BENTLEY PHARMACEUTICALS, INC.
65 LAFAYETTE ROAD
THIRD FLOOR
NORTH HAMPTON, NH 03862
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 9, 2001
------------
North Hampton, NH
April 3, 2001
To the Stockholders of
Bentley Pharmaceuticals, Inc.
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting (the "Meeting") of
Stockholders of BENTLEY PHARMACEUTICALS, INC., a Delaware corporation (the
"Company"), will be held on Wednesday, May 9, 2001 at 11:00 a.m., local time at
the Hyatt Harborside Hotel at Boston's Logan International Airport located at
101 Harborside Drive, Boston, Massachusetts 02128 for the purpose of considering
and acting upon the following matters:
(1) The election of three Class II Directors to serve until the 2004
Annual Meeting of Stockholders, or until the election and
qualification of their respective successors;
(2) A proposal to approve the Company's 2001 Employee Stock Option Plan;
(3) A proposal to approve the Company's 2001 Directors' Stock Option Plan;
and
(4) The transaction of such other business as may properly be brought
before the meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 3, 2001
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Meeting. A complete list of the Stockholders entitled to
vote will be available for inspection by any Stockholder during the Meeting; in
addition, the list will be open for examination by any Stockholder, for any
purpose germane to the Meeting, during ordinary business hours, for a period of
at least 10 days prior to the Meeting, at the Company's principal place of
business located at 65 Lafayette Road, Third Floor, North Hampton, New Hampshire
03862.
You are cordially invited to attend the Meeting. Whether or not you
intend to attend the Meeting, you are urged to complete, sign and date the
enclosed form of proxy, and return it promptly in the enclosed reply envelope.
No postage is required if mailed in the United States. Returning your proxy does
not deprive you of your right to attend the Meeting and to vote your shares in
person. THIS SOLICITATION IS BEING MADE ON BEHALF OF THE COMPANY'S BOARD OF
DIRECTORS.
By Order of the Board of Directors
MICHAEL D. PRICE
Secretary
BENTLEY PHARMACEUTICALS, INC.
65 Lafayette Road
Third Floor
North Hampton, NH 03862
-------------------------
PROXY STATEMENT
For Annual Meeting of Stockholders
May 9, 2001
------------------------
This Proxy Statement, to be mailed to stockholders on or about April 9,
2001, is furnished in connection with the solicitation by the Board of Directors
of Bentley Pharmaceuticals, Inc., a Delaware corporation (the "Company"), of
proxies in the accompanying form ("Proxy" or "Proxies") for use at the 2001
Annual Meeting of Stockholders of the Company to be held on May 9, 2001 at 11:00
a.m., local time at the Hyatt Harborside Hotel at Boston's Logan International
Airport located at 101 Harborside Drive, Boston, Massachusetts 02128 and at any
adjournments or postponements thereof (the "Meeting").
All Proxies received will be voted in accordance with the
specifications made thereon or, in the absence of any specification, for the
election of all of the nominees named herein to serve as Directors and for the
proposals to approve the Company's 2001 Employee Stock Option Plan and the
Company's 2001 Directors' Stock Option Plan (together, the "Plans"). Any Proxy
given pursuant to this solicitation may be revoked by the person giving it any
time prior to the exercise of the powers conferred thereby by notice in writing
to Michael D. Price, Secretary of the Company, 65 Lafayette Road, Third Floor,
North Hampton, New Hampshire 03862, by execution and delivery of a subsequent
Proxy or by attendance and voting in person at the Meeting, except as to any
matter or matters upon which, prior to such revocation, a vote shall have been
cast pursuant to the authority conferred by such Proxy.
Only holders of record of the Company's issued and outstanding Common
Stock, $.02 par value (the "Common Stock"), as of the close of business on April
3, 2001 (the "Record Date") will be entitled to notice of, and to vote at, the
Meeting. As of the Record Date, there were issued and outstanding 13,918,325
shares of the Company's Common Stock, each of which is entitled to one vote upon
each matter at the Meeting. The holders of a majority of the shares entitled to
vote at the Meeting will constitute a quorum for the transaction of business.
Proxies submitted which contain abstentions or broker non-votes will be deemed
present at the Meeting in determining the presence of a quorum. A plurality of
the votes cast at the Meeting at which a quorum is present will be required for
the election of Directors and the affirmative vote of a majority of the votes
cast at the Meeting at which a quorum is present will be required to approve
each of the Plans. Shares of Common Stock that are voted to abstain and shares
which are subject to broker non-votes will not be considered cast with respect
to the proposal to elect Directors and the proposal to approve each of the
Plans.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 23, 2001 as to
(i) each person (including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended) who is known to the Company
to be the beneficial owner of more than five percent of the Company's Common
Stock, its only class of voting securities, and (ii) the shares of the Company's
Common Stock beneficially owned by all executive officers and directors of the
Company as a group.
Amount and
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership (1) of Class
------------------------------------ ------------- --------
Michael McGovern, J.D., C.P.A. 2,636,228(2) 17.19%
5910 Long Island Drive
Atlanta, GA 30328
Renaissance U.S. Growth and Income Trust PLC 1,104,400(3) 7.93%
8080 North Central Expressway
Suite 210, LB59
Dallas, TX 75206-1857
Renaissance Capital Growth and Income Fund III, Inc. 924,979(4) 6.63%
8080 North Central Expressway
Suite 210, LB59
Dallas, TX 75206-1857
James R. Murphy 835,071(5) 5.69%
4 John Starke Lane
North Hampton, NH 03842
All executive officers and 6,781,516(6) 39.38%
directors as a group (10 persons)
--------------------------------
(1) Except as otherwise indicated, all shares of Common Stock are
beneficially owned, and sole investment and voting power is held, by
the persons named.
(2) Includes 1,313,500 shares of Common Stock which Mr. McGovern has the
right to acquire pursuant to presently exercisable Class B Warrants,
65,328 shares of Common Stock which Mr. McGovern has the right to
acquire pursuant to presently exercisable stock purchase options and
25,000 shares of Common Stock which Mr. McGovern has the right to
acquire pursuant to stock purchase options that are scheduled to vest
and become exercisable within 60 days. Excludes 86,000 shares of Common
Stock which Mr. McGovern has the right to acquire pursuant to stock
purchase options which are not vested and not exercisable within 60
days.
(Footnote explanations continue on following page)
2
(3) Based upon information contained in Amendment No. 5 to Schedule 13G,
dated December 26, 2000, and Form 4's filed by Mr. Cleveland, President
and Director of Renaissance U.S. Growth and Income Trust PLC and a
Director of the Company.
(4) Based upon information contained in Amendment No. 7 to Schedule 13G,
dated December 7, 2000, and Form 4's filed by Mr. Cleveland, President
and CEO of Renaissance Capital Growth and Income Fund III, Inc. and a
Director of the Company. Includes 7,779 shares of Common Stock which
Renaissance Capital Growth and Income Fund III, Inc. has the right to
acquire pursuant to presently exercisable stock purchase options.
Excludes 12,012 shares of Common Stock which Renaissance Capital Growth
and Income Fund III, Inc. has the right to acquire pursuant to stock
purchase options which are not vested and not exercisable within 60
days.
(5) Includes 1,300 shares of Common Stock owned by Mr. Murphy's sons, as to
which Mr. Murphy disclaims beneficial ownership, and 2,784 shares of
Common Stock held in Mr. Murphy's 401(k) Retirement Plan. Also,
includes 728,000 shares of Common Stock which Mr. Murphy has the right
to acquire pursuant to presently exercisable stock options and 1,500
shares of Common Stock which Mr. Murphy has the right to acquire
pursuant to presently exercisable Class B Warrants. Excludes 17,400
shares of Common Stock which Mr. Murphy has the right to acquire
pursuant to stock purchase options which are not vested and not
exercisable within 60 days.
(6) Includes 1,401 shares of Common Stock owned by family members of
certain of the current Executive Officers and Directors, as to which
such Executive Officers and Directors disclaim beneficial ownership.
Also includes 1,946,456 shares of Common Stock which certain of the
current Executive Officers and Directors have a right to acquire
pursuant to presently exercisable stock options, 1,321,000 shares of
Common Stock which certain of the current Executive Officers and
Directors have a right to acquire pursuant to presently exercisable
Class B Warrants, 8,432 shares of Common Stock held in 401(k)
Retirement Plan accounts of certain of the current Executive Officers
and Directors and 9,970 shares of Common Stock held the IRA account of
a certain Executive Officer and Director. Also includes 1,104,400
shares of Common Stock held by Renaissance U.S. Growth and Income Trust
PLC, of which Russell Cleveland, a director of the Company, serves as
President and Director and 917,200 shares of Common Stock held by
Renaissance Capital Growth and Income Fund III, Inc., of which Mr.
Cleveland serves as President and CEO, as to all of which shares Mr.
Cleveland disclaims beneficial ownership. Also includes 7,779 and
9,121shares of Common Stock which Renaissance Capital Growth and Income
Fund III, Inc. and Renaissance Capital Group, Inc., respectively, have
the right to acquire pursuant to presently exercisable stock purchase
options. Excludes 335,300, 12,012 and 15,288 shares of Common Stock
which certain of the current Executive Officers and Directors,
Renaissance Capital Growth and Income Fund III, Inc. and Renaissance
Capital Group, Inc., respectively, have the right to acquire pursuant
to stock purchase options which are not vested and not exercisable
within 60 days. Mr. Cleveland is a Director of the Company and an
executive officer of Renaissance Capital Group, Inc., which is the
Investment Advisor to Renaissance Capital Growth and Income Fund III,
Inc. and the Investment Manager to Renaissance U. S. Growth and Income
Trust PLC.
3
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding beneficial
ownership of the Company's Common Stock as of March 23, 2001 as to (i) each
Director and nominee for Director of the Company, (ii) each Executive Officer of
the Company named in the Summary Compensation Table set forth below, and (iii)
all current executive officers and directors as a group.
Amount and Nature of Percent
Name Beneficial Ownership (1) of Class
---- ------------------------ --------
James R. Murphy 835,071(2) 5.69%
Chairman of the Board, President,
Chief Executive Officer and Director
Robert M. Stote, M.D. 617,903(3) 4.26%
Senior Vice President, Chief
Science Officer and Director
Michael D. Price 469,519(4) 3.26%
Vice President, Chief
Financial Officer, Secretary,
Treasurer and Director
Robert J. Gyurik 92,699(5) *
Vice President of Pharmaceutical
Development and Director
Jordan A. Horvath 3,300(6) *
Vice President and General Counsel
Charles L. Bolling 48,328(7) *
Director
Russell Cleveland 2,038,500(8) 14.61%
Director
Miguel Fernandez 22,368(9) *
Director
Michael McGovern, J.D., C.P.A. 2,636,228(10) 17.19%
Director
William A. Packer 17,600(11) *
Director
All executive officers
and directors as a group (10 persons) 6,781,516(12) 39.38%
---------------------------------
* Less than one percent
(Footnote explanations continue on following page)
4
(1) Except as otherwise indicated, all shares are beneficially owned, and
sole investment and voting power is held by the persons named.
(2) Includes 1,300 shares of Common Stock owned by Mr. Murphy's sons, as to
which Mr. Murphy disclaims beneficial ownership, and 2,784 shares of
Common Stock held in Mr. Murphy's 401(k) Retirement Plan. Also,
includes 728,000 shares of Common Stock which Mr. Murphy has the right
to acquire pursuant to presently exercisable stock options and 1,500
shares of Common Stock which Mr. Murphy has the right to acquire
pursuant to presently exercisable Class B Warrants. Excludes 17,400
shares of Common Stock which Mr. Murphy has the right to acquire
pursuant to stock purchase options which are not vested and not
exercisable within 60 days.
(3) Includes 1,703 shares of Common Stock held in Dr. Stote's 401(k)
Retirement Plan, 567,500 shares of Common Stock which Dr. Stote has the
right to acquire pursuant to presently exercisable stock options and
5,000 shares of Common Stock which Dr. Stote has the right to acquire
pursuant to presently exercisable Class B Warrants.
(4) Includes 101 shares of Common Stock owned by Mr. Price's son, as to
which Mr. Price disclaims beneficial ownership, and 2,216 shares of
Common Stock held in Mr. Price's 401(k) Retirement Plan. Also includes
446,500 shares of Common Stock which Mr. Price has the right to acquire
pursuant to presently exercisable stock options.
(5) Includes 9,970 shares of Common Stock and 1,000 shares of Common Stock
issuable upon exercise of Class B Warrants owned by Mr. Gyurik's IRA
and 1,729 shares of Common Stock held in Mr. Gyurik's 401(k) Retirement
Plan. Also includes 40,000 shares of Common Stock which Mr. Gyurik has
the right to acquire pursuant to presently exercisable stock options.
(6) Excludes 150,000 shares of Common Stock which Mr. Horvath has the right
to acquire pursuant to stock purchase options which are not vested and
not exercisable within 60 days.
(7) Includes 40,328 shares of Common Stock which Mr. Bolling has the right
to acquire pursuant to presently exercisable stock options. Excludes
27,300 shares of Common Stock which Mr. Bolling has the right to
acquire pursuant to stock purchase options which are not vested and not
exercisable within 60 days.
(8) Includes 1,104,400 shares of Common Stock held by Renaissance U.S.
Growth and Income Trust PLC, of which Mr. Cleveland serves as President
and Director, and 917,200 shares of Common Stock held by Renaissance
Capital Growth and Income Fund III, Inc., of which Mr. Cleveland serves
as President and CEO, as to all of which shares Mr. Cleveland disclaims
beneficial ownership. Also includes 7,779 and 9,121shares of Common
Stock which Renaissance Capital Growth and Income Fund III, Inc. and
Renaissance Capital Group, Inc., respectively, have the right to
acquire pursuant to presently exercisable stock purchase options.
Excludes 12,012 and 15,288 shares of Common Stock which Renaissance
Capital Growth and Income Fund III, Inc. and Renaissance Capital Group,
Inc., respectively, have the right to acquire pursuant to stock
purchase options which are not vested and not exercisable within 60
days. Mr. Cleveland is a Director of the Company and an executive
officer of Renaissance Capital Group, Inc., which is the Investment
Advisor to Renaissance Capital Growth and Income Fund III, Inc. and the
Investment Manager to Renaissance U. S. Growth and Income Trust PLC.
(9) Includes 16,900 shares of Common Stock which Mr. Fernandez has the
right to acquire pursuant to presently exercisable stock purchase
options. Excludes 27,300 shares of Common Stock which Mr. Fernandez has
the right to acquire pursuant to stock purchase options which are not
vested and not exercisable within 60 days.
(10) Includes 1,313,500 shares of Common Stock which Mr. McGovern has the
right to acquire pursuant to presently exercisable Class B Warrants,
65,328 shares of Common Stock which Mr. McGovern has the right to
acquire pursuant to presently exercisable stock purchase options and
25,000 shares of Common Stock which Mr. McGovern has the right to
acquire pursuant to stock purchase options that are scheduled
5
to vest and become exercisable within 60 days. Excludes 86,000 shares
of Common Stock which Mr. McGovern has the right to acquire pursuant to
stock purchase options which are not vested and not exercisable within
60 days.
(11) Includes 16,900 shares of Common Stock which Mr. Packer has the right
to acquire pursuant to presently exercisable stock purchase options.
Excludes 27,300 shares of Common Stock which Mr. Packer has the right
to acquire pursuant to stock purchase options which are not vested and
not exercisable within 60 days.
(12) Includes 1,401 shares of Common Stock owned by family members of
certain of the current Executive Officers and Directors, as to which
such Executive Officers and Directors disclaim beneficial ownership.
Also includes 1,946,456 shares of Common Stock which certain of the
current Executive Officers and Directors have a right to acquire
pursuant to presently exercisable stock options, 1,321,000 shares of
Common Stock which certain of the current Executive Officers and
Directors have a right to acquire pursuant to presently exercisable
Class B Warrants, 8,432 shares of Common Stock held in 401(k)
Retirement Plan accounts of certain of the current Executive Officers
and Directors and 9,970 shares of Common Stock held the IRA account of
a certain Executive Officer and Director. Also includes 1,104,400
shares of Common Stock held by Renaissance U.S. Growth and Income Trust
PLC, of which Russell Cleveland, a director of the Company, serves as
President and Director and 917,200 shares of Common Stock held by
Renaissance Capital Growth and Income Fund III, Inc., of which Mr.
Cleveland serves as President and CEO, as to all of which shares Mr.
