ITEM 1 - ELECTION OF DIRECTORS
Our board consists of six directors and is divided into three classes. The
current term of the Class I directors, David Schlachet and Georges Anthony
Marcel, will expire at this year's annual meeting; the current term of the Class
II directors, Elkan Gamzu and Lawrence F. Marshall, will expire at the 2005
annual meeting; and the current term of the Class III directors, Haim Aviv and
Mony Ben Dor, will expire at the 2006 annual meeting. Following the expiration
of the current term for each class, such class will stand for election to a new
three-year term.
Both of the current Class I directors, David Schlachet and Georges Anthony
Marcel, have been nominated to stand for re-election at the meeting to new
three-year terms as Class I directors of the Company.
The election of directors requires the affirmative vote of a plurality of
shares cast of Common Stock voting together present or represented at a meeting
at which a quorum (one-third (1/3) of the outstanding shares of Common Stock) is
present or represented. Abstentions and broker non-votes are counted for
purposes of determining whether a quorum is present. It is the intention of the
persons named in the accompanying proxy form to vote FOR the re-election of the
two current Class I directors, David Schlachet and Georges Anthony Marcel, each
to serve a new three-year term as Class I director of the Company, unless
authority to do so is withheld. Proxies cannot be voted for a greater number of
persons than the nominees named. In the event that either or both of the two
nominees for Class I director should become unavailable for election for any
presently unforeseen reason, the persons named in the accompanying proxy form
have the right to use their discretion to vote for a substitute.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE TWO CLASS I
DIRECTOR NOMINEES.
The following table sets forth the name, age and position of each director
and executive officer:
Name Age Position
---- --- --------
Haim Aviv, Ph.D. 64 Chairman, Chief Executive Officer, Chief Scientist
David Schlachet 58 Director
Mony Ben Dor 58 Director
Georges Anthony Marcel, M.D., Ph.D. 63 Director
Elkan R. Gamzu, Ph.D. 61 Director
Lawrence F. Marshall, M.D. 60 Director
Gad Riesenfeld, Ph.D. 60 President, Chief Operating Officer
Alon Michal 35 Interim Chief Financial Officer
|
Haim Aviv, Ph.D., has been Chairman, Chief Executive Officer, Chief Scientist
and a director of the Company since its inception. In 1990, he co-founded
Pharmos Corporation, a New York corporation ("Old Pharmos"), which merged into
the Company in October 1992 (the "Merger"). Dr. Aviv also served as Chairman,
Chief Executive Officer, Chief Scientist and a director of Old Pharmos prior to
the Merger. Dr. Aviv was the co-founder in 1980 of Bio-Technology General Corp.
("BTG"), a publicly traded company engaged in the development of products using
recombinant DNA, its General Manager and Chief Scientist from 1980 to 1985, and
a director and senior scientific consultant until August 1993. Prior to that
time, Dr. Aviv was a professor of molecular biology at the Weizmann Institute of
Science. Dr. Aviv is the principal stockholder of Avitek Ltd. Avitek Ltd. is a
stockholder of the Company. Dr. Aviv is
4
also an officer and/or significant stockholder of several privately held Israeli
biopharmaceutical and venture capital companies. Dr. Aviv is a member of the
Board of Directors of Ben Gurion University at Beer-Sheva, Israel and Yeda Ltd.
at the Weizmann Institute, Rehovot, Israel. Dr. Aviv holds a Ph.D. from the
Weizmann Institute of Science.
David Schlachet, a director of the Company since December 1994, served as the
Chairman of Elite Industries Ltd. from July 1997 until June 2000. From January
1996 to June 1997, Mr. Schlachet served as the Vice President of the Strauss
Group and Chief Executive Officer of Strauss Holdings Ltd, one of Israel's
largest privately owned food manufacturers. He was Vice President of Finance and
Administration at the Weizmann Institute of Science in Rehovot, Israel from 1990
to December 1995, and was responsible for the Institute's administration and
financial activities, including personnel, budget and finance, funding,
investments, acquisitions and collaboration with the industrial and business
communities. From 1989 to 1990, Mr. Schlachet was President and Chief Executive
Officer of YEDA Research and Development Co. Ltd., a marketing and licensing
company at the Weizmann Institute of Science. Mr. Schlachet currently serves as
Chairman of Harel Capital Markets (Israeli broker, underwriter and asset
management firm) and as a director of Israel Discount Bank Ltd., Hapoalim
Capital Markets Ltd, Teldor Ltd. (software and computer company), Proseed Ltd.,
a Venture Capital investment company, Compugen Ltd. and Taya Investment Company
Ltd., and also serves as Managing Partner in Biocom, a V.C. Fund in the field of
Life Science.
Mony Ben Dor, a director of the Company since September 1997, has been Managing
Partner of Biocom, a V.C Fund in the field of life science since April 2000.
Prior to that he was Vice President of the Israel Corporation Ltd. from May
1997, and Chairman of two publicly traded subsidiaries: H.L. Finance and Leasing
and Albany Bonded International Trade. He was also a director of a number of
subsidiary companies such as Israel Chemicals Ltd., Zim Shipping Lines, and
Tower Semi Conductors. From 1992-1997 Mr. Ben Dor was Vice President of Business
Development for Clal Industries Limited, which is one of the leading investment
groups in Israel. He was actively involved in the acquisition of pharmaceutical
companies, including Pharmaceutical Resources Inc., Finetech Ltd. and BioDar
Ltd. He served as a director representing Clal Industries in all of the acquired
companies as well as other companies of Clal Industries. Prior to his position
at Clal Industries, Mr. Ben Dor served as business executive at the Eisenberg
Group of companies.
Georges Anthony Marcel, M.D., Ph.D., a director of the Company since September
1998, is President and Chairman of TMC Development S.A., a biopharmaceutical
consulting firm based in Paris, France. Prior to founding TMC Development in
1992, Dr. Marcel held a number of senior executive positions in the
pharmaceutical industry, including Chief Executive Officer of Amgen's French
subsidiary, Vice President of Marketing for Rhone-Poulenc Sante and Director of
Development for Roussel-Uclaf. Dr. Marcel is a member of the Board of Directors
of Hybridon, Inc., and of the Scientific Advisory Board of the Swiss Corporation
TECAN Ltd. Dr. Marcel teaches biotechnology industrial issues and European
regulatory affairs at the Faculties of Pharmacy of Paris and Lille as well as at
Versailles Law School. Dr. Marcel is also a member of the Gene Therapy Advisory
Committee at the French Medicines Agency.
Elkan R. Gamzu, Ph.D., a director of the Company since February 2000, is a
consultant to the biotechnology and pharmaceutical industries and a Principal of
the due diligence company BioPharmAnanlysis, LLC. Prior to becoming a
consultant, Dr. Gamzu held a number of senior executive positions in the
biotechnology and pharmaceutical industries, including President and Chief
Executive Officer of Cambridge Neuroscience, Inc. from 1994 until 1998. Dr.
Gamzu also served as President and Chief Operating Officer and Vice President of
Development for Cambridge Neuroscience, Inc. from 1989 to 1994. Previously, Dr.
Gamzu held a variety of senior positions with Warner-Lambert and Hoffmann-La
Roche, Inc. In 2001 and 2002, Dr. Gamzu was part-time Interim VP, Development
Product Leadership for Millennium Pharmaceuticals, Inc. Dr. Gamzu is a member of
the Board of Directors of three other
5
biotechnology companies: the publicly traded XTL Biopharmaceuticals Ltd. and the
privately held biotechnology companies Neurotech S.A. of Paris, France and
Hypnion, Inc. of Worcester, MA. He recently joined the Board of Clal
Biotechnology Industries, Ltd., an Israel-based Holding Company.
Lawrence F. Marshall, M.D., a director of the Company since June 2002 and an
internationally recognized neurosurgeon and opinion leader in the field, is
currently Professor and Chair of the Division of Neurological Surgery at the
University of California, San Diego Medical Center. Dr. Marshall's 30-year
career as a scientist and neurosurgeon has been at the forefront in the search
for new and better treatment measures to improve patient outcome. He has been
principal investigator or co-investigator in over two dozen preclinical and
clinical trials primarily relating to head and spinal cord injury, including
projects funded by the National Institutes of Health, the Insurance Institute
for Highway Safety, and several large pharmaceutical companies. Results of
research undertaken by Dr. Marshall, which cover a wide range of issues related
to TBI and other conditions of the brain, have been published in dozens of
scientific journals. Among the numerous board, committee, editorial and other
positions Dr. Marshall has held or holds are board and committee memberships
with the American Brain Injury Consortium, the National Head Injury Foundation,
the American Association of Neurological Surgeons and the Congress of
Neurological Surgeons. Dr. Marshall is the recipient of many distinguished
medical prizes and awards.
