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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CYPROS PHARMACEUTICAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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CYPROS PHARMACEUTICAL CORPORATION
2714 LOKER AVENUE WEST
CARLSBAD, CALIFORNIA 92008
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, FEBRUARY 16, 1999
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Cypros
Pharmaceutical Corporation (the "Company") will be held at the Company's
executive offices, 2714 Loker Avenue West, Carlsbad, California 92008 on
Tuesday, February 16, 1999 at 10:00 a.m. (local time), for the following
purposes:
(1) To elect members of the Board of Directors to serve for the ensuing
year and until their successors are elected;
(2) To approve the Company's 1993 Non-Employee Directors' Equity
Incentive Plan, as amended, to (i) increase the aggregate number of shares
of the Company's Common Stock authorized for issuance under such plan by
100,000 shares from 250,000 to 350,000 shares and (ii) provide for the
automatic grant to non-employee directors of stock bonus awards comprised of
$2,000 of Common Stock for each Board meeting attended by such director on
or after the Annual Meeting of Shareholders;
(3) To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending July 31, 1999; and
(4) To transact such other business as may properly come before the
meeting or any adjournments and postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on December 18, 1998
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting. Only holders of the Company's Common Stock at
the close of business on the record date are entitled to vote at the Annual
Meeting.
By Order of the Board of Directors,
/S/ DAVID W. NASSIF
David W. Nassif, Secretary
Carlsbad, California
December 19, 1998
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YOUR VOTE IS IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, EVEN IF YOU
DO PLAN TO ATTEND, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED
PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. RETURNING A SIGNED PROXY WILL NOT PREVENT YOU FROM VOTING IN
PERSON AT THE ANNUAL MEETING, IF YOU SO DESIRE, BUT WILL HELP THE COMPANY SECURE
A QUORUM AND REDUCE THE EXPENSE OF ADDITIONAL PROXY SOLICITATION. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE ANNUAL MEETING, YOU MUST OBTAIN FROM THE
RECORDHOLDER A PROXY ISSUED IN YOUR NAME.
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CYPROS PHARMACEUTICAL CORPORATION
2714 LOKER AVENUE WEST
CARLSBAD, CALIFORNIA 92008
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, FEBRUARY 16, 1999
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PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is furnished to the shareholders of Cypros
Pharmaceutical Corporation, a California corporation (the "Company"), in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of the Company. The proxies solicited hereby are to be voted at the
Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held
at the Company's executive offices on February 16, 1999 at 10:00 a.m. (local
time), and at any and all adjournments and postponements thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders.
The executive offices of the Company are located at 2714 Loker Avenue West,
Carlsbad, California 92008. The telephone number is 760-929-9500. This Proxy
Statement and the accompanying form of proxy will be mailed to shareholders
entitled to vote at the Annual Meeting on or about December 20, 1998.
A form of proxy is enclosed for your use. The shares represented by each
properly executed, unrevoked proxy will be voted as directed by the shareholder
for the nominees to the Board of Directors and for any other matter to be
brought before the shareholders. If no direction is made, the shares represented
by each properly executed proxy will be voted for management's nominees for the
Board of Directors and for each other matter brought before the shareholders.
Any proxy given may be revoked at any time prior to the exercise thereof by
filing with the Secretary of the Company at the Company's executive offices a
written instrument revoking such proxy or by the filing of a duly executed proxy
bearing a later date. Any shareholder present at the Annual Meeting who has
given a proxy may withdraw it and vote his shares in person if such shareholder
so desires. Attendance at the meeting will not, by itself, revoke a proxy.
It is contemplated that the solicitation of proxies will be made primarily
by mail. The Company will make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the shares and may reimburse them for their expenses in so
doing. Should it appear desirable to do so in order to ensure adequate
representation of shares at the Annual Meeting, officers, agents and employees
of the Company may communicate with shareholders, banks, brokerage houses and
others by telephone, telegraph, or in person to request that proxies be
furnished. No additional compensation will be paid to directors, officers or
other regular employees of the Company for such services. All expenses incurred
in connection with this solicitation, including preparation, assembly, printing
and mailing of this Proxy Statement, will be borne by the Company. The Company
has no present plans to hire special employees or paid solicitors to assist in
obtaining proxies, but reserves the option of doing so if it should appear that
a quorum otherwise might not be obtained.
Only holders of record of the Company's Common Stock, no par value, at the
close of business on December 18, 1998, are entitled to notice of and to vote at
the Annual Meeting. As of December 18, 1998, the Company had issued and
outstanding 15,711,877 shares of Common Stock.
Each share of Common Stock is entitled to one vote on all matters to be
voted upon at the Annual Meeting. Votes at the Annual Meeting, including those
cast in person or by proxy, will be tabulated by the Inspector of Elections
appointed by the Board of Directors, who will separately tabulate affirmative
and negative votes, abstentions and non-votes. Abstentions from voting and
broker non-votes will be counted for purposes of determining the existence of a
quorum, but, except for Proposal 2, are not counted for any
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purpose in determining whether a matter has been approved. With regard to
Proposal 2, abstentions will have the same effect as negative votes and broker
non-votes will not be counted for any purpose in determining whether the matter
has been approved.