Cleveland disclaims beneficial ownership. Also includes 7,779 and
9,121shares of Common Stock which Renaissance Capital Growth and Income
Fund III, Inc. and Renaissance Capital Group, Inc., respectively, have
the right to acquire pursuant to presently exercisable stock purchase
options. Excludes 335,300, 12,012 and 15,288 shares of Common Stock
which certain of the current Executive Officers and Directors,
Renaissance Capital Growth and Income Fund III, Inc. and Renaissance
Capital Group, Inc., respectively, have the right to acquire pursuant
to stock purchase options which are not vested and not exercisable
within 60 days. Mr. Cleveland is a Director of the Company and an
executive officer of Renaissance Capital Group, Inc., which is the
Investment Advisor to Renaissance Capital Growth and Income Fund III,
Inc. and the Investment Manager to Renaissance U. S. Growth and Income
Trust PLC.
6
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Articles of Incorporation and By-Laws provide for a
classified Board of Directors. The Board is divided into three classes
designated Class I, Class II and Class III. The nominees included in Class II
below are being presented for election as Class II Directors to hold office
until the 2004 Annual Meeting of Stockholders. Unless instructed to the
contrary, the persons named in the enclosed Proxy intend to cast all votes
pursuant to Proxies received in favor of the person listed under the heading
"Nominees" below as Directors. The nominees have indicated to the Company their
availability for election; Messrs. Bolling, Gyurik and Packer are presently
directors. In the event that the nominees should not continue to be available
for election, the holders of the Proxies may exercise their discretion to vote
for a substitute. Officers hold office until the meeting of the Board of
Directors following each Annual Meeting of Stockholders and until their
successors have been chosen and qualified.
The following information is furnished with respect to the nominees
and each other continuing member of the Company's Board of Directors.
Class of Year
Positions with Director First
the Company (Upon Became
Name Age Presently Held Election) Director
---- --- -------------- --------- --------
Nominees:
Charles L. Bolling 77 Director II 1991
Robert J. Gyurik 54 Vice President of Pharmaceutical II 1998
Development and Director
William A. Packer 66 Director II 1999
Directors Whose Terms of Office
Continue After the Meeting:
Russell Cleveland 62 Director I 1999
Miguel Fernandez 70 Director III 1999
Michael McGovern 57 Director I 1997
James R. Murphy 51 Chairman of the Board, President, III 1993
Chief Executive Officer and Director
Michael D. Price 43 Vice President, Chief Financial I 1995
Officer, Secretary, Treasurer
and Director
Robert M. Stote, M.D. 61 Senior Vice President, Chief III 1993
Science Officer and Director
7
BACKGROUND OF NOMINEES
CHARLES L. BOLLING served from 1968 to 1973 as Vice President of
Product Management and Promotion (U.S.), from 1973 to 1977 as Vice President of
Commercial Development and from 1977 to 1986 as Director of Business Development
(International) at Smith Kline & French Laboratories. Mr. Bolling has been
retired since 1986.
ROBERT J. GYURIK became Vice President of Pharmaceutical Development of
the Company in March 1999 and became a member of the Board of Directors in 1998.
Prior to joining the Company, Mr. Gyurik served as Manager of Development and
Quality Control at MacroChem Corporation, a position he held from 1993 to
February 1999. From 1971 to 1993, Mr. Gyurik worked in various positions at
SmithKline Beecham ranging from Associate Senior Investigator in the
Nutrition/Production Enhancer Research Group and Pharmaceutical Development
Group to Senior Medical Chemist in the Parasitology Research Group. Prior
thereto, Mr. Gyurik worked at Schering as a Medicinal Chemist. Mr. Gyurik
attended Rutgers University and received a B.A. in Biology and Chemistry from
Immaculata College. Mr. Gyurik is a member of the American Chemical Society,
International Society for Chronobiology and the New York Academy of Sciences and
holds a number of patents in the areas of drug delivery systems, medical devices
and new drug discoveries.
WILLIAM A. PACKER has been a business and industry consultant to a
number of biopharmaceutical companies since 1998. From 1992 until 1998, Mr.
Packer was President and Chief Financial Officer of Virus Research Institute,
Inc., a publicly-owned biotechnology company. Prior to this, Mr. Packer was
employed by SmithKline Beecham Plc ("SmithKline"), a major pharmaceutical
company, where he held various senior management positions, the most recent as
Senior Vice President, Biologicals, in which position he was responsible for the
direction of SmithKline's global vaccine business. Mr. Packer is a Chartered
Accountant.
BACKGROUND OF CONTINUING DIRECTORS
RUSSELL CLEVELAND is the principal founder and the majority stockholder
of Renaissance Capital Group, Inc. ("Renaissance"). Renaissance provides capital
to emerging publicly-owned companies. For more than the past five years, Mr.
Cleveland has served as President and Managing General Partner of Renaissance
Capital Partners, Ltd., President and Director of Renaissance Capital Growth &
Income Fund III, Inc., and a Director of Renaissance U.S. Growth and Income
Trust PLC and BFS U.S. Special Opportunities Trust PLC. Mr. Cleveland's
background includes executive positions with various major southwest regional
brokerage firms. Mr. Cleveland also currently serves as a director of Danzer
Corp. (formerly Global Environmental Corp.), Tutogen Medical, Inc. and
Integrated Security Systems, Inc. Mr. Cleveland is a Chartered Financial Analyst
and a graduate of the University of Pennsylvania, Wharton School of Finance and
Commerce.
MIGUEL FERNANDEZ served from 1980 to 1996 as President of the
International Division and Corporate Vice President at Carter-Wallace, Inc.,
where he was responsible for all product lines outside of the United States.
Prior thereto, Mr. Fernandez was employed for approximately eight years by
SmithKline Beecham, where his last position was Vice President for Europe, where
he was based. He also served in the capacity of Vice President for Latin
America. Before SmithKline Beecham, Mr. Fernandez served as Managing Director of
Warner Lambert in Argentina for two years. From 1962 to 1970, Mr. Fernandez was
employed by Merck/Frost in Canada. Mr. Fernandez received a Bachelors of
Commerce degree from the University of British Columbia and an MBA from the Ivey
School of Business at the University of Western in Ontario, Canada. Mr.
Fernandez has been retired since 1996.
8
MICHAEL MCGOVERN, J.D., C.P.A. was named Vice Chairman of the Company
in October 1999 and serves as President of McGovern Enterprises, a provider of
corporate and financial consulting services, which he founded in 1975. Mr.
McGovern is Chairman of the Board of Directors of Specialty Surgicenters, Inc.,
is the Vice Chairman of the Board of Directors of Employment Technologies, Inc.
and is a Director on the corporate boards of Suburban Lodges of America Inc.,
Training Solutions Interactive, Inc., and the Reynolds Development Company. Mr.
McGovern received a B.S. and M.S. in accounting and his Juris Doctor from the
University of Illinois. Mr. McGovern is a Certified Public Accountant and a
member of the state bar of Georgia and the American Bar Association.
JAMES R. MURPHY became President and Chief Operating Officer of the
Company on September 7, 1994, was named Chief Executive Officer effective
January 1, 1995 and became Chairman of the Board on June 9, 1995. Prior to
rejoining the Company, Mr. Murphy served as Vice President of Business
Development at MacroChem Corporation, a publicly-owned pharmaceutical company,
from March 1993 through September 1994. From September 1992 until March 1993,
Mr. Murphy served as a consultant to the pharmaceutical industry with his
primary efforts directed toward product licensing. Prior thereto, Mr. Murphy
served as Director - Worldwide Business Development and Strategic Planning of
the Company from December 1991 to September 1992. Mr. Murphy previously spent 14
years in basic pharmaceutical research and product development with SmithKline
Beecham Corporation and in international business development with contract
research and consulting laboratories. Mr. Murphy received a B.A. in Biology from
Millersville University and attended the Massachusetts School of Law in 1993 and
1994.
MICHAEL D. PRICE became Chief Financial Officer, Vice
President/Treasurer and Secretary of the Company in October 1993, April 1993 and
November 1992, respectively. He has served the Company in other capacities since
March 1992. Prior to joining the Company, Mr. Price was employed as a financial
and management consultant with Carr Financial Group in Tampa, Florida from March
1990 to March 1992. Prior thereto, he was employed as Vice President of Finance
with Premiere Group, Inc., in Tampa, Florida from June 1988 to February 1990.
Prior thereto, Mr. Price was employed by Price Waterhouse in Tampa, Florida from
January 1982 to June 1988 where his last position with that firm was as an Audit
Manager. Mr. Price received a B.S. in Business Administration with a
concentration in Accounting from Auburn University and an M.B.A. from Florida
State University. Mr. Price is a Certified Public Accountant in the State of
Florida.
ROBERT M. STOTE, M.D. became Senior Vice President and Chief Science
Officer of the Company in March 1992. Prior to joining the Company, Dr. Stote
was employed for 20 years by SmithKline Beecham Corporation serving as Senior
Vice President and Medical Director, Worldwide Medical Affairs from 1989 to
1992, and Vice President-Clinical Pharmacology-Worldwide from 1987 to 1989. From
1984 to 1987 Dr. Stote was Vice President-Phase I Clinical Research, North
America. Dr. Stote was Chief of Nephrology at Presbyterian Medical Center of
Philadelphia from 1972 to 1989 and was Clinical Professor of Medicine at the
University of Pennsylvania. Dr. Stote serves as a director of DataTrak, Inc.
(formerly Collaborative Clinical Research, Inc.). Dr. Stote received a B.S. in
Pharmacy from the Albany College of Pharmacy, an M.D. from Albany Medical
College and is Board Certified in Internal Medicine and Nephrology. He was a
Fellow in Nephrology and Internal Medicine at the Mayo Clinic and is currently a
Fellow of the American College of Physicians.
9
COMMITTEES OF THE BOARD OF DIRECTORS; BOARD OF DIRECTORS MEETINGS
The Board of Directors has an Audit Committee, a Compensation Committee
and a Strategic Planning Committee. The Audit Committee recommends to the Board
of Directors the appointment of independent auditors to audit the Company's
consolidated financial statements, reviews the Company's internal control
procedures and advises the Company on tax and other matters connected with the
finances and reporting obligations of the Company. The Audit Committee also
reviews with management the annual audit and other work performed by the
independent auditors. The Compensation Committee administers the Company's 1991
and 2001 Stock Option Plans and reviews and recommends to the Board of Directors
the nature and amount of compensation to be paid to the Company's executive
officers and employees that earn in excess of $100,000 annually. The Strategic
Planning Committee advises the Board and Management with respect to the
strategic direction of the Company. The Audit Committee currently consists of
Messrs. Charles Bolling, Miguel Fernandez and William Packer; the Compensation
Committee currently consists of Messrs. Charles Bolling, Russell Cleveland,
Miguel Fernandez, Michael McGovern and William Packer; and the Strategic
Planning Committee currently consists of Messrs. Russell Cleveland, Miguel
Fernandez, Michael McGovern, James Murphy and William Packer.
During the Company's last fiscal year ended December 31, 2000, the
Board of Directors held six meetings, the Audit Committee held two meetings and
the Compensation Committee held four meetings. The Strategic Planning Committee
held no formal meetings during the year ended December 31, 2000, however, the
members held informal discussions at various times during the year. Each
Director attended at least 75% of the total number of meetings of the Board of
Directors which were held during the period he served as a Director in the
fiscal year ended December 31, 2000 and meetings of each Committee on which such
Director served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the fiscal year ended
December 31, 2000 were Messrs. Charles L. Bolling, Miguel Fernandez, Michael
McGovern and William Packer, all of whom are now and were at the time of service
non-employee Directors. No member of the Compensation Committee has a
relationship that would constitute an interlocking relationship with Executive
Officers or Directors of the Company or another entity.
REMUNERATION OF NON-EMPLOYEE DIRECTORS
The Company presently pays non-employee Director fees of $3,000 for
each in-person meeting of the Board of Directors, $500 for each telephonic
meeting, $500 for each committee meeting of the Board of Directors and
reimburses expenses incurred in attending meetings. Total non-employee Director
fee payments during the year ended December 31, 2000 totaled $66,500. Each
non-employee director is automatically granted options to purchase a number of
shares of Common Stock equal to 2/10 of 1% of the number of outstanding shares
of Common Stock upon his or her election to the Board. Thereafter, each
continuing non-employee director is entitled to receive, annually, options to
purchase the number of shares of Common Stock equal to 2/10 of 1% of the number
of outstanding shares of Common Stock. In addition, the Company has agreed to
compensate the Vice Chairman for his time and efforts, which are in addition to
other directors, by awarding him options to purchase 100,000 shares of Common
Stock (25,000 on each of January 1, April 1, July 1, and October 1, 2000), for
service during the years ending December 31, 2000 and 2001. During the year
ended December 31, 2000, options to purchase 236,500 shares of Common Stock were
granted at prices ranging from $5.87 to $10.75 per share, representing at least
the fair market value of the Common Stock on the date of the grants. These
options expire on dates ranging from January 3, 2010 to October 1, 2010.
10
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total compensation paid to or
accrued by the Company for the account of the current Chief Executive Officer
and the executive officers at December 31, 2000 whose total cash compensation
for the year ended December 31, 2000 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------------------- ---------------------- --------
Securities
Other Restricted Underlying LTIP All
Annual Stock Options/ Payouts Other
Name and Principal Position Year Salary($) Bonus($) Comp.($)(1) Awards($) SARs(#) ($) Comp.
--------------------------- ---- --------- --------- ----------- --------- -------- ------- -----
James R. Murphy (2) Y/E 12/31/00 $366,923 $170,000 $12,000 --- --- --- $10,500
Chairman of the Board, Y/E 12/31/99 $295,577 --- --- $120,000 --- --- $ 5,000
President, Chief Executive Y/E 12/31/98 $260,000 $ 37,381 --- --- --- --- $ 5,000
Officer and Director
Robert M. Stote (3) Y/E 12/31/00 $ 94,589 $ 15,000 --- --- --- --- $10,500
Senior Vice President, Y/E 12/31/99 $110,449 --- --- $ 22,500 --- --- $ 5,000
Chief Science Officer and Y/E 12/31/98 $200,178 $ 33,694 --- --- --- --- $ 5,000
Director
Michael D. Price (4) Y/E 12/31/00 $188,685 $ 30,000 --- --- --- --- $10,500
Vice President, Chief Y/E 12/31/99 $176,231 --- --- $ 22,500 --- --- $ 5,000
Financial Officer, Y/E 12/31/98 $155,958 $ 11,985 --- --- --- --- $ 5,000
Treasurer, Secretary and
Director
Robert J. Gyurik (5) Y/E 12/31/00 $138,903 $ 30,000 --- --- --- --- $10,500
Vice President of Y/E 12/31/99 $99,808 --- --- $ 67,500 --- --- ---
Pharmaceutical
Development and Director
Jordan A. Horvath (6) Y/E 12/31/00 $112,109 --- $11,625 --- --- --- ---
Vice President and
General Counsel
-------------------------------
(1) The value of perquisites provided to the named executive officers did
not exceed 10% of total compensation in any case.
(2) Mr. Murphy, Chairman of the Board, President and Chief Executive
Officer, has been employed by the Company since September 1994. Mr.
Murphy's annual salary is currently $385,200. During the year ended
December 31, 1999, Mr. Murphy was awarded 80,000 shares of Common Stock
of the Company as a bonus, which shares were treated as taxable income
in the year 2000. The Company provided a loan to Mr. Murphy in March
2000, in the amount of $250,000, which Mr. Murphy used to pay the
income taxes on such equity-based compensation. The loan, which bears
interest at 6.59% annually, matures on March 17, 2003 and is secured by
28,000 shares of the Company's Common Stock, which are owned by Mr.
Murphy. Interest accrues quarterly. During the years ended December 31,
2000, 1999 and 1998, the Company provided to Mr. Murphy matching funds
totaling $970, $5,000 and $5,000, respectively, pursuant to the terms
of a Company sponsored 401(k) retirement plan. During the year ended
December 31, 2000, the Company also provided matching 401(k)
contributions in the form of 1,149 shares of Common Stock valued at
$9,530 (see "401(k) Retirement Plan").
(Footnote explanations continue on following page)
11
(3) Dr. Stote, Senior Vice President and Chief Science Officer, has been
employed by the Company since March 1992. As of August 31, 1998, Dr.
