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:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
[_] Confidential, For Use of the Commission Only (As Permitted by Rule
14A-6(E)(2))
CARDIOTECH INTERNATIONAL, INC.
(Name of Registrant as Specified In Its Charter)
NAME OF COMPANY
(Name of Person(s) Filing Proxy Statement)
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>
3
CARDIOTECH INTERNATIONAL, INC.
78-E Olympia Avenue
Woburn, Massachusetts 01801
http://www.cardiotech-inc.com
[email protected]
August 30, 2000
To the Stockholders of CardioTech International, Inc.:
CardioTech International, Inc. (the "Company") is pleased to send you the
enclosed notice of the Annual Meeting of Stockholders (the "Meeting") to be held
at 9:00 a.m. on Thursday, October 26, 2000 at the offices of the Company, 78-E
Olympia Avenue, Woburn, MA 01801.
Ordinary annual meeting business will be transacted at the Meeting,
including the election of directors. Two (2) other actions will be submitted to
the stockholders at the Meeting:
1. to approve the sale of CardioTech International, Ltd., the
Company's subsidiary in the United Kingdom; and
2. to approve an amendment to the Company's 1996 Stock Option Plan
increasing the number of shares reserved under the Plan
from 2,000,000 to 4,000,000
Please review the Company's enclosed Proxy Statement and Annual Report on
Form 10-KSB carefully. If you have any questions regarding this material,
please do not hesitate me at (781) 933-4772.
Sincerely yours,
Michael Szycher, Ph.D., MBA
Chairman and
Chief Executive Officer
CardioTech International, Inc.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING PLEASE COMPLETE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING.
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
78-E Olympia Avenue
Woburn, Massachusetts 01801
To be held on October 26, 2000
The Annual Meeting of Stockholders (the "Meeting") of CardioTech
International, Inc. (the "Company") will be held on Thursday, October 26, 2000,
at 9:00 a.m. at the offices of the Company, 78-E Olympia Avenue, Woburn, MA
01801 for the following purposes:
1. To elect three (3) directors to hold office until their successors
shall be elected and shall have qualified;
2. To approve the sale of CardioTech International, Ltd., the Company's
subsidiary in the United Kingdom;
3. To approve an amendment to the Company's 1996 Stock Option Plan (the
"1996 Plan") increasing the number of shares reserved under the
Plan from 2,000,000 to 4,000,000; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board has fixed the close of business on September 5, 2000, as the
record date for the determination of stockholders entitled to notice of, and to
vote and act at, the Meeting and only stockholders of record at the close of
business on the date are entitled to notice of, and to vote and act at, the
Meeting.
Stockholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, please complete and sign
the enclosed proxy card and return it promptly. If you choose, you may still
vote in person at the Meeting even though you previously submitted a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
CARDIOTECH INTERNATIONAL, INC.
Michael Adams
Clerk
Woburn, Massachusetts
August 29, 2000
<PAGE>
- 3 -
CARDIOTECH INTERNATIONAL, INC.
78-E Olympia Avenue
Woburn, Massachusetts 01801
(617) 368-2700
____________________
PROXY STATEMENT
____________________
ANNUAL MEETING OF STOCKHOLDERS
to be held October 26, 2000
INTRODUCTION
The Annual Meeting of Stockholders
This Proxy Statement is being furnished to holders of shares of Common
Stock, $.01 par value (the "Common Stock") and of CardioTech International,
Inc., a Massachusetts corporation ("CardioTech" or the "Company"), in connection
with the solicitation of proxies by the Board of Directors (the "Board") of the
Company for use at the Annual Meeting of Stockholders (the "Meeting") to be held
at the offices of the Company, 78-E Olympia Avenue, Woburn, MA 01801, on October
26, 2000 at 9:00 a.m., and at any adjournment or adjournments thereof.
Matters to be Considered at the Meeting
At the Meeting, Stockholders will be acting upon the following matters: (i)
to elect three (3) directors to hold office until their successors shall be
elected and shall have qualified; (ii) to approve the sale of CardioTech
International, Ltd., the Company's subsidiary in the United Kingdom, and (iii)
to approve an amendment to the Company's 1996 Stock Option Plan increasing the
number of shares reserved under the Plan from 2,000,000 to 4,000,000. See
"ELECTION OF DIRECTORS", "DISPOSITION OF SUBSIDIARY OPERATION", and "AMENDMENT
TO THE 1996 STOCK OPTION PLAN".
Recommendations of the Board of Directors
The Board unanimously recommends adoption of all the matters to be
submitted to the stockholders at the Meeting.
Beneficial Ownership of Securities and Voting Rights
As of the close of business on September 5, 2000, the record date for the
Meeting, there were outstanding 8,455,430 shares of Common Stock. For more
information about the Company's outstanding stock, see "OTHER INFORMATION --
Principal Stockholders."
