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
MEDCO RESEARCH 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:
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MEDCO RESEARCH INC.
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NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 18, 1997
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TO THE SHAREHOLDERS:
Notice is hereby given that the annual meeting of shareholders (the "Annual
Meeting") of Medco Research, Inc. (the "Company") will be held at the
Michelangelo Hotel -- 152 West 51st Street, New York, New York at 10:00 a.m. on
June 18, 1997 for the following purposes, as more fully described in the
attached Proxy Statement:
1. To elect seven directors of the Company to serve until the next annual
meeting of shareholders;
2. To ratify the appointment of Coopers & Lybrand LLP as independent
accountants for the Company; and
3. To consider and act upon such other matters as may properly come before
the meeting.
The Board of Directors has fixed the close of business on May 1, 1997 as
the record date for determining the shareholders entitled to notice of and to
vote at the Annual Meeting or at any adjournment thereof.
You are cordially invited to attend the Annual Meeting in person. In order
to ensure your representation at the Meeting, however, please promptly complete,
date, sign, and return the enclosed proxy in the accompanying envelope. A
majority of the outstanding shares of Common Stock must be represented (in
person or by proxy) at the Annual Meeting in order that business may be
transacted. Therefore, your promptness in returning the completed and signed
proxy will help to ensure that the Company will not have to bear the expense of
undertaking a second solicitation. A shareholder who executes and returns the
accompanying proxy may revoke such proxy at any time before it is voted at the
Annual Meeting by complying with the procedures set forth in the following Proxy
Statement under "General Information."
By Order of the Board of Directors
ADAM C. DERBYSHIRE
SECRETARY
Research Triangle Park,
North Carolina 27709
May 5, 1997
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MEDCO RESEARCH INC.
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PROXY STATEMENT FOR ANNUAL MEETING
TO BE HELD ON JUNE 18, 1997
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GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of Medco
Research, Inc. (the "Company") for use at the annual meeting of shareholders
(the "Annual Meeting") to be held June 18, 1997, and any adjournment of the
Annual Meeting, and it will be voted by the proxy holders in accordance with the
instructions given in the proxy if it is returned and received in time for the
Annual Meeting, is duly executed and is not revoked. If no direction is given in
the proxy, it will be voted "For" (i) the election of the directors nominated by
the Board and (ii) the ratification of the appointment of Coopers & Lybrand LLP
as the Company's independent accountants. With respect to any other item of
business that may come before the Annual Meeting, the proxy holders will vote
the proxy in accordance with their best judgment, and they also will have
discretionary authority to cumulate votes in the election of directors in the
event any shareholder gives notice of his or her intention to cumulate votes for
directors of the Company. So far as the Company is aware, no matters will be
presented to the Meeting for action on the part of the shareholders other than
those stated in the foregoing Notice.
A proxy may be revoked at any time before it has been exercised by written
notice of revocation given to the Secretary of the Company, by executing and
delivering to the Secretary a proxy dated as of a later date than the enclosed
proxy, or by attending the Annual Meeting and voting in person. Attendance at
the Meeting will not in and of itself revoke a proxy.
Abstentions will be deemed to be present at the Meeting for purposes of
determining a quorum and will be counted as voting (but not "for" or "against")
with regard to the issue to which the abstention relates. Any "broker non-vote"
also will be deemed to be present for quorum purposes, but will not be counted
as voting with regard to the issue to which it relates. Thus, an abstention will
have the same effect as a vote "against" such issue while a broker non-vote will
have no effect.
Holders of record of Common Stock at the close of business on May 1, 1997
are entitled to vote at the Annual Meeting. There were 10,516,732 shares of
Common Stock outstanding as of the record date. The presence, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes
entitled to be cast by all shareholders will constitute a quorum for the
transaction of business at the Annual Meeting.
Shareholders are entitled to cast one vote per share on each matter
presented for consideration and action by the shareholders. With respect to the
election of directors, however, shareholders may cumulate their votes.
Cumulative voting permits each shareholder to cast a total number of votes equal
to the number of directors to be elected multiplied by the number of shares
actually owned. All of the votes may be cast for one nominee, may be divided
equally among the nominees or may be divided among the nominees in any other
manner. However, a shareholder may cumulate votes for one or more nominees only
if the nominees' names are placed in nomination prior to voting and any
shareholder gives notice at the meeting, prior to the voting, of his or her
intention to cumulate votes. If any shareholder gives such notice, all
shareholders may cumulate their votes for the nominees.
This Proxy Statement, together with the accompanying proxy, is first being
mailed to shareholders on or about May 5, 1997.
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ELECTION OF DIRECTORS
NOMINEES
The Board of Directors has recommended, and approved, the nomination of the
following persons, all of whom are currently directors:
Albert D. Angel
William M. Bartlett
Jay N. Cohn, M.D.
Marvin S. Hausman, M.D.
Mark B. Hirsch
Eugene L. Step
Richard C. Williams
All of the nominees have indicated a willingness to serve as directors, but
if any of them should decline or be unable to act as a director, the proxy
holders will vote for the election of another person or persons as the Board of
Directors recommends. The Company has no reason to believe that any nominee will
be unavailable. In the event that any shareholder gives notice at the Annual
Meeting of his or her intention to cumulate votes for the election of directors,
the proxy holders in their discretion may cumulate the votes represented by the
proxies. The proxy holders may cast such votes entirely for one nominee or split
their votes among such number of nominees as they may determine in their
discretion. Proxies received cannot be voted for a greater number of persons
than the number of nominees for election as directors.
