SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
Bentley Pharmaceuticals, Inc.
--------------------------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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BENTLEY PHARMACEUTICALS, INC.
BENTLEY PARK
2 HOLLAND WAY
EXETER, NH 03833
___________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 2003
___________
Exeter, NH
April 17, 2003
To the Stockholders of Bentley Pharmaceuticals, Inc.:
NOTICE IS HEREBY GIVEN that the 2003 Annual Meeting (the "Meeting") of
Stockholders of BENTLEY PHARMACEUTICALS, INC., a Delaware corporation (the
"Company"), will be held on Wednesday, May 21, 2003 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 I Directors to serve until the 2006 Annual
Meeting of Stockholders, or until the election and qualification of
their respective successors;
(2) A proposal to approve an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of the Company's Common Stock to 100,000,000 shares;
(3) A proposal to approve an amendment to the Company's 2001 Employee
Stock Option Plan to increase the number of shares authorized for
issuance under the plan by 1,500,000;
(4) A proposal to approve an amendment to the Company's 2001 Directors'
Stock Option Plan to increase the number of shares authorized for
issuance under the plan by 500,000; and
(5) 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 14,
2003 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 Bentley Park, 2 Holland Way, Exeter, New Hampshire 03833.
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.
BENTLEY PARK
2 HOLLAND WAY
EXETER, NH 03833
_________________________
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 2003
_________________________
This Proxy Statement, to be mailed to stockholders on or about April
17, 2003, 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 2003 Annual Meeting of Stockholders of the Company to be held on
Wednesday May 21, 2003 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. 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, Bentley Park, 2 Holland Way,
Exeter, New Hampshire 03833, 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
14, 2003 (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 17,457,601
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 will be required for the election of Directors
(Proposal 1). The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock will be required to approve the amendment to
the Company's Restated Certificate of Incorporation (Proposal 2). The
affirmative vote of the holders of a majority of the votes cast at the Meeting
will be required to approve the amendment to the Employee Stock Option Plan
(Proposal 3) and the amendment to the Directors' Stock Option Plan (Proposal 4).
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 or to amend the Employee Stock Option Plan or the Directors'
Stock Option Plan. Shares of Common Stock that are voted to abstain and shares
which are subject to broker non-votes will have the same effect as negative
votes with respect to the proposal to amend the Company's Restated Certificate
of Incorporation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 2003 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, (ii) 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.
Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
securities beneficially owned by them. Beneficial ownership exists when a person
either has the power to vote or sell common stock. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days from the applicable date, whether upon the exercise of options or
otherwise. Except as otherwise indicated, the address for those beneficial
holders who own more than 5% of the Company's Common Stock is the address for
the Company's headquarters.
NUMBER OF SHARES OF COMMON PERCENTAGE OF
STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
------------------------------------ ------------------ -------------
Michael McGovern(1)............................................... 2,883,428 15.17%
Director
5910 Long Island Drive
Atlanta, GA 30328
Salomon Smith Barney Inc.(2)...................................... 1,695,843 9.71%
Salomon Brothers Holding Company Inc. (2)
Salomon Smith Barney Holdings Inc. (2)
388 Greenwich Street
New York, NY 10013
Smith Barney Fund Management LLC (2)
333 West 34th Street
New York, NY 10001
Citigroup Inc.(2)
399 Park Avenue
New York, NY 10043
James R. Murphy(3)................................................ 977,363 5.34%
Chairman of the Board, President, Chief Executive
Officer and Director
Robert M. Stote, M.D.(4).......................................... 655,615 3.63%
Senior Vice President, Chief Science Officer and Director
Michael D. Price(5)............................................... 561,297 3.12%
Vice President, Chief Financial Officer, Secretary,
Treasurer and Director
Robert J. Gyurik(6)............................................... 200,777 1.14%
Vice President of Pharmaceutical Development and
Director
Jordan A. Horvath(7).............................................. 122,537 *
Vice President and General Counsel
(table continues on next page)
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NUMBER OF SHARES OF COMMON PERCENTAGE OF
STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER (continued) BENEFICIALLY OWNED OUTSTANDING
------------------------------------ ------------------ -------------
Charles L. Bolling(8)............................................. 118,528 *
Director
Miguel Fernandez(9)............................................... 95,068 *
Director
William A. Packer(10)............................................. 87,800 *
Director
John W. Spiegel (11).............................................. 1,000 *
Director
All executive officers and directors as a group
(10 persons)(12).................................................. 5,703,413 26.51%
---------------------------------
* Less than one percent
(1) Includes 1,313,500 shares of the Company's Common Stock issuable upon
exercise of Class B Warrants, 219,200 shares of the Company's Common Stock
issuable upon exercise of vested stock options and 15,000 shares of the
Company's Common Stock issuable upon exercise of stock options that become
exercisable within 60 days. Excludes 130,000 shares of the Company's
Common Stock issuable upon exercise of stock options which are not vested.
(2) The number of shares is based on information contained in Schedule 13G,
dated February 13, 2003. Salomon Smith Barney Inc., Salomon Brothers
Holding Company Inc., Salomon Smith Barney Holdings Inc., Smith Barney
Fund Management LLC and Citigroup Inc. filed the Schedule 13G as a group,
indicating shared voting and dispositive power of certain of the
securities held.
(3) Includes 100 shares of the Company's Common Stock owned by Mr. Murphy's
son, as to which Mr. Murphy disclaims beneficial ownership, and 5,776
shares of the Company's Common Stock held in Mr. Murphy's 401(k)
Retirement Plan. Also includes 853,000 shares of the Company's Common
Stock issuable upon exercise of vested stock options and 1,500 shares of
the Company's Common Stock issuable upon exercise of Class B Warrants.
Excludes 100,000 shares of the Company's Common Stock issuable upon
exercise of stock options which are not vested.
(4) Includes 5,765 shares of the Company's Common Stock held in Dr. Stote's
401(k) Retirement Plan, 596,250 shares of the Company's Common Stock
issuable upon exercise of vested stock options and 5,000 shares of the
Company's Common Stock issuable upon exercise of Class B Warrants.
