<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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-2
Ascent Pediatrics, Inc.
(Name of Registrant as Specified In Its Charter)
[NAME OF PERSON FILING]
(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
ASCENT PEDIATRICS, INC.
187 BALLARDVALE STREET, SUITE B125
WILMINGTON, MASSACHUSETTS 01887
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Ascent Pediatrics, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, June 10, 1998 at 11:00 a.m. at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts (the "Meeting") for the purpose of
considering and voting upon the following matters:
1. To elect three Class I Directors for the ensuing three years;
2. To approve an amendment to the Company's 1992 Equity Incentive
Plan, as described herein;
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company for the current fiscal year; and
4. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on Wednesday, April
15, 1998 as the record date for the determination of stockholders entitled to
notice of and to vote at the Meeting and at any adjournments thereof.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1997, which contains consolidated financial statements and other
information of interest to stockholders, accompanies this Notice and the
enclosed Proxy Statement.
By order of the Board of Directors,
Alan R. Fox
President
May 6, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE TO ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE AFFIXED IF THE
PROXY IS MAILED IN THE UNITED STATES.
<PAGE> 3
ASCENT PEDIATRICS, INC.
187 BALLARDVALE STREET, SUITE B125
WILMINGTON, MASSACHUSETTS 01887
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Ascent Pediatrics, Inc. (the "Company") for
the Annual Meeting of Stockholders to be held on Wednesday, June 10, 1998 at
11:00 a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts and at any adjournments thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation or a subsequently dated proxy to the Secretary of the Company
or by voting in person at the Meeting. Attendance at the Meeting will not itself
be deemed to revoke a proxy unless the stockholder gives affirmative notice at
the Meeting that the stockholder intends to revoke the proxy and vote in person.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997 ARE
BEING MAILED TO STOCKHOLDERS ON OR ABOUT MAY 6, 1998. THE COMPANY WILL, UPON
WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), WITHOUT EXHIBITS. PLEASE
ADDRESS ALL SUCH REQUESTS TO THE COMPANY, ATTENTION OF JOHN G. BERNARDI, VICE
PRESIDENT, FINANCE AND TREASURER, 187 BALLARDVALE STREET, SUITE B125,
WILMINGTON, MASSACHUSETTS 01887. EXHIBITS TO SUCH FORM 10-K WILL BE PROVIDED
UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE.
VOTING SECURITIES AND VOTES REQUIRED
On April 15, 1998, the record date for determination of stockholders
entitled to notice of and to vote at the Meeting, there were outstanding and
entitled to vote an aggregate of 6,921,074 shares of common stock of the
Company, $.00004 par value per share (the "Common Stock"). Each share entitles
the record holder to one vote on each of the matters to be voted upon at the
Meeting.
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum is present at the
Meeting.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented by proxy and voting on the matter is
required for approval of the amendment to the 1992 Equity Incentive Plan and the
ratification of the selection of the Company's independent auditors.
<PAGE> 4
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a matter
that requires the affirmative vote of a certain percentage of the votes cast or
shares voting on a matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of January 31, 1998,
regarding the beneficial ownership of shares of the Company's Common Stock by
(i) each person or entity known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock ("5% Stockholders"), (ii) each
director and director nominee of the Company, (iii) the Named Executive Officers
(as defined in the Summary Compensation Table below) and (iv) the directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------------
NUMBER
OF SHARES PERCENT OF CLASS
--------- ----------------
<S> <C> <C>
5% STOCKHOLDERS
Triumph-Connecticut Limited Partnership..................... 1,144,591(2) 14.2%
60 State Street
Boston, MA 02109
Medical Science Partners Group.............................. 838,468(3) 12.1%
20 William Street, Suite 250
Wellesley, MA 02181
Funds affiliated with Burr, Egan, Deleage & Co.............. 667,644(4) 9.6%
One Post Office Square
Boston, MA 02109
New York Life Insurance Company............................. 659,890(5) 9.4%
51 Madison Avenue
New York, NY 10010
Paribas Group............................................... 535,890(6) 7.6%
c/o White & Case
1155 Avenue of the Americas
New York, NY 10036
Atlas Venture Fund II, L.P. ................................ 424,063(7) 6.1%
222 Berkeley Street
Boston, MA 02109
DIRECTORS
Raymond F. Baddour, Sc.D.................................... 257,605(8) 3.7%
Robert E. Baldini........................................... 55,250(9) *
Emmett Clemente, Ph.D. ..................................... 315,150(10) 4.5%
Michael J.F. Du Cros........................................ 424,063(11) 6.1%
Alan R. Fox................................................. 63,139(12) *
Thomas W. Janes............................................. 1,159,190(13) 14.3%
Andre L. Lamotte, Sc.D...................................... 850,731(14) 12.2%
Terrance McGuire............................................ 667,644(15) 9.6%
Lee J. Schroeder............................................ 8,500 *
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------------
NUMBER
OF SHARES PERCENT OF CLASS
--------- ----------------
<S> <C> <C>
OTHER NAMED EXECUTIVE OFFICERS
Gregory A. Vannatter........................................ 14,371(16) *
John G. Bernardi............................................ 7,437(17) *
All directors and executive officers as a group (11
persons).................................................. 3,823,080(18) 45.1%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of Common Stock of the
Company.
(1) The number of shares beneficially owned by each 5% Stockholder, director
and executive officer is determined under rules promulgated by the
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which an individual or group has sole or shared
voting power or investment power and also any shares which an individual or
group has the right to acquire within 60 days of January 31, 1998 through
the conversion of any convertible note or the exercise of any stock option,
warrant or other right. The inclusion herein of such shares, however, does
not constitute an admission that the named stockholder is a direct or
indirect beneficial owner of such shares. Unless otherwise indicated, each
person or group named in the table has sole voting and investment power (or
shares such power with his or her spouse) with respect to all shares of
capital stock listed as owned by such person or entity.