Gad Riesenfeld, Ph.D., was named President in February 1997, and has served as
Chief Operating Officer since March 1995. He served as Executive Vice President
from December 1994 to February 1997, Vice President of Corporate Development and
General Manager of Florida Operations from October 1992 to December 1994, and
was employed by Pharmos from March 1992 until the Merger. Prior thereto, he was
engaged in a variety of pharmaceutical and biotechnology business activities
relating to the commercialization of intellectual property, primarily in the
pharmaceutical and medical fields. From March 1990 through May 1991 Dr.
Riesenfeld was a Managing Director of Kamapharm Ltd., a private company
specializing in human blood products. Prior thereto, from May 1986, he was
Managing Director of Galisar Ltd., a pharmaceutical company involved in
extracorporeal blood therapy. Dr. Riesenfeld holds a Ph.D. from the Hebrew
University of Jerusalem and held a scientist position, as a post doctorate, at
the Cedars Sinai Medical Center in Los Angeles, California.
Alon Michal became Interim Chief Financial Officer in May 2004, and has served
as Vice President Finance & Operations of our subsidiary, Pharmos Limited, since
January 2003. He joined Pharmos Limited in January 2000, serving as Controller
until December 2000 and as Director of Operations and Controller between January
2001 and December 2002. Prior to joining our company, Mr. Michal served as
Finance Manager for IDC Middle East, Inc., a high-tech and pharmaceutical
industries design and construction management company, between August 1997 and
December 1999. Mr. Michal is a certified public accountant, and holds an M.B.A
from the School of Management of Ben-Gurion University and a B.A in Business
Management and Accountancy from the College of Management, Tel Aviv.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the 2003 fiscal year, the Board of Directors met seven times and
acted by unanimous written consent four times. Each person who served as a
director in 2003 attended in excess of 75% of the aggregate of (i) the total
number of meetings of the Board of Directors held during 2003 and (ii) the total
number of meetings held during 2003 by each committee of the Board of Directors
on which such director served, except for Dr. Marshall, who attended five of the
seven meetings of the full Board, and Dr. Gamzu, who did not attend the meeting
of the Compensation and Stock Option Committee.
The Board has a standing Compensation and Stock Option Committee,
Governance and Nominating Committee and Audit Committee.
6
The Compensation and Stock Option Committee is primarily responsible for
reviewing the compensation arrangements for the Company's executive officers,
including the Chief Executive Officer, and for administering the Company's stock
option plans. Members of the Compensation and Stock Option Committee are Messrs.
Ben Dor, Gamzu and Marshall. In 2003, the Compensation and Stock Option
Committee met once and acted by unanimous written consent twice.
The Governance and Nominating Committee, created by the Board in February
2004, assists the Board in identifying qualified individuals to become
directors, determines the composition of the Board and its committees, monitors
the process to assess Board effectiveness and helps develop and implement the
Company's corporate governance guidelines. The members of the Governance and
Nominating Committee are Messrs. Ben Dor, Marcel and Schlachet, each of whom is
"independent" under Rule 10A-3 of the Securities Exchange Act of 1934 and
applicable Nasdaq rules.
The Audit Committee is primarily responsible for overseeing the services
performed by the Company's independent auditors and evaluating the Company's
accounting policies and its system of internal controls. Consistent with the
Nasdaq audit committee structure and membership requirements, the Audit
Committee is comprised of three members: Messrs. Gamzu, Marcel and Schlachet,
all of whom are independent directors. While more than one member of the
Company's Audit Committee qualifies as an "audit committee financial expert"
under Item 401(h) of Regulation S-K, Mr. David Schlachet, the Committee
chairperson, is the designated audit committee financial expert. Mr. Schlachet
is considered "independent" as the term is used in Item 7(d)(3)(iv) of Schedule
14A under the Exchange Act. In 2003, the Audit Committee met four times and
acted by unanimous written consent once.
The Compensation and Stock Option Committee, Governance and Nominating
Committee and Audit Committee operate under written charters adopted by the
Board. These charters are attached as Appendices A, B and C hereto, and are also
available on our website at www.pharmoscorp.com. Click "Investors" and
"Corporate Governance."
INDEPENDENCE OF DIRECTORS
The Board has determined that except for Dr. Haim Aviv, the Chairman of
the Board and Chief Executive Officer of the Company, each of our remaining five
(5) directors - Mony Ben Dor, Elkan Gamzu, Georges Anthony Marcel, Lawrence
Marshall and David Schlachet - is an "independent director" in that he does not
have any relationship that, in the opinion of the Board, would interfere with
the exercise of independent judgment in carrying out the responsibilities of a
director and is not in any relationship specified in Nasdaq Rule 4200(a)(15)
that precludes a determination of independence.
EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS
In accordance with Nasdaq Rule 4250(c)(2), the independent directors of
the Board have regularly scheduled meetings in executive session, at which only
the independent directors are present (together with counsel, if requested by
the independent directors), at least twice a year in conjunction with regularly
scheduled Board meetings, and more frequently whenever deemed desirable or
appropriate or whenever the full Board has a meeting.
DIRECTOR NOMINATION PROCESS
The Board has established a Governance and Nominating Committee as
described above. The Committee may identify potential board candidates from a
variety of sources, including recommendations from current directors or
management, recommendations of security holders or any other source the
Committee deems appropriate. The Committee may also engage a search firm or
consultant to assist it in
7
identifying, screening and evaluating potential candidates. The Committee has
been given sole authority to retain and terminate any such search firm or
consultant.
In considering candidates for the Board, the Committee evaluates the
entirety of each candidate's credentials. The Committee considers, among other
things: (i) business or other relevant experience; (ii) expertise, skills and
knowledge; (iii) integrity and reputation; (iv) the extent to which the
candidate will enhance the objective of having directors with diverse
viewpoints, backgrounds, expertise, skills and experience; (v) willingness and
ability to commit sufficient time to Board responsibilities; and (vi)
qualification to serve on specialized board committees--such as the Audit
Committee or Compensation and Stock Option Committee.
Our stockholders may recommend potential director candidates by following
the procedure described below. The Governance and Nominating Committee will
evaluate recommendations from stockholders in the same manner that it evaluates
recommendations from other sources.
If you wish to recommend a potential director candidate for consideration
by the Committee, please send your recommendation to Pharmos Corporation, 99
Wood Avenue South, Suite 311, Iselin, NJ 08830, Attention: Corporate Secretary.
Any notice relating to candidates for election at the 2005 annual meeting must
be received by January 24, 2005. You should use first class, certified mail in
order to ensure the receipt of your recommendation.
Any recommendation must include (i) your name and address and a list of
the shares of our company that you own; (ii) the name, age, business address and
residence address of the proposed candidate; (iii) the principal occupation or
employment of the proposed candidate over the preceding ten years and the
person's educational background; (iv) a statement as to why you believe such
person should be considered as a potential candidate; (v) a description of any
affiliation between you and the person you are recommending; and (vi) the
consent of the proposed candidate to your submitting him or her as a potential
candidate. You should note that the foregoing process relates only to bringing
potential candidates to the attention of the Governance and Nominating
Committee. This process will not give you the right to directly propose a
nominee at any meeting of stockholders.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Pharmos has adopted a procedure to enable our stockholders to communicate
in writing with our Board, with committees of the Board or with any individual
director or directors. Stockholders may send communications directly to: Pharmos
Corporation, 99 Wood Avenue South, Suite 311, Iselin, New Jersey 08830,
Attention: Corporate Secretary. Such communications will be screened for
appropriateness before notifying the members of the Board or committee, as the
case may be, of receipt of a communication and forwarding it to the appropriate
person or persons.
Please note that the foregoing procedure does not apply to (i) stockholder
proposals pursuant to Exchange Act Rule 14a-8 and communications made in
connection with such proposals or (ii) service of process or any other notice in
a legal proceeding. For information concerning stockholder proposals, see
"Stockholders' Proposals For 2005 Annual Meeting of Stockholders."
POLICY REGARDING DIRECTOR ATTENDANCE AT ANNUAL STOCKHOLDERS' MEETINGS
The Board has adopted a policy encouraging directors to attend the
Company's Annual Meeting of Stockholders, whether or not a Board meeting is
scheduled for the same date of the Annual Meeting. To incentivize such
attendance, the Company will pay its directors $1,500 for attending an Annual
Meeting on a date when no Board meeting is separately scheduled (and if a Board
meeting is scheduled
8
for such date, the $1,500 per meeting fee will cover attendance at both the
Annual Meeting and the Board meeting).