Excludes 33,750 shares of the Company's Common Stock issuable upon
exercise of stock options which are not vested.
(5) Includes 5,595 shares of the Company's Common Stock held in Mr. Price's
401(k) Retirement Plan. Also includes 521,500 shares of the Company's
Common Stock issuable upon exercise of vested stock options. Excludes
50,000 shares of the Company's Common Stock issuable upon exercise of
stock options which are not vested.
(6) Includes 9,970 shares of the Company's Common Stock and 1,000 shares of
the Company's Common Stock issuable upon exercise of Class B Warrants
owned by Mr. Gyurik's IRA and 4,307 shares of the Company's Common Stock
held in Mr. Gyurik's 401(k) Retirement Plan. Also includes 139,500 shares
of the Company's Common Stock issuable upon exercise of vested stock
options. Excludes 90,000 shares of the Company's Common Stock issuable
upon exercise of stock options which are not vested.
(footnotes continue on next page)
3
(7) Includes 110,000 shares of the Company's Common Stock issuable upon
exercise of vested stock options and 3,237 shares of the Company's Common
Stock held in Mr. Horvath's 401(k) Retirement Plan. Excludes 85,000 shares
of the Company's Common Stock issuable upon exercise of stock options
which are not vested.
(8) Includes 95,528 shares of the Company's Common Stock issuable upon
exercise of vested stock options and 15,000 shares of the Company's Common
Stock issuable upon exercise of stock options that become exercisable
within 60 days. Excludes 15,000 shares of the Company's Common Stock
issuable upon exercise of stock options which are not vested.
(9) Includes 72,100 shares of the Company's Common Stock issuable upon
exercise of vested stock options and 15,000 shares of the Company's Common
Stock issuable upon exercise of stock options that become exercisable
within 60 days. Excludes 15,000 shares of the Company's Common Stock
issuable upon exercise of stock options which are not vested.
(10) Includes 72,100 shares of the Company's Common Stock issuable upon
exercise of vested stock options and 15,000 shares of the Company's Common
Stock issuable upon exercise of stock options that become exercisable
within 60 days. Excludes 15,000 shares of the Company's Common Stock
issuable upon exercise of stock options which are not vested.
(11) Excludes 30,000 shares of the Company's Common Stock issuable upon
exercise of stock options which are not vested.
(12) Includes 100 shares of the Company's Common Stock owned by a family member
of a certain executive officer and director, as to which such executive
officer and director disclaims beneficial ownership. Also includes
2,679,178 shares of the Company's Common Stock issuable upon exercise of
vested stock options, 60,000 shares of the Company's Common Stock that
become exercisable within 60 days, 1,320,000 shares of the Company's
Common Stock issuable upon exercise of Class B Warrants, 24,680 shares of
the Company's Common Stock held in 401(k) Retirement Plan accounts of
various executive officers and 9,970 shares of the Company's Common Stock
and 1,000 shares of the Company's Common Stock issuable upon exercise of
Class B Warrants held by the IRA account of an executive officer. Excludes
563,750 shares of the Company's Common Stock issuable upon exercise of
stock options which are not vested.
4
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 I
below are being presented for election as Class I Directors to hold office until
the 2006 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 persons listed under the heading "Nominees" below as
Directors. The nominees have indicated to the Company their availability for
election; Messrs. McGovern, Price and Spiegel 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.
Each of the nominees was nominated by the Company's Corporate
Governance and Compensation Committee, which also functions as a nominating
committee. This committee consists solely of directors who are not employees of
the Company.
The following information is furnished with respect to the nominees
and each other continuing member of the Company's Board of Directors.
YEAR
POSITIONS WITH FIRST
THE COMPANY CLASS OF BECAME
NAME AGE PRESENTLY HELD DIRECTOR DIRECTOR
---- --- -------------- -------- --------
NOMINEES:
Michael McGovern 59 Vice Chairman and Director I 1997
Michael D. Price 45 Vice President, Chief Financial I 1995
Officer, Secretary, Treasurer
and Director
John W. Spiegel 62 Director I 2002
DIRECTORS WHOSE TERMS OF OFFICE
CONTINUE AFTER THE MEETING(1):
Charles L. Bolling 79 Director II 1991
Robert J. Gyurik 56 Vice President of Pharmaceutical II 1998
Development and Director
William A. Packer 68 Director II 1999
Miguel Fernandez 72 Director III 1999
James R. Murphy 53 Chairman of the Board, President, III 1993
Chief Executive Officer and Director
5
Robert M. Stote, M.D. 63 Senior Vice President, Chief III 1993
Science Officer and Director
---------------------------------
(1) Class II Directors hold office until the 2004 Annual Meeting of
Stockholders. Class III Directors hold office until the 2005 Annual Meeting
of Stockholders.
BACKGROUND OF NOMINEES
MICHAEL MCGOVERN has served as one of the Company's directors since
1997 and was named Vice Chairman of the Company in October 1999. Mr. McGovern
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 Specialty Surgicenters, Inc., is Vice Chairman of the
Board of Employment Technologies, Inc. and is a Director on the corporate boards
of 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.
MICHAEL D. PRICE became Chief Financial Officer, Vice
President/Treasurer and Secretary of the Company in October 1993, April 1993 and
November 1992, respectively, and has served as one of the Company's directors
since 1995. He has served the Company in other capacities since March 1992.
Prior to joining the Company, he was employed as a financial and management
consultant with Carr Financial Group from March 1990 to March 1992. Prior
thereto, he was employed as Vice President of Finance with Premiere Group, Inc.
from June 1988 to February 1990. Prior thereto, Mr. Price was employed by Price
Waterhouse (now PriceWaterhouseCoopers) 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 licensed by the State of Florida.