Proxies; Votes Required
A stockholder may revoke his, her or its proxy at any time prior to its use
by giving written notice to the Clerk of the Company, by executing a revised
proxy at a later date or by attending the Meeting and voting in person. Proxies
in the form enclosed, unless previously revoked, will be voted at the Meeting in
accordance with the specifications made thereon or, in the absence of such
specifications, in favor of the election of the nominees for directors listed
herein, in favor of the proposal to sell CardioTech International, Ltd., the
Company's subsidiary in the United Kingdom, in favor of the proposal to amend
the Company's 1996 Stock Option Plan, and with respect to any other business
which may properly come before the Meeting, in the discretion of the named
proxies.
<PAGE>
- 4 -
If, in a proxy submitted on a stockholder's behalf by a person acting
solely in a representative capacity, the proxy is marked clearly to indicate
that the shares represented thereby are not being voted with respect to one or
more proposals, then that proxy will not be counted as present at the Meeting
with respect to such proposals. Proxies submitted with abstentions as to one or
more proposals will be counted as present for purposes of establishing a quorum
for such proposals. Any proxy may be revoked at any time prior to the voting
thereof by delivering to the Clerk of the Company a written revocation of a duly
executed proxy bearing a later date or by voting in person at the Meeting. The
expected date of the first mailing of this proxy statement and the enclosed
proxy is estimated to be October 3, 2000.
The affirmative vote of a plurality of the shares of the Company's Stock
present at the Meeting, in person or by proxy, is required for the election of
the members of the Board. The affirmative vote of the holders of a majority of
the shares of the Company's Stock issued and outstanding is required for the
approval of the sale of CardioTech International, Ltd., the Company's subsidiary
in the United Kingdom and the approval of the amendment to the 1996 Stock Option
Plan.
Shares of the Company's Common Stock represented by executed proxies
received by the Company will be counted for purposes of establishing a quorum at
the Meeting, regardless of how or whether such shares are voted on any specific
proposal. With respect to the required vote on any particular matter,
abstentions will be treated as votes cast or shares present and represented,
while votes withheld by nominee recordholders who did not receive specific
instructions from the beneficial owners of such shares will not be treated as
votes cast or as shares present or represented.
TABLE OF CONTENTS
Page No.
--------
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 1
Table of Contents. . . . . . . . . . . .. . . . . . . . . . . . . . . . . 2
Election of Directors . .. . . . . . . . . . . .. . . . . . . . . . . . . 3
Executive Compensation. . . . . . . . . . . . . .. . . . . . . . . .. . . 6
Disposition of Subsidiary Operation . . . . . . . . . . . .. . . . . .. . 9
Amendment to the 1996 Stock Option Plan. . . . . . . . . . . .. . . . . . 10
Other Information . . . . . . . . . . . . . . . . . . . .. . . . . .. . . 13
<PAGE>
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ELECTION OF DIRECTORS
PROPOSAL 1
Introduction
Pursuant to Section 50A of Chapter 156B of the Massachusetts General Laws,
the Board is currently divided into three (3) classes having staggered terms of
three (3) years each. Under Section 50A, the Board may determine the total
number of directors and the number of directors to be elected at any annual
meeting or special meeting in lieu thereof. The Board has fixed at three (3)
the number of Class I directors to be elected at the 2000 Annual Meeting. At
the Meeting, the stockholders will be asked to elect Michael Adams, Anthony
Armini and Robert Chartoff as Class I directors to serve in such capacity until
the 2003 Annual Meeting and until their successors are duly elected and
qualified.
It is the intention of the persons named in the enclosed proxy to vote to
elect the three nominees named above, one of whom is an incumbent director, and
each of whom has consented to serve if elected. If some unexpected occurrence
should make necessary, in the direction of the Board of Directors, the
substitution of some other person for any of the nominees, it is the intention
of the persons named in the proxy to vote for the election of such other persons
as may be designated by the Board of Directors.
Nominees, Directors, and Executive Officers
The directors, executive officers and advisors of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ------------------
<S> <C> <C>
Michael Szycher. Ph.D., MBA 62 Chairman, Chief Executive Officer and Treasurer
Michael L. Barretti 55 Director
Michael Adams* 42 Director and Clerk
Anthony J. Armini, Ph.D.* 55 Director
Robert Chartoff* 57 Director
David C. Volpe 45 Acting Chief Financial Officer
Thomas Lovett 45 Corporate Controller
---------------
<FN>
* Nominee for election as a director
</TABLE>
There are no family relationships between any directors, executive officer,
or person nominated or chosen to become a director or executive officer.
Business Experience of Directors and Executive Officers
NOMINEES TO SERVE AS DIRECTORS FOR A TERM EXPIRING
AT THE 2003 ANNUAL MEETING (CLASS I DIRECTORS)
Mr. Adams is the Vice President of Assurance Medical, Inc. Prior to
joining Assurance Medical in June 1999, Mr. Adams was the Chief Operating
Officer and Vice President of Regulatory Affairs and Quality Assurance of
CardioTech International, Inc. from June 1998 to May 1999. From November 1994
through June 1998, Mr. Adams served as the Vice President of Cytyc Corporation.