ITEM 3 - PROPOSAL TO AMEND THE COMPANY'S 2000 STOCK OPTION PLAN
The Board of Directors has adopted, subject to stockholder approval, an
amendment (the "Plan Amendment") to the Company's 2000 Stock Option Plan (the
"2000 Plan") authorizing the issuance of an additional 2,500,000 shares under
such plan, thereby increasing the aggregate number of shares issuable under such
plan from 3,500,000 to 6,000,000, and, in order to allow the Company greater
flexibility in creating equity-based awards and incentives for beneficiaries of
the Plan, to provide for the issuance of shares of restricted stock or stock
units in addition to the options previously provided for under the Plan.
An award of restricted stock entitles the recipient to acquire shares of
our Common Stock for no consideration or for the consideration specified by the
Compensation and Stock Option Committee. A stock unit is a bookkeeping account
to which there is credited the fair market value of a share of our Common Stock.
The value of the account is subsequently adjusted to reflect changes in the fair
market value. Upon exercise of a stock unit, the holder is entitled to receive
the value of the account. At the discretion of the Compensation and Stock Option
Committee, any required payment may be made in cash, shares of our Common Stock,
or both. Shares of restricted Common Stock as well as stock units will be
subject to such vesting periods and other restrictions and conditions as the
Compensation and Stock Option Committee determines.
To date, options to purchase 3,440,899 shares of the Company's Common
Stock have been granted under the 2000 Plan and 33,030 of such options have been
exercised or terminated.
The adoption of the Plan Amendment by the Board of Directors reflects a
determination by the Board that ensuring the availability of a sufficient number
of, and various types of, options and awards available for grant under the 2000
Plan is important to the Company's ongoing and continuing efforts to attract and
retain key senior management personnel and increase the interest of the
Company's executive officers in the Company's continuing success.
Since the granting of options and awards under the 2000 Plan is
discretionary, the Company cannot at present determine the number of options and
awards that will be granted in the future to any person or group of persons or
the terms of any future grant. Future option and award grants and the terms
thereof will be determined by the Compensation and Stock Option Committee in
accordance with the terms of the 2000 Plan.
Set forth below is certain information concerning the 2000 Plan. A copy of
the Amended and Restated 2000 Plan is attached as Appendix E hereto.
DESCRIPTION OF 2000 PLAN
The purpose of the 2000 Plan is to allow employees, outside Directors and
consultants of the Company and its subsidiaries to increase their proprietary
interest in, and to encourage such employees to remain in the employ of, or
maintain their relationship with, such entities. It is intended that options
granted under the 2000 Plan will qualify either as incentive stock options under
Section 422 of the Code or as non-qualified options. Options granted under the
2000 Plan will only be exercisable for Common Stock.
The 2000 Plan is administered by a committee appointed by the Board of
Directors (the Compensation and Stock Option Committee) or by the Board itself.
The Compensation and Stock Option Committee will designate the persons to
receive awards or options, the number of shares subject to the options and the
terms of the awards and options, including the option price and the duration of
each option, subject to certain limitations.
17
The maximum number of shares of Common Stock available for issuance under
the 2000 Plan is currently 3,500,000 shares, subject to adjustment in the event
of stock splits, stock dividends, mergers, consolidations and the like. Common
Stock subject to options granted under the 2000 Plan that expire or terminate
will again be available for options to be issued under the 2000 Plan.
The price at which shares of Common Stock may be purchased upon exercise
of an incentive stock option must be at least 100% of the fair market value of
Common Stock on the date the option is granted (or at least 110% of fair market
value in the case of a person holding more than 10% of the outstanding shares of
Common Stock (a "10% Stockholder")).
The aggregate fair market value (determined at the time the option is
granted) of Common Stock with respect to which incentive stock options are
exercisable for the first time in any calendar year by an optionee under the
2000 Plan or any other plan of the Company or a subsidiary, shall not exceed
$100,000. The Compensation and Stock Option Committee will fix the time or times
when, and the extent to which, an option is exercisable, provided that no option
will be exercisable earlier than one year or later than ten years after the date
of grant (or five years in the case of a 10% Stockholder). The option price is
payable in cash or by check. In addition, the Board of Directors may grant a
loan to an employee, pursuant to the loan provision of the 2000 Plan, for the
purpose of exercising an option or may permit the option price to be paid in
shares of Common Stock at the then current fair market value, as defined in the
2000 Plan.
Subject to the terms of the 2000 Plan, the Board of Directors at its sole
discretion shall determine when an option shall expire. A stock option agreement
may provide for expiration prior to the end of its term in the event of the
termination of the optionee's service to the Company or death or any other
circumstances.
The 2000 Plan provides that outstanding options shall vest and become
immediately exercisable in the event of a "sale" of the Company, including (i)
the sale of more than 75% of the voting power of the Company in a single
transaction or a series of transactions, (ii) the sale of substantially all
assets of the Company, (iii) approval by the stockholders of a reorganization,
merger or consolidation, as a result of which the stockholders of the Company
will own less than 50% of the voting power of the reorganized, merged or
consolidated company.
The Board of Directors may amend, suspend or discontinue the 2000 Plan,
but it must obtain stockholder approval to (i) increase the number of shares
subject to the 2000 Plan or (ii) change the designation of the class of persons
eligible to receive options.
Under current federal income tax law, the grant of incentive stock options
under the 2000 Plan will not result in any taxable income to the optionee or any
deduction for the Company at the time the options are granted. The optionee
recognizes no gain upon the exercise of an option. However the amount by which
the fair market value of Common Stock at the time the option is exercised
exceeds the option price is an "item of tax preference" of the optionee, which
may cause the optionee to be subject to the alternative minimum tax. If the
optionee holds the shares of Common Stock received on exercise of the option at
least one year from the date of exercise and two years from the date of grant,
he will be taxed at the time of sale at long-term capital gains rates, if any,
on the amount by which the proceeds of the sale exceed the option price. If the
optionee disposes of the Common Stock before the required holding period is
satisfied, ordinary income will generally be recognized in an amount equal to
the excess of the fair market value of the shares of Common Stock at the date of
exercise over the option price, or, if the disposition is a taxable sale or
exchange, the amount of gain realized on such sale or exchange if that is less.
If, as permitted by the 2000 Plan, the Board of Directors permits an optionee to
exercise an option
18
by delivering already owned shares of Common Stock valued at fair market value)
the optionee will not recognize gain as a result of the payment of the option
price with such already owned shares. However, if such shares were acquired
pursuant to the previous exercise of an option, and were held less than one year
after acquisition or less than two years from the date of grant, the exchange
will constitute a disqualifying disposition resulting in immediate taxation of
the gain on the already owned shares as ordinary income. It is not clear how the
gain will be computed on the disposition of shares acquired by payment with
already owned shares.
EQUITY COMPENSATION PLAN INFORMATION
The table below provides certain information concerning our equity
compensation plans as of December 31, 2003.
------------------------------------------------------------------------------------------------------------------------------
Plan Category Number of securities to be Weighted average exercise Number of securities
issued upon exercise of price of outstanding options, remaining available for
outstanding options, warrants and rights future issuance under
warrants and rights equity compensation
plans (excluding
securities reflected in
column (a))
(a) (b) (c)
------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans 3,434,993 $2.07 1,084,039
approved by security holders
------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not N/A N/A N/A
approved by security holders
(1)
------------------------------------------------------------------------------------------------------------------------------
Total 3,434,993 $2.07 1,084,039
------------------------------------------------------------------------------------------------------------------------------
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The Company from time to time engages in discussions with pharmaceutical
and biotechnology companies about potential business and/or product
consolidations, joint ventures, acquisitions, mergers or other business
combinations. If any such transaction is ever consummated, the existence of
these additional outstanding stock options under the 2000 Plan could have the
effect of reducing the aggregate consideration received by existing stockholders
in such transaction.
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 Plan Amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR AMENDMENT OF THE
COMPANY'S 2000 STOCK OPTION PLAN (ITEM 3 ON THE ENCLOSED PROXY CARD).
19
ITEM 4 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee has selected PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") as the Company's independent auditors for the fiscal
year ending December 31, 2004, and our Board of Directors has directed that
management submit the selection of independent auditors for ratification by the
stockholders at the Meeting. PricewaterhouseCoopers has audited the financial
statements of the Company and its predecessors for more than ten years and has
advised the Company that it does not have any material financial interests in,
or any connection with (other than as independent auditors and tax advisors),
the Company.
Stockholder ratification of the selection of PricewaterhouseCoopers as the
Company's independent auditors is not required by the Bylaws or otherwise.
