certificate of Amendment would amend Article Fourth of the Certificate
of Incorporation to read as set forth in Appendix A annexed hereto.
Increase in Common Stock
Under the Company's Certificate of Incorporation, as currently in effect,
the only class of capital stock which the Company is authorized to issue is
Common Stock. If the Certificate of Amendment is approved, the additional shares
of Common Stock would be part of the existing class of Common Stock and, if and
when issued, would not affect the rights of the holders of currently outstanding
Common Stock, except for effects incidental to increasing the number of shares
of Common Stock outstanding, such as dilution of earnings per share and voting
rights of current stockholders. At December 31, 1998, 9,512,917 shares of Common
Stock were outstanding.
At March 1, 1999, the Company had cash and cash equivalent balances of
approximately $535,000, and no available borrowing capacity under its bank
credit line or bank revolving facility. The Company is currently generating
losses that may extend through much of 1999. Further, the Company has
significant debt that it must repay on August 31, 1999, November 30, 1999, and
March 31, 2000. Over the past 14 months, the Company's lending banks have
modified the terms of their loan agreement at least three times, most recently
extending the loan agreement to March 2000. In the event of future defaults the
banks may or may not make additional changes in the loan agreement.
-20-
The Company is pursuing additional debt and equity financing alternatives
to meet these obligations. The Company believes it can obtain such financing on
acceptable terms. However, if the Company is not successful in obtaining the
required additional financing, it believes it has the ability and it plans to
meet its 1999 debt repayment obligations by altering its business plans
including, if necessary, a sale of selected Company operating and non-operating
assets. Any sale of operating assets would involve a curtailment of certain of
the Company's business operations and a modification of its business strategy.
However, if the Company is unable to raise sufficient funds to repay or
refinance the debt repayment due March 31, 2000, the Company could be in default
under its loan agreement and any such default could lead to the commencement of
insolvency proceedings by its creditors subsequent to that date.
Accordingly, the Board of Directors of the Company has authorized
management of the Company to seek additional equity capital through the sale of
Common Stock of the Company, either through a private sale to institutional or
individual investors or through a rights offering to its stockholders. Subject
to shareholder approval, the Board has authorized an increase in the number of
shares of Common Stock and the creation of a class of preferred stock. While the
Company has contacted a number of potential providers of additional capital who
have expressed interest in negotiating financing arrangements with the Company,
to date no agreements or commitments have been obtained.
Therefore, the Board of Directors is considering offering all of its
current stockholders the right to purchase shares of Common Stock in a rights
offering, pursuant to which all stockholders would be entitled to purchase
additional shares of Common Stock on a pro rata basis ("Proposed Financing").
The price per share of Common Stock to be sold in the Proposed Financing is
expected to be determined based upon valuation advice from an independent
investment bank. It is expected that the price will be fixed at a substantial
discount to the prevailing market price to attract stockholder participation in
the Proposed Financing. Although the Company has discussed the Proposed
Financing with three of its largest stockholders, no commitment, agreement or
understanding has been made by any of them with respect to their participation
in the Proposed Financing.
The proceeds from the Proposed Financing will be used to reduce the
Company's bank indebtedness, including the payment of $4,000,000 to its bank
lenders on August 31, 1999. The increase in the authorized Common Stock is
needed, in the opinion of the Board of Directors, to give the Company the
flexibility to consummate an equity sale while at the same time providing
additional shares of Common Stock for possible future financings, the Company's
stock plans for its employees, the establishment of future strategic
relationships or the acquisition of other products or businesses. There is no
assurance at this time that the Proposed Financing will be consummated. The
terms of any equity financing have not been determined and will be subject to
all applicable securities laws. The issuance of additional shares of Common
Stock in the Proposed Financing would be dilutive to the current stockholders
since the shares will be issued at a discount to the prevailing market price of
the Company's Common Stock.
Series Preferred Stock
From time to time, in its efforts to replace its current bank debt, the
Company has been advised that a Preferred Stock issuance would be an appropriate
financing vehicle.
-21-
While the Company has no present plans to issue any shares of Preferred Stock,
approval by the Company's stockholders would allow the Company to seek to sell
shares of Preferred Stock to raise needed equity capital. Therefore, approval by
the Company's stockholders of the Certificate of Amendment would also permit the
Board of Directors (1) to issue from time to time shares of Preferred Stock,
$.01 par value per share (the "Preferred Stock"), in one or more series, (2)
determine the number of shares constituting each such series and (3) designate
the rights, powers and preferences of each series, including, but not limited
to, dividend rights, liquidation preferences, redemption provisions, conversion
rights and voting rights, if any, in addition to those provided by law. Any
issued shares of a series of Preferred Stock may rank prior to shares of Common
Stock as to dividends or distributions upon liquidation, or both, and may rank
prior to, on a parity with, or junior to shares of any other series of Preferred
Stock with respect to the payment of dividends or distributions upon
liquidation, or both, in each case as determined by the Board of Directors at
the time such series is established (and subject to the rights of the holders of
any previously issued shares of a series of Preferred Stock).
The holders of shares of Common Stock do not have preemptive rights to
subscribe for any of the Company's securities and will not have any such rights
to subscribe for shares of any series of Preferred Stock.
If the Certificate of Amendment is approved, the shares of Preferred Stock
would be available for issuance underfrom time to time by the 1991 Plan from 2,600,000Board of Directors,
without further action on the part of the Company's stockholders, for such
corporate purposes as the Board of Directors may deem advisable, including
without limitation, issuance of Preferred Stock in connection with any future
financings or acquisitions or for other corporate purposes.
The issuance of either the Common Stock or the Preferred Stock in certain
circumstances may have the effect of deferring or preventing a change in control
of the Company, may discourage a proposed acquisition of the Company at a
premium over the market price of the Common Stock and, in the case of the
Preferred Stock, may adversely affect the market price of, and other rights of
the holders of, Common Stock. The Company is not aware of any attempt to 3,100,000.effect
a change in control or takeover of the Company. If the Certificate of Amendment
is approved, the Board of Directors will have shares of Preferred Stock
available to effect a sale of shares (either in public or private transactions,
mergers, consolidations or similar transactions) in which case the number of the
Company's outstanding shares would be increased and would thereby dilute the
interest of a party attempting to obtain control of the Company.
Board Recommendation
The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock of the Company is required for the approval of the
Certificate of
-22-
Amendment. The Board of Directors believes that stock options have been,the proposed amendments are in
the best interests of the Company and will continueits stockholders and recommends a vote FOR
the Certificate of Amendment.
PROPOSAL 3 - PROPOSED APPROVAL OF THE
1999 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors believes that the continued growth and profitability
of the Company depends, in large part, upon the ability of the Company to
be, an important
elementmaintain a competitive position in attracting and maintaining key employees and directors.retaining quality personnel.
The Company does not believebelieves that an employee stock purchase plan will be an integral
component of the current numberbenefit package for all eligible employees. Accordingly, on
December 7, 1998, the Board of shares authorized underDirectors adopted, subject to stockholder
approval, the 19911999 Employee Stock Purchase Plan (the "1999 Stock Purchase
Plan").
Summary of the 1999 Stock Purchase Plan
The following summary of the 1999 Stock Purchase Plan is adequate forqualified in its
entirety by reference to the Company's needs. As1999 Employee Stock Purchase Plan.
An aggregate of July 31, 1998, 731,500300,000 shares of Common Stock remained available(subject to adjustment in
the event of a subdivision of outstanding shares of Common Stock, or the payment
of a dividend in Common Stock, or such other event in which it is deemed
equitable to make an adjustment) may be issued pursuant to the 1999 Stock
Purchase Plan. The 1999 Stock Purchase Plan is implemented through offerings,
each approximately twelve months in length after an initial six month offering
period, and provides eligible employees with the opportunity to purchase shares
of the Company's Common Stock at a discounted price. The first offering will
commence on July 1, 1999 and will terminate on December 31, 1999. Thereafter,
each offering period will begin on the first day of each year and end on the
last day of such year. It is anticipated that subsequent offerings will be
twelve months in duration, although the Board may, at its discretion, choose a
different offering period of less than twelve months for future grantssubsequent offering
periods.
Each employee of stock optionsthe Company and its eligible subsidiaries, including an
officer or director who is also an employee, is eligible to participate in the
1999 Stock Purchase Plan, provided he or she (i) is employed by the Company or
any eligible subsidiary on the applicable offering commencement date, (ii) is
customarily employed by the Company or any eligible subsidiary for more than 20
hours per week and for more than five months in a calendar year, and (iii) has
been employed by the Company or any eligible subsidiary for at least 90 days
prior to enrolling in the 1999 Stock Purchase Plan. An employee may elect to
have up to a maximum of 10% withheld from his or her base pay for purposes of
purchasing shares under the 1991 Plan.
11
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's Chief
Executive Officer and four other most highly compensated executive officers.
Qualifying performance-based compensation is not1999 Stock Purchase Plan, subject to certain
limitations on the deduction limit
if certain requirements are met. In particular, income recognized upon the
exercise of a stock option is not subject to the deduction limit if the option
was issued under a plan approved by stockholders that provides a limit to themaximum number of shares that may be issued underpurchased. The price
-23-
at which shares may be purchased during each offering will be the plan to any individual.
