UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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DUSA Pharmaceuticals, Inc.
(Name of Registrant as Specified in its Charter)
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[DUSA PHARMACEUTICALS LOGO]
DUSA PHARMACEUTICALS, INC.
25 UPTON DRIVE
WILMINGTON, MASSACHUSETTS 01887
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 10, 2004
TO THE SHAREHOLDERS OF
DUSA PHARMACEUTICALS, INC.
YOU ARE HEREBY NOTIFIED that the Annual Meeting of Shareholders of DUSA
Pharmaceuticals, Inc. will be held on Thursday, June 10, 2004, at 11:00 a.m. at
the Company's offices located at 25 Upton Drive, Wilmington, Massachusetts to
consider and act upon the following matters:
(1) Election of six (6) directors;
(2) Ratification of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year 2004;
(3) Ratification of the amendment to the 1996 Omnibus Plan,
as amended, to increase the number of shares of common
stock reserved for issuance pursuant to the plan from
2,753,328 to 3,343,874 shares, which is 20% of the
shares outstanding as of April 20, 2004, the record
date for the 2004 Annual Meeting of Shareholders; and
(4) Transaction of any other business that may properly
come before the meeting or any adjournments thereof.
Only shareholders of record at the close of business on April 20, 2004 are
entitled to notice of, and to vote at the meeting, or any adjournment or
adjournments thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE FILL IN, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. THE PROMPT
RETURN OF YOUR PROXY WILL ASSIST US IN PREPARING FOR THE ANNUAL MEETING. THE
PROXY DOES NOT REQUIRE ANY POSTAGE IF IT IS MAILED IN THE UNITED STATES OR
CANADA.
By Order of the Board of Directors,
/s/ Nanette W. Mantell
Nanette W. Mantell, Esq.
Secretary
Dated: April 28, 2004
DUSA PHARMACEUTICALS, INC.
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
DUSA Pharmaceuticals, Inc. ("DUSA" or the "Company"). If properly signed and
returned, and not revoked, the proxy will be voted in accordance with the
instructions it contains. The persons named in the accompanying proxy will vote
the proxy for the Board of Directors' slate of directors and for the other
matters listed on the proxy as recommended by the Board of Directors unless
contrary instructions are given.
The Company, a New Jersey corporation, maintains principal executive
offices at 25 Upton Drive, Wilmington, Massachusetts. This proxy statement and
the accompanying form of proxy are being mailed to shareholders on or about May
7, 2004. DUSA's Annual Report for 2003, including financial statements for the
year ended December 31, 2003, is being mailed to shareholders at the same time.
SHAREHOLDERS ENTITLED TO VOTE.
Holders of record of shares of DUSA common stock at the close of business
on April 20, 2004 are entitled to notice of and to vote at the annual meeting
and at any and all adjournments or postponements of the meeting. On the record
date there were 16,719,372 shares of common stock without par value ("Common
Stock") outstanding and entitled to vote. These shares were the only shares
outstanding of the Company. Each share entitles its owner to one vote. The
holders of one-third of the shares that are outstanding and entitled to vote at
the annual meeting must be present, in person or represented by proxy, in order
to constitute a quorum for all matters to come before the meeting.
Other than the vote for the election of directors, which requires a
plurality of the votes cast, each matter to be submitted to the shareholders
requires the affirmative vote of a majority of the votes cast at the meeting for
such matter. For purposes of determining the number of votes cast with respect
to a particular matter, only those votes cast "FOR" or "AGAINST" are included.
Abstentions and broker non-votes are counted only for purposes of determining
whether a quorum is present at the meeting. A broker "non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received voting instructions from the
beneficial owner. The nominees may vote the shares only on matters deemed
routine, such as the election of directors and ratification of the selection of
the auditors. The Company's management currently owns less than one percent of
the Company's outstanding Common Stock.
HOW TO VOTE.
If you are a shareholder of record (that is a shareholder who holds shares
in his/her own name), you can vote by signing, dating and returning your proxy
card in the enclosed postage-paid envelope. If you sign and return your proxy
card but do not give voting instructions, the shares represented by that proxy
will be voted "FOR" Proposals 1, 2 and 3 and will be voted in the proxy holder's
discretion as to other matters that may come before the annual meeting.
If your shares are held in the name of a bank, broker or other holder of
record (that is, "street name"), you will receive instructions from the holder
of record that you must follow in order for your shares to be voted.
CHANGING YOUR VOTE.
You may change your vote at any time before the proxy is exercised, by
executing and delivering a timely and valid later-dated proxy, by voting by
ballot at the annual meeting or by giving written notice to the Secretary of the
Company. Attendance at the meeting will not have the effect of revoking a proxy
unless you give proper written notice of revocation to the Secretary before the
proxy is exercised or you vote by written ballot at the annual meeting.
REDUCE DUPLICATE MAILINGS.
The Company is required to provide an Annual Report and proxy statement to
all shareholders. If you are a shareholder of record and have more than one
account in your name or at the same address as other shareholders of record, you
may authorize the Company to discontinue mailings of multiple proxy statements,
Annual Reports and other information statements. To do so, please mark the
designated box on each proxy card for which you wish to discontinue to receive
duplicate documents. Your consent to cease delivery of the Annual Report, proxy
statements and other information statements shall be effective for five (5)
years or until you revoke your consent. You may revoke your consent at any time
by contacting Ms. Shari Lovell, in writing, at the Company's office located at
555 Richmond Street West, Suite 300, Toronto, Ontario M5V 3B1 Canada, or by
calling 1-800-607-2530. Delivery of individual copies of the documents shall
resume within thirty (30) days of our receipt of your request.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Six (6) directors will be elected to hold office until the next Annual
Meeting of Shareholders and/or until their successors have been duly elected and
qualified. The persons named on the accompanying proxy will vote all shares for
which they have received proxies FOR the election of the nominees named below
unless contrary instructions are given. In the event that any nominee should
become unavailable, shares will be voted for a substitute nominee unless the
number of directors constituting a full board is reduced. Directors are elected
by plurality vote.
NOMINEES
Set forth below is certain information about the nominees for election to
the DUSA Board of Directors. The name, age and current position with the
Company, if any, of each director is listed below, followed by summaries of
their backgrounds and principal occupations. All of the nominees, except for Mr.
Moliteus, who was appointed as a director in July 2003, were elected to the
Board of Directors at the last annual meeting and all are currently serving as
directors of the Company.
DATE
NAME AGE POSITION ELECTED
---- --- -------- -------
D. Geoffrey Shulman, MD, FRCPC......... 49 President, Chief Executive Officer and
Director 9/05/91
John H. Abeles, MD(1)(3)............... 59 Director 8/02/94
David M. Bartash(1)(2)................. 61 Director 11/16/01
Jay M. Haft, Esq(1)(2)(3).............. 68 Chairman of the Board, Lead Director and
Director 9/16/96
Richard C. Lufkin(1)(3)................ 57 Director 1/27/92
Magnus Moliteus(2)..................... 65 Director 7/25/03
----------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating and Corporate Governance Committee.
D. Geoffrey Shulman, MD, FRCPC, is the Company's founder, President and CEO
and formerly served as our Chairman. Dr. Shulman, a dermatologist, was the
President and a director of Draxis Health Inc. from its founding in October 1987
until May 1990, was Co-Chairman from October 1990 to April 1993, and Chairman of
the Board from April 1993 until March 1996. Dr. Shulman also participates, on a
limited basis, in a private dermatology practice.
John H. Abeles, MD, who serves as the Chairman of our Nominating and
Corporate Governance Committee, is the President and founder of MedVest, Inc.
which, since 1980, has provided consulting services to health care and high
technology companies. He is also the Chief Executive Officer of UniMedica, Inc.,
a provider of medical educational services and materials. Dr. Abeles is a member
of the Boards of Directors of I-Flow Corporation, Oryx Technology, Inc.,
Molecular Diagnostics Inc. and Encore Medical Corporation.
David M. Bartash, is the President and founder of Bartash and Company, a
consulting company which, since 1990, has been providing consulting services for
the healthcare industry, including research for the healthcare investment
community and support services for venture start-ups.
Jay M. Haft, Esq., who serves as our Chairman of the Board, Lead Director
and Chairman of the Compensation Committee, is a strategic and financial
consultant for growth-stage companies. He was a senior corporate partner of the
law firm of Parker, Duryee, Rosoff & Haft from 1989 to 1994, was of counsel to
Parker, Duryee, Rosoff & Haft from 1994 until 2002 and is currently of counsel
to Reed Smith LLP. Mr. Haft is a member of the Boards of Directors of DCAP Group
Inc., Encore Medical Corporation and Oryx Technology Corporation.
Richard C. Lufkin, who serves as the Chairman of our Audit Committee, is
the principal of Enterprise Development Associates, a proprietorship formed in
1985 which provides consulting and venture support services to early stage
technology-based companies, principally in the life sciences. He is also a
co-founder, consultant to, and former Chief Financial Officer of Linguagen
Corp., a development-stage, privately-held, biotechnology firm.
Magnus Moliteus is a consultant to the healthcare industry and Chairman of
COM Consulting Inc., a privately held firm, which enhances Swedish-American
relations particularly between health care companies. From 1995 to 2001, when he
became a full-time consultant, Mr. Moliteus served as Executive Director of
Invest in Sweden Agency, U.S., a Swedish government agency. From 1977 to 1990,
he was Chief Executive Officer of Pharmacia, Inc. (now owned by Pfizer, Inc.).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE.
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DIRECTOR COMPENSATION
Directors who are employees of the Company receive no cash compensation for
their services as directors or as members of committees. Outside directors
receive $25,000 per year, as annual compensation, regardless of the number of
Board or Committee meetings they attend. Directors serving on the Audit
Committee receive an additional $5,000 per year. Also, directors are paid
out-of-pocket expenses related to their attendance. Directors are awarded
options to purchase 15,000 shares of Common Stock on June 30th of the first year
of service or as of the close of business thirty (30) days following his/her
election, whichever shall first occur, and options for 10,000 shares of Common
Stock on June 30th of each year following their reelection.
MEETINGS AND COMMITTEES OF THE BOARD
During the year ended December 31, 2003, there were eight meetings of the
Board of Directors. Each incumbent director attended at least 75% of the
meetings of the Board of Directors and its committees. The Board of Directors
has established an Audit Committee, Nominating and Corporate Governance
Committee, a Compensation Committee and the Committee of the Independent
Directors. Mr. Haft, our Chairman of the Board and Lead Director, will preside
at meetings of the Committee of the Independent Directors.
The Audit Committee currently consists of the outside directors: Messrs.
Haft, Lufkin, Bartash and Dr. Abeles. All of the members of our Audit Committee
are independent directors in accordance with the rules of the Nasdaq Stock
Market. The Audit Committee, with Mr. Lufkin serving as Chairman, provides
oversight of the Company's accounting functions and acts as liaison between the
Board of Directors and the outside independent auditors. The Committee reviews
with the independent auditors the unaudited quarterly financial statements, the
planning and scope of the audits of the financial statements, the results of
those audits and the adequacy of internal accounting controls, and monitors
other corporate and financial policies. In performing these functions, the Audit
Committee meets periodically with the independent auditors (including in private
sessions), and with management. In addition, the Audit Committee selects the
independent auditors for appointment by the Board of Directors. The Audit
Committee met four times during 2003.
The Nominating and Corporate Governance Committee, which was formerly known
as the Nominating Committee, currently consists of Messrs. Haft, Lufkin and Dr.
