UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-12
INTERNEURON PHARMACEUTICALS, INC.
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(Name of Registrant as Specified In Its Charter)
N/A
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Notes:
INTERNEURON PHARMACEUTICALS, INC.
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02421
----------------
Notice of Annual Meeting of Stockholders
To be held March 7, 2001
----------------
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of the Stockholders of
Interneuron Pharmaceuticals, Inc. (the "Company") will be held on March 7,
2001, at 10:00 a.m. local time at The Doubletree Guest Suites, 550 Winter
Street, Waltham, Massachusetts 02451. The Annual Meeting is called for the
following purposes:
1. To elect a board of seven directors;
2. To approve and ratify the appointment of PricewaterhouseCoopers LLP as
the independent auditors of the Company; and
3. To consider and take action upon such other matters as may properly
come before the meeting or any adjournment or adjournments thereof.
The close of business on January 22, 2001 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Annual Meeting. The stock transfer books of the Company will not be
closed.
All stockholders are cordially invited to attend the Annual Meeting. Whether
or not you expect to attend, you are respectfully requested by the Board of
Directors to sign, date and return the enclosed proxy promptly. Stockholders
who execute proxies retain the right to revoke them at any time prior to the
voting thereof. A return envelope which requires no postage if mailed in the
United States is enclosed for your convenience.
By Order of the Board of Directors,
Glenn L. Cooper, M.D.
President, Chief Executive
Officer and Chairman
Dated: January 29, 2001
INTERNEURON PHARMACEUTICALS, INC.
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02421
(781) 861-8444
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PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Interneuron Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), for the Annual Meeting of Stockholders
to be held at The Doubletree Guest Suites, 550 Winter Street, Waltham,
Massachusetts 02451 on Wednesday, March 7, 2001, at 10:00 a.m. and for any
adjournment or adjournments thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. Any stockholder giving
such a proxy has the power to revoke it at any time before it is voted.
Written notice of such revocation should be forwarded directly to the
Executive Vice President, Chief Financial Officer and Treasurer of the
Company, at the Company's above stated address. Attendance at the Annual
Meeting will not have the effect of revoking the proxy unless such written
notice is given or the stockholder votes by ballot at the Annual Meeting.
If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the directions thereon
and otherwise in accordance with the judgment of the persons designated as
proxies. Any proxy on which no direction is specified will be voted in favor
of the actions described in this Proxy Statement, including the election of
the nominees set forth under the caption "Election of Directors," and the
approval and ratification of the appointment of PricewaterhouseCoopers LLP as
the independent auditors of the Company.
The approximate date on which this Proxy Statement and the accompanying form
of proxy will first be mailed or given to the Company's stockholders is
February 7, 2001.
Your vote is important. Accordingly, you are urged to sign and return the
accompanying proxy card whether or not you plan to attend the Annual Meeting.
If you do attend, you may vote by ballot at the Annual Meeting, thereby
canceling any proxy previously given.
VOTING SECURITIES AND VOTING RIGHTS
Holders of shares of Common Stock, par value $.001 per share (the "Shares"),
and holders of shares of Series B and Series C Convertible Preferred Stock,
par value $.001 per share (the "Preferred Shares"), of record as of the close
of business on January 22, 2001, are entitled to notice of, and to vote at,
the Annual Meeting on all matters except that the holders of the Preferred
Shares are not entitled to vote for the election of directors. Except as set
forth in the preceding sentence, each outstanding Share is entitled to one
vote upon all matters to be acted upon at the Annual Meeting. For purposes of
voting at the Annual Meeting on all matters except the election of directors,
the Preferred Shares are treated as converted into Shares.
Accordingly, on the record date there were issued and outstanding an
aggregate of (i) 42,780,492 Shares entitled to vote for the election of
directors, and (ii) 43,402,714 Shares, giving effect to the right to vote
622,222 Shares held by the holder of the 244,425 Preferred Shares, voting as
one class, entitled to vote on all other matters. A majority of the
outstanding Shares entitled to vote on any matter and represented at the
Annual Meeting in person or by proxy shall constitute a quorum. Assuming a
quorum is present, (i) the affirmative vote of a plurality of the 42,780,492
Shares so represented and entitled to vote is necessary to elect the directors
and (ii) the affirmative vote of a majority of the 43,402,714 Shares so
represented and entitled to vote, excluding broker non-votes, is necessary to
approve the appointment of PricewaterhouseCoopers LLP as the independent
auditors of the Company.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. If a
stockholder, present in person or by proxy, abstains on any matter, the
stockholder's Shares will not be voted on such matter. Thus, an abstention
from voting on any matter has the same legal effect as a vote "against" the
matter, even though the stockholder may interpret such action differently.
Except for determining the presence or absence of a quorum for the transaction
of business, broker non-votes are not counted for any purpose in determining
whether a matter has been approved.
2
PRINCIPAL STOCKHOLDERS
Set forth below is information concerning stock ownership of all persons
known by the Company to own beneficially 5% or more of the Shares or Preferred
Shares, each director, each executive officer named under "Executive
Compensation" and all directors and executive officers of the Company as a
group based upon the number of outstanding Shares and Preferred Shares as of
January 22, 2001.
Amount and Nature Percent of
of Beneficial Outstanding
Name and Address of Beneficial Holder Ownership(1) Stock Owned(16)
------------------------------------- ----------------- --------------
Lindsay A. Rosenwald, M.D.................. 2,634,149 (2) 6.1%
Glenn L. Cooper, M.D....................... 2,035,123 (3) 4.5%
Mark S. Butler............................. 987,587 (4)(5) 2.3%
Bobby W. Sandage, Jr., Ph.D. .............. 1,041,083 (5)(6) 2.4%
Michael W. Rogers.......................... 693,625 (5)(7) 1.6%
Harry J. Gray.............................. 72,585 (8) *
Alexander M. Haig, Jr...................... 73,085 (9) *
Malcolm Morville, Ph.D..................... 123,085 (10) *
Lee J. Schroeder........................... 123,085 (10) *
David B. Sharrock.......................... 172,085 (11) *
J. Morton Davis............................ 4,479,452 (12) 10.5%
c/o D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Dov and Laya Perlysky...................... 2,622,481 (13) 6.1%
9 Beachwood Drive
Lawrence, New York 11559
American Home Products Corp................ 244,425 (14) 100%
Five Giralda Farms
Madison, New Jersey 07940
All directors and executive officers
as a group (10 persons).................. 7,955,492 (15) 16.5%
--------
*Less than one percent.
(1) Beneficial ownership is defined in accordance with the rules of the
Securities and Exchange Commission ("S.E.C.") and generally means the
power to vote and/or to dispose of the securities regardless of any
economic interest therein.
(2) Includes (i) 2,427,481 Shares, of which 410,000 have been pledged in
favor of a bank, and (ii) 206,668 Shares issuable upon exercise of
options exercisable within 60 days, but excludes (i) 83,332 Shares
issuable upon exercise of options which are not exercisable within 60
days, and (ii) 638,431 Shares owned by Dr. Rosenwald's wife, as to which
Shares Dr. Rosenwald disclaims beneficial ownership.
(3) Includes (i) 7,206 Shares, and (ii) 2,027,917 Shares issuable upon
exercise of options exercisable within 60 days, but excludes (i) 702,083
Shares issuable upon exercise of options which are not exercisable within
60 days, (ii) 150,000 Shares subject to restricted stock awards which do
not vest within 60 days and (iii) the following held by Dr. Cooper's
wife, an employee of the Company: 95,000 Shares issuable upon exercise of
options, as to all of which Shares Dr. Cooper disclaims beneficial
ownership.
