SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PHARMANETICS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than 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>
PHARMANETICS, INC.
5301 Departure Drive
Raleigh, North Carolina 27616
----------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 6, 1999
----------------------------------------
TO THE SHAREHOLDERS OF
PHARMANETICS, INC.
The Annual Meeting of Shareholders of PharmaNetics, Inc. (the "Company")
will be held at the Carolina Country Club, 2500 Glenwood Avenue, Raleigh, North
Carolina, on Thursday May 6, 1999, at 10:30 a.m. for the following purposes:
1. To elect a board of directors;
2.To ratify the appointment of PricewaterhouseCoopers LLP as the independent
auditors of the Company for the year ending December 31, 1999; and
3. To act upon such other matters as may properly come before the meeting or
any adjournment thereof.
The foregoing items are more fully described in the Proxy Statement accompanying
this Notice.
The Board of Directors has fixed the close of business on March 31, 1999 as
the record date for the determination of shareholders entitled to notice of and
to vote at the meeting or any adjournment or adjournments thereof. All such
shareholders are cordially invited to attend the meeting in person. However, to
assure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. Any shareholder attending the meeting may
vote in person, even if such shareholder returned a proxy.
The Company's Proxy Statement and proxy is submitted herewith along with
the Company's Annual Report for the year ended December 31, 1998.
IMPORTANT -- YOUR PROXY IS ENCLOSED
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, SHAREHOLDERS ARE URGED TO EXECUTE
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED FOR MAILING IN THE UNITED STATES.
By Order of the Board of Directors
/s/ JOHN P. FUNKHOUSER,
-------------------------------------
JOHN P. FUNKHOUSER,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Raleigh, North Carolina
April 9, 1999
<PAGE>
<PAGE>
PHARMANETICS, INC.
5301 Departure Drive
Raleigh, North Carolina 27616
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 6, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by the Board of Directors of PharmaNetics,
Inc., a North Carolina corporation (the "Company"), for use at the Company's
Annual Meeting of Shareholders to be held at the Carolina Country Club, 2500
Glenwood Avenue, Raleigh, North Carolina, at 10:30 a.m. on Thursday, May 6,
1999, and any adjournments thereof (the "Meeting"). The cost of soliciting
proxies will be borne by the Company. In addition to solicitation of proxies by
mail, employees of the Company, without extra remuneration, may solicit proxies
personally or by telephone. The Company will reimburse brokerage firms and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
for forwarding proxy materials to beneficial owners and seeking instruction with
respect thereto. The mailing address of the principal executive offices of the
Company is 5301 Departure Drive, Raleigh, North Carolina 27616. Copies of this
Proxy Statement and accompanying proxy card were mailed to shareholders on or
about April 9, 1999.
REVOCABILITY OF PROXIES
You may revoke your proxy at any time before it is voted by giving a later
proxy or written notice to the Company (Attention: Paul Storey, Secretary), or
by attending the Meeting and voting in person.
VOTING
When the enclosed proxy is properly executed and returned (and not
subsequently properly revoked), the shares it represents will be voted in
accordance with the directions indicated thereon, or, if no direction is
indicated thereon, it will be voted: (i) FOR the election of the nominees for
director identified below; (ii) FOR ratification of the appointment of
PricewaterhouseCoopers LLP, Raleigh, North Carolina, as independent auditors of
the Company for the year ending December 31, 1999; and (iii) in the discretion
of the proxies with respect to any other matters properly brought before the
shareholders at the Meeting.
Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
at the Meeting but will not be counted in tabulation of votes cast on proposals
presented at the Meeting. While there is no definitive statutory or case law
authority in North Carolina with regard to these matters, the Company believes
that its intended treatment of abstentions and broker non-votes at the Meeting
is appropriate.