Mr. Adams was nominated as a director of CardioTech in May 1999.
Dr. Anthony J. Armini has been the President, Chief Executive Officer, and
Chairman of the Board of Directors since the Company's incorporation. From 1972
to 1984, prior to founding the Company, Dr. Armini was Executive Vice President
at Spire Corporation. From 1967 to 1972, Dr. Armini was a Senior Scientist at
McDonnell Douglas Corporation. Dr. Armini received his Ph.D. in nuclear physics
from the University of California, Los Angeles in 1967. Dr. Armini is the author
of eleven patents and fifteen patents pending in the field of implant technology
and fourteen publications in this field. Dr. Armini has over thirty years of
experience working with cyclotrons and linear accelerators, the production and
characterization of radioisotopes, and fifteen years experience with ion
implantation in the medical and semiconductor fields. Dr. Armini was nominated
as a director of CardioTech in August 2000.
<PAGE>
- 6 -
Mr. Chartoff has been an attorney in private practice since 1984, whose
practive specializes in corporate counseling to financial instutitions, real
estate investors, and entrepreneurs. Mr. Chartoff is also the President of
Chartoff Productions, which is involved in the production of commercial films,
including Rocky, They Shoot Horses, Don't They, and Raging Bull. Mr. Chartoff
also founded the Jennifer School in Bodh Gaya, India, that services hundreds of
needy children. Mr. Chartoff was nominated as a director of CardioTech in May
2000.
DIRECTOR SERVING A TERM EXPIRING AT THE
2001 ANNUAL MEETING (CLASS II DIRECTORS)
Mr. Barretti is the 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 Vice President of
Marketing for 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, 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 technologies to
the medical field. Mr. Barretti has been a director of the Company since
January 1998.
DIRECTOR SERVING A TERM EXPIRING AT THE
2002 ANNUAL MEETING (CLASS III DIRECTORS)
Dr. Szycher is Chairman of the Board, Chief Executive Officer and Treasurer
of the Company. Dr. Szycher has served as a director of the Company since 1993.
Prior to joining the Company, Dr. Szycher served as Chairman of PolyMedica
Industries, inc. ("PMI") from October 1989 to June 1996, as Chief Executive
Officer of PMI from November 1990 to June 1996, and as a director of PMI since
its inception. Dr. Szycher resigned from PMI in June 1996.
Executive Officers
Mr. Volpe has been the Company's Acting Chief Financial Officer since June
1999. Mr. Volpe has also been the Chief Financial Officer of EMT Corporation
since March 2000. Since May 1996, Mr. Volpe has been the Managing Director of
VC Advisors, Inc., providing financial management, business development and
financing expertise to a variety of companies in the Internet, medical,
telecommunications, software and high technology fields. These companies
include Cool Laser Optics, LeaseMarket.com, MDPlanet.com, Savoy Automation,
Grouptel.net, eHealth Technology Fund LP, and VITTS Networks. From 1991 through
2000, Mr. Volpe was a senior financial executive with several private
venture-backed and publicly held, technology based companies, including Chief
Financial Officer of Cynosure Inc. and FaxNet Corporation. Prior to that, Mr.
Volpe was a Manager at Price Waterhouse focusing his efforts on emerging growth,
technology-based companies. Mr. Volpe holds BS degrees from California State
University and is a member of the AICPA.
Mr. Lovett has been the Corporate Controller of the Company since August
2000. Prior to joining the Company, Mr. Lovett served in the capacities of
Controller and Cost Accounting Manager at Cynosure, Inc. from 1992 to 2000.
Additionally, Mr. Lovett served in a number of capacities, most recently as Cost
Accounting Manager, for Candela Laser Company from 1983 to 1992. Mr. Lovett
holds a BS in Accounting from Northeastern University.
<PAGE>
- 7 -
Certain Transactions
The above-named directors, executive officers and consultants have
indicated that neither they nor any of their respective affiliates has any
relationship with the Company that is required to be disclosed pursuant to Item
404 of Regulation S-B promulgated under the Securities Exchange Act of 1934
except for the transactions referred to under "Compensation Committee Interlocks
and Insider Participation".
Committees; Attendance
Meeting Attendance. During the fiscal year ended March 31, 2000, 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 2000. 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 2000. 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 twice in fiscal 2000, has
two members, Mr. Barretti (Chairman) and Mr. Adams. 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 2000, has two members, Mr. Barretti
(Chairman) and Mr. Adams. 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 2000, has three members, Dr. Szycher, Mr.
Barretti and Mr. Adams. 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.
Directors' Compensation
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.
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 2000 to any named executive officers serving on the Board are reported
under "Executive Compensation--Option Grants in Last Fiscal Year."
