CARDIOTECH INTERNATIONAL INC
DEF 14A, 1999-07-15
PHARMACEUTICAL PREPARATIONS
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                            SCHEDULE 14A INFORMATION

           Proxy Statement Pursuant To Section 14(a) of the Securities
                              Exchange Act of 1934

FILED BY THE REGISTRANT                           |X|

FILED BY A PARTY OTHER THAN THE REGISTRANT        |_|

Check the appropriate box:

|_|  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 Rule 14a-11(c) or Rule 14a-12

                         CARDIOTECH INTERNATIONAL, INC.
                (Name of Registrant as Specified In Its Charter)

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:

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(2)  Aggregate number of securities to which transaction applies:

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(3)  Per unit price or other underlying value of transaction  computed  pursuant
     to Exchange  Act Rule 0-11 (set forth the amount on which the filing fee is
     calculated and state how it was determined):

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(4)  Proposed maximum aggregate value of transaction:

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(5)  Total fee paid:

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|_|  Fee previously paid with preliminary materials.

|_|  Check box if any part of the fee is offset as provided by Exchange Act Rule
     0-11(a)(2)  and identify the filing for which the  offsetting  fee was paid
     previously.  Identify the previous filing by registration statement number,
     or the form or schedule and the date of its filing.

(1)  Amount Previously Paid:

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(2)  Form, Schedule or Registration Statement No.:

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(3)  Filing Party:

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(4)  Date Filed:

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<PAGE>

                         CARDIOTECH INTERNATIONAL, INC.

                                                                   July 15, 1999

Dear Stockholder,

     You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of CardioTech International, Inc. (the "Company") to be held at 10:00 a.m. on
Thursday, August 12, 1999 at the corporate offices of CardioTech International,
Inc., 78E Olympia Ave, Woburn, Massachusetts.

     At the Annual Meeting, one person will be elected to the Board of Directors
to serve for a three-year term of office. CardioTech will also seek shareholder
approval of an increase in the aggregate number of shares for which stock
options may be granted under its 1996 Employee, Director and Consultant Stock
Option Plan. 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,


                                      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 AUGUST 12, 1999

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 at 10:00 a.m. on
Thursday, August 12, 1999 at the corporate offices of CardioTech International,
Inc., 78E Olympia Ave, Woburn, Massachusetts for the following purposes:

     1. To elect one member to the Board of Directors to serve for a term ending
in 2002 and until his successor is duly elected and qualified.

     2. To consider and act upon a proposal to increase by 1,938,971 shares the
aggregate number of shares for which stock options may be granted under
CardioTech's 1996 Employee, Director and Consultant Stock Option Plan.

     3. 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 1, 1999 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


                                 Michael Szycher, Ph.D.
                                 Chairman and CEO
                                 CardioTech International, Inc.

July 15, 1999

<PAGE>

                         CardioTech International, Inc.
                      78E Olympia Avenue, 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
CardioTech's corporate headquarters, 78E Olympia Avenue, Woburn, Massachusetts
on Thursday, August 12, 1999 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, and FOR the proposal to
increase by 1,938,971 shares the aggregate number of shares for which stock
options may be granted under CardioTech's 1996 Employee, Director and Consultant
Stock Option Plan (the "Stock Option Plan"). 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 election of the director will be determined by a plurality of votes
cast. The affirmative vote of a majority of the total number of shares voted
either for or against the proposal to amend the Stock Option Plan is required to
approve such proposal. With respect to the tabulation of votes on any matter,
abstentions and non-votes will have no effect on the vote.

     The close of business on July 1, 1999 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 1,1999, the Company had 6,138,916 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.

<PAGE>

     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 personal solicitation by the
directors, officers or employees of the Company. No additional compensation will
be paid for such solicitation.

     This Proxy Statement and the accompanying proxy are being mailed on or
about July 15, 1999 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,
1999 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 July 1, 1999
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 current or
former executive officer named in the Summary Compensation Table, and all
current directors and executive officers as a group.