However, the Board is submitting the selection of PricewaterhouseCoopers to the
stockholders for ratification as a matter of corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee or the Board will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee or the Board in its discretion may direct the
appointment of a different independent accounting firm at any time during the
year if the Audit Committee or the Board determines that such a change would be
in the best interests of the Company and its stockholders.
PricewaterhouseCoopers is expected to be present at the meeting and will
have the opportunity to make a statement, if they desire to do so, and they are
expected to be available to respond to appropriate questions.
AUDIT FEES
Aggregate fees for professional services rendered by
PricewaterhouseCoopers in connection with its audit of the Company's
consolidated financial statements as of and for the years ended December 31,
2003, and 2002 and its reviews of the Company's unaudited condensed consolidated
interim financial statements were approximately $353,000 and $240,000,
respectively.
TAX FEES
Aggregate fees for professional services rendered by
PricewaterhouseCoopers in connection with its income tax compliance and related
tax services for the years ended December 31, 2003, and 2002 were approximately
$80,000 and $15,000, respectively.
ALL OTHER FEES
There were no other professional services provided by
PricewaterhouseCoopers to the Company during 2003 or 2002.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND NON-AUDIT
SERVICES OF INDEPENDENT AUDITOR
The charter of the Audit Committee requires that the Committee review and
pre-approve all audit, review or attest engagements of, and non-audit services
to be provided by, the independent auditor (other than with respect to the de
minimis exception permitted by the Sarbanes-Oxley Act of 2002 and the SEC rules
promulgated thereunder). The Audit Committee pre-approved all auditing services
and permitted non-audit services rendered by PricewaterhouseCoopers in 2003.
The pre-approval duty may be delegated to one or more designated members
of the Audit Committee, with any such pre-approval reported to the Committee at
its next regularly scheduled meeting. Any such designated member(s) of the
Committee shall also have the authority to approve non-audit services already
commenced by the independent auditor if (i) the aggregate amount of all such
services provided constitutes no more than five percent (5%) of the total amount
of revenues paid by the Company to the independent auditor during the fiscal
year in which the services are provided, (ii) such
20
services were not recognized by the Company at the time of the engagement to be
non-audit services, and (iii) such services are promptly brought to the
attention of the Committee and approved by such designated member(s) prior to
the completion of the audit.
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 ratify the selection of PricewaterhouseCoopers.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S AUDITORS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 2004 (ITEM 4 ON THE ENCLOSED PROXY CARD).
OTHER MATTERS
As of the date of this Proxy Statement, the only business which management
expects to be considered at the Meeting is the election of directors, the
increase of the number of authorized shares of the Company's Common Stock to
150,000,000 shares, the amendment of the Company's 2000 Stock Option Plan, and
ratification of the selection of PricewaterhouseCoopers LLP as the Company's
auditors. If any other matters come before the meeting, the persons named in the
enclosed form of proxy are expected to vote the proxy in accordance with their
best judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
HAIM AVIV, PH.D.
Chairman of the Board
Dated: May 26, 2004
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APPENDIX A
Pharmos Corporation
Compensation and Stock Option Committee Charter
February 2004
Set forth below is the charter for the Compensation and Stock Option
Committee (the "Committee") of the board of directors (the "board") of Pharmos
Corporation (the "Company").
1. General Purpose. The general purpose of the Committee is to aid the board
in discharging its responsibilities relating to the oversight of executive
officer compensation.
2. Specific Responsibilities
2.1. The Committee shall:
o review and approve corporate goals and objectives relevant to
the compensation of the CEO and, to the extent it deems
appropriate, other executive officers;
o determine and approve the compensation of the CEO;
o review and approve, or make recommendations to the board with
respect to, the compensation of the Company's other executive
officers;
o review and approve, or make recommendations to the board with
respect to, any incentive-compensation plan or equity-based
plan for the benefit of executive officers, including but not
limited to, specific grants of stock options or other
equity-based benefits for such executive officers;
o administer any incentive-compensation plan or equity-based
plan for the benefit of executive officers;
o review and approve, or make recommendations to the board with
respect to, management's proposals relating to changes in base
compensation, amounts of annual or special bonus payments,
stock option grants or other equity-based benefits for
employees or consultants who are not executive officers, as
such proposals relate either to a group of such employees or
consultants, taken as a whole, or as they relate to specific
individuals.
o review and approve the compensation committee report on
executive compensation that is required in the Company's
annual proxy statement.
2.2. In evaluating CEO compensation, the Committee should consider: (i)
the CEO's performance in light of the Company's goals and objectives
relevant to such executive's compensation, (ii) competitive market
data relevant to executive compensation and (iii) such other factors
as the Committee deems appropriate. In addition, when evaluating the
long-term incentive component of CEO compensation, the Committee
should consider the Company's performance and relative shareholder
return, the value of similar incentive awards to CEO's at comparable
companies, and the awards given to the Company's CEO in past years.
2.3. In evaluating the compensation of executive officers other than the
CEO, the Committee should consider the recommendation of the CEO and
such other factors as the Committee deems appropriate (including,
without limitation, the factors enumerated in subsection 2.2 that
the Committee deems appropriate).
3. Authority to Retain Advisors
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3.1. The Committee has sole authority to: (i) retain compensation
consultants to advise with respect to director or executive officer
compensation, (ii) approve the fees and other retention terms of
such consultants and (iii) terminate the retention of any such
consultant.
3.2. The Committee may also retain such other advisors as it deems
necessary or appropriate.
3.3. The Company shall provide for appropriate funding, as determined by
the Committee, for payment of compensation to any advisors employed
by the Committee.
4. Composition and Operation of the Committee
4.1. The Committee shall be comprised of two or more directors appointed
by the board. Each member of the Committee must be "independent"
within the meaning of the rules of the Nasdaq Stock Market. The
Committee may appoint one member to serve as Chairman of the
Committee.
4.2. Any member of the Committee may be removed by the board, with or
without cause, at any time.
4.3. At all meetings of the Committee, a majority of the entire Committee
shall be necessary and sufficient to constitute a quorum for the
transaction of business.
4.4. The vote of a majority of the Committee members present at a meeting
at which a quorum is present shall be the act of the Committee. The
Committee may also act by unanimous written consent as provided in
the Company's by-laws or applicable Nevada law.
4.5. The Committee may hold meetings, both regular and special, either
within or without the State of Nevada. Regular meetings of the
Committee may be held without notice at such time and at such place
as may from time to time be determined by the Committee. Special
meetings of the Committee may be called by any member of the
Committee or by the Chairman of the Board. Notice for Committee
meetings, when required, shall be given in the same manner as notice
for a board meeting.
4.6. Meetings of the Committee shall be presided over by the Chairman of
the Committee, if any, or in the absence of a Chairman by a chairman
chosen at the meeting.
4.7. The Committee shall conduct a self-evaluation at least annually to
determine whether (i) it is functioning effectively in accordance
with this Charter and (ii) whether any amendments to this Charter
should be proposed to the board.
4.8. The Committee shall record minutes of each of its meetings.
4.9. The Committee shall make regular reports to the board on its
activities. These reports may be made orally or in writing or by
providing copies of relevant minutes.
4.10. The Committee may form, and delegate any of its responsibilities to,
a subcommittee so long as such subcommittee is solely comprised of
members of the Committee. The requirements for action by a
subcommittee shall, except as otherwise provided by act of the
Committee, be the same as applicable to the Committee.
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APPENDIX B
CHARTER OF THE GOVERNANCE AND NOMINATING COMMITTEE OF THE BOARD OF
DIRECTORS OF PHARMOS CORPORATION,
A NEVADA CORPORATION
(Adopted by the Board of Directors as of February 12, 2004)
1. Purpose. The Governance and Nominating Committee (the "Committee") is
appointed by the Board of Directors (the "Board of Directors") of Pharmos
Corporation (the "Company") to (a) develop and monitor corporate governance best
practices for the Board of Directors; (b) assist the Board of Directors in
identifying individuals qualified to become members of the Board of Directors
and members of the Board of Directors' various committees, (c) select the
director nominees for each annual meeting of stockholders and the committee
nominees; and (d) take such other actions within the scope of this Charter as
the Committee deems necessary or appropriate.
2. Membership. The Committee will be comprised of three or more directors. All
members of the Committee will be independent directors (as determined by the
Board of Directors) to the extent required by the rules of the New York Stock
Exchange, the Nasdaq National Market or any other exchange or market upon which
the Company's shares are listed or quoted, and any applicable law. The members
of the Committee will be appointed by and serve at the discretion of the Board
of Directors.