3
(4) Includes (i) 4,378 Shares, (ii) 3,000 Shares owned by Mr. Butler's
children, and (iii) 980,209 Shares issuable upon exercise of options
exercisable within 60 days, but excludes 394,791 Shares issuable upon
exercise of options which are not exercisable within 60 days.
(5) Excludes 100,000 Shares subject to restricted stock awards which do not
vest within 60 days.
(6) Includes (i) 2,228 Shares and (ii) 1,038,855 Shares issuable upon
exercise of options exercisable within 60 days, but excludes 378,645
Shares issuable upon exercise of options which are not exercisable within
60 days.
(7) Includes (i) 28,000 Shares and (ii) 665,625 Shares issuable upon exercise
of options exercisable within 60 days, but excludes 759,375 Shares
issuable upon exercise of options which are not exercisable within
60 days.
(8) Includes 72,585 Shares issuable upon exercise of options exercisable
within 60 days, but excludes 73,915 Shares issuable upon exercise of
options which are not exercisable within 60 days.
(9) Includes 73,085 Shares issuable upon exercise of options exercisable
within 60 days, but excludes 73,915 Shares issuable upon exercise of
options which are not exercisable within 60 days.
(10) Includes 123,085 Shares issuable upon exercise of options exercisable
within 60 days, but excludes 73,915 Shares issuable upon exercise of
options which are not exercisable within 60 days.
(11) Includes (i) 5,000 Shares and (ii) 167,085 Shares issuable upon exercise
of options exercisable within 60 days, but excludes 73,915 Shares
issuable upon exercise of options which are not exercisable within
60 days.
(12) Based on information contained in Form 4s and amendments to a Schedule
13-D filed with the S.E.C. Includes (i) 50,156 Shares owned by J. Morton
Davis; (ii) 3,751,431 Shares owned by D.H. Blair Investment Banking Corp.
which is owned by J. Morton Davis; and (iii) 677,865 Shares owned by
Rivkalex Corp., the sole stockholder of which is Mr. Davis' wife. Mr.
Davis disclaim beneficial ownership of the Shares owned by Rivkalex.
(13) Based on information contained in a Schedule 13-G filed with the S.E.C.
Includes (i) 1,890,000 Shares owned directly by Dov Perlysky; (ii) 74,000
Shares owned by a charitable entity controlled by Dov Perlysky's wife,
Laya Perlysky; and (iii) 658,481 Shares owned directly by Laya Perlysky.
Dov and Laya Perlysky disclaim beneficial ownership of all Shares held by
each other.
(14) Represents Preferred Shares, which constitute all of the outstanding
Preferred Shares, and which are convertible into 622,222 Shares, each
entitled to one vote per Share, on a converted basis, on all matters
except the election of directors. American Home Products Corp. ("AHP")
also owns 31,422 Shares.
(15) Includes 5,478,199 Shares issuable upon exercise of options exercisable
within 60 days, but excludes (i) 2,687,801 Shares issuable upon exercise
of options which are not exercisable within 60 days and (ii) 450,000
Shares subject to restricted stock awards which do not vest within 60
days.
(16) All holders own Shares, with the exception of AHP which owns (i) 244,425
Preferred Shares (convertible into 622,222 Shares) and (ii) 31,422
Shares. The percent of class in this column is calculated as follows:
(a) for holders of Shares, on the basis of 42,780,492 Shares outstanding,
excluding 622,222 Shares issuable upon conversion of the Preferred
Shares, representing the number of Shares outstanding and entitled to
vote for the election of directors of the Company, except that Shares
issuable or which may be issuable within 60 days are deemed to be
outstanding for purposes of calculating the percent owned by the holder
of such securities.
(b) for holders of Preferred Shares, the percent of class is calculated on
the basis of 244,425 Preferred Shares outstanding.
4
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
At the Annual Meeting, seven directors will be elected by the stockholders
to serve until the next Annual Meeting of Stockholders or until their
successors are elected and shall qualify. Each of the nominees is currently a
director of the Company. Management recommends that the persons named below be
elected as directors of the Company and it is intended that the accompanying
proxy will be voted for the election as directors of the seven persons named
below, unless the proxy contains contrary instructions. The Company has no
reason to believe that any of the nominees will not be a candidate or will be
unable to serve. However, in the event that any of the nominees should become
unable or unwilling to serve as a director, the persons named in the proxy
have advised that they will vote for the election of such person or persons as
shall be designated by management.
The following sets forth certain information relating to the seven nominees
for election to the Board of Directors.
Glenn L. Cooper, M.D. (48) has been President, Chief Executive Officer and a
director of the Company since May 1993 and Chairman since January 2000. Dr.
Cooper was also President and Chief Executive Officer of Progenitor, Inc., a
minority-owned subsidiary of the Company, which announced its decision to
cease operations in December 1998 ("Progenitor"), from September 1992 to May
1993. Prior to joining Progenitor, Dr. Cooper was Executive Vice President and
Chief Operating Officer of Sphinx Pharmaceuticals Corporation from August
1990. Dr. Cooper had been associated with Eli Lilly since 1985, most recently,
from June 1987 to July 1990, as Director, Clinical Research, Europe, of Lilly
Research Center Limited; from October 1986 to May 1987 as International
Medical Advisor, International Research Coordination of Lilly Research
Laboratories; and from June 1985 to September 1986 as Medical Advisor,
Regulatory Affairs, Chemotherapy Division at Lilly Research Laboratories. Dr.
Cooper is a director and Vice Chairman of Proneuron Biotechnologies, Inc., a
private Israeli-based biotechnology company. Dr. Cooper received his M.D. from
Tufts University School of Medicine, performed his postdoctoral training in
Internal Medicine and Infectious Diseases at the New England Deaconess
Hospital and Massachusetts General Hospital and received his B.A. from Harvard
College.
Harry J. Gray (81) has been a director of the Company since May 1993. Mr.
Gray was associated with United Technologies Corp. for 17 years and was its
President from 1971 until 1972 when he became its Chairman and Chief Executive
Officer until his retirement in 1986. Mr. Gray is currently Chairman and Chief
Executive Officer of Harry Gray Associates of Florida, a private investment
firm, Chairman of Mott Corporation and Chairman of SourceOne Worldwide, Inc.,
formerly known as Worldwide Fulfillment and Distribution, Inc.
Alexander M. Haig, Jr. (76) has been a director of the Company since January
1990. Since August 1982, General Haig has been Chairman and President of
Worldwide Associates, Inc., a business adviser to both U.S. and foreign
companies in connection with international marketing and venture capital
activities. From January 1981 until July 1982, General Haig served as
Secretary of State of the United States. From December 1979 until January
1981, General Haig was President and Chief Operating Officer of United
Technologies Corp. and is currently a senior consultant to such corporation.
From 1974 through 1979, General Haig was the Supreme Allied Commander of NATO.
Prior to that, he was White House Chief of Staff under the Nixon and Ford
Administrations. General Haig currently serves on the Board of Directors of
America Online, Inc., MGM Grand, Inc., and Metro-Goldwyn-Mayer Inc.
Malcolm Morville, Ph.D. (55) has been a director of the Company since
February 1993. Since March 1993, Dr. Morville has been President and Chief
Executive Officer and a director of Phytera, Inc., a plant and marine
microbial-based biotechnology company. Dr. Morville is also Chairman and a
member of the Board of Directors of Phytera A/S and a member of the Board of
Directors of Phytera Ltd. and Phytera Symbion ApS, all of which are wholly-
owned subsidiaries of Phytera, Inc. From June 1988 through January 1993, Dr.