                                                   Shares Beneficially Owned (1)
                                                   -----------------------------
Name And Address**                                     Number       Percent
- ------------------                                     ------       -------
Kleinwort Benson .................................   1,388,065       18.4%
    75 Wall Street, New York, NY 10005 (2)
John Hancock Mutual Life Insurance Company .......     403,403        6.2%
    200 Clarendon Street, Boston, MA 02116(3)
Michael Szycher, Ph.D.(4) ........................     754,111       11.4%
Michael L. Barretti(5) ...........................      22,280          *
Carl Franzblau (6) ...............................       3,713          *
Jonathan S. Walker(7) ............................   1,406,632       18.6%
Alan Edwards(8) ..................................     384,949        5.9%
John E. Mattern(9) ...............................     158,750        2.5%
All executive officers and
    directors as a group (6 persons)(10) .........   2,684,810       31.7%

- ----------
*    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 July 1, 1999
     was 6,138,916. The calculation of percentage ownership for each listed
     beneficial owner is based upon the number of shares of Common Stock issued
     and outstanding at July 1, 1999, plus shares of Common Stock subject to
     options held by such person at July 1, 1999 and exercisable within 60 days
     thereafter. The persons and entities named in the

<PAGE>

     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 $1,779,000 principal amount of Senior
     Notes that are immediately convertible into Common Stock at a conversion
     price of $1.676 per share. Kleinwort Benson also currently holds $519,000
     of Preferred Stock that are immediately convertible into Common Stock at a
     conversion price of $1.584 per share.

(3)  John Hancock Mutual Life Insurance Company and its affiliates currently
     hold exercisable warrants to purchase an aggregate of 403,403 shares of
     Common Stock.

(4)  Includes 476,388 shares of Common Stock which may be purchased within 60
     days of July 1, 1999 upon the exercise of stock options and warrants.

(5)  Consists of 22,280 shares of Common Stock which may be purchased within 60
     days of July 1, 1999 upon the exercise of stock options.

(6)  Consists of 3,713 shares of Common Stock which may be purchased within 60
     days of July 1, 1999 upon the exercise of stock options.

(7)  Includes 1,388,065 shares of Common Stock issuable to Kleinwort Benson and
     18,567 shares of Common Stock which may be purchased within 60 days of July
     1, 1999 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.

(8)  Includes 344,849 shares of Common Stock which may be purchased within 60
     days of July 1, 1999 upon the exercise of stock options and warrants. Mr.
     Edwards is currently a director, but will not stand for reelection.

(9)  Includes 118,750 shares of Common Stock which may be purchased within 60
     days of July 1, 1999 upon the exercise of stock options and warrants.

(10) Includes 77,125 shares of Common Stock which may be purchased within 60
     days of July 1, 1999 upon the exercise of stock options and warrants held
     by Michael Adams. See also footnotes 4 through 8 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: Jonathan S. Walker and
Carl Franzblau, Ph.D. constitute a class with a term ending in 2000 (the "Class
I directors"); Michael L. Barretti constitutes a class of directors with a term
ending in 2001 (the "Class II director"); and Michael Szycher, Ph.D. and Alan
Edwards constitute a class with a term that expires at the upcoming Meeting (the
"Class III directors"). At each annual meeting of Stockholders, directors are
elected for a term of 3 years to succeed those directors whose terms are
expiring. Alan Edwards will not stand for reelection. Accordingly, on July 1,
1999, the Board voted to nominate Dr. Szycher for election as a Class III
director.


                                       3
<PAGE>

     Dresdner Kleinwort Benson Private Equity Partners LLP, the holder of
$1,779,000 principal amount 7% senior convertible notes (the "Senior Notes") and
$519,000 of Series A Preferred Stock issued by the Company (the "Preferred
Stock"), has Board representation rights that were granted in connection with
the sale of the Senior Notes and the Preferred Stock. As long as the Senior
Notes and the Preferred Stock 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 Senior Notes. Mr.
Walker, a Director of the Company since March 1998, is Kleinwort Benson's
current representative to the Board.

     Assuming the election of Dr. Szycher, the names of the Company's directors
following the Annual Meeting and certain information about them are set forth
below:

Name                               Age    Position with the Company
- ----                               ---    -------------------------

Michael Szycher, Ph.D.........     61     Chairman of the Board, Chief Executive
                                            Officer and Treasurer
Michael L. Barretti...........     54     Director
Carl Franzblau, Ph.D..........     64     Director
Jonathan S. Walker............     55     Director

     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. 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.

     Dr. Franzblau has been the Chairman, President and Chief Executive Officer
of Hemagen Diagnostics, Inc. since its inception in 1985. He started Hemagen as
a private company to develop, manufacture and market medical diagnostic test
kits or "assays." In addition to the leadership at Hemagen, Dr. Franzblau is the
Chairman of the Department of Biochemistry and the Associate Dean of Medical
Sciences at Boston University School of Medicine. Dr. Franzblau has been a
Director of CardioTech since April 1999.