<PAGE>
- 8 -
EXECUTIVE COMPENSATION
The annual and long-term remuneration paid to or accrued for the Chief
Executive Officer and each of the other two most highly compensated executive
officers of the Company for services rendered during the years ended March 31,
1999 and 2000 was as follows:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Securities All Other
Underlying Compensation (1)
Name and Principal Position Year Salary Bonus Options $
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael Szycher, Ph.D, MBA 2000 205,067 - 156,060 11,581
Chairman, CEO and Treasurer 1999 198,796 - 189,480 5,523
Michael Adams (2) 2000 60,672 - 85,000 540
Chief Operating Officer 1999 117,019 (3) - 104,000 -
John Mattern 2000 153,048 (4) - - 493
Chief Financial Officer 1999 148,708 - 15,000 2,149
<FN>
___________________
(1) Includes premiums paid by the Company for long term disability insurance and term
life insurance. Premiums paid in fiscal 2000 for long term disability insurance
and life insurance, respectively, were $781 and $10,800 for Dr. Szycher, $300 and
$240 for Mr. Adams and $231 and $261 for Mr. Mattern.
(2) Mr. Adams resigned his position as the Company's Chief Operating Officer on May
1999.
(3) From June 10, 1998 to March 31, 1999
(4) On April 20, 1999, the Company terminated the employment of Mr. Mattern. In April
2000, the Company completed paying Mr. Mattern a severance payment at the rate
of Mr. Mattern's annual salary at termination, $153,000.
</TABLE>
<PAGE>
- 9 -
Option Grants in Last Fiscal Year
The following table sets forth information regarding each stock option
granted during the fiscal year ended March 31, 2000 to each of the named
executive officers.
<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options Granted
Options to Employees in Exercise Price Per Expiration
Name Granted (#) Fiscal Year Share Date
--------------------- ----------- ----------------- ------------------ ----------
<S> <C> <C> <C> <C>
Michael Szycher, Ph.D 37,037 2.92% $ 0.81 7/16/09
50,000 3.95% $ 3.38 3/31/09
57,586 4.55% $ 3.06 3/31/09
11,437 0.90% $ 3.06 3/31/09
Michael Adams . . . . 6,000 0.47% $ 0.875 7/15/09
14,500 1.14% $ 0.75 7/29/09
60,000 4.74% $ 0.50 1/3/10
John Mattern . . . . -0- N/A N/A N/A
<FN>
___________________
(1) The Company granted options to purchase 461,560 shares of Common Stock to
employees in the year ended March 31, 2000. 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 the American Stock Exchange
on the trading day immediately preceding the grant date. All options vest in
four approximately equal annual installments, with the initial tranche vesting
on the date of grant.
</TABLE>
Aggregated Option Exercises in Last Fiscal year and FY-End Option 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, 2000 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 2000 fiscal
year.
<TABLE>
<CAPTION>
Number of Securities Value of the Unexercised
Underlying Unexercised in the Money Options/SARs
Options/SARs at Fiscal at Fiscal Year-End(1)
Year - End ===========================
Name Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Szycher, Ph.D.. 571,325 198,627 $ 704,680 $ 185,592
Michael Adams . . . . . 97,125 55,875 $ 159,628 $ 143,953
John Mattern (2). . . . -0- -0- $ -0- $ -0-
<FN>
____________________
(1) The value of unexercised in-the-money options at fiscal year end assumes
a fair market value for the Common Stock of $3.125, the closing sale
price per share of the Common Stock as reported on the American Stock
Exchange for March 31, 2000.
(2) Mr. Mattern's stock options expired unexercised during the fiscal year
ended March 31, 2000.
</TABLE>
<PAGE>
- 10 -
Employment Contracts, Termations of Employment and Change in Control
Arrangements
The Company has entered into an employment agreement (the "Employment
Agreement") with Dr. Michael Szycher, pursuant to which said individual serves
as executive officer of the Company. Pursuant to the terms of the Employment
Agreement, Dr. Szycher is to receive an annual base salary of Two Hundred and
Twenty Thousand ($220,000) dollars. Dr. Szycher's salary will be reviewed
annually by the Board of Directors. Additionally, Dr. Szycher 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 initial term of the Employment Agreement by and between the Company and
Dr. Szycher is set to expire on May 13, 2003. After such time, the term of the
Employment Agreement will be deemed to continue on a month-to-month basis if not
expressly extend while Dr. Szycher remains employed by the Company. Dr. Szycher
and CardioTech have the right to terminate the Employment Agreement at any time,
with or without cause (as defined in the Employment Agreement), upon thirty (30)
days' prior written notice. In the event that CardioTech terminates the
applicable Employment Agreement without cause, or Dr. Szycher terminates his
employment for good reason following a change in control (as such terms are
defined in the Employment Agreement) or CardioTech fails to renew the applicable
Employment Agreement within two (2) years following the occurrence of a change
in control, Dr. Szycher will be entitled to receive 2.99 times his annual base
salary at termination. Additionally, Dr. Szycher will be bound by a noncompete
convenant for one (1) year following termination of his employment.
Substantially all of the stock options granted pursuant to the 1996 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 in control of
the Company.