Morville held various positions with ImmuLogic Pharmaceutical Corporation,
including Senior Vice President, Allergic Diseases Strategic Business Unit and
Senior Vice President, Development and Preclinical Research. From 1970 to June
1988, Dr. Morville held various positions with Pfizer Central Research,
including Director, Immunology and
5
Infectious Diseases and Assistant Director, Metabolic Diseases and General
Pharmacology. Dr. Morville received his Ph.D. and his B.Sc. in Biochemistry at
the University of Manchester Institute of Science and Technology (U.K.).
Lindsay A. Rosenwald, M.D. (45) was a co-founder and from February 1989 to
January 19, 2000 was Chairman of the Board of Directors of the Company. Dr.
Rosenwald is also the founder and Chairman of Paramount Capital Asset
Management, Inc., which serves as the General Partner of Aries Domestic Fund,
L.P. and the Aries Domestic Fund II, L.P. and as the investment manager of The
Aries Master Fund, a Cayman Islands exempted company. Dr. Rosenwald is also
the founder and Chairman of Paramount Capital Investments, LLC, a
biotechnology, biomedical and biopharmaceutical merchant banking firm, and
Paramount Capital, Inc., an investment bank specializing in the biotechnology,
biomedical and biopharmaceutical industries. Dr. Rosenwald is also a director
of Neose Technologies, Inc., a manufacturer of bioactive carbohydrates, Keryx
Biopharmaceuticals, Inc., a publicly traded post-genomics, drug discovery and
development company, Access Oncology, formerly MedClips.com, and he has
founded numerous biopharmaceutical companies and currently serves as an
officer or director of several privately held biopharmaceutical companies. Dr.
Rosenwald is also the President of the Rosenwald Foundation, a charitable
foundation based in New York which will assist outstanding scientists in their
continued research and development in order to further the advancement of
biotechnology. Dr. Rosenwald received his M.D. from Temple University School
of Medicine and his B.S. in Finance from Pennsylvania State University.
Lee J. Schroeder (72) has been a director of the Company since August 1991.
Since 1985, Mr. Schroeder has been the President of Lee Schroeder &
Associates, Inc., a pharmaceutical consulting firm. Mr. Schroeder was
President and Chief Operating Officer of FoxMeyer Lincoln Drug Co., a
wholesale drug company, from February 1983 to March 1985 and was the Executive
Vice President, responsible for United States pharmaceutical operations, and a
member of the executive committee of Sandoz, Inc. from April 1981 to February
1983, and was Vice President and General Manager of Dorsey Laboratories, a
division of Sandoz, Inc., from November 1974 to April 1981. Mr. Schroeder is
also a member of the Board of Directors of Ascent Pediatrics, Inc., Celgene
Corporation, and MGI Pharma Inc.
David B. Sharrock (64) has been a director of the Company since February
1995. Mr. Sharrock was associated with Marion Merrell Dow Inc. and its
predecessor companies for over thirty-five years until his retirement in
December 1993. Most recently, since December 1989, he served as Executive Vice
President and Chief Operating Officer and a director, and in 1988, he was
named President and Chief Operating Officer of Merrell Dow Pharmaceuticals,
Inc. Mr. Sharrock has been a consultant to the Company since February 1994 and
is also a director of Incara Pharmaceuticals Corp. ("Incara"), Praecis
Pharmaceuticals, Inc. and Broadwing, Inc.
Directors are elected by the Company's stockholders at each annual meeting
or, in the case of a vacancy, are appointed by the directors then in office,
to serve until the next annual meeting or until their successors are elected
and qualified. Officers are appointed by and serve at the discretion of the
Board of Directors.
MEETINGS OF THE BOARD OF DIRECTORS
Board of Directors
The Board of Directors of the Company held six meetings during the fiscal
year ended September 30, 2000 ("fiscal 2000"). Each of the incumbent directors
attended at least 75% of the aggregate number of meetings of the Board of
Directors and the committees thereof held during fiscal 2000, during the
tenure of such directors' service.
Audit Committee
The Audit Committee consists of General Haig, Mr. Schroeder and Mr.
Sharrock. The Audit Committee assists the Board by overseeing the performance
of the independent auditors and the quality and integrity of the Company's
internal accounting, auditing and financial reporting practices. The Audit
Committee's primary duties and responsibilities are to: (1) serve as an
independent and objective party to monitor the Company's financial
6
reporting process and internal control system; (2) review and appraise the
audit efforts of the Company's independent auditors; and (3) provide an open
avenue of communication among the independent auditors, the Company's
financial and senior management and the Board of Directors. The Audit
Committee met four times during fiscal 2000.
Compensation Committee
The Compensation Committee, which consists of Mr. Gray, General Haig, Dr.
Morville and Mr. Sharrock, reviews and determines the compensation of all
executive officers of the Company, reviews general policy matters relating to
compensation and benefits of employees of the Company, administers the
Company's stock option and other employee compensation plans, including the
1989 Stock Option Plan (the "1989 Plan"), the 1994 Long-Term Incentive Plan,
as amended (the "1994 Plan"), the 1995 Employee Stock Purchase Plan, as
amended (the "1995 Plan"), the 1997 Equity Incentive Plan (the "1997 Plan"),
the 1998 Employee Stock Option Plan (the "1998 Plan") and the 2000 Stock
Option Plan (the "2000 Plan"), consults with management on matters concerning
compensation and makes recommendations to the Board of Directors on
compensation matters where approval of the Board of Directors is required.
During fiscal 2000, the Compensation Committee met three times.
The Company does not have a nominating committee.
DIRECTOR COMPENSATION
Cash Compensation
With the exception of General Haig who receives a $10,000 fee per meeting
attended, non-employee directors (except Dr. Rosenwald) of the Company receive
a fee of $2,000 per in-person meeting attended and regularly scheduled
quarterly meetings conducted telephonically. For each other meeting held by
telephone conference, such directors receive a percentage of the regular
meeting fee. Except for Dr. Rosenwald, each non-employee director is
reimbursed for expenses actually incurred in attending meetings.
Options
On the date following each annual meeting of the stockholders, each director
of the Company (except Drs. Rosenwald and Cooper) is entitled to receive
automatic grants of options to purchase 5,000 Shares under the 1994 Plan,
which options will be exercisable at a price equal to the fair market value of
Shares as determined on the date of grant. Accordingly, during fiscal 2000
each director (except Drs. Rosenwald and Cooper) received options to purchase
5,000 Shares, subject to annual vesting, as an automatic grant under the 1994
Plan. Also, on April 5, 2000, the Company granted to each non-employee
director an option to purchase 100,000 Shares at the fair market value of the
Shares as determined on that date.
On May 5, 1998 and August 17, 1998 the Board of Directors offered (the
"Repricing Offers") each eligible employee, officer, consultant and director
of the Company (the "Option Holders") the right to exchange certain of his or
her then outstanding options or warrants (the "Exchanged Options") for new
options or warrants to purchase the number of Shares represented by the
existing options or warrants at an exercise price equal to the fair market
value of the Shares on the date of each Repricing Offer (the "Repriced
Options"). All of the directors were eligible to participate in each of the
Repricing Offers, and exchanged in the aggregate options to purchase 839,500
Shares for Repriced Options (excluding Dr. Cooper, who exchanged in the
aggregate options to purchase 1,760,000 Shares for Repriced Options).