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES
Directors are elected at each annual meeting of shareholders and hold office
until the next annual meeting of shareholders or until their respective
successors are elected and qualified, or until such Director's earlier death,
resignation or removal. The Board of Directors is presently composed of five
members. The following persons are nominees for election as Directors of the
Company, have each consented to serve as a Director if elected and are presently
serving as Directors of the Company: Dr. Paul J. Marangos, Robert F. Allnutt,
Digby W. Barrios, Virgil D. Thompson and Dr. Robert A. Vukovich.
The five candidates receiving the highest number of affirmative votes cast at
the meeting will be elected Directors of the Company. Management proxies will be
voted FOR the election of all of the above-named nominees unless the shareholder
indicates that the proxy shall not be voted for all or any one of the nominees.
If for any reason any nominee should, prior to the Annual Meeting, become
unavailable for election as a Director, an event not now anticipated, the
proxies will be voted for such substitute nominee, if any, as may be recommended
by management.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE ABOVE
NOMINEES.
Set forth below is certain information with respect to the nominees for
Director of the Company:
NAME AGE POSITION
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Paul J. Marangos, Ph.D................................. 51 Chairman of the Board, President,
Chief Executive Officer and Director
Robert F. Allnutt(1)................................... 63 Director
Digby W. Barrios....................................... 60 Director
Virgil D. Thompson(2).................................. 59 Director
Robert A. Vukovich, Ph.D(1)(2)......................... 55 Director
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
PAUL J. MARANGOS, Ph.D., has been President and Chairman of the Board
since he co-founded the Company in November 1990. He became the Chief Executive
Officer of the Company in February 1993. From April 1988 to November 1990, he
was Senior Director of Research at Gensia Pharmaceuticals, Inc., a biotechnology
company. From 1980 to 1988, he was Chief of Neurochemistry in the Biological
Psychiatry Branch, National Institute of Mental Health. Dr. Marangos obtained
his doctorate in biochemistry from the University of Rhode Island and did his
post-doctoral work at the Roche Institute of Molecular Biology. He has published
250 research papers and four books in the field of biochemistry and
pharmacology. Dr. Marangos' most recent book published in July 1992 is entitled
Emerging Strategies in Neuroprotection. He is a member of the Society for
Neuroscience and the American Academy for the Advancement of Science. Dr.
Marangos is the founding editor of the Journal of Molecular Neuroscience
published by Humana Press.
ROBERT F. ALLNUTT has been a Director of the Company since November
1996. He has been a management consultant since February 1995. Mr. Allnutt
served as Executive Vice President of the Pharmaceutical Manufacturers
Association from May 1985 until February 1995. Mr. Allnutt is also a director of
Cortex Pharmaceuticals, Inc., a publicly-held developer of pharmaceuticals to
treat age-related degenerative diseases and disorders.
DIGBY W. BARRIOS has been a Director of the Company since February
1993. He has been a management consultant since June 1992. Mr. Barrios held
various management positions at Boehringer Ingelheim Corporation, a manufacturer
of pharmaceuticals and fine chemicals, from January 1983 to June 1992, the last
five years of which he was President and Chief Executive Officer. He is also a
director of the following publicly-held companies: Roberts Pharmaceutical
Corporation, an international
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pharmaceutical company which licenses, acquires, develops and commercializes
post-discovery drugs in selected therapeutical categories; Sepracor, Inc., a
developer of enhanced forms of existing, widely-sold pharmaceuticals; RiboGene,
Inc., a drug discovery company focused on the identification of novel lead
compounds and the development of potential drug candidates for the treatment of
infectious diseases; and Sheffield Pharmaceuticals, Inc., an early-stage company
involved in the development of therapies, delivery systems and medical devices.
VIRGIL D. THOMPSON has been a Director of the Company since January
1996. He served as the President and Chief Executive Officer and a member of the
Board of Directors of Cytel Corporation since January 1996. He was the President
and Chief Executive Officer of CIBUS Pharmaceutical, Inc. from July 1994 to
January 1996. Prior thereto, he was the President of Syntex Laboratories, Inc.
("Syntex") from August 1991 to August 1993 and an Executive Vice President of
Syntex from March 1986 to August 1991. Mr. Thompson is also a director of
Biotechnology General Corporation, a publicly-held developer, manufacturer and
marketer of genetically-engineered and other products for human health care, and
Aradigm Corporation, a publicly-held developer of non-invasive pulmonary drug
delivery products.
ROBERT A. VUKOVICH, PH.D., has been a Director of the Company since
August 1992. Dr. Vukovich has been the Chairman of the Board of Directors of
Roberts Pharmaceutical Corporation ("Roberts") since 1983, and from 1983 until
1998, he was also the President and Chief Executive Officer of Roberts. Prior
thereto, he was the Director of the Division of Developmental Therapeutics for
Revlon Health Care Group from 1979 to 1983. Dr. Vukovich received a doctorate in
pharmacology and pathology from Jefferson Medical College, Philadelphia. Dr.