Abeles, who serves as its Chairman. All of the members of our Nominating and
Corporate Governance Committee are independent directors in accordance with the
rules of the Nasdaq Stock Market. The Nominating and Corporate Governance
Committee's purpose is to identify and evaluate the qualifications of
individuals to become members of the Board of Directors, to select the director
nominees, to develop and recommend corporate governance principles to the Board
of Directors and to provide oversight and guidance to the Board of Directors to
assure compliance with its corporate governance policies and principles. There
was one meeting of this Committee in 2003. Shareholders who wish to suggest
qualified candidates to the Nominating and Corporate Governance Committee for
director should write to: Administrator, Nominating and Corporate Governance
Committee, DUSA Pharmaceuticals, Inc., 25 Upton Drive, Wilmington, Massachusetts
01887 stating, in detail, the qualifications of such persons for consideration
by the Nominating and Corporate Governance Committee. A copy of the Nominating
and Corporate Governance Committee Charter is located on the Company's website
at www.dusapharma.com.
Among the central purposes of the Nominating and Corporate Governance
Committee are identifying individuals qualified to become members of the Board
of Directors and reviewing the qualifications of candidates and selecting the
director nominees to be voted on at each annual meeting of shareholders. In
effectuating those purposes, the Nominating and Corporate Governance Committee
is charged with ensuring that the nominees for membership on the Board of
Directors are of the highest possible caliber and are able to provide
insightful, intelligent and effective guidance to the management of the Company.
The following criteria have been identified by the Nominating and Corporate
Governance Committee, and adopted by the Board of Directors, to guide the
Nominating and Corporate Governance Committee in selecting nominees:
1. Directors should be of the highest ethical character and share the
values of DUSA;
2. Directors should have personal and professional reputations that
compliment and enhance the image and standing of DUSA;
3. Directors should be leaders in their field of endeavor, with exemplary
qualifications;
4. The Committee should generally seek current and/or former officers
and/or directors of companies and organizations, including scientific,
government, educational and other non-profit institutions;
3
5. The Committee should seek directors so the Board is comprised of
directors who collectively are knowledgeable in the fields of
pharmaceuticals and device development, particularly those areas of
research, development and commercialization undertaken by the Company;
6. Directors should have varied educational and professional experiences
and backgrounds who, collectively, provide meaningful counsel to
management;
7. Directors should generally not serve on more than six boards;
8. At least two-thirds of the directors on the Board should be
"independent" as defined by The Nasdaq Stock Market, Inc. and should
not have any real or apparent conflicts of interest in serving as a
director; and
9. Each director should have the ability to exercise sound, independent
business judgment.
The Committee applies the same criteria to all nominees for the Board
irrespective of the source of such nominee.
The Compensation Committee currently consists of Messrs. Bartash. Moliteus
and Haft, who serves as its Chairman. The Compensation Committee considers
executive compensation of the Company's key officers and compensation of
directors. The Committee also considers employee benefits which may be
appropriate as the Company grows, and develops policies and procedures. The
Compensation Committee normally meets annually. It met for once in 2003 to
establish compensation for 2003 and to award bonuses for 2002 and once in
February 2004 to establish compensation for 2004 and to award bonuses for 2003.
PROPOSAL NO. 2 - RATIFICATION OF SELECTION OF AUDITORS
The Audit Committee of the Board of Directors has selected Deloitte &
Touche LLP as the independent auditors for the Company for the fiscal year 2004.
Shareholder ratification of the appointment is not required under the laws of
the State of New Jersey, but the Audit Committee has decided to ascertain the
position of the shareholders on the appointment. The Board of Directors will
reconsider the appointment if it is not ratified. A majority of the votes cast,
in person or by proxy, at the annual meeting is required for ratification. A
representative of Deloitte & Touche LLP will be present at the meeting to answer
questions from shareholders and will have the opportunity to make a statement on
behalf of the firm, if he or she so desires.
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal years ended December 31, 2003 and 2002, and for the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for fiscal years 2003 and 2002 were $92,000 and $114,000, respectively.
AUDIT RELATED FEES
Other than the fees described under the caption "Audit Fees" above,
Deloitte & Touche LLP did not bill any fees for services rendered to us during
fiscal years 2003 and 2002 for assurance and related services in connection with
the audit or review of our consolidated financial statements.
TAX FEES
The aggregate fees billed by Deloitte & Touche LLP for services rendered to
the Company, for tax services for the fiscal years ended December 31, 2003 and
2002, were $20,000 and $14,000, respectively.
ALL OTHER FEES
There were no fees billed by Deloitte & Touche LLP for professional
services rendered for the fiscal year ended December 31, 2003 and 2002.
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POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
In considering the nature of the services provided by the independent
auditor, which were pre-approved in accordance with procedures required by the
Audit Committee Charter, the Audit Committee determined that such services are
compatible with the provision of independent audit services. The Audit Committee
discussed these services with the independent auditor and Company management to
determine that they are permitted under the rules and regulations concerning
auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act
of 2002, as well as the American Institute of Certified Public Accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL NO. 3 - RATIFICATION OF AMENDMENT TO
THE COMPANY'S 1996 OMNIBUS PLAN, AS AMENDED.
The Company's 1996 Omnibus Plan, as amended (the "Plan"), was ratified by
the Company's shareholders at the 1996 Annual Meeting of Shareholders. The
Company's shareholders approved amendments to the 1996 Omnibus Plan in June
1997, June 1998, and June 2001.
The Plan currently provides for the granting of awards to purchase up to a
maximum of 20% of the 13,766,640 shares of the Company's Common Stock that were
outstanding as of April 1, 2001, or 2,753,328 shares. The Plan authorizes the
granting of nonqualified stock options ("NQSOs"), incentive stock options
("ISOs"), stock appreciation rights ("SARs"), which are the right to receive,
upon surrender of the right, but without payment, an amount payable in cash, and
restricted stock or other securities to directors, officers, employees and
consultants of the Company. The Plan provides that NQSOs, ISOs and SARs
generally vest over four (4) years at a rate of twenty-five percent (25%) per
year subject to certain conditions involving continuous periods of service or
engagement. The exercise price of options shall be not less than the fair market
value of the Company's Common Stock on the date of the grant. Grantees may pay
the exercise price by surrender of the Company's Common Stock or cash or a
combination of stock and cash. The options expire ten (10) years from the date
of the grant. The Plan may be administered by a Committee or the Board of
Directors. The market value of the Common Stock on April 20, 2004 was $11.76,
based on the closing price on the Nasdaq National Market for that day. We
currently have six directors, approximately 56 employees, including seven
executive officers, one of whom is also a director, and approximately seven
consultants.
Grants may be made to key employees and consultants of the Company solely
at the discretion of the Board of Directors or the Committee. Directors of the
Company are eligible to receive grants of NQSOs, as determined by the members of
the Board of Directors, subject to the terms and conditions of the Plan. In
addition, each individual who agrees to become a director receives a grant of
15,000 options to purchase shares of Common Stock of the Company on June 30th of
the first year of service or as of the close of business thirty (30) days
following his/her election, whichever shall first occur. Each individual who is
a continuing director on June 30th of each year automatically receives 10,000
options to purchase shares of Common Stock of the Company. The options granted
pursuant to these automatic grants vest immediately.
TAX EFFECTS OF 1996 PLAN PARTICIPATION
The following summary discusses certain of the United States and Canadian
federal income tax consequences associated with stock awards granted under the
Plan.
UNITED STATES TAX CONSEQUENCES
Non-Qualified Stock Options - DUSA's nonqualified stock options are not
taxed at the time of the grant. Therefore, a participant will not realize
income, for federal tax purposes, when a non-qualified options is granted, nor
will DUSA be entitled to any federal tax deduction in connection with the grant.
Upon the purchase of the Common Stock, a participant will recognize ordinary
income in the amount of the value of the stock purchased, less the exercise
price of the option. This ordinary income will also be a deduction for DUSA for
federal income tax purposes. The gain or loss on the sale of the Common Stock is
taxed at capital gain rates.
Incentive Stock Options - A participant will not recognize any income when
an incentive stock option is granted. A participant will not recognize any
taxable income when an incentive stock option is exercised. However, the excess
of the fair market value of the shares acquired over the option price paid
constitutes an item of "tax preference" for purposes of computing the
"alternative minimum tax" and would need to be included in the determination of
the alternative minimum tax. When the Common
5
Stock is sold, the employee will ordinarily realize long-term capital gain on
the excess of the sales price over the exercise price, provided that the
participant has held the Common Stock at least one (1) year from the date the
option was exercised and more than two (2) years from the date the option was
granted. DUSA will not be entitled to any federal tax deduction in connection
with any option which meets these holding period requirements.
If either of the holding periods is not satisfied, any gain on the sale of
the Common Stock will, generally, be treated as ordinary income. In the event
the amount realized on the sale of the Common Stock exceeds the fair market
value of the shares at the time of exercise, then gain associated with the
excess amount will be taxed at capital gain rates. DUSA will be entitled to a
Federal income tax deduction in an amount equal to the portion of the
participant's gain which is taxed as ordinary income.
Restricted Stock - Restricted Stock are shares of DUSA Common Stock that
are transferred to a director, employee or consultant, subject to a substantial
risk of forfeiture. Typically this substantial risk of forfeiture lapses when
the recipient either meets certain predetermined performance goals or satisfies
a service requirement.
Under the currently applicable provisions of the Internal Revenue Code, the
timing and/or the amount of the recipient's ordinary income and capital
gain/loss with respect to restricted shares depends upon whether the individual
makes an IRC Section 83(b) election at the time the shares are transferred. If
no Section 83(b) election is made, the recipient of the restricted stock grant
recognizes ordinary income on the date upon which the substantial risk of
forfeiture placed upon the shares lapses. DUSA is entitled to a compensation
deduction equal to the income recognized by the recipient. Any dividends
received during the restriction period are also treated as ordinary income to
the individual. These payments are also deductible by DUSA as compensation
expense.
When the shares are ultimately disposed of, any gain in excess of the
individual's tax basis in the shares (ordinary income recognized upon vesting
plus any amount paid for the shares) is taxed as capital gain or loss (long term
or short term depending upon the holding period). The holding period begins on
the date the restrictions lapse.
Restricted stock recipients can make a Section 83(b) election to include in
current income the fair market value of the shares at transfer (less any amount
paid for the shares). The income recognized by the individual as a result of the
Section 83(b) election is treated as ordinary income which is subject to all
applicable income reporting and payroll tax reporting requirements. DUSA is
entitled to a tax deduction equal to the ordinary income recognized by the
recipient. Any dividends received during the vesting period are treated as
dividend income. DUSA is not entitled to a compensation deduction with respect
to such dividends.
In the event a timely Section 83(b) election is made, the subsequent lapse
of the substantial risk of forfeiture on the shares is not a taxable event. When
the shares are sold, any gain or loss in excess of the individual's tax basis
(the amount paid for the share, if any, plus the income recognized as a result
of the Section 83(b) election) is taxed as capital gain/loss. The holding period
is measured as from the date on which the shares were transferred. If shares
upon which a timely Section 83(b) election has been made are subsequently
forfeited, the amount paid for the shares (if any) can be taken as a capital
loss. The individual cannot, however, take a loss in connection with any income
recognized as a result of the Section 83(b) election.
ERISA - The 1996 Plan is not qualified under Section 401(a) of the Internal
Revenue Code. Also various state tax laws may provide tax consequences that vary
significantly from those described above.