JOHN W. SPIEGEL has served as one of the Company's directors since June
2002. Mr. Spiegel has served as Vice Chairman and Chief Financial Officer of
SunTrust Banks, Inc. since August 2000. Prior to August 2000, Mr. Spiegel was an
Executive Vice President and Chief Financial Officer of SunTrust Banks from
1985. Mr. Spiegel also serves as Chairman of the Board of the Bank
Administration Institute and on the Board of Directors of Rock-Tenn Company
(RKT), the Woodruff Arts Center, the High Museum of Art, the American
Cardiovascular Research Institute, and the Children's Healthcare of Atlanta. Mr.
Spiegel is also a member of the Dean's Advisory Council of the Goizueta Business
School at Emory University. Mr. Spiegel received an MBA from Emory University.
BACKGROUND OF CONTINUING DIRECTORS
CHARLES L. BOLLING has served as one of the Company's directors since
1991. Mr. 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 SmithKline & French Laboratories. Mr. Bolling received an
A.B. from Princeton University. Mr. Bolling has been retired since 1986.
ROBERT J. GYURIK has served as one of the Company's directors since
1998 and became Vice President of Pharmaceutical Development of the Company in
March 1999. Mr. Gyurik was Manager of Development and Quality Control at
MacroChem Corporation, a position he held from May 1993 to February 1999. From
1971 to 1993 Mr. Gyurik worked in various research and development positions at
SmithKline Beecham. Prior thereto, Mr. Gyurik worked at Schering as a Medicinal
Chemist. Mr. Gyurik 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.
6
WILLIAM A. PACKER has served as one of the Company's directors since
1999. Mr. 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, 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.
MIGUEL FERNANDEZ has served as one of the Company's directors since
1999. Mr. 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 & French,
where his last position was President of the division that included France,
Portugal and Switzerland. Before SmithKline, 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 attended the
University of British Columbia in Canada and received an M.B.A. from the Ivey
School of Business at the University of Western Ontario in London, Ontario,
Canada. Mr. Fernandez has been retired since 1996.
JAMES R. MURPHY has served as one of the Company's directors since
1993. Mr. Murphy became President of the Company in September 1994, was named
Chief Executive Officer effective January 1995 and became Chairman of the Board
in June 1995. Prior to rejoining the Company, Mr. Murphy served as Vice
President of Business Development at MacroChem Corporation, a publicly owned
pharmaceutical and drug delivery company, from March 1993 through September
1994. From September 1992 until March 1993, Mr. Murphy served as a consultant in
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 pharmaceutical research
and product development with SmithKline Corporation and in international
business development with contract research and consulting laboratories. Mr.
Murphy received a B.A. in Biology from Millersville University.
ROBERT M. STOTE, M.D. became Senior Vice President and Chief Science
Officer of the Company in March 1992 and has served as one of the Company's
directors since 1993. Prior to joining the Company, Dr. Stote was employed for
20 years by SmithKline Beecham Corporation serving in a variety of executive
clinical research positions. 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 also serves as a Director
of Datatrak International, 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.
COMMITTEES OF THE BOARD OF DIRECTORS; BOARD OF DIRECTORS MEETINGS
The Board of Directors has an Audit Committee, a Corporate Governance
and Compensation Committee (which also serves as an independent nominating
committee), a Strategic Planning Committee and a Product Management Committee.
The Audit Committee is directly responsible for the appointment,
compensation, retention and oversight of independent auditors which audit the
Company's consolidated financial statements, reviewing the Company's internal
control procedures and advising the Company on tax and other matters connected
with the finances and reporting obligations of the Company. The Audit Committee
also
7
reviews with management the annual audit and other work performed by the
independent auditors. The Audit Committee currently consists of Messrs. Miguel
Fernandez, John Spiegel and William Packer (chairman). All members of the audit
committee are independent directors. While the Company is continuing to evaluate
the new rules relating to audit committees, it believes that at least one of the
members of the audit committee meets the definition of an "audit committee
financial expert."
The Corporate Governance and Compensation Committee acts as a
nominating committee to select potential candidates to nominate for the Board.
The Committee also works on the development of the Company's corporate
governance principles. It is undertaking a review of the Company's corporate
governance, including its codes of conduct, evaluations of the Board and its
committees and other areas of governance. The Committee administers the
Company's 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 $250,000 annually. The
Corporate Governance and Compensation Committee currently consists of Messrs.
Miguel Fernandez, Michael McGovern (chairman) and John Spiegel.
The Strategic Planning Committee advises the Board and Management with
respect to the strategic direction of the Company. The Product Management
Committee advises the Board and Management with respect to acquisitions and
dispositions of products for development or sale. The Strategic Planning
Committee currently consists of Messrs. Charles Bolling, Miguel Fernandez
(chairman), James Murphy and William Packer. The Product Management Committee
currently consists of Messrs. Charles Bolling, Michael McGovern, James Murphy
(chairman) and Robert Stote.
During 2002, the Board of Directors held 8 meetings and acted by
unanimous written consent three times, the Audit Committee held 6 meetings, the
Corporate Governance and Compensation Committee held 5 meetings, the Strategic
Planning Committee held 1 meeting and the Product Management Committee held 1
meeting. 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 2002 and meetings of each Committee on which such Director served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Corporate Governance and Compensation Committee
during 2002 were Messrs. Charles L. Bolling, Miguel Fernandez, Michael McGovern,
John W. Spiegel and William A. Packer, all of whom were at the time of service
non-employee Directors. No member of the Corporate Governance and 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 pays Directors who are not employees fees consisting of a
$10,000 annual retainer, $2,500 for each in-person meeting of the Board of
Directors, $500 for each telephone meeting and $500 for each committee meeting
attended which does not take place on the same day as board meetings, in
addition to reimbursing expenses incurred in attending meetings. Each Director
who is not an employee is automatically granted options to purchase 15,000
shares of the Company's Common Stock upon his or her election to the board and
annually on the date of each of the Company's annual stockholders' meeting
during his or her term. Each Director also has the option to receive options to
purchase an additional 15,000 shares of the Company's Common Stock in lieu of
the $10,000 annual retainer. For his additional time and effort, Mr. McGovern,
the Company's Vice Chairman, was awarded additional options to purchase 100,000
shares of Common Stock during 2002. During 2002, options to purchase 250,000
shares of Common Stock were granted to all Directors who are not employees at
exercise prices ranging from $9.80 to $11.72 per share, representing not less
than the fair market value of the Common Stock on the dates of the grants.