Consulting Agreements and Subsidiary Compensation
Until October 31, 1999, the Company had a Consulting and Non-Competition
Agreement with former director, Dr. Richard Wurtman, and currently has a
Consulting and Non-Competition Agreement with Mr. Sharrock and a Management
Agreement with Dr. Rosenwald. During fiscal 2000, the Company paid
Drs. Wurtman and Rosenwald fees of $13,356 and $30,000, respectively, pursuant
to their agreements. Dr. Wurtman resigned from the Board effective July 29,
1999, and the Company terminated his Consulting and Non-Competition Agreement
effective as of October 31, 1999. In fiscal 2000, the Company paid or accrued
to Mr. Sharrock consulting fees for consulting services rendered by Mr.
Sharrock to the Company of $32,000.
7
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer and
the three other executive officers of the Company whose annual compensation
exceeded $100,000 for fiscal 2000 (collectively, the "named executive
officers") for services during the fiscal years ended September 30, 2000, 1999
and 1998.
Summary Compensation Table
Annual Compensation Long-Term Compensation
--------------------------------- -------------------------------
Awards Payouts
--------------------- ---------
Long-Term
Restricted Securities Incentive
Other Annual Stock Underlying Plan All Other
Name and Principal Salary Bonus Compensation Awards Options Payouts Compensation
Position Year ($) ($) (1) ($) (1) (2) ($) (3) (#) (4) ($) ($) (5)
------------------ ---- ------- ------- ------------ ---------- ---------- --------- ------------
Glenn L. Cooper, M.D.... 2000 350,000 189,000 -- 356,250 935,000 -- 6,055
President, Chief
Executive 1999 350,000 70,000 -- --- -- -- 5,550
Officer and Chairman 1998 351,673 73,500 -- 3,037,033 2,414,292 -- 5,544
Mark S. Butler.......... 2000 265,000 119,250 -- 237,500 485,000 -- 6,277
Executive Vice
President, Chief 1999 265,000 45,050 -- -- -- -- 5,096
Administrative Officer
and 1998 258,069 46,375 -- 1,734,375 1,160,000 -- 3,801
General Counsel
Michael W. Rogers (6)... 2000 265,000 119,250 12,483 237,500 975,000 -- 3,266
Executive Vice
President, 1999 156,962 45,050 15,752 412,500 450,000 -- 3,052
Chief Financial Officer
and Treasurer 1998 -- -- -- -- -- -- --
Bobby W. Sandage, Jr.,
Ph.D. ................. 2000 265,000 119,250 -- 237,500 472,500 -- 1,989
Executive Vice
President, 1999 265,000 45,050 -- -- -- -- 2,379
Research and
Development, 1998 253,911 46,375 -- 1,734,375 1,135,000 -- 2,502
Chief Scientific
Officer
--------
(1) Amounts shown in this column include compensation accrued in the specified
fiscal year, portions of which may have been paid in a subsequent fiscal
year.
(2) Amounts shown in this column consist of the following: (i) for fiscal 2000
for Mr. Rogers, a tax gross-up payment of $12,483 to cover the payment of
taxes incurred by Mr. Rogers from the inclusion of fiscal 1999 moving,
relocation or temporary living expenses; and (ii) for fiscal 1999 for Mr.
Rogers, $15,752 in moving, relocation or temporary living expenses.
(3) Amounts shown in this column consist of the value of the Shares subject to
restricted stock awards granted to named executive officers under the 1997
Plan, including for Dr. Cooper in fiscal 1998, $435,470 representing the
value of the 40,850 Shares subject to restricted stock awards granted to
Dr. Cooper's wife, the Company's Vice President of Human Resources, as to
which Dr. Cooper disclaims beneficial ownership. Amounts shown in this
column were calculated based on the fair market value of Shares on the
date of the grant of the award as quoted by the Nasdaq Stock Market
("Nasdaq"), multiplied by the number of Shares subject to the restricted
stock award: (i) for fiscal 2000, the fair market value of the Shares was
$2.375, representing the closing price of the Shares on April 5, 2000;
(ii) for fiscal 1999, the fair market value of the Shares was $4.125,
representing the closing price of the Shares on February 23, 1999; and
(iii) for fiscal 1998, the fair market value of the Shares was $11.5625,
representing the closing price of the Shares on November 7, 1997, except
for 6,650 Shares subject to an award made to Dr. Cooper's wife on May 5,
1998, for which the fair market value was $6.02.
The number of Shares subject to restricted stock awards granted to the
named executive officers were as follows: (i) in fiscal 2000, 150,000
Shares to Dr. Cooper and 100,000 each to Messrs. Butler and Rogers and Dr.
Sandage; (ii) in fiscal 1999, 100,000 Shares to Mr. Rogers; and (iii) in
fiscal 1998, 225,000 Shares to Dr. Cooper and 150,000 Shares to each of Mr.
Butler and Dr. Sandage. The Shares subject to the restricted stock awards
may be sold immediately upon their vesting which is subject to automatic
extension during a
8
Black-Out Period (as defined in the 1997 Plan). With respect to Mr. Rogers,
initial vesting of his Shares subject to a restricted stock award was
scheduled to commence in May 1999 and extend through May 2000. In December
1999, the Board of Directors amended Mr. Rogers' restricted stock award by
changing the vesting date for certain Shares from May 2000 to December
1999. Prior to their issuance upon vesting and satisfaction of any other
required conditions, no dividends are payable with respect to the Shares
subject to the restricted stock awards.
In fiscal 2000, a portion of the Shares subject to the restricted stock
awards vested with respect to each of the named executive officers and,
upon payment representing the par value of the Shares, Shares were issued
to the named executive officers as follows: 150,000 Shares to Dr. Cooper
and 100,000 Shares to each of Messrs. Butler and Rogers and Dr. Sandage.
The value of the shares issued at vesting, determined by the weighted
average of the fair market value of the Shares sold in the aggregate by the
named executive officers or other employees each day of vesting, multiplied
by the number of Shares minus the amount of consideration paid, was as
follows: $336,671 for Dr. Cooper (excluding $50,767 for Dr. Cooper's wife),
$222,007 for Mr. Butler, $209,260 for Mr. Rogers and $223,302 for Dr.
Sandage.
In fiscal 1998, a portion of the Shares subject to the restricted stock
awards vested with respect to Drs. Cooper and Sandage and Mr. Butler and,
upon payment representing the par value of the Shares, Shares were issued
to the named executive officers as follows: 75,000 Shares to Dr. Cooper and
50,000 Shares to each of Mr. Butler and Dr. Sandage. The value of the
Shares issued at the May 1998 vesting, determined by the weighted average
of the fair market value of the Shares sold in the aggregate by such named
executive officers or other employees each day of vesting, multiplied by
the number of Shares minus the amount of consideration paid, was as
follows: $442,613 for Dr. Cooper (excluding $103,613 for Dr. Cooper's
wife), $278,975 for Mr. Butler, and $283,300 for Dr. Sandage.
The number and value of the Shares subject to outstanding restricted stock
awards of the named executive officers at the end of fiscal 2000 were as
follows:
Number of Shares
Subject to Value of Restricted
Named Executive Officer Restricted Stock Awards Stock Awards (a)
----------------------- ----------------------- -------------------
Glenn L. Cooper, M.D. .......... 150,000 $342,150
Mark S. Butler.................. 100,000 $228,100
Michael W. Rogers............... 100,000 $228,100
Bobby W. Sandage, Jr., Ph.D..... 100,000 $228,100
--------
(a) The value is calculated by multiplying the number of Shares subject to
outstanding restricted stock awards at year end by the fair market
value of the outstanding Shares on September 30, 2000 ($2.28), as
quoted by Nasdaq.