Stote began working part time and receives an annual base salary of
$75,000 plus compensation at the rate of $130 per hour for all hours
worked on behalf of the Company in excess of twelve per week. During
the year ended December 31, 1999, Dr. Stote was awarded 15,000 shares
of Common Stock of the Company as a bonus. During the years ended
December 31, 2000, 1999 and 1998, the Company provided to Dr. Stote
matching funds totaling $283, $5,000 and $5,000, respectively, pursuant
to the terms of a Company sponsored 401(k) retirement plan. During the
year ended December 31, 2000, the Company also provided matching 401(k)
contributions in the form of 1,230 shares of Common Stock valued at
$10,217 (see "401(k) Retirement Plan").
(4) Mr. Price, Vice President, Chief Financial Officer, Secretary and
Treasurer, has been employed by the Company since March 1992. Mr.
Price's annual salary is currently $194,381. During the year ended
December 31, 1999, Mr. Price was awarded 15,000 shares of Common Stock
of the Company as a bonus, which shares were treated as taxable income
in the year 2000. The Company provided a loan to Mr. Price in March
2000, in the amount of $50,000, which Mr. Price used to pay the income
taxes on such equity-based compensation. The loan, which bears interest
at 6.59% annually, matures on March 17, 2003 and is secured by 6,000
shares of the Company's Common Stock, which are owned by Mr. Price.
Interest accrues quarterly. During the years ended December 31, 2000,
1999 and 1998, the Company provided to Mr. Price matching funds
totaling $551, $5,000 and $5,000, respectively, pursuant to the terms
of a Company sponsored 401(k) retirement plan. During the year ended
December 31, 2000, the Company also provided matching 401(k)
contributions in the form of 1,247 shares of Common Stock valued at
$9,949 (see "401(k) Retirement Plan").
(5) Mr. Gyurik, Vice President of Pharmaceutical Development, has been
employed by the Company since March 1999. Mr. Gyurik's annual salary is
currently $145,530. During the year ended December 31, 1999, Mr. Gyurik
was awarded 40,000 shares of Common Stock of the Company as a sign-on
bonus, which shares were treated as taxable income in the year 2000.
The Company provided a loan to Mr. Gyurik in March 2000, in the amount
of $140,000, which Mr. Gyurik used to pay the income taxes on such
equity-based compensation. The loan, which bears interest at 6.59%
annually, matures on March 31, 2003 and is secured by 16,000 shares of
the Company's Common Stock, which are owned by Mr. Gyurik. Interest
accrues quarterly. During the year ended December 31, 2000, the Company
provided to Mr. Gyurik matching funds totaling $263, pursuant to the
terms of a Company sponsored 401(k) retirement plan. During the year
ended December 31, 2000, the Company also provided matching 401(k)
contributions in the form of 1,245 shares of Common Stock valued at
$10,237 (see "401(k) Retirement Plan").
(6) Mr. Horvath, Vice President and General Counsel, has been employed by
the Company since August 2000. Mr. Horvath's annual salary is currently
$304,500. During the year ended December 31, 2000, Mr. Horvath was
awarded 1,500 shares of Common Stock of the Company as compensation in
lieu of cash, which shares were treated as taxable income in the year
2000.
12
Option/SAR Grants in Last Fiscal Year
The following table sets forth the details of options granted to the
individuals listed in the Summary Compensation table during the year ended
December 31, 2000. No stock appreciation rights have been granted to date.
Potential
Realizable
Individual Grants Value at
Assumed
Annual Rates
---------------------------------------------------------- of Stock
Number of % of Total Price
Securities Options/SARs Exercise Appreciation
Underlying Granted to or Base for Option Terms
Options Employees in Price Expiration -----------------------
Name Granted (#) Fiscal Year ($/share) Date 5% ($) 10% ($)
---- ----------- ----------- --------- ---- ------ -------
James R. Murphy (1) 75,000 13.2% $ 5.88 1/3/10 $277,110 $ 702,240
Robert M. Stote, M.D. (2) 10,000 1.8% $ 5.88 1/3/10 $ 36,948 $ 93,632
Michael D. Price (3) 15,000 2.6% $ 5.88 1/3/10 $ 55,422 $ 140,448
Robert J. Gyurik (4) 25,000 4.4% $11.81 3/9/10 $185,720 $ 470,653
Jordan A. Horvath (5) 150,000 26.3% $ 7.75 8/14/10 $731,090 $ 1,852,725
---------------------------
(1) During the year ended December 31, 2000, Mr. Murphy was awarded
ten-year stock options to purchase 75,000 shares of Common Stock, which
vest on the first anniversary of the grant date.
(2) During the year ended December 31, 2000, Dr. Stote was awarded ten-year
stock options to purchase 10,000 shares of Common Stock, which vest on
the first anniversary of the grant date.
(3) During the year ended December 31, 2000, Mr. Price was awarded ten-year
stock options to purchase 15,000 shares of Common Stock, which vest on
the first anniversary of the grant date.
(4) During the year ended December 31, 2000, Mr. Gyurik was awarded
ten-year stock options to purchase 25,000 shares of Common Stock, which
vest on the first anniversary of the grant date.
(5) During the year ended December 31, 2000, Mr. Horvath was awarded
ten-year stock options to purchase 150,000 shares of Common Stock,
50,000 of which vest and become exercisable on each of the first,
second and third anniversaries of the grant date, respectively.
13
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information concerning the
number of shares of Common Stock acquired upon the exercise of stock options
during the year ended December 31, 2000 by, and the number and value at December
31, 2000 of shares of Common Stock subject to unexercised options held by, the
individuals listed in the Summary Compensation Table.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options/SARs at Options/SARs at
FY-End (# Shares) FY-End ($)
Shares ------------------ -----------------
Acquired Value Exercisable/ Exercisable/
Name On Exercise (#) Realized ($) Unexercisable Unexercisable (1)
---- --------------- ------------ ------------------ -----------------
James R. Murphy - - 728,000 / 17,400 $1,371,250/ -0-
Robert M. Stote, M.D. - - 567,500 / -0- $1,133,854/ -0-
Michael D. Price - - 446,500 / -0- $ 891,145/ -0-
Robert J. Gyurik 1,000 $4,313 40,000 / -0- $ 58,125/ -0-
Jordan A. Horvath - - -0- / 150,000 $ -0- / -0-
(1) Represents the closing price of the Company's Common Stock on the
American Stock Exchange on December 29, 2000 minus the respective
exercise prices.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
No long-term incentive plan awards were granted to the individuals
listed in the Summary Compensation table during the year ended December 31,
2000.
EMPLOYMENT AGREEMENTS
Mr. James R. Murphy, Chairman of the Board, President and Chief
Executive Officer, entered into an employment agreement with the Company dated
as of July 1, 1998 providing for an initial term which expires on December 31,
2001. Under the terms of this agreement, as amended, Mr. Murphy's current annual
base salary is $385,200. The Company also provides Mr. Murphy with an automobile
expense allowance of $1,000 per month. The agreement with Mr. Murphy also
provides for bonuses at the recommendation and discretion of the Compensation
Committee of the Company's Board of Directors. Mr. Murphy is entitled to a bonus
award of 50% of his annual base salary upon (i) the attainment by the Company of
two consecutive quarters of net profit, (ii) the closing of a year with a net
profit, (iii) the announcement of a merger of the Company into another company
or a sale or transfer of all or substantially all of the pharmaceutical assets
of the Company or (iv) a change in control of the Company. The agreement with
Mr. Murphy also provides that, upon termination following a change in control of
the Company, Mr. Murphy shall be entitled to receive (i) a severance payment
equal to 2.99 times his annual salary plus bonuses, or that amount of salary and
bonuses that would have been due to Mr. Murphy through the expiration of the
term of the agreement, whichever is greater, (ii) a number of stock options
equal to the number of stock options held by Mr. Murphy prior to the effective
date of such change in control (the "Termination Options"), (iii) immediate
vesting of all outstanding stock options (including
14
equal to the number of stock options held by Mr. Murphy prior to the effective
date of such change in the Termination Options), and (iv) health and other
benefits through the end of the term of the agreement or for a period of five
years, whichever is greater. Pursuant to the agreement, if terminated without
cause, Mr. Murphy will be entitled to a severance payment equal to two years of
salary plus bonus and immediate vesting of all outstanding non-plan stock
options.
Dr. Robert M. Stote, Senior Vice President and Chief Science Officer,
entered into an employment agreement with the Company dated as of August 31,
1998 providing for an initial term which expires on August 31, 2001. Under the
terms of this agreement, Dr. Stote's annual base salary is $75,000 plus
compensation at the rate of $130 per hour for hours worked in excess of twelve
per week. The agreement with Dr. Stote also provides for bonuses at the
recommendation and discretion of the Compensation Committee of the Company's
Board of Directors. Dr. Stote is eligible for a bonus upon (i) the attainment by
the Company of two consecutive quarters of pre-tax net profit or (ii) the
announcement of a merger of the Company with another company. The agreement with
Dr. Stote also provides that, upon termination following a change in control of
the Company, Dr. Stote shall be entitled to receive (i) a severance payment
equal to 2.99 times his average annual salary plus bonuses for the five year
period preceding the year in which the change in control occurs, or that amount
of salary that would have been due to Dr. Stote through the expiration of the
term of this Agreement, whichever is greater, (ii) a number of stock options
equal to the number of stock options held by Dr. Stote prior to the effective
date of such change in control (the "Termination Options"), (iii) immediate
vesting of all outstanding stock options (including the Termination Options),
and (iv) health and other benefits through the end of the term of the agreement.
Pursuant to the agreement, if terminated without cause, Dr. Stote will be
entitled to a severance payment equal to 2.99 times the average of Dr. Stote's
salary plus bonus for the five year period preceding the year in which the date
of termination occurs and immediate vesting of all outstanding non-plan stock
options.
Mr. Michael D. Price, Vice President, Chief Financial Officer,
Secretary and Treasurer, entered into an employment agreement with the Company
dated as of July 1, 1998 and under the terms of its amendment provides for a
term which expires on June 30, 2001. Under the terms of this agreement, Mr.
Price's current annual base salary is $194,381. The agreement with Mr. Price
also provides for bonuses at the recommendation and discretion of the
Compensation Committee of the Company's Board of Directors. Mr. Price is
eligible for a bonus upon (i) the attainment by the Company of two consecutive
quarters of net profit, (ii) the closing of a year with a net profit, or (iii)
the announcement of a merger of the Company into another Company or a sale or
transfer of all of substantially all of the pharmaceutical assets of the
Company. Mr. Price is entitled to a bonus of 50% of his annual salary upon a
change in control of the Company. The agreement with Mr. Price also provides
that, upon termination following a change in control of the Company, Mr. Price
shall be entitled to receive (i) a severance payment equal to 2.9 times his
annual salary plus bonuses, or that amount of salary and bonuses that would have
been due to Mr. Price through the expiration of the term of the agreement,
whichever is greater, (ii) a number of stock options equal to the number of
stock options held by Mr. Price prior to the effective date of such change in
control (the "Termination Options"), (iii) immediate vesting of all outstanding
stock options (including the Termination Options), and (iv) health and other
benefits through the end of the term of the agreement. Pursuant to the
agreement, if terminated without cause, Mr. Price will be entitled to a
severance payment equal to one year of salary plus bonus and immediate vesting
of all outstanding non-plan stock options.
Mr. Robert J. Gyurik, Vice President of Pharmaceutical Development,
entered into an employment agreement with the Company dated as of March 9, 1999
providing for an initial term which expires on December 31, 2001. Under the
terms of this agreement, Mr. Gyurik's current annual base salary is $145,530.
Under the agreement, Mr. Gyurik received a sign-on bonus of 40,000 shares of
Common Stock. The agreement with Mr. Gyurik also provides for bonuses of up to
50% of his annual salary each year, based upon the attainment of research
collaborations, at the recommendation and
15
discretion of the Compensation Committee of the Company's Board of Directors.
Mr. Gyurik is eligible for a bonus upon the announcement of a merger of the
Company into another Company or a sale or transfer of all or substantially all
of the assets of the Company. Mr. Gyurik is entitled to a bonus of 50% of his
annual salary upon a change in control of the Company. The agreement with Mr.
Gyurik also provides that, upon termination following a change in control of the
Company, Mr. Gyurik shall be entitled to receive (i) a severance payment equal
to 2.9 times his annual salary plus bonuses, or that amount of salary and
bonuses that would have been due to Mr. Gyurik through the expiration of the
term of the agreement, whichever is greater, (ii) a number of stock options
equal to the number of stock options held by Mr. Gyurik prior to the effective
date of such change in control (the "Termination Options"), (iii) immediate
vesting of all outstanding stock options (including the Termination Options),
and (iv) health and other benefits through the end of the term of the agreement.
Pursuant to the agreement, if terminated without cause, Mr. Gyurik will be
entitled to a severance payment equal to one year of salary plus bonus and
immediate vesting of all outstanding non-plan stock options.
Mr. Jordan A. Horvath, Vice President and General Counsel, entered into
an employment agreement with the Company dated as of August 14, 2000 providing
for an initial term which expires on December 31, 2003. Under the terms of this
agreement, Mr. Horvath's current annual base salary is $304,500. The agreement
with Mr. Horvath also provides for bonuses at the recommendation and discretion
of the Compensation Committee of the Company's Board of Directors. The agreement
with Mr. Horvath also provides that, upon termination following a change in
control of the Company, Mr. Horvath shall be entitled to receive (i) a severance
payment equal to 2.99 times his annual salary plus bonuses, or that amount of
salary and bonuses that would have been due to Mr. Horvath through the
expiration of the term of the agreement, whichever is greater, (ii) a number of
stock options equal to the number of stock options held by Mr. Horvath prior to
the effective date of such change in control (the "Termination Options"), (iii)
immediate vesting of all outstanding stock options (including equal to the
number of stock options held by Mr. Horvath prior to the effective date of such
change in the Termination Options), and (iv) health and other benefits through
the end of the term of the agreement or for a period of five years, whichever is
greater. Pursuant to the agreement, if terminated without cause, Mr. Horvath
will be entitled to a severance payment equal to two years of salary plus bonus
and immediate vesting of all outstanding non-plan stock options.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and any persons who own
more than 10% of any class of the Company's equity securities, to file certain
reports relating to their ownership of such securities and changes in such
ownership with the Securities and Exchange Commission, the American Stock
Exchange and the Pacific Stock Exchange and to furnish the Company with copies
of such reports. To the Company's knowledge, during the year ended December 31,
2000, all Section 16(a) filing requirements have been satisfied.
1991 STOCK OPTION PLAN
The Company's 1991 Stock Option Plan (the "1991 Plan") was unanimously
adopted by the Board of Directors on September 30, 1991, approved by the
stockholders at the December 1991 Annual Meeting of Stockholders and amended to
increase the number of shares available under the plan to an aggregate of
1,000,000 by the stockholders at the February 1993, June 1994, June 1997 and
June 1999 Annual Meetings of Stockholders. The purpose of the 1991 Plan is to
promote the interests of the Company in attracting and retaining employees
(including officers) and experienced and knowledgeable non-employee directors
for the Company and its subsidiaries, by enabling them to acquire or increase a
proprietary interest in the Company, to benefit from appreciation in the value
of the Company's Common Stock and, thus, participate in the long-term growth of
the Company.
16
During the fiscal year ended December 31, 2000, options to purchase
33,000 shares of Common Stock were granted to employees of the Company who are
not executive officers. Such options were granted at prices ranging from $6.37
to $10.63 per share, representing the fair market value of the Common Stock on
the dates of grant. These options expire on various dates ranging from March 15,
2010 to October 2, 2010.
2001 EMPLOYEE STOCK OPTION PLAN
The Company's 2001 Employee Stock Option Plan was unanimously adopted
by the Board of Directors on March 30, 2001, and is presented for approval by
the stockholders at the Meeting. See "Proposal 2." The purpose of this plan is
to promote the interests of the Company in attracting and retaining employees
(including employees who are officers and directors) for the Company and its
subsidiaries, by enabling them to acquire or increase a proprietary interest in
the Company, to benefit from appreciation in the value of the Company's Common
Stock and, thus, participate in the long-term growth of the Company.
2001 DIRECTORS' STOCK OPTION PLAN
The Company's 2001 Directors' Stock Option Plan was unanimously adopted
by the Board of Directors on March 30, 2001, and is presented for approval by
the stockholders at the Meeting. See "Proposal 3." The purpose of this plan is
to promote the interests of the Company in attracting and retaining experienced
and knowledgeable non-employee directors for the Company by enabling them to
acquire or increase a proprietary interest in the Company, to benefit from
appreciation in the value of the Company's Common Stock and, thus, participate
in the long-term growth of the Company.