RECORD DATE
Only the holders of record of the Company's Common Stock at the close of
business on the record date, March 31, 1999 (the "Record Date"), are entitled to
notice of and to vote at the Meeting. On the Record Date, 7,454,521 shares of
Common Stock were outstanding. Shareholders will be entitled to one vote for
each share of Common Stock held on the Record Date.
1
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PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws provide that the number of directors constituting the
Board of Directors shall be no less than one. Although the number of directors
authorized is six, there are currently five directors serving on the board.
Therefore, five directors are to be elected at the meeting to serve for one
year, until the election and qualification of their successors, and it is
intended that proxies, not limited to the contrary, will be voted FOR all of the
nominees named below. If any nominee is unable or declines to serve as a
director at the time of the Meeting, the individuals named in the enclosed proxy
may exercise their discretion to vote for any substitute proposed by the Board
of Directors. It is not anticipated that any nominee listed below will be unable
or will decline to serve as a director. None of the nominees is related by
blood, marriage or adoption to any other nominee or any executive officer of the
Company.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE DIRECTOR SINCE
- --------------- --- --------------
<S> <C> <C>
John P. Funkhouser .......... 45 1993
William A. Hawkins .......... 45 1995
John K. Pirotte ............. 49 1996
Stephen R. Puckett .......... 46 1996
Philip R. Tracy ............. 57 1996
</TABLE>
JOHN P. FUNKHOUSER was elected President, Chief Executive Officer and a
director of the Company in October 1993 upon the Company's acquisition of Coeur
Laboratories, Inc., which manufactures and sells disposable power injection
syringes for cardiology and radiology procedures, as well as custom
angiographic procedure kit manifolds ("Coeur"). Since February 1992, Mr.
Funkhouser has also served as President and Chief Executive Officer of Coeur.
Before his employment with Coeur, Mr. Funkhouser was a General Partner with
Hillcrest Group, a venture capital firm, and worked for over nine years in
managing venture capital portfolio companies. Mr. Funkhouser holds a B.A. from
Princeton University and an M.B.A. from the University of Virginia.
WILLIAM A. HAWKINS was elected a director of the Company in January 1995.
Since June 1998, Mr. Hawkins has been the President of Novoste Corporation, a
medical device company focused on the treatment of coronary artery disease.
From April 1997 until he joined Novoste Corporation, Mr. Hawkins was a Vice
President at American Home Products Corporation, a pharmaceutical company. From
October 1995 until he joined American Home Products, Mr. Hawkins was President
of Ethicon Endo-Surgery, Inc., a medical device company that is a subsidiary of
Johnson & Johnson. From January 1995 to October 1995, Mr. Hawkins served as
Vice President in charge of U.S. operations of Guidant Corporation and
President of Devices for Vascular Intervention, a medical device company and a
subsidiary of Guidant. Prior to joining Guidant, Mr. Hawkins held several
positions with IVAC Corporation, most recently serving as President and Chief
Executive Officer from 1991 until 1995. Mr. Hawkins holds a B.S. in Engineering
and Biomedical Engineering from Duke University and an M.B.A. from the
University of Virginia.
JOHN K. PIROTTE has been Chairman and Chief Executive Officer of CORPEX
Technologies Incorporated, a privately held company that develops and markets
surface active chemical technology, since 1990. In addition, Mr. Pirotte has
operated a private investment company, was Chief Financial Officer from 1979 to
1981 and Chairman and Chief Executive Officer from 1981 until 1988 of The
Aviation Group, Inc., and served as a manager of Acquisition Advisory Services
for an international public accounting firm. He is a founding director of North
Carolina Enterprise Corp., a venture capital fund. Mr. Pirotte holds a B.A.
from Princeton University and an M.S. from New York University Graduate School
of Business Administration.
STEPHEN R. PUCKETT has served as Chairman of the Board of Directors and
President of MedCath Incorporated, a provider of cardiology and cardiovascular
services that he founded in 1988. He has also served as Executive Vice
President and Chief Operating Officer of the Charlotte Mecklenburg Hospital
Authority. Mr. Puckett holds a B.S. and an M.S. in Health Management from the
University of Alabama.