8
These options expire on dates ranging from February 12, 2012 to June 21, 2012.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation for 2000, 2001
and 2002 paid to or accrued by the Company for the Chief Executive Officer and
the executive officers at December 31, 2002 whose total cash compensation in
2002 exceeded $100,000. Except as provided in the table below or otherwise
discussed below, the Company paid no other compensation to them.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
---------------------------------- ------------------------ --------
Securities
Other Restricted Underlying LTIP All
Annual Stock Options/ Payouts Other
Name and Principal Position Year Salary($) Bonus($) Comp.($)(1) Awards($) SARs(#) ($) Comp.
--------------------------- ---- ------- --------- ----------- --------- --------- ------ ------
James R. Murphy (2)........ 2002 $475,000 $175,000 $12,000 --- --- --- $71,745
Chairman of the Board, 2001 $390,000 $100,000 $12,000 --- --- --- $70,135
President, Chief Executive 2000 $366,923 $170,000 $12,000 --- --- --- $11,984
Officer and Director
Robert M. Stote (3)........ 2002 $193,490 $ 25,000 --- --- --- --- $17,950
Senior Vice President, Chief 2001 $121,752 $ 15,000 --- --- --- --- $12,336
Science Officer and Director 2000 $ 94,589 $ 15,000 --- --- --- --- $12,336
Michael D. Price (4)....... 2002 $240,000 $ 75,000 --- --- --- --- $23,282
Vice President, Chief 2001 $212,000 $ 50,000 --- $39,313 --- --- $22,114
Financial Officer, Treasurer, 2000 $188,685 $ 30,000 --- --- --- --- $11,007
Secretary and Director
Robert J. Gyurik (5)....... 2002 $210,000 $ 80,000 --- --- --- --- $44,563
Vice President of 2001 $175,000 $ 50,000 --- --- --- --- $42,081
Pharmaceutical Development 2000 $138,903 $ 30,000 --- --- --- --- $10,973
and Director
Jordan A. Horvath (6)...... 2002 $331,250 $ 25,000 --- --- --- --- $12,217
Vice President and 2001 $304,500 --- --- --- --- --- $10,757
General Counsel 2000 $112,734 --- --- --- --- --- $ 16
---------------------------
(1) The value of perquisites provided to the named executive officers did not
exceed $50,000 or 10% of total compensation in any case.
(2) "All Other Compensation" for Mr. Murphy includes:
o in 2002 and 2001, principal and interest of $55,647 and $55,537,
respectively, forgiven on a loan made by the Company to Mr. Murphy in
2000 to assist Mr. Murphy's payment of taxes on shares of the
Company's Common Stock awarded by the Company to him in 1999;
o matching contributions in shares of the Company's Common Stock to Mr.
Murphy's 401(k) plan valued at $12,000 in 2002, $10,500 in 2001 and
$9,530 in 2000;
o matching contributions in cash to Mr. Murphy's 401(k) plan in the
amount of $970 in 2000; and
o life insurance premiums of $4,098 in 2002 and 2001 and $1,484 in 2000.
(3) "All Other Compensation" for Dr. Stote includes:
o matching contributions in shares of the Company's Common Stock to Dr.
Stote's 401(k) plan valued at $12,000 in 2002, $10,500 in 2001 and
$10,217 in 2000;
o matching contributions in cash to Dr. Stote's 401(k) plan in the
amount of $283 in 2000; and
o life insurance premiums of $5,950 in 2002, and $1,836 in 2001 and
2000.
(4) "All Other Compensation" for Mr. Price includes:
o in 2002 and 2001, principal and interest of $11,129 and $11,107,
respectively, forgiven on a loan made by the Company to Mr. Price in
2000 to assist Mr. Price's payment of taxes on shares of the Company's
Common Stock awarded by the Company to him in 1999;
(footnotes continue on next page)
9
o matching contributions in shares of the Company's Common Stock to Mr.
Price's 401(k) plan valued at $11,000 in 2002, $10,500 in 2001 and
$9,949 in 2000;
o matching contributions in cash to Mr. Price's 401(k) plan in the
amount of $551 in 2000; and
o life insurance premiums of $1,153 in 2002, and $507 in 2001 and 2000.
(5) "All Other Compensation" for Mr. Gyurik includes:
o in 2002 and 2001, principal and interest of $31,091 and $31,030,
respectively, forgiven on a loan made by the Company to Mr. Gyurik in
2000 to assist Mr. Gyurik's payment of taxes on shares of the
Company's Common Stock awarded by the Company to him in 1999;
o matching contributions in shares of the Company's Common Stock to Mr.
Gyurik's 401(k) plan valued at $12,000 in 2002, $10,500 in 2001 and
$10,237 in 2000;
o matching contributions in cash to Mr. Gyurik's 401(k) plan in the
amount of $263 in 2000; and
o life insurance premiums of $1,472 in 2002, $551 in 2001 and $473 in
2000.
(6) Mr. Horvath joined the Company in August 2000. "All Other Compensation"
for Mr. Horvath includes:
o matching contributions in shares of the Company's Common Stock to Mr.
Horvath's 401(k) plan valued at $11,000 in 2002 and $10,500 in 2001;
and
o life insurance premiums of $1,217 in 2002, $257 in 2001 and $16 in
2000.
The Company has entered into employment agreements with each of Messrs.
Murphy, Stote, Price, Gyurik and Horvath which set forth their relationships
with the Company. The agreements expire on December 31, 2003 and renew annually
for one year terms. Under the agreements, each individual is paid a base salary
and provided with life insurance, with salary increases, bonuses and stock
option grants at the discretion of the board's compensation committee (except
for Mr. Murphy's agreement, which provides for a minimum stock option grant of
50,000 options per annum and Mr. Horvath's initial agreement, which provides for
minimum salary increases of 5% per year). All employees are full time, with the
exception of Dr. Stote who is a part-time employee.