401(K) RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan (the "401(k) Plan") under
which eligible employees may contribute, on a pre-tax basis, between 1% to 15%
of their respective total annual income from the Company, subject to maximum
aggregate annual contribution imposed by the Internal Revenue Code of 1986, as
amended (the "Code"). All full-time employees who work for the Company in the
U.S. are eligible to participate in the 401(k) Plan. All employee contributions
are allocated to the employee's individual account and are invested in various
investment options as directed by the employee. Cash contributions are fully
vested and nonforfeitable. The Company made matching cash contributions to the
401(k) Plan for the 2000 fiscal year in the amount of $2,426 and in the form of
7,017 shares of the Company's Common Stock valued at $57,446. The Company is
currently matching 100% of each eligible employee's contribution in 2001 with
shares of the Company's Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company provided loans to each of Messrs. Murphy, Price and Gyurik,
in the amounts of $250,000, $50,000 and $140,000, respectively, in March 2000,
which Messrs. Murphy, Price and Gyurik used to pay the income taxes on
equity-based compensation received in the prior year. The loans, which bear
interest at 6.59% annually, mature in March 2003 and are secured by 28,000,
6,000 and 16,000 shares of the Company's Common Stock owned by Messrs. Murphy,
Price and Gyurik, respectively. Interest on the loans accrues quarterly.
17
AUDIT COMMITTEE REPORT
In accordance with its charter adopted by the Board of Directors
(attached as Appendix A), the Audit Committee assists the Board in fulfilling
its responsibilities relating to the Company's audited financial reports,
accounting procedures and financial controls. The Audit Committee reviews the
procedures and results of the Company's independent audits, and provides a
direct communications link to the Board of Directors from Deloitte & Touche,
LLP, the Company's independent auditors, and the Company's chief financial
officer to help assure the quality of the Company's financial reporting and
control systems.
During 2000, the Audit Committee met two times and the committee chair,
as representative of the committee, began holding discussions with the chief
financial officer and independent auditors regarding the interim financial
information contained in the Company's quarterly reports on Form 10-Q prior to
filing with the Securities and Exchange Commission.
AUDITOR INDEPENDENCE AND 2000 AUDIT. To fulfill its duties, the Audit
Committee obtained a formal written report of the independent auditors
describing all relationships between the auditors and the Company that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committee." In addition,
the Audit Committee discussed with the auditors any relationships that may
impact their objectivity and independence and satisfied itself as to the
auditors' independence. The Audit Committee also discussed with management and
the independent auditors the quality and adequacy of the Company's internal
controls. The Audit Committee reviewed with the independent auditors their audit
plans, audit scope and identification of audit risks.
The Audit Committee discussed and reviewed with the independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committee" and reviewed the results of the independent
auditors' examination of the financial statements.
2000 FINANCIAL STATEMENTS AND RECOMMENDATIONS OF THE COMMITTEE. The
Audit Committee reviewed the Company's audited financial statements as of and
for the year ended December 31, 2000 with management and the independent
auditors. Management has the responsibility for the preparation of the Company's
financial statements and the independent auditors have the responsibility for
the examination of those statements.
Based on the review discussed above and discussions with management and
the independent auditors, the Audit Committee recommended to the Board of
Directors that the Company's audited financial statements be included in the
Company's Annual Report on Form10-K for the year ended December 31, 2000 for
filing with the Securities and Exchange Commission.
AUDIT FEES. The aggregate fees billed for professional services
rendered by the independent auditors for the audit of the Company's financial
statements as of and for the year ended December 31, 2000 and the review of the
financial statements in the Company's Form 10-Q filings for the year were
$80,000.
ALL OTHER FEES. The aggregate fees billed by the independent auditors
during 2000 for non-audit and non-information systems related services were
$30,000. These services consisted of tax consultation, tax compliance and tax
research services. The independent auditors did not provide professional
services during 2000 for the operation of the Company's information systems or
financial system design and implementation. The Audit Committee considered
whether, and has determined that, the provision of these services is compatible
with maintaining the independent auditors' independence.
18
DISCLAIMER
This report is being provided to the Company's stockholders solely for
informational purposes. You should not consider this report to be "soliciting
material" or to be "filed" with the SEC. It also is not subject to the SEC's
proxy rules or to the liabilities of Section 18 of the U.S. Security Exchange
Act of 1934. In addition, this report shall not be deemed to be incorporated by
reference into any prior or subsequent filing by the Company under the Federal
securities laws.
AUDIT COMMITTEE
William Packer, Chairman
Charles L. Bolling
Miguel Fernandez
19
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors, which is
currently comprised of all non-employee Directors of the Company, determines, to
the extent not fixed pursuant to the terms of applicable employment agreements,
the compensation of the Chief Executive Officer, other employee members of the
Board of Directors, and all other executive employees whose annual compensation
exceeds $100,000. The compensation levels of such officers, Directors and
employees are subject to the approval of the Board of Directors.
The Compensation Committee, being responsible for overseeing and
approving executive compensation and grants of stock options, is in a position
to appropriately balance the current cash compensation considerations with the
longer-range incentive-oriented growth outlook associated with stock options.
The main objectives of the Company's compensation structure include
rewarding individuals for their respective contributions to the Company's
performance, providing executive officers with a stake in the long-term success
of the Company and providing compensation programs and policies that will
attract, retain and motivate qualified executive personnel. The Board of
Directors and the Compensation Committee place a great deal of importance on
recruiting, hiring, retaining and motivating high quality personnel and
recognize that by offering executives employment agreements, it can be more
successful in recruiting experienced executives from large, established
pharmaceutical companies. Historically, the members of the Board of Directors
and the Compensation Committee have chosen to achieve these objectives through
salary increases, bonuses and periodic stock option grants. The Committee
considered each of these factors in approving the compensation for Mr. Murphy,
who serves as President and Chief Executive Officer.
In determining compensation, the Compensation Committee considers,
among other things, the performance of the Company, improvement in financial
position, strategic alliances, acquisition of products, product registration,
raising of capital, compensation levels in competing companies, individual
contributions to the Company and the length of service with the Company. The
Compensation Committee also surveyed executive compensation of similarly
situated companies and retained the services of an independent law firm,
experienced in employment and compensation matters, for the purpose of obtaining
independent, objective guidance with respect to the Committee's performance of
its duties.
Compensation through the periodic grant of Common Stock and stock
options under the Company's stock option plans is intended to coordinate
executives' and stockholders' long-term interests by creating a direct link
between a portion of executive compensation and increases in the price of Common
Stock and the long-term success of the Company. This method of compensation also
permits the Company to preserve its cash resources.
For the year 2000, Mr. Murphy, recommended merit increases and base
salary amounts for each officer other than himself based on his assessment of
each officer's individual performance and accomplishment of corporate and
personal objectives. We evaluated Mr. Murphy's recommendations regarding each
officer's compensation, taking into account the officer's tenure and our
subjective assessment of individual performance. We considered Mr. Murphy's
recommendations with respect to merit increases and base salary amounts. We
reviewed the accomplishments and performance of such officers and comparative
compensation data from similar or competing companies and then approved
compensation packages for each of the Company's officers.
A significant portion of the direct compensation of officers consists
of annual incentive bonuses. Bonus targets are closely tied to performance
measures, at both the corporate level and at individual areas
20
of responsibility. Mr. Murphy recommended specific bonuses for all officers
other than himself. We evaluated Mr. Murphy's recommendations regarding each
officer's bonus, taking into account Mr. Murphy's assessment of each officer's
individual performance and our subjective assessment of individual performance,
in addition to accomplishment of corporate objectives. We then approved the
bonuses to be awarded for the calendar year 2000.
Future increases in executive compensation will be based upon the
satisfaction of pre-established individual objectives, extraordinary individual
contributions, corporate milestones and financial performance of the Company.
DISCLAIMER
This report is being provided to the Company's stockholders solely for
informational purposes. You should not consider this report or the stock price
performance graph that follows to be "soliciting materials" or to be "filed"
with the SEC. They are not subject to the SEC's proxy rules or to the
liabilities of Section 18 of the U.S. Security Exchange Act of 1934. In
addition, this report and the performance graph shall not be deemed to be
incorporated by reference into any prior or subsequent filing by the Company
under the Federal securities laws.
COMPENSATION COMMITTEE
Michael McGovern, Chairman
Charles L. Bolling
Russell Cleveland
Miguel Fernandez
William Packer
21
COMMON STOCK PERFORMANCE
The graph presented below compares the cumulative total stockholder
return on the Company's Common Stock for the five years ended December 31, 2000
with the cumulative total stockholder return for such period reflected in the
Standard and Poor's (S&P) 500 Stock Index and in a peer group index of three
competing pharmaceutical companies (Dura Pharmaceuticals, Inc., MacroChem
Coporation and Noven Pharmaceuticals, Inc. The graph (and the information
relating to it) was obtained by the Company from S&P. The comparative returns
shown in the graph assume (i) the investment of $100 in the Company's Common
Stock, the common stock of the companies included in the S&P 500 Stock Index and
the common stock of the companies in the peer group at the market close on
December 31, 1995 and (ii) the reinvestment of all dividends.
[GRAPH APPEARS HERE]
22
TOTAL SHAREHOLDER RETURNS
-------------------------
(Dividends Reinvested)
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name/Index Dec 96 Dec 97 Dec 98 Dec 99 Dec 00
--------------------------------------------------------------------------------------------------------------------
BENTLEY PHARMACEUTICALS 16.67 -9.52 -36.84 312.53 -5.06
S&P 500 INDEX 22.96 33.36 28.58 21.04 -9.10
NEW PEER GROUP 126.68 -7.33 -59.35 12.55 78.08
INDEXED RETURNS
Base Years Ending
Period
Company Name/Index Dec 95 Dec 96 Dec 97 Dec 98 Dec 99 Dec 00
-------------------------------------------------------------------------------------------------------------------------------
BENTLEY PHARMACEUTICALS 100 116.67 105.56 66.67 275.02 261.11
S&P 500 INDEX 100 122.96 163.98 210.85 255.21 231.98
PEER GROUP 100 226.68 210.07 85.39 96.10 171.14
Peer Group Companies
--------------------
DURA PHARMACEUTICALS, INC.
MACROCHEM CORPORATION
NOVEN PHARMACEUTICALS, INC.
23
PROPOSAL 2
APPROVAL OF THE COMPANY'S 2001 EMPLOYEE STOCK OPTION PLAN
On March 30, 2001, the Board of Directors adopted, subject to
stockholder approval at the Meeting, the Company's 2001 Employee Stock Option
Plan. The 2001 Employee Stock Option Plan is herein referred to as the "Employee
Plan". The Employee Plan is designed to provide an incentive to key employees of
the Company and to offer an additional inducement in obtaining the services of
such persons. The proceeds derived from the sale of shares subject to options
will be used for general corporate purposes of the Company.
The Employee Plan is being proposed at this time due to the expiration
of the 1991 Plan on September 30, 2001.
The following summary of certain material features of the Employee Plan
does not purport to be complete and is qualified in its entirety by reference to
the text of the Employee Plan, a copy of which is set forth as Appendix B to
this Proxy Statement.
SHARES SUBJECT TO THE EMPLOYEE PLAN AND ELIGIBILITY
The Employee Plan authorizes the grant of options to purchase a maximum
of 1,000,000 shares of the Company's Common Stock (subject to adjustment as
described below) to employees (including officers and directors who are
employees) of the Company. Upon expiration, cancellation or termination of
unexercised options, the shares of the Company's Common Stock subject to such
options will again be available for the grant of options under the Employee
Plan. All of the employees of the Company are currently eligible to receive
grants of options under the Employee Plan.
No options have been granted under the Employee Plan.
On March 30, 2001, the high and low sales prices of the Company's
Common Stock as reported by the American Stock Exchange were $4.55 and $4.80 per
share, respectively.
TYPE OF OPTIONS
Options granted under the Employee Plan may either be incentive stock
options ("ISOs"), within the meaning of Section 422 of the Code, or nonqualified
stock options which do not qualify as ISOs ("NQSOs").
ADMINISTRATION
The Employee Plan will be administered by the compensation committee of
the Board of Directors (the "Committee") consisting of at least two members of
the Board, each of whom is a "non-employee director" within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934. It is also intended
that each member of the Committee will be an "outside director" within the
meaning of Section 162(m) of the Code. The current members of the Committee are
Michael McGovern (chairman), Charles Bolling, Russell Cleveland, Miguel
Fernandez and William Packer.
24
Among other things, the Committee is empowered to determine, within the
express limits contained in the Employee Plan: the employees to be granted
options, the times when options shall be granted, whether an option is to be an
ISO or a NQSO, the number of shares of Common Stock to be subject to each
option, the exercise price of each option, the term of each option, the date
each option shall become exercisable as well as any terms, conditions or
installments relating to the exercisability of each option, whether and under
what conditions to accelerate the date of exercise of any option or installment,
the form of payment of the exercise price, the amount, if any, required to be
withheld with respect to an option and, with the consent of the optionee, to
modify an option. The Committee is also authorized to prescribe, amend and
rescind rules and regulations relating to the Employee Plan and to make all
other determinations necessary or advisable for administering the Employee Plan
and to construe the Employee Plan.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the Employee Plan will be subject to, among other
things, the following terms and conditions:
(a) The exercise price of each option will be determined by the Committee;
provided, however, that the exercise price of an ISO, or of any option intended
to satisfy the performance-based compensation exemption to the deduction
limitation under Section 162(m) of the Code, and may not be less than the fair
market value of the Company's Common Stock on the date of grant (110% of such
fair market value if the optionee owns (or is deemed to own) more than 10% of
the voting power of the Company).
(b) Options may be granted for terms determined by the Committee; provided,
however, that the term of an ISO may not exceed 10 years (5 years if the
optionee owns (or is deemed to own) more than 10% of the voting power of the
Company).
(c) The maximum number of shares of the Company's Common Stock for which options
may be granted to an employee in any calendar year is 250,000. In addition, the
aggregate fair market value of shares with respect to which ISOs may be granted
to an employee which are exercisable for the first time during any calendar year
may not exceed $100,000.
(d) The exercise price of each option is payable in full upon exercise or, if
the applicable stock option contract ("Contract") entered into by the Company
with an optionee permits, in installments. Payment of the exercise price of an
option may be made in cash, certified check or, if the applicable Contract
permits, in previously acquired shares of the Company's Common Stock having an
aggregate fair market value on the date of exercise, equal to the aggregate
exercise price of all options being exercised, or any combination thereof. The
Committee may, in its sole discretion, permit payment of the exercise price of
an option by delivery by the optionee of a properly executed notice, together
with a copy of the optionee's irrevocable instructions to a broker acceptable to
the Committee, to deliver promptly to the Company the amount of sale or loan
proceeds sufficient to pay the exercise price.
(e) Options may not be transferred other than by will or by the laws of descent
and distribution, and may be exercised during the optionee's lifetime only by
the optionee or his or her legal representatives.
(f) Except as may otherwise be provided in the applicable Contract, if the
optionee's relationship with the Company as an employee is terminated for any
reason (other than the death, disability or retirement of the optionee), the
option may be exercised, to the extent exercisable at the time of termination of
such relationship, within three months thereafter, but in no event after the
expiration of the term of the option. If the employee is terminated following a
change of control of the Company, the employee may exercise
25
all options whether or not they had become exercisable. However, if the
relationship is terminated either for cause or without the consent of the
Company, the option will terminate immediately. In the case of the death of an
optionee while an employee (or, generally, within three months after termination
of such relationship, or within one year after termination of such relationship
by reason of disability or (retirement), except as otherwise provided in the
Contract, his or her legal representative or beneficiary may exercise the
option, to the extent exercisable on the date of death, within one year after
such date, but in no event after the expiration of the term of the option.
Except as otherwise provided in the Contract, an optionee whose relationship
with the Company was terminated by reason of his or her disability or retirement
may exercise the option, to the extent exercisable at the time of such
termination, within one year thereafter, but not after the expiration of the
term of the option. Options are not affected by a change in the status of an
optionee so long as he or she continues to be an employee of the Company.
(g) The Company may withhold cash and/or shares of the Company's Common Stock
having an aggregate value equal to the amount which the Company determines is
necessary to meet its obligations to withhold any federal, state and/or local
taxes or other amounts incurred by reason of the grant or exercise of an option,
its disposition or the disposition of shares acquired upon the exercise of the
option. Alternatively, the Company may require the optionee to pay the Company
such amount, in cash, promptly upon demand.