PHILIP R. TRACY was President and CEO of Burroughs Wellcome Co., the United
States subsidiary of Wellcome plc, a global pharmaceutical company, from 1989
until the acquisition of Wellcome by Glaxo plc in 1995. Prior to 1989, he served
in various legal capacities with Burroughs Wellcome, including Vice President
and General Counsel. He has served on the boards of Wellcome Plc, the
Pharmaceutical Research and Manufacturers of America, and the Non-Prescription
Drug Manufacturers Association. He is currently Of Counsel to the law firm of
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. and serves as a
partner with Intersouth Partners, a venture capital firm based in North
Carolina. He also serves on the
2
<PAGE>
Board of SunPharm Corporation, a development stage pharmaceutical company. Mr.
Tracy holds a B.A. from the University of Nebraska and an L.L.B. from George
Washington University School of Law, and has attended the Senior Executive
Program at Stanford University.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business of the Company is under the general management of the Board of
Directors as provided by the laws of North Carolina and the Bylaws of the
Company. During the year ended December 31, 1998, the Board of Directors held
six formal meetings, excluding actions that were taken by unanimous written
consent during the year. Each member of the Board attended at least 75% of the
1998 meetings of the Board of Directors and Board committees of which he was a
member, except for Mr. Tracy who attended 67% of the meetings.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Board has no Nominating Committee. The Audit
Committee currently consists of Messrs. Pirotte and Tracy. The Audit Committee
held one meeting during 1998. The Audit Committee makes recommendations to the
Board of Directors concerning its review of the Company's internal controls,
accounting system and the annual audit, and regarding the selection of
independent auditors. The Compensation Committee currently consists of Messrs.
Pirotte and Puckett. The Compensation Committee recommends employee salaries and
incentive compensation to the Board of Directors and administers the Company's
stock option plans. During 1998, the Compensation Committee held one meeting,
excluding actions that were taken by unanimous written consent during the year.
VOTE REQUIRED
The nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted at the Meeting shall be
elected as directors of the Company.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE NOMINEES LISTED ABOVE.
PROPOSAL NO. 2 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed the firm
PricewaterhouseCoopers LLP ("PWC"), Raleigh, North Carolina, to serve as the
independent auditors of the Company for the year ending December 31, 1999, and
recommends that the shareholders ratify such action. If the appointment of PWC
is not ratified by the shareholders, the Board of Directors will reconsider its
selection. PWC has audited the accounts of the Company since 1994 and has
advised the Company that it does not have, and has not had, any direct or
indirect financial interest in the Company or its subsidiaries in any capacity
other than that of serving as independent auditors. Representatives of PWC are
expected to attend the Meeting. They will have an opportunity to make a
statement, if they desire to do so, and will also be available to respond to
appropriate questions.
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represented and voting on this proposal at the
Meeting shall constitute ratification of the appointment of PWC.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF PWC AS INDEPENDENT AUDITORS FOR
THE YEAR ENDING DECEMBER 31, 1999.
3
<PAGE>
OTHER INFORMATION
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of shares of the Company's Common Stock as of the Record Date by (i) each person
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock, (ii) each current director of the Company, (iii) each of the
Company's President and four most highly compensated executive officers other
than the President whose cash compensation for the year ended December 31, 1998
exceeded $100,000 (collectively, the "Named Executive Officers"), and (iv) all
current directors and executive officers of the Company as a group. Except as
indicated in footnotes to this table, the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
indicated. Share ownership in each case includes shares issuable upon exercise
of outstanding options that may be exercised within 60 days after the Record
Date for purposes of computing the percentage of Common Stock owned by such
person but not for purposes of computing the percentage owned by any other
person.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
NAME OWNED OWNED (1)
- ---- ------------ ----------
<S> <C> <C>
Chiron Diagnostics Corporation ............. 600,000 8.0%
63 North Street
Medfield, MA 02052
Davenport & Co. ............................ 418,085(2) 5.6%
901 E. Cary Street, Suite 1100
Richmond, Virginia 23219
John P. Funkhouser ......................... 288,748(3) 3.7%
Michael D. Riddle .......................... 50,619(3) *
Dick D. Timmons II ......................... 17,500(4) *
Donald E. Mahan, Ph D ...................... 25,200(5) *
William A. Hawkins ......................... 7,532(6) *
Stephen R. Puckett ......................... 6,000(7) *
John K. Pirotte ............................ 5,000(7) *
Philip R. Tracy ............................ 5,000(7) *
All current executive officers and directors
as a group (11 persons) .................. 413,099(8) 5.3%
</TABLE>
- ---------
* Less than one percent.