(4) Consists of options granted by the Company to the named executive
officers, except for Dr. Cooper (a) for fiscal 1998, which also includes
(i) 25,792 and 33,500 options granted by Incara and Progenitor,
respectively; and (ii) options to purchase an aggregate of 95,000 Shares
granted to Dr. Cooper's wife, as to which Shares Dr. Cooper disclaims
beneficial ownership; and (b) for fiscal 2000, which also includes options
to purchase an aggregate of 25,000 Shares granted to Dr. Cooper's wife as
to which Shares Dr. Cooper disclaims beneficial ownership.
For fiscal 1998, this column includes Exchanged Options granted to such
named executive officers, which were exchanged for Repriced Options,
including Exchanged Options in the following amounts: 500,000 to Dr.
Cooper; 250,000 to Mr. Butler; and 250,000 to Dr. Sandage.
9
(5) Amounts shown in this column include the following:
(a) disability insurance premiums paid on behalf of the named executive
officers, in the following amounts: (i) for fiscal 2000, $1,330 for Dr.
Cooper, $1,007 for Mr. Butler, $972 for Mr. Rogers and $1,007 for Dr.
Sandage; (ii) for fiscal 1999, $1,343 for Dr. Cooper, $1,016 for Mr.
Butler, $868 for Mr. Rogers and $1,015 for Dr. Sandage; and (iii) for
fiscal 1998, $1,368 for Dr. Cooper, $1,009 for Mr. Butler and $992 for
Dr. Sandage.
(b) group term life insurance premiums paid on behalf of the named
executive officers, in the following amounts: (i) for fiscal 2000,
$1,125 for Dr. Cooper, $1,529 for Mr. Butler, $584 for Mr. Rogers and
$982 for Dr. Sandage; (ii) for fiscal 1999, $1,559 for Dr. Cooper,
$2,210 for Mr. Butler, $474 for Mr. Rogers and $1,364 for Dr. Sandage;
and (iii) for fiscal 1998, $1,771 for Dr. Cooper, $2,792 for Mr. Butler
and $1,510 for Dr. Sandage.
(c) term life insurance premium payments to or on behalf of the named
executive officers as follows: (i) for fiscal 2000, $3,600 for Dr.
Cooper, $3,741 for Mr. Butler and $1,710 for Mr. Rogers; (ii) for
fiscal 1999, $2,684 for Dr. Cooper, $1,870 for Mr. Butler and $1,710
for Mr. Rogers; and (iii) for fiscal 1998, $2,405 for Dr. Cooper.
(6) Mr. Rogers became a named executive officer of the Company on February 23,
1999.
The following table sets forth certain information with respect to
individual grants of stock options made by the Company during fiscal 2000 to
the named executive officers:
Option Grants in Last Fiscal Year
Potential
Realizable Value at
Individual Grants Assumed Annual
---------------------------------------------------- Rates of Stock
Number of % of Total Price Appreciation
Securities Options/SARs for Option Term ($)
Underlying Granted to Exercise or (7)
Options/SARs Employees in Base Price Expiration -------------------
Name Granted (#) Fiscal Year (2) ($/Share) Date 5% 10%
---- ------------ --------------- ----------- ---------- --------- ---------
Glenn L. Cooper, M.D.... 910,000(1) 25% 2.375 4/5/10 1,359,199 3,444,476
Mark S. Butler.......... 485,000(1) 13% 2.375 4/5/10 724,408 1,835,792
Michael W. Rogers....... 475,000(3) 13% 2.375 4/5/10 709,472 1,797,941
Michael W. Rogers....... 250,000(4) 7% 4.00 4/5/07 -- 157,051
Michael W. Rogers....... 250,000(5) 7% 6.00 (6) -- --
Bobby W. Sandage, Jr.,
Ph.D................... 472,500(1) 13% 2.375 4/5/10 705,738 1,788,478
--------
(1) Represents: (i) for Dr. Cooper, 600,000 options granted under the 2000
Plan and 310,000 options granted under the 1994 Plan; (ii) for Mr. Butler,
300,000 options granted under the 2000 Plan and 185,000 options granted
under the 1994 Plan; and (iii) for Dr. Sandage, 300,000 options granted
under the 2000 Plan and 172,500 options granted under the 1994 Plan.
(2) Options to purchase a total of 3,606,750 Shares were granted to officers
and employees in fiscal 2000.
(3) 300,000 of these options were granted to Mr. Rogers under the 2000 Plan
and 175,000 of the options were granted under the 1994 Plan.
(4) These options were granted to Mr. Rogers under the 1998 Plan.
(5) 125,000 of these options were granted to Mr. Rogers under the 1998 Plan
and 125,000 of the options were granted under the 1994 Plan.
(6) The 125,000 options granted to Mr. Rogers under the 1998 Plan have an
expiration date of April 5, 2007 and the 125,000 options granted under the
1994 Plan have an expiration date of April 5, 2010.
10
(7) Calculated by multiplying the exercise price by the annual appreciation
rate shown (as prescribed by S.E.C. rules and compounded for the term of
the options), subtracting the exercise price per share and multiplying the
gain per share by the number of shares covered by the options. These
amounts are not intended to forecast possible future appreciation, if any,
of the price of the Shares.
The following table sets forth certain information with respect to each
exercise of stock options during fiscal 2000 by named executive officers and
the number and value of unexercised options held by each of the named
executive officers as of September 30, 2000:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
Number of Securities
Underlying Unexercised
Options at Fiscal Value of Unexercised in-the-Money
Shares Acquired Value Year-End Exercisable/ Options at Fiscal Year-End
Name on Exercise (#) Realized ($) (1) Unexercisable (#) Exercisable/Unexercisable ($) (2)
---- --------------- ---------------- ---------------------- ---------------------------------
Glenn L. Cooper, M.D.... -- -- 1,607,084/1,122,916 ---- / ----
Mark S. Butler.......... 80,000 148,700 707,293/667,707 ---- / ----
Michael W. Rogers....... -- -- 346,875/1,078,125 ---- / ----
Bobby W. Sandage, Jr.,
Ph.D................... -- -- 777,397/640,103 ---- / ----
--------
(1) This amount represents the number of options exercised multiplied by the
difference between the exercise price of the options and the sale price of
the Shares on the sale date.
(2) At September 30, 2000, none of the named executive officers owned options
with an exercise price lower than $2.28, the fair market value of the
Shares at September 30, 2000.
Restricted Stock Awards
In fiscal 1998, the Company adopted the 1997 Plan, which covers an aggregate
of 1,750,000 Shares that have been and may be issued pursuant to restricted
stock awards upon satisfaction of specified vesting periods, in consideration
of services rendered to the Company, the par value of the Shares, or such
other consideration as the Board of Directors or the Compensation Committee of
the Board may determine. The Shares issued and subject to the awards may be
sold immediately upon their vesting. The Company has a registration statement
on Form S-8 relating to the issuance of Shares under the 1997 Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Glenn L. Cooper, M.D.
Effective May 1, 1999, the Company entered into an employment agreement (the
"Cooper Agreement") with Dr. Glenn L. Cooper, which supersedes the Company's
prior employment agreement with Dr. Cooper, for Dr. Cooper to continue to
serve as Chief Executive Officer and President of the Company for a term of
three years. The Cooper Agreement provides for an annual base salary of
$350,000, plus bonuses pursuant to the Company's Senior Executive Bonus Plan
and eligibility to receive grants of stock options pursuant to the Company's
stock option plans, as approved by the Board of Directors or the Compensation
Committee of the Board of Directors. The Company provides Dr. Cooper with a
$1,000,000 life insurance policy payable to the beneficiary of his choice.