3. Specific Responsibilities and Duties. The Board of Directors delegates to the
Committee the express authority to:
(a) Board Policies and Processes. Develop and recommend to the Board of
Directors, policies and processes designed to provide for effective and
efficient governance, including but not limited to: policies for
evaluation of the Board of Directors and the chairperson; election and
reelection of Board members; Board orientation and education; and
succession planning for the Board chairperson and other Board members.
(b) Board Education. Plan Board education, including new member
orientation.
(c) Board Goals and Expectations. Prepare an initial draft of annual Board
goals and objectives for the Board of Directors' review and approval and
periodically review and recommend to the full Board of Directors a
description of expectations for Board members and the Board chairperson.
(d) Composition of the Board of Directors. Evaluate the size and
composition of the Board of Directors, develop criteria for membership on
the Board of Directors, and evaluate the independence of existing and
prospective directors.
(e) Candidates. Seek and evaluate qualified individuals to become
directors.
(f) Committees. Evaluate the nature, structure and composition of other
committees of the Board of Directors.
(g) Annual Review. Take such steps as the Committee deems necessary or
appropriate with respect to assessments of the performance of the Board of
Directors, each other committee of the Board of Directors, and itself.
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(h) Review Charter. Review and reassess the adequacy of this Charter and
make recommendations for changes to the full Board of Directors.
(i) Other Actions. Take such other actions as may be requested or required
by the Board of Directors from time to time.
(j) Recommendations; Reports. Make recommendations and report to the Board
of Directors and other committees of the Board of Directors with respect
to any of the foregoing matters.
4. Search Firm. The Board of Directors delegates to the Committee the express
authority to decide whether to retain a search firm to assist the Committee in
identifying, screening and attracting director candidates. If the Committee
decides in its discretion to retain such a firm, the Board of Directors
delegates to the Committee the sole authority to retain and terminate any such
firm and to approve the search firm's fees and other retention terms.
5. Meetings. The Committee will meet with such frequency, and at such times, as
its Chairperson, or a majority of the Committee, determines. A special meeting
of the Committee can be called by the Chairperson and will be called promptly
upon the request of any two Committee members. The agenda of each meeting will
be prepared by the Chairperson and circulated to each member prior to the
meeting date. Unless the Committee or the Board of Directors adopts other
procedures, the provisions of the Company's Bylaws applicable to meetings of the
Board of Directors will govern meetings of the Committee.
6. Minutes. Minutes of each meeting will be taken and kept in the Company's
minute book. The Committee will report to the Board of Directors regularly or
whenever requested to do so by the Board of Directors.
7. Subcommittees. The Committee has the power to appoint subcommittees, but no
subcommittee will have any final decision making authority on behalf of Board of
Directors.
8. Reliance; Experts; Cooperation.
(a) Retention of Counsel and Advisors. The Committee has the power, in its
discretion, to retain at the Company's expense such counsel, advisors and
experts as it deems necessary or appropriate to carry out its duties.
(b) Reliance Permitted. The Committee may act in reliance on management,
the Company's independent public accountants, internal auditors, and
advisors and experts, as it deems necessary or appropriate to enable it to
carry out its duties.
(c) Investigations. The Committee has the power, in its discretion, to
conduct any investigation it deems necessary or appropriate to enable it
to carry out its duties.
(d) Required Participation of Employees. The Committee shall have
unrestricted access to the Company's employees, independent public
accountants, internal auditors, and internal and outside counsel, and may
require any employee of the Company or representative of the Company's
outside counsel or independent public accountants to attend a meeting of
the Committee or to meet with any members of the Committee or
representative of the Committee's counsel, advisors or experts.
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APPENDIX C
THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
OF
PHARMOS CORPORATION
AMENDED AND RESTATED CHARTER, FEBRUARY 11, 2004
I. PURPOSE
The Audit Committee (the "Committee") is established by the Board of
Directors (the "Board") of Pharmos Corporation (the "Company") for the primary
purpose of assisting the Board in overseeing the accounting and financial
reporting processes of the Company and audits of the financial statements of the
Company. The Committee shall also review the policies and procedures adopted by
the Company to fulfill its responsibilities regarding the fair and accurate
presentation of financial statements in accordance with generally accepted
accounting principles ("GAAP") and applicable rules and regulations of the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers (the "NASD") applicable to Nasdaq-listed issuers.
Consistent with this function, the Committee should encourage continuous
improvement of, and should foster adherence to, the Company's policies,
procedures and practices at all levels. The Committee should also provide an
open avenue of communication among the independent auditor, financial and senior
management, the internal auditing function, if any, and the Board.
The Committee has the authority to obtain advice and assistance from
outside legal, accounting, or other advisors as deemed appropriate to perform
its duties and responsibilities.
The Company shall provide appropriate funding, as determined by the
Committee, for compensation to the independent auditor and to any advisers that
the Committee chooses to engage and for ordinary administrative expenses of the
Committee that are necessary or appropriate in carrying out its duties.
The Committee will primarily fulfill its responsibilities by carrying out
the activities enumerated in Section III of this Charter.
II. COMPOSITION AND MEETINGS
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be an independent director (as defined by all
applicable rules and regulations of the SEC and the NASD then in effect), shall
not own or control, directly or indirectly, 20% or more of the Company's voting
securities, or such lower measurement as may be established by the SEC in
rulemaking under Section 301 of the Sarbanes-Oxley Act of 2002, and shall be
free from any relationship (including disallowed compensatory arrangements)
that, in the opinion of the Board, would interfere with the exercise of his or
her independent judgment as a member of the Committee. All members of the
Committee shall have a working familiarity with basic finance and accounting
practices and shall be able to read and understand fundamental financial
statements, and at least one member of the Committee shall be a "financial
expert" in compliance with the criteria established by the SEC and other
relevant regulations. The existence of such member(s) shall be disclosed in
periodic filings as required by the SEC. Members of the Committee may enhance
their familiarity with finance and accounting by participating in educational
programs conducted by the Company or an outside consultant.
Members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full
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Board, members of the Committee may designate a Chair by majority vote of the
full Committee membership.
The Committee shall meet at least four times annually, in person or by
telephone conference call, or more frequently as circumstances dictate. To the
extent practical and appropriate, each regularly scheduled meeting should
conclude with an executive session of the Committee absent members of management
and on such terms and conditions as the Committee may elect. As part of its job
to foster open communication, the Committee should, to the extent practical and
appropriate, meet periodically with management, the director of the internal
auditing function, if any, and the independent auditor in separate executive
sessions to discuss any matters that the Committee or each of these groups
believes should be discussed privately.
III. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Committee shall:
Documents/Reports/Accounting Information Review
1. Review this Charter periodically, and no less frequently than annually, and
recommend to the Board any necessary amendments as conditions dictate.
2. Review and discuss with management the Company's annual financial statements,
including the Management's Discussion and Analysis proposed to be included in
the Company's Annual Report on Form 10-K, quarterly financial statements, and
all internal controls reports (or summaries thereof), if any. To the extent
practical and appropriate, review other relevant reports or financial
information submitted by the Company to any governmental body, or the public,
including management certifications as required by the Sarbanes-Oxley Act of
2002 (Sections 302 and 906) and relevant reports rendered by the independent
auditor (or summaries thereof).
3. Recommend to the Board whether the financial statements should be included in
the Annual Report on Form 10-K. Review with financial management and the
independent auditor each Quarterly Report on Form 10-Q prior to its filing.
4. Have one or more members of the Committee, in particular if reasonably
available the Chairman of the Committee, review, before release, the unaudited
operating results in the Company's quarterly earnings release and/or discuss the
contents of the Company's quarterly earnings release with management.
5. Have one or more members of the Committee, in particular if reasonably
available the Chairman of the Committee, review, before release, any non-GAAP or
"pro forma" financial information, guidance or revised guidance to be included
in a press release of the Company.
6. To the extent practical and appropriate, review the regular internal reports
(or summaries thereof) to management prepared by the internal auditing
department, if any, and management's response.
Independent Auditor
7. Appoint (subject to shareholder ratification, if applicable), compensate, and
oversee the work performed by the independent auditor for the purpose of
preparing or issuing an audit report or related work. Review the performance of
the independent auditor and remove the independent auditor if circumstances
warrant. The independent auditor shall report directly to the Committee and the
Committee shall oversee the resolution of disagreements between management and
the independent auditor in the event that they arise. The Board and Committee
are in place to represent the Company's stockholders. Accordingly, the
independent auditor is ultimately accountable to the Board and Committee as
representatives of the Company's stockholders. Consider whether the auditor's
performance of permissible nonaudit services is compatible with the auditor's
independence.