(1) As of the Record Date, the Company had 7,454,521 shares of Common Stock
outstanding.
(2) As reported in the Schedule 13G dated January 12, 1999 filed with the
Securities and Exchange Commission by Davenport & Company LLC. Consists of
shares held by individuals who are customers, or representatives (or members
of a representatives' immediate family), of Davenport & Company LLC, which
disclaims beneficial ownership.
(3) Consists solely of shares underlying options.
(4) Includes 12,500 shares underlying options.
(5) Includes 25,000 shares underlying options.
(6) Includes 4,532 shares underlying options.
(7) Includes 2,000 shares underlying options.
(8) Includes shares referenced in footnotes (3) through (7).
4
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION.
The following table reflects all cash and noncash compensation paid by the
Company to the Named Executive Officers for their services in all capacities
during the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SARS COMPENSATION
- --------------------------- ---- ------ ----- ---- ------------
<S> <C> <C> <C> <C> <C>
John P. Funkhouser, 1998 $ 185,000 $ 25,000 -- --
President, Chief Executive Officer 1997 185,000 -- 30,000 37,900(1)
1996 185,000 -- -- --
Michael D. Riddle, 1998 125,000 -- -- --
Vice President, 1997 125,000 10,000 5,000 --
Sales and Marketing 1996 125,000 -- -- --
Dick Timmons II 1998 125,000 -- -- --
Chief Operating Officer 1997 28,767 -- 50,000 --
Donald E. Mahan, Ph.D. 1998 115,000 -- -- --
Vice-President, 1997 114,000 -- 30,000 --
Research & Development
</TABLE>
- ---------
(1) Consists of club initiation fees
OPTION GRANTS, EXERCISES AND HOLDINGS AND FISCAL YEAR-END OPTION VALUES.
There were no option grants or exercises by the Named Executive Officers
during the fiscal year ended December 31, 1998. The following table sets forth
information concerning all option holdings as of December 31, 1998 by the Named
Executive Officers.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998 (1)
------------------------------------- ------------------------------------
NAME EXERCISABLE (2) UNEXERCISABLE (2) EXERCISABLE (2) UNEXERCISABLE (2)
- -------------------------------- ----------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
John P. Funkhouser ............. 288,748 36,662 $1,098,618 $16,247
Michael D. Riddle .............. 44,622 11,879 157,672 29,333
Dick Timmons II ................ 12,500 37,500 3,125 9,375
Donald E. Mahan, Ph.D. ......... 18,750 26,250 18,125 31,875
</TABLE>
- ---------
(1) Calculated by subtracting the exercise price from $5.25, the closing price
of the Company's Common Stock as reported by the Nasdaq National Market on
December 31, 1998, the last business day of the fiscal year ended December
31, 1998, and multiplying the difference by the number of shares underlying
each option.