(2) Includes 490,000 shares issuable upon conversion of the outstanding
principal balance (at January 31, 1998) of the convertible subordinated
secured notes (the "Triumph Notes") held by Triumph-Connecticut Limited
Partnership ("Triumph"). Also includes 654,591 shares issuable upon the
exercise of warrants issued in connection with the issuance of the Triumph
Notes (the "Triumph Warrants") held by Triumph. For a description of the
Triumph Notes and the Triumph Warrants, see "Certain Relationships and
Related Transactions."
(3) Consists of 755,830 shares held by Medical Science Partners, L.P. ("MSP")
(including 17,054 shares issuable upon the exercise of warrants within 60
days of January 31, 1998), 68,947 shares held by Medical Science Partners
II, L.P. ("MSP II") (including 11,805 shares issuable upon the exercise of
warrants within 60 days of January 31, 1998) and 13,691 shares held by
Medical Science II Co-Investment, L.P. ("MS II Co-Invest"). MSP, MSP II and
MS II Co-Invest are affiliates under common control.
(4) Consists of 660,702 shares held by Alta V Limited Partnership ("Alta V")
(including 78,361 shares issuable upon the exercise of warrants within 60
days of January 31, 1998) and 6,942 shares held by Customs House Partners
(including 823 shares issuable upon the exercise of warrants within 60 days
of January 31, 1998). The respective General Partners of each of these
funds exercise sole voting and investment power with respect to the shares
held by the funds.
(5) Includes 117,745 shares issuable upon the exercise of warrants within 60
days of January 31, 1998.
(6) Includes 525,690 shares held by Paribas Principal, Inc. (including 133,383
shares issuable upon the exercise of warrants within 60 days of January 31,
1998). Also includes 10,200 shares issuable upon the exercise of warrants
held by Banque Paribas within 60 days of January 31, 1998. Paribas
Principal, Inc. and Banque Paribas are affiliates under common control.
(7) Includes 39,929 shares issuable upon the exercise of warrants within 60
days of January 31, 1998.
(8) Includes 22,221 shares issuable upon the exercise of warrants within 60
days of January 31, 1998.
(9) Consists of 55,250 shares issuable upon the exercise of options within 60
days of January 31, 1998.
(10) Includes 144,500 shares issuable upon the exercise of options within 60
days of January 31, 1998.
3
<PAGE> 6
(11) Consists of the shares described in note (7). Mr. Du Cros is a Limited
Partner of Atlas Venture Fund II, L.P. ("Atlas Venture") and may be
considered the beneficial owner of the shares held by Atlas Venture,
although Mr. Du Cros disclaims such beneficial ownership, except as to his
pecuniary interest therein.
(12) Includes 57,289 shares held by Mr. Fox (including 3,332 shares issuable
upon the exercise of warrants and 38,250 shares issuable upon the exercise
of options within 60 days of January 31, 1998). Also includes 3,750 shares
held by Mr. Fox's spouse (including 443 shares issuable upon the exercise
of warrants within 60 days of January 31, 1998) and 2,100 shares held by
Mr. Fox's children.
(13) Includes the shares described in note (2). Also includes 6,252 shares
issuable upon conversion of the outstanding principal balance (at January
31, 1998) of the Triumph Notes held by a profit sharing plan for the
benefit of Mr. Janes (the "Janes Plan") and 8,347 shares issuable upon the
exercise of the Triumph Warrants held by the Janes Plan. Mr. Janes is a
General Partner of Triumph and may be considered the beneficial owner of
the shares held by Triumph, although Mr. Janes disclaims such beneficial
ownership, except as to his pecuniary interest therein.
(14) Includes the shares described in note (3). Also includes 12,263 shares held
by Dr. Lamotte (including 3,110 shares issuable upon the exercise of
warrants within 60 days of January 31, 1998). Dr. Lamotte is the Managing
General Partner of the General Partners of MSP, MSP II and MS II Co-Invest
and may be considered the beneficial owner of the shares held by such
entities, although Dr. Lamotte disclaims such beneficial ownership, except
as to his pecuniary interest therein.
(15) Consists of the shares described in note (4). Mr. McGuire is a General
Partner of Alta V Management Partners, L.P. ("Alta Management"), which is
the general partner of Alta V, and may be considered the beneficial owner
of the shares held by Alta V, although Mr. McGuire disclaims such
beneficial ownership, except as to his pecuniary interest therein. Mr.
McGuire disclaims all beneficial ownership to the shares held by Customs
House Partners.
(16) Includes four shares issuable upon the exercise of warrants and 7,437
shares issuable upon the exercise of options within 60 days of January 31,
1998.
(17) Includes 7,437 shares issuable upon the exercise of options within 60 days
of January 31, 1998.
(18) See notes (8) through (17).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Such persons are
required by regulations promulgated by the Commission to furnish the Company
with copies of all Section 16(a) forms filed by such person with respect to the
Company.
Based solely on its review of copies of reports filed by reporting persons
pursuant to Section 16(a) of the Exchange Act, or written representations from
reporting persons that no Form 5 filing was required for such person, the
Company believes that, during 1997, all filings required to be made by reporting
persons of the Company were timely made in accordance with the requirements of
the Exchange Act other than the filing of a Form 4 by Dr. Emmett Clemente in
connection with the exercise of a Common Stock purchase warrant and the filing
of a Form 4 by Mr. Gregory Vannatter in connection with the purchase of Common
Stock, which filings were not made on a timely basis.
4
<PAGE> 7
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company has a staggered Board of Directors consisting of three Class I
Directors, three Class II Directors and three Class III Directors. At each
annual meeting of stockholders, directors are elected for a full term of three
years to succeed those whose terms are expiring. The Class I Directors will be
elected at the 1998 Annual Meeting for a three-year term expiring at the 2001
Annual Meeting; the Class II Directors will be elected at the 1999 Annual
Meeting for a three-year term expiring at the 2002 Annual Meeting; and the Class
III Directors will be elected at the 2000 Annual Meeting for a three-year term
expiring at the 2003 Annual Meeting.
The persons named in the enclosed proxy will vote to elect, as Class I
Directors, Raymond F. Baddour, Sc.D., Michael J.F. Du Cros and Lee J. Schroeder,
the three director nominees named below, unless the proxy is marked otherwise.
Dr. Baddour and Messrs. Du Cros and Schroeder are currently directors of the
Company.