ADMINISTRATION AND ELIGIBILITYlower of (i)
85% of the closing price of the Common Stock on the date that the offering
commences or (ii) 85% of the closing price of the Common Stock on the date that
the offering terminates.
The 19911999 Stock Purchase Plan and the grant of options thereunder is administered by the Board of Directors of
the Company and the Compensation and Stock Option Committee of the Company's Board of
Directors. The CompensationBoard and Stock Option Committee has the power to determine which key
employees of the Company will be granted options under the 1991 Plan, whether
such options will be incentive stock options (ISOs) or nonstatutory stock
options (NSOs), the number of shares of Common Stock covered by, and the
duration of, each option so granted under the 1991 Plan, and other terms and
conditions applicable to each option so granted under the 1991 Plan. All
executive officers and the key employees of the Company and its subsidiaries are
eligible to participate in the 1991 Plan. Consultants and advisors to the
Company and its subsidiaries are eligible to receive NSOs under the 1991 Plan.
At June 30, 1998, the Company and its subsidiaries had approximately 198
full-time employees. The last sale price of the Company's Common Stock reported
by the American Stock Exchange on March 30, 1998 was $3.125 per share. On March
30, 1998, the AMEX suspended the trading of the Company's Common Stock as a
result of the Company's announcement that it would not be able to file its 1997
Annual Report on Form 10-K with the AMEX and the Securities and Exchange
Commission by March 31, 1998, the due date of that report. The approximate
number of holders of record of the Company's Common Stock at June 30, 1998 was
897 (not including stockholders for whom shares are held in a "nominee" or
"street" name).
As of July 31, 1998 the Company had approximately 198 employees and seven
non-employee directors, all of whom were eligible to participate in the 1991
Plan. The number of individuals receiving awards varies from year to year
depending on various factors, such as the number of promotions and the Company's
hiring needs during the year, and thus the Company cannot now determine award
recipients. From the initial adoption of the 1991 Plan through July 31, 1998,
options to purchase an aggregate of 300,000 shares thereunder had been granted
to Edward B. Hager, M.D., the Chairman of the Board of Directors, Chief
Executive Officer and nominee for director of the Company; options to purchase
an aggregate of 58,000 shares thereunder had been granted to Stephen G. Hoch, a
former Vice President of the Company; options to purchase an aggregate of 47,000
shares thereunder had been granted to Lawrence Zitto, a former Vice President of
the Company; options to purchase an aggregate of 30,000 shares thereunder had
been granted to Surrendra Kumar, a former Vice President of the Company; options
to purchase an aggregate of 43,000 shares thereunder had been granted to Kevin
J. Bratton, Vice President and Treasurer of the Company; options to purchase an
aggregate of 300,000 shares thereunder had been granted to John P. Gallo, a
director and former employee of the Company; options to purchase an aggregate of
60,000 shares thereunder had been granted to Jane E. Hager, a non-employee
director and nominee for director of the Company; options to purchase an
aggregate of 60,000 shares thereunder had been granted to David G. Pinosky,
M.D., a non-employee director and nominee for director of the Company; options
to purchase an aggregate of 70,000 shares thereunder had been granted to
Terrence O'Donnell, a non-employee director and nominee for director of the
Company; options to purchase an aggregate of 60,000 shares thereunder had been
granted to Constantine L. Hampers, M.D., a non-employee director and nominee for
director of the Company; options to purchase an aggregate of 40,000 shares
thereunder had been granted to Terrence D. Daniels, a non-employee director and
nominee for director of the Company; options to purchase an aggregate of 40,000
shares thereunder had been granted to Paul D. Paganucci, a non-employee director
and nominee for director of the Company; options to purchase an aggregate of
20,000 shares thereunder had been granted to F. Steven Berg, a nominee for
director of the Company; options to purchase an aggregate of 1,028,000 shares
and 350,000 shares thereunder had been granted
12
to all current executive officers as a group and all current non-employee
directors as a group, respectively; no options to purchase shares thereunder had
been granted to any associate of any director, executive officer or nominee for
director of the Company, and an aggregate of 528,000 shares thereunder had been
granted to all employees of the Company who are not executive officers.
PURCHASE PRICE AND OPTION TERMS
The price at which shares of Common Stock may be purchased upon the
exercise of options granted under the 1991 Plan is determined by the Compensation and Stock Option Committee athave the
timeauthority to make rules and regulations for the option is granted. In
the case of ISOs granted to employees and options which the Company intends to
qualify as performance-based compensation under Section 162(m)administration of the Code,1999 Stock
Purchase Plan. Pursuant to the exercise price may not be less than the fair market value of a share of Common
Stock on the date the option is granted. In the case of ISOs granted to an
employee who owns more than 10%terms of the Common1999 Stock atPurchase Plan, the time of grant, the
exercise price per share may not be less than 110% of such fair market value.
The exercise price per share for NSOs granted to key employees may not be less
than 50% of the fair market value of a share of Common Stock on the date of
grant. The maximum number of shares for which options may be granted in any one
calendar year to any one person is 100,000. In the case of NSOs granted to
Eligible Directors, the exercise price per share shall be the fair market value
of a share on the date of grant. No ISO granted under the 1991 Plan may be
exercised more than ten years after the date of grant, and no ISO granted to a
person who owns more than 10% of the Common Stock at the time of grant may be
exercised more than five years following the date of grant. The 1991 Plan
expires in 2001.
While the Company may grant options which become exercisable at different
times or within different periods, the CompanyBoard
has generally granted options
which are exercisable on a cumulative basis in annual installments of 25% each
during the first, second, third and fourth years after the date of grant.
Except asappointed the Compensation and Stock Option Committee to administer certain
aspects of the 1999 Stock Purchase Plan. The Board may otherwise
determineat any time terminate or
provideamend the 1999 Stock Purchase Plan, except that (a) if the approval of any such
amendment by the stockholders of the Company is required by Section 423 of the
Code, such amendment shall not be effected without such approval, and (b) in an option grant, options grantedno
event may any amendment be made which would cause the 1999 Stock Purchase Plan
to fail to comply with Section 423 of the Code. The 1999 Stock Purchase Plan
contains provisions relating to the disposition of the employee's rights to
purchase shares in the event of certain mergers, acquisitions and other
extraordinary corporate transactions involving the Company.
As of March 1, 1999, approximately 208 employees would have been eligible
to participate in the 1999 Stock Purchase Plan.
The purchase of shares under the 19911999 Stock Purchase Plan cannot be sold, assigned, transferred, pledged or otherwise encumbered by the
optionee, either voluntarily or by operation of law, except by will or the laws
of descentis discretionary,
and distribution. All options granted under the 1991 Plan to key
employees will terminate no later than three months after the severance of the
employment relationship between the Company andcannot now determine the optionee for any reason, for
cause or without cause, other than death. In the event that an employee dies
before the datenumber of expiration of an option, such option will terminate one year
following the date of death (subject to the condition that no option is
exercisable after the expiration of ten years from its date of grant).
Optionees who exercise options to purchase securities under the 1991 Plan
may pay cash in the amount of the option exercise price and/or deliver other
shares of Common Stock owned by the optionee with a fair market value equal to
the exercise price of the option shares to be purchased.
Inpurchased in the
event of a dissolution, liquidation, merger, consolidationfuture by any particular person or reorganization of the Company (an "Event"), the Board may decide to terminate
each outstanding option. If the Board so decides, such option shall terminate as
of the effective date of the Event, but the Board shall provide optionees a
reasonable notice period during which options which are then exercisable may be
exercised.
DIRECTOR OPTIONS
Sixty days after initial election as a non-employee director ("Eligible
Director") by either the Board of Directors or the Company's stockholders, each
Eligible Director is granted NSOs for 20,000 shares of Common Stock. In
addition, each Eligible Director who was a director on the last business day of
each 1992, 1993, 1994, 1995, 1996 and 1997 was granted a nonstatutory option to
purchase 10,000 shares of Common Stock, and each Eligible Director then serving
as a director on the last business day of each of 1998 and 1999 will be granted
a nonstatutory option to purchase 10,000 shares of Common Stock. The exercise
price per share is the fair market value on the date of grant. Options granted
to Eligible Directors are exercisable in full beginning six months after the
date of grant and
13
terminate ten years after the date of grant. Such options cease to be
exercisable at the earlier of their expiration or three years after an Eligible
Director ceases to be a director for any reason. In the event that an Eligible
Director ceases to be a director on account of his death, his outstanding
options (whether exercisable or not on the date of death) may be exercised
within three years after such date (subject to the condition that no such option
may be exercised after the expiration of ten years from its date of grant).
FEDERAL INCOME TAX CONSEQUENCESgroup.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options grantedpurchases made under the
19911999 Stock Purchase Plan and with respect to the sale of Common Stock acquired
under the 19911999 Stock Purchase Plan.