Nominees receiving the highest number of affirmative votes cast, up to the
number of directors to be elected, will be elected as directors. The proxy
holders will vote the proxies for the above nominees. Directors are to be
elected to hold office until the next annual meeting of shareholders and until
their successors are elected and qualified.
The following biographical information is furnished with respect to the
seven nominees for election as directors:
ALBERT D. ANGEL, age 59, became a Director of the Company in September
1995. He is currently President of Angel Consulting, a management consulting
firm in Llewellyn Park, New Jersey, and a Director of Immunomedics, Inc., a
biopharmaceutical research company. He is a former President of The Merck
Company Foundation and was also Vice President, Public Affairs, of Merck & Co.,
Inc. from September 1985 until December 1993. Mr. Angel joined Merck in 1967,
serving initially in various legal counsel positions and later as Chairman and
Managing Director of Merck Sharp & Dohme-U.K. and Vice President of Merck Sharp
& Dohme-Europe. Prior to joining Merck, Mr. Angel was an attorney at Hughes
Hubbard Blair & Reed, and received his LL.B. from Yale Law School in 1960.
WILLIAM M. BARTLETT, age 64, has served as a Director of the Company since
September 1992. Since then, Mr. Bartlett has been an independent business
consultant. He currently serves on the advisory board of Vysis, Inc., a genomic
diagnostic research company, which is a subsidiary of AMOCO Corporation, and as
an advisor to the CEO of Medicor Corporation of Wheeling, Illinois, a private
surgical instrument technology company. From 1990 to 1992, Mr. Bartlett served
as the Chief Operating Officer of McDermott, Will & Emory, a large Chicago-based
law firm. From 1982 to 1990, he served as the President, Chief Executive Officer
and a Director of Kewaunee Scientific Corporation, a manufacturer of scientific
laboratory furniture and equipment. Prior to that, Mr. Bartlett served as a
Corporate Vice President, President and Chief Executive Officer of G.D. Searle &
Company's Medical Products Group, and at American Hospital Supply Corporation as
President of the Atlantic International Division, and as President of the V.
Mueller Surgical Instrument Division. Mr. Bartlett has a BSCE from Duke
University and an Advanced Marketing Certification from the Kellogg School of
Northwestern University.
JAY N. COHN, M.D., age 65, joined the Company as a Director in May 1996. He
is currently Professor of Medicine, Cardiovascular Division, Department of
Medicine, University of Minnesota Medical School, and holds a staff appointment
at the VA Medical Center in Minneapolis. Dr. Cohn is the author of over 500
scientific publications and is currently editor-in-chief of the JOURNAL OF
CARDIAC FAILURE. He is internationally recognized for contributions to the
management of cardiovascular diseases and holds several patents on inventions
aimed at improving diagnostic and therapeutic approaches to heart failure and
hypertension. He is currently President of the American Society of Heart Failure
and President of the International Society of Hypertension. He received his M.D.
from Cornell University in 1956, and is a Fellow of the American College of
Physicians and the American College of Cardiology.
MARVIN S. HAUSMAN, M.D., age 55, rejoined the Company as a Director in May
1996. He currently serves as a consultant to the pharmaceutical industry. He is
President of Northwest Medical Research Partners, Inc. and a Director of Regent
Assisted Living, Inc. Dr. Hausman served as Clinical Instructor and Visiting
Surgeon, Department of Surgery, U.C.L.A.
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Medical Center from 1975-1992. He is a co-founder of Medco Research, Inc. He
received his M.D. from the New York University School of Medicine in 1967, and
he is a Fellow of the American College of Surgeons.
MARK B. HIRSCH, age 50, joined the Company as a Director in May 1996. Since
December 1996, Mr. Hirsch has been the Chief Executive Officer and President of
Red Cell, Inc. From May 1996 to December 1996, he was Executive Vice President
and Chief Financial Officer of Red Cell, Inc. From April 1993 to April 1996, he
was Vice President, Corporate Development, of CV Therapeutics. From 1991 to
March 1993, Mr. Hirsch was Vice President of Business Development and Chief
Financial Officer of Arris Pharmaceutical Corporation. From 1988 to 1991, Mr.
Hirsch was a partner at Montgomery Medical Ventures, L.P. II. From 1985 to 1988,
he was Vice President of Business Development of Genentech, Inc. and from 1969
to 1985 he was a Vice President at American Hospital Supply Corporation's
Hospital Sector and Hospital and Pharmaceutical Business Divisions. Mr. Hirsch
received a B.S. in accounting from the University of Illinois, and he is a
Certified Public Accountant.
EUGENE L. STEP, age 67, has served as a Director of the Company since
January 1993. He currently serves as a Director of Scios, Inc., Cell-Genesis,
Inc., Guidant Corp., and Pathogenesis, Inc. He served as Executive Vice
President and President of the Pharmaceutical Division of Eli Lilly and Company
from 1986 until his retirement in 1992. From 1973 through 1985, he also served
as President of that company's Pharmaceutical Division. Mr. Step served as a
member of the Board of Directors and Executive Committee of Eli Lilly and
Company from 1973 through 1992. Mr. Step has a B.A. degree in Economics from the
University of Nebraska and a M.S. degree in Accounting and Finance from the
University of Illinois.