CANADIAN TAX CONSEQUENCES
(i) EMPLOYEES
Stock Options - A Canadian resident is subject to tax on income, computed
in Canadian dollars, from all worldwide sources. A participant who receives an
option to acquire Common Stock issued as a result of his or her employment will
not realize any income when the stock option is granted. At the time the stock
option is exercised, unless certain elections described below is available and
the election is made, the Canadian resident employee is considered to have
received a taxable employment benefit equal to the difference between the fair
market value of the shares at the time the option is exercised and the price
paid for the shares under the option agreement. This employment benefit is
included in income and is subject to tax in Canada. The Canadian resident
employee may be entitled to a deduction from income equal to 50% of the taxable
employment benefit provided that: the amount paid by the employee to acquire the
DUSA Common Stock is not less than the fair market value of the shares at the
time the option was granted, the employee is dealing at arm's length with DUSA
before and immediately after the option is granted and the shares purchased are
prescribed shares (i.e., generally non-convertible ordinary common shares).
6
A Canadian resident individual may be able to defer the realization of
income that would otherwise be included in the year the DUSA option is
exercised. This deferral is available, in certain circumstances, when the
employee exercises a stock option in respect of prescribed shares that are
listed on NASDAQ or another approved stock exchange and the employee elects to
defer the income inclusion. If such an election is made, the employee stock
option benefit that the individual would otherwise be required to include in the
individual's income for the year in which the option was exercised may be
deferred. In order to claim a deferral, an election must be timely filed in the
proper form and manner and is subject to certain limitations. If available, the
deferral applies only to the first CDN$100,000 worth of options that vest in any
year. The value of an option for this purpose is considered to be equal to the
value of the optioned share at the time the option was granted.
Restricted Stock - In general, where DUSA has agreed to sell or issue
shares to an employee, the Canadian tax consequences described with respect to
stock option plans are generally applicable. A Canadian resident employee who
receives grants of stock pursuant to the 1996 Plan which are subject to
restrictions on transfer, will generally be subject to the stock option rules.
The employee would be required to include in income from employment an amount
equal to the fair market value of the shares at the time the shares are acquired
as a taxable employment benefit assuming the employee did not pay any amount to
acquire the shares. The employee would not be entitled to claim either the 50%
deduction or the deferral described above. When the shares are sold, the
employee will realize either a capital gain or a capital loss.
INDEPENDENT CONTRACTORS
Stock Options - In general, consultants who are independent contractors are
required to report business income on an accrual basis whether or not such
income is received. Accordingly, Canadian resident consultants may be subject to
Canadian income tax on such business profits whether or not an amount has been
received based on general principles of computation of business income.
If a consultant receives a grant of DUSA stock options in consideration for
services performed by the consultant, for tax purposes the grant of options will
be considered to be a payment in kind in respect of those services and will be
included in the computation of business income. As a payment in kind, the
consultant will generally be required to include the fair market value of the
options received in computing the consultant's business income for the year in
which the options are granted. The cost to the consultant of each option
received will equal to the fair market value of the option at the time it is
received.
The subsequent tax consequences to a consultant who holds options to
acquire shares of DUSA will normally depend on whether the consultant holds the
options as capital properties or as part of the inventory of a business. How any
DUSA stock options are held by a particular consultant will be a question of
fact that will depend on the particular circumstances of the consultant.
Restricted Stock - A Canadian resident consultant who receives a grant of
Restricted Stock pursuant to the Plan will generally be required to include the
fair market value of the stock received or receivable in the computation of
business income for tax purposes, assuming the consultant did not pay any amount
to acquire the shares. The general tax consequences applicable to a consultant
who holds shares will also generally depend on whether the consultant holds the
shares as capital properties or otherwise. On the assumption that the consultant
holds the shares as capital properties, the consultant will realize either a
capital gain or a capital loss on a subsequent disposition of the shares. For
purposes of computing the capital gain or capital loss, the adjusted cost base
of the shares to the consultant will generally be equal to the fair market value
of the shares at the time they were acquired by the consultant.
As of March 31, 2004, the following directors, named executive officers and
groups had received option grants under the Plan to purchase the number of
shares indicated following their respective names: Jay M. Haft, Chairman of the
Board, Lead Director and Nominee, 90,000 shares; John H. Abeles, Director and
Nominee, 85,000 shares; David M. Bartash, Director and Nominee, 37,500 shares;
Richard C. Lufkin, Director and Nominee, 85,000 shares; Magnus Moliteus,
Director and Nominee, 15,000 shares; D. Geoffrey Shulman, Chief Executive
Officer, President, Director and Nominee, 930,000 shares; Mark C. Carota, Vice
President, Operations, 97,500 shares; Scott Lundahl, Vice President,
Intellectual Property and Regulatory Affairs, 140,000 shares; Stuart L. Marcus,
MD, Ph.D., Vice President, Scientific Affairs and Chief Medical Officer, 235,000
shares; Paul A. Sowyrda, Vice President, Marketing and Sales, 112,500 shares;
all current executive officers as a group, 1,629,000 shares; all current
directors who are not executive officers as a group, 312,500 shares; and all
employees, who are not executive officers, as a group, 532,250 shares.
As of March 31, 2004, there were 1,621,250 NQSOs, 918,625 ISOs, and 29,722
shares in other awards outstanding pursuant to the Plan, totaling approximately
nineteen percent (19%) of shares outstanding as of April 1, 2001, leaving
152,856 shares available for grant under the Plan as of March 31, 2004. On June
30, 2004, following the 2004 Annual Meeting of Shareholders, an additional
7
60,000 NQSOs will automatically be granted to the members of the Board of
Directors according to the terms of the Plan.
The Board of Directors has approved an additional amendment to the Plan.
This amendment would increase the number of shares available for issuance upon
exercise of options or other awards granted under the Plan to twenty percent
(20%) of the number of shares of Common Stock outstanding as of the record date,
or a maximum of 3,343,874 shares. Under the present cap of twenty percent (20%)
of shares outstanding based on the shares outstanding as of April 1, 2001, only
a limited number of options remain available for grants. The Board of Directors
recognized that DUSA has hired and expects to continue to hire a significant
number of employees in the next year. The Board of Directors believes that the
proposed increase in the number of shares available for issuance under the Plan
is necessary to continue the effectiveness of the Plan in attracting, motivating
and retaining employees, consultants, and directors with appropriate experience
and ability; and to increase grantees' alignment of interest with the Company's
shareholders.
The following table provides information as of December 31, 2003 with
respect to shares of DUSA's Common Stock that may be issued under our
outstanding options, warrants and other rights.
(C)
-------------------------
(A) (B) NUMBER OF SECURITIES
----------------------- -------------------- REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
BE ISSUED UPON EXERCISE EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS OR RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
------------- ----------------------- -------------------- -------------------------
Equity compensation plans
approved by security
holders 2,319,950 $11.656 492,106(1)
Equity compensation plans
not approved by
security holders 425,0002 $ 6.987 N/A
Total 2,744,950 $10.933 492,106(1)
----------------------------
NOTE:
(1) The 1996 Omnibus Plan, as amended, provides that the maximum number of
shares with respect to which awards may be granted shall not exceed 20% of
the Company's Common Stock outstanding or a maximum of 2,753,328 shares.
(2) This number includes shares that may be issued upon the exercise of the
following: (i) A Class B warrant granted to Dr. Shulman, our President and
CEO, for the issuance of 300,000 shares of Common Stock. The exercise
price of the warrant is $6.00 per share. This warrant is exercisable and
has an expiration date of January 29, 2007; (ii) Options to purchase a
total of 85,000 shares of Common Stock with an exercise price of $10.875
per share. This option was granted to PARTEQ Research and Development
Innovations, the licensor of certain patents underlying our Levulan(R)
PDT/PD systems, on October 21, 1997. PARTEQ has subsequently assigned the
right to acquire 26,911 shares under this option to certain individuals.
These options have ten (10) year terms and vested at the rate of 25% per
year beginning on the first anniversary of the date of the original grant;
(iii) Options to purchase 15,000 shares of our Common Stock issued to
Therapeutics, Inc., a consultant to the Company, which were granted on
March 13, 1997. These options have an exercise price of $6.125 per share,
ten (10) year terms and vested 20% per year. These options have been
subsequently assigned by Therapeutics, Inc. to its principal; and (iv)
Options to purchase 25,000 shares of our Common Stock with an exercise
price of $6.125 per share. These options were granted to Lumenetics, Inc.,
our former light device consultant, on March 13, 1997. They have been
subsequently assigned by Lumenetics, Inc. to its principals. These options
have ten (10) year terms and vested at the rate of 25% per year beginning
on the date of the original grant.
A majority of the votes cast by shareholders entitled to vote, whether in
person or by proxy, is required in order to ratify the amendment to the Plan.
The full text of the proposed amended 1996 Omnibus Plan is attached to this
Proxy Statement as Appendix A and reference is made to such attachment for a
complete statement of the amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE AMENDMENT TO THE 1996 OMNIBUS PLAN.
8
BOARD AUDIT COMMITTEE REPORT(1)
The Audit Committee assists the Board of Directors by providing oversight
of the Company's financial reporting process and the independent auditors.
Management is responsible for preparing the Company's financial statements and
the Company's independent auditors are responsible for auditing those financial
statements. The Audit Committee is responsible for overseeing the conduct of
these activities by the Company's management and selecting the independent
auditors. A brief description of the responsibilities of the Committee is set
forth above under the caption "Meetings and Committees of the Board."
During 2003, the Audit Committee was composed of four non-employee
directors: Messrs. Haft, Lufkin, Bartash and Dr. Abeles. Each Committee member
is independent as defined by NASD listing standards and applicable Federal
securities law and regulation. In addition, the Board of Directors has
designated Mr. Lufkin as the audit committee financial expert. The Audit
Committee operates under a written charter adopted and approved by the Board of
Directors. A copy of the current Audit Committee Charter, which was amended on
February 27, 2004, is attached to this proxy statement as Appendix B.
The Committee has reviewed and discussed the audited consolidated financial
statements for the fiscal year ended December 31, 2003 with management. The
Committee also discussed with Deloitte & Touche LLP, the independent auditors,
the matters required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees." In addition, the Committee received from
Deloitte & Touche the written disclosures and the letter required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," and the Committee discussed with the independent auditors
their independence from the Company and its management. Additionally, the
Committee considered whether their provision of services to the Company beyond
those rendered in connection with their audit and review of the Company's
consolidated financial statements was compatible with maintaining their
independence and the fees and costs billed and to be billed for those services
as shown on page 4 of this proxy statement.
Based on its review, and the discussions with the Company's management and
its independent auditors, the Committee recommended to the Board of Directors
that the Company's audited consolidated financial statements for the fiscal year
ended December 31, 2003 be included in the Company's Annual Report on Form 10-K.
The Committee has also selected Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ended December 31, 2004.
John H. Abeles, MD
David M. Bartash
Jay M. Haft, Esq.
Richard C. Lufkin
----------------------------
(1) The material in the Audit Committee Report, Compensation Committee Report,
and under the caption "Performance Graph" are not "soliciting material,"
are not deemed filed with the SEC and are not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date of this report and irrespective of any
general incorporation language therein.
9
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three (3) non-employee directors. The Committee is responsible for
setting and administering the policies which govern annual executive salaries
and cash bonus awards, and recommends participants and amounts of stock option
awards to the Company's Board of Directors. The Committee evaluates, on a yearly
basis, the performance, and determines the compensation of, the executive
officers of DUSA. The Committee evaluates compensation based upon the
achievement by the individual of corporate goals, and the performance of
individual responsibilities. DUSA's President and Chief Executive Officer, Dr.