                                       4
<PAGE>

     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, 1999, there were
four meetings of the Board of Directors. The various committees of the Board of
Directors met a total of five times during fiscal 1999. Each director attended
all of the total number of meetings of the Board and of committees of the Board
on which he served during fiscal 1999. 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 met once in fiscal 1999, has
two members, Mr. Barretti (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 four times during fiscal 1999, has two members, Mr.
Barretti (Chairman) and Mr. Walker. 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 Stock Option Plan.

     Nominating Committee. The Nominating Committee, which was established in
March 1998 and did not meet in fiscal 1999, 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 $750 per diem 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.


                                       5
<PAGE>

     Directors are eligible to participate in the Stock Option Plan. The Stock
Option 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 granted during
fiscal 1999 to any named executive officers serving on the Board are reported
under "Executive Compensation--Option Grants in Last Fiscal Year."

Executive Officers

     The names of, and certain information regarding, executive officers of the
Company who are not also directors, are set forth below.

Name                 Age             Position with the Company
- ----                 ---             -------------------------

Michael Adams......   41   Chief Operating Officer, Vice President of Regulatory
                           Affairs and Quality Assurance and Clerk

Alan Edwards.......   51   Executive Vice President

     Mr. Adams was appointed Chief Operating Officer of the Company on April 15,
1999. He was appointed Vice President of Regulatory Affairs and Quality
Assurance of the Company on June 1, 1998 and Clerk on July 1, 1999. 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.

     Mr. Edwards is Executive Vice President 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, but will not stand for reelection.


                                       6
<PAGE>

                                CHANGE OF CONTROL

     CardioTech has received a "going concern" opinion from its independent
public accountants. This "going concern " opinion may be considered by the
American Stock Exchange ("AMEX") in determining whether it will delist the
Common Stock. If the Common Stock were to be delisted by AMEX, a default
condition under the Senior Notes would occur and Kleinwort Benson could give
notice to CardioTech of this default condition, whereupon CardioTech would have
25 days to cure the default. If CardioTech was unable to cure the default
condition, then an event of default would occur and Kleinwort Benson would be
entitled to demand immediate payment of the Senior Notes. The Company has
pledged all of the common stock of its wholly owned subsidiary, CardioTech
International, Ltd. (CTI"), to secure the repayment of the Senior Notes. Most of
CardioTech's operating assets are in CTI. Upon the occurrence of an event of
default, Kleinwort Benson would have the right to foreclose on the CTI stock,
and the stockholders of CardioTech would no longer control its primary asset,
CTI. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Going Concern Opinion and Possible AMEX Delisting" in the
Annual Report to Stockholders.

                          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
                                                                     Underlying     Compensation (1)
Name and Principal Position             Year  Salary        Bonus  Options/SARS(#)         ($)
- ---------------------------             ----  ------        -----  ---------------  ----------------
<S>                                     <C>   <C>         <C>         <C>              <C>
Michael Szycher, Ph.D ................  1999  $198,796    $ 25,000    91,000           $  5,523
     Chairman, Chief Executive Officer  1998  $176,443    $ 64,000      --             $  4,706
     and Treasurer                      1997  $120,130(3) $ 10,000   424,412               --
John Mattern (2) .....................  1999  $148,708    $ 15,000    15,000           $  2,149
     Former Chief Financial Officer     1998  $132,080    $ 20,000      --             $  2,407
     and Chief Operating Officer        1997  $ 91,885(4) $ 10,000   100,000               --

</TABLE>

- ----------
(1)  Includes premiums paid by the Company for long term disability insurance
     and term life insurance. Premiums paid in fiscal year 1999 for long term
     disability insurance and term life insurance, respectively, were $2,600 and
     $1,923 for Mr. Szycher and $1,200 and $949 for Mr. Mattern.

(2)  On April 20, 1999, the Company terminated the employment of Mr. Mattern.
     The Company is currently paying Mr. Mattern a severance payment at the rate
     of Mr. Mattern's annual salary at termination, $140,400.

(3)  From June 12, 1996 to March 31, 1997.

(4)  From June 26, 1997 to March 31, 1997.


                                       7
<PAGE>

Option Grants in Last Fiscal Year

     The following table sets forth information regarding each stock option
granted during the last fiscal year to each of the named executive officers.