(2) The first number represents the number or value (as called for by the
appropriate column) of exercisable options; the second number represents the
number or value (as appropriate) of unexercisable options
COMPENSATION OF DIRECTORS
Each of the Company's non-employee directors receives $2,500 per year,
$1,000 per Board meeting, and $500 per Committee meeting, that he or she
attends. In 1998, each non-employee director received 3,000 shares of Common
Stock upon re-election to the Board. All directors are reimbursed by the Company
for expenses incurred to attend Board meetings.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
consisting entirely of non-employee directors, approves all policies under which
compensation is paid or awarded to the Company's executive officers. The
Committee is currently composed of Messrs. Pirotte and Puckett. The Committee
also administers the Company's stock plans.
5
<PAGE>
Neither the material in this report nor the performance graph included in
this proxy statement under the heading " -- Performance Graph" (the "Performance
Graph") is soliciting material, is or will be deemed filed with the Securities
and Exchange Commission or is or will be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended, or the Exchange
Act, whether made before or after the date of this proxy statement and
irrespective of any general incorporation language in such filing.
COMPENSATION PHILOSOPHY. The Company's executive compensation program has
three objectives: (1) to align the interests of the executive officers with the
interests of the Company's shareholders by basing a significant portion of an
executive's compensation on the Company's performance; (2) to attract and retain
highly talented and productive executives; and (3) to provide incentives for
superior performance by the Company's executives. To achieve these objectives,
the Committee has crafted a program that consists of base salary, short-term
incentive compensation in the form of cash bonuses and long-term incentive
compensation in the form of stock and stock options. These compensation elements
are in addition to the general benefits programs which are offered to all of the
Company's employees.
Each year, the Committee reviews the Company's executive compensation
program. In its review, the Committee uses compensation survey data prepared by
outside consultants to study the compensation packages for executives of
companies at a comparable stage of development and in the Company's geographic
area. The Committee assesses the competitiveness of the Company's executive
compensation program and reviews the Company's financial and operational
performance for the previous fiscal year. The Committee also gauges the success
of the compensation program in achieving its objectives in the previous year and
considers the Company's overall performance objectives. For compensation paid to
the Chief Executive Officer and other Named Executive Officers in 1998, no
reference was made to the data for comparable companies included in the
Performance Graph.
Each element of the Company's executive compensation program is discussed
below.
BASE SALARIES. The Committee annually reviews the base salaries of the
Company's executive officers. The base salaries for the Company's executive
officers for fiscal 1998 were established by the Committee at the beginning of
that fiscal year. In addition to considering the factors listed in the foregoing
section that support the Company's executive compensation program generally, the
Committee reviews the responsibilities of the specific executive position and
the experience and knowledge of the individual in that position. The Committee
also measures individual performance based upon a number of factors, including a
measurement of the Company's historic and recent financial and operational
performance and the individual's contribution to that performance, the
individual's performance on non-financial goals and other contributions of the
individual to the Company's success, and gives each of these factors relatively
equal weight without confining its analysis to a rigorous formula. As is typical
of most corporations, the actual payment of base salary is not conditioned upon
the achievement of any predetermined performance targets.
INCENTIVE COMPENSATION. Cash bonuses established for executive officers are
intended to motivate the individual to work hard to achieve the Company's
financial and operational performance goals or to otherwise incent the
individual to aim for a high level of achievement on behalf of the Company in
the coming year. Because it had been in the early stages of development, the
Company did not pay cash bonuses prior to fiscal 1995. In 1998, the Company paid
a cash bonus of $25,000 to Mr. Funkhouser. This bonus was paid based on the
achievement of Company objectives established in the beginning of 1998 and to
bring Mr. Funkhouser's total compensation in line with chief executives at other
comparable companies.
LONG-TERM INCENTIVE COMPENSATION. The Company's long-term incentive
compensation plan for its executive officers is based upon the Company's stock
plans. The Company believes that placing a portion of its executives' total
compensation in the form of stock or stock options achieves three objectives. It
aligns the interest of the Company's executives directly with those of the
Company's shareholders, gives executives a significant long-term interest in the
Company's success and helps the Company retain key executives. Options generally
vest over four years based on continued employment. In determining the number of
options to grant an executive, the Board primarily considered the executive's
past performance and the degree to which an incentive for long-term performance
would benefit the Company, as well as the number of shares and options already
held by the executive officer. It is the Committee's policy to grant options at
fair market value unless particular circumstances warrant otherwise.