D. Geoffrey Shulman, is not a member of the Committee, however, the Committee
seeks input from Dr. Shulman regarding the performance of DUSA's Vice
Presidents, as well as his recommendations for their compensation. Dr. Shulman
is present, at the invitation of the Committee, at its meetings, other than
during consideration of his own compensation.
DUSA's executive compensation programs consist of base salary, cash bonus
incentives, stock option and stock grant awards. The goals of the Company's
executive officer compensation policies are to attract, retain, and reward
executive officers who contribute to DUSA's success, to align executive officer
compensation with DUSA's performance and to motivate executive officers to
achieve the Company's business objectives. The executive officers were evaluated
by the Committee against established goals for 2003, including corporate goals,
the Company's stock performance and individual goals within each executive
officer's area of responsibility.
With regard to base salary, the Committee believes that DUSA's officers
should be compensated at levels comparable to the base salary of executive
officers at similar small public biotechnology or pharmaceutical companies.
During 2000, the Committee received survey data reporting the salaries for
executives of companies in these groups which was prepared by independent
consultants. The Committee intends to obtain an updated report regarding
executive compensation for similarly situated companies before the end of 2004
in order to stay apprised of current compensation practices at such companies.
Generally, DUSA's Vice Presidents are eligible to receive up to 30% of
their base salary as a cash bonus award. The Committee recognized that these
individuals largely achieved their personal goals and corporate goals which had
a positive influence on shareholder value for 2003. Therefore, the Committee
concluded that DUSA's overall operational performance, particularly with regard
to marketing and sales functions, consolidation of regulatory functions,
enhanced medical information functions, and approval of DUSA's manufacturing
facility, justified favorable consideration of bonuses for its Vice Presidents.
Accordingly, DUSA's Vice Presidents received cash bonus awards ranging from
approximately 22% to 24% of their base salaries. These cash awards were paid in
March 2004.
The Committee also is using the 2000 survey data from independent
consultants to monitor and evaluate the long-term incentive compensation levels
of its officers and directors. The Committee believes that a strong stock
ownership program is essential to the long-term growth of the Company. In 2004,
the Committee granted to DUSA's key executive officers awards of stock options
to emphasize the long-term focus required for success in the pharmaceutical
industry.
COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
The Committee exercised its subjective judgment and discretion in
determining the amounts of Dr. Shulman's base salary, bonus award, and stock
option awards for 2003. Dr. Shulman's base salary and cash bonus award for 2003
were determined with reference to the same measures used for all DUSA's
executive officers, but with particular emphasis on the maintenance of our
financial strength and meeting marketing and sales expectations. Dr. Shulman's
base salary for 2003 was $340,000. With regard to a cash bonus award, Dr.
Shulman is eligible to receive up to 50% of base salary plus additional amounts
for outstanding performance. For 2003, Dr. Shulman's bonus award was 50% of his
base salary. Dr. Shulman's bonus award was paid to him in 2004. For 2004, Dr.
Shulman proposed that his base salary remain unchanged from that of 2002 and
2003, which proposal was accepted by the Committee.
Jay M. Haft, Esq.
David M. Bartash
Magnus Moliteus
10
PERFORMANCE GRAPH(1)
COMPARISON OF FIVE YEAR CUMULATIVE SHAREHOLDER TOTAL RETURN
AMONG DUSA PHARMACEUTICALS, INC.,
NASDAQ MARKET INDEX AND MG GROUP INDEX
(PERFORMANCE GRAPH)
1/1/1999 12/31/1999 12/29/2000 12/31/2001 12/31/2002 12/31/2003
DUSA Pharmaceuticals, Inc. $100.00 $386.44 $227.97 $109.15 $ 22.12 $ 68.47
Drug Manufacturers/Other 100.00 131.60 213.31 189.85 134.88 187.46
NASDAQ Market Index 100.00 176.37 110.86 88.37 61.64 92.68
The graph above compares cumulative total shareholder return on our Common
Stock for the five-year period ended December 31, 2003, with the cumulative
total return on the Nasdaq Market Index and the Media General Drug Manufacturer
Index over the same period. The identity of those corporations included in the
Media General Financial Services Drug Manufacturer Index may be obtained by
contacting Ms. Shari Lovell, Director of Shareholder Services, DUSA
Pharmaceuticals, Inc., 555 Richmond Street West, Suite 300, Toronto, Ontario M5V
3B1 Canada.
The graph assumes $100 was invested in DUSA's Common Stock on January 1,
1999, and in each of the indices, and that dividends were reinvested. The
comparisons in the graph are required by the Securities and Exchange Commission
and are not intended to forecast or be indicative of possible future performance
of DUSA's Common Stock.
11
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The name, age and position with the Company of each executive officer who
is not a director of the Company is listed below, followed by summaries of their
backgrounds and principal occupations. Executive officers are elected annually,
and serve at the discretion of the Board of Directors.
DATE
NAME AGE TITLE ELECTED
---- --- ----- -------
Mark C. Carota........................... 48 Vice President, Operations 2/18/00
Peter M. Chakoutis....................... 38 Vice President, Chief Financial
Officer and Controller (principal
financial and accounting officer) 1/01/04
Richard C. Christopher................... 34 Vice President, Financial Planning
and Business Analysis 1/01/04
Scott L. Lundahl......................... 45 Vice President, Intellectual Property
and Regulatory Affairs 6/23/99
Stuart L. Marcus, MD, Ph.D. ............. 57 Vice President, Scientific Affairs;
Chief Medical Officer 10/11/93
David Page............................... 44 Associate Vice President, Sales 8/11/03
Paul A. Sowyrda.......................... 42 Vice President, Marketing and Sales 8/01/00
Mark C. Carota has been employed by the Company since October 1999. Prior
to joining the Company, Mr. Carota was Director of Operations from November 1998
to October 1999 for Lavelle, Inc., a privately held manufacturer of orthopedic
instrumentation. From July 1998 to November 1998, Mr. Carota was employed as
Director of Quality Assurance by CGI Inc. Prior to joining CGI Inc., Mr. Carota
was employed by Allergan Inc., from February 1997 to July 1998 where he had
responsibility for quality assurance, engineering and facilities.
Peter M. Chakoutis has been employed by the Company since December 2000.
Prior to his promotion to his current position on January 1, 2004, he held the
position of Controller. Prior to joining the Company, Mr. Chakoutis was
Financial Reporting Manager from December 1996 to December 2000 for State Street
Corporation, a publicly traded financial holding company that provides a full
range of products and services for sophisticated global investors.
Richard C. Christopher has been employed by the Company since December
2000. Prior to his promotion to his current position on January 1, 2004, he held
the position of Director, Financial Analysis. Prior to joining the Company, he
was the North American Cost Accounting Manager for Grace Construction Products,
a unit of W.R. Grace & Co. from April 1999 to December 2000. Prior to joining
Grace Construction Products, Mr. Christopher was employed by the Boston Edison
Company from March 1996 until April 1999.
Scott L. Lundahl has been employed by the Company since May 1998. In 1994,
Mr. Lundahl co-founded and became Vice President of Lumenetics, Inc., a
privately-owned medical device development company, which, prior to May 1998,
provided the Company with consulting services in the light device technology
area.
Stuart L. Marcus, MD, Ph.D. has been employed by the Company since October
1993. Prior to joining the Company, he was Director of the Hematology/Oncology
Department of Daiichi Pharmaceuticals Inc., and prior thereto he held positions
in the Medical Research Division of the American Cyanamid Company, directing
photodynamic therapy clinical development, among other assignments.
David Page has been employed by the Company since August 2003. Prior to
joining the Company, Mr. Page was Vice President of Sales, Aesthetic Division
from July 2001 to August 2003 for Lumenis, Inc. From July 1999 to July 2001, Mr.
Page was Vice President of Sales for ESC Medical Systems responsible for
Aesthetic, Surgical and Veterinary US Markets.
Paul A. Sowyrda has been employed by the Company since April 2000. From
April 1998 to April 2000, Mr. Sowyrda was employed by Aurora Tech, a Division of
Carlo Gavazzi, where at the time of his departure he was serving as President
and Chief Executive Officer. From October 1997 to February 1998, Mr. Sowyrda was
Vice President, Operations of UroMed Corp, Urovation Division.
12
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended December 31, 2003,
2002 and 2001, certain compensation paid by DUSA to its executive officers. All
amounts are stated in United States dollars unless otherwise indicated.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------------------------
AWARDS PAYOUTS
ACTUAL COMPENSATION -------------------- ----------------------
------------------------------------------- RESTRICTED
OTHER ANNUAL STOCK LTIP ALL OTHER
SALARY BONUS COMPENSATION(1) AWARD(S) OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
--------------------------- ---- ------- ------- ---------------- ---------- ------- ------- ------------
D. Geoffrey Shulman, MD, 2003 340,000 170,000 -- -- 110,000 -- --
FRCPC, President and Chief 2002 340,000 64,600 -- -- 60,000 -- --
Executive Officer 2001 340,000 84,460 -- -- 25,000 -- --
Mark C. Carota, 2003 175,000 38,900 -- -- 17,500 -- --
Vice President, Operations 2002 157,000 20,300 -- -- 17,500 -- --
2001 150,731 26,860 -- -- 7,500 -- --
Scott Lundahl, 2003 182,000 40,400 -- -- 17,500 -- --
Vice President, 2002 168,000 21,700 -- -- 17,500 -- --
Intellectual Property and 2001 134,462 27,060 -- -- 7,500 -- --
Regulatory Affairs
Stuart L. Marcus, MD,
Ph.D., 2003 250,000 55,500 -- -- 17,500 -- --
Vice President, 2002 247,520 17,100 -- -- 12,500 -- --
Scientific Affairs and 2001 246,055 34,910 -- -- 7,500 -- --
Chief Medical Officer
Paul A. Sowyrda, 2003 180,000 43,200 -- -- 17,500 -- --
Vice President, 2002 164,800 21,300 -- -- 17,500 -- --
Marketing and Sales 2001 154,350 26,550 -- -- 7,500 -- --
----------------------------
NOTES:
(1) No officer had perquisites in excess of $50,000 or 10% of salary and bonus
reported for 2003, 2002 or 2001.
13
OPTION GRANTS IN 2003
The following grants of stock options were made to the named executive
officers during fiscal year 2003.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE OF ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OF FOR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ------------ ---------------- ----------- ---------- ---------- ----------
Dr. D. Geoffrey Shulman 100,000 25.5% $ 3.00 3/13/13 $ -0- $ 115,000
10,000 2.6% $ 2.51 6/30/13 $ 15,800 $ 40,000
Mr. Mark C. Carota 17,500 4.5% $ 1.60 3/13/13 $ 17,600 $ 44,600
Mr. Scott Lundahl 17,500 4.5% $ 1.60 3/13/13 $ 17,600 $ 44,600
Dr. Stuart L. Marcus 17,500 4.5% $ 1.60 3/13/13 $ 17,600 $ 44,600
Mr. Paul A. Sowyrda 17,500 4.5% $ 1.60 3/13/13 $ 17,600 $ 44,600
----------------------------
NOTES:
(1) All options in this table have been granted pursuant to the 1996 Omnibus
Plan, as amended. All options have exercise prices equal to the fair
market value on the date of the grant, except for Dr. Shulman's option
grant to purchase 100,000 shares, which has an exercise price greater than
fair market value on the date of grant.
(2) The potential realizable value is calculated based on the fair market
value of DUSA's Common Stock on the date of the grant. These amounts only
represent certain assumed rates of appreciation established by the SEC.