Vukovich is also a director of InKine Pharmaceuticals Company, Inc., a
publicly-held developer and acquirer of drugs to diagnose and treat cancer and
autoimmune diseases; and Pacific Pharmaceuticals, Inc., a publicly-held research
and development company engaged in the development of cancer therapies.
MEETINGS; ATTENDANCE; COMMITTEES
The Board of Directors held 7 meetings during the fiscal year ended July 31,
1998. Each of the Directors attended at least 75% of the aggregate number of
meetings of the Board and of the committees on which he served, held during the
period for which he was a director or committee member, respectively. The Board
of Directors has an Audit Committee, which met twice during the last fiscal
year, and a Compensation Committee, which met twice during the last fiscal year.
The Audit Committee of the Board of Directors is responsible for reviewing
and supervising the financial controls of the Company, including the selection
of the Company's auditors, the scope of the audit procedures, the nature of the
services to be performed by and the fees to be paid to the Company's independent
auditors, and any changes in the accounting standards of the Company. The Audit
Committee meets with the Company's independent auditors twice annually. The
Audit Committee is composed of two non-employee directors: Mr. Allnutt and Dr.
Vukovich.
The Compensation Committee of the Board of Directors is responsible for
setting the initial salary and stock option grant for new executive officers,
for making salary adjustments, awarding bonuses and/or additional stock option
grants to executive officers, and for developing incentive compensation programs
for such officers. The Compensation Committee is composed of two non-employee
directors: Mr. Thompson and Dr. Vukovich.
DIRECTOR COMPENSATION
The Company compensates its non-employee directors for their service on the
Board with an annual grant of 10,000 stock options under the 1993 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). Options granted under the
Directors' Plan have an exercise price equal to 85% of the fair market value of
the Common Stock (as determined by the Board) on the date of the grant and vest
in 48 equal monthly installments commencing on the date of the grant, provided
the non-employee director serves continuously on the Board during the month.
Subject to shareholder approval of Proposal 2, the Company would also grant
Common Stock bonuses under the Directors' Plan having a fair market value of
$2,000 to non-employee directors for each Board of Director meeting attended.
The Company also reimburses its directors who are not employees for their
reasonable expenses incurred in attending meetings. No additional fees are paid
for participation in committee meetings. Directors who are officers of the
Company receive no additional compensation for Board service. Therefore, Dr.
Marangos received no additional compensation for Board service in fiscal 1998.
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PROPOSAL 2 -- APPROVAL OF 1993 NON-EMPLOYEE DIRECTORS'
EQUITY INCENTIVE PLAN, AS AMENDED
In June 1993, the Board of Directors adopted, and the shareholders
subsequently approved, the 1993 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") and reserved 100,000 shares of Common Stock for issuance
under the Directors' Plan. In May 1995, the number of shares reserved under the
Directors' Plan increased to 250,000 as a result of a 2.5 for 1 stock split of
the Company's capital stock.
The Directors' Plan provides for the automatic grant of nonstatutory
stock options to purchase shares of Common Stock to non-employee directors of
the Company. As of October 31, 1998, options to purchase an aggregate of 221,500
shares were outstanding under the Directors' Plan, no shares had been issued
upon exercise of options issued under the Directors' Plan and 28,500 shares
remained available for future grants under the Directors' Plan.
In October 1998, the Board approved an amendment to the Directors'
Plan, subject to shareholder approval, to (i) increase the aggregate number of
shares authorized for issuance under the Directors' Plan by 100,000 shares from
250,000 to 350,000 shares; and (ii) provide for the automatic grant to
non-employee directors of stock bonus awards comprised of $2,000 of Common Stock
for each Board meeting attended by such director on or after the Annual Meeting.
The amendment to the Directors' Plan would also change the name of the
Directors' Plan to the 1993 Non-Employee Directors' Equity Incentive Plan.
Shareholders are requested in this Proposal 2 to approve the Directors'
Plan, as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the Directors' Plan, as amended. Abstentions
and brokers non-votes are counted towards a quorum but are not counted for any
purpose in determining whether a matter is approved.
If the Directors' Plan, as amended, is not approved, the Company will
not (i) be able to grant additional options beyond the 28,500 shares remaining
under the Directors' Plan, except to the extent of canceled or expired options
under the Directors' Plan, and (ii) be able to grant stock bonus awards to its
non-employee directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
1993 NON-EMPLOYEE DIRECTORS' EQUITY INCENTIVE PLAN, AS AMENDED
The essential features of the Directors' Plan are outlined below:
PURPOSE
The purpose of the Directors' Plan is to retain the services of persons
now serving as Non-Employee Directors of the Company (as defined below), to
attract and to retain the services of persons capable of serving on the Board of
Directors of the Company and to provide incentives for such persons to exert
maximum efforts to promote the success of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors of the
Company. The Board has the final power to construe and interpret the Directors'
Plan and options and stock bonus awards granted under it, and to establish,
amend and revoke rules and regulations for its administration. The Board is
authorized to delegate administration of the Directors' Plan to a committee of
not fewer than two members of the Board.