Each Class I director will be elected to hold office until the annual
meeting of stockholders to be held in 2001 and until his successor is elected
and qualified. Each of the nominees has indicated his willingness to serve, if
elected; however, if any nominee should be unable to serve, the person acting
under the proxy may vote the proxy for a substitute nominee designated by the
Board of Directors. The Board of Directors has no reason to believe that any of
the nominees will be unable to serve if elected.
Set forth below are the name and age of each member of the Board of
Directors, including those who are nominees for election as Class I Directors,
and the position and offices held by such member, his principal occupation and
business experience during the past five years, the names of other publicly held
companies of which he serves as a director and the year of the commencement of
his term as a director of the Company.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER
DIRECTOR BUSINESS EXPERIENCE DURING THE PAST FIVE
NAME AGE SINCE YEARS AND OTHER DIRECTORSHIPS
- ---- ---- -------- ----------------------------------------
<S> <C> <C> <C>
NOMINEES FOR TERMS EXPIRING IN 2001
(CLASS I DIRECTORS)
Raymond F. Baddour, Sc.D............. 73 1989 Lammot du Pont Professor Emeritus of Chemical
Engineering at the Massachusetts Institute of
Technology since 1989; Co-founder and director
of Amgen Inc., a biopharmaceutical company,
from 1980 to 1997 and of MatTek Corp., a
specialty biomaterials company; director of
Hyseq, Inc., a biotechnology company and
Scully Signal Co., a signal device company.
Michael J.F. Du Cros................. 60 1993 Partner of Atlas Venture, a venture capital
firm, since 1993; Limited Partner of Aspen
Venture Partners, L.P., a limited partnership
formed to carry on the venture capital
activities of 3i Ventures in the United
States, since 1991; Chief Executive Officer of
Protein Databases, Inc., a life science
instrumentation company, from 1984 to 1988;
director of Cardima, Inc., a medical device
company.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER
DIRECTOR BUSINESS EXPERIENCE DURING THE PAST FIVE
NAME AGE SINCE YEARS AND OTHER DIRECTORSHIPS
- ---- ---- -------- ----------------------------------------
<S> <C> <C> <C>
Lee J. Schroeder..................... 69 1990 President of Lee Schroeder and Associates,
Inc., a pharmaceutical consulting company,
since 1985; President of the Lincoln Wholesale
Drug Company, a wholesale drug company, from
1983 to 1985; Executive Vice President of
Sandoz, Inc., U.S., a pharmaceutical company,
from 1981 to 1983; Vice President and General
Manager of Dorsey Laboratories, a
pharmaceutical company, from 1974 to 1981;
director of Interneuron Pharmaceuticals, Inc.,
MGI Pharmaceuticals, Inc. and Celgene
Corporation, each a pharmaceutical company.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
(CLASS II DIRECTORS)
Alan R. Fox.......................... 53 1996 President and Chief Executive Officer of the
Company since May 1996; President of Mead
Johnson Europe, an infant formula and
nutritional company, from 1991 to May 1996;
President and General Manager of Mead Johnson
Canada, an infant formula and nutritional
company, from 1981 to 1991; various positions,
including as a Manager of Marketing and Sales
for the Bristol Laboratories Division of
Bristol-Myers Squibb, Inc., a pharmaceutical
company, from 1968 to 1981.
Robert E. Baldini.................... 67 1993 Vice Chairman of the Board of Directors of the
Company since April 1996; consultant to, and a
director of, several private and public
pharmaceutical and medical device companies;
Senior Vice President of Sales and Marketing
for Key Pharmaceuticals from 1982 to 1986 and
following the acquisition of Key
Pharmaceuticals by Schering-Plough Corporation
("Schering-Plough") in 1986, various positions
with the Key Pharmaceuticals Division of
Schering-Plough until 1995, last serving as
its President; Executive Director of Sales and
Promotion of Ciba-Geigy Corporation, a
pharmaceutical and chemical company, from 1977
to 1982; Vice Chairman of the Board of
Directors of KOS Pharmaceuticals, Inc., a
pharmaceutical company.
Thomas W. Janes...................... 42 1997 Managing Director of Triumph Capital Group,
Inc. since 1990 and a General Partner of
Triumph since 1993, both private equity money
management firms; director of Dairy Mart
Convenience Stores, Inc., a franchise retail
convenience store company, and Alarmguard
Holdings, Inc., a home and business security
alarm system company.
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER
DIRECTOR BUSINESS EXPERIENCE DURING THE PAST FIVE
NAME AGE SINCE YEARS AND OTHER DIRECTORSHIPS
- ---- --- -------- ----------------------------------------
<S> <C> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 2000
(CLASS III DIRECTORS)
Emmett Clemente, Ph.D................ 59 1989 Founder of the Company in 1989 and Chairman of
the Board of Directors since May 1996; Chief
Executive Officer of the Company from 1989 to
1996; Director of Pharmaceutical Research for
Fisons Corporation, U.S., a pharmaceutical
company ("Fisons"), from 1980 to 1989 and
Director of New Product Development and
Acquisitions of Fisons from 1972 to 1980;
Chief Scientist in the Consumer Products
Division of Warner-Lambert Company, a
pharmaceutical company, from 1970 to 1972;
Senior Scientist of Richardson-Merrell
Company, a pharmaceutical company, from 1967
to 1970.
Andre Lamotte, Sc.D.................. 49 1989 Managing General Partner of Medical Science
Ventures, L.P., the general partner of MSP,
the venture capital firm founded by Harvard
University, since 1989; General Manager of the
Merieux Institute, Inc., the U.S. affiliate of
Institute Merieux and Pasteur Vaccines, from
1983 to 1988; director of OraVax, Inc., a
biotechnology company.
Terrance McGuire..................... 41 1993 Founding General Partner of Polaris Venture
Partners since 1996 and General Partner of
Beta Partners Limited Partnership since 1989,
both venture capital firms; General Partner of
Alta Management, the general partner of Alta
V, a venture capital fund associated with
Burr, Egan, Deleage & Co., since 1989;
director of Integ, Incorporated, a medical
diagnostic company, Cubist Pharmaceuticals,
Inc., a pharmaceutical company, and several
private health care companies.