The Cooper Agreement provides that Dr. Cooper may not, during the term of
the Cooper Agreement and for a year from the date of termination of
employment, engage in any business competitive with the Company or its
research activities, unless such termination is by Dr. Cooper for "Just
Cause," as such term is defined in the Cooper Agreement. If Dr. Cooper is
terminated for reasons other than "Just Cause" or a "Change in Control,"
11
as such terms are defined in the Cooper Agreement, he is entitled to receive
his base salary plus pro-rated average bonuses, for a period equal to the
longer of (a) the remainder of the term of the Cooper Agreement or (b) twelve
(12) months from the termination date of the Cooper Agreement, either in a
lump sum or installments, at the discretion of the Company.
Mark S. Butler
Effective March 15, 1999, the Company entered into an employment agreement
(the "Butler Agreement") with Mark S. Butler, which supersedes the Company's
prior employment agreement with Mr. Butler, for Mr. Butler to continue to
serve as the Company's Executive Vice President, Chief Administrative Officer
and General Counsel for a term of one year, subject to automatic one year
renewal periods unless notice of termination is given by either Mr. Butler or
the Company within sixty (60) days prior to each anniversary date of the
Butler Agreement. The Butler Agreement provides for an annual base salary of
$265,000 and eligibility to participate in the Company's Senior Executive
Bonus Plan. In the event Mr. Butler terminates his employment with the Company
for "Just Cause," including a "Change of Control," as such terms are defined
in the Butler Agreement, or if the Butler Agreement is not renewed by the
Company, Mr. Butler is entitled to receive his base salary plus pro-rated
average bonuses for a period of twelve (12) months following such termination.
This amount may be paid either in a lump sum or installments, at the
discretion of the Company, and is subject to set-off from other employment.
The Company will reimburse Mr. Butler for the premiums for $1,000,000
additional term life insurance during the term of Mr. Butler's employment.
Michael W. Rogers
Effective February 23, 1999, the Company entered into an employment
agreement (the "Rogers Agreement") with Michael W. Rogers for Mr. Rogers to
serve as the Company's Executive Vice President and Chief Financial Officer
for a term of one year, subject to automatic one year renewal periods unless
notice of termination is given either by Mr. Rogers or the Company within
sixty (60) days prior to each anniversary date of the Rogers Agreement. The
Rogers Agreement provides for an annual base salary of $265,000. Mr. Rogers is
also eligible to: (i) participate in the Company's Senior Executive Bonus
Plans subject to certain conditions set forth in the Rogers Agreement; (ii)
receive options to purchase 450,000 Shares under the Company's stock option
plans; and (iii) receive a restricted stock award under the Company's 1997
Plan with respect to 100,000 Shares. The Company will reimburse Mr. Rogers for
the premiums for $1,000,000 additional term life insurance during the term of
Mr. Rogers' employment.
In the event Mr. Rogers terminates his employment with the Company for "Just
Cause," including a "Change of Control," as such terms are defined in the
Rogers Agreement, or if the Rogers Agreement is not renewed by the Company,
Mr. Rogers is entitled to receive his base salary plus pro-rated average
bonuses for a period of twelve (12) months following such termination. This
amount may be paid either in a lump sum or installments, at the discretion of
the Company, and is subject to set-off from other employment.
Bobby W. Sandage, Jr., Ph.D.
Effective March 15, 1999, the Company entered into an employment agreement
(the "Sandage Agreement") with Bobby W. Sandage, Jr., Ph.D., which supercedes
the Company's prior employment agreement with Dr. Sandage, for Dr. Sandage to
continue to serve as the Company's Executive Vice President, Research and
Development and Chief Scientific Officer for a term of one year, subject to
automatic one year renewal periods, unless notice of termination is given by
either Dr. Sandage or the Company within sixty (60) days prior to each
anniversary date of the Sandage Agreement. The Sandage Agreement provides for
an annual base salary of $265,000 and eligibility to participate in the
Company's Senior Executive Bonus Plan. In the event Dr. Sandage terminates his
employment with the Company for "Just Cause," including a "Change of Control,"
as such terms are defined in the Sandage Agreement, or if the Sandage
Agreement is not renewed by the Company, Dr. Sandage is entitled to receive
his base salary plus pro-rated average bonuses for a period of twelve (12)
months following such termination. This amount may be paid either in a lump
sum or installments, at the
12
discretion of the Company, and is subject to set-off from other employment.
The Company will reimburse Dr. Sandage for the premiums for $1,000,000
additional term life insurance during the term of Dr. Sandage's employment.
In the event of certain transactions, including those which may result in a
Change in Control, as defined under each of the Company's 1989 Plan, 1994
Plan, 1997 Plan, 1998 Plan and 2000 Plan, unvested installments of options to
purchase Shares or awards of restricted stock held by executive officers of
the Company may be subject to accelerated vesting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's executive officers and
directors and other persons who beneficially own more than 10% of a registered
class of the Company's equity securities to file with the S.E.C. initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of the Company. Such executive officers, directors,
and greater than 10% beneficial owners are required by S.E.C. regulation to
furnish the Company with copies of all Section 16(a) forms filed by such
reporting persons.
Based solely on the Company's review of such forms furnished to the Company,
the Company believes that all filing requirements applicable to the Company's
executive officers, directors and greater than 10% beneficial owners were
complied with for fiscal 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2000, the members of the Compensation Committee were: Mr.
Gray, General Haig, Dr. Morville and Mr. Sharrock. In fiscal 2000, none of the
members of the Compensation Committee was an officer or employee of the
Company or any of its subsidiaries. In fiscal 2000, the Company paid or
accrued to Mr. Sharrock consulting fees for consulting services rendered by
Mr. Sharrock to the Company of $32,000.
AUDIT COMMITTEE REPORT(1)
The Audit Committee consists of General Haig, Mr. Schroeder and Mr.
Sharrock. Each of the members of the Audit Committee is "independent" pursuant
to Rule 4200(a)(15) of the National Association of Securities Dealers'
("NASD") listing standards. The Audit Committee operates in accordance with
its written charter, a copy of which is attached as Appendix A, adopted by the
Board of Directors on June 7, 2000. During the fiscal year ended September 30,
2000, the Audit Committee met four times.
The Audit Committee assists the Board by overseeing the performance of the
independent auditors and the quality and integrity of the Company's internal
accounting, auditing and financial reporting practices. The Audit Committee's
primary duties and responsibilities are to: (1) serve as an independent and
objective party to monitor the Company's financial reporting process and
internal control system; (2) review and appraise the audit efforts of the
Company's independent auditors; and (3) provide an open avenue of
communication among the independent auditors, the Company's financial and
senior management and the Board of Directors.
In discharging its oversight responsibility of the audit process, the Audit
Committee obtained from the independent auditors, PricewaterhouseCoopers LLP,
a formal written statement describing all relationships between the auditors
and the Company that might bear on the auditors' independence consistent with
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," discussed with the auditors any relationships that may
impact their objectivity and independence, and satisfied itself as to the
auditors' independence.
--------
(1) The material in this report is not soliciting material, is not deemed
filed with the S.E.C. and is not incorporated by reference in any filing
of the Company under the 1933 Act or the 1934 Act, whether made before or
after the date of this proxy statement and irrespective of any general
incorporation language in such filing.