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
Appropriate adjustments will be made in the number and kind of shares
available under the Employee Plan, in the number and kind of shares subject to
each outstanding option and the exercise prices of such options, as well as the
number of shares subject to future grants to optionees and limitation on the
number of shares that may be granted to any employee in any calendar year, in
the event of any change in the Company's Common Stock by reason of any stock
dividend, split-up, spin off, combination, reclassification, recapitalization,
merger in which the Company is not the surviving corporation, exchange of shares
or the like. In the event of (a) the liquidation or dissolution of the Company,
or (b) a merger in which the Company is not the surviving corporation or a
consolidation, the Board of Directors of the Company shall, as to outstanding
options, either (i) make appropriate provisions for the protection of any such
outstanding options by the substitution on an equitable basis of appropriate
stock of the Company or of the merged, consolidated or otherwise reorganized
corporation which will be issuable in respect to one share of Common Stock of
the Company; provided, only that the excess of the aggregate fair market value
of the shares subject to the options immediately after such substitution over
the purchase price thereof is not more than the excess of the aggregate fair
market value of the shares subject to such options immediately before such
substitution over the purchase price thereof, or (ii) upon written notice to an
optionee, provide that all unexercised options must be exercised within a
specified number of days of the date of such notice or they will be terminated.
In any such case, the Board of Directors may, in its discretion, advance the
lapse of any waiting or installment periods and exercise dates.
DURATION AND AMENDMENT OF THE EMPLOYEE PLAN
No option may be granted under the Employee Plan after March 30, 2011.
The Board of Directors may at any time terminate or amend the Employee Plan;
provided, however, that, without the approval of the Company's stockholders, no
amendment may be made which would (a) except as a result of the anti-dilution
adjustments described above, increase the maximum number of shares available for
the grant of options or increase the maximum number of options that may be
granted to an employee in any calendar year, (b) change the eligibility
requirements for persons who may receive options or (c) make any changes for
which applicable law or regulatory authority requires stockholder approval. No
26
termination or amendment may adversely affect the rights of an optionee with
respect to an outstanding option without the optionee's consent.
FEDERAL INCOME TAX TREATMENT
The following is a general summary of certain material federal income
tax consequences of the grant and exercise of the options under the Employee
Plan and the sale of any underlying security. This description is based on
current law, which is subject to change, possibly with retroactive effect. This
discussion does not purport to address all tax considerations relating to the
grant and exercise of the options or resulting from the application of special
rules to a particular optionee (including an optionee subject to the reporting
and short-swing profit provisions under Section 16 of the Securities Exchange
Act of 1934, as amended), and state, local, foreign and other tax consequences
inherent in the ownership and exercise of stock options and the ownership and
disposition of any underlying security. An optionee should consult with the
optionee's own tax advisors with respect to the tax consequences inherent in the
ownership and exercise of stock options and the ownership and disposition of any
underlying security.
ISOS EXERCISED WITH CASH
No taxable income will be recognized by an optionee upon the grant or
exercise of an ISO. The optionee's tax basis in the shares acquired upon the
exercise of an ISO with cash will be equal to the exercise price paid by the
optionee for such shares.
If the shares received upon exercise of an ISO are disposed of more
than one year after the date of transfer of such shares to the optionee and more
than two years from the date of grant of the option, the optionee will recognize
long-term capital gain or loss on such disposition equal to the difference
between the selling price and the optionee's basis in the shares, and the
Company will not be entitled to a deduction. Long-term capital gain is generally
subject to more favorable tax treatment than short-term capital gain or ordinary
income.
If the shares received upon the exercise of an ISO are disposed of
prior to the end of the two-years-from-grant/one-year-after-transfer holding
period (a "disqualifying disposition"), the excess (if any) of the fair market
value of the shares on the date of transfer of such shares to the optionee over
the exercise price (but not in excess of the gain realized on the sale of the
shares) will be taxed as ordinary income in the year of such disposition, and
the Company generally will be entitled to a deduction in the year of disposition
equal to such amount. Any additional gain or any loss recognized by the optionee
on such disposition will be short-term or long-term capital gain or loss, as the
case may be, depending upon the period for which the shares were held.
NQSOS EXERCISED WITH CASH
No taxable income will be recognized by an optionee upon the grant of
an NQSO. Upon the exercise of an NQSO, the excess of the fair market value of
the shares received at the time of exercise over the exercise price therefor
will be taxed as ordinary income, and the Company will generally be entitled to
a corresponding deduction. The optionee's tax basis in the shares acquired upon
the exercise of such NQSO will be equal to the exercise price paid by the
optionee for such shares plus the amount of ordinary income so recognized.
Any gain or loss recognized by the optionee on a subsequent disposition
of shares purchased pursuant to an NQSO will be short-term or long-term capital
gain or loss, depending upon the period
27
during which such shares were held, in an amount equal to the difference between
the selling price and the optionee's tax basis in the shares.
EXERCISES OF OPTIONS USING PREVIOUSLY ACQUIRED SHARES
If previously acquired shares are surrendered in full or partial
payment of the exercise price of an option (whether an ISO or a NQSO), gain or
loss generally will not be recognized by the optionee upon the exercise of such
option to the extent the optionee receives shares which on the date of exercise
have a fair market value equal to the fair market value of the shares
surrendered in exchange therefor ("Replacement Shares"). If the option exercised
is an ISO or if the shares used were acquired pursuant to the exercise of an
ISO, the Replacement Shares are treated as having been acquired pursuant to the
exercise of an ISO.
However, if an ISO is exercised with shares which were previously
acquired pursuant to the exercise of an ISO but which were not held for the
required two-years-from-grant/one-year-after-transfer holding period, there is a
disqualifying disposition of such previously acquired shares. In such case, the
optionee would recognize ordinary income on such disqualifying disposition equal
to the difference between the fair market value of such shares on the date of
exercise of the prior ISO and the amount paid for such shares (but not in excess
of the gain realized). Special rules apply in determining which shares are
considered to have been disposed of and in allocating the basis among the
shares. No capital gain is recognized.
The optionee will have an aggregate basis in the Replacement Shares
equal to the basis of the shares surrendered, increased by any ordinary income
required to be recognized on the disposition of the previously acquired shares.
The optionee's holding period for the Replacement Shares generally includes the
period during which the surrendered shares were held.
Any shares received by the optionee on such exercise in addition to the
Replacement Shares will be treated in the same manner as a cash exercise of an
option for no consideration.
ALTERNATIVE MINIMUM TAX
In addition to the federal income tax consequences described above, an
optionee who exercises an ISO may be subject to the alternative minimum tax,
which is payable only to the extent it exceeds the optionee's regular tax
liability. For this purpose, upon the exercise of an ISO, the excess of the fair
market value of the shares over the exercise price is an adjustment, which
increases the optionee's alternative minimum taxable income. In addition, the
optionee's basis in such shares is increased by such amount for purposes of
computing the gain or loss on disposition of the shares for alternative minimum
tax purposes. If the optionee is required to pay an alternative minimum tax, the
amount of such tax which is attributable to deferral preferences (including the
ISO adjustment) is allowable as a tax credit against the optionee's regular tax
liability (net of other non-refundable credits) in subsequent years. To the
extent the credit is not used, it is carried forward. An optionee holding an ISO
should consult with the optionee's tax advisors concerning the applicability and
effect of the alternative minimum tax.
28
PROPOSAL 3
APPROVAL OF THE COMPANY'S 2001 DIRECTORS' STOCK OPTION PLAN
On March 30, 2001, the Board of Directors adopted, subject to
stockholder approval at the Meeting, the Company's 2001 Directors' Stock Option
Plan. The 2001 Directors' Stock Option Plan is herein referred to as the
"Directors' Plan". The Directors' Plan is designed to provide an incentive to
key non-employee directors of the Company and to offer an additional inducement
in obtaining the services of such persons. The proceeds derived from the sale of
shares subject to options will be used for general corporate purposes of the
Company.
The Directors' Plan is being proposed at this time due to the
expiration of the 1991 Plan on September 30, 2001.
The following summary of certain material features of the Directors'
Plan does not purport to be complete and is qualified in its entirety by
reference to the text of the Directors' Plan, a copy of which is set forth as
Appendix C to this Proxy Statement.
For a description of the current practice of the Company regarding the
award of options to non-employee directors, see "Proposal 1 - Election of
Directors - Remuneration of Non-Employee Directors."
SHARES SUBJECT TO THE DIRECTORS' PLAN AND ELIGIBILITY
The Directors' Plan authorizes the grant of options to purchase a
maximum of 500,000 shares of the Company's Common Stock (subject to adjustment
as described below) to non-employee directors of the Company. Upon expiration,
cancellation or termination of unexercised options, the shares of the Company's
Common Stock subject to such options will again be available for the grant of
options under the Directors' Plan. All of the non-employee directors of the
Company are currently eligible to receive grants of options under the Directors'
Plan.
No options have been granted under the Directors' Plan.
On March 30, 2001, the high and low sales prices of the Company's
Common Stock as reported by the American Stock Exchange were $4.55 and $4.80 per
share, respectively.
TYPE OF OPTIONS
Options granted under the Directors' Plan shall be nonqualified stock
options ("NQSOs") which do not qualify as incentive stock options ("ISOs"),
within the meaning of Section 422 of the Code (the "Code").
ADMINISTRATION
The Directors' Plan will be administered by the compensation committee
of the Board of Directors (the "Committee") consisting of at least two members
of the Board, each of whom is a "non-employee director" within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934. The current
members of the Committee are Michael McGovern (chairman), Charles Bolling,
Russell Cleveland, Miguel Fernandez and William Packer.
29
Among other things, the Committee is empowered to determine, within the
express limits contained in the Directors' Plan: the directors to be granted
options, the times when options shall be granted, the number of shares of Common
Stock to be subject to each option, the exercise price of each option, the term
of each option, the date each option shall become exercisable as well as any
terms, conditions or installments relating to the exercisability of each option,
whether and under what conditions to accelerate the date of exercise of any
option or installment, the form of payment of the exercise price, the amount, if
any, required to be withheld with respect to an option and, with the consent of
the optionee, to modify an option. The Committee is also authorized to
prescribe, amend and rescind rules and regulations relating to the Directors'
Plan and to make all other determinations necessary or advisable for
administering the Directors' Plan and to construe the Directors' Plan.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the Directors' Plan will be subject to, among
other things, the following terms and conditions:
(a) The exercise price of each option will be determined by the Committee but
may not be less than the fair market value of the Company's Common Stock on the
date of grant.
(b) Options may be granted for terms determined by the Committee; provided,
however, that the term may not exceed 10 years.
(c) The exercise price of each option is payable in full upon exercise or, if
the applicable stock option contract ("Contract") entered into by the Company
with an optionee permits, in installments. Payment of the exercise price of an
option may be made in cash, certified check or, if the applicable Contract
permits, in previously acquired shares of the Company's Common Stock having an
aggregate fair market value on the date of exercise, equal to the aggregate
exercise price of all options being exercised, or any combination thereof. The
Committee may, in its sole discretion, permit payment of the exercise price of
an option by delivery by the optionee of a properly executed notice, together
with a copy of the optionee's irrevocable instructions to a broker acceptable to
the Committee, to deliver promptly to the Company the amount of sale or loan
proceeds sufficient to pay the exercise price.
(d) Options may not be transferred other than by will or by the laws of descent
and distribution, and may be exercised during the optionee's lifetime only by
the optionee or his or her legal representatives.
(e) Except as may otherwise be provided in the applicable Contract, if the
optionee's relationship with the Company as a director is terminated for any
reason (other than the death or disability of the optionee), the option may be
exercised, to the extent exercisable at the time of termination of such
relationship, within three months thereafter, but in no event after the
expiration of the term of the option. However, if the board appoints the
optionee as a director emeritus, the option will expire in accordance with its
terms, not in three months. If an optionee ceases to be a director because of
his removal or failure to be nominated for re-election to the board or due to a
termination of director emeritus status, within three years following a change
of control of the Company, the optionee may exercise all options whether or not
they had become exercisable. However, if the relationship is terminated either
for cause or without the consent of the Company, the option will terminate
immediately. In the case of the death of an optionee (or, generally, within
three months after termination of such relationship, or within one year after
termination of such relationship by reason of disability or retirement), except
as otherwise provided in the Contract, his or her legal representative or
beneficiary may exercise the option, to the extent exercisable on the date of
death, within one year after such date, but in no event after the expiration of
the term of the option. Except as otherwise provided in the Contract, an
optionee whose relationship with the Company
30
was terminated by reason of his or her disability may exercise the option, to
the extent exercisable at the time of such termination, within one year
thereafter, but not after the expiration of the term of the option.
(f) The Company may withhold cash and/or shares of the Company's Common Stock
having an aggregate value equal to the amount which the Company determines is
necessary to meet its obligations to withhold any federal, state and/or local
taxes or other amounts incurred by reason of the grant or exercise of an option,
its disposition or the disposition of shares acquired upon the exercise of the
option. Alternatively, the Company may require the optionee to pay the Company
such amount, in cash, promptly upon demand.
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
Appropriate adjustments will be made in the number and kind of shares
available under the Directors' Plan, in the number and kind of shares subject to
each outstanding option and the exercise prices of such options, as well as the
number of shares subject to future grants to optionees, in the event of any
change in the Company's Common Stock by reason of any stock dividend, split-up,
spin off, combination, reclassification, recapitalization, merger in which the
Company is not the surviving corporation, exchange of shares or the like. In the
event of (a) the liquidation or dissolution of the Company, or (b) a merger in
which the Company is not the surviving corporation or a consolidation, the Board
of Directors of the Company shall, as to outstanding options, either (i) make
appropriate provisions for the protection of any such outstanding options by the
substitution on an equitable basis of appropriate stock of the Company or of the
merged, consolidated or otherwise reorganized corporation which will be issuable
in respect to one share of Common Stock of the Company; provided, only that the
excess of the aggregate fair market value of the shares subject to the options
immediately after such substitution over the purchase price thereof is not more
than the excess of the aggregate fair market value of the shares subject to such
options immediately before such substitution over the purchase price thereof, or
(ii) upon written notice to an optionee, provide that all unexercised options
must be exercised within a specified number of days of the date of such notice
or they will be terminated. In any such case, the Board of Directors may, in its
discretion, advance the lapse of any waiting or installment periods and exercise
dates.
DURATION AND AMENDMENT OF THE DIRECTORS' PLAN
No option may be granted under the Directors' Plan after March 30,
2011. The Board of Directors may at any time terminate or amend the Directors'
Plan; provided, however, that, without the approval of the Company's
stockholders, no amendment may be made which would (a) except as a result of the
anti-dilution adjustments described above, increase the maximum number of shares
available for the grant of options, (b) change the eligibility requirements for
persons who may receive options or (c) make any changes for which applicable law
or regulatory authority requires stockholder approval. No termination or
amendment may adversely affect the rights of an optionee with respect to an
outstanding option without the optionee's consent.
31
FEDERAL INCOME TAX TREATMENT
The following is a general summary of certain material federal income
tax consequences of the grant and exercise of the options under the Directors'
Plan and the sale of any underlying security. This description is based on
current law, which is subject to change, possibly with retroactive effect. This
discussion does not purport to address all tax considerations relating to the
grant and exercise of the options or resulting from the application of special
rules to a particular optionee (including an optionee subject to the reporting
and short-swing profit provisions under Section 16 of the Securities Exchange
Act of 1934, as amended), and state, local, foreign and other tax consequences
inherent in the ownership and exercise of stock options and the ownership and
disposition of any underlying security. An optionee should consult with the
optionee's own tax advisors with respect to the tax consequences inherent in the
ownership and exercise of stock options and the ownership and disposition of any
underlying security.
NQSOS EXERCISED WITH CASH
No taxable income will be recognized by an optionee upon the grant of
an NQSO. Upon the exercise of an NQSO, the excess of the fair market value of
the shares received at the time of exercise over the exercise price therefor
will be taxed as ordinary income, and the Company will generally be entitled to
a corresponding deduction. The optionee's tax basis in the shares acquired upon
the exercise of such NQSO will be equal to the exercise price paid by the
optionee for such shares plus the amount of ordinary income so recognized.
Any gain or loss recognized by the optionee on a subsequent disposition
of shares purchased pursuant to an NQSO will be short-term or long-term capital
gain or loss, depending upon the period during which such shares were held, in
an amount equal to the difference between the selling price and the optionee's
tax basis in the shares.
EXERCISES OF OPTIONS USING PREVIOUSLY ACQUIRED SHARES
If previously acquired shares are surrendered in full or partial
payment of the exercise price of an option, gain or loss generally will not be
recognized by the optionee upon the exercise of such option to the extent the
optionee receives shares which on the date of exercise have a fair market value
equal to the fair market value of the shares surrendered in exchange therefor
("Replacement Shares").