                                          Individual Grants(1)
                          ----------------------------------------------------
                                         Percent of
                          Number of        Total
                          Securities      Options
                          Underlying     Granted to      Exercise
                           Options      Employees in     Price Per  Expiration
          Name            Granted (#)   Fiscal Year      Share         Date
          ----            -----------   ------------     ---------  ----------

Michael Szycher, Ph.D ...   20,000         5.0%          $ 2.563      5/17/08

                            20,000         5.0%          $ 1.125       9/3/08
                            50,000        12.6%          $ 1.8125    11/14/08
                             1,000          .25%         $ 1.81       1/26/09

John Mattern ............    5,000         1.3%          $ 1.125       9/3/08
                            10,000         2.5%          $ 1.8125    11/14/08

- ----------
(1)  The Company granted options to purchase 396,062 shares of Common Stock to
     employees in the year ended March 31, 1999. All options were granted at an
     exercise price per share equal to the fair market value of the Common Stock
     on the date of grant, determined by the closing price on AMEX on the
     trading day immediately preceding the grant date. All option vests in four
     approximately equal annual installments, with the initial tranche vesting
     on the date of grant.

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, 1999 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 1999 fiscal
year.

                            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
- ----                     -----------  ------------- -----------  -------------
Michael Szycher, Ph.D...   414,420       100,992     $1,225        $3,675
John Mattern............    78,750        36,250       $306          $919

- ----------
(1)  The value of unexercised in-the-money options at fiscal year end assumes a
     fair market value for the Common Stock of $1.375, the closing sale price
     per share of the Common Stock as reported on the American Stock Exchange on
     March 31, 1999.


                                       8
<PAGE>

Employment Contracts, Termination of Employment and Change of Control
Arrangements

     CardioTech has entered into employment agreements with Dr. Szycher, 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, and Mr. Edwards receive annual base
salaries of $205,000, and [pounds]53,100 (approximately $87,000), 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, and Mr.
Edwards are for terms ending on May 13, 2000 and December 31, 1999,
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, 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 Stock Option
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.

                           RELATED PARTY TRANSACTIONS

     During the last two fiscal years, the Company has sold the Senior Notes and
Preferred Stock to Kleinwort Benson. In addition, the Company sold 200,000 units
to Dr. Szycher, Mr. Adams, Mr. Edwards and Mr. Mattern. See Notes I, J and N to
Notes to Consolidated Financial Statements in the Annual Report of Stockholders.

             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.


                                       9
<PAGE>

     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, 1999,
all Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with, except that Michael Adams
and John Mattern each failed to file a Form 5 reporting two stock option grant
transactions, Michael Szycher and Alan Edwards each failed to file a Form 5
reporting three stock option grant transactions and Jonathan Walker and Michael
Barretti each failed to file a Form 5 reporting one stock option grant
transaction.

                              ELECTION OF DIRECTORS

                                 (Notice Item 1)

     The Company's By-Laws provide for the Company's business to be managed by
or under the direction of the Board of Directors. 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: Jonathan S. Walker and Carl Franzblau, Ph.D.
constitute a class with a term ending in 2000 (the "Class I directors"); Michael
L. Barretti constitutes a class of directors with a term ending in 2001 (the
"Class II director"); and Michael Szycher, Ph.D. and Alan Edwards constitute a
class with a term that expires at the upcoming Meeting (the "Class III
directors"). At each annual meeting of Stockholders, directors are elected for a
term of 3 years to succeed those directors whose terms are expiring. Alan
Edwards will not stand for reelection. Accordingly, on July 1, 1999, the Board
voted to nominate Dr. Szycher for election as a Class III director.

     Unless authority to vote for Dr. Szycher is withheld, the shares
represented by the enclosed proxy will be voted FOR the election of Dr. Szycher
as a director. In the event that Dr. Szycher 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 Dr. Szycher will be unable or
unwilling to serve.

     A plurality of the shares voted affirmatively or negatively at the Meeting
is required to elect Dr. Szycher as a director.

THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF DR. SZYCHER AS DIRECTOR, AND
PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A
STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.


                                       10
<PAGE>

                       AMENDMENT TO THE STOCK OPTION PLAN
                                 (Notice Item 2)

General

     The Stock Option Plan was approved by the Board of Directors and by the
stockholders in 1996. A total of 1,061,029 shares of Common Stock were initially
reserved for issuance under the Stock Option Plan, of which no shares remain
eligible for grant.