The agreements may be terminated on one year's notice and, if
terminated earlier without cause, upon payment of severance equal to one year's
salary, a bonus equal to the greater of the employee's bonus for the current
year or bonus for the prior year and vesting of options based on the number of
months' employment during the vesting period. If the employee is terminated
within 12 months of a change of control of the Company, or if the employee
terminates his employment within 12 months after a change of control because his
job changes, the Company breaches his employment agreement or he is required to
move his residence, then the severance is increased to twice his annual salary,
twice the average of bonuses in the prior two years, immediate vesting of all
stock options and continuation of health benefits for two years (or until
receiving comparable benefits from another employer), and the option to keep in
place life insurance at the employee's expense. No severance is paid on a
termination for cause. In Mr. Murphy's agreement, severance following a change
in control is 2.99 times salary. Mr. Horvath's initial agreement provides that,
on termination without cause, severance will be two years' salary and
acceleration of all options and, following a termination after a change of
control, severance will be 2.99 times salary and bonus.
STOCK OPTION PLANS
1991 Stock Option Plan. The Company's 1991 Stock Option Plan was
adopted in 1991 and was amended several times to increase the number of shares
issuable under it to a total of 1,000,000. While no options could be granted
under the 1991 plan after September 30, 2001, all options granted prior to that
date continued to vest and remain outstanding in accordance with the terms of
the 1991 Plan.
2001 Employee Stock Option Plan. The Company's 2001 Employee Stock
Option Plan was adopted and approved in 2001. The Company may issue incentive
stock options, as defined in the Internal Revenue Code of 1986, or non-qualified
stock options to purchase up to 1,000,000 shares of the Company's Common Stock
to the Company's employees under this plan. During 2002, options to purchase
142,000 shares of the Company's Common Stock were granted to employees who are
not executive officers. Such
10
options were granted at prices ranging from $8.30 to $11.72 per share,
representing the fair market value of the Company's Common Stock on the dates of
grant. These options expire on various dates ranging from January 3, 2012 to
October 2, 2012. See Proposal 3 below for a further description of this plan and
a proposal to amend this plan to increase the number of shares issuable upon
exercise of options which may be granted under the plan.
2001 Directors' Stock Option Plan. The Company's 2001 Directors' Stock
Option Plan was adopted and approved in 2001. The Company may issue
non-qualified stock options to purchase up to 500,000 shares of the Company's
Common Stock to the Company's Directors under this plan. See Proposal 4 below
for a further description of this plan and a proposal to amend this plan to
increase the number of shares issuable upon exercise of options which may be
granted under the plan.
The following table sets forth the details of options granted to the
individuals listed in the Summary Compensation table during 2002. No stock
appreciation rights have been granted to date.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
----------------------------------------------------------- ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERMS
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ------------ -------------- --------- ---- ----- ------
James R. Murphy ...... 100,000 14.3% $9.79 1/3/12 $615,688 $1,560,274
Robert M. Stote, M.D.. 37,500 5.4% $8.93-$9.79 1/3-2/27/12 $226,803 $ 574,763
Michael D. Price ..... 50,000 7.1% $9.79 1/3/12 $307,844 $ 780,137
Robert J. Gyurik...... 100,000 14.3% $9.79 1/3/12 $615,688 $1,560,274
Jordan A. Horvath..... 20,000 2.9% $9.79 1/3/12 $123,138 $ 312,055
The following table sets forth certain information for each of the
individuals listed in the Summary Compensation Table concerning the number and
value realized on exercise of stock options during 2002 and the number and value
at December 31, 2002 of shares of the Company's Common Stock subject to
unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT FY-END OPTIONS/SARS
ACQUIRED (# SHARES) AT FY-END($)(1)
ON VALUE ---------- ---------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- ---------- ----------- ------------- ----------- -------------
James R. Murphy................... --- --- 803,000 100,000 $3,104,050 ---
Robert M. Stote, M.D.............. --- --- 577,500 37,500 $2,345,166 ---
Michael D. Price.................. --- --- 496,500 50,000 $1,945,207 ---
Robert J. Gyurik.................. 500 $3,650 89,500 100,000 $ 190,225 ---
Jordan A. Horvath................. --- --- 100,000 70,000 $ 30,000 $15,000
--------------
(1) Based on the difference between the closing price per share of the
Company's Common Stock on December 31, 2002 and the option exercise prices.
11
No long-term incentive plan awards were granted to the individuals
listed in the Summary Compensation table during 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 2002, all Section 16(a)
filing requirements have been satisfied, with the exception that Robert J.
Gyurik, Vice President of Pharmaceutical Development and a Director, reported
one transaction late and Miguel Fernandez, a Director, reported four
transactions late.
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% and 15%
of their respective total annual income from the Company, subject to maximums
set by U.S. tax law. All 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. Employees' cash contributions
are fully vested and nonforfeitable. The Company made matching contributions to
the 401(k) Plan in 2002 by granting 9,320 shares of the Company's Common Stock
valued at $92,155. The Company currently matches 100% of each eligible
employee's contribution in 2003 with shares of the Company's Common Stock. All
of the Company's matching contributions vest 25% each year for the first four
years of each employee's employment.
EQUITY COMPENSATION PLANS
The following table sets forth certain information as of December 31,
2002 with respect to the Company's equity compensation plans:
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE REMAINING AVAILABLE FOR
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING FUTURE ISSUANCE
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND UNDER EQUITY COMPENSATION
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS PLANS
------------- ------------------- ------------------- -----------------------
Equity compensation plans
approved by security
holders........................ 3,459,428 $6.07 308,500
Equity compensation plans not
approved by security
holders(1)..................... 650,000 $3.31 ---
------- ----- ---
Total..................... 4,109,428 $5.64 308,500
========= ===== =======
---------------------------
(1) Includes options to purchase 20,000 shares of Common Stock exercisable at
$20.00 per share granted to a former officer and director of the Company
as termination compensation, warrants to purchase 230,000 shares of
Common Stock exercisable at $5.00 per share upon exercise of Class B
Warrants issued to the underwriter of the Company's 1996 public offering,
and warrants to purchase 400,000 shares of Common Stock exercisable at
$1.50 per share issued to the seller of various patent rights and
technology that the Company acquired.