The optionee will have an aggregate basis in the Replacement Shares
equal to the basis of the shares surrendered, increased by any ordinary income
required to be recognized on the disposition of the previously acquired shares.
The optionee's holding period for the Replacement Shares generally includes the
period during which the surrendered shares were held.
Any shares received by the optionee on such exercise in addition to the
Replacement Shares will be treated in the same manner as a cash exercise of an
option for no consideration.
32
MISCELLANEOUS
VOTING REQUIREMENTS
Directors are elected by a plurality of the votes cast at the Meeting
at which a quorum is present (Proposal 1). The affirmative vote of the holders
of a majority of the votes cast at the Meeting at which a quorum is present will
be required to approve the Employee Plan (Proposal 2) and the Directors' Plan
(Proposal 3). For purposes of Proposals 1, 2 and 3, abstentions and broker
non-votes are not considered cast with respect to such proposals.
INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors of the Company selected
Deloitte & Touche LLP to serve as the Company's independent auditors for the
year ended December 31, 2000 and for the year ending December 31, 2001.
Representatives of Deloitte & Touche LLP plan to be present at the Meeting.
STOCKHOLDER PROPOSALS
From time to time stockholders may present proposals for consideration
at a meeting, which may be proper subjects for inclusion in the proxy statement
and form of proxy related to that meeting. Stockholder proposals intended to be
included in the Company's proxy statement and form of proxy relating to the
Company's 2001 Annual Meeting of Stockholders must be received by the Company at
its office at 65 Lafayette Road, North Hampton, New Hampshire 03862 by January
9, 2002. Any such proposals, as well as any questions relating thereto, should
be directed to the Secretary of the Company at such address.
ADDITIONAL INFORMATION
The cost of solicitation of Proxies, including the cost of reimbursing
banks, brokers and other nominees for forwarding Proxy solicitation material to
the beneficial owners of shares held of record by them and seeking instructions
from such beneficial owners, will be borne by the Company. The Company has not
engaged a proxy solicitor to solicit proxies; however, proxies may be solicited
without extra compensation by certain officers and regular employees of the
Company. Proxies may be solicited by mail and, if determined to be necessary, by
telephone, telegraph or personal interview.
OTHER MATTERS
Management does not intend to bring before the Meeting any matters
other than those specifically described above and knows of no matters other than
the foregoing to come before the Meeting. If any other matters or motions
properly come before the Meeting, it is the intention of the persons named in
the accompanying Proxy to vote such Proxy in accordance with their judgment on
such matters or motions, including any matters dealing with the conduct of the
Meeting.
By Order of the Board of Directors
MICHAEL D. PRICE
Secretary
North Hampton, NH
April 3, 2001
33
Appendix A
Audit Committee Charter
BENTLEY PHARMACEUTICALS, INC.
------------------------------------------------------------------------
Objectives
----------
(1) To review the procedures and results of the Company's
independent auditing function and to act as necessary on
behalf of the board of directors between board meetings with
respect to the Company's audited financial reports, accounting
procedures and financial controls.
(2) To provide a direct communications link to the board of
directors from the Company's independent auditors and the
chief financial officer, and to help assure the quality of the
Company's financial reporting and control systems.
Duties and Responsibilities
---------------------------
The Audit Committee, acting, where applicable, by unanimous consent,
shall have the following duties and responsibilities:
(1) Review the comments of the independent auditors with respect
to management's internal control procedures and practices for
safeguarding assets, authorizing and recording transactions
and complying with company policies.
(2) Approve any significant changes in the Company's accounting
principles or financial reporting practices.
(3) Review the Company's audited or unaudited financial statements
including those contained in its annual report on Form 10-K
before public distribution.
(4) Review the annual audit plan of the independent auditors.
Ensure the receipt from the independent auditors of a formal
written statement delineating all relationships between such
auditors and the Company, consistent with Independence
Standards Board Standard 1; actively engage in a dialogue with
such auditors with respect to any disclosed relationships or
services that may impact the objectivity and independence of
such auditors; and take, or recommend that the full board
take, appropriate action to ensure the independence of such
outside auditors.
(5) Meet with the independent auditors prior to the release to the
general public of any earnings information for fiscal quarters
and year end.
(6) Acknowledge the independent auditor's ultimate accountability
to the board of directors and the Audit Committee, as
representatives of the shareholders.
(7) Review the Company's organization to accomplish management's
financial reporting and control responsibilities.
(8) Review compliance with applicable regulatory and financial
reporting requirements.
A-1
(9) Conduct such other reviews as are necessary or advisable to
discharge the foregoing responsibilities.
(10) Review and reassess, on an annual basis, the adequacy of this
Audit Committee Charter.
(11) Acknowledge the Audit Committee's responsibility to select,
evaluate, and, where appropriate, replace the firm of
independent auditors and to recommend annually to the board of
directors the firm of independent auditors to examine the
Company's financial statements.
(12) Meet quarterly, or more frequently as needed, to carry out the
foregoing duties and responsibilities.
(13) Report to the board of directors at the next board meeting
after each Audit Committee meeting.
Membership
----------
(1) The Audit Committee shall be comprised of three independent
members of the board of directors, or such greater number of
independent members of the board of directors (and/or one
additional director who is not independent as defined by the
listing standards of the American Stock Exchange, and is not a
current employee or an immediate family member of such
employee, provided that the board of directors, under
exceptional and limited circumstances, determines that
membership on the committee by such individual is required by
the best interests of the corporation and its shareholders,
and the board discloses, in the next annual proxy statement
subsequent to such determination, the nature of the
relationship and the reasons for that determination) as the
board of directors shall from time to time so specify.
(2) Each Member of the Audit Committee shall be able, or shall
become able within a reasonable period of time after
appointment to the Audit Committee, to read and understand
financial statements, including balance sheets, income
statements, and cash flow statements.
(3) At least one member of the Audit Committee shall have past
employment experience in finance or accounting, requisite
professional certification in accounting, or any other
comparable experience or background which results in the
individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer
or other senior officer with financial oversight
responsibilities.
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Appendix B
2001 EMPLOYEE STOCK OPTION PLAN
OF
BENTLEY PHARMACEUTICALS, INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
intended to provide an incentive to employees (including directors and officers
who are employees) of Bentley Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), or any of its Subsidiaries (as such term is defined in Paragraph
19), and to offer an additional inducement in obtaining the services of such
individuals. The Plan provides for the grant of "incentive stock options"
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and nonqualified stock options which do not qualify as
ISOs ("NQSOs"). The Company makes no representation or warranty, express or
implied, as to the qualification of any option as an "incentive stock option"
under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of the Company's Common Stock, par value
$0.02 per share ("Common Stock"), for which options may be granted under the
Plan shall not exceed 1,000,000 (one million) shares. Such shares of Common
Stock may, in the discretion of the Board of Directors of the Company (the
"Board of Directors"), consist either in whole or in part of authorized but
unissued shares of Common Stock or shares of Common Stock held in the treasury
of the Company. Subject to the provisions of Paragraph 13, any shares of Common
Stock subject to an option, which for any reason expires, is canceled or is
terminated unexercised or which ceases for any reason to be exercisable shall
again become available for the granting of options under the Plan. The Company
shall at all times during the term of the Plan reserve and keep available such
number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Board of Directors, or by a committee (the "Committee") consisting of two or
more directors appointed by the Board of Directors. Those administering the Plan
shall be referred to herein as the "Administrators." Notwithstanding the
foregoing, if the Company is or becomes a corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the extent
necessary to preserve any deduction under Section 162(m) of the Code or to
comply with Rule 16b-3 promulgated under the Exchange Act, or any successor rule
("Rule 16b-3"), any Committee appointed by the Board of Directors to administer
the Plan shall be comprised of two or more directors each of whom shall be a
"non-employee director," within the meaning of Rule 16b-3, and an "outside
director," within the meaning of Treasury Regulation Section 1.162-27(e)(3), and
the delegation of powers to the Committee shall be consistent with applicable
laws and regulations (including, without limitation, applicable state law and
Rule 16b-3). Unless otherwise provided in the By-Laws of the Company, by
resolution of the Board of Directors or applicable law, a majority of the
members of the Committee shall constitute a quorum, and the acts of a majority
of the members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Administrators shall
have the authority, in their sole discretion, to determine the persons who shall
be granted options; the times when they shall receive options; whether an option
granted to an employee shall be an ISO or a NQSO; the type (i.e., voting or
non-voting) and number of shares of Common Stock to be subject to each
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option; the term of each option; the date each option shall become exercisable;
whether an option shall be exercisable in whole or in installments, and, if in
installments, the number of shares of Common Stock to be subject to each
installment; whether the installments shall be cumulative; the date each
installment shall become exercisable and the term of each installment; whether
to accelerate the date of exercise of any option or installment; whether shares
of Common Stock may be issued upon the exercise of an option as partly paid,
and, if so, the dates when future installments of the exercise price shall
become due and the amounts of such installments; the exercise price of each
option; the form of payment of the exercise price; the fair market value of a
share of Common Stock; whether and under what conditions to restrict the sale or
other disposition of the shares of Common Stock acquired upon the exercise of an
option and, if so, whether and under what conditions to waive any such
restriction; whether and under what conditions to subject the exercise of all or
any portion of an option to the fulfillment of certain restrictions or
contingencies as specified in the contract referred to in Paragraph 11 (the
"Contract"), including without limitation restrictions or contingencies relating
to (a) entering into a covenant not to compete with the Company, its Parent (if
any) (as such term is defined in Paragraph 19) and any Subsidiaries, (b)
financial objectives for the Company, any of its Subsidiaries, a division, a
product line or other category and/or (c) the period of continued employment of
the optionee with the Company or any of its Subsidiaries, and to determine
whether such restrictions or contingencies have been met; the amount, if any,
necessary to satisfy the obligation of the Company, any of its Subsidiaries or
any Parent to withhold taxes or other amounts; whether an optionee has a
Disability (as such term is defined in Paragraph 19); with the consent of the
optionee, to cancel or modify an option, provided, however, that the modified
provision is permitted to be included in an option granted under the Plan on the
date of the modification; provided, further, however, that in the case of a
modification (within the meaning of Section 424(h) of the Code) of an ISO, such
option as modified would be permitted to be granted on the date of such
modification under the terms of the Plan; to construe the respective Contracts
and the Plan; to prescribe, amend and rescind rules and regulations relating to
the Plan; to approve any provision of the Plan or any option granted under the
Plan or any amendment to either which, under Rule 16b-3 or Section 162(m) of the
Code, requires the approval of the Board of Directors, a committee of
non-employee directors or the stockholders, in order to be exempt under Section
16(b) of the Exchange Act (unless otherwise specifically provided herein) or to
preserve any deduction under Section 162(m) of the Code; and to make all other
determinations necessary or advisable for administering the Plan. Any
controversy or claim arising out of or relating to the Plan, any option granted
under the Plan or any Contract shall be determined unilaterally by the
Administrators in their sole discretion. The determinations of the
Administrators on matters referred to in this Paragraph 3 shall be conclusive
and binding on all parties. No Administrator or former Administrator shall be
liable for any action or determination made in good faith with respect to the
Plan or any option granted hereunder.
4. ELIGIBILITY. The Administrators may from time to time, consistent
with the purposes of the Plan, grant options to such employees (including
officers and directors who are employees) of the Company or any of its
Subsidiaries, as the Administrators may determine in their sole discretion. Such
options granted shall cover such number of shares of Common Stock as the
Administrators may determine in their sole discretion; provided, however, that
if on the date of grant of an option, any class of common stock of the Company
(including without limitation the Common Stock) is required to be registered
under Section 12 of the Exchange Act, the maximum number of shares subject to
options that may be granted to any employee during any calendar year under the
Plan shall be 250,000 shares (the "Section 162 Maximum"); provided, further,
however, that the aggregate market value (determined at the time the option is
granted) of the shares of Common Stock for which any eligible employee may be
granted ISOs under the Plan or any other plan of the Company, or of a Parent or
a Subsidiary of the Company, which are exercisable for the first time by such
optionee during any calendar year shall not exceed $100,000. The $100,000 ISO
limitation amount shall be applied by taking ISOs into account in the order in
which they were granted. Any option (or portion thereof) granted in excess of
such ISO limitation amount shall be treated as a NQSO to the extent of such
excess.
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5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Administrators in their sole
discretion; provided, however, that the exercise price of an ISO, or of any
option intended to satisfy the performance-based compensation exemption to the
deduction limitation under Section 162(m) of the Code, shall not be less than
the fair market value of the Common Stock subject to such option on the date of
grant; and provided, further, however, that if, at the time an ISO is granted,
the optionee owns (or is deemed to own under 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, of any of its Subsidiaries or of a Parent, the exercise
price of such ISO shall not be less than 110% of the fair market value of the
Common Stock subject to such ISO on the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of the
Common Stock on such day as reported by such exchange or on a consolidated tape
reflecting transactions on such exchange, (b) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is
quoted on the Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price
information is available with respect to the Common Stock, the average of the
highest and lowest sales prices per share of the Common Stock on such day on
Nasdaq, or (ii) if such information is not available, the average of the highest
bid and the lowest asked prices per share for the Common Stock on such day on
Nasdaq, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on Nasdaq, the average of
the highest bid and lowest asked prices per share for the Common Stock on such
day as reported on the OTC Bulletin Board Service or by National Quotation
Bureau, Incorporated or a comparable service; provided, however, that if clauses
(a), (b) and (c) of this Paragraph 5 are all inapplicable because the Company's
Common Stock is not publicly traded, or if no trades have been made or no quotes
are available for such day, the fair market value of a share of Common Stock
shall be determined by the Administrators by any method consistent with any
applicable regulations adopted by the Treasury Department relating to stock
options.
6. TERM. Each option granted pursuant to the Plan shall be for such
term as is established by the Administrators, in their sole discretion, at or
before the time such option is granted; provided, however, that the term of each
option granted pursuant to the Plan shall be for a period not exceeding 10 years
from the date of grant thereof, and provided further, that if, at the time an
ISO is granted, the optionee owns (or is deemed to own under 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, of any of its Subsidiaries or of a Parent,
the term of the ISO shall be for a period not exceeding five years from the date
of grant. Options shall be subject to earlier termination as hereinafter
provided.
7. EXERCISE. An option (or any installment thereof), to the extent then
exercisable, shall be exercised by giving written notice to the Company at its
principal office stating which option is being exercised, specifying the number
of shares of Common Stock as to which such option is being exercised and
accompanied by payment in full of the aggregate exercise price therefor (or the
amount due on exercise if the applicable Contract permits installment payments)
(a) in cash and/or by certified check, (b) with the authorization of the
Administrators, with previously acquired shares of Common Stock having an
aggregate fair market value (determined in accordance with Paragraph 5), on the
date of exercise, equal to the aggregate exercise price of all options being
exercised, or (c) some combination thereof; provided, however, that in no case
may shares be tendered if such tender would require the Company to incur a
charge against its earnings for financial accounting purposes. The Company shall
not be required to issue any shares of Common Stock pursuant to the exercise of
any option until all required payments with respect thereto, including payments
for any required withholding amounts, have been made.
B-3
The Administrators may, in their sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of the optionee's irrevocable instructions to a
broker acceptable to the Administrators to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay such exercise price. In
connection therewith, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
An optionee shall not have the rights of a stockholder with respect to
such shares of Common Stock to be received upon the exercise of an option until
the date of issuance of a stock certificate to the optionee for such shares or,
in the case of uncertificated shares, until the date an entry is made on the
books of the Company's transfer agent representing such shares; provided,
however, that until such stock certificate is issued or until such book entry is
made, any optionee using previously acquired shares of Common Stock in payment
of an option exercise price shall continue to have the rights of a stockholder
with respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose employment relationship
with the Company, its Parent and any of its Subsidiaries, has terminated for any
reason other than the death or Disability of the optionee may exercise any
option granted to the optionee as an employee, to the extent exercisable on the
date of such termination, at any time within three months after the date of
termination, but not thereafter and in no event after the date the option would
otherwise have expired; provided, however, that if such relationship is
terminated either (a) for Cause (as defined in Paragraph 19), or (b) without the
consent of the Company, such option shall terminate immediately; provided,
further, that if the Company terminates the employee's employment within a
three-year period after a change in control of the Corporation (as defined in
Paragraph 19), the employee during the three-month period after termination (but
not after the date on which the option would otherwise expire) may exercise all
or any part of the remaining unexercised portion of the option notwithstanding
that the option had not yet become exercisable with respect to all or part of
such shares at the date of termination.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military leave,
sick leave or other bona fide leave of absence shall continue to be considered
an employee for purposes of the Plan during such leave if the period of the
leave does not exceed 90 days, or, if longer, so long as the individual's right
to re-employment with the Company, any of its Subsidiaries or a Parent is
guaranteed either by statute or by contract. If the period of leave exceeds 90
days and the individual's right to re-employment is not guaranteed by statute or
by contract, the employment relationship shall be deemed to have terminated on
the 91st day of such leave.