Compensation Committee Interlocks and Insider Participation
Other than Mr. Adams, no person serving on the Compensation and Stock
Option Committee at any time during Fiscal Year 2000 was a present or former
officer or employee of the Company or any of its subsidiaries. During Fiscal
Year 2000, other than Dr. Szycher, no executive officer of the Company served as
a member of the board of directors or compensation and stock option committee
committee (or other board committee performing equivalent functions) of another
entity, one of whose executive officers served on the Company's Board of
Directors or Compensation and Stock Option Committee.
During the last two fiscal years, the Company has sold the Senior Notes and
Preferred Stock to Dresdner Kleinwort Benson. In addition, the Company sold
200,000 units to Dr. Szycher, Mr. Adams, and Mr. Mattern. See Notes I, J and N
to Notes to Consolidated Financial Statements in the Annual Report to
Stockholders on Form 10-KSB.
<PAGE>
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DISPOSITION OF SUBSIDIARY OPERATION
PROPOSAL 2
DIVESTITURE OF CARDIOTECH INTERNATIONAL, LTD.
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon the Heads of Agreement ("Agreement"), pursuant to which
the Company has agreed to sell all of the now issued and outstanding capital
stock of CardioTech Internation, Ltd. ("LTD"), the Company's subsidiary in the
United Kingdom, to Nervation Limited ("Nervation"). If the stockholders approve
the Agreement and the sale closes, the Company will transfer all of the capital
stock of LTD to Nervation, LTD will become a wholly owned subsidiary of
Nervation, and the Company will receive total cash consideration of Seven
Million ($7,000,000.00) dollars, a Two Hundred Thousand ($200,000.00) advance
payment for the Company to continue to supply certain polymers to LTD, and the
forgiveness of approximately Five Hundred and Forty Thousand ($540,000.00) in
accumulated debt to a third party to this transaction.
The Transaction
On August 4, 2000, CardioTech International, Inc. (the "Company", "CTE")
entered into a Heads of Agreement (the "Agreement") with Nervation Limited
("Nervation"), FreeMedic PLC ("FreeMedic"), CardioTech International, Ltd.
("LTD"), and certain members of the management of LTD (the "Management"). This
Agreement provides for the purchase of all of the now issued and outstanding
capital stock of LTD by Nervation for total cash consideration of Seven Million
($7,000,000.00) dollars.
As part of the Agreement, CTE has agreed to the following terms and
conditions:
1. To transfer all now issued and outstanding capital stock of LTD;
2. To extend the right to Nervation the use of the name "CardioTech" and/or
any similar imitation thereof for a period of not less than five (5)
years;
3. To transfer legal title to all assets used by LTD in connection with its
business;
4. To grant an exclusive worldwide license to manufacture the specific
formulations of Chronoflex in the event of a business interruption, sale,
merger or acquisition of CTE and/or the inability of CTE to furnish
the polymers to Nervation in sufficient quantity and/or consistently
and on a reasonable and timely commercial basis;
5. To enter into a covenant for CTE not to compete with Nervation in the
manufacturing, marketing, development and exploitation of the access
and peripheral grafts currently used in the course of business,
including the Vasculink Vascular Access Graft and the Myolink Arterial
Bypass Graft; and
6. To assign all trademarks used in connection with the business and assets
being transferred to Nervation.
In exchange for the above referenced terms and conditions of the sale of
LTD, CTE will receive the following as consideration for entering into said
transaction:
1. A cash payment upon completion of Seven Million ($7,000,000.00) dollars;
2. An exclusive, royalty-free worldwide license to the Cardio Pass Coronary
Artery Bypass Graft ("CABG") and a covenant from Nervation not to compete
directly or indirectly with the CABG product;
3. The release of certain liabilities with respect to the trade debts and
obligations of LTD; and
4. An advance payment of Two Hundred Thousand ($200,000.00) dollars for the
Company to continue to supply certain polymers to LTD.
<PAGE>
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Benefits of the Transaction
The proposed Transaction has a number of specific and material benefits for
the stockholders of CTE, including:
1. GENERATES OF WORKING CAPITAL FOR CTE ON A NON-DILUTIVE BASIS:
The proposed transaction generates gross working capital of approximately Seven
Million Two Hundred Thousand ($7,200,000.00) that will be utilized not only for
general corporate purposes, but more importantly, establishes a firm financial
foundation upon which the Company can aggressively seek FDA sanctioned clinical
trials in support of the CardioPass Coronary Artery Bypass Graft ("CABG"). The
Company's management believes the capital generated from this proposed
transaction will allow it to focus its primary efforts on the CABG product,
which holds the greatest future market potential. Additionally, this proposed
transaction provides the Company with significant working capital to effect the
CABG development, and does so on a non-dilutive basis to existing shareholders.
2. ELIMINATES THE NEED FOR CTE TO CONTINUE FUNDING EXTENSIVE OVERSEAS
DEVELOPMENT AND CLINICAL TRIAL COSTS FOR THE VASCULAR ACCESS AND PERIPHERAL
GRAFTS:
As a result of the proposed transaction, the Company will mitigate the current
ongoing losses resulting from the overseas operations due to marketing, clinical
and overhead expenses. In addition, the proposed transaction will mitigate
future additional costs associated with FDA clinical trials for the vascular
access and peripheral grafts.