RICHARD C. WILLIAMS, age 53, has served as a Director of the Company since
January 1991 and as Chairman of the Company's Board of Directors since October
1992. Mr. Williams has been President of Conner-Thoele Limited, a consulting and
financial advisory firm which services the health care and pharmaceutical
industries, since March 1989. Mr. Williams also serves as a Director of
Immunomedics, Inc., a biopharmaceutical research company, and as a member of the
advisory board of Vysis, Inc., a genomic diagnostic research company which is a
subsidiary of AMOCO Corporation. From November 1983 to March 1989, Mr. Williams
served as Vice President-Finance and Chief Financial Officer of Erbamont N.V., a
pharmaceutical company. Prior to that, he served in various financial executive
positions with Field Enterprises, Inc., a real estate and communications
company, and with Abbott Laboratories, UNC Resources, and American Hospital
Supply Corporation. He is also a Director of Centaur, Inc., a private equine
diagnostic company. Mr. Williams has a B. A. degree from DePauw University and
an MBA from the Wharton School of Business.
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
The business affairs of the Company are managed by and under the direction
of the Board of Directors, although the Board of Directors is not involved in
the Company's day-to-day operations. The Company pays each director who is not a
full-time employee of the Company a quarterly retainer fee of $4,000. Each such
director is also paid $1,000 per diem for each Board meeting and the Annual
Shareholders Meeting attended by that director and $400 for each Board or Board
Committee meeting held by telephone conference call lasting up to two hours but
greater than a half hour and $600 for each such meeting lasting more than two
hours. Directors also are reimbursed for their travel expenses incurred to
attend meetings. Pursuant to the Company's stock option plans, directors who are
not full-time employees of the Company automatically are granted an option to
purchase 3,000 shares of the Company's Common Stock upon re-election as a
director at the Annual Meeting of Shareholders. In addition, in order to attract
experienced individuals, new directors joining the Board of Directors
automatically are granted an option to purchase 20,000 shares of the Company's
Common Stock. All such director options are granted at an exercise price equal
to the fair market value of such shares on the date of grant of such options,
and such options vest after one year.
A Compensation Committee of the Board of Directors, currently consisting of
Mr. Angel and Drs. Cohn and Hausman, administers the Company's Stock Option Plan
(the "1983 Option Plan") and 1989 Stock Option and Stock Appreciation Rights
Plan (the "1989 Option Plan") described below, votes on matters concerning
participation in these Plans and makes recommendations to the entire Board of
Directors as to, or itself approves, other matters of compensation of officers.
The Compensation Committee met on three occasions and also took action on one
occasion by written consent during the year ended December 31, 1996.
The Finance and Audit Committee of the Board of Directors, whose members
currently are Messrs. Bartlett, Hirsch and Step, reviews certain financial and
audit matters relating to the Company. The Finance and Audit Committee held two
meetings during the year ended December 31, 1996.
The Corporate Governance Committee members currently are Messrs. Step,
Angel and Williams. A Corporate Governance Committee makes recommendations to
the full Board of Directors concerning nominees for election as directors of the
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Company. In making its recommendations, the Corporate Governance Committee will
consider as potential nominees persons recommended by the Company's
shareholders. Any such recommendations should be in writing and should be mailed
or delivered to the Company, marked for the attention of the Company's
Secretary, on or before the date for receipt of shareholder proposals for the
next annual meeting. See "Shareholder Proposals for the 1998 Annual Meeting".
The Corporate Governance Committee held one meeting during the year ended
December 31, 1996.
During the year ended December 31, 1996, the Board of Directors met on six
occasions and also took action on three occasions. Due to the frequent meetings
of the Board of Directors during the year, a number of matters that otherwise
would have been addressed in separate meetings of the Compensation Committee,
Finance and Audit Committee, and Corporate Governance Committee during that
period were instead addressed at meetings of the entire Board of Directors. Each
director attended at least 75% of the meetings of the Board and those committees
on which the director served.
One director, Mr. Williams, continued to provide consulting services to the
Company during the calendar year of 1996 pursuant to a consulting agreement
which commenced December 1, 1994. For consulting on all matters pertaining to
the Company's potential acquisitions, its pending litigations and its financial
public relations in 1996, the Company paid Mr. Williams $144,000 as well as
related travel expenses.
EXECUTIVE OFFICERS
In addition to Mr. Williams, Chairman of the Board, the following persons
currently are executive officers of the Company:
ROGER D. BLEVINS, PHARM. D., age 41, is the President and Chief Operating
Officer of the Company. He joined the Company as Director of Cardiovascular
Research in July 1988, was appointed Vice President of Research and Development
in October 1990 and was appointed President and Chief Operating Officer in June
1995. From July 1986 to July 1988, he was Director of Cardiovascular Research,
Department of Medicine, Sinai Hospital of Detroit, and from July 1985 to July
1986 he was the Associate Director of the Center for Cardiovascular Research at
the same institution. Dr. Blevins received his Doctorate of Pharmacy degree from
Wayne State University, Detroit, Michigan in May 1982.