</TABLE>
For information relating to shares of Common Stock beneficially owned by
each of the directors, see "Security Ownership of Certain Beneficial Owners and
Management."
Thomas W. Janes was nominated and elected to the Board of Directors
pursuant to the terms of a securities purchase agreement (the "Triumph
Agreement") dated January 31, 1997 between the Company, Triumph and certain
other purchasers identified therein (the "Triumph Purchasers"). For a
description of the Triumph Agreement, see "Certain Relationships and Related
Transactions."
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Board of Directors met eight times (including by telephone conference
and by written consent) during 1997. All directors attended at least 75% of the
meetings of the Board of Directors and the meetings of the committees on which
they served.
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company, establishes and approves salaries and incentive
compensation for certain senior officers and employees and administers, makes
recommendations concerning and grants stock options pursuant to the Company's
stock option plans. The Compensation Committee held one formal meeting and a
number of informal meetings during 1997. The
7
<PAGE> 10
current members of the Compensation Committee are Dr. Lamotte and Messrs. Janes,
McGuire and Schroeder.
The Board of Directors has an Audit Committee, which reviews the results
and scope of the audit and other services provided by the Company's independent
public accountants. The Audit Committee held one meeting during 1997. The
members of the Audit Committee are Messrs. Baldini and Du Cros and Dr. Baddour.
The Company does not have a nominating committee or a committee serving a
similar function. Nominations are made by and through the full Board of
Directors.
COMPENSATION OF DIRECTORS
Messrs. Baldini and Schroeder are paid $6,000 per annum as compensation for
serving on the Board of Directors. No other directors currently are compensated
for serving on the Board of Directors. All of the directors are reimbursed for
their expenses incurred in connection with their attendance at Board of
Directors and committee meetings.
In March 1997, the Company adopted the 1997 Director Stock Option Plan (the
"Director Plan"). Under the terms of the Director Plan, options to purchase
15,000 shares of Common Stock were granted to each director of the Company other
than Dr. Clemente and Mr. Fox on May 29, 1997, the date on which the initial
public offering price of shares of the Company's Common Stock was determined
(the "Pricing Date"), at an exercise price of $9.00 per share (the initial
public offering price). Options to purchase 15,000 shares of Common Stock will
be granted to each new non-employee director upon his or her initial election to
the Board of Directors. Annual options to purchase 5,000 shares of Common Stock
will be granted to each non-employee director on May 1 of each year commencing
in 1998. All options vest on the first anniversary of the date of grant.
However, the exercisability of these options will be accelerated upon the
occurrence of a change in control of the Company (as defined in the Director
Plan). A total of 300,000 shares of Common Stock may be issued upon the exercise
of stock options granted under the Director Plan. With the exception of the
options granted on the Pricing Date, the exercise price of all options granted
under the Director Plan will equal the closing price of the Common Stock on the
date of grant. As of January 31, 1998, options to purchase an aggregate of
105,000 shares of Common Stock were outstanding under the Director Plan.
The Company is a party to a consulting agreement with Mr. Robert E.
Baldini, the Company's Vice Chairman, dated April 1, 1996. Pursuant to this
agreement, Mr. Baldini provides certain consulting services as requested by the
Company in return for compensation of $1,500 per day. Mr. Baldini was paid
$12,000 in consulting fees in 1997 pursuant to this agreement. Upon execution of
this agreement, the Company granted Mr. Baldini an option under the Company's
1992 Equity Incentive Plan exercisable for 85,000 shares of Common Stock vesting
in four equal annual installments. This consulting agreement expires on April 1,
2000, unless extended by mutual agreement of the Company and Mr. Baldini.
The Company has also entered into or engaged in certain other transactions
with directors of the Company or affiliates of directors of the Company. See
"Certain Relationships and Related Transactions."
8
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for the fiscal years ended
December 31, 1997 ("fiscal 1997") and December 31, 1996 for the Company's Chief
Executive Officer and the Company's three other most highly compensated
executive officers (other than the Chief Executive Officer) whose total annual
salary and bonus exceeded $100,000 in fiscal 1997 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Alan R. Fox............................. 1997 $207,753 $36,500 -- --
President and Chief Executive 1996 135,000 -- 153,000 --
Officer(1)
Emmett Clemente, Ph.D. ................. 1997 201,083 47,232 -- $ 7,705(2)
Chairman of the Board 1996 190,500 41,600 144,500 14,119(2)
of Directors
Gregory A. Vannatter.................... 1997 153,000 -- -- 32,436(4)
Vice President, Marketing(3) 1996 31,511 -- 29,750 --
John G. Bernardi........................ 1997 128,092 -- -- --
Vice President, Finance and 1996 64,904 -- 29,750 --
Treasurer(5)
</TABLE>
- ---------------
(1) Mr. Fox joined the Company as President in May 1996.
(2) Reflects amounts paid by the Company for insurance premiums with respect to
life insurance for the benefit of Dr. Clemente in 1997 and 1996.
(3) Mr. Vannatter joined the Company as Vice President, Marketing in October
1996.
(4) Reflects the amount paid by the Company for relocation costs, including
related tax adjustments, for the benefit of Mr. Vannatter in 1997.
(5) Mr. Bernardi joined the Company as Vice President, Finance and Treasurer in
June 1996.
OPTION GRANTS TABLE
No stock options were granted to any of the Named Executive Officers in
fiscal 1997.
9
<PAGE> 12
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table sets forth certain information regarding the number and
value of unexercised options held by each of the Named Executive Officers on
December 31, 1997. No stock options were exercised by any of the Named Executive
Officers in fiscal 1997.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SHARES UNDERLYING IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------------------- -------------------------
<S> <C> <C>
Alan R. Fox............................... 38,250/114,750 $134,717/$404,150
Emmett Clemente, Ph.D..................... 142,800/1,700 512,947/5,987
Gregory A. Vannatter...................... 7,437/22,313 26,193/78,586
John G. Bernardi.......................... 7,437/22,313 26,193/78,586
</TABLE>
- ---------------
(1) The closing price for the Common Stock as reported by the Nasdaq National
Market on December 31, 1997 (the last day of trading in 1997) was $5.875.