12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 2000 the Company made loans to three executive officers to
assist each of them in making their income tax payments for shares of the
Company's Common Stock which the Company granted to them in 1999. The Company
loaned $250,000 to Mr. Murphy, $50,000 to Mr. Price and $140,000 to Mr. Gyurik.
The loans had an interest rate of 2.37% annually, were due in March 2003 and
were secured by shares of the Company's Common Stock owned by the three
individuals (Mr. Murphy, 18,700 shares; Mr. Price, 4,000 shares; Mr. Gyurik,
10,700 shares). Interest on the loans accrued quarterly. In December 2001,
January 2002 and March 2003, the Company agreed to forgive part of the principal
and interest on the loans as detailed in the following chart. There are no
further amounts currently due on these loans. All of the amounts forgiven are
considered taxable income to the three individuals.
JAMES R. MURPHY MICHAEL D. PRICE ROBERT J. GYURIK
--------------- ---------------- ----------------
Initial amount of loan.............................. $250,000 $50,000 $140,000
Principal forgiven in December 2001............... 27,850 5,570 15,879
Interest forgiven in December 2001................ 27,687 5,537 15,151
Principal forgiven in January 2002................ 55,209 11,042 30,847
Interest forgiven in January 2002................. 439 88 245
Principal forgiven in March 2003.................. 166,941 33,388 93,274
Interest forgiven in March 2003................... 4,813 963 2,689
Balance due at March 31, 2003....................... $0 $0 $0
13
AUDIT COMMITTEE REPORT
In accordance with its charter adopted by the Board of Directors, 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 is directly responsible for the appointment,
compensation, retention and oversight of Deloitte & Touche, LLP, the Company's
independent auditors, to help assure the quality of the Company's financial
reporting and control systems. In addition, the Audit Committee facilitates
communication among the Board of Directors, the independent auditors and the
Company's management relating to financial and control issues and approves any
non-audit services to be rendered by the auditors.
During 2002 the Audit Committee met six times and the committee chair,
as representative of the committee, and members of the committee held
discussions with the chief financial officer, independent auditors and legal
counsel from time to time throughout the year.
Auditor Independence and 2002 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.
2002 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, 2002 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, 2002 for
filing with the Securities and Exchange Commission.
FEES
Audit Fees. The aggregate fees billed for professional services
rendered by the independent auditors in 2002 for the audit of the Company's
financial statements as of and for the year ended December 31, 2002, the review
of the financial statements in the Company's Form 10-Q filings for the year, the
statutory audit of the Company's subsidiaries, the Company's filings with the
Securities and Exchange Commission and other audit fees were $323,791.
Audit Related Fees. The aggregate audit related fees billed for
professional services by the independent auditors in 2002 rendered for due
diligence reviews of potential acquisitions and other matters were $40,141.
14
Tax Fees. The aggregate tax fees billed for professional services
rendered by the independent auditors in 2002 for tax compliance, tax advice, tax
planning and other tax-related matters were $72,650.
All Other Fees. No other fees were paid to the independent auditors
during 2002.
The Audit Committee considered whether, and has determined that, the
provision of these services is compatible with maintaining the independent
auditors' independence. The independent auditors did not provide professional
services during 2002 for the operation of the Company's information systems or
financial system design and implementation.
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. Securities 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 A. Packer, Chairman
Miguel Fernandez
John W. Spiegel
15
COMPENSATION COMMITTEE REPORT
The Corporate Governance and Compensation Committee of the Board of
Directors (the "Compensation Committee") 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 $250,000.
The compensation levels of such officers, directors and employees are subject to
the approval of the Board of Directors. All of the members of the Compensation
Committee are Directors who are not employees of the Company.
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 and
shares of Common Stock.
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, cash and stock 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 has 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.
During 2002 the Committee completed its comprehensive review of the
employment agreements that the Company enters into with each of its officers. It
updated the provisions of the agreement and the Company is entering into the new
agreement with each officer as their current agreement expires.
For the year 2002, 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
16
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 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 2002.
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. Securities 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
Miguel Fernandez
John W. Spiegel
17
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, 2002
with the cumulative total stockholder return for such period reflected in the
Standard and Poor's (S&P) 500 Stock Index, the Russell 2000 Index and in a peer
group index of three competing pharmaceutical companies (Andrx Group, Cima Labs
Inc. and Noven Pharmaceuticals, Inc.) (the "Peer Group"). 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, the Russell 2000 Index and the Peer Group at the market close
on December 31, 1997 and (ii) the reinvestment of all dividends.
[GRAPH APPEARS HERE]
18
TOTAL SHAREHOLDER RETURNS
(Dividends Reinvested)
ANNUAL RETURN PERCENTAGE
------------------------
YEAR ENDED DECEMBER 31,
COMPANY NAME / INDEX 1998 1999 2000 2001 2002
------------------------------------------------------------------------------------------------------------------
Bentley Pharmaceuticals -36.84 312.50 -5.05 73.45 -21.00
S&P 500 Index 28.58 21.04 -9.10 -11.89 -22.10
Russell 2000 -2.55 21.26 -3.02 2.49 -20.48
Peer Group 29.63 95.74 174.61 0.36 -72.88
BASE INDEXED RETURNS
PERIOD ---------------
DECEMBER YEAR ENDED DECEMBER 31,
COMPANY NAME / INDEX 31, 1997 1998 1999 2000 2001 2002
------------------------------------------------------------------------------------------------------------------
Bentley Pharmaceuticals 100 63.16 260.53 247.37 429.05 338.95
S&P 500 Index 100 128.58 155.63 141.46 124.65 97.10
Russell 2000 100 97.45 118.17 114.60 117.45 93.39
Peer Group 100 129.63 253.73 696.76 699.30 189.64
PEER GROUP
----------
Andrx Group
Cima Labs Inc.