3. RELIEVES CTE FROM ITS OBLIGATION AS A GUARANTOR TO REPAY ACCUMULATED
DEBTS IN EXCESS OF FIVE HUNDRED AND FORTY THOUSAND ($540,000.00) TO
FREEMEDIC:
The Company, prior to the proposed transaction, incurred liabilities totaling
Five Hundred and Forty Thousand ($540,000.00) dollars owed to FreeMedic as a
result of preclinical studies for the peripheral graft conducted at the
laboratories of the Royal Free Hospital in London.
Fairness Opinion
On August 23, 2000, the Company engaged Fechtor, Detwiler Mitchell & Co.,
Inc., a Boston based investment banking firm, to conduct its own due diligence
on the aforementioned transaction and render a fairness opinion to the Company's
Board of Directors.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE SALE OF
CARDIOTECH INTERNATIONAL, LTD.
AMENDMENT TO THE 1996 STOCK OPTION PLAN
PROPOSAL 3
Introduction
In 1996, the Company's stockholders approved the 1996 Stock Option Plan
(the "1996 Plan") which had been adopted, subject to stockholder approval, by
the Board of Directors. Currently, options to purchase a total of 2,000,000
shares of Common Stock may be granted under the 1996 Plan to employees of the
Company (including employees who are directors), consultants who are not
employees and other affiliates of the Company, who are defined as persons
associated with the Company in such other capacity or relationship as may be
permitted by the Board of Directors (recipients of stock options are herein
known collectively as "Participants"). As of August 29, 2000 a total of XXXX
shares were granted to employees of the Company, consultants and other
associated persons under the 1996 Plan.
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Proposed Amendment
On August 4, 2000, the Board of Directors adopted an Amendment, subject to
stockholder approval at the Company's October 26, 2000 Annual Meeting. The
Amendment provides for increasing the number of shares of Common Stock available
for grant pursuant to the 1996 Plan from 2,000,000 shares to 4,000,000 shares.
Description of the 1996 Plan
The 1996 Plan covers a total of 2,000,000 shares of Common Stock (this
number will increase to 4,000,000 if the Amendment is approved). Options may be
awarded under the 1996 Plan to employees of the Company (including employees who
are directors), consultants who are not employees and other affiliates of the
Company as defined below. Not more than 2,000,000 shares (this number will
increase to 4,000,000 if the Amendment is approved) may be issued to any
individual pursuant to the exercise of options granted under the 1996 Plan,
during the ten-year life of the 1996 Plan. The 1996 Plan provides for the grant
of options intended to qualify as incentive stock options under Section 422A of
the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Stock
Options"), and options which are not Incentive Stock Options ("Non-Statutory
Stock Options").
Only employees of the Company or its subsidiaries (approximately 15
persons) may be granted Incentive Stock Options. Affiliates of the Company,
defined as employees of the Company, members of the Company's Board of
Directors, or persons associated with the Company in such other capacity or
relationship as may be permitted by the Board of Directors, may be granted
Non-Statutory Stock Options. Except as provided below, no person may be granted
any option under the 1996 Plan who, at the time such option is granted, owns
Common Stock of the Company possessing more than 10% of the combined voting
power of all classes of stock of the Company.
The Option Compensation Committee of the Board of Directors will administer
the 1996 Plan, select the persons to whom options are granted and fix the terms
of such options.
The exercise date of an option granted under the 1996 Plan will be fixed by
the Committee, but may not be later than ten years from the date of grant.
Options may be exercised in such installments as are fixed by the Committee.
Options under the 1996 Plan will not be transferable by the Participant
other than by will or the laws of descent and distribution, although they may be
exercised during the Participant's lifetime by his/her legal representative if
he/she becomes incapacitated. All options must be exercised within three months
after termination of the Participant's affiliation with the Company, except that
options shall remain outstanding for their entire term following termination due
to death or for one year following termination due to permanent disability.
The exercise price of Incentive Stock Options granted under the 1996 Plan
must be at least equal to the fair market value of the Common Stock, as
determined by the Board of Directors, on the date of grant. Non-Statutory Stock
Options may be granted at exercise prices not less than 100% of the fair market
value of the Common Stock on the date of the grant or not less than 110% of such
fair market value in the case of options granted to an employee who at the time
of grant possess more than 10% of the total combined voting power of all classes
of stock of the Company. The Option Compensation Committee is authorized to
determine, in its discretion, the exercise price of other options, including any
options that may be regranted to employees after their original grant has lapsed
unexercised.
The 1996 Plan provides for automatic adjustment to the number of shares of
Common Stock issuable upon exercise of options granted under the 1996 Plan to
reflect stock dividends, stock splits, reorganizations, mergers and various
other transactions occurring after the date of grant. Payment for shares
purchased upon exercise of an option must be made in cash or, at the Committee's
discretion, by delivery of shares of Common Stock of the Company, or by a
combination of such methods.