8. Review with the independent auditor when appropriate any problems or
difficulties and management's response; review the independent auditor's
attestation and report on management's internal control report; obtain from the
independent auditor assurance that it has complied with Section 10A of the
Securities Exchange Act of 1934; and hold discussions with the independent
auditor, at least
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prior to the filing of the independent auditor's audit report with the SEC
pursuant to federal securities laws, regarding the following:
o all critical accounting policies and practices to be used;
o all alternative treatments within GAAP for policies and practices
related to material items that have been discussed with management,
including ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the independent
auditor;
o other material written communications between the independent
auditor and management including, but not limited to, the management
letter and schedule of unadjusted differences;
o an analysis of the auditor's judgment as to the quality of the
Company's accounting principles, setting forth significant reporting
issues and judgments made in connection with the preparation of the
financial statements, and the matters required to be discussed by
Statement on Auditing Standards No. 61, as modified or supplemented;
o any significant changes required in the independent auditor's audit
plan;
o other matters related to the conduct of the audit, which are to be
communicated to the Committee under generally accepted auditing
standards; and
o any other relevant reports, including regular internal financial
reports prepared by management of the Company and any internal
auditing department, or other financial information.
9. Review the independence of the independent auditor, including a review of
management consulting services, and related fees, provided by the independent
auditor. The Committee shall require that the independent auditor at least
annually provide a formal written statement delineating all relationships
between the independent auditor and the Company consistent with the rules of the
NASD applicable to Nasdaq-listed issuers and request information from the
independent auditor and management to determine the presence or absence of a
conflict of interest. The Committee shall actively engage the independent
auditor in a dialogue with respect to any disclosed relationships or services
that may impact the objectivity and independence of the independent auditor. The
Committee shall take, or recommend that the full Board take, appropriate action
to oversee the independence of the independent auditor.
10. Review and preapprove all audit, review or attest engagements of, and
nonaudit services to be provided by, the independent auditor (other than with
respect to the de minimis exception permitted by the Sarbanes-Oxley Act of 2002
and the SEC rules promulgated thereunder). Establish and maintain preapproval
policies and procedures relating to the engagement of the independent auditor to
render services, provided the policies and procedures are detailed as to the
particular service and the Committee is informed of each service and such
policies and procedures do not include delegation of the Committee's
responsibilities under the Securities Exchange Act of 1934 to management. The
preapproval duty may be delegated to one or more designated members of the
Committee with any such preapproval reported to the Committee at its next
regularly scheduled meeting. Any such designated member(s) of the Committee
shall also have the authority to approve nonaudit services, already commenced by
the independent auditor, if (i) the aggregate amount of all such services
provided constitutes no more than five percent (5%) of the total amount of
revenues paid by the Company to the independent auditor during the fiscal year
in which the services are provided, (ii) such services were not recognized by
the Company at the time of the engagement to be nonaudit services and (iii) such
services are promptly brought to the attention of the Committee and approved by
such designated member(s) prior to the completion of the audit. Approval of
nonaudit services and preapproval policies and procedures shall be disclosed in
the Company's Annual Report on Form 10-K and annual proxy statement.
Financial Reporting Processes and Accounting Policies
11. In consultation with the independent auditor and the internal auditors, if
any, review the integrity of the organization's financial reporting processes
(both internal and external), and the internal control structure (including
disclosure controls).
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12. Review with management the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures, on the financial statements of the
Company.
13. To the extent not otherwise approved by another committee or comparable body
of the Board, review and approve all related party transactions (consistent with
the rules of the NASD applicable to Nasdaq-listed issuers).
14. Establish and maintain procedures for the receipt, retention, and treatment
of complaints regarding accounting, internal accounting, or auditing matters.
15. Establish and maintain procedures for the confidential, anonymous submission
by Company employees regarding questionable accounting or auditing matters.
Internal Audit
16. Determine the scope, responsibilities and reporting requirements of an
internal auditing department and on the appointment, replacement, reassignment
or dismissal of an internal auditing department manager or director.
Other Responsibilities
17. Review with the independent auditor, the internal auditing department, if
any, and management the extent to which changes or improvements in financial or
accounting practices, as approved by the Committee, have been implemented (This
review should be conducted at an appropriate time subsequent to implementation
of changes or improvements, as decided by the Committee.)
18. Prepare the report that the SEC requires be included in the Company's annual
proxy statement.
19. To the extent appropriate or necessary, review the rationale for employing
audit firms other than the principal independent auditor and, where an
additional audit firm has been employed, review the coordination of audit
efforts to assure completeness of coverage, reduction of redundant efforts and
the effective use of audit resources.
20. Establish, review and update periodically a code of ethics and ensure that
management has established a system to enforce this code. Ensure that the code
is in compliance with all applicable rules and regulations. Review management's
monitoring of the Company's compliance with the organization's code of ethics.
21. Perform any other activities consistent with this Charter, the Company's
Amended and Restated Bylaws and governing law, as the Committee or the Board
deems necessary or appropriate.
IV. QUALIFICATION
While the Committee has the duties and responsibilities set forth in this
charter, the Committee is not responsible for planning or conducting the audit
or for determining whether the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
Similarly, it is not the responsibility of the Committee to resolve
disagreements, if any, between management and the independent auditors or to
ensure that the Company complies with all laws and regulations.
It is recognized that in fulfilling their responsibilities hereunder,
members of the Committee are not full-time employees of the Company, it is not
the duty or responsibility of the Committee or its members to conduct field work
or other types of auditing or accounting reviews or procedures or to set auditor
independence standards, and each member of the Committee shall be entitled to
rely on (i) the integrity of those persons and organizations within and without
the Company from which it receives information, (ii) the accuracy of the
financial and other information provided to the Committee absent actual
knowledge to the contrary (which shall be promptly reported to the Board) and
(iii) statements made by management or third parties as to any information
technology, internal audit and other non-audit services provided by the auditors
to the Company.
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APPENDIX D
Amendment to Article FOURTH of Restated Articles of Incorporation
The first paragraph of Article FOURTH shall be replaced by the following
paragraph:
"The total number of shares of stock which the corporation shall
have authority to issue is one hundred fifty-one million two hundred fifty
thousand (151,250,000), of which stock one hundred fifty million (150,000,000)
shares of the par value of three cents ($0.03) each, amounting in the aggregate
to Four Million Five Hundred Thousand Dollars ($4,500,000), shall be Common
Stock, and of which one million two hundred fifty thousand (1,250,000) shares of
the par value of three cents ($0.03) each, amounting in the aggregate to
Thirty-Seven Thousand Five Hundred Dollars ($37,500), shall be Preferred Stock."
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APPENDIX E
PHARMOS CORPORATION AMENDED AND RESTATED 2000 STOCK OPTION
PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, through the granting of Options to purchase Shares of the
Company's Stock, restricted Stock Awards and Stock Units. Options granted under
the Plan may include Nonstatutory Options as well as ISOs intended to qualify
under Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) Committees of the Board of Directors. The Plan may be administered by
one or more Committees. Each Committee shall consist of one or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Any reference to the Board
of Directors in the Plan shall be construed as a reference to the Committee (if
any) to whom the Board of Directors has assigned a particular function.
(b) Authority of the Board of Directors. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Board of Directors shall
be final and binding on all Awardees and Optionees and all persons deriving
their rights from an Awardee or Optionee.
SECTION 3. ELIGIBILITY.
Only Employees, Outside Directors and Consultants shall be eligible for
the grant of Options, Awards or the direct award or sale of Shares. Only
Employees shall be eligible for the grant of ISOs. As for Employees and
Directors who are residents of the State of Israel, only Employees and Directors
exclusive of "Nosei Misra," as such term is defined in Israeli Tax Ordinance
(New Version), 1961, shall be eligible for the grant of Options in accordance
with the trust arrangements set forth in Section 5(f) of the Plan.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan may be authorized but
unissued Shares or treasury Shares. The aggregate number of Shares that may be
issued under the Plan (either directly or upon exercise of Options or other
rights to acquire Shares) shall not exceed 6,000,000 Shares, subject to
adjustment pursuant to Section 8. The number of Shares that are subject to
Options or other rights outstanding at any time under the Plan shall not exceed
the number of Shares that then remain available for issuance under the Plan. The
Company, during
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the term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan, except that the aggregate number of
Shares which may be issued upon the exercise of ISOs shall in no event exceed
6,000,000 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Board of Directors deems appropriate for inclusion
in a Stock Option Agreement. The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.