Value is calculated on the basis of the difference between the option
exercise price and $5.875, multiplied by the number of shares of Common
Stock underlying the option.
EMPLOYMENT AGREEMENT
The Company is a party to an employment agreement with Dr. Emmett Clemente
for the period commencing March 16, 1994 and ending March 15, 1999, unless
extended by mutual agreement of the Company and Dr. Clemente. Under this
agreement, Dr. Clemente is entitled to receive an annual base salary of
$210,300, as it may be adjusted, and an annual bonus of up to 30% of his annual
base salary based upon the attainment of certain performance criteria set by the
Board of Directors annually (with the potential to exceed 30% of his annual base
salary, at the Board of Directors' discretion, in the event that the Company
achieves break-even cash flow). In addition, as part of Dr. Clemente's annual
compensation review, the Board of Directors is required to consider granting Dr.
Clemente a stock option to acquire additional shares of Common Stock. In the
event Dr. Clemente's employment is terminated by the Company without cause, Dr.
Clemente will continue to receive his annual base salary for the one-year period
commencing on the effective date of termination. In addition, if the Company
terminates the employment of Dr. Clemente without cause, the Company is required
to continue to provide Dr. Clemente with benefits for the 18 month period
following the effective date of termination. Any payments or benefits to be
provided by the Company in the event of its termination of Dr. Clemente's
employment without cause will be reduced dollar for dollar by any payments or
benefits received by Dr. Clemente from any other employer during the period in
which the Company is required to provide such payments or benefits. Following
the cessation or termination of his employment by the Company, Dr. Clemente has
agreed that, for a period of two years, he will not compete with the Company
with respect to any products developed, produced, marketed or sold by the
Company during his tenure with the Company.
10
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors is
responsible for establishing compensation policies with respect to the Company's
executive officers, including the Chief Executive Officer and the other Named
Executive Officers, and setting the compensation for these individuals.
The Compensation Committee seeks to achieve three broad goals in connection
with the Company's executive compensation programs and decisions regarding
individual compensation. First, the Compensation Committee structures executive
compensation programs in a manner that the Committee believes will enable the
Company to attract and retain key executives. Second, the Compensation Committee
establishes compensation programs that are designed to reward executives for the
achievement of business objectives of the Company and/or the individual
executive's particular area of responsibility. By tying compensation in part to
achievement, the Compensation Committee believes that a performance-oriented
environment is created for the Company's executives. Finally, the Company's
executive compensation programs are intended to provide executives with an
equity interest in the Company so as to link a portion of the compensation of
the Company's executives with the performance of the Company's Common Stock.
The compensation programs for the Company's executives established by the
Compensation Committee consist principally of two elements based upon the
foregoing objectives: base salary and a stock-based equity incentive in the form
of participation in the Company's stock option plans.
In establishing base salaries for the executive officers, including the
Chief Executive Officer, the Compensation Committee monitors salaries at other
companies, particularly those that are in the same industry as the Company or
related industries and/or located in the same general geographic area as the
Company, considers historic salary levels of the individual and the nature of
the individual's responsibilities and compares the individual's base salary with
those of other executives at the Company. To the extent determined to be
appropriate, the Compensation Committee also considers general economic
conditions, the Company's financial performance and the individual's
performance.
The Compensation Committee uses stock options as a significant element of
the compensation package of the Company's executive officers, including the
Chief Executive Officer, because they provide an incentive to executives to
maximize stockholder value and because they reward the executives only to the
extent that stockholders also benefit. The Board of Directors currently grants
stock options based on the recommendation of the Compensation Committee. It is
not the policy of the Compensation Committee to recommend the grant of stock
options to executives annually, and the timing of such grants depends upon a
number of factors, including new hires of executives, the executives' current
stock and option holdings and such other factors as the Compensation Committee
deems relevant. In 1997, after reviewing the Company's executive officers' stock
and option holdings, the Compensation Committee determined not to recommend the
grant of any stock options to the executive officers of the Company. When
recommending the grant of stock options, it has generally been the policy of the
Compensation Committee to recommend that the exercise price of such options be
fixed at 100% of the fair market value of the Common Stock on the date of grant.
In addition to base salary and stock options, the Compensation Committee
also considers the payment of cash bonuses as part of its compensation programs.
In this regard, the Compensation Committee determined to pay cash bonuses to Mr.
Fox and Dr. Clemente for 1997. In establishing the amounts of the cash bonuses
for 1997, the Compensation Committee considered the Company's achievements in
1997, including the consummation of the Company's initial public offering, the
closing of the acquisition of the Feverall product line from Upsher-Smith
Laboratories, Inc., the establishment of the Company's dedicated sales force and
the introduction of the Company's initial two products to the market and the
roles played by Mr. Fox and Dr. Clemente in accomplishing such achievements.
11
<PAGE> 14
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows a tax deduction to public
companies for compensation over $1,000,000 paid to its chief executive officer
and its four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. In this regard, the Company has limited the number
of shares subject to stock options which may be granted to Company employees in
a manner that complies with the performance-based requirements of Section
162(m). Based on the compensation awarded to Mr. Fox and the other Named
Executive Officers of the Company, it does not appear that the Section 162(m)
limitation will have a significant impact on the Company in the near term. While
the Compensation Committee does not currently intend to qualify its incentive
awards as a performance-based plan, it will continue to monitor the impact of
Section 162(m) on the Company.
COMPENSATION COMMITTEE
Thomas W. Janes
Andre L. Lamotte, Sc.D.
Terrance McGuire
Lee J. Schroeder
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Dr. Lamotte
and Messrs. Janes, McGuire and Schroeder. No executive officer of the Company
has served as a director or member of the Compensation Committee (or other
committee serving an equivalent function) of any other entity, one of whose
executive officers served as a director of or member of the Compensation
Committee of the Company.
Since January 1, 1997, the Company has entered into or engaged in certain
transactions with Mr. Janes and Dr. Lamotte and affiliates of Messrs. Janes and
McGuire and Dr. Lamotte. See "Certain Relationships and Related Transactions."