Nothing in the Plan or in any option granted under the Plan shall
confer on any person any right to continue in the employ of the Company, its
Parent or any of its Subsidiaries or interfere in any way with any right of the
Company, its Parent or any of its Subsidiaries to terminate such relationship at
any time for any reason whatsoever without liability to the Company, its Parent
or any of its Subsidiaries.
9. DEATH, DISABILITY OR RETIREMENT OF AN OPTIONEE. Except as may
otherwise be expressly provided in the applicable Contract, if an optionee dies
(a) while he is employed by the Company, its Parent or any of its Subsidiaries,
(b) within three months after the termination of the optionee's employment
relationship with the Company, its Parent and its Subsidiaries (unless such
termination was for Cause or without the consent of the Company) or (c) within
one year following the termination of
B-4
such employment relationship by reason of the optionee's Disability or
Retirement (as defined in Paragraph 19), the options granted to the optionee as
an employee of the Company or any of its Subsidiaries, may be exercised, to the
extent exercisable on the date of the optionee's death, by the optionee's Legal
Representative (as such term is defined in Paragraph 19), at any time within one
year after death, but not thereafter and in no event after the date the option
would otherwise have expired. Except as may otherwise be expressly provided in
the applicable Contract, any optionee whose employment relationship with the
Company, its Parent and its Subsidiaries has terminated by reason of the
optionee's Disability or Retirement may exercise such options, to the extent
exercisable upon the effective date of such termination, at any time within one
year after such date, but not thereafter and in no event after the date the
option would otherwise have expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the exercise
of any option that either (a) a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock to be issued upon such exercise shall be effective and current at the time
of exercise, or (b) there is an exemption from registration under the Securities
Act for the issuance of the shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act or to keep any Registration Statement
effective or current.
The Administrators may require, in their sole discretion, as a
condition to the grant or exercise of an option, that the optionee execute and
deliver to the Company the optionee's representations and warranties, in form,
substance and scope satisfactory to the Administrators, which the Administrators
determine is necessary or convenient to facilitate the perfection of an
exemption from the registration requirements of the Securities Act, applicable
state securities laws or other legal requirements, including without limitation,
that (a) the shares of Common Stock to be issued upon exercise of the option are
being acquired by the optionee for the optionee's own account, for investment
only and not with a view to the resale or distribution thereof, and (b) any
subsequent resale or distribution of shares of Common Stock by such optionee
will be made only pursuant to (i) a Registration Statement under the Securities
Act which is effective and current with respect to the shares of Common Stock
being sold, or (ii) a specific exemption from the registration requirements of
the Securities Act, but in claiming such exemption, the optionee, prior to any
offer of sale or sale of such shares of Common Stock, shall provide the Company
with a favorable written opinion of counsel satisfactory to the Company, in
form, substance and scope satisfactory to the Company, as to the applicability
of such exemption to the proposed sale or distribution.
In addition, if at any time the Administrators shall determine that the
listing or qualification of the shares of Common Stock subject to such option on
any securities exchange, Nasdaq or under any applicable law, or that the consent
or approval of any governmental agency or regulatory body, is necessary or
desirable as a condition to, or in connection with, the granting of an option or
the issuance of shares of Common Stock thereunder, such option may not be
granted or exercised in whole or in part, as the case may be, unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Administrators.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee. Such Contract shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Administrators in their sole
discretion. The terms of each option and Contract need not be identical.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other
provision of the Plan, in the event of any change in the outstanding Common
Stock by reason of a stock dividend, recapitalization, merger in which the
Company is the surviving corporation, spin-off, split-up,
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combination or exchange of shares or the like which results in a change in the
number or kind of shares of Common Stock which are outstanding immediately prior
to such event, the aggregate number and kind of shares subject to the Plan, the
aggregate number and kind of shares subject to each outstanding option and the
exercise price thereof, and the maximum number of shares subject to options that
may be granted to any employee in any calendar year, shall be appropriately
adjusted by the Board of Directors, whose determination shall be conclusive and
binding on all parties. Such adjustment may provide for the elimination of
fractional shares that might otherwise be subject to options without payment
therefor. Notwithstanding the foregoing, no adjustment shall be made pursuant to
this Paragraph 12 if such adjustment (a) would cause the Plan to fail to comply
with Section 422 of the Code or with Rule 16b-3 of the Exchange Act (if
applicable to such option), or (b) would be considered as the adoption of a new
plan requiring stockholder approval.
In the event of a proposed dissolution or liquidation of the Company,
or in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding options, either (a)
make appropriate provision for the protection of any such outstanding options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; provided that
the excess of the aggregate fair market value of the shares subject to the
options immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to such options immediately before such substitution over the purchase
price thereof, or (b) upon written notice to an optionee, provide that all
unexercised options must be exercised within a specified number of days of the
date of such notice or they will be terminated. In any such case, the Board of
Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on March 30, 2001. No option may be granted under the Plan
after March 30, 2011. The Board of Directors, without further approval of the
Company's stockholders, may at any time suspend or terminate the Plan, in whole
or in part, or amend it from time to time in such respects as it may deem
advisable, including without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, or to comply
with the provisions of Rule 16b-3 or Section 162(m) of the Code or any change in
applicable laws or regulations, ruling or interpretation of any governmental
agency or regulatory body; provided, however, that no amendment shall be
effective, without the requisite prior or subsequent stockholder approval, which
would (a) except as contemplated in Paragraph 12, increase the maximum number of
shares of Common Stock for which options may be granted under the Plan or change
the Section 162 Maximum, (b) change the eligibility requirements for individuals
entitled to receive options hereunder, or (c) make any change for which
applicable law or any governmental agency or regulatory body requires
stockholder approval. No termination, suspension or amendment of the Plan shall
adversely affect the rights of an optionee under any option granted under the
Plan without such optionee's consent. The power of the Administrators to
construe and administer any option granted under the Plan prior to the
termination or suspension of the Plan shall continue after such termination or
during such suspension.
14. NON-TRANSFERABILITY. No option granted under the Plan shall be
transferable other than by will or the laws of descent and distribution, and
options may be exercised, during the lifetime of the optionee, only by the
optionee or the optionee's Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar
B-6
process, and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company, or its Subsidiary or Parent, as
applicable, may withhold (a) cash or (b) with the consent of the Administrators
(in the Contract or otherwise), shares of Common Stock to be issued upon
exercise of an option or a combination of cash and shares, having an aggregate
fair market value (determined in accordance with Paragraph 5) equal to the
amount which the Administrators determine is necessary to satisfy the obligation
of the Company, a Subsidiary or Parent to withhold Federal, state and local
income taxes or other amounts incurred by reason of the grant, vesting, exercise
or disposition of an option or the disposition of the underlying shares of
Common Stock. Alternatively, the Company may require the optionee to pay to the
Company such amount, in cash, promptly upon demand.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend
or legends upon the certificates for shares of Common Stock issued upon exercise
of an option under the Plan and may issue such "stop transfer" instructions to
its transfer agent in respect of such shares as it determines, in its sole
discretion, to be necessary or appropriate to (a) prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act,
applicable state securities laws or other legal requirements, (b) implement the
provisions of the Plan or any agreement between the Company and the optionee
with respect to such shares of Common Stock, or (c) permit the Company to
determine the occurrence of a "disqualifying disposition," as described in
Section 421(b) of the Code, of the shares of Common Stock transferred upon the
exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance
of shares of Common Stock upon the exercise of an option granted under the Plan,
as well as all fees and expenses incurred by the Company in connection with such
issuance.
17. USE OF PROCEEDS. The cash proceeds to be received upon the exercise
of an option under the Plan shall be added to the general funds of the Company
and used for such corporate purposes as the Board of Directors may determine, in
its sole discretion.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as such term is defined
in Paragraph 19) or assume the prior options of such Constituent Corporation.
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19. Definitions.
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(1) "Cause", in connection with the termination of an
optionee, shall mean (i) "cause," as such term (or any similar term,
such as "with cause") is defined in any employment or other applicable
agreement for services between the Company and such optionee, or (ii)
in the absence of such an agreement, "cause" as such term is defined in
the Contract executed by the Company and such optionee pursuant to
Paragraph 11, or (iii) in the absence of both of the foregoing, (A)
indictment of such optionee for any illegal conduct, (B) failure of
such optionee to adequately perform any of the optionee's duties and
responsibilities in any capacity held with the Company, any of its
Subsidiaries or any Parent (other than any such failure resulting
solely from such optionee's physical or mental incapacity), (C) the
commission of any act or failure to act by such optionee that involves
moral turpitude, dishonesty, theft, destruction of property, fraud,
embezzlement or unethical business conduct, or that is otherwise
injurious to the Company, any of its Subsidiaries or any Parent or any
other affiliate of the Company (or its or their respective employees),
whether financially or otherwise, (D) any violation by such optionee of
any Company rule or policy, or (E) any violation by such optionee of
the requirements of such Contract, any other contract or agreement
between the Company and such optionee or this Plan (as in effect from
time to time); in each case, with respect to subsections (A) through
(E), as determined by the Board of Directors.
(2) "change in control of the Company" shall mean any
acquisition by any corporation, person or entity, of the beneficial
ownership, directly or indirectly, of voting stock of the Corporation
resulting in such corporation, person or entity owning, directly or
indirectly, 50% or more of such voting stock. For the purpose of the
foregoing definition of change in control of the Company, any
corporation, person or other entity shall be deemed to be the
beneficial owner of any shares of voting stock of the Company (i) which
it has the right to acquire, hold or vote pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise,
or (ii) which are beneficially owned, directly or indirectly (including
shares deemed owned through application of clause (i) above), by any
other corporation, person or entity (A) with which it or its
"affiliate" or "associate" (as those terms are defined in Rule 12b-2
promulgated under the Exchange Act) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of voting stock of the Company, or (B) which is its
"affiliate" or "associate". In computing the aforesaid percentage, the
outstanding shares of voting stock of the Company shall include shares
deemed owned through application of clauses (i) and (ii) but shall not
include any other shares which may be issuable pursuant to any
agreement, or upon exercise of conversion rights, warrants or options
or otherwise.
(3) "Constituent Corporation" shall mean any corporation which
engages with the Company, its Parent or any Subsidiary in a transaction
to which Section 424(a) of the Code applies (or would apply if the
option assumed or substituted were an ISO), or any Parent or any
Subsidiary of such corporation.
(4) "Disability" shall mean a permanent and total disability
within the meaning of Section 22(e)(3) of the Code.
(5) "Legal Representative" shall mean the executor,
administrator or other person who at the time is entitled by law to
exercise the rights of a deceased or incapacitated optionee with
respect to an option granted under the Plan.
(6) "Parent" shall mean a "parent corporation" within the
meaning of Section 424(e) of the Code.
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(7) "Retirement" shall mean retirement no earlier than the
normal retirement age pursuant to any pension or retirement plan of the
Company or a Subsidiary or Parent.
(8) "Subsidiary" shall mean a "subsidiary corporation" within
the meaning of Section 424(f) of the Code.
20. GOVERNING LAW. The Plan, such options as may be granted hereunder,
the Contracts and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
or choice of law provisions.
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted.
Whenever from the context it appears appropriate, any term stated in
either the singular or plural shall include the singular and plural, and any
term stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability
of any provision in the Plan, any option or Contract shall not affect the
validity, legality or enforceability of any other provision, all of which shall
be valid, legal and enforceable to the fullest extent permitted by applicable
law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person and by proxy entitled to vote hereon at
a duly held meeting of the Company's stockholders at which a quorum is present.
No options granted hereunder may be exercised prior to such approval, provided,
however, that the date of grant of any option shall be determined as if the Plan
had not been subject to such approval. Notwithstanding the foregoing, if the
Plan is not approved by a vote of the stockholders of the Company on or before
December 31, 2001, the Plan and any options granted hereunder shall terminate.
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Appendix C
2001 DIRECTORS' STOCK OPTION PLAN
OF
BENTLEY PHARMACEUTICALS, INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
intended to provide an incentive to members and former members of the Board of
Directors who are not employees of Bentley Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), or any of its Subsidiaries (as such term is defined
in Paragraph 19), and to offer an additional inducement in obtaining the
services of such individuals. The Plan provides for the grant of nonqualified
stock options ("NQSOs") which do not qualify as "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of the Company's Common Stock, par value
$0.02 per share ("Common Stock"), for which options may be granted under the
Plan shall not exceed 500,000 (five hundred thousand) shares. Such shares of
Common Stock may, in the discretion of the Board of Directors of the Company
(the "Board of Directors"), consist either in whole or in part of authorized but
unissued shares of Common Stock or shares of Common Stock held in the treasury
of the Company. Subject to the provisions of Paragraph 13, any shares of Common
Stock subject to an option, which for any reason expires, is canceled or is
terminated unexercised or which ceases for any reason to be exercisable shall
again become available for the granting of options under the Plan. The Company
shall at all times during the term of the Plan reserve and keep available such
number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Board of Directors or by a committee (the "Committee") consisting of two or more
directors appointed by the Board of Directors. Those administering the Plan
shall be referred to herein as the "Administrators." Notwithstanding the
foregoing, if the Company is or becomes a corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the extent
necessary to comply with Rule 16b-3 promulgated under the Exchange Act, or any
successor rule ("Rule 16b-3"), any Committee appointed by the Board of Directors
to administer the Plan shall be comprised of two or more directors each of whom
shall be a "non-employee director," within the meaning of Rule 16b-3, and an
"outside director," within the meaning of Treasury Regulation Section
1.162-27(e)(3), and the delegation of powers to the Committee shall be
consistent with applicable laws and regulations (including, without limitation,
applicable state law and Rule 16b-3). Unless otherwise provided in the By-Laws
of the Company, by resolution of the Board of Directors or applicable law, a
majority of the members of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, and any acts approved in writing by all members without a meeting,
shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Administrators shall
have the authority, in their sole discretion, to determine the persons who shall
be granted options; the times when they shall receive options; the type (i.e.,
voting or non-voting) and number of shares of Common Stock to be subject to each
option; the term of each option; the date each option shall become exercisable;
whether an option shall be exercisable in whole or in installments, and, if in
installments, the number of shares of Common Stock to be subject to each
installment; whether the installments shall be cumulative; the date each
installment shall become exercisable and the term of each installment; whether
to accelerate the date of exercise of
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any option or installment; whether shares of Common Stock may be issued upon the
exercise of an option as partly paid, and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such
installments; the exercise price of each option; the form of payment of the
exercise price; the fair market value of a share of Common Stock; whether and
under what conditions to restrict the sale or other disposition of the shares of
Common Stock acquired upon the exercise of an option and, if so, whether and
under what conditions to waive any such restriction; whether and under what
conditions to subject the exercise of all or any portion of an option to the
fulfillment of certain restrictions or contingencies as specified in the
contract referred to in Paragraph 11 (the "Contract"); whether an optionee has a
Disability (as such term is defined in Paragraph 19); with the consent of the
optionee, to cancel or modify an option, provided, however, that the modified
provision is permitted to be included in an option granted under the Plan on the
date of the modification; to construe the respective Contracts and the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
approve any provision of the Plan or any option granted under the Plan or any
amendment to either which, under Rule 16b-3, requires the approval of the Board
of Directors, a committee of non-employee directors or the stockholders, in
order to be exempt under Section 16(b) of the Exchange Act (unless otherwise
specifically provided herein); and to make all other determinations necessary or
advisable for administering the Plan. Any controversy or claim arising out of or
relating to the Plan, any option granted under the Plan or any Contract shall be
determined unilaterally by the Administrators in their sole discretion. The
determinations of the Administrators on matters referred to in this Paragraph 3
shall be conclusive and binding on all parties. No Administrator or former
Administrator shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted hereunder.