There can be no assurance that the amounts reflected in this table or the
associated rates of appreciation will be achieved.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END STOCK OPTION VALUES
The following table provides certain information as to certain stock
options exercisable by the named executive officers for the fiscal year 2003,
and the value of such options held by them at December 31, 2003, measured in
terms of the closing price of the Company's Common Stock on The Nasdaq Stock
Market on December 31, 2003 which was $5.05 per share.
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 2003 DECEMBER 31, 2003
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------------- -----------------
Dr. D. Geoffrey Shulman -- -- 671,250/ $110,275/
193,750 $249,250
Mr. Mark C. Carota -- -- 35,625/ $5,163/
36,875 $75,863
Mr. Scott L. Lundahl -- -- 109,375/ $19,413/
38,125 $75,863
Dr. Stuart L. Marcus -- -- 175,625/ $3,688/
36,875 $71,438
Mr. Paul A. Sowyrda -- -- 30,625/ $5,163/
41,875 $75,863
401(k) PROFIT SHARING PLAN
The Company adopted a tax-qualified employee savings and retirement 401(k)
Profit Sharing Plan (the "401(k) Plan"), effective January 1, 1996, covering all
qualified employees. Participants may elect a salary reduction of at least 1% as
a contribution to the 401(k) Plan, up to the statutorily prescribed annual limit
for tax-deferred contributions ($11,000 in 2003). Modification of salary
reductions can be made monthly (for 2003). Effective February 1, 2003, the
Company began to match a participant's contribution up to 1.25% of a
participant's salary (the "Company Match"), subject to certain limitations of
the 401(k) Plan. Participants vest in the Company Match at a rate of 25% for
each year of service to the Company (based on the anniversary of their date of
hire). Existing employees will receive credit for past service to the Company.
14
OTHER COMPENSATION
The Company has employment agreements with each of the executive officers
named in the Summary Compensation Table. Pursuant to these agreements, the
executive officers are entitled to receive compensation as determined by the
Board of Directors and are eligible to receive the benefits generally made
available to employees of the Company. DUSA may terminate any of these
agreements at any time, with or without cause on sixty (60) days prior written
notice. If employment is terminated without cause, DUSA has agreed to pay a
severance allowance equivalent to one year of the executive officer's
then-current base salary payable in a lump sum, within sixty (60) days following
the date of termination. In addition to the foregoing, Dr. Shulman's employment
agreement also provides that he shall have the right to exercise, for a period
of one year from the date of termination, all stock options granted to him prior
to his termination as to all or any part of the shares covered by such options,
including shares with respect to which such options would not otherwise be
exercisable, subject to restrictions under U.S. or Canadian law.
In the event an executive officer should die while employed by DUSA, his
heirs or beneficiaries will be entitled to any Company paid death benefits in
force at the time of such death and will also be entitled to exercise any vested
but unexercised stock options which were held by him at the time of his death,
within a period of one (1) year from the date of death.
These employment agreements also provide for certain severance benefits
following a change in control of the Company and termination of employment. Upon
any "change of control," as defined in the agreements, DUSA shall pay to the
executive officer a lump sum payment equal to three (3) times his base salary
for the last fiscal year within five (5) days after such termination.
Under the Company's 1996 Omnibus Plan, as amended, any and all outstanding
options not fully vested shall automatically vest in full and shall be
immediately exercisable upon a "change of control," as defined in the grant
agreements. The date on which such accelerated vesting and immediate
exercisability shall occur, shall be the date of the occurrence of the change of
control.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of DUSA's Common Stock as of April 25, 2004 by: (i) each of
our directors; (ii) our named executive officers; (iii) all beneficial owners of
greater than 5% of our outstanding Common Stock; and (iv) all of our directors
and executive officers as a group.
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME(1) OWNED(2) SHARES(3)
------- --------------------- ---------------------
John H. Abeles, MD............................ 89,500(4) *
David M. Bartash.............................. 50,500(5) *
Mark C. Carota................................ 48,815(6) *
Jay M. Haft, Esq. ............................ 103,250(7) *
Richard C. Lufkin............................. 97,100(8) *
Scott L. Lundahl.............................. 119,020(9) *
Stuart L. Marcus, MD, Ph.D.................... 191,250(10) 1.2%
Magnus Moliteus............................... 15,000(11) *
D. Geoffrey Shulman, MD, FRCPC................ 1,107,668(12) 6.5%
Paul A. Sowyrda............................... 46,250(13) *
All directors and executive officers as a
group (consisting of 13 persons)............ 1,938,603(14) 10.7%
Dimensional Fund Advisors, Inc. .............. 885,800(15) 5.4%
Royce & Associates, Inc. ..................... 1,225,600(16) 7.5%
Mr. Jeffrey Casdin and his affiliated
entities.................................... 2,231,400(17) 13.6%
Investors Group Inc. and its affiliated
entities.................................... 1,120,800(18) 6.8%
North Sound Capital LLC....................... 836,317(19) 5.1%
Smithfield Fiduciary LLC...................... 897,000(20) 5.4%
----------------------------
* Less than 1%.
15
NOTES:
(1) Unless indicated otherwise, the individuals listed herein have a business
mailing address of c/o DUSA Pharmaceuticals, Inc., 25 Upton Drive,
Wilmington, Massachusetts, 01887.
(2) Unless indicated otherwise: (i) the individuals and entities listed herein
have the sole power to both vote and dispose of all securities that they
beneficially own and (ii) beneficial ownership listed includes all options
and warrants which are exercisable within 60 days of April 25, 2004.
(3) The percentage of ownership as calculated above includes in the number of
shares outstanding for each individual listed those shares that are
beneficially, yet not directly, owned. Applicable percentage of ownership
is based on 16,744,872 shares of Common Stock outstanding on April 25,
2004 unless noted as otherwise.
(4) 65,000 of the shares indicated represent shares with respect to which Dr.
Abeles has the right to acquire through the exercise of options. Of the
shares indicated, Dr. Abeles shares investment and voting power with
regard 24,500 shares.
(5) 35,000 of the shares indicated represent shares with respect to which Mr.
Bartash has the right to acquire through the exercise of options.
(6) 48,750 of the shares indicated represent shares with respect to which Mr.
Carota has the right to acquire through the exercise of options. Under
Rule 13d-3 of the Securities and Exchange Act of 1934, as amended, Mr.
Carota disclaims, but may be deemed to be the beneficial owner of, 15
shares of Common Stock that are held by his adult son and 50 shares held
by his daughter, both of whom are members of Mr. Carota's household.
(7) 68,750 of the shares indicated represent shares with respect to which Mr.
Haft has the right to acquire through the exercise of options. Under Rule
13d-3 of the Securities and Exchange Act of 1934, as amended, Mr. Haft
disclaims, but may be deemed to be the beneficial owner of, 34,500 shares
that are held by his spouse.
(8) 95,000 of the shares indicated represent shares with respect to which Mr.
Lufkin has the right to acquire through the exercise of options.
(9) 113,750 of the shares indicated represent shares with respect to which Mr.
Lundahl has the right to acquire through the exercise of options.
(10) All of the shares indicated represent shares with respect to which Dr.
Marcus has the right to acquire through the exercise of options. Dr.
Marcus' address is 400 Columbus Avenue, Valhalla, New York, NY 10595.
(11) All of the shares indicated represent shares with respect to which Mr.
Moliteus has the right to acquire through the exercise of options.
(12) 300,000 of the shares indicated represent shares with respect to which Dr.
Shulman has the right to acquire through the exercise of his Class B
Warrants which have an exercise price of CDN $6.79 per Warrant, and
750,000 of such shares represent shares with respect to which Dr. Shulman
has the right to acquire through the exercise of options. Dr. Shulman's
address is 555 Richmond Street West, Suite 300, Toronto, Ontario M5V 3B1
Canada.
(13) All of the shares indicated represent shares with respect to which Mr.
Sowyrda has the right to acquire through the exercise of options.
(14) All of the shares indicated, Class B Warrants and options, as the case may
be, as discussed in footnotes (4) through (13) above are included, as well
as 1,478,000 shares which may be acquired through the exercise of options.
(15) The number of shares beneficially owned is based upon information
disclosed by Dimensional Fund Advisors Inc. on a Schedule 13G/A filed with
the Securities and Exchange Commission on February 6, 2004. Dimensional
Fund Advisors Inc.'s address is 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401.
(16) The number of shares beneficially owned is based upon information
disclosed by Royce & Associates, Inc. on a Schedule 13G/A filed with the
Securities and Exchange Commission on February 2, 2004. Royce &
Associates, Inc.'s address is 1414 Avenue of the Americas, New York, New
York 10019.
(17) The number of shares beneficially owned is based upon information
disclosed by Cooper Hill Partners LLC on a Form 4 filed with the
Securities and Exchange Commission on March 18, 2004. Mr. Casdin and
Cooper Hill Partners LLC's address is 230 Park Avenue, New York, New York
10169. As the sole general partner of CLSP, L.P.; CLSP II, L.P.; CLSP/SBS
I, L.P. and CLSP/SBS II, L.P., each a private investment partnership,
Cooper Hill Partners, LLC has the power to vote and dispose of the
securities owned by each of these partnerships and, accordingly, may be
deemed the "beneficial owner" of such securities. Mr. Casdin is also the
sole member of Casdin Capital, LLC, the general partner of Cooper Hill
Partners, L.P. Pursuant to an investment advisory contract, Cooper Hill
Partners, L.P. currently has the power to vote and dispose of the
securities held for the account of CLSP Overseas, Ltd. and, accordingly,
may be deemed the "beneficial owner" of such securities.
(18) The number of shares beneficially owned is based upon information
disclosed by Investors Group Inc. and its affiliated entities on a
Schedule 13G/A filed with the Securities and Exchange Commission on
February 17,
16
2004. The number of shares listed includes 582,700 shares beneficially
owned by Investors Canadian Small Cap Fund, 529,800 shares beneficially
owned by Investors Canadian Small Cap Growth Fund, 6,000 shares
beneficially owned by Investors Canadian Small Cap Class, 2,300 shares
beneficially owned by Investors Canadian Small Cap Growth Class, 1,120,800
beneficially owned by I.G. Investment Management, Ltd., 1,112,500 shares
beneficially owned by Investors Group Trust Co. Ltd., 1,112,500 shares
beneficially owned by Investors Group Inc., 1,112,500 shares beneficially
owned by Investors Group Trustco Inc. and 8,300 shares beneficially owned
by Investors Group Corporate Class Inc. Investors Group Inc. owns 100% of
the issued and outstanding Class A Common Shares of Investors Group
Trustco Inc. Investors Group Trustco Inc. owns 100% of the issued and
outstanding Class A Common Shares of the Investors Group Management Ltd.
Investors Group Trustco Inc. also owns, directly or indirectly, 100% of
the issued and outstanding Common Shares of the Investors Group Trust Co.
Ltd. Investors Group Trustco Inc., Investors Group Management Ltd.,
Investors Group Trust Co. Ltd., Investors Canadian Small Cap Fund and
Investors Canadian Small Cap Growth Fund are ultimately controlled by
Investors Group Inc. through its ownership of 100% of the issued and
outstanding Class A Common Shares of Investors Group Trustco Inc. Power
Financial Corporation owns 56.1% of the Common Stock of Investors Group
Inc. Power Corporation of Canada, of which Mr. Paul Desmarais controls
64.7% of the voting power, owns 67.4% of the Common Stock of Power
Financial Corporation. Investors Group Inc.'s address is One Canada
Centre, 447 Portage Avenue, Winnipeg, Manitoba R3C 3B6 Canada.
(19) The number of shares beneficially owned and ownership percentage are based
upon information disclosed by North Sound Capital LLC on a Schedule 13G
filed with the Securities and Exchange Commission on April 15, 2004. The
ultimate managing member of North Sound Capital LLC is Thomas McAuley.