Tax Consequences to Participants. In general, a participant will not
recognize taxable income upon enrolling in the 1999 Stock Purchase Plan or upon
purchasing shares of Common Stock at the end of any offering. If a participant
sells Common Stock acquired under the 1999 Stock Purchase Plan at a sale price
that exceeds the price at which the participant purchased the Common Stock, then
the participant will recognize taxable income in an amount equal to the excess
of the sale price of the Common Stock over the price at which the participant
purchased the Common Stock. A portion of that taxable income will be ordinary
income, and a portion may be capital gain.
-24-
If the participant sells the Common Stock more than one year after
acquiring it and more than two years after the date on which the offering
commenced (the "Grant Date"), then the participant will be taxed as follows. If
the sale price of the Common Stock is higher than the price at which the
participant purchased the Common Stock, then the participant will recognize
ordinary compensation income in an amount equal to the lesser of: (i) fifteen
percent of the fair market value of the Common Stock on the Grant Date; and (ii)
the excess of the sale price of the Common Stock over the price at which the
participant purchased the Common Stock. Any further income will be long-term
capital gain. If the sale price of the Common Stock is less than the price at
which the participant purchased the Common Stock, then the participant will
recognize long-term capital loss in an amount equal to the excess of the price
at which the participant purchased the Common Stock over the sale price of the
Common Stock.
If the participant sells the Common Stock within one year after acquiring
it or within two years after the Grant Date (a "Disqualifying Disposition"),
then the participant will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the Common Stock on the date
that it was purchased over the price at which the participant purchased the
Common Stock. The participant will also recognize capital gain in an amount
equal to the excess of the sale price of the Common Stock over the fair market
value of the Common Stock on the date that it was purchased, or capital loss in
an amount equal to the excess of the fair market value of the Common Stock on
the date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the participant
has held the Common Stock for more than one year prior to the date of the sale
and will be a short-term capital gain or loss if the participant has held the
Common Stock for a shorter period.
Tax Consequences to the Company. The offering of Common Stock under the
1999 Stock Purchase Plan will have no tax consequences to the Company. Moreover,
in general, neither the purchase nor the sale of Common Stock acquired under the
1999 Stock Purchase Plan will have any tax consequences to the Company except
that the Company will be entitled to a business-expense deduction with respect
to any ordinary compensation income recognized by a participant upon making a
Disqualifying Disposition. Any such deduction will be subject to the limitations
of Section 162(m) of the Code.
Board Recommendation
The Board of Directors believes that the 1999 Stock Purchase Plan is in
the best interests of the Company and its stockholders and recommends that the
stockholders vote FOR the adoption of the 1999 Stock Purchase Plan.
-25-
PROPOSAL 4 - PROPOSED APPROVAL OF THE
1999 STOCK INCENTIVE PLAN
On March 16, 1999, the Board of Directors of the Company adopted, subject
to stockholder approval, the 1999 Stock Incentive Plan (the "1999 Incentive
Plan"). The 1999 Incentive Plan replaces all presently authorized stock option
plans, and no additional options may be granted under those plans if the
stockholders approve the 1999 Incentive Plan. Up to 1,200,000 shares of Common
Stock of the Company (subject to adjustment in the event of stock splits and
other similar events) may be issued pursuant to awards granted under the 1999
Incentive Plan. The purpose of the 1999 Incentive Plan is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Summary of the 1999 Incentive Plan
The following summary of the 1999 Incentive Plan is qualified in its
entirety by reference to the 1999 Incentive Plan.
Description of Awards
The 1999 Incentive Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Code, nonstatutory stock options
and restricted stock awards (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options. The 1999 Incentive
Plan authorizes the Board to determine the number of shares of Common Stock to
be covered by each option, the exercise price of each option and the conditions
and limitations applicable to the exercise of each option grant, including
conditions relating to applicable federal or state securities laws, as it
considers necessary or advisable.
Currently, under the Code, incentive stock options and options intended to
qualify as performance-based compensation under Section 162(m) of the Code may
not be granted at an exercise price less than the fair market value of the
Common Stock on the date of grant (or less than 110% of the fair market value in
the case of incentive stock options granted to optionees holding more than 10%
of the voting power of the Company).
No option will be granted for a term in excess of ten years. The 1999
Incentive Plan permits the Board to determine the manner of payment of the
exercise price of options, including through payment by cash, check or in
connection with a "cashless exercise" through a broker, by surrender to the
Company of shares of Common Stock, by delivery to the Company of a promissory
note or by any other lawful means.
-26-
Restricted Stock Awards. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award.
Stock Available for Awards
Subject to adjustment, Awards may be made under the 1999 Incentive Plan for
up to 1,200,000 shares of Common Stock. If any Award expires or is terminated,
surrendered or canceled without having been fully exercised or is forfeited in
whole or in part or results in any Common Stock not being issued, the unused
Common Stock covered by such Award shall again be available for the grant of
Awards under the 1999 Incentive Plan, subject, however, in the case of incentive
stock options, to any limitation required under the Code. Shares issued under
the 1999 Incentive Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
Eligibility to Receive Awards
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted Awards under the 1999 Incentive Plan. Subject to
adjustment, the maximum number of shares of Common Stock with respect to which
Awards may be granted to any participant under the 1999 Incentive Plan shall be
300,000 per calendar year. This per-participant limit described shall be
construed and applied consistently with Section 162(m) of the Code.
As of March 1, 1999, approximately 230 persons were eligible to receive
Awards under the 1999 Incentive Plan, including the Company's four executive
officers and seven non-employee directors. The granting of Awards under the 1999
Incentive Plan is discretionary and the Company cannot now determine the number
or type of Awards to be granted in the future to any person or group.
Administration
The 1999 Incentive Plan is administered by the Compensation and Stock
Option Committee who then recommends awards to the Board of Directors for
approval. The Board has authority to grant Awards and to adopt, amend and repeal
such administrative rules, guidelines and practices relating to the 1999
Incentive Plan as it shall deem advisable. Pursuant to the terms of the 1999
Incentive Plan, the Board of Directors may delegate authority under the 1999
Incentive Plan to one or more committees of the Board, and subject to certain
limitations, to one or more executive
-27-
officers of the Company. Subject to any applicable limitations contained in the
1999 Incentive Plan, the Board of Directors, or any committee or executive
officer to whom the Board delegates authority, as the case may be, selects the
recipients of Awards and determines (i) the number of shares of Common Stock
covered by options and the dates upon which such options become exercisable,
(ii) the exercise price of options, (iii) the duration of options, and (iv) the
number of shares of Common Stock subject to any restricted stock or other
stock-based Awards and the terms and conditions of such Awards, including
conditions for repurchase, issue price and repurchase price.
The Board of Directors may make appropriate adjustments in connection with
the 1999 Incentive Plan and any outstanding Awards to reflect stock dividends,
stock splits and other certain events that affect the Company's capitalization.
In the event of a merger, liquidation or other Acquisition Event (as defined in
the 1999 Incentive Plan), the Board of Directors is authorized to provide for
outstanding options or other stock-based Awards to be assumed or substituted
for, to accelerate the Awards to make them fully exercisable prior to
consummation of the Acquisition Event, or to provide for a cash-out of the value
of any outstanding options. Upon the occurrence of an Acquisition Event in the
case of restricted stock, the rights of the Company shall inure to the benefit
of the Company's successor. If any Award expires or is terminated, surrendered,
canceled or forfeited, the unused shares of Common Stock covered by such Award
will again be available for grant under the 1999 Incentive Plan.
Amendment or Termination
No Award may be made under the 1999 Incentive Plan after March 16, 2009,
but Awards previously granted may extend beyond that date. The Board may amend,
modify or terminate any outstanding Award, including but not limited to,
substituting therefor another Award of the same or a different type, changing
the date of exercise or realization, and converting an incentive stock option to
a nonstatutory stock option. The Board may also amend, suspend or terminate the
1999 Incentive Plan or any portion thereof at any time, provided that, to the
extent required by Section 162(m) of the Code, no Award granted to a participant
designated as subject to Section 162(m) by the Board after the date of such
amendment shall become exercisable, realizable or vested, as applicable to such
Award (to the extent that such amendment to the 1999 Incentive Plan was required
to grant such Award to a particular participant), unless and until such
amendment shall have been approved by the Company's stockholders as required by
Section 162(m) (including the vote required under Section 162(m)).
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
1999 Incentive Plan and with respect to the sale of Common Stock acquired under
the 1999 Incentive Plan.
-28-
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 however, 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 all or a portion of the
gain recognized by the participant will be ordinary compensation income 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 in an amount 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.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option 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 Dateexercise date
over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
-29-
loss in an amount equal to the excess ofdifference between the sale price of the NSO
Stock overand the participant's tax basis in the NSO Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
NSO Stock for more than one year prior to the date of the sale.
14
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock Award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary compensation income, for the year in which
the Award is granted, in an amount equal to the difference between the fair
market value of the Common Stock at the time the Award is granted and the
purchase price paid for the Common Stock. If a Section 83(b) Election is not
made, the participant will recognize ordinary compensation income, at the time
that the forfeiture provisions or restrictions on transfer lapse, in an amount
equal to the difference between the fair market value of the Common Stock at the
time of such lapse and the original purchase price paid for the Common Stock.