4. ELIGIBILITY. The Administrators may from time to time, consistent
with the purposes of the Plan, grant options to directors who are not employees
of the Company or any of its Subsidiaries, as the Administrators may determine
in their sole discretion, or approve a formula pursuant to which such directors
are automatically granted options from time to time. Such options granted shall
cover such number of shares of Common Stock as the Administrators may determine
in their sole discretion.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Administrators in their sole
discretion, provided, however, that the exercise price shall not be less than
the fair market value of the Common Stock subject to such option on the date of
grant.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of the
Common Stock on such day as reported by such exchange or on a consolidated tape
reflecting transactions on such exchange, (b) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is
quoted on the Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price
information is available with respect to the Common Stock, the average of the
highest and lowest sales prices per share of the Common Stock on such day on
Nasdaq, or (ii) if such information is not available, the average of the highest
bid and the lowest asked prices per share for the Common Stock on such day on
Nasdaq, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on Nasdaq, the average of
the highest bid and lowest asked prices per share for the Common Stock on such
day as reported on the OTC Bulletin Board Service or by National Quotation
Bureau, Incorporated or a comparable service; provided, however, that if clauses
(a), (b) and (c) of this Paragraph 5 are all inapplicable because the Company's
Common Stock is not publicly traded, or if no trades have been made or no quotes
are available for such
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day, the fair market value of a share of Common Stock shall be determined by the
Administrators by any method consistent with any applicable regulations adopted
by the Treasury Department relating to stock options.
6. TERM. Each option granted pursuant to the Plan shall be for such
term as is established by the Administrators, in their sole discretion, at or
before the time such option is granted; provided, however, that the term of each
option granted pursuant to the Plan shall be for a period not exceeding 10 years
from the date of grant thereof. Options shall be subject to earlier termination
as hereinafter provided.
7. EXERCISE. An option (or any installment thereof), to the extent then
exercisable, shall be exercised by giving written notice to the Company at its
principal office stating which option is being exercised, specifying the number
of shares of Common Stock as to which such option is being exercised and
accompanied by payment in full of the aggregate exercise price therefor (or the
amount due on exercise if the applicable Contract permits installment payments)
(a) in cash and/or by certified check, (b) with the authorization of the
Administrators, with previously acquired shares of Common Stock having an
aggregate fair market value (determined in accordance with Paragraph 5), on the
date of exercise, equal to the aggregate exercise price of all options being
exercised, or (c) some combination thereof; provided, however, that in no case
may shares be tendered if such tender would require the Company to incur a
charge against its earnings for financial accounting purposes. The Company shall
not be required to issue any shares of Common Stock pursuant to the exercise of
any option until all required payments with respect thereto, including payments
for any required withholding amounts, have been made.
The Administrators may, in their sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of the optionee's irrevocable instructions to a
broker acceptable to the Administrators to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay such exercise price. In
connection therewith, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
An optionee shall not have the rights of a stockholder with respect to
such shares of Common Stock to be received upon the exercise of an option until
the date of issuance of a stock certificate to the optionee for such shares or,
in the case of uncertificated shares, until the date an entry is made on the
books of the Company's transfer agent representing such shares; provided,
however, that until such stock certificate is issued or until such book entry is
made, any optionee using previously acquired shares of Common Stock in payment
of an option exercise price shall continue to have the rights of a stockholder
with respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract or in the Plan, any optionee, other than a
Director Emeritus (as such term is define in Paragraph 19) whose membership on
the Board of Directors of the Company has terminated for any reason other than
the death or Disability of the optionee or the engagement of the optionee as an
employee of the Company, may exercise any option granted to the optionee, to the
extent exercisable on the date of such termination, at any time within three
months after the date of termination, but not thereafter and in no event after
the date the option would otherwise have expired; provided, however, that if
such directorship is terminated for Cause (as defined in Paragraph 19), such
option shall terminate
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immediately; provided, further, that if the optionee ceases to be a director as
the result of his removal or failure to be nominated for re-election to the
Board, or his Director Emeritus status is terminated, within three years after a
change in control of the Company (as defined in Paragraph 19), such optionee,
during the three month period after cessation of service or termination of
status, may exercise all or any part of the remaining unexercised portion of the
option notwithstanding that the option had not yet become exercisable with
respect to all or part of such shares at the date of cessation of service or
termination of status. Except hereinabove provided, in the event an optionee
shall cease to serve on the Board but shall have been designated as a Director
Emeritus, his option shall continue to be exercisable as though such Director
Emeritus continued to serve as a director.
Nothing in the Plan or in any option granted under the Plan shall
confer on any person any right to continue as a director of the Company or
interfere in any way with any right of the Company to terminate such
relationship at any time for any reason whatsoever without liability to the
Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an optionee dies (a) while he
is a member of the Board of Directors of the Company, (b) within three months
after the termination of the optionee's directorship with the Company (unless
such termination was for Cause) or (c) within one year following the termination
of such directorship by reason of the optionee's Disability, the options granted
to the optionee may be exercised, to the extent exercisable on the date of the
optionee's death, by the optionee's Legal Representative (as such term is
defined in Paragraph 19), at any time within one year after death, but not
thereafter and in no event after the date the option would otherwise have
expired. Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose directorship with the Company has terminated by
reason of the optionee's Disability may exercise such options, to the extent
exercisable upon the effective date of such termination, at any time within one
year after such date, but not thereafter and in no event after the date the
option would otherwise have expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the exercise
of any option that either (a) a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock to be issued upon such exercise shall be effective and current at the time
of exercise, or (b) there is an exemption from registration under the Securities
Act for the issuance of the shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act or to keep any Registration Statement
effective or current.
The Administrators may require, in their sole discretion, as a
condition to the grant or exercise of an option, that the optionee execute and
deliver to the Company the optionee's representations and warranties, in form,
substance and scope satisfactory to the Administrators, which the Administrators
determine is necessary or convenient to facilitate the perfection of an
exemption from the registration requirements of the Securities Act, applicable
state securities laws or other legal requirements, including without limitation,
that (a) the shares of Common Stock to be issued upon exercise of the option are
being acquired by the optionee for the optionee's own account, for investment
only and not with a view to the resale or distribution thereof, and (b) any
subsequent resale or distribution of shares of Common Stock by such optionee
will be made only pursuant to (i) a Registration Statement under the Securities
Act which is effective and current with respect to the shares of Common Stock
being sold, or (ii) a specific exemption from the registration requirements of
the Securities Act, but in claiming such exemption, the optionee,
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prior to any offer of sale or sale of such shares of Common Stock, shall provide
the Company with a favorable written opinion of counsel satisfactory to the
Company, in form, substance and scope satisfactory to the Company, as to the
applicability of such exemption to the proposed sale or distribution.
In addition, if at any time the Administrators shall determine that the
listing or qualification of the shares of Common Stock subject to such option on
any securities exchange, Nasdaq or under any applicable law, or that the consent
or approval of any governmental agency or regulatory body, is necessary or
desirable as a condition to, or in connection with, the granting of an option or
the issuance of shares of Common Stock thereunder, such option may not be
granted or exercised in whole or in part, as the case may be, unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Administrators.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee. Such Contract shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Administrators in their sole
discretion. The terms of each option and Contract need not be identical.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other
provision of the Plan, in the event of any change in the outstanding Common
Stock by reason of a stock dividend, recapitalization, merger in which the
Company is the surviving corporation, spin-off, split-up, combination or
exchange of shares or the like which results in a change in the number or kind
of shares of Common Stock which are outstanding immediately prior to such event,
the aggregate number and kind of shares subject to the Plan, and the aggregate
number and kind of shares subject to each outstanding option and the exercise
price thereof, shall be appropriately adjusted by the Board of Directors, whose
determination shall be conclusive and binding on all parties. Such adjustment
may provide for the elimination of fractional shares that might otherwise be
subject to options without payment therefor. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Paragraph 12 if such adjustment (a)
would cause the Plan to fail to comply with Rule 16b-3 of the Exchange Act (if
applicable to such option), or (b) would be considered as the adoption of a new
plan requiring stockholder approval.
In the event of a proposed dissolution or liquidation of the Company,
or in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding options, either (a)
make appropriate provision for the protection of any such outstanding options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; provided that
the excess of the aggregate fair market value of the shares subject to the
options immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to such options immediately before such substitution over the purchase
price thereof, or (b) upon written notice to an optionee, provide that all
unexercised options must be exercised within a specified number of days of the
date of such notice or they will be terminated. In any such case, the Board of
Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on March 30, 2001. No option may be granted under the Plan
after March 30, 2011. The Board of Directors, without further approval of the
Company's stockholders, may at any time suspend or
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terminate the Plan, in whole or in part, or amend it from time to time in such
respects as it may deem advisable, including without limitation, to comply with
the provisions of Rule 16b-3 or any change in applicable laws or regulations,
ruling or interpretation of any governmental agency or regulatory body;
provided, however, that no amendment shall be effective, without the requisite
prior or subsequent stockholder approval, which would (a) change the eligibility
requirements for individuals entitled to receive options hereunder, or (b) make
any change for which applicable law or any governmental agency or regulatory
body requires stockholder approval. No termination, suspension or amendment of
the Plan shall adversely affect the rights of an optionee under any option
granted under the Plan without such optionee's consent. The power of the
Administrators to construe and administer any option granted under the Plan
prior to the termination or suspension of the Plan shall continue after such
termination or during such suspension.
14. NON-TRANSFERABILITY. No option granted under the Plan shall be
transferable other than by will or the laws of descent and distribution, and
options may be exercised, during the lifetime of the optionee, only by the
optionee or the optionee's Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company may withhold (a) cash or (b) with
the consent of the Administrators (in the Contract or otherwise), shares of
Common Stock to be issued upon exercise of an option or a combination of cash
and shares, having an aggregate fair market value (determined in accordance with
Paragraph 5) equal to the amount which the Administrators determine is necessary
to satisfy the obligation of the Company to withhold Federal, state and local
income taxes or other amounts incurred by reason of the grant, vesting, exercise
or disposition of an option or the disposition of the underlying shares of
Common Stock. Alternatively, the Company may require the optionee to pay to the
Company such amount, in cash, promptly upon demand.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend
or legends upon the certificates for shares of Common Stock issued upon exercise
of an option under the Plan and may issue such "stop transfer" instructions to
its transfer agent in respect of such shares as it determines, in its sole
discretion, to be necessary or appropriate to (a) prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act,
applicable state securities laws or other legal requirements, or (b) implement
the provisions of the Plan or any agreement between the Company and the optionee
with respect to such shares of Common Stock.
The Company shall pay all issuance taxes with respect to the issuance
of shares of Common Stock upon the exercise of an option granted under the Plan,
as well as all fees and expenses incurred by the Company in connection with such
issuance.
17. USE OF PROCEEDS. The cash proceeds to be received upon the exercise
of an option under the Plan shall be added to the general funds of the Company
and used for such corporate purposes as the Board of Directors may determine, in
its sole discretion.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further
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approval by the stockholders, substitute new options for prior options of a
Constituent Corporation (as such term is defined in Paragraph 19) or assume the
prior options of such Constituent Corporation.
19. Definitions.
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(1) "Cause", in connection with the termination of an
optionee, shall mean (i) "cause," as such term (or any similar term,
such as "with cause") is defined in any agreement for services between
the Company and such optionee, or (ii) in the absence of such an
agreement, "cause" as such term is defined in the Contract executed by
the Company and such optionee pursuant to Paragraph 11, or (iii) in the
absence of both of the foregoing, (A) indictment of such optionee for
any illegal conduct, (B) failure of such optionee to adequately perform
any of the optionee's duties and responsibilities in any capacity held
with the Company, any of its Subsidiaries or any Parent (other than any
such failure resulting solely from such optionee's physical or mental
incapacity), (C) the commission of any act or failure to act by such
optionee that involves moral turpitude, dishonesty, theft, destruction
of property, fraud, embezzlement or unethical business conduct, or that
is otherwise injurious to the Company, any of its Subsidiaries or any
Parent or any other affiliate of the Company (or its or their
respective employees), whether financially or otherwise, (D) any
violation by such optionee of any Company rule or policy, or (E) any
violation by such optionee of the requirements of such Contract, any
other contract or agreement between the Company and such optionee or
this Plan (as in effect from time to time); in each case, with respect
to subsections (A) through (E), as determined by the Board of
Directors.
(2) "change in control of the Company" shall mean any
acquisition by any corporation, person or entity, of the beneficial
ownership, directly or indirectly, of voting stock of the Corporation
resulting in such corporation, person or entity owning, directly or
indirectly, 50% or more of such voting stock. For the purpose of the
foregoing definition of change in control of the Company, any
corporation, person or other entity shall be deemed to be the
beneficial owner of any shares of voting stock of the Company (i) which
it has the right to acquire, hold or vote pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise,
or (ii) which are beneficially owned, directly or indirectly (including
shares deemed owned through application of clause (i) above), by any
other corporation, person or entity (A) with which it or its
"affiliate" or "associate" (as those terms are defined in Rule 12b-2
promulgated under the Exchange Act) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of voting stock of the Company, or (B) which is its
"affiliate" or "associate". In computing the aforesaid percentage, the
outstanding shares of voting stock of the Company shall include shares
deemed owned through application of clauses (i) and (ii) but shall not
include any other shares which may be issuable pursuant to any
agreement, or upon exercise of conversion rights, warrants or options
or otherwise.
(3) "Constituent Corporation" shall mean any corporation which
engages with the Company, its Parent or any Subsidiary in a transaction
to which Section 424(a) of the Code applies, or any Parent or any
Subsidiary of such corporation.
(4) "Director Emeritus" shall mean an honorary title granted
by majority vote of the members of the Board then serving.
(5) "Disability" shall mean a permanent and total disability
within the meaning of Section 22(e)(3) of the Code.
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(6) "Legal Representative" shall mean the executor,
administrator or other person who at the time is entitled by law to
exercise the rights of a deceased or incapacitated optionee with
respect to an option granted under the Plan.
(7) "Parent" shall mean a "parent corporation" within the
meaning of Section 424(e) of the Code.
(8) "Subsidiary" shall mean a "subsidiary corporation" within
the meaning of Section 424(f) of the Code.
20. GOVERNING LAW. The Plan, such options as may be granted hereunder,
the Contracts and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
or choice of law provisions.
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability
of any provision in the Plan, any option or Contract shall not affect the
validity, legality or enforceability of any other provision, all of which shall
be valid, legal and enforceable to the fullest extent permitted by applicable
law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person and by proxy entitled to vote hereon at
a duly held meeting of the Company's stockholders at which a quorum is present.
No options granted hereunder may be exercised prior to such approval, provided,
however, that the date of grant of any option shall be determined as if the Plan
had not been subject to such approval. Notwithstanding the foregoing, if the
Plan is not approved by a vote of the stockholders of the Company on or before
December 31, 2001, the Plan and any options granted hereunder shall terminate.
BENTLEY PHARMACEUTICALS, INC.
ANNUAL MEETING OF STOCKHOLDERS - MAY 9, 2001
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of Common Stock of Bentley Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), hereby appoints James R. Murphy,
Michael D. Price and Jordan A. Horvath and each of them, as proxies for the
undersigned, each with full power of substitution, for and in the name of the
undersigned to act for the undersigned and to vote, as designated below, all of
the shares of stock of the Company that the undersigned is entitled to vote at
the 2001 Annual Meeting of Stockholders of the Company, to be held on Wednesday,
May 9, 2001, at 11:00 a.m., local time, at the Hyatt Harborside Hotel at
Boston's Logan International Airport located at 101 Harborside Drive, Boston,
Massachusetts 02128 and at any adjournments or postponements thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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1. The election of Class II Directors until the 2004 Annual Meeting of
Stockholders, or until the election and qualification of their respective
successors:
|_| FOR ALL NOMINEES |_| WITHHOLD AUTHORITY to vote for all nominees
(INSTRUCTION: To withhold authority for any Nominees: Charles L. Bolling
individual nominee, strike a line through the Robert J. Gyurik
nominee's name on the list at right.) William A. Packer
2. The proposal to approve the Company's 2001 Employee Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. The proposal to approve the Company's 2001 Directors' Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Upon such other matters as may properly come before the Annual Meeting and
any adjournments or postponements thereof. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
Annual Meeting and any adjournments or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF ALL CLASS II DIRECTOR NOMINEES LISTED ABOVE AND
"FOR" PROPOSALS 2 AND 3.
The undersigned hereby acknowledges receipt of (i) the Notice of Annual Meeting,
(ii) the Proxy Statement and (iii) the Company's 2000 Annual Report.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED. NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
_________________________________
Signature
_________________________________
Print Full Name
_________________________________
Signature
________________________________
Print Full Name
Dated: ______________________, 2001
NOTE: Please sign exactly as your name appears hereon and mail it promptly. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
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