12
<PAGE> 15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1997, the Company has entered into or engaged in the
following transactions with the following directors, executive officers and 5%
Stockholders, and affiliates of such directors, officers and 5% Stockholders
(collectively, the "Affiliates"):
On June 28, 1996, December 18, 1996, February 3, 1997, February 19, 1997
and February 28, 1997, the Company issued and sold an aggregate of 1,915,765
shares of its Series F Convertible Preferred Stock at a purchase price of $6.50
per share and issued warrants exercisable for an aggregate of 651,334 shares of
Common Stock at a purchase price of $7.65 per share (the "Series F Common
Warrants"). In addition, on February 28, 1997, the Company issued a warrant
exercisable for 10,200 shares of Common Stock at an exercise price of $8.24 per
share to Banque Paribas as consideration for placement agent services in
connection with the sale of shares of Series F Convertible Preferred Stock. The
purchasers of the shares of Series F Convertible Preferred Stock and the Series
F Common Warrants included, among others, the following directors, officers and
Affiliates of the Company:
<TABLE>
<CAPTION>
SERIES F
SERIES F COMMON TOTAL
NAME SHARES WARRANTS CONSIDERATION
- ---- -------- -------- -------------
<S> <C> <C> <C>
Alta V Limited Partnership......................... 190,308 64,702 $2,226,612
Atlas Venture Fund II, L.P......................... 76,923 26,153 1,250,000
Customs House Partners............................. 2,000 680 23,398
Alan R. Fox........................................ 11,538 3,921 74,997
Bonnie S. Fox...................................... 1,538 522 9,997
Andre L. Lamotte, Sc.D............................. 7,692 2,614 49,998
Medical Science Partners, L.P...................... 76,923 26,153 500,000
Medical Science Partners II, L.P................... -- -- 500,004
New York Life Insurance Company.................... 346,153 117,691 2,999,995
Paribas Principal, Inc. ........................... 461,538 156,922 2,999,997
Gregory A. Vannatter............................... 7,692 2,614 49,998
</TABLE>
Upon the closing of the Company's initial public offering of Common Stock on
June 4, 1997, each share of Series F Convertible Preferred Stock automatically
converted into 0.85 shares of Common Stock, the number of shares of Common Stock
issuable upon exercise of the Series F Common Warrants automatically decreased
to 0.85 of the number of shares issuable prior to such closing, and the exercise
price of the Series F Common Warrants increased to $9.00 per share. The Series F
Common Warrants and the warrant issued to Banque Paribas contain a cashless
exercise feature.
On January 31, 1997, the Company entered into a securities purchase
agreement (the "Triumph Agreement") with Triumph and certain other purchasers
identified therein (the "Triumph Purchasers"), pursuant to which the Company
issued on January 31, 1997 and June 4, 1997 the Triumph Notes in an aggregate
amount of $7,000,000 and the Triumph Warrants exercisable for an aggregate of
561,073 and 218,195 shares of Common Stock at per share exercise prices of $0.01
and $5.29, respectively. As of March 15, 1998, the Company had paid an aggregate
of $1,745,625 to Triumph under the Triumph Notes representing two quarterly
payments of principal and interest.
Through the Janes Plan, Thomas W. Janes purchased an aggregate of $75,000
of the Triumph Notes then currently outstanding and Triumph Warrants exercisable
for 6,010 shares of Common Stock at an exercise price of $0.01 per share and
2,337 shares of Common Stock at an exercise price of $5.29 per share
13
<PAGE> 16
(for total consideration of $75,000). As of March 15, 1998, the Company had paid
an aggregate of $22,235 to Mr. Janes under the Triumph Notes representing two
quarterly payments of principal and interest.
The Company may redeem the Triumph Notes by paying 100% of the outstanding
principal balance plus accrued interest at any time. Upon a change in control of
the Company, as defined in the Triumph Agreement, the holders of the Triumph
Notes may elect to have the Triumph Notes purchased by the Company at 100% of
the outstanding principal balance plus accrued interest. The Triumph Notes are
secured by a lien on all of the Company's assets, prohibit the payment of
dividends by the Company and, subject to certain exceptions (including for up to
$6,000,000 of senior secured bank financing and $5,500,000 of secured purchase
money financing in connection with the acquisition of the Feverall product line)
prohibit the incurrence of additional indebtedness. The Triumph Notes are
required to be paid in eight equal quarterly principal payments and require
quarterly interest payments on the unpaid principal balance, at a rate equal to
the lesser of ten percent or 3.5% over the prime rate. As of March 15, 1998, the
Company had paid an aggregate of $2,078,125 under the Triumph Notes representing
two quarterly payments of principal and interest. The holders of the Triumph
Notes may convert the outstanding principal balance of the Triumph Notes at a
conversion price of $9.00 per share at their election at any time prior to June
4, 1999 (subject to certain requirements as to the minimum amount to be so
converted as provided in the Triumph Agreement).
The Triumph Agreement also provides that, until the later of (i) the
payment of all amounts outstanding under the Triumph Notes and (ii) December 2,
1999, the Company shall use its best efforts to cause the number of members of
the Board of Directors to be fixed at nine and to cause the nominee of the
holders of a majority of the shares issuable upon exercise of the Triumph
Warrants to be nominated, elected and maintained as a director of the Company.
Certain persons and entities (the "Rightholders"), including the purchasers
of the Company's Series F Convertible Preferred Stock and related warrants and
the holders of the Triumph Warrants and Triumph Notes listed above are entitled
to certain rights with respect to the registration under the Securities Act of
1933, as amended (the "Securities Act") of certain shares of the Company's
Common Stock (the "Registrable Shares), including shares of Common Stock that
were acquired pursuant to the conversion of shares of convertible preferred
stock of the Company or that may be acquired pursuant to the conversion of the
Triumph Notes or the exercise of certain options or warrants under the terms of
agreements among the Company and such persons and entities (the "Registration
Agreements"). The Registration Agreements generally provide that in the event
the Company proposes to register any of its securities under the Securities Act
at any time, with certain exceptions, the Rightholders shall be entitled to
include Registrable Shares in such registration, subject to the right of the
managing underwriter of any underwritten offering to exclude from such
registration for marketing reasons some or all of such Registrable Shares. The
Rightholders have the additional right under certain Registration Agreements to
require the Company to prepare and file registration statements under the
Securities Act with respect to all of the Registrable Shares, including shares
of Common Stock that may be acquired upon the exercise of outstanding warrants,
if such Rightholders holding specified percentages of such Registrable Shares so
request, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. In addition to the
registration rights described above, with respect to the shares of Common Stock
issuable upon conversion of the Triumph Notes, the Company is required to file a
"shelf" registration statement covering all of the Registrable Shares once the
Company has become eligible to file a registration statement on Form S-3, which
the Company expects to occur on or about June 4, 1998. The Company is generally
required to bear the expense of all such registrations. As of December 31, 1997,
approximately 7,038,121 shares of Common Stock (including shares issuable
pursuant to the exercise of warrants and the conversion of the Triumph Notes)
were subject to Registration Agreements.