The participant will have a basis in the Common Stock acquired equal to the sum
of the price paid and the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss in an amount
equal to the difference between the sale price of the Common Stock and the
participant's basis in the Common Stock. This capital gain or loss will be a
long-term capital gain or loss if the shares are held for more than one year.
For this purpose, the holding period shall begin just after the date on which
the forfeiture provisions or restrictions lapse if a Section 83(b) Election is
not made or just after the Award is granted if a Section 83(b) Election is made.
Tax Consequences to the Company
The grant of an optionAward under the 19911999 Incentive Plan will have no tax
consequences to the Company. Moreover, in general, neither the exercise of an
incentive stock option nor the sale of any Common Stock acquired under the 19911999
Incentive Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the 19911999 Incentive Plan, including in connection with a restricted stock Award
or as a result of the exercise of a nonstatutory stock option or a Disqualifying
Disposition. Any such deduction will be subject to the limitations of Section
162(m) of the Code.
The Company will have a withholding obligation with respect to ordinary
compensation income recognized by participants with respect to NSOs under the
1991 Plan who are employees or otherwise subject to withholding.
BOARD RECOMMENDATION-30-
Board Recommendation
The Board of Directors believes that the amendment toapproval of the 19911999 Incentive
Plan
increasing the number of shares of Common Stock authorized for issuance from
2,600,000 to 3,100,000 shares is in the best interests of the Company and its stockholders and therefore
recommends that the stockholders vote FOR the amendment.adoption of the 1999 Incentive
Plan.
PROPOSAL 3 --5 - RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP as auditors
of the Company for the fiscal year ending December 31, 1998,1999, subject to
ratification by stockholders at the Meeting. If this proposal is not approved at
the Meeting, the Board of Directors will reconsider this selection. A
representative of PricewaterhouseCoopers LLP is expected to be present at the
Meeting to respond to appropriate questions, and to make a statement if he or
she so desires.
On July 23, 1997, the Company was informed by Coopers & Lybrand L.L.P., who werehad acted as certifying
accountants for the Company's independent accountantsCompany for the years ended December 31, 1996 and 1995,
informed the Company that it was resigning as the Company's auditors effective
as of that date. Coopers & Lybrand L.L.P.'sNone of the prior certifying accountants' reports on the
Company's 1996 and 1995
financial statements for the past two years contained noan adverse
opinion or disclaimer of opinion, and
were notor was qualified or modified as to
uncertainty, audit scope or accounting principle.principles. The decision to terminate the
client-auditor relationship between the Company and Coopers & Lybrand L.L.P. was
madeinitiated by Coopers & Lybrand L.L.P. and accordingly neither the Company's
Board of Directors nor its Audit Committee participated in thea decision to change
the Company's independent accountants. ForAt the end of the fiscal years ended
December 31, 1996 and 1995 the Company iswas unaware of any disagreementsdisagreement with
Coopers & Lybrand L.L.P. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which disagreements would have
caused Coopers & Lybrand L.L.P. to make reference theretoto the subject matter in
theirconnection with any report on the financial statements for such periods.it has issued.
On September 8, 1997, the Company engaged Price Waterhouse LLP to act as
itsthe Company's independent accountants.certified public accountant. The Company did not
consult with Price Waterhouse LLP during the fiscal years ended December 31,1995 and 1996, and 1995 andor any
subsequent interim period prior to engaging them regarding matters that were or
should have been subject to Statement on Auditing Standard No. 50 or any subject
matter of a disagreement or reportable event with its former accountant.
15On July 1, 1998 Price Waterhouse LLP and Coopers & Lybrand L.L.P. merged to
become PricewaterhouseCoopers LLP. The Company has decided to retain the new
entity, PricewaterhouseCoopers LLP, as its auditors.
-31-
STOCKHOLDER PROPOSALS FOR 19992000 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 19992000 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
offices, Wheat Road and Lincoln Avenue, Buena, New Jersey 08310, no later than
Thursday, December 17, 1998,16, 1999, in order to be considered for inclusion in the
Proxy Statement relating to that meeting.
If a stockholder of the Company wishes to present a proposal before the
19992000 Annual Meeting but does not wish to have the proposal considered for
inclusion in the Company's proxy statement and proxy card, such stockholder must
also give written notice to the Secretary of the Company at the address noted
above. The Secretary must receivehas not received notice of such noticematter prior
to March 2, 1999. If a
stockholder fails to provide timely notice of a proposal to be presented at the
1999 Annual Meeting, the proxies designated by the Board of Directors ofTuesday, February 29, 2000, the Company willshall have discretionary authority to
vote on any such proposal.matter, if the Company includes a specific statement in the proxy
statement or form of proxy to the effect that it has not received such notice in
a timely fashion.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews. The Company will also request brokerage
houses, custodians, nominees and fiduciaries to forward copies of the proxy
material to those persons for whom they hold shares and request instructions for
voting the Proxies. The Company will reimburse such brokerage houses and other
persons for their reasonable expenses in connection with this distribution.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
By Order of the Board of Directors,
ROBERTRobert E. MCDANIEL,McDaniel,
Secretary
August 28, 1998
16
APPENDIX A
IGI, INC.
1991 STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this plan (the "Plan") is to encourage key employees,
including officers, of IGI, Inc., a Delaware corporation, ("IGI") and any
present or future subsidiary and parent of IGI (hereinafter collectively
referred to as the "Company") to acquire shares of common stock of IGI, $.01 par
value per share, (the "Common Stock") and thereby increase their proprietary
interest in the Company's success and provide an added incentive to remain in
the employ of the Company. It is also the purpose of the Plan to grant options
to purchase Common Stock to Eligible Directors of IGI (as defined in Section 4
of the Plan) in order to enhance the Company's ability to attract and retain the
services of such persons, to provide additional incentive to them and to
encourage the highest level of performance by them by offering them a
proprietary interest in the Company's success. The words parent and subsidiary
shall be interpreted in accordance with Section 422A and Section 425 of the
Internal Revenue Code of 1986, as from time to time amended (the "Code"). It is
intended that options granted under the Plan shall constitute either "incentive
stock options" within the meaning of Section 422A of the Code, or "non-qualified
options," as determined by the Committee named in Section 3 of the Plan in its
sole discretion and indicated on each form of option grant (the "Option Grant"),
and the terms of the Plan and Option Grants shall be construed accordingly,
provided, however, that Eligible Directors shall be granted only non-qualified
options.
2. Shares Reserved under the Plan
Subject to the adjustment provided in Section 9, the aggregate number of
shares of Common Stock of IGI which may be issued and sold pursuant to options
granted under the Plan shall not exceed 500,000 shares of Common Stock, which
may be either authorized but unissued shares or treasury shares. If any options
granted under the Plan shall terminate or expire without being fully exercised,
the shares which have not been purchased will again become available for
purposes of the Plan.
3. Administration
The Plan shall be administered solely by a committee (the "Committee")
consisting of not less than three (3) members of the Board of Directors of IGI
(the "Board"). None of the members of the Committee shall be, or shall have been
at any time within one year prior to the date of his appointment to the
Committee, a person who in the opinion of counsel to the Company is not a
A-1
"disinterested person" as such term is used in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"). The Committee shall be
appointed by, and shall serve at the pleasure of, the Board of Directors. A
majority of the members present at any meeting at which a quorum is present, and
any acts approved in writing by all of the members of the Committee without a
meeting, shall constitute the acts of the Committee. The Committee shall have
the powers granted to it in Sections 3, 4, 5, 7, and 8 of this Plan. The
Committee is authorized to interpret the Plan and, subject to the provisions of
the Plan, to prescribe, amend, and rescind rules and regulations relating
thereto. The Committee is further authorized, subject to the express provisions
of the Plan, to alter or amend the form of Option Grant attached hereto and to
make all other determinations necessary or advisable in the administration of
the Plan. The interpretation and administration by the Committee of any
provisions of the Plan and the Option Grant shall be final and conclusive on all
persons having any interest therein.
No member of the Committee or the Board shall be held liable for any action
or determination made in good faith with respect to the Plan or any option
granted thereunder.
4. Option Grants
Options to purchase shares of Common Stock under the Plan may be granted to
key employees (including officers and directors who are employees) of the
Company. In selecting the employees to whom options will be granted and in
deciding how many shares of Common Stock will be subject to each option, the
Committee shall give consideration to the importance of an employee's duties, to
his experience with the Company, to his future value to the Company, to his
present and potential contribution to the success of the Company, and to such
other factors as the Committee may deem relevant. Subject to the express
provisions of the Plan and the form of Option Grant incorporated herein by
reference as from time to time altered or amended, the Committee shall have
authority to determine with respect to each Option Grant executed and delivered
to a key employee the number of installments, the number of shares of Common
Stock in each installment, and the exercise dates, and, to the extent not
inconsistent with the applicable provisions of the Code, if any, may specify
additional restrictions and conditions for any Option Grant executed and
delivered to a key employee. Each incentive stock option shall expire not later
than ten years from the date of the grant of such option.