ELIGIBILITY
The Directors' Plan provides that options and stock bonus awards may be
granted only to Non-Employee Directors of the Company. A "Non-Employee Director"
is defined in the Directors' Plan as a director of the Company and its
affiliates who is not otherwise an employee of the Company or any affiliate.
Four of the Company's five current directors are eligible to participate in the
Directors' Plan. No non-employee director who owns, directly or indirectly,
shares representing 10% or more of the total outstanding shares of any class of
stock of the Company shall be eligible for the grant of stock options under the
Directors' Plan (but such directors shall be eligible for the grant of stock
bonus awards).
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COMMON STOCK SUBJECT TO THE DIRECTORS' PLAN
If options granted under the Directors' Plan expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such options again becomes available for issuance under the Directors' Plan.
TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms
and conditions:
Non-Discretionary Grants. Option grants under the Directors' Plan are
non-discretionary. Currently, under the Directors' Plan, each non-employee
director will be automatically granted an option to purchase 25,000 shares of
Common Stock upon becoming a member of the Board of Directors. Thereafter, so
long as the Director continues to serve on the Board, on January 1 of each year
thereafter, the Director will be automatically granted an option to purchase
10,000 shares of Common Stock of the Company.
Option Exercise. An option granted under the Directors' Plan shall vest
in 48 equal monthly installments over a four year period from the date of grant.
Such vesting is conditioned upon continued service as a director or employee of
or consultant to the Company or any affiliate of the Company.
Exercise Price; Payment. The exercise price of options granted under
the Directors' Plan is equal to 85% of the fair market value of the Common Stock
subject to such options on the date such option is granted.
Transferability; Term. Under the Directors' Plan, an option may not be
transferred by the optionholder, except by will or the laws of descent and
distribution. During the lifetime of an optionholder, an option may be exercised
only by the optionholder. The term of each option commences on the date it is
granted and, unless sooner terminated as set forth herein, expires on the date
("Expiration Date") ten years from the date of grant. If the optionholder's
service as a non-employee director of the Company terminates for any reason or
for no reason, the option will terminate on the earlier of the Expiration Date,
the date three months following the date of termination of service or the date
seven months following the date of grant; provided, however, that if such
termination of service is due to the optionholder's death or permanent and total
disability, the option will terminate on the earlier of the Expiration Date or
18 months following the date of the optionholder's death or disability. In any
and all circumstances, an option may be exercised following termination of the
optionholder's service as a non-employee director of the Company only as to that
number of shares as to which it was exercisable on the date of termination of
such service.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board of Directors.
TERMS OF STOCK BONUS AWARDS
Subject to the approval of Proposal 2 by the shareholders, the
Directors' Plan, as amended, provides that each Non-Employee Director shall
receive stock bonus awards comprised of $2,000 of Common Stock for each Board
meeting attended on or after the Annual Meeting. For purposes of these stock
bonus awards, the fair market value of the Common Stock on the date of grant is
determined by the ten-day average of the closing sales price for the Common
Stock of the Company as quoted on the American Stock Exchange for the ten market
trading days immediately preceding the date of the Board meeting at which the
stock bonus award shall be granted. Stock bonus awards shall be 100% vested on
the date of grant.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option or stock bonus award granted under the Directors' Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the Directors' Plan and options and stock bonus awards
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to the plan and the class, number of shares and
price per share of stock subject to outstanding options and stock bonus awards.
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EFFECT OF CERTAIN CORPORATE EVENTS
In the event of certain mergers, reverse mergers or consolidations of
the Company, the surviving corporation shall be obligated to assume all options
granted under the Directors' Plan. Under the Directors' Plan, as amended, upon
the occurrence of certain additional change of control events such as (a) a
dissolution or liquidation of the Company; (b) a sale of substantially all of
the assets of the Company; (c) an acquisition of a majority of the beneficial
ownership of the Company, and (d) a greater than 50% shift in the current Board
of Directors without prior Board approval, the surviving corporation shall
similarly be obligated to assume all options granted under the Directors' Plan,
as amended.
DURATION, AMENDMENT AND TERMINATION
The Board of Directors may amend, suspend or terminate the Directors'
Plan at any time or from time to time. No amendment will be effective unless
approved by the shareholders of the Company within twelve months before or after
its adoption by the Board if the amendment would: (i) increase the number of
shares reserved for options and stock bonus awards under the plan; (ii) modify
the requirements as to eligibility for participation in the plan (to the extent
such modification requires shareholder approval in order for the plan to comply
with the requirements of Rule 16b-3); or (iii) modify the plan in any other way
if such modification requires shareholder approval in order for the plan to meet
the requirements of Rule 16b-3.
FEDERAL INCOME TAX INFORMATION
Stock Options. Stock options granted under the Directors' Plan are
subject to federal income tax treatment pursuant to rules governing options that
are not incentive stock options. The following is only a summary of the effect
of federal income taxation upon the optionholder and the Company with respect to
the grant and exercise of options under the Directors' Option Plan, does not
purport to be complete and does not discuss the income tax laws of any state or
foreign country in which an optionholder may reside.
Options granted under the Directors' Plan are nonstatutory options.