14
<PAGE> 17
For a description of the employment agreement between the Company and its
Chairman, see "Proposal I -- Election of Directors -- Employment Agreement." For
a description of stock options granted to certain directors of the Company, see
"Proposal I -- Election of Directors -- Compensation of Directors." For a
description of the relationship between certain directors of the Company and
certain Affiliates, see "Proposal I -- Election of Directors," and for a
description of the consulting arrangement between the Company and its Vice
Chairman, see "Proposal I -- Election of Directors -- Compensation of
Directors."
The Company believes that the securities issued in the transactions
described above were sold at their then fair market value and that the terms of
the transactions described above were no less favorable than the Company could
have obtained from unaffiliated third parties.
STOCK PERFORMANCE GRAPH
The stock performance graph below compares the cumulative stockholder
return on the Common Stock of the Company for the period from May 29, 1997 (the
effective date of the Company's initial public offering) through December 31,
1997 with the cumulative total return on (i) the Nasdaq U.S. Market Index and
(ii) the Nasdaq Pharmaceuticals Index. This graph assumes the investment of $100
in the Company's Common Stock (at the initial public offering price), the Nasdaq
U.S. Market Index and the Nasdaq Pharmaceuticals Index on May 29, 1997 and
assumes dividends are reinvested.
<TABLE>
<CAPTION>
5/29/97 12/31/97
------- --------
<S> <C> <C>
Ascent Pediatrics, Inc. ..................... $100.00 $ 65.28
Nasdaq U.S. Market Index .................... 100.00 113.03
Nasdaq Pharmaceuticals Index................. 100.00 100.44
</TABLE>
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO THE
COMPANY'S 1992 EQUITY INCENTIVE PLAN
The Company's 1992 Equity Incentive Plan (the "Equity Plan") currently
provides for the grant of incentive and non-statutory stock options and
restricted stock awards to employees, officers and directors of, and consultants
and advisors to, the Company to purchase up to 1,350,000 shares of the Company's
Common Stock. On April 13, 1998, the Board of Directors of the Company adopted,
subject to stockholder approval, an
15
<PAGE> 18
amendment (the "Amendment") to the Equity Plan, providing for an increase in the
number of shares of the Company's Common Stock available for issuance under the
Equity Plan from 1,350,000 to 1,850,000. The Board of Directors believes that
awards under the Equity Plan, including stock options, have been and will
continue to be an important compensation element in attracting and retaining key
employees who are expected to contribute to the Company's growth and success.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE AMENDMENT IS IN THE BEST
INTEREST OF THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS A VOTE IN FAVOR OF
THIS PROPOSAL.
SUMMARY OF THE EQUITY PLAN
The Equity Plan was adopted by the Company's Board of Directors in
September 1992 and approved by its stockholders in February 1993, and will
terminate in February 2003, unless earlier terminated in accordance with the
terms of the Equity Plan.
Stock options entitle the optionee to purchase Common Stock from the
Company for a specified exercise price during a period specified in the
applicable option agreement. Restricted stock awards under the Equity Plan
entitle the recipient to purchase Common Stock from the Company under terms
which provide for vesting over a period of time and a right of repurchase in
favor of the Company of the unvested portion of the Common Stock subject to the
award upon the termination of the recipient's employment or other relationship
with the Company. As of April 13, 1998, options to purchase a total of 1,326,311
shares of Common Stock were outstanding under the Equity Plan, and options to
purchase a total of 23,150 shares of Common Stock had been exercised. As of
April 13, 1998, no restricted stock awards had been made under the Equity Plan.
The maximum number of shares with respect to which options or restricted stock
awards may be granted to any employee under the Equity Plan may not exceed
500,000 shares of Common Stock in any year.
The Equity Plan is administered by the Board of Directors and its
Compensation Committee. Subject to the provisions of the Equity Plan, the Board
of Directors and the Compensation Committee have the authority to select the
participants to whom stock options and restricted stock awards are granted and
determine the terms of each option or restricted stock award, including (i) the
number of shares of Common Stock subject to such option or restricted stock
award, (ii) when an option becomes exercisable, (iii) the option exercise price,
which, in the case of incentive stock options, must be at least 100% (110% in
the case of incentive stock options granted to a stockholder owning in excess of
10% of the Company's Common Stock) of the fair market value of the Common Stock
as of the date of grant, (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years) and (v) in the case of
restricted stock awards, the duration of certain restrictions on the transfer of
such stock. The outstanding stock options generally become exercisable over a
four-year period and expire ten years after the date of grant (subject to
earlier termination in the event of the termination of the optionee's employment
or other relationship with the Company).
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock or by any other method (including the
delivery of a promissory note payable on terms specified by the Board of
Directors or the Compensation Committee) approved by the Board of Directors or
the Compensation Committee. Except as may be approved by the Board of Directors
or the Compensation Committee, stock options and restricted stock awards are not
assignable or transferable, except by will and the laws of descent and
distribution, and, in the case of non-statutory stock options, pursuant to a
qualified domestic relations order.
As of March 31, 1998, the Company had 105 full-time employees, all of whom
were eligible to participate in the Equity Plan. The number of individuals
receiving stock options or restricted stock awards varies from year to year
depending on various factors, such as the number of promotions and the Company's
hiring needs during the year, and thus the Company cannot now determine option
or award recipients.