Except as provided in Section 7 below, no incentive stock option may be
granted to any employee who, at the time such option is granted, owns stock
possessing more than 10 percent of the
A-2
total combined voting power of all classes of stock of the Company within the
meaning of Section 422A of the Code.
The date of grant of an option to a key employee under the Plan shall be
the date the Committee votes to grant the option, but no optionee who is a key
employee shall have the right to exercise his option until the Company has
executed and delivered the Option Grant to such optionee. Each option granted
under the Plan to a key employee shall be evidenced by and subject to the terms
and conditions of the Option Grant which is incorporated into the Plan by
reference as from time to time altered or amended.
No stock option may be transferred by the optionee, other than by will or
the laws of descent and distribution or a distribution pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act or the rules thereunder. A stock option can be
exercised during the optionee's life only by him, or by any person to whom such
option may have been transferred as described in this paragraph.
"Eligible Directors" shall mean directors who are directors on the date of
grant (and, if applicable, on the date of amendment of a grant), who are not
employees of the Company and who are not eligible to participate under any other
Company stock related plan unless in the opinion of counsel to the Company such
participation would not impair the status of such Eligible Director as a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Act.
Sixty days after his or her initial election as a director by either the
Board of Directors or the Company's shareholders, each Eligible Director shall
be granted a non-qualified option to purchase 20,000 shares of Common Stock, and
each Eligible Director who is a director on the last business day of calendar
1992 shall on such day be granted a non-qualified option to purchase 10,000
shares of Common Stock, and each Eligible Director who is a director on the last
business day of calendar 1993 shall on such day be granted a non-qualified
option to purchase 10,000 shares of Common Stock.
The date of grant of an option to an Eligible Director under the Plan shall
be the applicable day referred to immediately above.
5. Option Plan
The price per share at which each option granted under the Plan to a key
employee may be exercised shall be determined by the
A-3
Committee subject to the provisions of this Section 5. In the case of an
incentive stock option, the exercise price shall not be less than the fair
market value per share on the date of grant, as determined by the Committee in
accordance with applicable provisions of the Code then in effect with respect to
incentive stock options. In the case of a non-qualified option, the exercise
price shall not be less that 50% of the fair market value per share on the date
of grant, as so determined. The purchase price per share of Common Stock under
each non-qualified option granted to an Eligible Director shall be the fair
market value of such Common Stock as determined by the closing sales price of
such Common Stock on the principal exchange on which such Common Stock is traded
on the date of grant, or if there are no sales on such date, on the trading day
next preceding the date of grant on which a sale took place, or, if the Common
Stock is not so traded, then as determined by a principal market maker for such
Common Stock selected by the Committee. In no event shall the option price per
share for any option under the Plan be less than the par value per share.
6. Limitation on Amount
The aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by an individual during any calendar year under
all plans of the Company shall not exceed $100,000.
7. Special Rule for 10 Percent Shareholders
The Committee may grant incentive stock options under this Plan to persons
who own more than 10 percent of the combined voting stock of the Company if (i)
at the time of the Option Grant the price per share at which the option may be
exercised is at least 110 percent of the fair market value of the stock subject
to the option and (ii) such option is not exercisable after the expiration of
five years from the date such option is granted.
8. Non-Qualified Options
Notwithstanding the provisions of Sections 4, 5, 6 and 7 of this Plan, the
Committee may grant options which in one or more respects do not meet the
requirements for incentive stock options established by Section 422A of the
Code. The Committee shall indicate on each Option Grant whether an incentive
stock option within the meaning of Section 422A of the Code or a non-qualified
option is thereby granted, provided, however, that Eligible Directors shall be
granted only non-qualified options.
A-4
Except as otherwise provided in this Plan, the Committee, in its sole
discretion, shall establish the terms and conditions for each non-qualified
option which it grants. Such terms and conditions may, but need not, include
some or all of the provisions of Section 4, 5, 6 and 7 of this Plan with respect
to incentive stock options. If the Committee grants an option which in all
respects meets the requirements for incentive stock options it may nonetheless
designate such option a non-qualified option on the Option Grant, in which case
it shall be deemed not to be an incentive stock option.
Each option granted under the Plan to an Eligible Director shall be
evidenced by and subject to the terms and conditions of an Option Grant.
Notwithstanding the provisions of the second paragraph of this Section 8, each
Option Grant executed and delivered to an Eligible Director shall contain the
following terms and conditions. Each non-qualified option granted to an Eligible
Director shall expire ten years from the date of grant of such option, and shall
be exercisable in full beginning on the date which is six months after the date
of grant thereof and not before. Each Eligible Director to whom an option is
granted may exercise such option from time to time, in whole or in part, during
the period that it is exercisable, by payment of the option price of each share
purchased, in cash or by delivery of other shares of the Company's Common Stock
owned by the Eligible Director with a fair market value equal to the exercise
price of the optioned shares purchased, or in any combination of the two forms
of payment. Options granted to an Eligible Director shall cease to be
exercisable at the earlier of their expiration or three years after the date
such Director ceases to be a director for any reason. If an Eligible Director
ceases to be a director on account of his death, any non-qualified option
previously granted to him, whether or not exercisable at the date of death, may
be exercised by his executor, administrator or the person or persons to whom his
rights under the option shall pass by will or the applicable laws of descent and
distribution, at any time within three years after the date of death, but in no
event after the expiration of the option. In the event of an exercise of an
option granted to an Eligible Director, the shares of Common Stock subject
thereto will be acquired for investment and not with a view to distribution
thereof unless there shall be an effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), with respect thereto. In
the event that the Company, upon the advice of counsel, deems it necessary to
list upon official notice of issuance shares to be issued pursuant to the Plan
on a national securities exchange or to register under the 1933 Act or other
applicable federal or state statute any shares to be issued pursuant to the
Plan, or to qualify any such shares for exemption from the registration
requirements of the 1933 Act under the Rules and Regulations of the Securities
and
A-5
Exchange Commission or for similar exemption under state law, then the Company
shall notify each Eligible Director to that effect and no shares of Common Stock
subject to an option shall be issued until such registration, listing or
exemption has been obtained. The Company shall make prompt application for any
such registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange which it deems necessary and shall make
reasonable efforts to cause such registration, listing or exemption to become
and remain effective. Nothing in this Plan or in the Option Grant will confer
upon any Eligible Director the right to continue as a director of IGI. The
shares of Common Stock issued on exercise of the option shall be subject to any
restrictions on transfer then in effect pursuant to the Certificate of
Incorporation or By-laws of the Company.
9. Adjustment of Shares Reserved Under the Plan
The aggregate number and kind of shares reserved under the Plan, the
maximum number of shares as to which options may be granted to any individual
and the option price per share shall be appropriately adjusted by the Board in
the event of any recapitalization of the Company, but no adjustment in the
option price shall be made which would reduce the option price per share to less
than the par value per share.
10. Dissolution or Reorganization
Prior to a dissolution, liquidation, merger, consolidation, or
reorganization of the Company (the "Event"), the Board may decide to terminate
each outstanding option. If the Board so decides, such option shall terminate as
of the effective date of the Event, but the Board shall suspend the exercise of
all outstanding options a reasonable time prior to the Event, giving each
optionee not less than fourteen days' written notice of the date of suspension,
prior to which an optionee may purchase in whole or in part the shares available
to him as of the date of receipt of the notice. If the Event is not consummated,
the suspension shall be removed and all options shall continue in full force and
effect.
11. Amendment and Termination of Plan
The Board may amend, suspend, or terminate the Plan, including the form of
Option Grant incorporated herein by reference. No such action, however, may,
without approval or ratification by the shareholders, increase the maximum
number of shares reserved under the Plan except as provided in Section 9, alter
the class or classes of employees eligible for options, change the number of
shares of Common Stock subject to options to be granted to Eligible Directors or
the exercise price thereof
A-6
(other than pursuant to Section 9 of this Plan), or the date of grant or the
terms and conditions expressly set forth in Section 8 of this Plan, with respect
to options granted to Eligible Directors, or make any other change which,
pursuant to the Code or regulations thereunder or Section 16(b) of the Act and
regulations promulgated thereunder, requires action' by the shareholders. No
such action may, without the consent of the holder of the option, alter or
impair any option previously granted. The provisions of the Plan which relate to
the grant of options to Eligible Directors shall not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder.
In any event, the Plan shall terminate 10 years from the date of adoption
by the Board of Directors, or if earlier, from the date of approval by the
shareholders. Any shares remaining under the Plan at the time of termination
which are not subject to outstanding options and any shares which thereafter
become available because of the expiration or termination of an option shall
cease to be reserved for purposes of the Plan.
12. Right to Terminate Employment
Nothing contained herein or in any Option Grant executed pursuant hereto
shall restrict the right of the Company to terminate the employment of any
optionee at any time.
13. Date of Adoption
The date of adoption of this Plan by the Board and the Plan's effective
date is March 13, 1991.
14. Date of Approval
The date of approval of this Plan by the shareholders is May 9, 1991.
IGI, INC.
KEY EMPLOYEE OPTION GRANT
This incentive stock option/non-qualified option, granted as of ,
19 (the "Option") is granted by IGI, Inc. ("IGI") to (the
"Optionee"), an employee of IGI or a parent or subsidiary of IGI (hereinafter
collectively referred to as the "Company").