North Sound Capital LLC may be deemed the beneficial owner of the shares
in its capacity as the managing member of North Sound Legacy Fund LLC,
North Sound Legacy Institutional Fund LLC and North Sound Legacy
International Ltd. (the "Funds"), who are the holders of such shares. As
the managing member of the Funds, North Sound Capital LLC has voting and
investment control with respect to the shares of common stock held by the
Funds. North Sound Capital LLC's address is 53 Forest Avenue, Suite 202,
Old Greenwich, CT 06870.
(20) Highbridge Capital Management, LLC ("Highbridge") is the trading manager
of Smithfield Fiduciary LLC ("Smithfield") and consequently has voting
control and investment discretion over the shares of common stock held by
Smithfield. Glenn Dubin and Henry Swieca control Highbridge. Each of
Highbridge and Messrs. Dubin and Swieca disclaims beneficial ownership of
the shares held by Smithfield. Smithfield Fiduciary LLC's address is 9
West 57th Street, 27th Floor, New York, NY 10019.
SHAREHOLDER PROPOSALS AND
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
In order to be included in the Board of Directors' proxy statement and
proxy card for the 2005 Annual Meeting of Shareholders, a shareholder proposal
must be received by the Company on or before January 8, 2005. Proposals should
be directed to the attention of Ms. Shari Lovell at the Company's offices
located at 555 Richmond Street West, Suite 300, Toronto, Ontario M5V 3B1 Canada,
or to the attention of the Secretary, Nanette W. Mantell, Esq., c/o Reed Smith
LLP, Princeton Forrestal Village, 136 Main Street - Suite 250, Princeton, New
Jersey 08543.
In addition, if a shareholder wishes to present a proposal at the Company's
2005 Annual Meeting which is not intended to be included in the Company's proxy
statement for that meeting, the Company must receive written notice of the
shareholder proposal by March 23, 2005. If DUSA does not receive timely notice
of such a shareholder proposal, the Company will retain its discretionary
authority to vote proxies on such proposals even if it is not specifically
reflected on the proxy card, and shareholders have not had an opportunity to
vote on the proposal by proxy.
The Board of Directors believes that the most efficient method for
shareholders and other interested parties to raise issues and ask questions and
to get a response is to direct such communications to DUSA through its
Shareholder Services department at the address provided in the Contact DUSA
section of our public website, www.dusapharma.com. If, notwithstanding these
methods, a shareholder or other interested party wishes to direct a
communication specifically to the Board of Directors, then the following method
is available. To ensure that the communication is properly directed in a timely
manner, it should be clearly identified as intended for the Board of Directors:
DUSA Pharmaceuticals, Inc.
Board of Directors
Attention: Chairman of the Board
c/o DUSA Pharmaceuticals, Inc.
25 Upton Drive
Wilmington, MA 01887
The above address is supervised by DUSA which will promptly forward to the
Board any communication intended for them. The Board believes that DUSA should
speak with one voice and has
17
empowered management to speak on the company's behalf subject to the Board's
oversight and guidance on specific issues. Therefore, in most circumstances the
Board will not respond directly to inquiries received in this manner but may
take into consideration ideas, concerns and positions that are presented in a
concise, clear, supported and constructive manner.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
officers and any person holding more than ten percent (10%) of our Common Stock
are required to report their ownership of securities and any changes in that
ownership to the Securities and Exchange Commission on Forms 3, 4 and 5. Based
on our review of the copies of such forms we have received, DUSA believes that
all of our officers, directors and shareholders holding ten percent (10%) or
more of our Common Stock complied with all filing requirements applicable to
them with respect to their reporting obligations except for a single untimely
filing by Mr. Chakoutis reporting his initial holdings of the Company's
securities and one filing by Mr. Haft reporting his indirect acquisition of
shares through his spouse in three transactions that occurred in 2002. In making
these statements, we have relied on the written representations of our directors
and officers and copies of the reports that they have filed with the Securities
and Exchange Commission.
OTHER MATTERS
Management knows of no matters other than those described above that are to
be brought before the meeting. However, if any other matter properly comes
before the meeting, the persons named in the enclosed proxy will vote the proxy
in accordance with their best judgment on the matter.
The cost of preparing and mailing the enclosed material will be borne by
the Company. The Company may use the services of its officers and employees (who
will receive no additional compensation) to solicit proxies. The Company intends
to request that banks and brokers holding shares of DUSA Pharmaceuticals, Inc.
Common Stock forward copies of the proxy materials to those persons for whom
they hold shares and to request authority for the execution of proxies. The
Company will reimburse banks and brokers for their out-of-pocket expenses. The
Company has retained its transfer agent, American Stock Transfer & Trust
Company, to aid in the solicitation, at an estimated cost of under $10,000.
Certain information contained in this proxy statement relating to the
occupations and security holdings of our directors and officers is based upon
information received from the individual directors and officers.
18
APPENDIX A
DUSA PHARMACEUTICALS, INC.
1996 OMNIBUS PLAN
(As Amended April 23, 2004)
ARTICLE I.
PURPOSE
This Omnibus Plan (the "Plan") is intended to promote the growth and
general prosperity of DUSA Pharmaceuticals, Inc. (the "Company") and its
shareholders by offering incentives to its key directors, employees and
consultants of the Company who are primarily responsible for the growth of the
Company and to attract and retain qualified directors, employees and consultants
of the Company and thereby benefit its shareholders based on the growth of the
Company.
ARTICLE II.
DEFINITIONS
Unless the context indicates otherwise, the following terms, when used in
this Plan, shall have the meanings set forth in this Section:
(a) "Award" shall mean grants under this Plan that provide the
participants with the right to purchase Common Stock or that are valued by
reference to the Fair Market Value of the Common Stock.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean deliberate, willful or gross misconduct.
(d) A "Change of Control" shall be deemed to have taken place upon
(i) the acquisition by a third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, of
shares of the Company having 50% or more of the total number of votes that
may be cast for the election of Directors of the Company; (ii) shareholder
approval of a transaction for the acquisition of the Company, or
substantially all of its assets by another entity or for a merger,
reorganization, consolidation or other business combination to which the
Company is a part; or (iii) the election during any period of 24 months or
less of 50% or more of the Directors of the Company where such Directors
were not in office immediately prior to such period provided, however, that
no "Change of Control" shall be deemed to have taken place if the Directors
of the Company in office on the date of adoption of the Plan, or their
successors in office nominated by such Directors, affirmatively approve a
resolution to such effect.
(e) "Code" shall mean the Internal Revenue Code of 1986 as it may be
amended from time to time.
(f) "Committee" shall mean, collectively, the Board, or any Committee
of two or more Non-Employee Directors, that may be designated by the Board
to administer the Plan.
(g) "Common Stock" shall mean all classes of stock, without par
value, including convertible preferred, stock purchase warrants and all
common stock equivalents.
(h) "Consultant" shall mean any person who (i) is engaged to perform
services for the Company or its Subsidiaries, other than as an Employee or
Director, or (ii) has agreed to become a consultant within the meaning of
clause (i).
(i) "Director" shall mean any member of the Board.
(j) "Disability" shall mean inability to perform the services
required hereunder due to mental or physical disability which continues for
either (i) a total of 180 working days during any 12- month period or (ii)
150 consecutive working days.
(k) "Employee" shall mean (i) any full-time employee of the Company
or its Subsidiaries (including Directors who are otherwise employed on a
full-time basis by the Company or its Subsidiaries), or (ii) any person who
has agreed to become an employee within the meaning of clause (i).
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934 as
it may be amended from time to time.
(m) "Fair Market Value" of the Common Stock on a given date shall be
based upon, the last sales price or, if unavailable, the average of the
closing bid and asked prices per share of the Common Stock on such date
(or, if there was no trading or quotation in the Common Stock on such date,
on the next preceding date on which there was trading or quotation).
(n) "Grantee" shall mean a person granted an Award under the Plan.
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(o) "ISO" shall mean an Option granted pursuant to the Plan to
purchase shares of the Common Stock and intended to qualify as an incentive
stock option under Section 422 of the Code, as now or hereafter
constituted.
(p) "1933 Act" shall mean the Securities Act of 1933; as amended.
(q) "Non-Employee Director" shall mean a non-employee director as
defined in Exchange Act Rule 16b-3(b)(3)(i).
(r) "NQSO" shall mean an Option granted pursuant to the Plan to
purchase shares of the Common Stock that is not an ISO.
(s) "Options" shall refer collectively to NQSOs and ISOs issued under
and subject to the Plan. Each option is exercisable into one share of
Common Stock of the Company.
(t) "Parent" shall mean any parent corporation as defined in Section
424 of the Code.
(u) "Performance Awards" shall mean grants under the Plan, payable in
cash, Common Stock, other securities or other awards and shall confer on
the holder there of the right to receive payments, upon the achievement of
such performance goals during such performance periods as the Committee
shall establish.
(v) "Restricted Stock" shall mean Common Stock subject to
restrictions on transfer and/or such other restrictions on incidents of
ownership as the Committee may determine.
(w) "SAR" shall mean a right to receive, upon surrender of the right,
but without payment, an amount payable in cash.
(x) "Subsidiary" shall mean (i) any corporation with respect to which
the Company owns, directly or indirectly, 50% or more of the total combined
voting power of all classes of stock of such Company, or (ii) any entity
which the Committee reasonably expects to become a subsidiary within the
meaning of clause (i).
ARTICLE III.
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall have full discretion and the exclusive power
(i) to select the Employees, Consultants and Directors who will participate in
the Plan and to make Awards to such Employees, Consultants, and Directors, (ii)
to determine the time at which such Awards shall be granted and any terms and
conditions with respect to such Awards as shall not be inconsistent with the
provisions of the Plan, and (iii) to resolve all questions relating to the
administration of the Plan. The interpretation of and application by the
Committee of any provision of the Plan shall be final and conclusive. The
Committee may in its discretion establish such rules and guidelines relating to
the Plan as it may deem desirable. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Awards granted hereunder. The Committee may
employ such legal counsel, consultants and agents as it may deem desirable for
the administration of the Plan and may rely upon any opinion received from any
such counsel or consultant and any computation received from any such consultant
or agent. The Committee shall keep minutes of its actions under the Plan.
ARTICLE IV.
SHARES OF COMMON STOCK SUBJECT TO THE PLAN
Subject to the provisions of Article XV, the maximum number of shares with
respect to which the Awards may be granted under the Plan shall not exceed
twenty percent (20%) of the number of shares of Common Stock outstanding or a
maximum of 3,343,874 shares. Any shares subject to an Award under the Plan,
which Award for any reason expires or is terminated unexercised as to such
shares, shall again be available for the grant of other Awards under the Plan
provided, however, that forfeited Common Stock or other securities shall not be
available for further Awards if the participant has realized any benefits of
ownership from such Common Stock. Shares delivered upon exercise of the Awards,
at the election of the Board of Directors of the Company, may be stock that is
authorized but previously unissued or stock reacquired by the Company or both.
ARTICLE V.
ELIGIBILITY
The individuals who shall be eligible to participate in the Plan shall be
Employees, Consultants and Directors of the Company. An Employee, Consultant or
Director who has been granted an Award in one year shall not necessarily be
entitled to be granted Awards in subsequent years.
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ARTICLE VI.