BENEFITS. The Company believes that it must offer a competitive benefits
program to attract and retain key executives. During fiscal 1998, the Company
provided the same medical and other benefits to its executive officers that are
generally available to its other employees.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer's
compensation is based on the same elements and measures of performance as is
the compensation for the Company's other executive officers. The Committee
6
<PAGE>
approved a base salary for Mr. Funkhouser for fiscal 1998 of $185,000 based on
the same factors as were considered in determining the base salaries of the
other executive officers.
SECTION 162(M) OF THE CODE. It is the responsibility of the Committee to
address the issues raised by Section 162(m) of the Code. Revisions to this
Section made certain non-performance based compensation in excess of $1,000,000
to executives of public companies non-deductible to the companies beginning in
1994. The Committee has reviewed these issues and has determined that it is not
necessary for the Company to take any action at this time with regard to these
issues.
Submitted by: THE COMPENSATION COMMITTEE
John K. Pirotte
Stephen R. Puckett
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are currently Messrs. Pirotte and
Puckett. Mr. Dennis Dougherty was a member of the Compensation Committee until
his resignation from the board on February 23, 1998. Messrs. Pirotte, Puckett
and Dougherty were not at any time during the fiscal year ended December 31,
1998 or at any other time an officer or employee of the Company. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN (1)
(The Performance Graph appears here. See the table below for plot points.)
NASDAQ PEER GROUP - PHARMANETICS
PHARMA
12/95 100 100 100
3/96 104.66 104.05 104.546
6/96 113.201 101.077 77.2727
9/96 117.211 103.397 61.3636
12/96 122.971 100.311 35.2273
3/97 116.301 95.2674 45.4545
6/97 137.619 102.847 68.1818
9/97 160.89 115.367 81.8182
12/97 150.865 103.576 72.7273
3/98 176.522 113.856 81.8182
6/98 181.633 105.525 52.2727
9/98 164.435 99.8578 45.4545
12/98 212.077 132.584 47.7273
- ---------
(1) Assumes $100 invested on December 11, 1995 (the effective date of the
Company's initial public offering) in each of the Company's Common Stock,
the Nasdaq CRSP Total Market Return Index, and the Nasdaq Pharmaceutical
Stocks Total Return Index (the "Pharmaceutical Index"). Total return assumes
reinvestment of dividends.
CERTAIN TRANSACTIONS
In August 1998, the Company entered into a Common Stock Purchase Agreement
with Chiron Diagnostics Corporation ("Chiron Diagnostics"), pursuant to which
the Company issued and sold to Chiron Diagnostics an aggregate of 600,000 shares
of its Common Stock in exchange for $6,000,000 cash, or $10.00 per share. In
November 1998, Bayer acquired Chiron Diagnostics and made it a part of Bayer
Diagnostics. The Common Stock Purchase Agreement provides, among other things,
that Bayer Diagnostics will not acquire more than 20% of the Company's voting
securities, except where a third party accumulates or attempts to buy specified
percentages of the Company's voting stock. Except under limited circumstances,
Bayer Diagnostics cannot transfer its shares to an unaffiliated person unless
the Company is first offered the right to purchase such shares. Except with
respect to certain significant events (including a sale or dissolution of the
Company), Bayer
7
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Diagnostics also agreed to vote its shares in accordance with the recommendation
of the Company's Board or in not less than the proportion as the votes cast by
other shareholders. In addition, the Company agreed to include in the slate of
nominees recommended by the Company for election as directors of the Company,
one person designated by Bayer Diagnostics and reasonably acceptable to the
Company. To date, no one has been designated. The Company also granted to Bayer
Diagnostics registration rights with respect to the purchased shares and the
right to receive notification of and to make a competing bid with respect to
certain change of control transactions. In the event of a change in control
transaction at less than $10.00 per share, the Company must pay Bayer
Diagnostics the difference between $10.00 and the price per share in the