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The Company's Board of Directors may at any time amend or revise the terms
of the 1996 Plan, except that no such amendment or revision may be made without
the approval of the holders of a majority of the Company's outstanding capital
stock, voting together as a single class, if such amendment or revision would
(a) materially increase the number of shares which may be issued under the 1996
Plan (other than changes in capitalization), (b) increase the maximum term of
options, (c) decrease the minimum option price, (d) permit the granting of
options to anyone not included within the 1996 Plan's eligible categories, (e)
extend the term of the 1996 Plan or (f) materially increase the benefits
accruing to eligible individuals under the 1996 Plan.
The 1996 Plan contains the following terms and conditions required in order
to permit treatment of the options granted thereunder as incentive stock
options: (i) all incentive stock options must be expressly designated as such at
the time of grant and (ii) if any person to whom an incentive stock option is
granted owns, at the time of the grant of such option, Common Stock possessing
more than 10% of the combined voting power of all classes of the Company, then
(a) the purchase price per share of the Common Stock subject to such option
shall not be less than 110% of the fair market value of one share of Common
Stock at the time of grant and (b) the exercise period shall not exceed five
years from the date of grant.
Federal Income Tax Consequences
Incentive Stock Options. In general, a Participant will not recognize
taxable income upon the grant or exercise of an Incentive Stock Option.
Instead, a Participant will recognize taxable income with respect to an
Incentive Stock Option only upon the sale of Common Stock acquired through the
exercise of the option ("ISO Stock"). The exercise of an Incentive Stock
Option, however, may subject the Participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the Participant has owned the ISO Stock at the time it is
sold. If the Participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the Participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the Participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from the
Exercise Date (a "Disqualifying Disposition"), then any gain will be treated as
ordinary compensation income to the extent that it does not exceed the gain that
the Participant would have realized had he sold the shares immediately upon
exercise of the option and the remaining gain, if any, will be a capital gain.
This capital gain will be a long-term capital gain if the Participant has held
the ISO Stock for more than one year prior to the date of sale.
If a Participant sells ISO Stock for less than the exercise price, then the
Participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the Participant has held the ISO Stock for more than
one year prior to the date of sale.
Nonqualified Stock Options. A Participant will not recognize taxable income
upon the grant of a Non-Statutory Stock Options. A Participant who exercises a
Non-Statutory Stock Options, generally, will recognize ordinary compensation
income in an amount equal to the excess of the fair market value of the Common
Stock acquired through the exercise of the option ("NSO Stock") on the Exercise
Date over the exercise price.
With respect to any NSO Stock, a Participant will have taxable income
Recognized upon the exercise of the option. Upon selling NSO Stock, a
Participant generally will recognize capital gain or loss in an amount equal to
the excess of the sale price of the NSO Stock over the Participant's tax basis
in the NSO Stock. This capital gain or loss will be a long-term gain or
loss if the Participant has held the NSO Stock for more than one year prior to
the date of the sale.
Tax Consequences to the Company. The Company will be entitled to a
deduction in connection with a grant of a stock option only in the event and to
the extent ordinary income is recognized by the Participant. Any such deduction
will be allowed to the Company for its taxable year within which ends the
taxable year in which the Participant's recognition of ordinary income occurs.
Any such deduction will be subject to the limitations of Section 162(m) of the
Internal Revenue Code.
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Once income associated with such a grant is recognizable to a Participant
for Federal income tax purposes, the Participant must either pay to the Company
an amount sufficient to satisfy any federal, state and local taxes required to
be withheld or make alternative arrangements acceptable to the Company.
The foregoing summary is not a complete description of all tax aspects of
the Plan. The foregoing relates only to Federal income taxes; there may be
other Federal tax consequences associated with the Plan, as well as foreign,
state and local tax consequences.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS BELIEVES THE ADOPTION OF THE PROPOSED AMENDMENT TO
THE 1996 STOCK OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND THEREFORE RECOMMENDS A VOTE FOR THE PROPOSAL. THE AMENDMENT TO
THE 1996 PLAN WILL NOT BECOME EFFECTIVE UNLESS IT IS APPROVED BY THE
STOCKHOLDERS AT THE MEETING.
OTHER INFORMATION
PROXY SOLICITATION
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, the officers and regular employees of the
Company may solicit proxies personally or by telephone.
OTHER BUSINESS
The Board knows of no other matter to be presented at the meeting. If any
additional matter should properly come before the meeting, it is the intention
of the persons named in the enclosed proxy to vote such proxy in accordance with
their judgment on any such matters.
PRINCIPAL STOCKHOLDERS
As of the close of business on September 5, 2000, the record date for the
meeting, there were 8,455,430 shares of Common Stock outstanding. Holders of
the Common Stock of the Company are entitled to one vote for each share of
Common Stock held of record at the close of business on the record date.