     By the terms of the Stock Option Plan, the Stock Option Plan may be amended
by the Board of Directors or the Compensation and Stock Option Committee of the
Board of Directors (the "Committee"), provided that any amendment approved by
the Board of Directors or the Compensation Committee that is of a scope that
requires Shareholder approval in order to ensure favorable federal income tax
treatment for any incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), is subject to obtaining such
Shareholder approval. On July 1, 1999, the Board of Directors voted to approve
an amendment to the Stock Option Plan to increase by 1,938,971 shares (for a
total of 3,000,000) the aggregate number of shares of Common Stock for which
stock options or stock awards may be granted under the Stock Option Plan. The
Board of Directors believes that the increase is advisable to give the Company
the flexibility needed to attract, retain and motivate employees, Directors and
consultants. This amendment is being submitted for Shareholder approval at the
Meeting to ensure continued qualification of the Stock Option Plan under
American Stock Exchange rules and Section 422 of the Code.

Material Features of the Stock Option Plan

     The purpose of the Stock Option Plan is to attract, retain and motivate
employees, directors and consultants through the issuance of stock options and
to encourage ownership of shares of Common Stock by employees, directors and
consultants of the Company. Subject to the provisions of the Stock Option Plan,
the Committee determines the persons to whom options will be granted, the number
of shares to be covered by each option and the terms and conditions upon which
an option may be granted, and has the authority to administer the provisions of
the Stock Option Plan. All employees, directors and consultants of the Company
and its affiliates are eligible to participate in the Stock Option Plan. The
Company currently has 15 full-time employees.

     Options granted under the Stock Option Plan may be either (i) options
intended to qualify as "incentive stock options" under Section 422 of the Code,
or (ii) non-qualified stock options. Incentive stock options may be granted
under the Stock Option Plan to employees of the Company and its affiliates.
Non-qualified stock options may be granted to consultants, directors and
employees of the Company and its affiliates. The Stock Option Plan also provides
for the automatic grant of non-qualified options to non-employee directors of
the Company. Any new non-employee Director, upon joining the Board, is granted a
ten-year option to purchase 14,854 shares of Common Stock (the "Initial Grant")
at the then current fair market value of the Common Stock, vesting over one (1)
year, assuming continued membership on the Board. Thereafter, on each
anniversary of the Initial Grant, the non-employee Director will receive an
additional ten-year option to purchase 14,854 shares of Common Stock, with an
exercise price


                                       11
<PAGE>

equal to the then fair market value of the Common Stock, which will vest over a
one-year period, assuming continued Board membership.

     The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which become exercisable in any
calendar year under any incentive stock option plan of the Company may not
exceed $100,000. Incentive stock options granted under the Stock Option Plan may
not be granted at a price less than the fair market value of the Common Stock on
the date of grant, or 110% of fair market value in the case of employees holding
10% or more of the voting stock of the Company. Non-qualified stock options
granted under the Stock Option Plan may not be granted at an exercise price less
than the par value per share of the Common Stock. Incentive stock options
granted under the Stock Option Plan expire not more than ten years from the date
of grant, or not more than five years from the date of grant in the case of
incentive stock options granted to an employee holding 10% or more of the voting
stock of the Company. An option granted under the Stock Option Plan is
exercisable, during the optionholder's lifetime, only by the optionholder and is
not transferable by him or her except by will or by the laws of descent and
distribution or pursuant to a Qualified Domestic Relations Order.

     An incentive stock option granted under the Stock Option Plan may, at the
Committee's discretion, be exercised after the termination of the optionholder's
employment with the Company (other than by reason of death, disability or
termination for cause as defined in the Stock Option Plan) to the extent
exercisable on the date of such termination, at any time prior to the earlier of
the option's specified expiration date or 90 days after such termination. In
granting any non-qualified stock option, the Committee may specify that such
non-qualified stock option shall be subject to such termination or cancellation
provisions as the Committee shall determine. In the event of the optionholder's
death or disability, both incentive stock options and non-qualified stock
options may be exercised, to the extent exercisable on the date of death or
disability (plus a pro rata portion of the option if the option vests
periodically), by the optionholder or the optionholder's survivors at any time
prior to the earlier of the option's specified expiration date or one year from
the date of the optionholder's death or disability. In the event of the
optionholder's termination for cause, all outstanding and unexercised options
are forfeited.