(b) Number of Shares Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price under any Option shall be determined by the Board of
Directors at its sole discretion, subject to the following limitations: (i) the
Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of
a Share on the date of grant (110% for an ISO granted to a Greater Than
Ten-Percent Stockholder) and (ii) in no event may the Exercise Price of any
Option be less than the par value of a Share.
(d) Special Rule for Incentive Options. For those Options not covered by
the trust arrangements provided in Section 5(f) and consistent with Section 422
of the Code and any regulations, notices or other official pronouncements of
general applicability, to the extent the aggregate Fair Market Value (as of the
time the Option is granted) of the Shares of Stock with respect to which ISOs
are exercisable for the first time by an Optionee during any calendar year
(under all plans of his employer corporation and its Parent and Subsidiary
corporations) exceeds $100,000, such Options shall not be treated as ISO's.
Nothing in this special rule shall be construed as limiting the exercisability
of any Option, unless the Stock Option Agreement expressly provides for such a
limitation.
(e) Withholding Taxes. For those Options not covered by the trust
provisions of Section 5(f), as a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations ("Taxes") that may arise in connection with such exercise. The
Optionee shall also make such arrangements as the Board of Directors may require
for the
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satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(f) The Trust. Each Stock Option Agreement for residents of the State of
Israel ("Israeli Options") shall specify that all Options granted under the Plan
shall be granted by the Company to the Optionee and shall be held in Trust by a
trustee designated by the Company (the "Trustee"). The Trustee shall hold such
Options and the Stock issued upon exercise of such Options, together with all
rights conferred by the Stock (including all dividends or distributions of cash,
other shares of the Company's capital stock or other property including "bonus"
shares as defined under applicable laws of the State of Israel), in trust (the
"Trust") for the benefit of the Optionee in respect of whom such Options was
granted. All certificates representing shares of Stock issued to the Trustee
under the Plan shall be deposited with the Trustee and shall be held by the
Trustee until such time that such shares of Stock are released from the Trust.
(g) Withholding Taxes for Israeli Options. The Trustee shall withhold all
Taxes arising from the sale of the shares of Stock or make sure that all Taxes
arising from the transfer of the shares of Stock from the Trustee to the
Optionee were paid by the Optionee prior to such transfer.
(h) Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. The
exercisability provisions of any Stock Option Agreement shall be determined by
the Board of Directors at its sole discretion.
(i) Basic Term. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant (five years,
in the case of an ISO granted to a Greater Than Ten-Percent Stockholder).
Subject to the preceding sentence, the Board of Directors at its sole discretion
shall determine when an Option is to expire. A Stock Option Agreement may
provide for expiration prior to the end of its term in the event of the
termination of Optionee's Service or death or any other circumstances.
(j) Nontransferability. No Option may be transferred other than by will or
by the laws of descent and distribution, and during the lifetime of the Optionee
may be exercised only by the Optionee or by the Optionee's guardian or legal
representative; provided, however, that an Option that is not an ISO may be
otherwise transferred to the extent, if any, permitted by the Board of
Directors; and provided further, that in the case of Israeli Options, during the
lifetime of the Optionee, the Israeli Options may be exercised only by the
Trustee upon receipt of written instructions from the Optionee or by the
Optionee's guardian or legal representative.
(k) No Rights as a Stockholder. Neither an Optionee nor in the case of an
Israeli Option, the Trustee, or in either case a transferee of an Optionee,
shall have any rights as a stockholder with respect to any Shares covered by the
Optionee's Option until such Shares are issued pursuant to the terms of such
Option.
(l) Modification and Extension of Options. Within the limitations of the
Plan, the Board of Directors may modify or extend Options. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair the Optionee's rights or increase the Optionee's obligations
under such Option.
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(m) Substitution of Options. The Board of Directors may grant Options
under the Plan in substitution for options held by employees of another
corporation who concurrently become employees of the Company or a Parent or
Subsidiary as the result of a merger or consolidation of the employing
corporation with the Company or a Parent or Subsidiary, or as the result of the
acquisition by the Company of property or stock of the employing corporation.
The Company may direct that substitute awards be granted on such terms and
conditions as the Board of Director considers appropriate in the circumstances.
(n) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Option Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally.
SECTION 6. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares issued under the
Plan shall be payable, at the time when such Option is exercised, in cash or
cash equivalents payable to the order of the Company, except as otherwise
provided in this Section 6.
(b) Surrender of Stock. For Options that are not Israeli Options, unless a
Stock Option Agreement otherwise provides, all or any part of the Exercise Price
may be paid by surrendering, or attesting to the ownership of, Shares that are
already owned by the Optionee. Such Shares shall be surrendered to the Company
in good form for transfer and shall be valued at their Fair Market Value on the
date when the Option is exercised. The Optionee shall not surrender, or attest
to the ownership of, Shares in payment of the Exercise Price if such action
would cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
(c) Promissory Note. Unless a Stock Option Agreement otherwise provides,
all or a portion of the Exercise Price of Shares issued under the Plan may be
paid with a full-recourse promissory note (provided that the Optionee is an
Employee of the Company). The Shares shall be pledged as security for payment of
the principal amount of the promissory note and interest thereon. The interest
rate payable under the terms of the promissory note shall not be less than the
minimum rate (if any) required to avoid the imputation of additional interest
under the Code. Subject to the foregoing, the Board of Directors (at its sole
discretion) shall specify the term, interest rate, amortization requirements (if
any) and other provisions of such note.
(d) Exercise/Sale. Unless a Stock Option Agreement otherwise provides (or
if otherwise approved by the Board of Directors), and if Stock is publicly
traded, payment may be made all or in part by the delivery (on a form prescribed
by the Company) of an irrevocable direction to a securities broker approved by
the Company to sell Shares and to deliver all or part of the sales proceeds to
the Company in payment of all or part of the Exercise Price and any withholding
taxes.
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(e) Exercise/Pledge. Unless a Stock Option Agreement otherwise provides
(or if otherwise approved by the Board of Directors), and if Stock is publicly
traded, payment may be made all or in part by the delivery (on a form prescribed
by the Company) of an irrevocable direction of the Optionee, or in the case of
an Israeli Option, of the Trustee, to pledge Shares to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
SECTION 7. RESTRICTED STOCK AND STOCK UNITS.
(a) Grants. Subject to the other applicable provisions of the Plan, the
Board of Directors may grant Restricted Stock Awards or Stock Units to Awardees
in such amounts and for such consideration, including no consideration or such
minimum consideration as may be required by law, as it determines. Such Awards
shall be made pursuant to a Grant Agreement, and shall be subject to all
applicable terms and conditions of the Plan and may be subject to any other
terms and conditions which are not inconsistent with the Plan and which the
Board of Directors deems appropriate for inclusion in the Grant Agreement. The
provisions of the various Grant Agreements entered into under the Plan need not
be identical.
(b) Terms and Conditions. A Restricted Stock Award entitles the recipient
to acquire shares of Stock and a Stock Unit Award entitles the recipient to be
paid the Fair Market Value of the Stock on the exercise date. Stock Units may be
settled in Stock, cash or a combination thereof, as determined by the Board of
Directors. Restricted Stock Awards and Stock Unit Awards are subject to vesting
periods and other restrictions and conditions as the Board of Directors may
include in the Grant Agreement.
(c) Restricted Stock Awards.
(i) The Grant Agreement for each Restricted Stock Award shall
specify the applicable restrictions on such shares of Stock, the duration of
such restrictions, and the times at which such restrictions shall lapse with
respect to all or a specified number of shares of Stock that are part of the
Award. Notwithstanding the foregoing, the Board of Directors may reduce or
shorten the duration of any restriction applicable to any shares of Stock
awarded to any Awardee under the Plan.
(ii) Share certificates with respect to restricted shares of Stock
may be issued at the time of grant of the Restricted Stock Award, subject to
forfeiture if the restrictions do not lapse, or upon lapse of the restrictions.
If share certificates are issued at the time of grant of the Restricted Stock
Award, the certificates shall bear an appropriate legend with respect to the
restrictions applicable to such Restricted Stock Award or, alternatively, the
Awardee may be required to deposit the certificates with the Company during the
period of any restriction thereon and to execute a blank stock power or other
instrument of transfer.
(iii) The extent of the Awardee's rights as a shareholder with
respect to the Restricted Stock shall be specified in the Grant Agreement.
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(d) Stock Units.
(i) The grant of Stock Units shall be evidenced by a Grant Agreement
that states the number of Stock Units evidenced thereby and the terms and
conditions of such Stock Units.
(ii) Stock Units may be exercised in the manner described in the
Grant Agreement.
(iii) The extent of the Awardee's rights as a shareholder with
respect to the Stock Units shall be specified in the Grant Agreement.