There are no tax consequences to the optionholder or the Company by reason of
the grant of nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionholder normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Upon disposition of the stock, the optionholder will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of such option. Such capital gain or loss will
be long-term or short-term depending on the length of time the stock was held.
Capital gain from the sale of assets that have a holding period of more than one
year is subject to federal income tax at a maximum rate of 20%.
Stock Bonus Awards. Stock bonus awards granted under the Directors'
Plan, as amended, generally have the following federal income tax consequences:
Upon acquisition of stock under a stock bonus award, the recipient
normally will recognize taxable ordinary income equal to the excess of the
stock's fair market value over the purchase price, if any. Upon disposition of
the stock, the recipient will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock, if any, plus any amount recognized as ordinary income upon acquisition
(or vesting) of the stock. Such capital gain or loss will be long-term or
short-term depending on the length of time the stock was held from the date
ordinary income was measured. Slightly different rules may apply to persons who
acquire stock subject to forfeiture under Section 16(b) of the Exchange Act.
INFORMATION REGARDING OPTION GRANTS AND STOCK BONUS AWARDS
The following table presents certain information with respect to
options granted under the Directors' Plan for the fiscal year ended July 31,
1998 to (i) non-employee directors (employees, officers and employee directors
are not eligible to participate in the Directors' Plan) and (ii) all
non-employee directors as a group. Option grants under the Directors' Plan are
non-discretionary. In the event the shareholders approve this Proposal 2, each
non-employee director will also receive stock bonus awards for shares of Common
Stock equal to a fair market value of $2,000 upon each meeting of the Board of
Directors of the Company attended by such director after the annual meeting of
shareholders to be held on February 16, 1999.
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DIRECTORS' PLAN BENEFITS TABLE
Number of Shares Subject to
Name and Position Dollar Value(1) Options Granted (2)
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Robert F. Allnutt, Director..................... $ 36,130 10,000
Digby W. Barrios, Director...................... $ 36,130 10,000
Virgil D. Thompson, Director.................... $ 36,130 10,000
Robert A. Vukovich, Director.................... $ 36,130 10,000
All Non-Employee Directors as a Group........... $144,520 40,000
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(1) Represents the exercise price per share multiplied by the number of shares
underlying the option(s).
(2) Represents the number of options granted under the Directors' Plan in fiscal
year 1998 pursuant to non-discretionary grants under the Directors' Plan.
PROPOSAL 3 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Pursuant to the recommendation of its Audit Committee, the Board of
Directors has appointed Ernst & Young LLP as independent auditors of the Company
for the fiscal year ending July 31, 1999, and has further directed that
management submit the selection of independent auditors for ratification by the
shareholders. Ernst & Young LLP has audited the Company's financial statements
and prepared its federal and state tax returns since 1992. A representative of
Ernst & Young LLP will be available at the Annual Meeting to respond to
appropriate questions or make such statements as such representative deems
appropriate.
Shareholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the shareholders for ratification as a matter of good corporate practice. If
the shareholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its shareholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE SELECTION OF ERNST & YOUNG LLP.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation paid by the Company to
its Chief Executive Officer and each of the other most highly compensated
current executive officers of the Company who earned more than $100,000 in the
fiscal year ended July 31, 1998 (collectively, the "Named Executive Officers")
for services rendered to the Company for the fiscal years ended July 31, 1998,
1997 and 1996:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Position Year Salary Bonus
--------------------------- ---- -------- --------
Paul J. Marangos ............................... 1998 $224,827 --
Chairman of the Board, President and 1997 $214,019 --
Chief Executive Officer 1996 $195,000 --
Zofia E. Dziewanowska (1) ...................... 1998 $120,962 --
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Senior Vice President of Drug Development
and Regulatory Affairs
David W. Nassif ................................ 1998 $164,515 --
Senior Vice President, Chief Financial Officer 1997 $144,554 --
and Secretary 1996 $133,269 --
Larry A. Risen(2) ............................. 1998 $102,269 $ 12,073
Vice President of Commercial Development
Brian W. Sullivan(2) ........................... 1998 $102,354 --
Vice President of Product Development
- ----------
(1) Dr. Dziewanowska joined the Company in December 1997 at a salary of $185,000
per year.
(2) Became an executive officer of the Company the end of fiscal 1998.
STOCK OPTION GRANTS AND EXERCISES
The Company grants incentive stock options to its executive officers under
the 1992 Stock Option Plan (the "1992 Plan"). As of July 31, 1998, 2,766,288
shares of Common Stock were authorized under the 1992 Plan, options to purchase
a total of -- shares were outstanding under the 1992 Plan and options to
purchase -- shares remained available for grant thereunder.
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents certain information with respect to stock
option grants made during the fiscal year ended July 31, 1998 under the 1992
Plan to the Named Executive Officers. No options were granted during the fiscal
year to the Company's Chief Executive Officer.