GRANTS OF STOCK OPTIONS TO EMPLOYEES AND CONSULTANTS
The Committee may grant Options, as follows, which may be designated as (i)
NQSOs or (ii) ISOs intended to qualify under Code Section 422:
(a) Nonqualified Stock Options. A NQSO is a right to purchase a
specified number of shares of Common Stock during such specified time as
the Committee may determine, not to exceed ten (10) years, at a price
determined by the Committee that, unless deemed otherwise by the Committee,
is not less than the Fair Market Value of the Common Stock on the date the
option is granted. NQSOs granted to Employees and Consultants shall vest at
the rate of one quarter of the total granted on each of the first, second,
third and fourth anniversaries of the day of the grant, subject to
satisfaction of certain conditions involving continuous periods of service
or engagement.
(i) The purchase price of the Common Stock subject to the NQSO may
be paid in cash. At the discretion of the Committee, the purchase price
may also be paid by the tender of Common Stock or through a combination
of Common Stock and cash or through such other means as the Committee
determines are consistent with the Plan's purpose and applicable law. No
fractional shares of Common Stock will be issued or accepted.
(ii) Without limiting the foregoing, to the extent permitted by
law (including relevant state law), (A) the Committee may agree to
accept, as full or partial payment of the purchase price of Common Stock
issued upon the exercise of the NQSO, a promissory note of the person
exercising the NQSO evidencing the person's obligation to make future
cash payments to the Company, which promissory note shall be payable as
determined by the Company (but in no event later than five (5) years
after the date thereof), shall be secured by a pledge of the shares of
Common Stock purchased and shall bear interest at a rate established by
the Committee and (B) the Committee may also permit the person
exercising the NQSO, either on a selective or aggregate basis, to
simultaneously exercise the NQSO and sell the shares of Common Stock
acquired, pursuant to a brokerage or similar arrangement approved in
advance by the Committee, and use the proceeds from sale as payment of
the purchase price of such Common Stock.
(b) Incentive Stock Options. An ISO is an Award in the form of an
Option to purchase Common Stock that complies with the requirements of Code
Section 422 or any successor section.
(i) The aggregate Fair Market Value (determined at the time of the
grant of the Award) of the shares of Common Stock subject to ISOs which
are exercisable by one person for the first time during a particular
calendar year shall not exceed $100,000. To the extent that ISOs granted
to an employee exceed the limitation set forth in the preceding
sentence, ISOs granted last shall be treated as NQSOs.
(ii) No ISO may be granted under this Plan on or after the tenth
anniversary of the date this Plan is adopted or the date this Plan is
approved by shareholders, whichever is earlier.
(iii) No ISO may be exercisable more than:
(A) in the case of an Employee who is not a Ten Percent
Shareholder, within the meaning of Code Section 422, on the date the
ISO is granted; ten (10) years after the date the ISO is granted; and
(B) in the case of an Employee who is a Ten Percent
Shareholder, within the meaning of Code Section 422, on the date the
ISO is granted, five (5) years after the date the ISO is granted.
(iv) The exercise price of any ISO shall be determined by the
Committee and shall be no less than:
(A) in the case of an Employee who is not a Ten Percent
Shareholder, on the date the ISO is granted, the Fair Market Value of
the Common Stock subject to the ISO on such date; and
(B) in the case of an Employee who is a Ten Percent
Shareholder, on the date the ISO is granted, not less than 110
percent of the Fair Market Value of the Common Stock subject to the
ISO on such date.
(v) The Committee may provide that the option price under an ISO
may be paid by one or more of the methods available for paying the
option price of an NQSO.
(vi) ISOs shall vest at the rate of one quarter of the total
granted on each of the first, second, third and fourth anniversaries of
the day of the grant, subject to satisfaction of certain conditions
involving continuous periods of service or engagement.
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ARTICLE VII.
GRANTS OF STOCK APPRECIATION RIGHTS TO EMPLOYEES AND CONSULTANTS
An SAR is a right to receive, upon surrender of the right, but without
payment, an amount payable in cash.
(i) The amount payable with respect to each SAR shall be equal in
value to the applicable percentage of the excess, if any, of the Fair
Market Value of a share of Common Stock on the exercise date over the
exercise price of the SAR. The exercise price of the SAR shall be
determined by the Committee and shall not be less than the Fair Market
Value of a share of Common Stock on the date the SAR is granted.
(ii) In the case of an SAR granted in tandem with an ISO to an
Employee or Consultant who is a Ten Percent Shareholder on the date of such
grant, the amount payable with respect to each SAR shall be equal in value
to the applicable percentage of the excess, if any, of the Fair Market
Value of a share of Common Stock on the exercise date over the exercise
price of the SAR, which exercise price shall not be less than 110% of the
Fair Market Value of a share of Common Stock on the date the SAR is
granted.
(iii) The applicable percentage and exercise price shall be
established by the Committee at the time the SAR is granted.
(iv) SARs shall vest at the rate of one quarter of the total granted
on each of the first, second, third and fourth anniversaries of the day of
the grant, subject to satisfaction of certain conditions involving
continuous periods of service or engagement.
ARTICLE VIII.
GRANTS OF RESTRICTED STOCK TO EMPLOYEES AND CONSULTANTS
Restricted Stock is Common Stock of the Company that is issued to a
participant at a price determined by the Committee, which price may be zero, and
is subject to restrictions on transfer and/or such other restrictions on
incidents of ownership as the Committee may determine.
ARTICLE IX.
GRANTS OF PERFORMANCE AWARDS TO EMPLOYEES AND CONSULTANTS
A Performance Award granted under the Plan (i) may be denominated or
payable in cash, Common Stock (including without limitation, Restricted Stock),
other securities or other Awards and (ii) shall confer on the holder thereof the
right to receive payments, in whole or in part, upon the achievement of such
performance goals during such performance periods as the Committee shall
establish. Subject to the terms of the Plan and any applicable Award agreement,
the performance goals to be achieved during any performance period, the length
of any performance period, the amount of any Performance Award granted and the
amount of any payment or transfer to be made pursuant to any Performance Award
shall be determined by the Committee.
ARTICLE X.
GRANTS OF OTHER STOCK-BASED INCENTIVE AWARDS TO EMPLOYEES AND CONSULTANTS
The Committee may from time to time grant Awards under this Plan that
provide the participant with the right to purchase Common Stock or that are
valued by reference to the Fair Market Value of the Common Stock (including, but
not limited to, phantom securities or dividend equivalents). Such Awards shall
be in a form determined by the Committee (and may include terms contingent upon
a change of control of the Company), provided that such Awards shall not be
inconsistent with the terms and purposes of the Plan. The Committee will
determine the price of any Award and may accept any lawful consideration.
ARTICLE XI.
GRANTS OF STOCK OPTIONS TO DIRECTORS
(a) Directors of the Company shall be eligible to receive NQSOs under the
Plan. Each individual who agrees to become a Director shall receive, on June
30th of the first year of such service or as of the close of business thirty
(30) days following his/her election, whichever shall first occur, and without
the exercise of the discretion of any person, a NQSO under the Plan relating to
the purchase of 15,000 shares of Common Stock at an exercise price equal to the
Fair Market Value. Thereafter, on June 30th of each
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year, each individual who is a continuing Director shall receive, without the
exercise of the discretion of any person, a NQSO under the Plan relating to the
purchase of 10,000 shares of Common Stock.
(i) Notwithstanding the preceding, all continuing directors on June
30, 2001, shall receive, for that year only, a NQSO under the Plan relating
to the purchase of 5,000 shares of Common Stock.
(b) The exercise price of each share of Common Stock subject to a NQSO
granted to a Director shall equal the Fair Market Value of a share of Common
Stock on the date such NQSO is granted. The option price of a NQSO granted to a
Director may be paid in accordance with Article VI (a) (i) and (ii) of the Plan.
(c) Each automatic NQSO granted to a Director shall vest in full on the
date of the grant. The NQSOs to directors shall have a term not to exceed ten
(10) years from the date of grant, or, if later, the date the Grantee becomes a
Director. Notwithstanding the exercise period of any NQSO granted to a Director,
all such NQSOs shall immediately become exercisable upon (i) the death of a
Director while serving as such, or (ii) a Change of Control.
ARTICLE XII.
EXERCISE OF OPTIONS
Options granted under the Plan may be exercised by a Grantee only while the
Employee, Consultant or Director is and, continuously since the date the Option
was granted, has been an Employee, Consultant or Director of the Company or one
of its subsidiaries, except that:
(i) if the Grantee's termination of employment is other than for
Cause, any Options held by the Grantee may be exercised, to the extent then
exercisable, for a period of three months after the date of such
termination of employment;
(ii) if such termination of employment is by reason of retirement or
disability, any Options held by the Grantee at the time of death or
disability will be exercisable for a period of 12 months after the date of
such termination of employment;
(iii) in the event of death after termination of employment pursuant
to (i) or (ii) above, the person or persons to whom the Grantee's rights
are transferred by will or the laws of descent and distribution shall have
a period of three years from the date of termination of the Grantee's
employment to exercise any Options which the Grantee could have exercised
during such period; and
(iv) in the event of the death of an Grantee while employed, any
Options then held by the Grantee shall become fully and immediately
exercisable and may be exercised by the person or persons to whom the
Grantee's rights are transferred by will or the laws of descent and
distribution for a period of three years after the Grantee's death. In no
event, however, shall any Option be exercisable after the date specified in
Article VI, as applicable.
An Option granted hereunder shall be exercisable, in whole or in part, only
by written notice delivered in person or by mail to the Secretary of the Company
at its principal office, specifying the number of shares of Common Stock to be
purchased and accompanied by payment thereof and otherwise in accordance with
the option agreement pursuant to which the Option was granted.
In the event of a Change of Control affecting the Company, then,
notwithstanding any provision of the Plan or of any provisions of any Award
agreements entered into between the Company and any participant to the contrary,
all Awards that have not expired and which are then held by any participant (or
the person or persons to whom any deceased participant's rights have been
transferred) shall, as of such Change of Control, become fully and immediately
vested and exercisable and may be exercised for the remaining term of such
Awards.
ARTICLE XIII.
AWARD AGREEMENTS
Each Award granted under the Plan shall be evidenced by an Award agreement
between the Grantee and the Company, setting forth the number of shares of
Common Stock, SARs, or units subject to the Award and such other terms and
conditions applicable to the Award not inconsistent with the Plan as the
Committee may deem appropriate.
ARTICLE XIV.
TAX WITHHOLDING
The Committee may establish such rules and procedures as it considers
desirable in order to satisfy any obligation of the Company or any subsidiary to
withhold federal income taxes or other taxes with respect to any Award made
under the Plan. Such rules and procedures may provide (i) in the case of
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Awards paid in shares of Common Stock, that the person receiving the Award may
satisfy the withholding obligation by instructing the Company to withhold shares
of Common Stock otherwise issuable upon exercise of such Award in order to
satisfy such withholding obligation and (ii) in the case of an Award paid in
cash, that the withholding obligation shall be satisfied by withholding the
applicable amount and paying the net amount in cash to the participant.
ARTICLE XV.
DILUTION OR OTHER ADJUSTMENT
If the Company is a party to any merger or consolidation, or undergoes any
separation, reorganization or liquidation, the Board of Directors of the Company
shall have the power to make arrangements, which shall be binding upon the
holders of unexpired Awards, for the substitution of new Awards for, or the
assumption by another corporation of, any unexpired Awards then outstanding
hereunder. In the case of any ISO, such action shall be taken only in the manner
and to the extent permitted by Sections 422 and 424 of the Code. In addition, in
the event of a reclassification, stock split, combination of shares, separation
(including a spin-off), dividend on shares of the Common Stock payable in stock,
or other similar change in capitalization or in the corporate structure of
shares of the Common Stock of the Company, the Committee shall conclusively
determine the appropriate adjustment in the option prices of outstanding
Options, in the number and kind of shares or other securities as to which
outstanding Awards shall be exercisable, and in the aggregate number of shares
with respect to which Awards may be granted. In the case of any ISO, any such
adjustment in the shares or other securities subject to the ISO (including any
adjustment in the Option price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and only
to the extent permitted by Sections 422 and 424 of the Code.