(e) Transferability. Unvested Restricted Stock Awards or Stock Units may
not be sold, assigned, transferred, pledged or otherwise encumbered or disposed
of except as specifically provided in the Grant Agreement.
SECTION 8. ACQUISITION EVENTS AND OTHER ADJUSTMENT OF SHARES.
(a) Acquisition Events. In the event of a consolidation or merger in which
the Company is not the surviving corporation or in the event of any transaction
that results in the acquisition of substantially all of the Company's
outstanding Stock by a single person or entity or by a group of persons and/or
entities acting in concert, or in the event of the sale or other transfer of
substantially all of the Company's assets (all the foregoing being referred to
as "Acquisition Events"), outstanding Options shall be subject to the agreement
of merger or consolidation. Such agreement, without the Optionee's consent, may
provide for any of the following:
(i) The continuation of such outstanding Options by the Company (if
the Company is not the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of such outstanding Options without payment of
any consideration.
The provisions of Section 7(b) below shall not apply to any Option that is
terminated pursuant to this Section 7(a).
(b) Other Events. In the event that the outstanding Shares of Stock are
changed into or exchanged for a different number or kind of shares or other
securities or property (including cash) of the Company or of another corporation
by reason of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capital stock, reorganization,
merger, sale or other transfer of substantially all the Company's assets to
another corporation, consolidation, or other transaction described in Section
424(a) of the Code, the
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Board of Directors shall make appropriate adjustments (in such manner as it
deems equitable in its sole discretion) in (i) the number and kind of shares of
Stock, other securities or property for the purchase of which Options and Awards
may be granted under the Plan, (ii) the number and kind of shares of Stock,
other securities or property as to which outstanding Options, or portions
thereof then unexercised, shall be exercisable, (iii) the Exercise Price and
other terms of outstanding Options and (iv) any other relevant provisions of the
Plan. Any adjustment of the Plan or in outstanding Options shall be effective on
the effective date of the event giving rise to such adjustment. The Board of
Directors may also adjust the number of Shares subject to outstanding Options,
the Exercise Price of outstanding Options and the terms of outstanding Options
to take into consideration any other event (including, without limitation,
accounting changes) if the Board of Directors determines that such adjustment is
appropriate to avoid distortion in the operation of the Plan. All determinations
and adjustments made by the Board of Directors pursuant to this Section 8(b)
shall be binding on all persons.
(c) Reservation of Rights. The grant of an Option or an Award pursuant to
the Plan shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
(d) Sale or Merger. "Sale" means: (i) sale (other than a sale by the
Company) of securities entitled to more than 75% of the voting power of the
Company in a single transaction or a related series of transactions; or (ii)
sale of substantially all of the assets of the Company; or (iii) approval by the
stockholders of the Company of a reorganization, merger or consolidation of the
Company, as a result of which the persons who were the stockholders of the
Company immediately prior to such reorganization, merger or consolidation do not
own securities immediately after the reorganization, merger or consolidation
entitled to more than 50% of the voting power of the reorganized, merged or
consolidated company. Notwithstanding the other provisions of this Section 8,
immediately prior to a Sale, each Optionee may exercise his or her Option as to
all Shares then subject to the Option, regardless of any vesting conditions
otherwise expressed in the Option. Voting power, as used in this Section 8(d),
shall refer to those securities entitled to vote generally in the election of
directors, and securities of the Company not entitled to vote but which are
convertible into, or exercisable for, securities of the Company entitled to vote
generally in the election of directors shall be counted as if converted or
exercised, and each unit of voting securities shall be counted in proportion to
the number of votes such unit is entitled to cast.
SECTION 9. SECURITIES LAW REQUIREMENTS.
The Company and, in the case of Israeli Options, the Trustee, shall not be
obligated to deliver any Shares of Stock (a) until, in the opinion of the
Company's counsel, all applicable federal and state laws and regulations have
been complied with, and (b) if the outstanding Stock is at the time listed on
any stock exchange or other stock market, until the Shares to be delivered have
been listed or authorized to be listed on such exchange or other stock market
upon official notice of issuance, and (c) until all other legal matters in
connection with the issuance and delivery of such Shares have been approved by
the Company's counsel. If the sale of Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a
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condition to exercise of the Option, such representations or agreements as
counsel for the Company may consider appropriate to avoid violation of such Act
and may require that the certificates evidencing such Stock bear an appropriate
legend restricting transfer.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right, Award or Option granted under the
Plan shall confer upon the Awardee or Optionee any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Company (or any Parent or Subsidiary employing or
retaining the Awardee or Optionee) or of the Awardee or Optionee, which rights
are hereby expressly reserved by each, to terminate his or her Service at any
time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's stockholders. In the event that the stockholders fail
to approve the Plan within 12 months after its adoption by the Board of
Directors, any grants of Awards or Options that have already occurred shall be
rescinded, and no additional grants shall be made thereafter under the Plan. The
Plan shall terminate automatically 10 years after its adoption by the Board of
Directors and may be terminated on any earlier date pursuant to Section 10(b).
(b) Right to Amend or Terminate the Plan. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan that increases the number of Shares
available for issuance under the Plan (except as provided in Section 8), or that
otherwise materially changes the class of persons who are eligible for the grant
of ISOs, will be subject to the approval of the stockholders of the Company.
Stockholder approval shall not be required for any other amendment of the Plan.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except pursuant to an Award or
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Award or Option previously granted under
the Plan.
SECTION 12. DEFINITIONS.
(a) "Award" shall mean a Restricted Stock Award or Stock Unit Award.
(b) "Awardee" shall mean an individual to whom an Award has been granted.
(c) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean a committee of the Board of Directors, as
described in Section 2(a).
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(f) "Company" shall mean Pharmos Corporation, a Nevada corporation.
(g) "Consultant" shall mean a person who performs bona fide services for
the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(h) "Employee" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(i) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "Fair Market Value" shall be determined by the Committee or the Board
of Directors in its discretion; provided, that if the Stock is listed on a stock
exchange, the Fair Market Value per Share shall be the closing price on such
exchange on the date of grant of the Award or Option as reported in the Wall
Street Journal (or, (i) if not so reported, as otherwise reported by the
exchange, and (ii) if not reported on the date of grant, then on the last prior
date on which a sale of the Stock was reported); or if not listed on an exchange
but traded on the National Association of Securities Dealers Automated Quotation
National Market System ("NASDAQ"), the Fair Market Value per Share shall be the
closing price per share of the Stock for the date of grant, as reported in the
Wall Street Journal (or, (i) if not so reported, as otherwise reported by
NASDAQ, and (ii) if not reported on the date of grant, then on the last prior
date on which a sale of the Common Stock was reported); or, if the Stock is
otherwise publicly traded, the mean of the closing bid price and asked price for
the last known sale.
(k) "Grant Agreement" shall mean the agreement between the Company and an
Awardee which contains the terms, conditions and restrictions pertaining to the
Awardee's Award.
(l) "Greater Than Ten-Percent Stockholder" as of any time shall mean any
Employee who at such time owns directly, or is deemed to own by reason of the
attribution rules set forth in Section 424(d) of the Code, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company.
(m) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(n) "Nonstatutory Option" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(o) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(p) "Optionee" shall mean an individual who holds an Option.
(q) "Outside Director" shall mean a member of the Board of Directors who
is not an Employee.
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(r) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(s) "Plan" shall mean this Pharmos Corporation 2000 Stock Option Plan.
(t) "Restricted Stock Award" shall mean an award of shares of restricted
Stock pursuant to the Plan.
(u) "Service" shall mean service as an Employee, Outside Director or
Consultant.
(v) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
(w) "Stock" shall mean the Common Stock of the Company, with a par value
of $0.03 per Share.
(x) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(y) "Stock Unit" shall mean a credit to a bookkeeping reserve account
solely for accounting purposes, where the amount of the credit shall equal the
Fair Market Value of a share of Stock on the date of the Award (unless the Board
of Directors provides otherwise in the Grant Agreement) and which shall be
subsequently increased or decreased to reflect the Fair Market Value of a share
of Stock. Stock Units do not require segregation of any of the Company's assets.
(z) "Stock Unit Award" shall mean an award of Stock Units pursuant to the
Plan.
(aa) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
(bb) "Trustee" shall mean an individual selected by the Company from time
to time.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the Company
has caused its authorized officer to execute the same.
PHARMOS CORPORATION
/s/ GAD RIESENFELD
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Gad Riesenfeld
President and Chief Operating Officer
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PHARMOS CORPORATION
99 Wood Avenue South - Suite 311
Iselin, New Jersey 08830
(732) 452-9556
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