OPTION GRANTS IN 1998 FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
----------------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED OPTION TERMS(3)
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION ----------------------------
NAME GRANTED(1) IN 1998(2) PRICE DATE 5% 10%
---------- ---------- ---------- ---------- ---------- ----------
Paul J. Marangos ........ None
Zofia E. Dziewanowska ... 175,000 29% $ 5.25 10/19/2007 $1,496,547 $2,383,001
David W. Nassif ......... 40,000 7% $ 3.875 10/09/2007 $ 252,749 $ 402,030
Larry A. Risen .......... 5,000 1% $ 3.875 10/09/2007 $ 31,560 $ 50,254
5,000 1% $ 3.875 02/26/2008 $ 31,560 $ 50,254
Brian W. Sullivan ....... 10,000 2% $ 3.875 10/09/2007 $ 63,120 $ 100,508
- ----------
(1) Options become exercisable over a four-year period with 1/48th of the shares
vesting monthly. The term of the options is ten years.
(2) Based on options to purchase 609,500 shares granted to employees in fiscal
1998 including the Chief Executive Officer and the Named Executive Officers.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the
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option and that the option is exercised and sold on the last day of its term
for the appreciated stock price. These amounts represent assumed rates of
appreciation only, in accordance with the rules of the Securities and
Exchange Commission (the "SEC"), and do not reflect the Company's estimate
or projection of future stock price performance. Actual gains, if any,
depend on overall market conditions and the actual future performance of the
Company and its Common Stock and no gain to the optionee is possible unless
the stock price increases over the option term, which will benefit all
shareholders.
OPTION EXERCISES AND YEAR-END VALUE TABLE
There were no option exercises by the Chief Executive Officer or any of
the Named Executive Officers during the fiscal year ended July 31, 1998. The
following table presents certain information with respect to the value at July
31, 1998 of unexercised options held by the Chief Executive Officer and each of
the Named Executive Officers. The value of unexercised options reflects the
increase in market value of the Company's Common Stock from the date of grant
through July 31, 1998 (the last trade in the Company's Common Stock on that date
was executed at $4.25 per share). The value actually realized upon future option
exercises by the Chief Executive Officer and the Named Executive Officers will
depend on the value of the Company's Common Stock at the time of exercise.
1998 FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AS OF IN-THE-MONEY OPTIONS AT
FY-END(#)(1) FY-END($)(2)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Paul J. Marangos .......... 11,458 13,542 -- --
Zofia E. Dziewanowska ..... 32,812 142,188 -- --
David W. Nassif ........... 134,687 45,313 $ 102,813 --
Larry A. Risen ............ 33,227 15,523 -- --
Brian W. Sullivan ......... 36,250 12,500 -- --
- ----------
(1) Includes both in-the-money and out-of-the-money options. "In-the-money"
options are options with exercise prices below the market price of the
Company's Common Stock.
(2) Based on the fair market value of the underlying shares on the last day of
the fiscal year less the exercise or base price. Excludes out-of-the-money
options.
EMPLOYMENT CONTRACTS
Dr. Marangos had an employment agreement with the Company effective
until August 31, 1999 (the "Employment Agreement"), pursuant to which he was
employed as Chairman of the Board of Directors, President and Chief Executive
Officer of the Company at an annual salary of $216,500 per year. Recently, the
Compensation Committee of the Board of Directors amended the Employment
Agreement increasing the salary of Dr. Marangos to $241,500 and extending its
term to August 31, 2001. Dr. Marangos' employment agreement contains certain
provisions concerning maintenance of confidential information of the Company and
assignment of inventions by the Company. In the event that the Company
terminates Dr. Marangos' employment with or without cause in accordance with the
agreement, Dr. Marangos is entitled to continue to receive base salary and
benefits for a period of 12 months following termination.
Dr. Dziewanowska entered into an employment agreement with the Company
on December 6, 1997 which is effective until December 5, 2000, pursuant to which
she is employed as the Senior Vice President, Drug Development and Regulatory
Affairs of the Company at an annual salary of $185,000 per year. Dr.
Dziewanowska's employment agreement contains certain provisions concerning
maintenance of confidential information of the Company, non-competition and
assignment of inventions by the Company. The agreement provides for
discretionary bonuses to Dr. Dziewanowska and also a grant of 26,250 stock
options (the "Stock Bonus") under the 1992 Plan upon the commencement of a Phase
III trial in either of the Company's clinical development programs. Dr.
Dziewanowska earned the Stock Bonus during the fiscal year ended July 31, 1998.
In the event that the Company
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terminates Dr. Dziewanowska's employment without cause in accordance with the
agreement, Dr. Dziewanowska is entitled to continue to receive base salary and
benefits for a period of 6 months following termination.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
Compensation Philosophy
The Company's executive compensation programs are designed to attract
and retain executives capable of leading the Company to meet its business
objectives and to motivate them to enhance long-term shareholder value. The
Company's compensation of executive officers generally has been comprised of a
cash salary and stock option grants under the 1992 Plan.
Base Salary
The Compensation Committee uses a number of factors in setting the base
salary of a new executive officer, including the officer's credentials and
previous compensation package and the average salary for such position as
reported in various industry group surveys that the Compensation Committee uses.
