<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ErgoScience
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
ERGO SCIENCE CORPORATION
CHARLESTOWN NAVY YARD
33 THIRD AVENUE
CHARLESTOWN, MA 02129
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, JUNE 9, 1999
To our Stockholders:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Ergo Science Corporation (the "COMPANY") on Wednesday, June 9,
1999 at 9:00 a.m., local time, at BankBoston Conference and Training Center, 100
Federal Street, Boston, Massachusetts. The meeting will be held for the
following purposes:
(1) To elect one director as a Class I director of the Company to
serve for a three-year term ending at the Annual Meeting of
Stockholders in 2002 and until his successor is duly elected
and qualified or his earlier resignation or removal; and
(2) To transact any other business that may properly come before
the meeting.
This notice is accompanied by a form of proxy, a Proxy Statement, and
the Company's 1998 Annual Report on Form 10-K. These items of business are more
fully described in the Proxy Statement.
The close of business on April 16, 1999 has been fixed as the record
date to determine stockholders entitled to receive notice of and to vote at the
Annual Meeting and any adjournments. A list of stockholders entitled to vote at
the Annual Meeting will be available for inspection by any stockholder for any
purpose germane to the meeting during ordinary business hours for ten days
before the meeting at the Company's offices at 33 Third Avenue, Charlestown, MA
and at the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE PROXY CARD TO ENSURE YOUR REPRESENTATION AT THE MEETING. A
return envelope is enclosed for that purpose. You may revoke your proxy at any
time before the shares to which it relates are voted at the Annual Meeting, and
you may still vote in person if you attend the Annual Meeting. Please note,
however, that if your shares are held in the name of a broker, bank, or other
nominee and you wish to attend and vote at the Annual Meeting, you must obtain a
proxy issued in your name from that broker, bank or other nominee.
By Order of the Board of Directors,
/S/ DAVID R. BURT
-------------------------------------
David R. Burt
President and Chief Executive Officer
Charlestown, Massachusetts
April 29, 1999
<PAGE>
ERGO SCIENCE CORPORATION
CHARLESTOWN NAVY YARD
33 THIRD AVENUE
CHARLESTOWN, MA 02129
-------------------------
PROXY STATEMENT
-------------------------
ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors of Ergo Science Corporation (the "COMPANY")
requests your Proxy for use at the Annual Meeting of Stockholders to be held on
Thursday, June 9, 1999 at 9:00 a.m., local time, at BankBoston Conference and
Training Center, 100 Federal Street, Boston, Massachusetts. By signing and
returning the enclosed Proxy, you authorize the persons named on the Proxy to
represent you and vote your shares at the Annual Meeting, including any
adjournments of the meeting. This Proxy Statement and Proxy were first mailed or
given to stockholders of the Company on or about April 29, 1999.
If you attend the Annual Meeting, you may vote in person. If you are
not present at the Annual Meeting, your shares can be voted only if you have
returned a properly signed Proxy or are represented by another proxy. You may
revoke the enclosed Proxy at any time before it is exercised at the Annual
Meeting by (a) signing and submitting a later-dated proxy to the Secretary of
the Company, (b) written notice of revocation to the Secretary of the Company,
or (c) voting in person at the Annual Meeting.
VOTING AND QUORUM
The only outstanding voting security of the Company is its common
stock, par value $.01 per share ("COMMON STOCK"). On April 16, 1999, the record
date for the Annual Meeting, there were 14,254,467 shares of Common Stock
outstanding and entitled to be voted at the Annual Meeting.
Each share of Common Stock outstanding on the record date is entitled
to one vote. The presence in person or by proxy of a majority of the shares of
Common Stock outstanding on the record date is required to constitute a quorum
at the Annual Meeting. If a quorum is not present, the stockholders entitled to
vote who are present in person or represented by proxy at the Annual Meeting
have the power to adjourn the Annual Meeting from time to time, without notice
other than an announcement at the Annual Meeting, until a quorum is present. At
any adjourned Annual Meeting at which a quorum is present, any business may be
transacted that might have been transacted at the Annual Meeting as originally
notified. Abstentions and broker non-votes will count in determining whether a
quorum is present at the Annual Meeting. A broker non-vote occurs if a broker or
other nominee does not have discretionary authority and has not received
instructions with respect to a particular item.
Proxies in the accompanying form that are properly signed and returned
will be voted at the Annual Meeting in accordance with the instructions on the
Proxy. Any properly executed Proxy on which no contrary instructions have been
indicated about a proposal will be voted as follows with respect to the
proposals: FOR the election of the person named in this Proxy Statement as the
Board of Directors' nominee for election to the Board of Directors; and in
accordance with the discretion of the holders of the Proxy with respect to any
other business that properly comes before the stockholders at the Annual
Meeting. The Board of Directors knows of no matters, other than those previously
stated, to be presented for consideration at the Annual Meeting. The persons
named in the accompanying Proxy may also, at their discretion, vote the Proxy to
adjourn the Annual Meeting.
<PAGE>
PROPOSAL ONE--ELECTION OF DIRECTORS
The members of the Company's Board of Directors are divided into three
classes serving staggered three-year terms. The terms of the Class I directors
expire at this Annual Meeting. One director is to be elected as a Class I
director at this Annual Meeting.
The Board of Directors has designated Stephen P. Smiley as nominee for
re-election as a Class I director of the Company at the Annual Meeting. If
elected, the nominee for Class I director will serve until the expiration of his
term at the 2002 Annual Meeting of stockholders and until his successor is
elected and qualified. The nominee is currently a director of the Company. For
information about the nominee, see "Directors and Executive Officers."
The Board of Directors has no reason to believe that its nominee will
be unable or unwilling to serve if elected. If the nominee becomes unable or
unwilling to serve, your Proxy will be voted for the election of a substitute
nominee recommended by the current Board of Directors or the number of the
Company's directors will be reduced.
The election of directors requires the affirmative vote of a plurality
of the shares of Common Stock present or represented by proxy and entitled to
vote at the Annual Meeting. Accordingly, abstentions and broker non-votes will
not have any effect on the election of a particular director.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEE.
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C>
David R. Burt ............ 35 President, Chief Executive Officer, Secretary, and Director
David L. Castaldi ........ 59 Director
Anthony H. Cincotta, Ph.D 41 Executive Vice President, Chief Science Officer and Director
Stephen A. Duzan (1) ..... 57 Director
Ray L. Hunt .............. 56 Director
Thomas F. McWilliams(1)(2) 56 Director
Stephen P. Smiley(1)(2) .. 50 Director
</TABLE>
- ------------
(1) Member of the Audit Committee and the Compensation Committee.
(2) Member of the Nominating Committee.
The Board of Directors is divided into three classes. Directors in each
class are elected for three-year terms, with the terms of the three classes
staggered so that directors from a single class are elected at each annual
meeting of stockholders. Stephen P. Smiley is a Class I director whose term of
office expire at this Annual Meeting of Stockholders; Ray L. Hunt, Thomas F.
McWilliams and David L. Castaldi are Class II directors whose terms of office
expire at the annual meeting of stockholders in 2000; and Anthony H. Cincotta,
Ph.D. and David R. Burt are Class III directors whose terms of office expire at
the annual meeting of stockholders in 2001. On March 3, 1999, the Board of
Directors elected David R. Burt as a Class III director to fill the vacancy
created when Dr. Leigh Thompson chose to resign on December 14, 1998. The Board
of Directors has decided not to nominate additional Class I directors when
Ronald H. Abrahams, Ph.D. resigned from the board on March 26, 1999 and Stephen
Duzan chose not to seek re-election at this Annual Meeting, and the number of
directors will be so reduced.
2
<PAGE>
Executive officers are generally elected annually by the Board of Directors
to serve at the discretion of the Board of Directors. A brief biography of each
director and executive officer follows.
DAVID R. BURT joined the Company as Vice President, Corporate
Development, in March 1993. He was appointed Secretary of the Company in
March 1997. In March 1999, Mr. Burt was appointed as a director of the
Company. He was appointed President and Chief Executive officer of the
Company on March 26, 1999. From 1990 until 1993, Mr. Burt practiced corporate
and securities law at Johnson & Gibbs, P.C., a law firm in Dallas, Texas. Mr.
Burt's practice involved representing issuers and underwriters in financing
transactions in a variety of high technology industries. Mr. Burt received a
B.A. in government from Dartmouth College and a J.D. from the University of
Maryland Law School. Before attending law school, Mr. Burt worked on the
staff of United States Senator Paul S. Sarbanes.
DAVID L. CASTALDI became a director of the Company in September 1996. He
was the co-founder, President and CEO of BioSurface Technology, Inc., a company
that developed living tissue therapies, from 1987 until its acquisition by
Genzyme in 1994. From 1977 to 1987, Mr. Castaldi was the President of the Hyland
Therapeutics Division of Baxter International, Inc., a worldwide manufacturer of
protein-based pharmaceuticals made from human blood plasma, prior to which he
served as Executive Vice President of Baxter's Artificial Organs Division. Since
1994, Mr. Castaldi has been a consultant to the Life Sciences Industry, which
has included serving as Chairman of the Board and CEO of Biolink Corporation, a
medical device company, from 1996-98 and as Chairman of the Board, since 1996,
and Chief Executive Officer, since 1998, of Cadent Medical Corporation, a
privately held medical device company. He is also a director of Nabi, a
publicly-held biopharmaceutical company. Mr. Castaldi received his M.B.A from
Harvard University and his B.B.A. from the University of Notre Dame. He also
served as an officer in the U.S. Army.
ANTHONY H. CINCOTTA, PH.D., is a co-founder of the Company and was
appointed Executive Vice President of the Company in March 1997 after serving as
a Senior Vice President since June 1996. Dr. Cincotta has been a director of the
Company since January 1990 and its Chief Science Officer since June 1996. From
January 1990 to June 1996, Dr. Cincotta was Director of Research of the Company.
From 1989 through July 1995 he was an instructor at the Harvard Medical School
and an Assistant Instructor in Biochemistry at Massachusetts General Hospital.
From 1987 to 1989 he was an Adjunct Assistant Professor of Zoology and
Physiology at Louisiana State University ("LSU"), a Research Assistant Professor
of Zoology and Physiology at LSU, and a research consultant at the Rowland
Institute of Science, Inc. Dr. Cincotta received his B.S. in biochemistry and
molecular biology from the University of California at Santa Barbara and his
M.S. and Ph.D. degrees in physiology from LSU. He is the author of more than 40
publications regarding temporal neuroendocrine organization.
STEPHEN A. DUZAN became a director of the Company in October 1994.
Mr.Duzan was a co-founder of Immunex Corporation, Seattle, Washington, and
served as its Chairman, Chief Executive Officer and director from its formation
in 1981 until his retirement in September 1993. He also held the title of
President of Immunex from 1981 through 1990. Mr. Duzan serves on the Boards of
Directors of Targeted Genetics Corporation of Seattle, Washington, the
International Biotechnology Trust of London, England and Key Computer Solutions,
Inc. of Seattle, Washington.
RAY L. HUNT became a director of the Company in January 1994 in connection
with the purchase by Hunt Financial Corporation ("Hunt Financial") of
convertible securities of the Company. Mr. Hunt has been the Chairman of the
Board, President and Chief Executive Officer of Hunt Consolidated, Inc. and the
Chairman of the Board and Chief Executive Officer of Hunt Oil Company for over
twenty years. Mr. Hunt is a director of Dresser Industries, Inc., an
international oil field service company in Dallas, Texas, PepsiCo, Inc., a
multinational food and beverage company in Purchase, New York, Federal Reserve
Bank of Dallas in Dallas, Texas and Electronic Data Systems Corporation, a
global information technology company in Dallas, Texas. Mr. Hunt received his
B.B.A. in economics from Southern Methodist University.
THOMAS F. MCWILLIAMS became a director of the Company during September
1992 in connection with the purchase of the Company's convertible securities by
Citicorp Venture Capital Ltd. ("CVC"). Mr. McWilliams is Managing Director of
CVC, where he has been employed since 1983. He is a director of Chase
Industries, Inc. and a number of privately owned companies. Mr. McWilliams
received his A.B. from Brown University and his M.B.A. from the Wharton School,
University of Pennsylvania.
3
<PAGE>
STEPHEN P. SMILEY became a director of the Company in October 1996. He
is President of Hunt Financial Corporation, a private investment company
located in Dallas, Texas. From 1991 until joining Hunt Financial in 1996, he
was a co-founder and President of Cypress Capital Corporation, a private
investment firm specializing in growth financings and buyouts. Prior to 1991,
Mr. Smiley was involved in venture capital and leveraged buyout activities of
Citicorp in New York and Dallas, Texas for 15 years. Mr. Smiley is a director
of several private companies and one public company, Dynamex, Inc. Mr. Smiley
received a B.A. from the University of Virginia and an M.B.A. in Finance from
the College of William and Mary.
MEETINGS AND COMMITTEES OF DIRECTORS
The Board of Directors held seven meetings during 1998. Other than Mr.
Hunt, no director attended fewer than 75% of those meetings and of meetings of
the committees of the Board of Directors on which he served.
The Board of Directors has three standing committees: the Audit
Committee, the Compensation Committee, and the Nominating Committee.
The Audit Committee reviews the results and scope of the annual audit
and other services provided by the Company's independent public accountants.
During 1998, the members of the Audit Committee were Stephen A. Duzan, Thomas F.
McWilliams, and Stephen P. Smiley. The Audit Committee met once during 1998.
The Compensation Committee determines salaries and incentive
compensation for officers of the Company. In addition, the Board of Directors
has designated the Compensation Committee as the administrator of the Company's
Amended and Restated 1995 Long-Term Incentive Plan (the "INCENTIVE PLAN").
During 1998 the members of the Compensation Committee were Stephen A. Duzan,
Thomas F. McWilliams, and Stephen P. Smiley. The Compensation Committee met four
times during 1998.
The Nominating Committee identifies and recruits candidates to serve as
directors of the Company for recommendation to the full Board of Directors. In
recommending candidates to the Board of Directors, the Nominating Committee
seeks persons of proven judgment and experience. Stockholders who wish to
suggest qualified candidates may write to the Secretary of the Company at the
address on the first page of this Proxy Statement, stating in detail the
qualifications of the persons they recommend. The Nominating Committee was
established in February 1996. Its members during 1998 were Thomas F. McWilliams
and Stephen P. Smiley. The Nominating Committee met once in 1998.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash compensation for their
services as directors. The Company reimburses them for the expenses incurred in
attending meetings of the Board of Directors and its committees.
In June 1996, Ergo's shareholders approved a Stock Option Plan for
Non-Employee Directors (the "Director Stock Plan"). The Director Stock Plan
provides for an initial grant of a stock option for 10,000 shares of Common
Stock to each non-employee director upon first being elected or appointed to
serve on the Board of Directors. Messrs. Hunt and McWilliams who were serving as
non-employee directors when the Director Stock Plan was approved (but not
Mr. Duzan who had previously been granted stock options by the Company) were
granted a stock option for 10,000 shares of Common Stock with a deemed grant
date of May 15, 1996. In addition, each non-employee director appointed by the
Board of Directors after June 1996 was granted an initial stock option for
10,000 shares of Common Stock with a grant date as of the date of such
director's appointment to the board as follows: David L. Castaldi, September 12,
1996; Stephen P. Smiley, October 25, 1996; and W. Leigh Thompson, December 27,
1996. Only 5,000 of the 10,000 shares of Dr. Thompson's stock option are
exerciseable following Dr. Thompson's resignation from the Board, and his stock
option expires 180 days from his resignation from the Board on December 14,
1998. On the second anniversary of their initial
4
<PAGE>
grant date, each of these non-employee directors, other than Dr. Thompson who
had previously resigned from the Board, was granted a second nonqualified
stock option for 10,000 shares of Common Stock.
On November 15, 1994, the Company granted Mr. Duzan a nonqualified
option to purchase 7,500 shares of Common Stock at an exercise price of $0.80
per share in consideration for his service as a director. This option became
exercisable in three equal amounts on the date of grant and on each of the first
two anniversaries of the date of grant. The option will expire 180 days after
Mr. Duzan is no longer a member of the Board. On October 6, 1995, the Company
granted Mr. Duzan a nonqualified option to purchase 17,500 shares of Common
Stock at an exercise price of $6.71 per share in consideration for his service
as a director. 4,375 shares became exerciseable in October 1996, 1997, and 1998,
and the remaining 4,375 shares will not become exerciseable since Mr. Duzan will
not seek re-election to the Board of Directors, unless prior to such time a
change in control of the Company occurs. The option will expire 180 days after
Mr. Duzan is no longer a member of the Board.
The total number of shares of Common Stock authorized for issuance
under the Director Stock Plan is 200,000 of which 90,000 have been granted as of
April 16, 1999. Each option under the Director Stock Plan has an exercise price
equal to the fair market value of the Common Stock on the grant date. These
options will become exercisable in equal increments on the first and second
anniversary of their date of grant and will expire ten years after the grant
date if not exercised. If a change in control of the Company occurs, all stock
options granted under the Director Stock Plan will become fully exercisable.
EXECUTIVE COMPENSATION
The following table summarizes the 1998, 1997 and 1996 compensation
paid to or earned by all persons serving in the capacity of the Company's Chief
Executive Officer during 1998 and the Company's three most highly compensated
executive officers other than the Chief Executive Officer during 1998 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION ($)
------------------------------------------------------ ------------ ----------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITIONS IN 1998 YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($) OPTIONS (#
- ------------------ ---- ---------- ------------ ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald H. Abrahams (2)..... 1998 262,500 -- -- -- --
President and Chief 1997 250,000 93,750 -- 100,000 --
Executive Officer 1996 221,667 37,500 -- 100,000 --
Anthony H. Cincotta........ 1998 236,250 -- -- -- 4,450(3)
Senior Vice President 1997 225,000 67,500 -- 150,000 4,450(3)
and Chief Science Officer 1996 210,000 31,500 -- -- 4,450(3)
Richard A. Paul (4)....... 1998 190,725(5) -- -- -- 57,347(6)
Senior Vice President, 1997 210,176 64,500 -- 30,000 88,230(7)
Medical Affairs 1996 -- -- -- 60,000 --
David R. Burt............. 1998 150,000 30,000 -- 55,000 --
Vice President, 1997 110,000 33,000 -- 30,000 --
Corporate Development 1996 100,000 10,000 -- 35,000 --
</TABLE>
- ------------
(1) 1998 bonuses were expenses and paid in 1998; 1997 bonuses were expensed in
1997 and paid in 1998; 1996 bonuses were expensed in 1996 and paid in 1997.
(2) Dr. Abrahams resigned from the Company and the Board of Directors on
March 26, 1999.
(3) Reflects the value of term life and disability insurance premiums.
(4) Dr. Paul resigned from the Company on October 10, 1998.
(5) Reflects salary earned from January 1, 1997 until October 10, 1998, the date
of Dr. Paul's resignation from the Company.
(6) Reflects Company's forgiveness of a personal loan to Dr. Paul.
(7) Reflects relocation costs, taxes, and signing bonus received by Dr. Paul.
5
<PAGE>
OPTION GRANTS IN 1998
The following table sets forth information regarding the stock option
grants to Named Executive Officers in 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS(1) TERM (2)
---------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR(3) ($/SH) DATE 5% ($) 10% ($)
---- ---------- -------------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Ronald H. Abrahams (4) -- -- -- -- -- --
David R. Burt ........ 30,000 15% 17 2/20/08 320,734 812,807
25,000 13% 3.25 9/12/08 51,097 129,491
Anthony H. Cincotta .. -- -- -- -- -- --
Richard A. Paul (5) .. -- -- -- -- -- --
</TABLE>
- ------------
(1) The options granted terminate ten years from the date of grant and are
subject to earlier termination in accordance with the terms of the option
agreements and the Incentive Plan. Options vest quarterly over four years.
Exercisability of options will accelerate upon a change in control of the
Company, termination of employment by the Company without cause, or
termination of employment by the optionee with good reason.
(2) Amounts represent hypothetical gains that could be achieved for the options
if they are exercised at the end of the option term. Those gains are based
on assumed rates of stock price appreciation of 5% and 10% compounded
annually from the date the option was granted through the expiration date.
(3) A total of 201,000 options were granted in 1998 to employees of the
Company, including officers.
(4) Dr. Abrahams resigned from the Company and the Board of Directors on
March 26, 1999.
(5) Dr. Paul resigned from the Company on October 10, 1998.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides information about the number of shares
issued upon option exercises by the Named Executive Officers during 1998, and
the value realized by the Named Executive Officers. The table also provides
information about the number and value of options held by the Named Executive
Officers at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)(1)
ACQUIRED ON VALUE ----------------------- ------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Ronald H. Abrahams (2) -- -- 224,750 75,000 $ 5,950 --
David R. Burt ........ -- -- 60,500 95,000 1,600 --
Anthony H. Cincotta .. -- -- 221,044 198,683 15,000 --
Richard A. Paul (3) .. -- -- 15,000 75,000 -- --
</TABLE>
- ------------
(1) Option values are based on the difference between the exercise price per
share of the option and $1.00 per share, which was the closing price of the
Common Stock on the Nasdaq National Market on December 31, 1998, multiplied
by the number of shares of Common Stock subject to the option
(2) Dr. Abrahams resigned from the Company and the Board of Directors on
March 26, 1999.
(3) Dr. Paul resigned from the Company on October 10, 1998, and all of his
options expired 180 days later unexercised.
6
<PAGE>
EMPLOYMENT CONTRACTS
The Named Executive Officers are employees-at-will as the Company did
not renew the employment agreements with its Named Executive Officers in October
1998. The current base salary amounts are $200,000 to Mr. Burt and $236,250 to
Dr. Cincotta. The Compensation Committee may increase the base amounts at its
discretion.
Dr. Abrahams resigned from the Company on March 26, 1999. As severance,
Dr. Abrahams received from the Company a payment of $294,330. The Company also
agreed to vest 25,000 shares of options that would not have vested until April
29, 1999
DIRECTOR AND OFFICER INDEMNIFICATION
The Company has entered into indemnification agreements with each of
its directors and executive officers, agreeing to indemnify the director or
officer to the fullest extent permitted by law, and to advance expenses, if the
director or officer becomes a party to or witness or other participant in any
threatened, pending or completed action, suit or proceeding (a "Claim") by
reason of any occurrence related to the fact that the person is or was a
director, officer, employee, agent or fiduciary of the Company or a subsidiary
of the Company or another entity at the Company's request (an "Indemnifiable
Event"), unless a reviewing party (either outside counsel or a committee
appointed by the Board of Directors) determines that the person would not be
entitled to indemnification under applicable law. In addition, if a change in
control or a potential change in control of the Company occurs, and if the
person indemnified so requests, the Company will establish a trust for the
benefit of the indemnitee and fund the trust in an amount sufficient to satisfy
all expenses reasonably anticipated at the time of the request to be incurred in
connection with any Claim relating to an Indemnifiable Event. The reviewing
party will determine the amount deposited in the trust. An indemnitee's rights
under the indemnification agreement are not exclusive of any other rights under
the Company's Certificate of Incorporation or Bylaws or applicable law.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program is designed to help the
Company attract, motivate and retain the individuals that the Company needs to
maximize its return to stockholders. To meet this overall objective, the Company
provides competitive compensation opportunities and incentive award payments
based on Company and individual performance. The Company attempts to provide
each of its executives with a compensation package that, at expected levels of
performance, is competitive with those provided to executives who hold
comparable positions or have similar qualifications in other organizations of
the Company's size and in the Company's industry.
CASH COMPENSATION. Cash compensation for the executive officers named
in the Summary Compensation Table consists of a base salary and an annual bonus.
The base salaries are consistent with the biotechnology industry for companies
at a stage of development comparable to that of the Company. The Compensation
Committee determines an executive's competitive level of compensation based on
information from a variety of sources, including proxy statements of other
companies and special surveys. The Compensation Committee believes it is crucial
to provide salaries within a competitive market range to attract and retain
highly talented executives. The specific competitive markets considered depend
on the nature and level of the executive position in question and the labor
markets from which qualified individuals would be recruited. Annual salary
increases for the Company's executive group may be given based on general levels
of market salary increase, individual performance and the Company's overall
financial results without any specific weighting among these factors. Any base
salary increases are expected to be consistent with the Company's philosophy of
pay-for-performance.
An executive of the Company may also be awarded a cash bonus as a
percentage of base pay within a pre-determined range established by the Board of
Directors. Within that range, an executive's cash bonus will be
7
<PAGE>
determined by the Board of Directors in proportion to the extent to which the
performance objectives established by the Board of Directors for that
executive are met or exceeded. These objectives typically focus on results of
the Company's operations, scientific accomplishments and, as the Company
remains in the developmental stage, critical milestones in bringing the
Company's science to the marketplace. As shown in the Summary Compensation
Table, the Company's executives received bonuses for fiscal year 1998 in the
range of 0 to 30 percent of base salary.
INCENTIVE PLAN. Equity based incentive compensation may be awarded
under the Company's Incentive Plan to the Company's executives. The Incentive
Plan allows grants of stock options, SARs and restricted stock awards. To date,
only stock options have been awarded under the Incentive Plan. The Compensation
Committee believes that providing equity based compensation to executives can be
critical in attracting and retaining qualified individuals and in bringing out
their superior performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
As previously described, the Company structures the pay for all
executives, including the Chief Executive Officer, considering both a
pay-for-performance philosophy and market rates of compensation for the job. In
September 1996, Ronald H. Abrahams, Ph.D., formerly the Company's Executive Vice
President and Chief Operating Officer, was elected President and Acting Chief
Executive Officer. The Board of Directors subsequently appointed Dr. Abrahams as
Chief Executive Officer in March 1997. Dr. Abrahams resigned from his positions
of Chief Executive Officer and President, as well as from his position on the
board of directors, on March 26, 1999. Specific actions taken by the
Compensation Committee regarding the compensation of Dr. Abrahams during 1998
are summarized below.
BASE SALARY. Concurrent with Dr. Abrahams' duties of the Company's
President and Chief Executive Officer, Dr. Abrahams' annual base salary remained
at $262,500.
BONUS. Dr. Abrahams did not receive a cash bonus for fiscal year 1998.
INCENTIVE STOCK PLAN. Dr. Abrahams was not granted in 1998 options to
purchase shares of the Company's stock.
Dr. Abrahams resigned from the Company on March 26, 1999. As severance,
Dr. Abrahams received from the Company a payment of $294,330. The Company also
agreed to vest 25,000 shares of options that would not have vested until April
29, 1999
COMPENSATION COMMITTEE
Stephen A. Duzan
Stephen P. Smiley
Thomas F. McWilliams, Chairman
8
<PAGE>
PERFORMANCE GRAPH
The Performance Graph compares the cumulative total return of the
Company, the NASDAQ Stock Market (U.S. Companies) and NASDAQ Pharmaceutical
Stocks. The graph assumes that $100 was invested in the stock or the index on
December 14, 1995, the date of the Company's initial inclusion on the Nasdaq
National Market, and also assumes reinvestment of dividends. Historical stock
price performance is not necessarily indicative of future stock price
performance.
ERGO SCIENCE CORPORATION
COMPARATIVE TOTAL RETURNS
DECEMBER 14, 1995 THROUGH DECEMBER 31, 1998
EDGAR REPRSENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ERGO NASDAQ US NASDAQ PHARM
---- --------- ------------
<S> <C> <C> <C> <C>
12/14/95 $100 $100 $100
12/31/95 $143 $101 $115
03/31/96 $203 $106 $120
06/30/96 $186 $115 $117
09/30/96 $150 $119 $119
12/31/96 $131 $125 $115
03/31/97 $114 $118 $110
06/30/97 $110 $139 $119
09/30/97 $133 $163 $133
12/31/97 $153 $153 $119
03/31/98 $150 $179 $131
06/30/98 $36 $184 $122
09/30/98 $33 $167 $115
12/31/98 $10 $215 $153
</TABLE>
<TABLE>
DECEMBER 14, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Ergo Science
Corporation(1) $100 $143 $131 $153 $ 10
NASDAQ Stock
Market $100 $101 $125 $153 $215
NASDAQ
Pharmaceutical $100 $115 $115 $119 $153
</TABLE>
- ------------
(1) Based upon a stock price of $10.00 per share, the closing per share
price of the Common Stock on the day of the initial public offering.
As of April 16, 1999, the closing price of the Company's Common Stock
on the Nasdaq National Market was $1.09 per share.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the shares of the Company's Common Stock as of April 16,
1999, by (i) each person the Company knows to be the beneficial owner of 5% or
more of the outstanding shares of Common Stock, (ii) each Named Executive
Officer, (iii) each director of the Company, and (iv) all executive officers and
directors of the Company as a group. Except as indicated in the footnotes to the
table, the Company believes that the persons named in the table have sole voting
and investment power with respect to the shares of Common Stock indicated.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED(1) OWNED(1)
<S> <C> <C>
Hunt Financial ................................................. 1,842,902 12.93%
1445 Ross at Field
Dallas, Texas 75202
Citicorp Venture Capital Ltd. (3) .............................. 1,678,910 11.78%
399 Park Avenue
New York, New York 10043
Anthony H. Cincotta (4) ........................................ 1,014,622 6.94%
Amerindo Investment Advisors Inc (2) ........................... 734,000 5.15%
One Embarcadero Center, Suite 2300
San Francisco, California
Citi Growth Fund, L.P (3) ...................................... 343,357 2.41%
c/o Sycamore Management
989 Lenox Drive, Building 1, Suite 208
Lawrenceville, New Jersey 08648
Ronald H. Abrahams (5) ......................................... 249,750 1.72%
David R. Burt (6) .............................................. 68,255 *
Richard A. Paul (7) ............................................ 15,000 *
David L. Castaldi (8) .......................................... 13,000 *
Stephen A. Duzan (9) ........................................... 20,625 *
Ray L. Hunt (10) ............................................... 98,976 *
Thomas F. McWilliams (11) ...................................... 74,054 *
Stephen P. Smiley (12) ......................................... 10,100 *
All executive officers and directors as a group (9 persons) .... 1,539,352 10.40%
</TABLE>
- ------------
* Represents less than 1% of outstanding Common Stock or voting power.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or disposition power with respect to
securities including stock options vesting by June 15, 1999.
(2) Consists of 610,500 shares owned by Amerindo Investment Advisors Inc.
("Amerindo") and 123,500 shares owned by Amerindo Investment Advisors,
Inc., a Panama corporation ("Amerindo Panama"). Based on information
contained in the Schedule 13G/A of Amerindo, Amerindo Panama, Alberto W.
Vilar and Gary A. Tanaka dated November 30, 1998, Mr. Vilar and Mr.
Tanaka are the sole shareholders and directors of Amerindo and Amerindo
Panama and may be deemed to be beneficial owners of the 734,000 shares
owned thereby.
(3) Excludes shares of Common Stock beneficially owned by the employees of
Citicorp Venture Capital Ltd. ("CVC") and Citi Growth Fund, L.P.,
including shares owned by Mr. McWilliams, as to which CVC and Citi Growth
Fund, L.P. disclaim beneficial ownership. CVC and Citi Growth Fund, L.P.
are affiliates, but each disclaims beneficial ownership of the shares
held by the other.
(4) Includes 221,044 shares of Common Stock subject to exercisable stock
options and 146,078 shares held in a trust for the benefit of the
children of Manuel Cincotta, Jr., for which Dr. Anthony Cincotta serves
as co-trustee.
10
<PAGE>
(5) Includes 249,750 shares of Common Stock subject to exercisable stock
options.
(6) Includes 68,000 shares of Common Stock subject to exercisable stock
options and 100 shares of Common Stock owned by Mr. Burt's daughter.
(7) Includes 15,000 shares of Common Stock subject to exercisable stock
options.
(8) Includes 10,000 shares of Common Stock subject to exercisable stock
options.
(9) Includes 20,625 shares of Common Stock subject to exercisable stock
options.
(10) Consists of 83,976 shares owned by Steuben Investment Company, a limited
partnership, the sole general partner of which is a corporation owned
entirely by Mr. Hunt, and 15,000 shares of Common Stock subject to
exercisable stock options. Excludes shares owned by Hunt Financial
Corporation, the capital stock of which is held, indirectly, through a
series of corporations, by certain trusts for the benefit of Mr. Hunt and
members of his family.
(11) Consists of 22,993 shares owned by Alchemy L.P., a limited partnership,
the sole general partner of which is Mr. McWilliams, 36,301 shares held
in trust for the benefit of Mr. McWilliams, and 15,000 shares of Common
Stock subject to exercisable stock options. Excludes shares owned by CVC,
Citi Growth Fund, L.P., and other employees of CVC, as to which Mr.
McWilliams disclaims beneficial ownership.
(12) Includes 10,000 shares of Common Stock subject to exercisable stock
options.
11
<PAGE>
CERTAIN TRANSACTIONS
Ergo granted demand and piggyback registration rights with respect to
the Common Stock issued upon conversion of the Series A, Series B, and Series C
Preferred Stock or issued in payment of loans at the closing of the initial
public offering to purchasers of Preferred Stock and to the following lenders:
Citicorp Venture Capital, Ltd. ("CVC"); Citi Growth Fund L.P.; CVC employees
(including Mr. McWilliams); Hunt Financial Corporation; and Lafayette Investment
Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Stephen A. Duzan, Stephen
P. Smiley, and Thomas F. McWilliams. None of these members is or has been an
employee of the Company. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
SECTION16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers, directors, and persons who beneficially own more
than 10% of a registered class of the Company's equity securities file with the
Securities and Exchange Commission initial reports of ownership and reports of
any changes in ownership of common stock and other equity securities of the
Company. Based on the Company's review of forms furnished to the Company and
written representations from reporting persons, the Company believes that all
filing requirements applicable to the Company's executive officers, directors,
and 10% beneficial owners were complied with during 1998.
ADDITIONAL INFORMATION
SOLICITATION
This solicitation of proxies is made by the Board of Directors and will
be conducted primarily by mail. Officers, directors and employees of the Company
may solicit proxies personally or by telephone, telegram or other forms of wire
or facsimile communication. The Company may also request banking institutions,
brokerage firms, custodians, nominees and fiduciaries to forward solicitation
material to the beneficial owners of Common Stock that those companies hold of
record. The costs of the solicitation, including reimbursement of such
forwarding expenses, will be paid by the Company
STOCKHOLDER PROPOSALS
To be considered for inclusion in the proxy statement relating to the
Annual Meeting of Stockholders to be held in 2000, the Company must receive
stockholder proposals no later than January 1, 2000. To be considered for
presentation at such meeting, although not included in the proxy statement,
proposals must be received no later than sixty days before the annual meeting or
(if later) ten days after the first public notice of the meeting. All
stockholder proposals should be marked for the attention of Secretary, Ergo
Science Corporation, 33 Third Avenue, Charlestown, MA 02129.
CHANGE IN INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers L.L.P. as
the Company's independent accountants for 1999. Coopers and Lybrand L.L.P. had
been the Company's independent accountants since August 1995. In 1998, Copper &
Lybrand L.L.P. became PricewaterhouseCoopers L.L.P. The selection of
PricewaterhouseCoopers L.L.P. as the Company's independent accountants for 1998
was approved by the Board of Directors. The Company expects that representatives
of PricewaterhouseCoopers L.L.P. will be present at the Annual Meeting to
respond to appropriate
12
<PAGE>
questions and will have an opportunity to make a statement if they so desire
to do so. The Board of Directors may terminate the appointment of
PricewaterhouseCoopers L.L.P. as independent accountants without the approval
of the Company's stockholders whenever the Board of Directors deems
termination necessary or appropriate.
ANNUAL REPORT
The Company's annual report on Form 10-K to stockholders for the year
ended December 31, 1998, including financial statements, is being mailed
herewith to all stockholders entitled to vote at the Annual Meeting. The annual
report does not constitute a part of the proxy solicitation material. COPIES OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-K ARE AVAILABLE WITHOUT CHARGE UPON
REQUEST BY CONTACTING THE COMPANY'S INVESTOR RELATIONS DEPARTMENT, ERGO SCIENCE
CORPORATION, 33 THIRD AVENUE, CHARLESTOWN, MA 02129, ATTN: LISA DESCENZA, OR BY
CALLING 617-241-6824.
By Order of the Board of Directors,
/S/ DAVID R. BURT
-------------------------------------
David R. Burt
President and Chief Executive Officer
Charlestown, Massachusetts
April 29, 1999
13
<PAGE>
PROXY
ERGO SCIENCE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING, JUNE 9, 1999
The undersigned hereby constitutes and appoints each of J. Richard
Crowley and David R. Burt, his true and lawful agents and proxies with full
power of substitution, to represent the undersigned, with all the powers which
the undersigned would possess if personally present, and to vote the Common
Stock of Ergo Science Corporation held of record by the undersigned on the
record date, at the Annual Meeting of Stockholders of Ergo Science Corporation,
to be held at the BankBoston Conference and Training Center, 100 Federal Street,
Boston, Massachusetts, on Wednesday, June 9, 1999, at 9:00 am. local time, and
at any adjournment thereof, on all matters coming before said meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR VOTE BY MARKING THE APPROPRIATE BOX
ON THE REVERSE SIDE BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION THAT IS FOR THE ELECTION
OF THE NAMED NOMINEE AS DIRECTOR. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU
SIGN AND RETURN THIS CARD. THIS PROXY MAY BE REVOKED IN WRITING AT ANY TIME
PRIOR TO THE VOTING THEREOF.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
ERGO SCIENCE CORPORATION
THIS IS YOUR PROXY
Dear Stockholder:
Your Proxy is being solicited by the Board of Directors of Ergo Science
Corporation for the Annual Meeting of Stockholders to be held at 9:00 a.m. local
time on June 9, 1999 at the BankBoston Conference and Training Center, 100
Federal Street, Boston, Massachusetts.
Enclosed with this Proxy is a Proxy Statement containing important information
about the issue that you are being asked to approve.
Your vote is important to us. Whether or not you plan to attend the Annual
Meeting, you can be sure your shares are represented at the meeting by promptly
returning your completed Proxy card prior to the Annual Meeting.
Please mark the boxes on the Proxy card below to indicate how your shares are to
be voted, then sign the card, detach it and return your Proxy card in the
enclosed envelope.
Thank you in advance for your prompt consideration of these matters.
PLEASE MARK
__[X] VOTES AS IN
THIS EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
AND AUTHORIZE THE PROXIES TO TAKE ACTION IN THEIR DISCRETION UPON OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE MEETING. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE FOR
DIRECTOR,
1. ELECTION OF DIRECTORS: To elect Stephen P. Smiley as a Class I director for a
three year term ending at the Annual Meeting of Stockholders in 2002 and until
his successor is duly elected and qualified or his earlier resignation or
removal.
[ ] FOR THE NOMINEE [ ] WITHHELD FROM THE NOMINEE
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign this Proxy exactly as your name appears
on this card. Joint owners should each sign
personally. If you are signing as a representative of
the named stockholder (e.g. as a trustee. corporate
officer or other agent on behalf of a trust.
corporation or other entity) you should indicate your
title or the capacity in which you sign.
Signature: Date: Signature: Date:
--------------- ----- ---------------- -----