     If the shares of Common Stock shall be subdivided or combined into a
greater or smaller number of shares or if the Company shall issue any shares of
Common Stock as a stock dividend on its outstanding Common Stock, the number of
shares of Common Stock deliverable upon the exercise of an option granted under
the Stock Option Plan shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend. If the
Company is to be consolidated with or acquired by another entity in a merger,
sale of all or substantially all of the Company's assets or otherwise (an
"Acquisition"), the vesting of shares subject to any outstanding options will
accelerate. The Board of Directors of the Company or the board of directors of
any entity assuming the obligations of the Company under the Stock Option Plan
(the "Successor Board"), shall, as to outstanding options under the Stock Option
Plan either (i) make appropriate provision for the continuation of such options
by substituting on an equitable basis for the shares then subject to such
options the consideration payable with respect


                                       12
<PAGE>

to the outstanding shares of Common Stock in connection with the Acquisition or
securities of the successor or acquiring entity; or (ii) upon written notice to
the participants, provide that all options must be exercised (either to the
extent then exercisable or, at the discretion of the Board of Directors, all
options being made fully exercisable for purposes of such transaction) within a
specified number of days of the date of such notice, at the end of which period
the options shall terminate: or (iii) terminate all options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to each such option (either to the extent then exercisable or, at the discretion
of the Board of Directors, all options being made fully exercisable for purposes
of such transaction) over the exercise price thereof. In the event of a
recapitalization or reorganization of the Company (other than an Acquisition)
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock, an optionholder upon
exercising an option under the Stock Option Plan, shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such option prior to such
recapitalization or reorganization.

     The Stock Option Plan may be amended by the Stockholders of the Company.
The Stock Option Plan may also be amended by the Board of Directors, provided
that any amendment approved by the Board of Directors which is of a scope that
requires Stockholder approval in order to ensure favorable federal income tax
treatment for any incentive stock options under Code Section 422, is subject to
obtaining such Stockholder approval.

Option Information

     The following table sets forth as of July 1, 1999, all options granted
pursuant to the Stock Option Plan to (i) the named executive officers, (ii) all
current executive officers of the Company as a group, (iii) all current
directors of the Company who are not executive officers as a group, and (iv) all
employees, including all current officers who are not executive officers, as a
group.

                                                                      No. of
                                                                     Options
          Name                          Title                     Granted (#)(1)
          ----                          -----                     --------------
Michael Szycher, Ph.D.   Chairman and Chief Executive Officer ...... 464,412
John E. Mattern          Former Chief Operating Officer and
                           Chief Financial Officer ................. 115,000
All current executive officers as a group (3 persons)............... 854,785
All current directors who are not executive officers (3 persons)....  29,708
All employees who are not executive officers as a group(8 persons)..  61,536

- ----------
(1)  Net of all canceled options.

     On July 1, 1999, the market value of the Company's Common Stock was $1.063
per share, based on the closing price of such Common Stock as quoted on the
American Stock Exchange.

Federal Income Tax Considerations


                                       13
<PAGE>

     The following is a description of certain United States federal income tax
consequences of the issuance and exercise of options under the Stock Option
Plan:

     Incentive Stock Options. An incentive stock option does not result in
taxable income to the optionee or deduction to the Company at the time it is
granted or exercised, provided that no disposition is made by the optionee of
the shares acquired pursuant to the option within two years after the date of
grant of the option nor within one year after the date of issuance of shares to
him (the "ISO holding period"). However, the difference between the fair market
value of the shares on the date of exercise and the option price will be an item
of tax preference includible in "alternative minimum taxable income." Upon
disposition of the shares after the expiration of the ISO holding period, the
optionee will generally recognize long term capital gain or loss based on the
difference between the disposition proceeds and the option price paid for the
shares. If the shares are disposed of prior to the expiration of the ISO holding
period, the optionee generally will recognize taxable compensation, and the
Company will have a corresponding deduction, in the year of the disposition,
equal to the excess of the fair market value of the shares on the date of
exercise of the option over the option price. Any additional gain realized on
the disposition will normally constitute capital gain. If the amount realized
upon such a disqualifying disposition is less than fair market value of the
shares on the date of exercise, the amount of compensation income will be
limited to the excess of the amount realized over the optionee's adjusted basis
in the shares.