16
<PAGE> 19
The Board of Directors or the Compensation Committee may, in its sole
discretion, include additional provisions in any option or award granted or made
under the Equity Plan, including without limitation restrictions on transfer,
repurchase rights, commitments to pay cash bonuses, to make, arrange for or
guaranty loans or to transfer other property to optionees upon exercise of
options, or such other provisions as shall be determined by the Board of
Directors or the Compensation Committee, so long as not inconsistent with the
Equity Plan or with applicable law. The Board of Directors or the Compensation
Committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the Equity
Plan may be exercised.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options and awards
granted under the Equity Plan and with respect to the sale of Common Stock
acquired under the Equity Plan.
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 may, however, 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 all or a portion of the
gain recognized by the participant will be ordinary compensation income 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.
NON-STATUTORY STOCK OPTIONS
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a non-statutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
non-statutory stock option 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 a tax basis equal to
the exercise price plus any 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.
17
<PAGE> 20
RESTRICTED STOCK AWARDS
A participant will not recognize taxable income upon the grant of a
restricted stock award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary income, for the year in which the award is
granted, in an amount equal to the difference between the fair market value of
the Common Stock at the time the award is granted and the purchase price paid
for the Common Stock. If a Section 83(b) Election is not made, the participant
will recognize ordinary income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between the
fair market value of the Common Stock at the time of such lapse and the original
purchase price paid for the Common Stock. The participant will have a basis in
the Common Stock acquired equal to the sum of the price paid and the amount of
ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
award is granted if a Section 83(b) Election is made.
TAX CONSEQUENCES TO THE COMPANY
The grant of an award under the Equity Plan will have no tax consequences
to the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the Equity Plan will have
any tax consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by a participant under the Equity Plan, including as a result
of the exercise of a non-statutory stock option, a Disqualifying Disposition or
a Section 83(b) Election. Any such deduction will be subject to the limitations
of Section 162(m) of the Code. The Company will have a withholding obligation
with respect to any ordinary compensation income recognized by participants
under the Equity Plan who are employees or otherwise subject to withholding.
PROPOSAL 3 -- RATIFICATION OF THE SELECTION OF
INDEPENDENT AUDITORS
The Board of Directors has selected Coopers & Lybrand L.L.P. as auditors of
the Company for the year ending December 31, 1998, subject to ratification by
the stockholders at the Meeting. If the stockholders do not ratify the selection
of Coopers & Lybrand L.L.P., the Board of Directors will reconsider the matter.
A representative of Coopers & Lybrand L.L.P., which served as auditors for the
year ended December 31, 1997, is expected to be present at the Meeting, to
respond to appropriate questions, and to make a statement if he or she so
desires.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1999 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
offices, 187 Ballardvale Drive, Suite B125, Wilmington, Massachusetts 01887, no
later than January 6, 1999 in order to be considered for inclusion in the Proxy
Statement relating to that meeting.
18
<PAGE> 21
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews. The Company will also request brokerage
houses, custodians, nominees and fiduciaries to forward copies of the proxy
material to those persons for whom they hold shares and request instructions for
voting the proxies. The Company will reimburse such brokerage houses and other
persons for their reasonable expenses in connection with this distribution.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
By Order of the Board of Directors,
Alan R. Fox
President
May 6, 1998
19
<PAGE> 22
[X} PLEASE MARK VOTES
AS IN THIS EXAMPLE
- -----------------------------
ASCENT PEDIATRICS, INC.
- -----------------------------
Mark box at right if an address change or comment has been noted on [ ]
the reverse side of this card.
RECORD DATE SHARES:
-------------------------
Please be sure to sign and date this Proxy. Date
- --------------------------------------------------------------------------------
- -----Stockholder sign here-----------------------------Co-owner sign here------
FOR ALL WITH- FOR ALL
1. To elect the following persons as Class I NOMINEES HOLD EXCEPT
Directors for the ensuing three years:
[ ] [ ] [ ]
RAYMOND F. BADDOUR
MICHAEL J. F. DU CROS
LEE J. SCHROEDER
NOTE: IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE, MARK THE
"FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NAME(S) OF THE NOMINEE(S).
YOUR SHARES WILL BE VOTED FOR THE REMAINING NOMINEE(S).
FOR AGAINST ABSTAIN
2. To approve an amendment to the Company's 1992 [ ] [ ] [ ]
Equity Incentive Plan.
3. To ratify the selection of Coopers & Lybrand L.L.P. [ ] [ ] [ ]
as independent auditors of the Company for the
current fiscal year.
IN THEIR DISCRETION, THE NAMED PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEROF.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY ELECTION TO OFFICE OR
PROPOSAL SPECIFIED ABOVE, THIS PROXY WILL BE VOTED FOR SUCH ELECTION TO OFFICE
OR PROPOSAL.
DETACH CARD DETACH CARD
<PAGE> 23
PROXY ASCENT PEDIATRICS, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS
JUNE 10, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
The undersigned, having received notice of the meeting and the Proxy Statement
therefor and revoking all prior proxies, hereby appoint(s) Emmett Clemente, Alan
R. Fox and John G. Bernardi, and each of them (with full power of substitution),
as proxies of the undersigned, to attend the Annual Meeting of Stockholders of
Ascent Pediatrics, Inc. (the "Company") to be held on Wednesday, June 10, 1998
and any adjourned session thereof, and there to vote and act, as indicated, upon
the matters on the reverse side in respect of all shares of Common Stock of the
Company which the undersigned would be entitled to vote or act upon, with all
powers the undersigned would possess if personally present.
Attendance of the undersigned at the meeting or at any adjourned session therof
will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate thereat the intention of the undersigned to vote said
shares in person. If the undersigned hold(s) any of the shares of the Company in
a fiduciary, custodial or joint capacity or capacities, this proxy is signed by
the undersigned in every such capacity as well as individually.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign name(s) exactly as appearing hereon. When signing as attorney,
executor, administrator or other fiduciary, please give your full title as such.
Joint owners should each sign personally. If a corporation, sign in full
corporate name, by authorized officer. If a partnership, please sign in
partnership name, by authorized person.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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