The surveys that the Compensation Committee uses generally include companies
that are in the development stage with no more than 50 employees, a narrower
group of companies than those in the Nasdaq Pharmaceutical Stocks group shown on
the Company's Stock Price Performance Graph. Subsequent salary increases are
based upon reviews of each officer's performance in helping the Company to
achieve its business objectives, including the advancement of its clinical and
research programs, product acquisitions, sales growth, capital raising and cost
containment, and ultimately, the performance of the Company's stock price. The
Company's financial position is also a factor that is considered by the
Compensation Committee.
Stock Option Grants
Each incoming executive officer is given a stock option grant under the
1992 Plan at the time of employment in order to provide a long-term incentive
and align executive officer and shareholder long-term interests by creating a
direct link between executive compensation and shareholder return. Stock options
are granted at an exercise price equal to the fair market value of the Company's
Common Stock on the date of the grant. In order to facilitate long-term
incentives through the option grants, options are generally subject to monthly
vesting over a 48-month period and are exercisable for 10 years.
The initial grant and any subsequent grants to an executive officer is
determined by the Compensation Committee in much the same way that the officer's
base salary is determined.
Chief Executive Officer
The salary of Dr. Marangos is reviewed periodically by the Compensation
Committee in light of his accomplishments in furthering the growth of the
Company and the salaries paid to chief executive officers of comparable
companies. The employment agreement for the Chief Executive Officer allows for
the payment of an annual bonus in the sole discretion of the Compensation
Committee, based upon the annual performance evaluation for such officer. While
the Company and Dr. Marangos met most of their goals and objectives for the 1998
fiscal year, the Compensation Committee determined that the Company was not in a
position to pay Dr. Marangos a cash bonus. However, as discussed previously the
Committee did increase the salary of Dr. Marangos and in connection therewith,
extended his employment agreement. Subsequent to July 31, 1998, the Company
instituted a plan for certain of the Company's other executive officers whereby
they would receive cash bonuses or additional stock option grants upon the
achievement of certain milestone events .
Section 162(m) of the Internal Revenue Code
- --------
(1) The material in this report and in the following stock price performance
presentation is not soliciting material, is not deemed filed with the SEC
and is not incorporated by reference in any filing of the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), whether made before or after the date of
this Proxy Statement and irrespective of any general incorporation language
in such filing.
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Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of no more than $1 million of compensation paid to
certain Named Executive Officers in a taxable year. Compensation above $1
million may be deducted if it is "performance-based compensation" within the
meaning of the Code.
The Compensation Committee has determined that stock options granted
under the 1992 Plan with an exercise price at least equal to the fair market
value of the Company's Common Stock on the date of grant shall be treated as
"performance-based compensation."
Compensation Committee
Virgil D. Thompson
Robert A. Vukovich
- ----------
STOCK PRICE PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on its market price and assuming
reinvestment of dividends, with the cumulative total return of companies on the
Amex Market Value Index and the Nasdaq Pharmaceutical Stocks group for the
period beginning November 30, 1992 (the end of the month in which the Company's
Common Stock first began trading) through the Company's fiscal year ended July
31, 1998. The Company's Common Stock was initially offered to the public and
subject to securities registration on November 3, 1992. This graph assumes that
the value of the investment in the Company's Common Stock and each of the
comparison groups was $100 on November 30, 1992 and that all dividends were
reinvested at the time they were paid.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
CYPROS PHARMACEUTICAL CORPORATION, THE AMEX MARKET VALUE INDEX AND
NASDAQ PHARMACEUTICAL STOCKS
[GRAPH]
MEASUREMENT PERIOD AMEX MARKET NASDAQ
(FISCAL YEAR COVERED) CYPROS VALUE INDEX PHARMACEUTICALS
--------------------- ------ ---------------- ---------------
11/30/92 100 100 100
7/30/93 64 111 73
7/29/94 131 111 65
7/30/95 231 132 91
7/30/96 115 137 110
7/31/97 109 168 129
7/31/98 87 186 130
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of November 21, 1998 by
(i) all persons known by the Company to own beneficially 5% or more of the
outstanding shares of the Company's Common Stock, (ii) each nominee for
Director, (iii) the Chief Executive Officer and the Named Executive Officers,
and (iv) all officers and directors of the Company as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED OF TOTAL
---------------- ------------------ --------
President and Fellows of Harvard
College
c/o Harvard Management
Company, Inc.
600 Atlantic Avenue
Boston, MA 02210 ........... 1,637,500 10.4%
Paul J. Marangos(1)
2714 Loker Avenue West
Carlsbad, California 92008 . 1,534,520 9.7%
Bernard B. Levine
P.O. Box 2635
La Jolla, CA 92038-2635 .... 1,273,082 8.1%
David W. Nassif(2) ............. 150,583 *
Robert A. Vukovich(3) .......... 122,250 *
Digby W. Barrios(4) ............ 92,250 *
Zofia E. Dziewanowska(5) ...... 56,874 *
Larry A. Risen(6) .............. 40,232 *
Brian W. Sullivan(7) ........... 40,103 *
Virgil D. Thompson(8) .......... 27,291 *
Robert F. Allnutt(9) ........... 16,520 *
All officers and directors, as a
group (9 persons)(10) .......... 2,080,623 12.8%
- ----------
* Less than one percent.