A-7
1. Shares Subject to Option
Pursuant to the provisions of the IGI, Inc. 1991 Stock Option Plan, as
amended from time to time (the "Plan"), IGI hereby grants to the Optionee an
option to purchase shares of its Common Stock ($.01 par value) (the
"Optioned Shares") at a price of $ per share, in accordance with and
subject to all the terms and conditions of the Plan and subject to the terms and
conditions hereinafter set forth. The Plan and any amendments are hereby
incorporated by reference and made a part hereof.
2. Term and Exercise of Option
Except as otherwise provided in the Plan, or in this Option, the Option
shall terminate at the close of business years from the date of grant and may
be exercised only by the Optionee or, to the extent provided in Section 3(b)
hereof, by his legal representative.
While the Option is effective and the Optionee continues to be employed by
the Company, the Optioned Shares shall become available for purchase by the
Optionee in installments on the following dates:
Date Number of Shares
Unpurchased portions of available installments may be accumulated and
subsequently purchased by the Optionee. The option price of each share purchased
shall be paid in cash or by delivery of other shares of the Company's Common
Stock owned by the Optionee with a fair market value equal to the exercise price
of the Optioned Shares to be purchased, or in any combination of the two forms
of payment.
If the Option is not an incentive stock option within the meaning of
Section 422A of the Internal Revenue Code of 1986, as from time to time amended,
then in addition to payment of the option price for each share purchased, the
Optionee shall pay the amount of federal and state withholding taxes determined
by the Committee named in Section 3 of the Plan (or by the Committee's
designate) to be owing with respect to the compensation income that the Optionee
will realize upon each share purchased.
The Company, upon fulfillment of the requirements for exercise, including
receipt of the payment of the purchase price
A-8
and all applicable withholding taxes, shall deliver the shares purchased
hereunder to the Optionee.
3. Terms and Conditions of Exercise
Each exercise and purchase of shares pursuant to the Option shall be
subject to the following terms and conditions:
(a) The Optionee shall have remained in the continuous employ of the
Company from the date of the Option Grant until the date of exercise,
provided that, if the Optionee's employment terminates for any cause other
than death, the Optionee may purchase in whole or in part within three
months after termination of employment the shares available to him on his
termination date provided that the expiration date of the Option as to such
shares shall not have occurred.
(b) If the Optionee dies, then his legal representative or the person
or persons to whom his rights under the Option shall pass by will or by the
applicable laws of descent and distribution shall be entitled, subject to
the condition that no Option shall be exercisable after the expiration of
ten years from the date it was granted, within twelve months after the date
of his death, to exercise the Option to the extent that the Optionee would
have been entitled to exercise the Option on the date of his death.
(c) The Optionee shall hold the Optioned Shares for investment and not
with a view to, or for resale in connection with, any public distribution
of such shares, and if requested, shall deliver to the Company appropriate
certificates to that effect. This restriction shall terminate upon the
registration of such shares under federal and state securities laws.
(d) In the event that the Company, upon the advice of counsel, deems
it necessary to list upon official notice of issuance any shares to be
issued pursuant to the Plan on a national securities exchange or to
register under the Securities Act of 1933 or other applicable federal or
state statute any shares to be issued pursuant to the Plan, or to qualify
any such shares for exemption from the registration requirements of the
Securities Act of 1933 under the Rules and Regulations of the Securities
and Exchange Commission or for similar exemption under state law, then the
Company shall notify the Optionee to that effect and no Optioned Shares
shall be issued until such registration, listing or exemption has been
obtained. The Company shall make prompt application for any such
registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange
A-9
which it deems necessary and shall make reasonable efforts to cause such
registration, listing or exemption to become and remain effective.
4. Option Non-Transferable
The Option may not be transferred by the Optionee or by operation of law
other than by will or by the laws of descent and distribution, or by a
distribution pursuant to a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder. It may be exercised during the lifetime of the Optionee only by him
or by any person to whom the Option may have been transferred as described in
this paragraph.
5. Right to Terminate
Nothing contained in the Option Grant shall restrict the right of the
Company to terminate the employment of the Optionee at any time.
6. Dissolution or Reorganization
Prior to dissolution, liquidation, merger, consolidation, or reorganization
of the Company (the "Event"), the Board may decide to terminate each outstanding
option. If the Board so decides, each option shall terminate as of the effective
date of the Event, but the Board shall suspend the exercise of all outstanding
options a reasonable time prior to the Event, giving each Optionee not less than
fourteen days' written notice of the date of suspension, prior to which an
Optionee may purchase in whole or in part the Optioned Shares available to him
as of the date of receipt of the notice. If the Event is not consummated, the
suspension shall be removed and all options shall continue in full force and
effect.
7. Restrictions on Transfer of Stock
The shares of stock issued on exercise of the Option shall be subject to
any restrictions on transfer then in effect pursuant to the Certificate of
Incorporation or By-laws of the Company and to any other restrictions or
provisions attached hereto and made a part hereof or set forth in any contract
or agreement binding on the Optionee.
8. Notice Concerning Disposition of Shares
If the Option granted hereby is an incentive stock option, any disposition
by the Optionee of Optioned Shares
A-10
purchased under the Option within two years from the date of grant or within one
year after their transfer to the Optionee will deprive the Optionee of certain
tax benefits with respect to the Option which might otherwise be available.
Optionees are urged to review the Prospectus for the offering under which the
Option is granted for a more detailed discussion of the federal tax consequences
of such a disposition under current law.
IGI, INC.
(Corporate Seal)
By:___________________________
JOHN P. GALLO, President
Attest:_______________________
Secretary
A-11
IGI, INC.
AMENDMENT NO. 1
IGI, INC. 1991 STOCK OPTION PLAN
The IGI, Inc. 1991 Stock Option Plan (the "Plan") is hereby amended as set
forth below:
1. Increase in Authorized Shares
Section 2 of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the adjustment provided in Section 9, the
aggregate number of shares of Common Stock of IGI which may be
issued and sold pursuant to options granted under the Plan shall
not exceed 1,200,000 shares of Common Stock, which may be either
authorized but unissued shares or treasury shares."
2. Eligible Director Shares
The penultimate paragraph of Section 4 of the Plan is hereby amended by
adding the following sentence to the end thereof:
"In addition to the foregoing, each Eligible Director who is
a director on the last business day of calendar 1994 shall on such
day be granted a non-qualified option to purchase 10,000 shares of
Common Stock, each Eligible Director who is a director on the last
business day of calendar 1995 shall on such day be granted a
non-qualified option to purchase 10,000 shares of Common Stock,
and each Eligible Director who is a director on the last business
day of calendar 1996 shall on such day be granted a non-qualified
option to purchase 10,000 shares of Common Stock."
3. Transferability of Shares
The first sentence of the paragraph in Section 4 of the Plan immediately
preceding the paragraph defining "Eligible Directors" is hereby deleted and the
following shall be substituted in lieu thereof:
"No stock option may be transferred by the optionee, other
than by will or the laws of descent and distribution or, in the
case of non-qualified options, a distribution pursuant to a
qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act or the rules
thereunder."
A-12
4. In all other respects, the Plan shall remain in full force and effect.
Adopted by the Board of
Directors on March 11, 1993
Adopted by the Stockholders on
May 12, 1993
A-13
IGI, INC.
AMENDMENT NO. 2
IGI, INC. 1991 STOCK OPTION PLAN
The IGI, Inc. 1991 Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:
1. Section 1 of the Plan is hereby deleted in its entirety and replaced by the
following:
"The purpose of this plan (the "Plan") is to encourage key
employees, including officers, of IGI, Inc., a Delaware
corporation ("IGI"), and any present or future subsidiary and
parent of IGI (hereinafter collectively referred to as the
"Company") to acquire shares of common stock of IGI, $.01 par
value per share (the "Common Stock"), and thereby increase their
proprietary interest in the Company's success and provide an added
incentive to remain in the employ of the Company. It is also the
purpose of the Plan to grant options to purchase Common Stock to
Eligible Directors of IGI (as defined in Section 4 of the Plan)
and consultants and advisors to the Company in order to enhance
the Company's ability to attract and retain the services of such
persons, to provide additional incentive to them and to encourage
the highest level of performance by them by offering them a
proprietary interest in the Company's success. The words parent
and subsidiary shall be interpreted in accordance with Section
422A and Section 425 of the Internal Revenue Code of 1986, as from
time to time amended (the "Code"). It is intended that options
granted under the Plan shall constitute either "incentive stock
options" within the meaning of Section 422A of the Code, or
"non-qualified options," as determined by the Committee named in
Section 3 of the Plan in its sole discretion and indicated on each
form of option grant (the "Option Grant"), and the terms of the
Plan and Option Grants shall be construed accordingly, provided,
however, that Eligible Directors and consultants and advisors to
the Company shall be granted only non-qualified options."