GLENN C. ANDREWS, CFA, age 46, is the Vice President, Finance and
Administration and Chief Financial Officer of the Company. He joined the Company
as Vice President and Chief Financial Officer in July 1996. From September 1995
to July 1996 he was Vice President, Planning and Analysis of Coastal Physician
Group, Inc. From September 1984 to September 1995, he was employed by Burroughs
Wellcome Co. where he served as Treasurer from 1992 to 1995 and as Director of
Business Analysis and Planning from 1989 to 1992. Mr. Andrews received his B.S.
degree in 1974 and MBA in 1977 from the University of Tennessee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission") and the American Stock Exchange. Officers, directors and
greater than ten percent shareholders are required by Securities and Exchange
Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Form 5 were required, the Company
believes that during the year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its officers and directors were complied with, except
that Dr. Hausman filed late his Form 4 reporting the closing transactions and
the exercise of publicly traded call options expiring October 19, 1996.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth as of April 26, 1997 the number and
percentage ownership of the Company's voting securities by all persons
(including any "group" as that term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934) known to the Company to own beneficially more
than 5% of the Company's Common Stock, being the only outstanding class of the
Company's voting securities, based upon reports filed by each of such persons
with the Securities and Exchange Commission, and the number and percentage
ownership of the Company's equity securities so owned by each director, each
executive officer named in the compensation tables in this Proxy Statement and
by all directors and such executive officers as a group. Except as otherwise
indicated, and subject to applicable community property and similar laws,
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each of the persons named has sole voting and investment power with respect to
the securities owned by him. An asterisk denotes beneficial ownership of less
than 1%.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED COMMON STOCK
- ------------------------------------------------------------------ ------------------ ------------
<S> <C> <C>
State of Wisconsin................................................ 1,085,900 10.32
Investment Board
P.O. Box 7842
Madison, Wisconsin 53707
G. W. Capital, Inc................................................ 536,400 5.10
10900 N.E. 8th Street
Suite 235
Bellevue, Washington 98004
Roger D. Blevins, Pharm.D......................................... 152,757(1) 1.45
Albert D. Angel................................................... 23,500(2) *
William M. Bartlett............................................... 10,120(3) *
Jay N. Cohn, M.D.................................................. 0 *
Marvin S. Hausman, M.D............................................ 111,347 1.06
Mark B. Hirsch.................................................... 0 *
Eugene L. Step.................................................... 29,000(4) *
Richard C. Williams............................................... 121,600(5) 1.16
All Directors and Executive Officers of the Company
as a Group (eight persons)...................................... 448,324(6) 4.26
</TABLE>
- ---------------
(1) Includes 121,400 shares subject to currently exercisable options held by Dr.
Blevins.
(2) Includes 23,000 shares subject to currently exercisable options held by Mr.
Angel.
(3) Includes 9,000 shares subject to currently exercisable options held by Mr.
Bartlett.
(4) Includes 29,000 shares subject to currently exercisable options held by Mr.
Step.
(5) Includes 9,000 shares subject to currently exercisable options held by Mr.
Williams.
(6) Includes an aggregate of 191,400 shares subject to currently exercisable
options held by executive officers and directors of the Company.
REPORT OF THE COMPENSATION COMMITTEE FOR 1996 EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which is composed
entirely of directors who have never been employees of the Company, is
responsible for setting and administering the policies and programs that govern
both annual and long-term compensation.
In 1991 the Company adopted a Management Incentive Plan (the "Incentive
Plan") to provide additional cash compensation to key Company executives based
on their individual performance as well as the financial performance of the
Company. Plan participants must be approved by the Compensation Committee, which
establishes annual ceiling amounts of distributions under the Incentive Plan for
each participant based on such individual's annual salary. The executive
compensation program is designed to align compensation with the Company's
business strategy, values and management initiatives.
In 1996 the Company retained the Human Strategies Group of Deloitte &
Touche, LLP to conduct a comprehensive comparative study (the "Comparative
Study") of the Company's compensation, annual and long-term components, and
benefits programs for its executive officers and other employees. This
Comparative Study was highly utilized by the Company with respect to 1996
compensation and benefits programs, and is intended to be the basis of such
programs for the next few years, subject to the Committee's annual reviews for
possible adjustment. By having a significant amount of compensation in the form
of annual bonus and stock options awarded at the discretion of the Committee
based 33% on each executive's performance of his or her own set of personal
objectives and 67% on the Company's achievement of its financial plan, as
described below, the program is intended to:
o Provide incentive to implement the Company's annual objectives and
long-term strategy aligned with the interests of shareholders;
o Reward superior performance; and
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o Help attract and retain key executives critical to the long-term
success of the Company.
The Company's executive compensation program consists of two key elements:
(1) an annual component, i.e., base salary and annual bonus, and (2) a long-term
component, i.e. stock options. The amount of salary, bonus and options granted
for 1996 was determined by, among other measures, comparison with the data in
the Comparative Study, as described above, with the goal of providing total
compensation that approximates the median of the range of the compensation, both
in the aggregate and for each compensation component, reported in the
Comparative Study to have been paid by comparable companies. The program
substantially rewards the management team if the Company achieves its financial
plan, and it also recognizes meaningful differences in individual performance
and offers the opportunity to earn rewards when merited by individual
performance.
For 1996 the Board of Directors determined that the Company's financial
plan was 83% achieved, and the Compensation Committee determined that
achievement of individual objectives ranged from 131% to 76%.
The policies with respect to each of these elements, as well as the basis
for determining the 1996 compensation of the Company's named executive officer,
Dr. Blevins, President and Chief Operating Officer, are described below.
(1) ANNUAL COMPONENT: BASE SALARY AND ANNUAL BONUS
BASE SALARY. Base salaries for executive officers are determined by the
Committee with reference to the salary range for each position as reflected by
the associated job description and a general assessment of the executive's
performance, experience and potential. The Committee establishes these salaries
annually or in connection with the officer's employment agreement, if any.