13
The Audit Committee discussed and reviewed the audited financial statements
of the Company for the fiscal year ended September 30, 2000 with management.
The Audit Committee has discussed with its independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61, as amended
(Communication with Audit Committees) and, with and without management
present, discussed and reviewed the results of the independent auditors'
examination of the financial statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Audit Committee recommended to the Board that the
Company's audited financial statements be included in its Annual Report on
Form 10-K for the fiscal year ended September 30, 2000, for filing with the
Securities and Exchange Commission. The Audit Committee also recommended the
reappointment, subject to stockholder approval, of the independent auditors,
and the Board concurred in such recommendation.
General Alexander M. Haig, Jr.,
Chairman
Lee J. Schroeder
David B. Sharrock
14
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION(2)
General
The goal of the Company's executive compensation policy is to ensure that an
appropriate relationship exists between executive compensation and the
creation of stockholder value, while at the same time attracting, motivating
and retaining qualified executive officers. Accordingly, compensation
structures for the named executive officers of the Company generally include a
combination of salary, bonuses and long-term compensation. The Compensation
Committee's informal executive compensation philosophy considers a number of
factors, which may include:
. providing compensation levels competitive with companies in comparable
industries which are at a similar stage of development, or undergoing
similar corporate events, and which are located in the Company's
geographic area;
. identifying appropriate performance goals for the Company and providing
flexibility in compensation levels with the achievement of such goals;
. rewarding above average corporate performance; and
. recognizing and providing incentive for individual initiative and
achievement.
Base Salary
Base salary for fiscal 2000 was determined based on a range of measures and
internal targets set before the start of the fiscal year and in part by
comparison to the compensation of executive officers of comparable
biotechnology and pharmaceutical companies.
Bonuses
Bonus compensation for fiscal 2000 was contingent upon the Company achieving
certain business and financial objectives during the fiscal year. In
formulating the Senior Executive Bonus Plan for fiscal 2000 for executive
officers of the Company, including Dr. Cooper, the Compensation Committee
adopted performance measures tied to a number of business and financial
objectives to be achieved during fiscal 2000 and assigned relative weight to
each objective. The Senior Executive Bonus Plan for fiscal 2000 entitled the
named executive officers of the Company to a bonus equal to varying
percentages of base salary depending upon achieving these objectives which
included:
. achievement of certain defined clinical or regulatory product
development milestones;
. out-licensing of certain compounds to a corporate development/marketing
partner on terms approved by the Board of Directors;
. in-licensing or acquisition of a significant new asset;
. the fair market value of Shares relative to specified indices;
. maintaining certain levels of cash; and
. substantial mitigation of the Company's exposure to Redux-related
product liability litigation.
--------
(2) The material in this report is not soliciting material, is not deemed
filed with the S.E.C. and is not incorporated by reference in any filing of
the Company under the 1933 Act or the 1934 Act, whether made before or
after the date of this proxy statement and irrespective of any general
incorporation language in such filing.
15
The Committee considered the Company's performance under these measures for
fiscal 2000 and used their subjective judgment and discretion, in accordance
with the parameters of the Senior Executive Bonus Plan for fiscal 2000, to
make a recommendation to the Board of Directors in approving individual
compensation. Under the terms of the Senior Executive Bonus Plan for fiscal
2000, the Board approved a bonus to Dr. Cooper of $189,000, and bonuses to
each of Messrs. Butler and Rogers and Dr. Sandage of $119,250.
Glenn L. Cooper, M.D.
The compensation received during fiscal 2000 by Dr. Cooper was governed by
the Cooper Agreement and substantially in accordance with the policies
described above relating to all executive officers. In addition, in adopting
the Senior Executive Bonus Plan for fiscal 2000 and establishing the
percentage of salary used in calculating the bonus payment to Dr. Cooper, and
recommending approval of such bonus, members of the Compensation Committee
also considered a subjective evaluation of Dr. Cooper's performance and
ability to influence the Company's near and long-term growth. The Compensation
Committee considered Dr. Cooper's efforts and performance necessary to achieve
specified objective criteria, as described above. See "Employment Agreements."
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the ability of the Company to deduct for tax purposes
compensation over $1,000,000 to any of the named executive officers unless, in
general, the compensation is paid pursuant to a plan which is performance
related, non-discretionary and has been approved by the Company's
stockholders. In fiscal 2000, the Company granted restricted stock awards
which, depending upon the fair market value of Shares on the date of vesting
of such awards, may result in compensation expense that may not be deductible
pursuant to Section 162(m) when recognized; however, no such limitation on
deductibility is applicable for fiscal 2000.
David B. Sharrock, Chairman
General Alexander M. Haig, Jr.
Harry J. Gray
Malcolm Morville, Ph.D.
16
STOCK PRICE PERFORMANCE PRESENTATION
The following chart compares the cumulative total stockholder return on
Shares with the cumulative total stockholder return of (i) the Nasdaq Market
Index and (ii) a peer group index consisting of companies reporting under the
Standard Industrial Classification Code 2834 (Pharmaceutical Preparations):
[GRAPH APPEARS HERE]
Cumulative Total Return
---------------------------------------------
-
9/95 9/96 9/97 9/98 9/99 9/00
INTERNEURON PHARMACEUTICALS, INC. 100.00 245.65 104.35 26.09 10.87 19.83
NASDAQ STOCK MARKET (U.S.) 100.00 118.68 162.92 165.52 270.44 358.89
PEER GROUP 100.00 133.92 189.66 271.54 283.36 368.15
--------
(1) Assumes $100 invested on September 30, 1995 and assumes dividends
reinvested. Measurement points are at the last trading day of the fiscal
years ended September 30, 1995, 1996, 1997, 1998, 1999 and 2000. The
material in this chart is not soliciting material, is not deemed filed
with the S.E.C. and is not incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act, whether made before or after
the date of this proxy statement and irrespective of any general
incorporation language in such filing. A list of the companies included in
the Peer Group Index will be furnished by the Company to any stockholder
upon written request to the Executive Vice President, Chief Financial
Officer and Treasurer.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Rosenwald receives a management fee, which includes his out-of-pocket
expenses incurred in providing services to the Company of $2,500 per month
under a management agreement with the Company. For fiscal 2000, the Company
paid $30,000 to Dr. Rosenwald pursuant to this agreement.
In fiscal 2000, each executive officer received restricted stock awards
under the 1997 Plan and were granted stock options pursuant to the Company's
stock option plans and each non-employee director was granted an option to
purchase 100,000 Shares pursuant to the Company stock option plans. In fiscal
2000, the Company also granted options to certain of the Company's directors
pursuant to automatic grant provisions under the 1994 Plan. In accordance with
the terms of the 1994 Plan, on the date following the Annual Meeting date,
each of the directors of the Company (except Drs. Rosenwald and Cooper) will
receive automatic grants of options to purchase 5,000 Shares, which will be
exercisable at a price equal to the fair market value of the Company's Shares
as determined on the date of grant. See "Director Compensation."
PROPOSAL NUMBER 2:
APPROVAL AND RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT AUDITORS
The Management of the Company recommends a vote for the approval and
ratification of the appointment of PricewaterhouseCoopers LLP, Certified
Public Accountants, as the Company's independent auditors for the fiscal year
ending September 30, 2001. PricewaterhouseCoopers LLP has been the Company's
auditors for the past fiscal year and has no direct or indirect financial
interest in the Company. A representative of PricewaterhouseCoopers LLP is
expected to be present at the Annual Meeting of Stockholders with the
opportunity to make a statement if he or she desires to do so, and shall be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF THE
COMPANY AND THE STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" THE APPROVAL AND
RATIFICATION THEREOF.