A-14
2. Section 2 of the Plan is hereby deleted in its entirety and replaced by the
following:
"Subject to the adjustment provided in Section 9, the
aggregate number of shares of Common Stock of IGI which may be
issued and sold pursuant to options granted under the Plan shall
not exceed 1,900,000 shares of Common Stock, which may be either
authorized but unissued shares or treasury shares. Subject to the
adjustment provided in Section 9, the maximum number of shares
with respect to which options may be granted to any person under
the Plan shall not exceed 100,000 shares of Common Stock during
any calendar year during the term of the Plan. For the purpose of
calculating such maximum number, (a) an option shall continue to
be treated as outstanding notwithstanding its repricing,
cancellation or expiration and (b) the repricing of an outstanding
option or the issuance of a new option in substitution for a
cancelled option shall be deemed to constitute the grant of a new
additional option, separate from the original grant that is
repriced or cancelled. If any options granted under the Plan shall
terminate or expire without being fully exercised, the shares
which have not been purchased will again become available for
purposes of the Plan."
3. The first paragraph of Section 4 of the Plan is hereby deleted in its
entirety and replaced by the following:
"Options to purchase shares of Common Stock under the Plan may be
granted to key employees (including officers and directors who are
employees) of the Company and consultants and advisors to the
Company. In selecting the individuals to whom options will be
granted and in deciding how many shares of Common Stock will be
subject to each option, the Committee shall give consideration to
the importance of an optionee's duties and responsibilities, to
his experience with the Company, to his future value to the
Company, to his present and potential contribution to the success
of the Company, and to such other factors as the Committee may
deem relevant. Subject to the express provisions of the Plan and
the form of Option Grant incorporated herein by reference as from
time to time altered or amended, the Committee shall have
authority to determine with respect to each Option Grant executed
and delivered to an optionee the number of installments, the
number of shares of Common Stock in each installment, and the
exercise dates, and, to the extent not inconsistent with the
applicable provisions of the Code, if any, may specify additional
restrictions and conditions for any Option Grant executed and
delivered to an optionee. Each incentive stock option shall expire
not later than ten years from the date of the grant of such
option."
A-15
4. The third paragraph of Section 4 of the Plan is hereby deleted in its
entirety and replaced by the following:
"The date of grant of an option to an optionee under the Plan
(other than an Eligible Director) shall be the date the Committee
votes to grant the option, but no such optionee shall have the
right to exercise his option until the Company has executed and
delivered the Option Grant to such optionee. Each option granted
under the Plan to an optionee (other than an Eligible Director)
shall be evidenced by and subject to the terms and conditions of
the Option Grant which is incorporated into the Plan by reference
as from time to time altered or amended."
5. The first sentence of Section 5 of the Plan is hereby deleted in its entirety
and replaced by the following:
"The price per share at which each option granted under the Plan
to an optionee (other than an Eligible Director) may be exercised
shall be determined by the Committee subject to the provisions of
this Section 5."
6. The last sentence of the first paragraph of Section 8 of the Plan is
hereby deleted in its entirety and replaced by the following:
"The Committee shall indicate on each Option Grant whether an
incentive stock option within the meaning of Section 422A of the
Code or a non-qualified option is thereby granted, provided,
however, that Eligible Directors and consultants and advisors to
the Company shall be granted only non-qualified options."
7. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on March 22, 1995
Adopted by the
stockholders on
May 9, 1995
A-16
IGI, INC.
AMENDMENT NO. 3
IGI, INC. 1991 STOCK OPTION PLAN
The IGI, Inc. 1991 Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:
1. Section 2 of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the adjustment provided in Section 9, the
aggregate number of shares of Common Stock of IGI which may be
issued and sold pursuant to options granted under the Plan shall
not exceed 2,600,000 shares of Common Stock, which may be either
authorized but unissued shares or treasury shares."
2. Section 3 of the Plan is hereby amended by deleting the second sentence
thereof.
3. The first paragraph of Section 4 of the Plan is hereby amended by deleting
the first sentence thereof and substituting the following therefor:
"Options to purchase shares of Common Stock under the Plan
may be granted to key employees (including officers and directors
who are employees) of the Company and consultants and advisors to
the Company and, in accordance with the formula provisions set
forth in Section 4 of the Plan, shall be granted to Eligible
Directors (as defined below)."
4. The fourth paragraph of Section 4 of the Plan is hereby amended by
deleting the first sentence thereof and substituting the following
therefor:
"Except as the Committee may otherwise determine or provide
in an Option Grant, options shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the optionee,
either voluntarily or by operation of law, except by will or the
laws of descent and distribution."
5. The fifth paragraph of Section 4 of the Plan is hereby deleted in its
entirety and replaced by the following:
"'Eligible Directors' shall mean directors who are not employees
of the Company on the date of grant."
A-17
6. The last sentence of the penultimate paragraph of Section 4 of the
Plan is hereby deleted in its entirety and replaced by the following:
"In addition to the foregoing, each Eligible Director shall
be granted a non-qualified option to purchase 10,000 shares of
Common Stock on the last business day of each of calendar 1994,
1995, 1996, 1997, 1998 and 1999; provided, however, that he or she
is then an Eligible Director on such date."
7. The word "Act" in the second sentence of Section 11 of the Plan is hereby
amended to read "Securities Exchange Act of 1934, as amended,".
8. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on March 19, 1997
Adopted by the
Stockholders on
May 19, 1997
A-18
IGI, INC.
AMENDMENT NO. 4
IGI, INC. 1991 STOCK OPTION PLAN
The IGI, Inc. 1991 Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:
1. Section 2 of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the adjustment provided in Section 9, the aggregate number
of shares of Common Stock of IGI which may be issued and sold pursuant to
options granted under the Plan shall not exceed 3,100,000 shares of Common
Stock, which may be either authorized but unissued shares or treasury
shares."
2. In all other respects, the Plan shall remain if full force and effect.
Adopted by the
Board of Directors
on March 17, 1998April 14, 1999
-32-
IGI, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 24, 1998MAY 13, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, having received notice of the meeting and management's
proxy statement therefor, and revoking all prior proxies, hereby appoint(s)
Edward B. Hager and Paul P. Brountas,Robert E. McDaniel, and each of them singly, attorneys or
attorney of the undersigned (with full power of substitution in them and each of
them) for and in the name(s) of the undersigned to attend the Annual Meeting of
Stockholders of IGI, Inc. (the "Company"), to be held on Thursday, September 24,
1998May 13, 1999
at 1:10:00 p.m.a.m. at the law offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, and at any adjourned sessions thereof, and there to vote and act
upon the following matters in respect of all shares of stock of the Company
which the undersigned will be entitled to vote or act upon, with all the powers
the undersigned would possess if personally present.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL, THIS PROXY
WILL BE VOTED FOR SUCH PROPOSAL.
PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
Please sign this proxyProxy exactly as your name appears on the books of the Company.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
| |[ ] PLEASE MARK VOTES AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN PROPOSAL 1
AND "FOR" PROPOSALS 2, 3, 4 AND 5.
(1) Election of Directors
| |Directors.
[ ] For | |All Nominees
[ ] Withhold
| |[ ] For allAll Except
Edward B. Hager, M.D., Jane E. Hager, David G. Pinosky, M.D., Constantine L. Hampers, M.D., Paul D.
Paganucci, Terrence O'Donnell, Terrence D. Daniels and F. Steven Berg.Stephen J. Morris.
NOTE: If you do not wish your shares voted "For" a particular nominee, mark the
"For All Except" box and strike a line through the nominee's name.name(s) of the nominee(s).
Your shares voted will be voted for the remaining nominee(s).
(2) To approve an amendmentamendments to the Company's 1991 Stock Option Plan increasingCertificate of Incorporation, as
amended, to (i) increase the number of authorized shares of Common Stock
authorized for issuance from 2,600,00030,000,000 to 3,100,000.50,000,000 and (ii) authorize a new class of Preferred
Stock consisting of 1,000,000 shares.
For | |[ ] Against | |[ ] Abstain | |[ ]
(3) To approve the adoption of the Company's 1999 Employee Stock Purchase Plan.
For [ ] Against [ ] Abstain [ ]
(4) To approve the adoption of the Company's 1999 Stock Incentive Plan.
For [ ] Against [ ] Abstain [ ]
(5) To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for the current fiscal year.
For | |[ ] Against | |[ ] Abstain | |
(4) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.[ ]
(6) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
Please be sure to sign and date this Proxy. Date:
-----------------------
- ---------------------------------- ----------------------------_____________________
__________________________________________ __________________________
Stockholder sign here Co-owner sign here
Appendix A
IGI, INC.
AMENDMENT TO CERTIFICATE
OF INCORPORATION
"FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is 51,000,000 shares, of which 50,000,000 shall be shares of
Common Stock, $.01 par value per share, and 1,000,000 shall be shares of Series
Preferred Stock, $.01 par value per share."
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
-A-1-
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one of more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise specifically provided in this Certificate
of Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of this
Certificate of Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the Corporation.
-A-2-
Appendix B
IGI, Inc.