     Non-Qualified Stock Options. Options otherwise qualifying as ISOs, to the
extent the aggregate fair market value of shares with respect to which such
options are first exercisable by an individual in any calendar year exceeds
$100,000, and options designated as non-qualified options will be treated as
options that are not incentive stock options.

     A non-qualified option ordinarily will not result in income to the option
holder or deduction to the Company at the time of grant. The option holder will
recognize compensation income at the time of exercise of such non-qualified
option in an amount equal to the excess of the then value of the shares over the
option price per share. Such compensation income of option holders may be
subject to withholding taxes, and a deduction may then be allowable to the
Company in an amount equal to the option holder's compensation income.

     An option holder's initial basis in shares so acquired will be the amount
paid on exercise of the non-qualified option plus the amount of any
corresponding compensation income. Any gain or loss as a result of a subsequent
disposition of the shares so acquired will be capital gain or loss.

     The affirmative vote of a majority of the shares voted affirmatively or
negatively at the Meeting is required to approve the increase in the aggregate
number of shares of Common Stock available under the Stock Option Plan.

     THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF THE AMENDMENT
TO THE STOCK OPTION PLAN, AND PROXIES


                                       14
<PAGE>

SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR OF SUCH AMENDMENT UNLESS A
STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.

                         INDEPENDENT PUBLIC ACCOUNTANTS

     PricewaterhouseCoopers LLP is the Company's independent public accountants.
The Board has not proposed that the Stockholders ratify the appointment of
PricewaterhouseCoopers LLP since such ratification is not required by
Massachusetts law or the Company's Articles of Organization or By-laws.
PricewaterhouseCoopers LLP audited the Company's financial statements for the
fiscal year ended March 31, 1999. 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.

                                  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 inclusion in our proxy statement relating to the 2000
Annual Meeting of Stockholders, Stockholder proposals must be received no later
than April 13, 2000. In addition, the Company's By-laws require that notice of
Stockholder proposals and nominations for director to be considered for
presentation at the 2000 Annual Meeting, although not included in our proxy
statement, must 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 2000 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. The
Company is not required to include in its proxy statement and proxy relating to
the 2000 Annual Meeting any Stockholder proposal that does not meet all of the
requirements established by the Securities and Exchange Commission. All
stockholder proposals should be marked for the attention of the Clerk,
CardioTech International, Inc., 78E Olympia Avenue, Woburn, Massachusetts 01801.

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.


                                     By Order of the Board of Directors:


                                     Michael Szycher, Ph.D.
                                     Chairman and CEO
                                     CardioTech International, Inc.
July 15, 1999


                                       15
<PAGE>

                                   Appendix A

                         CARDIOTECH INTERNATIONAL, INC.

                                 78E Olympia Ave
                           WOBURN, MASSACHUSETTS 01801

                  PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
                       SOLICITED BY THE BOARD OF DIRECTORS

     The undersigned hereby appoints Michael Szycher and Michael Adams, 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 1, 1999 at the Annual Meeting of Shareholders to be held on
August 12, 1999, 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.

     The Board of Directors recommends a vote for Proposals 1 and 2.

|X|  Please mark votes as in this example.

1.   Election of Director

     Nominee: Dr. Michael Szycher

          FOR           WITHHELD
          |_|             |_|

2.   Proposal to increase by 1,938,971 shares the aggregate number of shares
     reserved for issuance under the Company's Stock Option Plan.

          FOR      AGAINST  ABSTAIN
          |_|        |_|      |_|

     In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.

     If you wish to vote in accordance with the Board of Directors'
recommendations, just sign below. You need not mark any boxes.

<PAGE>

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.

<PAGE>

                                                    July 15, 1999

Office of Document Control/EDGAR
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, DC 20549

     RE:  Definitive Proxy Statement of CardioTech International, Inc.

Dear Sir or Madam:

     Filed electronically via EDGAR on this date is the definitive Proxy
Statement on Schedule 14A of CardioTech International, Inc. in connection with
the 1999 Annual Meeting of Stockholders to be held on August 12, 1999. If
proposal 2 is approved by our stockholders at the Annual Meeting, we intend to
file a Registration Statement on Form S-8 as soon as practicable thereafter to
register the additional shares.

     If you should have any questions or comments regarding the attached, please
contact the undersigned at (781) 933-4772.

                              Very truly yours,

                                     CardioTech International, Inc.

                                     Michael Szycher, Ph.D.
                                     Chairman and CEO



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