ANNUAL BONUS. An annual bonus may be paid to executive officers following
the end of each fiscal year, up to a maximum percentage of base salary as
determined by the Committee for such year either in accordance with their
respective employment agreements, if any, or otherwise based on the job
description. The maximum percentage of base salary is 35% for the President and
30% for other Officers. These maximum bonus percentages were consistent with the
information provided in the Comparative Study. Sixty-seven percent (67%) of the
bonus is based on the Company's achievement of its financial plan, and 33% of
the bonus is awarded based on the Committee's evaluation of the officer's
achievement during the year of his or her objectives. All objectives were
approved by the President of the Company and the Chairman of the Board except
that the President's objectives were approved by the Committee and the entire
Board.
(2) LONG-TERM COMPONENT:
STOCK OPTIONS. In 1993, the Committee established levels for the amount of
annual stock options to be granted to the President and other executive
positions. Data in the Comparative Study confirmed these levels to approximate
the median of the range of the awards reported to have been paid by comparable
companies (up to 65,000 shares for the President and 40,000 shares for Vice
Presidents/Officers). The Committee awards options exercisable for a period of
10 years to buy a number of shares of the Company's Common Stock at a price
equal to the market price of the stock on the date of grant. For 1996 option
grants, 50% of the options awarded vest automatically after one year. The
balance of such options are subject to reduction, based 33% on the Committee's
evaluation of the executive's achievement of his or her objectives for the year
(which are the same objectives reviewed in determining the amount of the
executive's annual bonus) and based 67% on the Company's achievement of its
financial plan, and as adjusted, vest two years after grant. The options
remaining after such reduction, if any, as a result of less than full
achievement of the Company's financial plan and full achievement of the
executive's personal objectives become exercisable at the rate of 20% per year
commencing with the fifth anniversary of the date of grant. The Committee
believes that, because these options gain value only to the extent the price of
the Company's Common Stock increases above the option exercise price during the
life of the option, management's equity participation offers a significant
incentive and helps create a long-term partnership between management/owners and
other shareholders.
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The Committee set the 1996 annual and long-term compensation for Dr.
Blevins near the median of the range paid by comparable companies. His annual
salary was adjusted to $230,000, and his 1996 option grant was 65,000 options
which are to be earned and vested as described above. In addition, Dr. Blevins
received a one-time stock option grant of 120,000 shares upon the signing of a
three year employment agreement. See Employment Contracts; Termination of
Employment and Change-in-Control Arrangements, below, for a description of Dr.
Blevins' employment agreement. His performance bonus was adjusted to a potential
of up to 35% of base salary. The Committee determined that Dr. Blevins was
entitled to 87% of his bonus and option award, based 67% on the Company's 83%
achievement of its financial plan and 33% on Dr. Blevins' 95% achievement of his
individual Objectives: (1) staffing for executive management; (2) managing the
Company's financial plan; and (3) providing for commercialization of products.
The Compensation Committee of the Board of Directors
Albert D. Angel, Chairman
Jay N. Cohn, M.D.
Marvin S. Hausman, M.D.
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EXECUTIVE COMPENSATION
INCENTIVE COMPENSATION PLAN
In 1991 the Company adopted a Management Incentive Plan (the "Incentive
Plan") to provide additional cash compensation to key Company executives based
on their individual performance as well as the financial performance of the
Company. Plan participants must be approved by the Compensation Committee of the
Board of Directors, which establishes annual ceiling amounts of distributions
under the Incentive Plan for each participant based on such individual's annual
salary. Distributions are based 67% on the Company's achievement of its
financial plan and 33% based on the Committee's evaluation of the participant's
achievement during the year of his or her objectives.
EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The absence of a Chief Executive Officer within the Company caused the
Company to enter into a written employment agreement with Dr. Blevins. On
September 26, 1996 the Company signed a three-year employment agreement with Dr.
Blevins to serve as the Company's President and Chief Operating Officer. The
Company agreed to pay Dr. Blevins a $230,000 annual base salary, a bonus of up
to 35% of his base salary determined at the discretion of the Board of Directors
and annual awards of stock options of up to 65,000 shares determined at the
discretion of the Board of Directors. As an inducement to Dr. Blevins to enter
into this agreement the Company granted him a one-time nonqualified stock option
to purchase 120,000 shares at the September 26, 1996 fair market value price of
$8.625, which vests and becomes exercisable on the third anniversary of the date
of grant, e.g., September 26, 1999; provided, however, that the vesting of 50%
of the options shall accelerate to the day immediately following the twentieth
consecutive trading day on which the closing price of the Company's Common Stock
shall have exceeded $20 per share, and the remaining 50% shall accelerate to the
day immediately following the twentieth consecutive trading day in which such
closing price shall have exceeded $25 per share.