1999 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this 1999 Employee Stock Purchase Plan (the "Plan") is to
provide eligible employees of IGI, Inc. (the "Company") and certain of its
subsidiaries with opportunities to purchase shares of the Company's common
stock, $.01 par value (the "Common Stock"), commencing on July 1, 1999. Three
hundred thousand (300,000) shares of Common Stock in the aggregate have been
authorized for issuance under this Plan.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours per week and for more than five months in
any calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least 90 days prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
-B-1-
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
3. Offerings. The Company will make one or more offerings ("Offerings") to
employees to purchase stock under this Plan. The first Offering will begin on
July 1, 1999 and will terminate on December 31, 1999. Thereafter, each Offering
will begin on the first day of each year and end on the last day of such year.
Each commencement date of an Offering is hereinafter referred to as an "Offering
Commencement Date" and the duration of each Plan period as a "Plan Period."
During each Plan Period, payroll deductions will be made and held for the
purchase of Common Stock at the end of the Plan Period. The Board or the
Committee may, at its discretion, choose a different Plan Period of twelve (12)
months or less for subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 10 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation (as
defined below) received by the employee during the Plan Period. Unless an
employee files a new form or withdraws from the Plan, his deductions and
purchases will continue at the same rate for future Offerings under the Plan as
long as the Plan remains in effect. The term "Compensation" means the amount of
money reportable on the employee's Federal Income Tax Withholding Statement,
excluding allowances and reimbursements for expenses such as relocation
allowances for travel expenses, income or gains on the exercise of Company stock
options or stock appreciation rights, and similar items, whether or not shown on
the employee's Federal Income Tax Withholding Statement.
5. Deductions. The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction in any dollar amount up to a maximum
of 10% of the Compensation he or she receives during the Plan Period or such
shorter period during which deductions from payroll are made. The minimum
payroll deduction is such percentage of Compensation as may be established from
time to time by the Board or the Committee.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such Common Stock (determined at the
Offering Commencement Date of the Plan Period) for each calendar year in which
the Option is outstanding at any time.
-B-2-
6. Deduction Changes. An employee may decrease or discontinue his payroll
deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee accounts, except to
the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of shares
determined by dividing (a) the product of $2,083 and the number of whole months
in such Plan Period by (b) the closing price (as defined below) on the Offering
Commencement Date of such Plan Period or such other number as may be determined
by the Board prior to the Offering Commencement Date.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
The Wall Street Journal. If no sales of Common Stock were made on such a day,
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his accumulated
payroll deductions on
-B-3-
such date will pay for pursuant to the formula set forth above (but not in
excess of the maximum number determined in the manner set forth above).
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. Rights on Retirement, Death or Termination of Employment. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
-B-4-
15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Committee shall take such steps in
connection with such merger as the Committee shall deem necessary to assure that
the provisions of Section 15 shall thereafter be applicable, as nearly as
reasonably may be, in relation to the said securities or property as to which
such holder of such Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
-B-5-
18. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
21. Governing Law. The Plan shall be governed by Delaware law except to the
extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take effect
on January 1, 1999, subject to approval by the shareholders of the Company as
required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
Adopted by the Board of Directors
on December 7, 1998
-B-6-
APPENDIX C
IGI, INC.
1999 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1999 Stock Incentive Plan (the "Plan") of IGI, Inc., a
Delaware corporation (the "Company"), is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate persons who make (or are expected to make) important contributions to
the Company by providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any of the Company's
present or future subsidiary corporations as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code") and any other business venture (including, without
limitation, joint venture or limited liability company) in which the Company has
a significant interest, as determined by the Board of Directors of the Company
(the "Board").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options or restricted stock awards (each, an "Award")
under the Plan. Each person who has been granted an Award under the Plan shall
be deemed a "Participant."
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered by
the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
-C-1-
(b) Delegation to Executive Officers. To the extent permitted by applicable
law, the Board may delegate to one or more executive officers of the Company the
power to make Awards and exercise such other powers under the Plan as the Board
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 7, Awards may be
made under the Plan for up to 1,200,000 shares of common stock, $.01 par value
per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 7, the
maximum number of shares of Common Stock with respect to which an Award may be
granted to any Participant under the Plan shall be 300,000 per calendar year.
The per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock (each, an
"Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code.
-C-2-
The Company shall have no liability to a Participant, or any other party, if an
Option (or any part thereof) which is intended to be an Incentive Stock Option
is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Board may specify in the applicable
option agreement; provided, however, that no Option will be granted for a term
in excess of 10 years.
(e) Exercise of Option. Options may be exercised by delivery to the Company
of a written notice of exercise signed by the proper person or by any other form
of notice (including electronic notice) approved by the Board together with
payment in full as specified in Section 5(f) for the number of shares for which
the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company
cash or a check sufficient to pay the exercise price;
(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their
fair market value as determined by (or in a manner approved by) the Board
in good faith ("Fair Market Value"), provided (i) such method of payment is
then permitted under applicable law and (ii) such Common Stock was owned by
the Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on
terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or
(5) by any combination of the above permitted forms of payment.
-C-3-
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Adjustments for Changes in Common Stock and Certain Other Events
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 7(a)
applies and Section 7(c) also applies to any event, Section 7(c) shall be
applicable to such event, and this Section 7(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or
-C-4-
dissolution, except to the extent exercised before such effective date. The
Board may specify the effect of a liquidation or dissolution on any Restricted
Stock Award or other Award granted under the Plan at the time of the grant of
such Award.
(c) Acquisition Events
(1) Definition. An "Acquisition Event" shall mean: (a) any merger or
consolidation of the Company with or into another entity as a result of
which the Common Stock is converted into or exchanged for the right to
receive cash, securities or other property or (b) any exchange of shares of
the Company for cash, securities or other property pursuant to a statutory
share exchange transaction.
(2) Consequences of an Acquisition Event on Options. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide
that all outstanding Options shall be assumed, or equivalent options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed
if, following consummation of the Acquisition Event, the Option confers the
right to purchase, for each share of Common Stock subject to the Option
immediately prior to the consummation of the Acquisition Event, the
consideration (whether cash, securities or other property) received as a
result of the Acquisition Event by holders of Common Stock for each share
of Common Stock held immediately prior to the consummation of the
Acquisition Event (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Acquisition Event is not solely
common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise
of Options to consist solely of common stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in fair market value to
the per share consideration received by holders of outstanding shares of
Common Stock as a result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board shall, upon written notice to
the Participants, provide that all then unexercised Options will become
exercisable in full as of a specified time prior to the Acquisition Event
and will terminate immediately prior to the consummation of such
Acquisition Event, except to the extent exercised by the Participants
before the consummation of such Acquisition Event; provided, however, that
in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon
-C-5-
consummation thereof a cash payment for each share of Common Stock
surrendered pursuant to such Acquisition Event (the "Acquisition Price"),
then the Board may instead provide that all outstanding Options shall
terminate upon consummation of such Acquisition Event and that each
Participant shall receive, in exchange therefor, a cash payment equal to
the amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such outstanding Options
(whether or not then exercisable), exceeds (B) the aggregate exercise price
of such Options.
(3) Consequences of an Acquisition Event on Restricted Stock Awards.
Upon the occurrence of an Acquisition Event, the repurchase and other
rights of the Company under each outstanding Restricted Stock Award shall
inure to the benefit of the Company's successor and shall apply to the
cash, securities or other property which the Common Stock was converted
into or exchanged for pursuant to such Acquisition Event in the same manner
and to the same extent as they applied to the Common Stock subject to such
Restricted Stock Award.
8. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument in
such form as the Board shall determine. Such written instrument may be in the
form of an agreement signed by the Company and the Participant or a written
confirming memorandum to the Participant from the Company. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an Award
of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, Participants may, to the extent then permitted under
applicable law, satisfy
-C-6-
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
9. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted
-C-7-
as of the date of the distribution of the dividend (rather than as of the record
date for such dividend), then an optionee who exercises an Option between the
record date and the distribution date for such stock dividend shall be entitled
to receive, on the distribution date, the stock dividend with respect to the
shares of Common Stock acquired upon such Option exercise, notwithstanding the
fact that such shares were not outstanding as of the close of business on the
record date for such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on the
date on which it is adopted by the Board, but no Award granted to a Participant
designated by the Board as subject to Section 162(m) of the Code by the Board
shall become exercisable, vested or realizable, as applicable to such Award,
unless and until the Plan has been approved by the Company's stockholders to the
extent stockholder approval is required by Section 162(m) in the manner required
under Section 162(m) (including the vote required under Section 162(m)). No
Awards shall be granted under the Plan after the completion of ten years from
the earlier of (i) the date on which the Plan was adopted by the Board or (ii)
the date the Plan was approved by the Company's stockholders, but Awards
previously granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that to the extent required by
Section 162(m) of the Code, no Award granted to a Participant designated as
subject to Section 162(m) by the Board after the date of such amendment shall
become exercisable, realizable or vested, as applicable to such Award (to the
extent that such amendment to the Plan was required to grant such Award to a
particular Participant), unless and until such amendment shall have been
approved by the Company's stockholders as required by Section 162(m) (including
the vote required under Section 162(m)).
(e) Governing Law. The provisions of the Plan and all Awards made hereunder
shall be governed by and interpreted in accordance with the laws of the State of
Delaware, without regard to any applicable conflicts of law.
-C-8-