GENERAL
The Management of the Company does not know of any matters other than those
stated in this Proxy Statement which are to be presented for action at the
Meeting. If any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form will be voted on any such other
matters in accordance with the judgment of the persons voting such proxies.
Discretionary authority to vote on such matters is conferred by such proxies
upon the persons voting them.
The Company will bear the cost of preparing, printing, assembling and
mailing the proxy, Proxy Statement and other material which may be sent to
stockholders in connection with this solicitation. It is contemplated that
brokerage houses will forward the proxy materials to beneficial owners at the
request of the Company. In addition to the solicitation of proxies by use of
the mails, officers and regular employees of the Company may solicit by
telephone proxies without additional compensation. The Company does not expect
to pay any compensation for the solicitation of proxies.
The Company will provide without charge to each person being solicited by
this Proxy Statement, on the written request of any such person, a copy of the
Annual Report of the Company on Form 10-K for the fiscal year ended September
30, 2000 (as filed with the S.E.C.) including the financial statements
thereto. All such requests should be directed to Executive Vice President,
Finance, Interneuron Pharmaceuticals, Inc., One Ledgemont Center, 99 Hayden
Avenue, Lexington, Massachusetts 02421.
18
STOCKHOLDER PROPOSALS
The Annual Meeting of Stockholders for the fiscal year ending September 30,
2001 is expected to be held in March 2002. Stockholders who seek to present
proposals at the Company's next Annual Meeting of Stockholders must submit
their proposals to the Company on or before September 30, 2001.
In the event the Company receives notice of a stockholder proposal to take
action at next year's Annual Meeting of Stockholders that is not submitted for
inclusion in the Company's proxy materials, or is submitted for inclusion but
is properly excluded from the proxy material, the persons named in the proxy
sent by the Company to its stockholders intend to exercise their discretion to
vote on the stockholder proposal in accordance with their best judgment if
notice of the proposal is not received at the Company's main office prior to
the date of the next Annual Meeting of Stockholders.
By Order of the Board of Directors,
Glenn L. Cooper, M.D.
President, Chief Executive
Officer and Chairman
Dated: January 29, 2001
19
APPENDIX A
INTERNEURON PHARMACEUTICALS, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The primary function of the Audit Committee (the "Audit Committee" or the
"Committee") is to assist the Board of Directors (the "Board") of Interneuron
Pharmaceuticals, Inc. (the "Corporation") in fulfilling its oversight
responsibilities by reviewing the Corporation's auditing, accounting and
financial reporting processes generally. The Audit Committee's primary duties
and responsibilities are to:
. Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system.
. Review and appraise the audit efforts of the Corporation's independent
accountants.
. Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities enumerated in Section IV of the Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors meeting
the requirements as stated in NASD Rule 4310(c)(26)(B), and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee. All
members of the Committee shall have a working familiarity with basic finance
and accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise. Committee members may
enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
III. MEETINGS
The Committee shall meet at least two times annually. As part of its job to
foster open communication, the Committee should meet at least annually with
management and the independent accountants in separate executive sessions to
discuss any matters that the Committee or each of these groups believe should
be discussed privately. In addition, the Committee or at least its Chair
should meet with the independent accountants and management quarterly to
review the Corporation's financials consistent with IV.3. below.
IV. RESPONSIBILITIES AND DUTIES
The Audit Committee shall review with management and the independent
auditors the Corporation's annual financial statement, including a discussion
with the independent accountants of the matter required to be discussed by
Statement of Auditing Standards No. 61, as amended ("SAS No. 61"), which
include:
. The auditors' responsibility under Generally Accepted Accounting
Standards;
. The Corporation's significant accounting policies;
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. Management judgments and accounting estimates;
. Significant audit adjustments;
. Other information in documents containing audited financial statements;
. Disagreements with management;
. Consultation with other accountants;
. Major issues discussed with management prior to retention; and
. Difficulties encountered in performing the audit.
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and update this Charter periodically, at least annually, and as
conditions dictate.
2. Review with financial management and the independent accountants the
Corporation's annual financial statements to be included in the
Corporation's Annual Report on Form 10-K.
3. Review with financial management and the independent accountants the
Corporation's quarterly financial statements to be included in the
Corporation's Quarterly Report on Form 10-Q. The Chair of the Committee or
his or her designee may represent the entire Committee for purposes of this
review.
4. Prepare an annual report to shareholders to be included in the
Corporation's proxy statement as required by the Securities and Exchange
Commission.
Independent Accountants
5. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness.
6. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
7. Periodically consult with the independent accountants out of the presence
of management about internal controls and the fullness and accuracy of the
organization's financial statements.
8. Review and discuss with the independent auditor the auditor's independence
consistent with the requirements of Rule 101 of the American Institute of
Certified Public Accountants Professional Standards and the requirements of
the Independence Standards Board.
Financial Reporting Processes
9. Consider the independent accountants' judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
10. Consider and approve, if appropriate, major changes to the Corporation's
accounting principles and practices.
Legal and Administrative Compliance
11. Review, with the organization's counsel, any legal matter that could have
a significant impact on the organization's financial statements.
12. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
13. Maintain minutes of all meeting of the Audit Committee for inclusion in
the Corporation's Minute Book.
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Please Detach and Mail in the Envelope Provided
[X] Please mark your
votes as in this
example.
FOR all nominees WITHHOLDING Nominees: FOR AGAINST ABSTAIN
listed at right AUTHORITY Glenn L Cooper, M.D. 2. Approval and ratification of the [ ] [ ] [ ]
(except as to vote for Harry J. Gray appointment of PricewaterhouseCoopers
1. Election marked to the all nominees Alexander M. Haig, Jr. LLP as independent auditors of the
of countrary listed at Malcolm Morville, Ph.D. Company.
Directors below) right Lindsay A. Rosenwald, M.D.
[ ] [ ] Lee J. Schroeder 3. In their discretion, proxies are authorized to vote upon
David B. Sharrock such business as may properly come before the meeting.
(INSTRUCTION: To withhold authority to vote
for any individual nominee, print that The Shares represented by this proxy will be voted as
nominee's name on the line provided below) directed. If no contrary instruction is given, the Shares
will be voted FOR the election of the nominees and FOR
----------------------------------------- the approval and ratification of the appointment of
PricewaterhouseCoopers LLP as the independent auditors of
the Company.
SIGNATURE DATED: , 2001
--------------------------------------------- ------------------------------------------ -----------------
Signature if held jointly
NOTE: (Please date, sign as name appears above and return promptly. If Shares are registered in the names of two or more persons,
each should sign. When signing as Corporate Officer, Partner, Executor, Administrator, Trustee or Guardian, please give full title.
Please note any changes in your address next to the address as it appears in the proxy.)
8888 PROXY
INTERNEURON PHARMACEUTICALS, INC. (the "Company")
ANNUAL MEETING OF STOCKHOLDERS
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Glenn L. Cooper, M.D. or Michael W. Rogers as
proxy to represent the undersigned at the Annual Meeting of Stockholders to be
held at The Doubletree Guest Suites, 550 Winter Street, Waltham, Massachusetts
02451 on March 7, 2001 at 10:00 a.m. and at any adjournment thereof, and to vote
the shares of Common Stock (the "Shares") the undersigned would be entitled to
vote if personally present, as indicated on the reverse side of this card.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE