<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 (S)240.14a-11(c) or (S)240.14a-12
CardioTech International, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(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>
CARDIOTECH INTERNATIONAL, INC.
July 30, 1998
Dear Stockholder,
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of CardioTech International, Inc. (the "Company") to be held at 10:00 a.m. on
Thursday, September 3, 1998 at the office of Mintz, Levin, Cohn, Ferris,
Glovsky & Popeo, P.C., One Financial Center, 38th Floor, Boston,
Massachusetts.
At the Annual Meeting, one person will be elected to the Board of Directors.
In addition, the Company will ask the Stockholders to ratify the sale of up to
$2,500,000 principal amount 7% Senior Convertible Notes to Dresdner Kleinwort
Benson Private Equity Partners LP, as well as the selection of
PricewaterhouseCoopers LLP as the Company's independent public accountants.
The Board of Directors recommends the approval of each of these proposals.
Such other business will be transacted as may properly come before the Annual
Meeting.
We hope you will be able to attend the Annual Meeting. Whether you plan to
attend the Annual Meeting or not, it is important that your shares are
represented. Therefore, you are urged promptly to complete, sign, date and
return the enclosed proxy card in accordance with the instructions set forth
on the card. This will ensure your proper representation at the Annual
Meeting.
Sincerely,
LOGO
/s/ Michael Szycher, Ph.D.
Michael Szycher, Ph.D.
Chairman and CEO
CardioTech International, Inc.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 3, 1998
To the Stockholders of CardioTech International, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of CardioTech International,
Inc., a Massachusetts corporation (the "Company"), will be held on Thursday,
September 3, 1998 at the office of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., One Financial Center, 38th Floor, Boston, Massachusetts at 10:00
a.m. for the following purposes:
1. To elect one member to the Board of Directors to serve for a term
ending in 2001 and until his successor is duly elected and qualified.
2. To consider and act upon a proposal to ratify the sale of up to
$2,500,000 principal amount 7% Senior Convertible Notes to Dresdner
Kleinwort Benson Private Equity Partners LP.
3. To consider and act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent public accountants
for the fiscal year ending March 31, 1999.
4. To transact such other business as may be properly brought before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on July 16, 1998 as
the record date for the determination of Stockholders entitled to notice of
and to vote at the Annual Meeting and at any adjournments thereof.
All Stockholders are cordially invited to attend the Annual Meeting. Whether
you plan to attend the Annual Meeting or not, you are requested to complete,
sign, date and return the enclosed proxy card as soon as possible in
accordance with the instructions on the proxy card. A pre-addressed, postage
prepaid return envelope is enclosed for your convenience.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John E. Mattern
John E. Mattern
Clerk
July 30, 1998
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
11 STATE STREET, WOBURN, MA 01801
(781) 933-4772
----------------
PROXY STATEMENT
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of CardioTech International, Inc. (the "Company" or
"CardioTech"), a Massachusetts corporation, of proxies, in the accompanying
form, to be used at the Annual Meeting of Stockholders to be held at the
office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial
Center, 38th Floor, Boston, Massachusetts on Thursday, September 3, 1998 at
10:00 a.m., and any adjournments thereof (the "Meeting").
Where the Stockholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the one nominee for director named herein, FOR the ratification of
the sale of up to $2,500,000 principal amount 7% Senior Convertible Notes (the
"Notes") to Dresdner Kleinwort Benson Private Equity Partners LP ("Kleinwort
Benson") and FOR the ratification of the appointment of PricewaterhouseCoopers
LLP as the Company's independent public accountants for the fiscal year ending
March 31, 1999. Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before its use by delivering to the
Company a written notice of revocation or a duly executed proxy bearing a
later date. Any Stockholder who has executed a proxy but is present at the
Meeting, and who wishes to vote in person, may do so by revoking his or her
proxy as described in the preceding sentence. Shares represented by valid
proxies in the form enclosed, received in time for use at the Meeting and not
revoked at or prior to the Meeting, will be voted at the Meeting. The
presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Company's common stock, par value $ 0.01 per share
("Common Stock"), is necessary to constitute a quorum at the Meeting.
The affirmative vote of a majority of the total number of shares voted
either for or against each proposal at the Meeting is required to approve each
proposal, other than the election of directors, which requires a plurality of
the shares voted. With respect to the tabulation of votes on any matter,
abstentions and non-votes have no effect on the vote.
The close of business on July 16, 1998 has been fixed as the record date for
determining the Stockholders entitled to notice of and to vote at the Meeting.
As of the close of business on July 16, 1998, the Company had 4,272,916 shares
of Common Stock outstanding and entitled to vote. Holders of Common Stock are
entitled to one vote per share on all matters to be voted on by the
Stockholders.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock for their expenses in
forwarding proxy material to such beneficial owners. Solicitation of proxies
by mail may be supplemented by telephone, telegram, telex and
<PAGE>
personal solicitation by the directors, officers or employees of the Company.
No additional compensation will be paid for such solicitation. Additional
solicitation of holders of Common Stock by mail, telephone, telegraph or by
personal solicitation will be made by Corporate Investor Communications, Inc.,
at an anticipated cost to the Company of approximately $4,500 plus out-of-
pocket expenses.
This Proxy Statement and the accompanying proxy are being mailed on or about
July 30, 1998 to all Stockholders entitled to notice of and to vote at the
Meeting. The Annual Report to Stockholders for the fiscal year ended March 31,
1998 is being mailed to the Stockholders with this Proxy Statement, but does
not constitute a part hereof.
SHARE OWNERSHIP
The following table sets forth certain information as of June 30, 1998
concerning the ownership of Common Stock by each Stockholder known by the
Company to be the beneficial owner of more than 5% of its outstanding shares
of Common Stock, each current member of the Board of Directors, each executive
officer named in the Summary Compensation Table on p. 5 hereof, and all
current directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED(1)
-----------------
NAME AND ADDRESS** NUMBER PERCENT
- ------------------ --------- -------
<S> <C> <C>
Kleinwort Benson............................................. 856,348 16.7%
75 Wall Street, New York, NY 10005(2)
John Hancock Mutual Life Insurance Company................... 278,189 6.1%
200 Clarendon Street, Boston, MA 02116(3)
Michael Szycher, Ph.D.(4).................................... 568,435 12.3%
Alan Edwards(5).............................................. 222,997 5.0%
Generio Gargiulo(6).......................................... 29,708 *
Michael L. Barretti(7)....................................... 7,427 *
John E. Mattern(8)........................................... 75,000 1.7%
Jonathan S. Walker(9)........................................ 860,061 16.8%
All executive officers and directors as a group (7
persons)(10)................................................ 1,778,628 30.6%
</TABLE>
- --------
*Represents beneficial ownership of less than 1% of the Company's outstanding
shares of Common Stock.
**Addresses are given for beneficial owners of more than 5% of the outstanding
Common Stock only.
(1) The number of shares of Common Stock issued and outstanding on June 30,
1998 was 4,272,916. The calculation of percentage ownership for each
listed beneficial owner is based upon the number of shares of Common
Stock issued and outstanding at June 30, 1998, plus shares of Common
Stock subject to options held by such person at June 30, 1998 and
exercisable within 60 days thereafter. The persons and entities named in
the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them, except as noted below.
(2) Kleinwort Benson currently holds $1,660,000 principal amount of Notes
which are immediately convertible into Common Stock at a conversion price
of $1.995 per share. Includes 14,561 shares which will be issuable upon
the conversion of Notes which may be issued to Kleinwort Benson in
payment of three month's interest on the Notes due June 30, 1998 and
9,707 shares which will be issuable upon the conversion of Notes which
may be issued to Kleinwort Benson in payment of interest on the Notes due
within 60 days of June 30, 1998.
2
<PAGE>
(3) John Hancock Mutual Life Insurance Company and its affiliates currently
hold exercisable warrants to purchase an aggregate of 278,189 shares of
Common Stock.
(4) Includes 330,712 shares of Common Stock which may be purchased within 60
days of June 30, 1998 upon the exercise of stock options.
(5) Includes 222,897 shares of Common Stock which may be purchased within 60
days of June 30, 1998 upon the exercise of stock options.
(6) Consists of 29,708 shares of Common Stock which may be purchased within
60 days of June 30, 1998 upon the exercise of stock options.
(7) Consists of 7,427 shares of Common Stock which may be purchased within 60
days of June 30, 1998 upon the exercise of stock options.
(8) Consists of 75,000 shares of Common Stock which may be purchased within
60 days of June 30, 1998 upon the exercise of stock options.
(9) Includes 856,348 shares of Common Stock issuable to Kleinwort Benson and
3,713 shares of Common Stock which may be purchased within 60 days of
June 30, 1998 upon the exercise of stock options. Mr. Walker is a
Managing Investment Partner of Dresdner Kleinwort Benson Private Equity
Managers LLC, the general partner of Kleinwort Benson and, in such
official capacity, shares voting and investment power as to the shares
held by Kleinwort Benson and therefore may be deemed to share beneficial
ownership thereof.
(10) Includes no shares of Common Stock which may be purchased within 60 days
of June 30, 1998 upon the exercise of stock options held by Michael
Adams. See also footnotes 4 through 9 above.
MANAGEMENT
DIRECTORS
The Company's By-Laws provide for the Company's business to be managed by or
under the direction of the Board of Directors (or, the "Board"). Under the
Company's By-Laws, the number of directors is fixed from time to time by the
Board of Directors. The Board of Directors currently consists of five (5)
members, classified into three (3) classes as follows: Generio Gargiulo and
Jonathan S. Walker constitute a class with a term ending in 2000 (the "Class I
directors"); Michael L. Barretti constitutes a class with a term which expires
at the upcoming Meeting (the "Class II directors"); and Alan Edwards and
Michael Szycher, Ph.D. constitute a class with a term ending in 1999 (the
"Class III directors"). At each annual meeting of Stockholders, directors are
elected for a full term of 3 years to succeed those directors whose terms are
expiring.
Kleinwort Benson has Board representation rights that were granted in
connection with the sale of the Notes. As long as the Notes are outstanding,
the Company must nominate one representative of Kleinwort Benson for election
to the Board of Directors. If elected, the Kleinwort Benson Director must also
be a member of the Executive, Compensation and Nominating Committees. The
failure of the Company to nominate a representative of Kleinwort Benson or the
failure of each of the Company's officers and directors who hold Common Stock
to vote in favor of such representative constitutes an event of default under
the Notes. Mr. Walker, a Director of the Company since March 1998, is
Kleinwort Benson's current representative to the Board.
3
<PAGE>
The names of the Company's current directors and certain information about
them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Michael Szycher, Ph.D... 60 Chairman of the Board, Chief Executive Officer and Treasurer
Alan Edwards............ 50 Director and Executive Vice President
Generio T. Gargiulo..... 49 Director
Michael L. Barretti..... 53 Director
Jonathan S. Walker...... 50 Director
</TABLE>
Dr. Szycher is Chairman of the Board, Chief Executive Officer and Treasurer
of CardioTech. Dr. Szycher has served as a director of CardioTech since 1993.
He served as Chairman of PolyMedica Industries, Inc. ("PMI"), from October
1989 to June 1996, Chief Technical Officer of PMI from November 1990 to June
1996 and a director of PMI since its inception. Dr. Szycher resigned from PMI
in June 1996.
Mr. Edwards is Executive Vice President and a director of CardioTech, a
position he has held since March 1996. Since September 1993, Mr. Edwards has
served as President of CardioTech's subsidiary, CardioTech International,
Limited. Prior to September 1993, he was the Managing Director and Company
Secretary of Newtec, Inc., a vascular graft company acquired by the Company.
Mr. Edwards has been a director of CardioTech since March 1996.
Mr. Gargiulo has served as Senior Managing Director of Research and
Institutional Sales at Gargiulo & Company, Inc. since 1996. Prior to forming
Gargiulo & Company, Inc., Mr. Gargiulo served as Managing Director of Research
and Institutional Sales at Brookehill since 1994. From 1993 to 1994, Mr.
Gargiulo was Executive Vice President--Director of Research at Barington
Capital Group, L.P. From 1984 to 1993, Mr. Gargiulo was Vice President of
Equity Research at First Boston Corporation and covered the hospital supply
industry. Mr. Gargiulo has been a director of CardioTech since March 1996.
Mr. Barretti has been President of Cool Laser Optics, Inc., a company which
commercializes optical technology specific to the medical laser industry,
since July 1996. From September 1994 to July 1996, Mr. Barretti was the Vice
President, Marketing of Cynosure, Inc., a manufacturer of medical and
scientific lasers. From June 1987 to September 1994, Mr. Barretti was a
principal and served as Chief Executive Officer of Northfleet Management Group
("NMG"), a marketing management firm serving the international medical device
industry. From January 1991 to May 1994, Mr. Barretti also acted as President
of Derma-Lase, Inc., the U.S. subsidiary of a Glasgow, Scotland supplier of
solid state laser technology to the medical field. Mr. Barretti has been a
Director of CardioTech since January 1998.
Mr. Walker has been a Senior Investment Partner with Dresdner Kleinwort
Benson Private Equity Managers LLC, the general partner of Kleinwort Benson,
since its inception in 1997. Kleinwort Benson invests in private U.S. middle
market companies. Mr. Walker joined Kleinwort Benson Limited, a private
investment banking firm, in London in 1968 and has been Executive Vice
President of Kleinwort Benson Inc. ("KB Inc.") since 1988 and of Dresdner
Kleinwort Benson North America LLC since KB Inc. was purchased by Dresdner
Bank AG in 1995. Mr. Walker has been a Director of CardioTech since March
1998.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
Meeting Attendance. During the fiscal year ended March 31, 1998, there were
five meetings of the Board of Directors. The various committees of the Board
of Directors met a total of two times during fiscal 1998. Each
4
<PAGE>
director attended all of the total number of meetings of the Board and of
committees of the Board on which he served during fiscal 1998. In addition,
from time to time, the members of the Board of Directors and its committees
acted by unanimous written consent pursuant to Massachusetts law.
Audit Committee. The Audit Committee, which did not meet in fiscal 1998, has
two members, Mr. Gargiulo (Chairman) and Mr. Walker. The Audit Committee
reviews the engagement of the Company's independent accountants, reviews
annual financial statements, considers matters relating to accounting policy
and internal controls and reviews the scope of annual audits.
Compensation and Stock Option Committee. The Compensation and Stock Option
Committee, which met two times during fiscal 1998, has three members, Mr.
Gargiulo, Chairman, Mr. Walker and Mr. Barretti. The Compensation and Stock
Option Committee reviews, approves and makes recommendations on the Company's
compensation policies, practices and procedures to ensure that legal and
fiduciary responsibilities of the Board of Directors are carried out and that
such policies, practices and procedures contribute to the success of the
Company. The Compensation and Stock Option Committee administers the 1996
Employee, Directors and Consultant Stock Option Plan.
Compensation and Stock Option Committee Interlocks and Insider
Participation. The Compensation and Stock Option Committee has three members,
Mr. Gargiulo, Chairman, Mr. Walker and Mr. Barretti. No executive officer of
the Company is a member of the Compensation and Stock Option Committee. No
executive officer of the Company serves as a member of the board of the
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 and Stock Option Committee.
Nominating Committee. The Nominating Committee, which was established in
March 1998 and did not meet in fiscal 1998, has three members, Dr. Szycher,
Mr. Barretti and Mr. Walker. The Nominating Committee nominates individuals to
serve on the Board of Directors. The Nominating Committee will consider
nominees recommended by Common Stock holders. See "Stockholder Proposals" for
the procedures to be followed by holders of Common Stock in submitting such
recommendations.
COMPENSATION OF DIRECTORS
The Company's policy is to pay no compensation to members of the Board for
attendance at Board meetings or committee meetings. All non-employee directors
are reimbursed for travel and other related expenses incurred in attending
meetings of the Board of Directors.
Directors are eligible to participate in the Company's 1996 Employee,
Director and Consultant Stock Option Plan (the "Plan"). The Plan provides for
an initial grant of an option to purchase 14,854 shares of Common Stock to
each non-employee director upon first joining the Board and subsequent grants
of options to purchase 14,854 shares upon each anniversary of such director's
appointment. Such options are granted at an exercise price equal to the fair
market value of the Common Stock on the grant date and fully vest following
one year of service after the date of grant. Options to purchase 44,562 shares
were granted under this formula during fiscal 1998 to Mr. Gargiulo, Mr. Walker
and Mr. Barretti. Options granted during fiscal 1998 to any named executive
officers serving on the Board are reported under "Executive Compensation--
Option Grants in Last Fiscal Year."
Mr. Gargiulo is employed as a consultant of the Company in addition to his
responsibilities as a Director. As consideration for his consulting services,
the Company paid Mr. Gargiulo during fiscal 1998 $2,000.
5
<PAGE>
EXECUTIVE OFFICERS
The names of, and certain information regarding, executive officers of the
Company who are not also directors, are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
John E. Mattern......... 50 Chief Operating Officer, Chief Financial Officer and Clerk
Michael Adams........... 41 Vice President of Regulatory Affairs and Quality Assurance
</TABLE>
Mr. Mattern is Chief Operating Officer and Chief Financial Officer of the
Company, positions he has held since June 1996. Mr. Mattern is also the Clerk
of the Company, a position he has held since August 1997. From April 1994 to
June 1996, Mr. Mattern was a financial consultant, consulting to bio-tech,
pharmaceutical and not for profit organizations. Mr. Mattern was Vice
President of Finance and Chief Financial Officer of Interneuron
Pharmaceuticals, Inc. from January 1992 to April 1994. Mr. Mattern is also a
CPA.
Mr. Adams was appointed Vice President of Regulatory Affairs and Quality
Assurance of the Company on June 1, 1998. From November 1994 to March 1998 Mr.
Adams was Vice President, Regulatory Affairs and Quality Assurance at Cytyc
Corporation, a medical diagnostics company. Mr. Adams was Vice President,
Regulatory Affairs at USCI Division of C.R. Bard, a medical device company,
from February 1991 to November 1994.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth summary information as
to compensation received by the Company's Chief Executive Officer and Chief
Operating Officer (collectively, the "named executive officers") for services
rendered to the Company in all capacities during the two fiscal years ended
March 31, 1998.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ---------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL UNDERLYING COMPENSATION(1)
POSITION YEAR SALARY BONUS OPTIONS/SARS(#) ($)
- ------------------ ---- -------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Szycher, Ph.D... 1998 $176,443 $64,000 -- $4,706
Chairman, Chief 1997 $120,130(2) $10,000 424,412 --
Executive Officer
and Treasurer
John E. Mattern......... 1998 $132,080 $20,000 -- $2,407
Chief Operating Officer 1997 $ 91,885(3) $10,000 100,000 --
and Chief
Financial Officer
</TABLE>
- --------
(1) Includes premiums paid by the Company for long term disability insurance
and term life insurance. Premiums paid in fiscal year 1998 for long term
disability insurance and term life insurance, respectively, were $3,434
and $1,272 for Mr. Szycher and $1,814 and $593 for Mr. Mattern.
(2) From June 12, 1996 to March 31, 1997.
(3) From June 26, 1997 to March 31, 1997.
6
<PAGE>
OPTION GRANTS
There were no options granted by the Company to the named executive officers
during the fiscal year ended March 31, 1998.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table provides information regarding the number of shares
covered by both exercisable and unexercisable stock options held by each of
the named executive officers as of March 31, 1998 and the values of "in-the-
money" options, which values represent the positive spread between the
exercise price of any such option and the fiscal year-end value of the Common
Stock. No such options were exercised by the named executive officers during
the 1998 fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF THE UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
YEAR-END AT FISCAL YEAR-END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael Szycher, Ph.D.... 288,734 135,678 $17,324 $8,141
John E. Mattern.......... 50,000 50,000 $ 3,000 $3,000
</TABLE>
- --------
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Common Stock of $2.00, the closing sale price
per share of the Common Stock as reported on the American Stock Exchange
on March 31, 1998.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
CardioTech has entered into employment agreements with Dr. Szycher, Mr.
Mattern and Mr. Edwards (collectively, the "Employment Agreements"), pursuant
to which such individuals serve as executive officers of the Company. Pursuant
to the terms of the Employment Agreements, Dr. Szycher, Mr. Mattern and Mr.
Edwards receive annual base salaries of $187,548, $140,400 and (Pounds)40,423
(approximately $66,150), respectively. Dr. Szycher's salary will be reviewed
annually by the Board of Directors. The executive officers may also be
entitled to receive an annual bonus payment in an amount, if any, to be
determined by the Compensation and Stock Option Committee of the Board of
Directors. The Employment Agreements for Dr. Szycher, Mr. Mattern and Mr.
Edwards are for terms ending on May 13, 2000, December 31, 1998 and December
31, 1998, respectively.
Thereafter, the term of the Employment Agreements will be deemed to continue
on a month-to-month basis if not expressly extended while such officers remain
employed by CardioTech. Both the executive officers and CardioTech have the
right to terminate the Employment Agreements at any time, with or without
cause (as defined in the Employment Agreements), upon thirty (30) days' prior
written notice. In the event that CardioTech terminates the applicable
Employment Agreement without cause, or the executive officer terminates his
employment for good reason following a change in control (as such terms are
defined in the Employment Agreements) or CardioTech fails to renew the
applicable Employment Agreement within two (2) years following the occurrence
of a change in control (i) Dr. Szycher will be entitled to receive 2.99 times
his annual base salary at termination, (ii) Mr. Mattern will be entitled to
receive 1.00 times his annual base salary at termination, and (iii) Mr.
Edwards will be entitled to receive 2.00 times his annual base salary at
termination. Each of the executive officers will not compete with CardioTech
for one (1) year following termination of his employment.
Substantially all of the stock options granted pursuant to the Plan provide
for the acceleration of the vesting of the shares of Common Stock subject to
such options in connection with certain changes of control of the Company.
7
<PAGE>
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
Overview. This report is submitted by the Compensation and Stock Option
Committee (the "Committee"), which is responsible for establishing and
administering the Company's executive compensation policies and the Company's
stock option plan. The Committee is composed of Messrs. Gargiulo, Walker and
Barretti. Messrs. Gargiulo, Walker and Barretti are not employees of the
Company. This report addresses the compensation policies for fiscal year 1998
as they affected Mr. Szycher, Ph.D., in his capacity as Chief Executive
Officer and Treasurer of the Company, Mr. Mattern, in his capacity as Chief
Operating Officer, Chief Financial Officer and Clerk of the Company and other
executive officers of the Company.
General Compensation Policy. The Company's compensation policy for executive
officers is designed to achieve the following objects: (i) to enhance
profitability of the Company and increase stockholder values; (ii) to reward
executives consistent with the Company's annual and long-term performance
goals; (iii) to recognize individual initiative, leadership and achievement;
and (iv) to provide competitive compensation that will attract and retain
qualified executives.
Executive Officer Compensation Program. The Committee performs annual
reviews of executive compensation to confirm the competitiveness of the
overall executive compensation packages as compared with other local companies
who compete with the Company for prospective employees. The compensation
program for executive offices consists of three elements: (1) base salary,
which is set on an annual basis; (2) annual incentive compensation, in the
form of cash bonuses, which is based on achievement of predetermined financial
objectives of the Company and individual objectives; and (3) long-term
incentive compensation, in the form of stock options, granted when the
executive officer joins the Company and on occasion thereafter with the
objective of aligning the executive officers' long-term interests with those
of the stockholders and encouraging the achievement of superior results over
an extended period.
Base Salary. Base salaries for executive officers are targeted at
competitive market levels for their respective positions, levels of
responsibility and experience. In addition to external market data, the
Committee also reviews the Company's financial performance and individual
performance when adjusting base salary annually.
Bonus Compensation. Bonus compensation is based on the Company's achievement
of predetermined financial, operational and strategic objectives. Giving
greatest weight to attainment of financial targets, the Committee also awards
bonuses based on various operational and strategic objectives, such as
management efficiency, and the ability to motivate others and recognize and
pursue new business opportunities and initiate programs to enhance the
Company's growth and successes. Bonuses are awarded on an annual basis.
Long Term Incentive Compensation. Long-term incentive compensation, in the
form of stock options, allows the executive officers to share in any
appreciation in the value of the Company's Common Stock. The Committee
believes that stock option participation aligns executive officers' interests
with those of the stockholders. In addition, the Committee believes that
equity ownership by executive officers helps to balance the short term focus
of annual incentive compensation with a longer term view and may help to
retain key executive officers.
When establishing stock option grant levels, the Committee considers general
corporate performance, the Chief Executive Officer's recommendations, level of
seniority and experience, existing levels of stock ownership, previous grants
of stock options, vesting schedules of outstanding options and the current
stock price.
8
<PAGE>
It is the standard policy of the Company to grant an initial stock option
grant to all executive officers at the time they commence employment
consistent with the number of options granted to executive officers in the
medical device industry at similar levels of seniority. In addition, the
Committee may also make performance-based grants throughout the year. In
making such performance-based grants, the Committee considers individual
contributions to the Company's financial, operational and strategic
objectives.
Chief Executive Officer Compensation. In fiscal year 1998, the Company's
Chief Executive Officer and Treasurer, Michael Szycher, Ph.D., received a base
salary of $176,443, which represents an increase of $44,363 over this 1997
base salary and which reflects a full year of employment, rather than the
fiscal 1997 nine month period, plus a raise. This is consistent with the range
of salary levels received by his counterparts in medical device companies of
comparable size and stage of development. Mr. Szycher received bonus
compensation of $64,000 in fiscal 1998, which was based, in part, on the
performance of the Company's Common Stock on the American Stock Exchange and
on the receipt by the Company, pursuant to Mr. Szycher's efforts, of two
grants from the National Institute of Health for an aggregate of approximately
$650,000. Mr. Szycher was not granted any stock options for fiscal year 1998.
In fiscal year 1998, the Company's Chief Operating Officer and Chief
Financial Officer, John Mattern, received a base salary of $132,080, which
represents an increase of $40,195 over this 1997 base salary and which
reflects a full year of employment, rather than the fiscal 1997 nine month
period, plus a raise. This is consistent with the range of salary levels
received by his counterparts in medical device companies of comparable size
and stage of development. Mr. Mattern received bonus compensation of $20,000
in fiscal 1998, which was based, in part, on the performance of the Company's
Common Stock on the American Stock Exchange. Mr. Mattern was not granted any
stock options for fiscal year 1998.
Certain Tax Considerations. The Company does not believe Section 162(m) of
the Internal Revenue Code of 1986, as amended, which generally disallows a tax
deduction for compensation in excess of $1 million to any of the executive
officers appearing in the Summary Compensation Table above will have an effect
on the Company. The Committee has considered the requirements of Section
162(m) of the Code and its related regulations. It is the Committee's present
intention that, so long as it is consistent with its overall compensation
objections, substantially all executive compensation will be deductible for
Federal income tax purposes.
The Compensation and Stock Option
Committee
Genario T. Gargiulo, Chairman
Jonathan S. Walker
Michael L. Barretti
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the Company's
cumulative total stockholder return on its Common Stock during a period
commencing on June 12, 1996 (the date that the Company's Common Stock began
trading on the American Stock Exchange) and ending on March 31, 1998 (as
measured by dividing the difference between the Company's share price at the
end and the beginning of the measurement period by the share price at the
beginning of the measurement period) with the cumulative total return of the
American Stock Exchange and a peer group of issuers consisting of certain
companies within the Standard
9
<PAGE>
Industrial Code 3842, Orthopedic, Prosthetic and Surgical Appliances and
Supplies (the "Peer Group"), during such period. It should be noted that the
Company has not paid any dividends on the Common Stock, and no dividends are
included in the representation of the Company's performance. The stock price
performance on the graph below is not necessarily indicative of future price
performance.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
6/12/96 3/31/97 3/31/98
------- ------- -------
<S> <C> <C> <C>
CardioTech International, Inc.................... $100.00 $50.00 $ 53.33
American Stock Exchange Market Index............. $100.00 $94.41 $123.31
Peer Group....................................... $100.00 $67.18 $ 70.76
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than 10% of the Common Stock,
to file with the Securities and Exchange Commission (the "SEC") initial
reports of beneficial ownership and reports of changes in beneficial ownership
of the Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% beneficial owners are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the fiscal year ended March 31, 1997
and 1998, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with except
that Michael Szycher, PhD. failed to file two reports, covering an aggregate
of two transactions, and Jonathan S. Walker failed to file an initial report
upon his appointment as a Director of the Company and a year-end report
indicating his directorship-related, initial formula grant of Common Stock
options.
10
<PAGE>
ELECTION OF DIRECTORS
(NOTICE ITEM 1)
The Company's By-Laws provide for a classified Board of Directors. The Board
of Directors currently consists of five (5) members, classified into three (3)
classes as follows: Generio Gargiulo and Jonathan S. Walker constitute a class
with a term ending in 2000 (the "Class I directors"); Michael L. Barretti
constitutes a class with a term which expires at the upcoming Meeting (the
"Class II directors"); and Alan Edwards and Michael Szycher, Ph.D. constitute
a class with a term ending in 1999 (the "Class III directors"). At each annual
meeting of Stockholders, directors are elected for a full term of three (3)
years to succeed those directors whose terms are expiring.
The Board of Directors has unanimously nominated Mr. Barretti as a Class II
director to be elected at the Meeting for a term ending in 2001. Unless
authority to vote for Mr. Barretti is withheld, the shares represented by the
enclosed proxy will be voted FOR the election of Mr. Barretti as a director.
In the event that Mr. Barretti shall become unable or unwilling to serve, the
shares represented by the enclosed proxy will be voted for the election of
such other person as the Board of Directors may recommend in his place. The
Board has no reason to believe that Mr. Barretti will be unable or unwilling
to serve.
A plurality of the shares voted affirmatively or negatively at the Meeting
is required to elect Mr. Barretti as a director.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MR. BARRETTI AS DIRECTOR,
AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A
STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
RATIFICATION OF THE SALE OF UP TO $2,500,000 PRINCIPAL
AMOUNT OF 7% SENIOR CONVERTIBLE NOTES
(NOTICE ITEM 2)
THE NOTES
On March 31, 1998, the Company sold $1,660,000 aggregate principal amount of
7% Convertible Senior Notes due 2003 (the "Notes") to Dresdner Kleinwort
Benson Private Equity Partners LP ("Kleinwort Benson") in a private placement.
Proceeds from the sale of the Notes are being used by the Company for research
and development purposes and to meet working capital needs.
Kleinwort Benson has also agreed to buy the following principal amounts of
additional Notes, up to $840,000, if the Company meets the following
milestones on or prior to September 30, 1998: (i) up to $500,000 of Notes if
the Company obtains an unqualified, definitive CE Mark for its Vasculink
Vascular Access Graft; (ii) up to $500,000 of Notes if the Company executes
binding agreements with three research sites (in addition to the Company's
April 1998 agreement with Freemedic PLC) for clinical trials of the Company's
MyoLink Peripheral Graft; and (iii) $840,000 of Notes if the Company
consummates a strategic alliance, acquisition or merger that is approved by
Kleinwort Benson.
The Notes accrue interest at a rate of 7% per annum, payable quarterly in
cash and/or additional Notes, at the option of Kleinwort Benson. The Notes
rank senior to all securities of the Company upon liquidation. At any time
prior to maturity, Kleinwort Benson may convert the Notes, in whole or in
part, plus accrued interest, into
11
<PAGE>
shares of Common Stock at a conversion price of $1.995 (the "Conversion
Price"). The Conversion Price is subject to adjustment in the event of stock
splits, combinations, reorganizations and reclassifications. In addition, the
Notes have weighted average anti-dilution protection in the event that the
Company issues common stock equivalents below the Conversion Price or the fair
market value of the Common Stock.
The Notes are redeemable in cash prior to maturity, in whole or in part, at
the Company's option at 105% of principal amount during the first year
(decreasing by 1% in each of the following years), plus accrued and unpaid
interest. Should the Company elect to redeem the Notes, Kleinwort Benson may
elect to convert the Notes into shares of Common Stock at a new conversion
price equal to the lower of .87 in the first year (increasing to .89, .93 and
.96 in each of the following years, respectively) multiplied by (i) the
Conversion Price or (ii) the market price as of the conversion date. Upon the
occurrence of a "change of control," Kleinwort Benson may require that the
Company repurchase the Notes in accordance with the formula in the preceding
two sentences. A "change of control" will occur if (i) a person acquires 50%
or more of the outstanding Common Stock of the Company or assets of the
Company representing more than 50% of its consolidated earning power; (ii) the
sale or transfer of 30% or more of the assets of the Company; (iii) Michael
Szycher ceases to be Chief Executive Officer of the Company for any reason
whatsoever, or Michael Szycher ceases to devote all or substantially all of
his working time to the Company; or (iv) the Company sells any strategic
assets, such that it is no longer able to pursue its business.
At maturity, the Company may repay the Notes, plus accrued interest, by
converting them into shares of Common Stock at the Conversion Price. The
Company is not entitled to repay the Notes if an event of default has
occurred, the Common Stock is no longer listed on the American Stock Exchange
("AMEX"), the market price of the Common Stock during the preceding 90 days is
less than 150% of the Conversion Price then in effect or if the average daily
trading volume of the Common Stock on AMEX during the preceding 30 business
days is less 4,000 shares.
As collateral security for the payment of the Notes, the Company has granted
to Kleinwort Benson a security interest in all rights, privileges and interest
in all of the capital stock of its wholly owned subsidiary, CardioTech
International Ltd. The Company has also agreed to register the shares of
Common Stock issuable upon conversion of the Notes. In addition, Kleinwort
Benson has Board representation rights. See "Management--Directors."
THE AMEX LIMITATION
The rules of AMEX require that the Company obtain the approval of its
stockholders before the issuance of securities such as the Notes that are
convertible into Common Stock if (i) the number of shares that can be issued
is equal to or greater than 20% or more of the outstanding Common Stock and
(ii) the price per share is below the greater of the market or book value of
the Common Stock. (No such stockholder approval would be necessary if the
price per share were above the greater of the market or book value of the
Common Stock.) The exact number of shares of Common Stock issuable upon the
conversion, redemption or maturity of the Notes cannot currently be determined
because the number of shares issuable is dependent on future events,
principally consisting of the Company's ability to sell the $840,000 in
additional Notes to Kleinwort Benson, Kleinwort Benson's election to receive
interest in cash or additional Notes, and the conversion and redemption
decisions of Kleinwort Benson and the Company. In addition, the anti-dilution
protection and the redemption penalties of the Notes described above could
result in the Company issuing Common Stock at a price per share that is below
$1.90, the market value of the Common Stock at the time of the sale of the
Notes (which was greater than the
12
<PAGE>
book value of the Common Stock at the time). Accordingly, the Notes provide
that no more than 854,582 shares of Common Stock (equal to approximately 19.99
percent of the Common Stock based on the 4,272,916 shares of Common Stock
outstanding as of March 31, 1998) are issuable upon the total aggregate of
conversions of the Notes until stockholder approval of the issuance of the
Notes is obtained.
If stockholder approval is not obtained, then in lieu of issuing the balance
of the shares of Common Stock otherwise issuable to Kleinwort Benson, the
Company has agreed to pay Kleinwort Benson an amount in cash equal to the
product of (i) the amount of such balance of shares and (ii) the market price
(determined as of the conversion date) of the Common Stock. If the market
price of the Common Stock on the date of conversion was greater than the
Conversion Price, the Company would owe a premium to Kleinwort Benson that
could result in the Company making a substantial cash payment to Kleinwort
Benson. If, for example, the Company were to sell the $840,000 in additional
Notes to Kleinwort Benson and Kleinwort Benson elected to receive additional
Notes for all interest payable under the Notes, at the end of the five year
term of the Notes the Company would owe to Kleinwort Benson, upon conversion
of the Notes, approximately 898,000 shares of Common Stock over and above the
AMEX limit of 854,582 shares. If the market price on March 31, 2003, the
maturity date of the Notes, was $10, for example, the Company would owe
Kleinwort Benson approximately $9 million rather than the approximately $1.8
million due at the Conversion Price.
There can be no assurance that the Company will have available cash
resources to convert the Notes if required to do so. In the event stockholder
ratification of the issuance of the Notes is not obtained, the conversion by
Kleinwort Benson of a substantial number of Notes could have a material
adverse effect on the Company's financial condition and its ability to
implement its business strategy. Further, if any such conversion causes the
Company to fail to meet the listing requirements of the AMEX, the Company
would be subject to delisting. If delisted from the AMEX, the Company would
attempt to become listed on another stock exchange where it is able to meet
the listing requirements or to arrange for the Common Stock to be traded on
the Nasdaq electronic bulletin board. Additionally, if the Company's listing
on the AMEX were not to be maintained, there would be no need for stockholder
ratification of the issuance of the Notes.
The issuances of shares of Common Stock upon the conversion, redemption or
maturity of the Notes will have no effect on the rights or privileges of
existing holders of Common Stock except that the economic interests and voting
rights of each stockholder will be diluted as a result of such issuances.
Further, prior to conversion, holders of the Notes will be entitled to receive
distributions upon a liquidation of the Company in preference to claims of
holders of the Common Stock.
For the foregoing reasons, the Company is seeking stockholder ratification
of the sale of up to $2,500,000 principal amount of Notes to Kleinwort Benson
in order to enable the Company to pay Kleinwort Benson entirely in shares of
Common Stock. An affirmative vote of a majority of the shares voted
affirmatively or negatively at the Meeting is required to ratify this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO RATIFY THE SALE OF UP TO
$2,500,000 PRINCIPAL AMOUNT OF NOTES TO KLEINWORT BENSON, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
13
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
(NOTICE ITEM 3)
The Board of Directors has appointed PricewaterhouseCoopers LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending March 31, 1998. The Board proposes that the Stockholders
ratify this appointment, although such ratification is not required by
Massachusetts law or the Company's Restated Articles of Organization or
Amended and Restated Bylaws. PricewaterhouseCoopers LLP audited the Company's
financial statements for the fiscal year ended March 31, 1997. The Company
expects that representatives of PricewaterhouseCoopers LLP will be present at
the Meeting, with the opportunity to make a statement if they so desire, and
will be available to respond to appropriate questions.
In the event that ratification of the appointment of PricewaterhouseCoopers
LLP as the independent public accountants for the Company is not obtained at
the Meeting, the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the shares voted affirmatively or
negatively at the Meeting is required to ratify the appointment of the
independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP, AS INDEPENDENT PUBLIC ACCOUNTANTS,
AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A
STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented to
the Meeting. If any other business is properly brought before the Meeting, it
is intended that proxies in the enclosed form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Stockholders to
be held in 1999, Stockholder proposals must be received, marked for the
attention of: Clerk, CardioTech International, Inc. 11 State Street, Woburn,
Massachusetts, 01801 on or before March 30, 1999. In addition, the Company's
Restated By-laws require that notice of Stockholder proposals and nominations
for director for the 1999 Annual Meeting be delivered to the Clerk of the
Company not less than sixty (60) days nor more than ninety (90) days prior to
the scheduled date of such Meeting; provided, however, that if less than
seventy (70) days' notice or prior public disclosure of the date of the 1999
Annual Meeting is given or made, a Stockholder proposal or nomination will be
timely if received by the Company on or before the tenth (10th) day after such
notice or public disclosure. Nothing in this paragraph shall be deemed to
require the Company to include in its proxy statement and proxy relating to
the 1999 Annual Meeting any Stockholder proposal that does not meet all of the
requirements for inclusion established by the Securities and Exchange
Commission in effect at the time such proposal is received.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST
CONVENIENCE.
14
<PAGE>
By order of the Board of Directors:
/s/ John E. Mattern
John E. Mattern
Clerk
July 30, 1998
15
<PAGE>
Appendix A
CARDIOTECH INTERNATIONAL, INC.
11 STATE STREET
WOBURN, MASSACHUSETTS 01801
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael Szycher and John E. Mattern,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated on the reverse side, all shares of common
stock of CardioTech International, Inc. (the "Company") held of record by the
undersigned on July 16, 1998 at the Annual Meeting of Shareholders to be held
on September 3, 1998 and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION
IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED FOR
SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
1. Election of Director
Nominee: Michael Barretti
FOR WITHHELD
[ ] [ ]
2. Proposal to ratify the sale of up to $2,500,000 principal amount 7% Senior
Convertible Notes to Dresdner Kleinwort Benson Private Equity Partners LP.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to ratify the appointment of PricewaterhouseCoopers as
independent auditors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Signature____________________________________ Date ______________
Signature____________________________________ Date ______________
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If the person named on the stock certificate has died, please submit
evidence of your authority. If a corporation, please sign in full corporate
name by the President or authorized officer and indicate the signer's office.
If a partnership, please sign in the partnership name by an authorized person.