The number of shares of Common Stock beneficially owned by the persons or
entities known by management to be the beneficial owners of more than 5% of the
outstanding shares, the number of shares beneficially owned by each director,
each nominee for election or re-election as a director and each executive
officer, the number of shares beneficially owned by all directors and officers
as a group, as of the record date, as "beneficial ownership" has been defined
under rules promulgated by the Securities and Exchange Commission, and the
actual sole or shared voting power of such persons, as of the record date, are
set forth in the following table.
Securities and Exchange Commission Rule 13d-3 defines "beneficial ownership"
As voting or investment decision power over shares.Beneficial ownership does not
necessarily mean that the holder enjoys any economic benefit from those shares.
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<TABLE>
<CAPTION>
Name and Common Stock Percentage of Voting Power
Address of Beneficially Outstanding --------------------
Beneficial Owner** Owned (1) Shares Shares Percentage
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dresdner Kleinwort Benson (2) 1,347,852 11.02% - *
75 Wall Street, New York, NY 10005
Michael Szycher, Ph.D, MBA (3) 898,048 7.34% 326,723 3.86%
78-E Olympia Avenue, Woburn, MA 01801
Michael L. Barretti (4) 124,708 * 80,000 *
Michael Adams (5) 177,125 1.45% 80,000 *
Robert Chartoff 97,800 * 97,800 *
Jonathan S. Walker (6) 1,377,560 11.26% 11,141 *
c/o Dresdner Kleinwort Benson
75 Wall Street, New York, NY 10005
Alan Edwards (7) 425,873 3.48% 80,000 *
All executive officers and directors
as a group (5 persons) (8) 1,723,554 14.09% 664,523 7.86%
<FN>
___________________
* Represents beneficial ownership of less than One (1%) percent of the Company's outstanding
shares of Common Stock.
** Addresses are given for beneficial owners of more than Five (5%) percent of the Company's
outstanding shares of Common Stock.
(1) The number of shares of Common Stock issued and outstanding on September 5, 2000 was
8,455,430. The calculation of percentage of ownership for each listed beneficial owner is
based upon the number of shares of Common Stock issued and outstanding at September 5,
2000, plus shares of Common Stock subject to options held by such person at September
5, 2000 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) Includes 1,347,852 shares issuable upon conversion of the principal amount of $2,259,000
of Senior Notes held by Dresdner Kleinwort Benson that are immediately convertible into
Common Stock at a conversion price of $1.676 per share.
(3) Includes 571,325 shares of Common Stock, which may be purchased within 60 days of
September 5, 2000 upon the exercise of stock options and/or warrants.
(4) Includes 44,708 shares of Common Stock, which may be purchased within 60 days of
September 5, 2000 upon the exercise of stock options and/or warrants.
(5) Includes 97,215 shares of Common Stock, which may be purchased within 60 days of
September 5, 2000 upon the exercise of stock options and/or warrants.
(6) Includes 1,347,852 shares of Common Stock issuable to Dresdner Kleinwort Benson and
18,567 shares of Common Stock which may be purchased within 60 days of September 5, 2000
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 Dresdner
Kleinwort Benson and, in such official capacity, shares voting and investment power
as to the shares held by Dresdner Kleinwort Benson and therefore may be deemed to share
beneficial ownership thereof.
(7) Includes 345,873 shares of Common Stock, which may be purchased within 60 days of
September 5, 2000 upon the exercise of stock options and/or warrants.
(8) See footnotes (3) through (5) and (7) above.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company is aware that the following individuals have not filed Form 3,
4 or 5, as may be required: Michael Szycher, Michael Adams, John Mattern, Alan
Edwards, Michael Barretti and Jonathan Walker. The Company believes that it is
the intent of these individuals to file all appropriate forms by October 1,
2000.
INFORMATION CONCERNING AUDITORS
Based upon the recommendation of its Audit Committee, the Board of
Directors has selected the firm of BDO Seidman as the independent auditors of
the Company for the fiscal year ending December 31, 2000. BDO Seidman has acted
in such capacity for the Company since XXX 2000. The Company does not
anticipate having a representative of BDO Seidman present at the Meeting.
<PAGE>
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DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the 2000 Proxy
Statement provided that such proposals are received by the Clerk of the Company
no later than Wednesday, January 29, 2001 and are otherwise in compliance with
applicable Securities and Exchange Commission regulations.
ADDITIONAL INFORMATION
Accompanying this Proxy Statement is a copy of the Company's Annual Report
on Form 10-KSB for the year ended March 31, 2000. The Annual Report on Form
10-KSB constitutes the Company's Annual Report to its Stockholders for purposes
of Rule 14a-3 under the Securities Exchange Act of 1934.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information are
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549 at the following regional offices of the Commission:
500 West Madison, 14th Floor, Chicago, Illinois 60661-2511 and 7 World Trade
Center, New York, New York 10048. Copies of such material may be obtained upon
payment of the Commission's customary charges by writing to the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549.
Stockholders who have questions in regard to any aspect of the matters
discussed in this Proxy Statement should contact Michael Szycher, Chief
Executive Officer of the Company, at (781) 933-4772.
<PAGE>