In 1996, the Company amended its policy to provide benefits to the named
executive officer in the event of a change of control of the Company. In the
event that, within 60 days after the effective date of the sale of all or
substantially all of the assets of the Company, a merger involving the Company
in which it is not the surviving entity or any transaction having essentially
the same effect, the acquirer of the Company's assets or the entity surviving
the merger fails to indicate in writing that it will continue to employ the
named executive officer for no less than such person's then annual base salary
and maximum annual performance bonus, the Company (1) in accordance with its
then prevailing payroll practices, shall continue to pay his prevailing annual
base salary and an amount equal to the average of the annual cash performance
bonus the Company paid to him in the preceding three years, for 2.99 years, (2)
shall continue to provide for his participation, to the extent permitted by
applicable law or insurance policy contract, in its group life, hospital,
medical and disability insurance plans, and any retirement, pension or death
benefit plans ("Benefit Plans") for the duration of the severance period or
until such earlier time as he obtains employment which provides reasonable
similar health and medical coverage and (3) shall provide full outplacement
services for 12 months; provided, however, that he shall have the option to
receive the gross amount of the amounts payable to him on account of his base
salary and bonus, less withholdings and deductions as required by applicable
law, in a lump sum at any time during the severance period, in which event his
participation in and coverage under the Benefit Plans, and his entitlement to
outplacement services, each shall terminate.
The Company also changed its policy in the event of the named executive
officer's discharge without cause. "Discharge without cause" is defined as the
termination of the employment of the named executive officer without "due
cause", any material reduction in his duties or authority or a more than 30%
reduction in his annual base salary from that for the immediately preceding
fiscal year. The term "due cause" is defined as the named executive officer's
material breach of any of the terms of his agreements with the Company, willful
gross negligence in carrying out his duties or commission of an act of willful
gross misconduct which has resulted in material harm to the Company, as
determined in good faith by the Board of Directors. In the event of discharge
without cause, the Company shall continue to pay such officer's annual base
salary for 12 months and to provide for his participation in the Benefit Plans
until he obtains employment which provides reasonably similar health and medical
coverage. The Company also shall provide such officer full outplacement services
for 12 months. In respect of the year of such discharge, he also shall be
entitled to receive, pro rated based on the number of completed months of
service during the year of discharge, his cash bonus and the discretionary
performance-based options he earned, in each case as determined by the
Compensation Committee using the performance level of such officer and the
Company for the prior year as their respective performance levels for the year
of discharge.
8
<PAGE>
SUMMARY COMPENSATION
The following Summary Compensation Table reflects certain information
regarding the most highly compensated executive officers whose total annual
salary and bonus for the last completed fiscal year exceeded $100,000 (the
"named executive officer").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
BONUS OTHER COMPENSATION
EARNED ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY ($) ($)(1) COMPENSATION ($) OPTIONS/SAR'S (#) COMPENSATION ($)
- --------------------------------------- ---- ---------- ------ ---------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Blevins, Pharm. D. 1996 230,000 70,003 -- 185,000(2) --
President & Chief Operating 1995 180,826 34,266 -- 80,000(3) --
Officer 1994 146,600 43,980 -- -- (4) --
</TABLE>
- ---------------
(1) Represents the amount earned by the named executive officer pursuant to the
Company's Incentive Plan. See Incentive Compensation Plan, above, for a
brief description of the Plan.
(2) The options granted to Dr. Blevins consisted of 65,000 shares associated
with the 1996 annual grant and 120,000 shares upon the signing of a three
year employment agreement. See Employment Contracts; Termination of
Employment and Change-in-Control Arrangements, above, for a description of
Dr. Blevins' employment agreement.
(3) The options granted to Dr. Blevins consisted of 60,000 shares associated
with the annual grant to him as Vice President of Research and Development
and additional 20,000 shares upon his election as Chief Operating Officer.
(4) The options granted in 1993 for Dr. Blevins satisfied his employment
agreement which commenced October 16, 1993 and expired December 31, 1994.
Therefore, no additional options were granted during 1994.
STOCK OPTION PLANS AND STOCK OPTION GRANTS AND EXERCISES IN 1996
The Company currently has two stock option plans in operation, the 1983
Option Plan and the 1989 Option Plan. Both plans authorize the grant of options
to purchase shares of Common Stock to key employees of the Company, including
directors, officers, and significant employees, and to other persons who provide
important services to the Company. The 1983 Option Plan, as subsequently
amended, authorized the grant of options to purchase a total of 1,200,000 shares
of Common Stock, and the 1989 Option Plan, as subsequently amended, authorized
the grant of options to purchase a total of 1,500,000 shares of Common Stock.
Both option plans are administered by the Compensation Committee, which,
among other things, determines the persons who are to receive options and the
number of shares to be subject to each option. With respect to option grants to
members of the Compensation Committee, the option plans are administered by the
Board of Directors as a whole.
Each option granted under the option plans (except for certain incentive
stock options which must be exercised sooner) must be exercised within a period
fixed by the Compensation Committee, which may not exceed ten years from the
date of grant of the option. Options may be made exercisable, in whole or in
installments, as determined by the Compensation Committee. Options may not be
transferred other than by will or the laws of descent and distribution, and
during the lifetime of an optionee may be exercised only by the optionee.
Options must be exercised three months after the termination of the optionee's
association with the Company, except in certain cases such as retirement (in
which event the options may be exercised for up to three months following
retirement) or death (in which event the options may be exercised for up to
twelve months following death), but not later than the expiration date of the
options. Those options that are granted under the option plans at an option
exercise price equal to not less than the fair market value of the Common Stock
on the date of grant to persons employed by the Company (110% of such fair
market value in the case of any employee who owns in excess of 10% of the
Company's voting securities) will qualify to be "incentive stock options" within
the meaning of Section 422(b) of the Internal Revenue Code of 1986, and the
Compensation Committee may designate such options accordingly. Other options
granted under the option plans will be nonqualified options. The exercise price
of any option granted under the option plans may be paid in cash or, with the
consent of the Compensation Committee, partly or entirely with Common Stock
based on the fair market value thereof on the date of exercise.