Noven Pharmaceuticals, Inc.
19
PROPOSAL 2
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has approved, subject to stockholder approval, an
amendment to the Company's Restated Certificate of Incorporation to increase the
number of shares of Common Stock that the Company is authorized to issue from
35,000,000 shares to 100,000,000 shares.
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to have additional shares of Common Stock
authorized which would be available for issuance for general corporate purposes,
including raising capital to support business expansion, stock splits, stock
dividends, acquisitions or other developments which might make its issuance
desirable. This would provide the Company with additional flexibility to use its
capital for business and financial purposes in the future. The Company has
17,457,601 shares of Common Stock issued and outstanding as of the Record Date
for the Meeting, in addition to 7,036,088 reserved for issuance pursuant to the
Company's outstanding warrants and options, leaving 10,506,311 authorized shares
(including 645 treasury shares) available for issuance. If authorization of an
increase in the Common Stock is postponed until a specific need arises, the
delay and expense incident to obtaining approval of the stockholders at that
time could impair the Company's ability to meet its objectives. The Company does
not now have any agreement, understanding, arrangement or commitment which would
result in the issuance of any of the additional shares to be authorized and no
assurance can be given at this time that additional shares will, or as to the
circumstances under which such shares might, in fact be issued. No further
action or authorization by the stockholders would be necessary prior to the
issuance of the additional shares for purposes such as raising capital,
establishing strategic relationships with other companies and expanding the
Company's business or product lines through the acquisition of other businesses
or products. However, there are restrictions on further issuances of shares
under applicable laws, regulations and the rules of the stock exchange on which
the Company's securities may then be listed. The Company's stock is currently
traded on the American Stock Exchange which restricts certain issuances of the
Company's Common Stock without stockholder approval.
The holders of any of the additional shares of Common Stock issued in
the future would have the same rights and privileges as the holders of the
shares of Common Stock currently authorized and outstanding. Those rights do not
include preemptive rights with respect to the future issuance of any additional
shares. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common
Stock, except for effects incidental to increasing the number of shares of the
Company's Common Stock outstanding, such as dilution of the earnings per share
and voting rights of current holders of Common Stock. If the amendment is
approved, it will become effective upon filing a Certificate of Amendment of the
Company's Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware. A copy of the form of such certificate is attached as
Appendix A.
As stated above, the Company has no immediate plans, arrangements,
commitments, or understanding with respect to the issuance of any additional
shares of common stock authorized by the proposed amendment. However, the
increased authorized shares could be used to make a hostile takeover attempt
more difficult by using the shares to make a counter-offer for the shares of a
bidder or by selling shares to dilute the voting power of the bidder. As of this
date, the Board is unaware of any effort to accumulate the Company's shares or
to obtain control of the Company by means of a merger, tender offer,
solicitation in opposition to management, or otherwise. This proposal has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt.
THE DIRECTORS RECOMMEND A VOTE FOR THE AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
20
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO
THE COMPANY'S 2001 EMPLOYEE STOCK OPTION PLAN
On March 30, 2001, the Board of Directors adopted, and on May 9, 2001,
the Company's stockholders approved 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 originally provided for the issuance of options to
purchase up to 1,000,000 shares of Common Stock. As of March 31, 2003, options
to purchase 988,600 shares of Common Stock have been granted, leaving a total of
11,400 shares of Common Stock available for future grants under the Employee
Plan. The Board of Directors has amended the Employee Plan, subject to
stockholder approval, to increase the number of shares authorized for issuance
by 1,500,000 shares from 1,000,000 shares to 2,500,000 shares. If the amendment
is approved, there would be 1,511,400 shares available for future grants under
the Employee Plan. Adoption of this amendment to the Employee Plan requires that
it be approved by an affirmative vote of a majority of shares voted at the
Meeting. A copy of the amendment to the Employee Plan is attached as Appendix B.
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 the
Company's Proxy Statement for the Annual Meeting of Stockholders of May 9, 2001.
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 increase as
described in the amendment above and to other 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.
Options to purchase 988,600 shares of the Company's Common Stock have
been granted under the Employee Plan, of which options to purchase 15,000 shares
of Common Stock have been exercised. Options to purchase an additional 185,000
shares have been authorized for grant to employees under the Employee Plan
(155,000 of which are for executive officers) upon stockholder approval of the
amendment to increase the number of shares available under the Employee Plan.
These shares are allocated to the individuals listed in the Summary Compensation
Table as follows:
21
NEW PLAN BENEFITS
2001 Employee Stock Option Plan
NUMBER OF SHARES
ISSUABLE UPON
EXERCISE OF OPTIONS
NAME AND POSITION TO BE GRANTED
----------------- -------------------
James R. Murphy
Chairman of the Board, President, Chief Executive
Officer and Director 50,000
Robert M. Stote
Senior Vice President, Chief Science Officer and
Director 15,000
Michael D. Price
Vice President, Chief Financial Officer,
Treasurer, Secretary and Director 25,000
Robert J. Gyurik
Vice President of Pharmaceutical Development
and Director 40,000
Jordan A. Horvath
Vice President and General Counsel 25,000
Executive officers, as a group 155,000
Directors who are not executive officers, as a group 0
All employees who are not executive officers, as a group 30,000
On March 31, 2003, the high and low sales prices of the Company's
Common Stock as reported by the American Stock Exchange were $8.53 and $8.02 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 Corporate Governance and
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), Miguel Fernandez and
John Spiegel.
22
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 all options whether
or not they had become exercisable. However, if the relationship is terminated
either
23
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
termination or amendment may adversely affect the rights of an optionee with
respect to an outstanding option without the optionee's consent.
24
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 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.
25
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.
THE DIRECTORS RECOMMEND A VOTE FOR THE AMENDMENT TO THE EMPLOYEE PLAN.