ARTICLE XVI.
ASSIGNABILITY
No Award granted under this Plan shall be sold, pledged, assigned or
transferred other than by will or the laws of descent and distribution, and
Awards shall be exercisable during the Grantee's lifetime only by the Grantee.
ARTICLE XVII.
AMENDMENT OR TERMINATION
The Board of Directors of the Company may at any time amend, suspend or
terminate the Plan subject to the regulatory requirements of the United States
Securities and Exchange Commission and the National Association of Securities
Dealers or other applicable federal or state regulatory authority, provided,
however, that no change in any Awards previously granted may be made without the
consent of the holder thereof.
ARTICLE XVIII.
GENERAL PROVISIONS
(a) Common Stock acquired pursuant to the exercise of an Option under the
Plan shall be subject to applicable transfer restrictions under applicable
Canadian or United States federal securities laws, under the requirements of any
national securities exchange or market upon which such Common Stock are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Common Stock. If the instrument evidencing the Option so provides,
Common Stock issued on exercise of an Option granted under the Plan may upon
issuance be subject to additional restrictions.
(b) At the discretion of the Board of Directors, the Options and the
shares of Common Stock received upon exercise of an Option shall be registered
with the United States Securities and Exchange Commission and any applicable
state securities law commission. In the absence of such registration, both the
Options and the shares of Common Stock underlying the Options: 1) will be issued
only pursuant to an exemption from registration; 2) cannot be sold, pledged,
traded or otherwise disposed of in the absence of an effective registration
statement or an opinion of counsel satisfactory to the Company that such
registration is not required; 3) will bear an appropriate restrictive legend to
that effect. Individuals receiving Options may be required to sign an investment
letter satisfactory to the Board of Directors at the time the Options are
exercised, and may be required to comply with any other requirements for an
exemption under the Securities Act of 1933 and any applicable state securities
law exemption.
(c) The proceeds received by the Company from the sale of Common Stock,
pursuant to the exercise of Options granted under the Plan, shall be added to
the Company's general funds and used for general corporate purposes.
A-6
(d) No Awards may be exercised by the holder thereof if such exercise, and
the receipt of cash or stock thereunder, would be, in the opinion of counsel
selected by the Company, contrary to law or the regulations of any duly
constituted authority having jurisdiction over the Plan.
(e) No Award recipient shall have any rights as a shareholder with respect
to any shares subject to Awards granted to him or her under the Plan prior to
the date as of which he or she is actually recorded as the holder of such shares
upon the stock records of the Company.
(f) Nothing contained in the Plan or in Awards granted thereunder shall
confer upon any Employee, Consultant or Director any right to continue in the
employ of the Company or any of its subsidiaries or interfere in any way with
the right of the Company or any of its subsidiaries to terminate his or her
employment at any time.
ARTICLE XIX.
EFFECTIVE DATE
The Plan shall become effective on the date of its adoption by the Board of
Directors of the Company subject to approval of the Plan by the holders of a
majority of the outstanding voting shares of the Company within 12 months after
the date of the Plan's adoption by said Board of Directors. In the event of the
failure to obtain such shareholder approval, the Plan shall be null and void and
the Company shall have no liability thereunder. No Award granted under the Plan
shall be exercisable until such shareholder approval has been obtained.
ARTICLE XX.
TERMINATION
No Award may be granted under the Plan on or after the date which is ten
years following the effective date specified in Article XIX, but Awards
previously granted may be exercised in accordance with their terms.
Adopted June 6, 1996
As amended June 5, 1997, June 11, 1998,
February 28, 2001, May 1, 2003 and April 23, 2004
A-7
APPENDIX B
AMENDED CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
DUSA PHARMACEUTICALS, INC.
ARTICLE I.
PURPOSE
The purpose of the Audit Committee of the Board of Directors (the
"Committee") of DUSA Pharmaceuticals, Inc. ("DUSA") is to oversee the accounting
and financial reporting processes and audits of the financial statements and to
act as a liaison between the Board of Directors (the "Board") and the outside
independent auditors.
ARTICLE II.
RESPONSIBILITIES
The Committee's function shall be one of oversight and review. It is not
expected to control DUSA's accounting practices or to define the standards to be
used in the preparation of DUSA's financial statements. The Committee shall be
responsible for the following:
1. Selecting and replacing the independent auditor (subject, if
applicable, to shareholder ratification). The Committee shall be directly
responsible for the compensation and oversight of the work of the
independent auditor (including resolution of disagreements between
management and the independent auditor regarding financial reporting) for
the purpose of preparing or issuing an audit report or related work. The
independent auditor shall report directly to the Committee, unless National
Association of Securities Dealers ("NASD") or the Securities and Exchange
Commission (the "Commission") requirements dictate otherwise. The Committee
shall also be responsible for selecting, replacing, compensating and
overseeing the work of any other registered public accounting firm engaged
for the purpose of preparing or issuing an audit, review or related work.
2. Reviewing with the outside auditors, the internal auditors, if
any, and management the unaudited quarterly financial statements, the
planning and scope of the audits of the financial statements, and the
results of those audits.
3. Reviewing with the outside auditors, the internal auditors, if
any, and management the adequacy of internal accounting controls.
4. Reviewing and discussing quarterly reports from the independent
auditors on:
(a) All critical accounting policies and practices to be used;
(b) All alternative treatments of financial information within
generally accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent auditor; and
(c) Other material written communications between the independent
auditor and management, such as any management letter or schedule of
unadjusted differences.
5. Obtaining from the outside auditors a formal written statement,
consistent with Independence Standards Board Standard 1, delineating all
relationships between DUSA and the auditors, engaging in a dialogue with
the outside auditors regarding any disclosed relationships, and taking, or
recommending that the Board take, appropriate action to oversee the
independence of the outside auditors.
6. Reviewing and reassessing the adequacy of this Charter on an
annual basis and proposing appropriate amendments to the Board for its
consideration.
7. Monitoring other corporate and financial policies as requested by
the Board.
8. Investigating any matter brought to its attention, with the power
and authority to retain and compensate counsel and/or other experts for
this purpose.
9. Preapproving all auditing services and permitted non-audit
services to be performed for the Company by its independent auditor,
subject to the de minimis exceptions for non-audit services described in
Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") which are approved by the Audit Committee prior to the
completion of the audit. The Audit Committee may form and delegate
authority to subcommittees consisting of one or more members when
appropriate, including the authority to grant preapprovals of audit and
permitted non-audit services, provided that decisions of such subcommittee
to grant preapprovals shall be presented to the full Audit Committee at its
next scheduled meeting.
B-1
10. Discussing with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit, including any difficulties encountered in the course
of the audit work, any restrictions on the scope of activities or access to
requested information, and any significant disagreements with management.
11. Ensuring the rotation of the independent auditor personnel as
required by law or regulation.
12. Obtaining from the independent auditor assurance that Section
10A(b) of the Exchange Act has not been implicated.
13. Establishing procedures, as required by the Commission or the
NASD, for the receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls or auditing
matters, and the confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing matters.
14. Reviewing and approving all related party transactions of the
Company.
15. Reviewing disclosures made to the Committee, if any, by the
Company's Chief Executive Officer and Chief Financial Officer during their
certification process for the annual report on Form 10-K and quarterly
report on Form 10-Q about any significant deficiencies in the design or
operation of internal controls or material weaknesses therein and any fraud
involving management or other employees who have a significant role in the
Company's internal controls.
16. Reviewing and discussing any reports concerning material
violations submitted to the Committee by the Company's counsel pursuant to
the Commission's attorney professional responsibility rules.
ARTICLE III.
COMPOSITION AND INDEPENDENCE
The Committee shall be composed of at least three (3) independent
directors, recommended for membership by the Nominating and Corporate Governance
Committee, as defined by the rules of the NASD. Each member of the Committee
shall be able to read and understand fundamental financial statements as
required by the NASD. At least one (1) member of the Committee shall be an Audit
Committee Financial Expert, or have the financial expertise required by the NASD
and the Commission. If no such Audit Committee Financial Expert serves on the
Committee, DUSA shall disclose why no such Audit Committee Financial Expert
serves on the Committee, as specified by the NASD or Commission requirements.
The Committee members shall select a Chairman from among the members who shall
preside over meetings of the Committee consistent with the provisions of DUSA's
By-laws. The Chairman shall maintain regular liaison with senior management and
the internal and outside auditors as he or she determines is necessary or
appropriate.
ARTICLE IV.
MEETINGS AND REPORTS
The Committee shall meet on a regular basis, but no less than quarterly,
and may ask members of management or others to attend such meetings to provide
pertinent information, as necessary. A quorum shall be declared when a majority
of the appointed members of the Committee are in attendance.
The Committee shall report to the full Board on a quarterly basis with
respect to its activities and its recommendations. The Committee shall report to
the shareholders, once each year, in DUSA's proxy statement for its annual
meeting. The report to shareholders shall include the information required by
Regulation S-K, Item 306 of the Exchange Act.
ARTICLE V.
RESOURCES AND AUTHORITY
The Committee shall have the authority, to the extent it deems it necessary
or appropriate, to retain, compensate and terminate independent legal,
accounting or other advisors without the approval of Board or management of the
Company.
Adopted as of February 27, 2004
B-2
DUSA PHARMACEUTICALS, INC.
PROXY FOR 2004 ANNUAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints D. Geoffrey Shulman, MD, FRCPC and Shari
Lovell, or either of them, each with power of substitution, proxies to vote all
shares of common stock which the undersigned would possess if personally present
at the Annual Meeting of Shareholders (including all adjournments thereof) of
DUSA Pharmaceuticals, Inc. (the "Company") to be held on Thursday, June 10,
2004, at 11:00 a.m., at the Company's offices located at 25 Upton Drive,
Wilmington, Massachusetts.
SHAREHOLDERS ARE REQUESTED TO SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OR
CANADA.
The Board of Directors recommends a vote FOR each of the items listed
below. Unless otherwise specified, the vote represented by this proxy will be
cast FOR Items 1, 2 and 3.
1. Election of Directors
Nominees: Jay M. Haft, Esq.; John H. Abeles, MD; David M. Bartash;
Richard C. Lufkin; Magnus Moliteus; and D. Geoffrey Shulman,
MD, FRCPC
(Mark Only One Box)
O FOR all nominees listed above
O WITHHOLD authority to vote for all nominees listed above
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided.
2. Ratification of the selection of Deloitte & Touche LLP as auditors for the
Company for the fiscal year ending December 31, 2004.
O For O Against O Abstain
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3. Ratification of the amendment to the 1996 Omnibus Plan, as amended, to
increase the number of shares of common stock reserved for issuance
pursuant to the plan from 2,753,328 to 3,343,874 shares.
O For O Against O Abstain
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[REVERSE SIDE]
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
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PLEASE SIGN HERE as your name appears in this Proxy. When shares are held
by joint tenants, each joint tenant should sign. When signing as attorney,
executor, administrator, trustee, guardian or other fiduciary, please give your
full title as such. If the signer is a corporation, please sign in full
corporate name by a duly authorized officer; if a partnership, please sign in
the partnership name by an authorized person.
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Date
Signature of Shareholder
Signature if held jointly