9
<PAGE>
The option plans both limit the maximum number of shares for which options
may be granted to any one participant to 33 1/3% of the shares reserved for
issuance under such option plans. No participant may in any one calendar year
receive options under the option plans with respect to more than 15% of the
shares reserved for issuance. The number of shares for which options may be
granted each year under both plans to directors who are not full-time employees
of the Company is fixed.
The following table sets forth information regarding the number of stock
options that were granted during the calendar year ended December 31, 1996 to
the named executive officer. In addition, in accordance with the rules of the
Commission, the table shows the alternative grant date valuation for option
grants in 1996.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price GRANT DATE
Name Granted (#)(1) Fiscal Year ($/Sh) Expiration Date PRESENT VALUE (2)
- ---- -------------- ------------ -------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Roger D. Blevins................................ 65,000 14% 10.25 02/22/06 273,676
Roger D. Blevins................................ 120,000 26% 8.625 09/26/06 425,147
</TABLE>
- ---------------
(1) For 1996 option grants, 50% of the options awarded vest automatically after
one year. The balance of such options are subject to reduction, based 33% on
the Committee's evaluation of the executive's achievement of his objectives
for the year (which are the same objectives reviewed in determining the
amount of the executive's annual bonus) and based 67% on the Company's
achievement of its financial plan, and as adjusted, vest two years after
grant. The options remaining after such adjustments become exercisable 20%
each year commencing with the fifth anniversary of the date of grant.
(2) In accordance with the Securities and Exchange Commission rules, the
Black-Scholes option pricing model was chosen to estimate the grant date
present value of the options set forth in the above table. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for grants in 1996:
dividend yield zero; expected volatility of 35%; risk-free interest rate of
6%; and expected life of five years. The real value of the options in the
above table depends upon the actual performance of the stock underlying the
options during the applicable period.
The following table sets forth information regarding the exercise of
options and the numbers of unexercised stock options held by named executive
officer at December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN 1996
AND OPTION/SAR VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS/SARS
SHARES UNDERLYING UNEXERCISED AT FISCAL
ACQUIRED ON VALUE OF OPTIONS/SARS AT YEAR-END
EXERCISE REALIZED FISCAL YEAR-END ($)(2)
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Blevins............................... -- -- 70,000 215,000 -- 241,850
</TABLE>
- ---------------
(1) The computation of the value realized amount is the aggregate difference
between the option exercise price and the market closing price of the
Company's Common Stock on the American Stock Exchange on the dates of
exercise.
(2) The computation of the value of unexercised in-the-money options is the
aggregate difference between the option exercise price and the December 31,
1996 closing price of the Company's Common Stock on the American Stock
Exchange.
OTHER BENEFITS PLANS
The Company sponsors an IRS approved 401(K) retirement plan. Employees
become eligible to participate in the plan beginning on the enrollment date
coinciding with or following 90 days of employment. Enrollment periods are
limited to January 1, April 1, July 1 and October 1 of each year. The 401(K)
plan allows employees to contribute a portion of their pre-tax earnings into
their own retirement account. Eligible employees may contribute between 2% and
15% of their annual income up to the annual limits established by the IRS
yearly. The Board of Directors authorized the Company, for those years in which
it achieves the performance goals established in advance by the Compensation
Committee, to match 50% of each employee's annual plan contribution up to a
maximum of 2% of the salary of such employee, such Company contributions to vest
equally over four years at the end of each year.
10
<PAGE>
PERFORMANCE GRAPH
Set forth below is a performance graph, comparing the yearly cumulative
total stockholder return on the Company's Common Stock with the yearly
cumulative total stockholder return on stocks included in the S&P 500 Index, a
broad equity market index, and the yearly cumulative total stockholder return
weighted by market capitalization at the beginning of each period for which a
return is indicated on stocks included in the Company's Industry Peer Index. In
order to more accurately represent the Company's performance vis-a-vis its
industry, the Company selected a different industry comparison index from the
prior year index. The new Industry Peer Index is made up of the 45 U.S.
pharmaceutical and biotechnological companies listed below, selected using the
following criteria: market capitalization of less than $200 million, assets of
less than $100 million, revenues under $25 million and less than 100 employees.
Also, the Company compared, in the indexed cumulative returns table below, the
total return with that of both the newly selected Industry Peer Index and the
S&P 500 Health Care Drugs Index used in the prior year. The investment
comparisons assume the base year (1991) is equal to an index of 100. Each of the
cumulative total returns was computed assuming the reinvestment of stock
dividends. The years compared are 1992, 1993, 1994, 1995 and 1996 calendar
years.