26
PROPOSAL 4
APPROVAL OF THE COMPANY'S 2001 DIRECTORS' STOCK OPTION PLAN
On March 30, 2001, the Board of Directors adopted, and on May 9, 2001,
the Company's stockholders approved 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 originally provided for the issuance of options to
purchase up to 500,000 shares of Common Stock. As of March 31, 2003, options to
purchase 492,900 shares of Common Stock were issued and outstanding, leaving a
total of 7,100 shares of Common Stock available for future grants under the
Directors' Plan. The Board of Directors has amended the Directors' Plan, subject
to stockholder approval, to increase the number of shares authorized for
issuance by 500,000 shares from 500,000 shares to 1,000,000 shares. If the
amendment is approved, there would be 507,100 shares available for future grants
under the Directors' Plan. Adoption of this amendment to the Directors' Plan
requires that it be approved by an affirmative vote of a majority of shares
voted at the Meeting. A copy of the amendment to the Directors' Plan is attached
as Appendix C.
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 the Company's Proxy Statement for the Annual Meeting of
Stockholders of May 9, 2001.
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 increase as
described in the amendment above and to other 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.
Options to purchase 492,900 shares of the Company's Common Stock have
been granted under the Directors' Plan. No additional options have been approved
for grant following approval of this amendment. However, certain options are
automatically issuable to Directors at the conclusion of the Meeting, as
described above under "Proposal 1 - Election of Directors - Remuneration of
Non-Employee Directors."
On March 31, 2003, the high and low sales prices of the Company's
Common Stock as reported by the American Stock Exchange were $8.53 and $8.02 per
share, respectively.
27
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.
ADMINISTRATION
The Directors' Plan will be administered by the Corporate Governance
and 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), Miguel Fernandez and John Spiegel.
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),
28
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 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)
29
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.
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. 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.
THE DIRECTORS RECOMMEND A VOTE FOR THE AMENDMENT TO THE DIRECTORS' PLAN.
30
MISCELLANEOUS
VOTING REQUIREMENTS
Directors are elected by a plurality of the votes cast at the Meeting
(Proposal 1). The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock will be required to approve the amendment to
the Company's Restated Certificate of Incorporation (Proposal 2). The
affirmative vote of the holders of a majority of the votes cast at the Meeting
will be required to approve the amendments to the Employee Plan (Proposal 3) and
the amendment to the Directors' Plan (Proposal 4).
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, 2002 and for the year ending December 31, 2003.
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 2004 Annual Meeting of Stockholders must be received by the Company at
its office at Bentley Park, 2 Holland Way, Exeter, New Hampshire 03833 by
January 22, 2004. 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
engaged _____ to solicit proxies and has agreed to pay _______ a fee of $____ in
connection with the solicitation. Proxies may also 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, e-mail 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
Exeter, NH
April 17, 2003
31
APPENDIX A
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
BENTLEY PHARMACEUTICALS, INC.
Bentley Pharmaceuticals, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: The name of the Corporation is Bentley Pharmaceuticals, Inc.
SECOND: The Certificate of Incorporation of the Corporation was
originally filed with the Secretary of State of the State of Delaware on May 1,
1998.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Sections 242 of the General Corporation Law of the State
of Delaware, adopted resolutions proposing and declaring advisable and in the
best interests of the Corporation certain amendments to the Restated Certificate
of Incorporation of the Corporation, as set forth below.
FOURTH: The first sentence of Article IV of the Restated Certificate
of Incorporation of the Corporation is hereby amended and restated as follows:
"The total number of shares of stock which the Corporation shall have
authority to issue is 102,000,000 shares, consisting of (a) 100,000,000
shares of a single class of common stock, par value $.02 per share
("Common Stock")' and (b) 2,000,000 shares of preferred stock, par
value $1.00 per share ("Preferred Stock")."
FIFTH: This amendment to the Restated Certificate of Incorporation of
the Corporation was approved at the Corporation's meeting of stockholders, held
on May 21, 2003, by the holders of at least a majority of the voting rights of
the outstanding shares of common stock of the Corporation, voting together as a
single class.
IN WITNESS WHEREOF, Bentley Pharmaceuticals, Inc. has caused this
Certificate of Amendment to its Restated Certificate of Incorporation to be
executed this day of , 2003.
BENTLEY PHARMACEUTICALS, INC.
By:________________________________
Name:
Title:
A-1
APPENDIX B
AMENDMENT TO 2001 EMPLOYEE STOCK OPTION PLAN
The following sets forth the entire text of the proposed amendment to
the 2001 Employee Stock Option Plan:
The first sentence of Section 2 of the Employee Plan shall be deleted
and replaced with the following:
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 2,500,000 (two million
five hundred thousand) shares.
B-1
APPENDIX C
AMENDMENT TO 2001 DIRECTORS' STOCK OPTION PLAN
The following sets forth the entire text of the proposed amendment to
the 2001 Directors' Stock Option Plan:
The first sentence of Section 2 of the Directors' Plan shall be
deleted and replaced with the following:
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.
C-1
BENTLEY PHARMACEUTICALS, INC.
ANNUAL MEETING OF STOCKHOLDERS - MAY 21, 2003
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 2003 Annual Meeting of Stockholders of the Company, to be held on Wednesday,
May 21, 2003, 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)
1. The election of Class I Directors to serve until the 2006 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 Nominees: Michael McGovern
any individual nominee, strike a line Michael D. Price
through the nominee's name on the list John W. Spiegel
at right.)
2. The proposal to approve an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares
of the Company's Common Stock to 100,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
3. The proposal to approve an amendment to the Company's 2001 Employee Stock
Option Plan to increase the number of shares authorized for issuance
under the plan by 1,500,000.
|_| FOR |_| AGAINST |_| ABSTAIN
4. The proposal to approve an amendment to the Company's 2001 Directors'
Stock Option Plan to increase the number of shares authorized for
issuance under the plan by 500,000.
|_| FOR |_| AGAINST |_| ABSTAIN
5. 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 I DIRECTOR NOMINEES LISTED ABOVE AND "FOR"
PROPOSALS 2, 3 AND 4.
The undersigned hereby acknowledges receipt of (i) the Notice of Annual Meeting,
(ii) the Proxy Statement and (iii) the Company's 2002 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.
Dated: ______________________, 2003
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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.