transaction, unless Bayer Diagnostics has failed to meet its minimum purchase
requirements under the Distribution Agreement between them.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the Company's Common
Stock (collectively, "Insiders"), to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Insiders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1998, all Section
16(a) reports were filed on a timely basis except for late filing of the Form 3
and Form 5 for Dr. Andras Gruber, Chief Scientific Officer, to report his
appointment as an executive officer and the grant of options in November 1998,
respectively.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholders having proposals that they desire to present at next year's
annual meeting of shareholders of the Company should, if they desire that such
proposals be included in the Company's Proxy Statement relating to such meeting,
submit such proposals in time to be received by the Company at its principal
executive office in Raleigh, North Carolina, not later than December 8, 1999. To
be so included, all such submissions must comply with the requirements of Rule
14a-8 promulgated under the Exchange Act and the Board of Directors directs the
close attention of interested shareholders to that Rule. Proposals may be mailed
to Secretary, PharmaNetics, Inc., 5301 Departure Drive, Raleigh, North Carolina
27616.
OTHER MATTERS
The Board of Directors knows of no other business to be brought before the
Meeting, but it is intended that, as to any such other business, the shares will
be voted pursuant to the proxy in accordance with the best judgment of the
person or persons acting thereunder.
By Order of the Board of Directors
/s/ JOHN P. FUNKHOUSER,
-----------------------------
JOHN P. FUNKHOUSER,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
8
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<PAGE>
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APPENDIX
FOLD AND DETACH HERE
- ------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
PHARMANETICS, INC.
P R O X Y 5301 DEPARTURE DRIVE
RALEIGH, NORTH CAROLINA 27616
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
May 6, 1999
The undersigned hereby appoints John P. Funkhouser and Paul Storey, and
each of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
Common Stock of PharmaNetics, Inc., a North Carolina corporation (the
"Company"), held of record by the undersigned on March 31, 1999, at the Annual
Meeting of Shareholders to be held at the Carolina Country Club, 2500 Glenwood
Avenue, Raleigh, North Carolina, on Thursday, May 6, 1999, at 10:30 a.m., or at
any adjournment(s) thereof. The following proposals to be brought before the
meeting are more specifically described in the accompanying Proxy Statement.
<TABLE>
<CAPTION>
<S> <C>
(1) Election of Directors:
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY TO VOTE FOR ALL
(except as marked to the contrary) NOMINEES LISTED BELOW
INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.
John P. Funkhouser William A. Hawkins John K. Pirotte Stephen R. Puckett Philip R. Tracy
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
(2) To ratify the selection of PricewaterhouseCoopers LLP as auditors of the
Company for the fiscal year ending December 31, 1999.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
(3) In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
[ ] GRANT AUTHORITY [ ] WITHHOLD AUTHORITY
</TABLE>
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FOLD AND DETACH HERE
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THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR MANAGEMENT'S NOMINEES FOR DIRECTOR LISTED ABOVE, FOR
PROPOSAL 2, AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO ANY OTHER
MATTERS PROPERLY BROUGHT BEFORE THE SHAREHOLDERS AT THE MEETING.
-------------------------------
Signature
-------------------------------
Signature, if held Jointly
Please date and sign exactly as
name appears on your stock
certificate. Joint owners should
each sign personally. Trustees,
custodians, executors and others
signing in a representative
capacity should indicate the
capacity in which they sign.
Date: ------------- , 1999
PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE,
WHETHER OR NOT YOU PLAN TO BE
PRESENT AT THE MEETING. IF YOU
ATTEND THE MEETING, YOU CAN VOTE
EITHER IN PERSON OR BY YOUR
PROXY.