TOTAL RETURN TO STOCKHOLDERS
REINVESTED DIVIDENDS
[GRAPH]
INDEXED CUMULATIVE RETURNS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
----- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Medco Research, Inc........................... 100 69.04 61.42 46.19 42.13 42.64
Industry Peer Index (1)....................... 100 68.33 54.37 28.10 54.36 56.63
S&P 500 Index................................. 100 107.62 118.46 120.03 165.13 203.05
S&P 500 Health Care Drugs Index............... 100 80.16 73.36 85.40 146.44 182.63
</TABLE>
- ---------------
(1) The following companies are included in the Company's Industry Peer Index:
Abaxis Inc., Accumed International Inc., Advanced Magnetics Inc., Alkermes
Inc., Alteon Inc., Aronex Pharmaceuticals, Atrix Labs Inc., Boston Life
Sciences, Cambridge Neuroscience Inc., Chantal Pharmaceutical Corp., CIMA
Labs Inc., Columbia Laboratories, Cortech Inc., Corvas International, Cytel
Corp., Dynagen, Emisphere Technologies, Epitope Inc., Geltex Pharmaceuticals
Inc., Genome Therapeutics Corp., Guildford Pharmaceuticals Inc.,
Immunomedics Inc., Inhale Therapeutic Systems, Insite Vision, Lidak
Pharmaceuticals, Macrochem Corporation, Medicis Pharmaceuticals, Metra
Biosystems Inc., MGI Pharma Inc., Neoprobe Corp., Neo Rx Corp., Neurex Inc.,
Oncogene Science Inc., Penederm Inc., Pharmacyclics, Pharmos Corporation,
Polymedica Industries Inc., Royce Laboratories, Sano Corp., Sciclone
Pharmaceuticals Inc., Shaman Pharmaceuticals Inc., Sonus Pharmaceuticals
Inc., T Cell Sciences Inc., Technical Chemicals & Products, and Theragenics
Corp.
11
<PAGE>
RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Pursuant to the Company's Audit Committee's recommendation to the Board of
Directors and subject to shareholder approval, the Company, on March 20, 1997,
formally notified KPMG Peat Marwick LLP ("KPMG") that it would no longer serve
as the Company's independent accountants. The decision to change accountants was
recommended by Company's Audit Committee and approved by Company's Board of
Directors. The report of KPMG on the Company's financial statements for its last
two fiscal years did not contain an adverse opinion, or a disclaimer of opinion,
and was not qualified or modified as to uncertainty, audit scope or accounting
principles except KPMG's report contained a separate paragraph stating that the
Company is party to certain claims and litigation of which the ultimate outcome
cannot presently be determined. Accordingly, no provisions for liability, if
any, that may result from the resolution of such matters have been recognized in
the consolidated financial statements. During Company's two most recent fiscal
years and any interim period through the date of dismissal, (1) Company had no
disagreement with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which
disagreements, if not resolved to KPMG's satisfaction, would have caused it to
make a reference to the subject matter of the disagreements in connection with
its report, and (2) there did not occur any "reportable event" described in
Regulation S-K, Item 304 (a) (v).
On March 24, 1997, Company engaged Coopers & Lybrand LLP as its new
independent accountants to audit its financial statements. There did not occur
during Company's two most recent fiscal years, any event described in Regulation
S-K, Item 304 (a) (2).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND LLP AS INDEPENDENT ACCOUNTANTS FOR THE COMPANY.
PROXIES WILL BE VOTED "FOR" RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND
LLP IF NO DIRECTION IS GIVEN IN THE PROXIES.
OTHER MATTERS
A copy of the Company's Annual Report for the year ended December 31, 1996
has been mailed to shareholders of the Company. The Annual Report does not form
any of the material for the solicitation of proxies.
Management of the Company does not know of any matter to be acted upon at
the Annual Meeting other than the matters described above. If any other matter
properly comes before the Annual Meeting, however, the proxy holders will vote
the proxies thereon in accordance with their best judgment.
PROXY SOLICITATION
The cost of soliciting the proxies will be borne by the Company. This Proxy
Statement and the accompanying materials, in addition to being mailed directly
to shareholders, will be distributed through brokers, custodians, nominees, and
other like parties to beneficial owners of shares of Common Stock. The Company
will, upon request, reimburse such parties for their charges and expenses in
connection therewith.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1998 annual meeting
of shareholders of the Company must be received by March 16, 1998. Such
proposals should be addressed to the Secretary of the Company.
May 5, 1997
12
<PAGE>
MEDCO RESEARCH, INC.
85 T.W. Alexander Drive
Research Triangle Park, North Carolina 27709
------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
------------------------------------------------------------
The undersigned hereby appoints Richard C. Williams and William R.
Bartlett, and each of either of them as proxy holders with power to appoint his
substitute and hereby authorizes the proxy holders to represent and vote, as
designated on the reverse side of this proxy card, all the shares of Common
Stock of Medco Research, Inc. held of record by the undersigned on May 1, 1997,
at 10:00 a.m. local time at the annual meeting of shareholders to be held on
June 18, 1997, or any adjournment thereof.
(Continued and sign on Reverse Side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
MEDCO RESEARCH, INC.
June 18, 1997
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
A [X] Please mark your
vote as in this
example.
DIRECTORS RECOMMEND: A VOTE FOR
FOR WITHHOLD ELECTION OF THE FOLLOWING DIRECTORS
all the all the
nominees nominees Nominees: 1. Albert D. Angel
1. ELECTION [ ] [ ] 2. William M. Bartlett
OF 3. Jay N. Cohn, M.D.
DIRECTORS 4. Marvin S. Hausman, M.D.
5. Mark B. Hirsch
To withhold authority to vote for any individual 6. Eugene L. Step
nominee, write that number from the list at 7. Richard C. Williams
right on the line below.
- ------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of
Coopers and Lybrand LLP as independent [ ] [ ] [ ]
accountants.
3. In their discretion, the proxy holder is authorized to vote upon such
other business as may properly come before the meeting.
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" PROPOSALS 1 AND 2.
PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN THIS PROXY USING
THE ENCLOSED ENVELOPE.
Signature______________________________ Date ___________
Signature______________________________ Date ___________