(1) Includes 14,583 shares issuable upon options exercisable within 60 days.
(2) Includes 149,583 shares issuable upon options exercisable within 60 days.
(3) Includes 122,250 shares issuable upon options exercisable within 60 days.
(4) Includes 87,250 shares issuable upon options exercisable within 60 days.
(5) Includes 56,874 shares issuable upon options exercisable within 60 days.
(6) Includes 40,232 shares issuable upon options exercisable within 60 days.
(7) Includes 40,103 shares issuable upon options exercisable within 60 days.
(8) Includes 27,291 shares issuable upon options exercisable within 60 days.
(9) Includes 15,520 shares issuable upon options exercisable within 60 days.
(10) Includes 553,686 shares issuable upon options exercisable within 60 days.
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TRANSACTIONS WITH RELATED PARTIES
Neither the Company nor any of its directors, nominees, officers or
beneficial owners of more than 5% of the Company's outstanding Common Stock are
parties to any relationships or transactions described in Item 404 of Regulation
S-K promulgated by the SEC.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the directors and executive
officers of the Company and persons who own more than ten percent of the
Company's Common Stock (i) to file with the SEC and the American Stock Exchange
initial reports of ownership and reports of changes in ownership of the
Company's Common Stock and (ii) to furnish the Company with a copy of each such
report.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended July 31, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal intended for
consideration at the 2000 Annual Meeting must be received by the Company, at the
address set forth on the first page of this Proxy Statement, no later than
August 20, 1999, to be included in the proxy material for the 2000 Annual
Meeting. It is recommended that shareholders submitting proposals direct them to
the Secretary of the Company and utilize certified mail, return receipt
requested, in order to ensure timely delivery. Shareholders are also advised to
review the Company's Bylaws, which contain additional requirements with respect
to advance notice of shareholder proposals and director nominations.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1998, as filed with the SEC, including the financial statements
and financial statement schedules but excluding exhibits, is being provided to
shareholders together with this Proxy Statement. Upon written request, the
Company will furnish to shareholders a copy of the exhibits to such Annual
Report on Form 10-K, upon payment of a fee limited to the Company's reasonable
expenses in furnishing such exhibits. Such requests should be directed to the
Chief Financial Officer, at the Company's executive offices, 2714 Loker Avenue
West, Carlsbad, California 92008.
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual
Meeting other than as specified herein. If other business should, however, be
properly brought before the Annual Meeting, the persons voting the proxies will
vote them in accordance with their best judgment.
THE SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN PROMPTLY THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/S/ DAVID W. NASSIF
David W. Nassif, Secretary
Carlsbad, California
December 19, 1998
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PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
CYPROS PHARMACEUTICAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints PAUL J. MARANGOS and DAVID W. NASSIF, and each
of them, proxies with full power of substitution, to vote all shares of Common
Stock of Cypros Pharmaceutical Corporation (the "Company"), which the
undersigned is entitled to vote, at the Annual Meeting of Shareholders of Cypros
to be held at Cypros's offices, 2714 Loker Avenue West, Carlsbad, California on
Tuesday, February 16, 1999 at 10:00 a.m. local time, and at all adjournments
thereof, upon the following matters:
The Board of Directors recommends votes for:
(1) Election of Paul J. Marangos, Robert F. Allnutt, Digby W. Barrios,
Virgil D. Thompson and Robert A. Vukovich as Directors of the Company to
serve until the 2000 Annual Meeting or until their successors are elected
and qualified.
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed above
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
(2) To approve the Company's 1993 Non-Employee Directors' Equity
Incentive Plan, as amended, to (i) increase the aggregate number of shares
of the Company's Common Stock authorized for issuance under such plan by
100,000 shares from 250,000 to 350,000 shares and (ii) provide for the
automatic grant to non-employee directors of stock bonus awards comprised of
$2,000 of Common Stock for each Board of Director meeting attended;
[ ] FOR [ ] AGAINST [ ] WITHHOLD
(3) To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending July 31, 1999.
[ ] FOR [ ] AGAINST [ ] WITHHOLD
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES LISTED ABOVE. IF ANY NOMINEE NAMED ABOVE DECLINES OR IS
UNABLE TO SERVE AS A DIRECTOR, THE PERSONS NAMED AS PROXIES SHALL HAVE FULL
DISCRETION TO VOTE FOR ANY OTHER PERSON WHO MAY BE NOMINATED. WHEN PROPERLY
EXECUTED, THIS PROXY ALSO AUTHORIZES THE PROXY HOLDERS TO ACT IN ACCORDANCE WITH
THEIR DISCRETION UPON ALL MATTERS INCIDENT TO THE CONDUCT OF THE MEETING AND
UPON OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated:___________________ ________________________________________
Signature
________________________________________
Print Name
________________________________________
Signature (if held jointly)
________________________________________
Print Name
Please sign exactly as your name appears
hereon. If the stock is registered in
the names of two or more persons, each
should sign. Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and have
a duly authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN
THE ENCLOSED RETURN ENVELOPE WHICH IS POSTAGE
PREPAID IF MAILED IN THE UNITED STATES.
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