Medco Research, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
AMENDMENT TO APPLICATION OR REPORT
Filed Pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
MEDCO RESEARCH, INC.
(Exact name of registrant as specified in its charter)
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Medco Research, Inc.
The information required by PART III (Items 10, 11, 12 and 13) of
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 was
incorporated by reference from the Registrant's definitive proxy statement to be
filed pursuant to Regulation 14A. However, the Registrant's definitive proxy
statement will not be filed with the Commission within the prescribed 120-day
period after the end of the fiscal year covered by such Form 10-K. Therefore the
Items comprising the PART III information hereby are filed as an amendment to
the Registrant's Form 10-K for the year ended December 31, 1997.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Board of Directors
The following persons currently are directors of the Company:
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
The following biographical information is furnished with respect to the
seven directors:
Albert D. Angel, age 60, 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 Chairman of the Board of Directors of
Axonyx, Inc., a private 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 health
care business consultant. He currently serves on the board of Vysis, Inc., a
public genomic diagnostic research 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 67, 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
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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, the American College of Cardiology, and the American Association for
the Advancement of Science.
Marvin S. Hausman, M.D., age 56, 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., President/CEO of
Axonyx, 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.
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 51, joined the Company as a Director in May 1996.
Mr. Hirsch is currently a consultant to the Biotech Industry. From December 1996
to June 1997, Mr. Hirsch was the Chief Executive Officer and President of
RedCell, Inc. From May 1996 to December 1996, he was Executive Vice President
and Chief Financial Officer of RedCell, 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. From 1969 to
1985, Mr. Hirsch held several positions with American Hospital Supply
Corporation, including Vice President of American's Hospital Sector. 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., DBT Online 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 54, 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
Director of Vysis, Inc., a public genomic diagnostic research company. 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 of the Board of Directors
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 took action on one occasion
by written consent during the year ended December 31, 1997.
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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 one meeting during the year ended December 31, 1997.
The Corporate Governance Committee 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 Company.
In making its recommendations, the Corporate Governance Committee will consider
as potential nominees persons recommended by the Company's shareholders.
During the year ended December 31, 1997, the Board of Directors met on
four occasions. 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.
Executive Officers
The following persons currently are executive officers of the Company:
Roger D. Blevins, Pharm. D., age 42, is the President and Chief
Executive 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 and was appointed Chief Executive Officer in February 1998.
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 47, 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 executive 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, 1997, 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 open market sale of
non-derivative securities during December 1997.
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ITEM 11. 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 90% on the Company's achievement of its
corporate objectives and 10% based on the Committee's evaluation of the
participant's achievement during the year of his or her individual objectives.
Employment Contracts; Termination Of Employment And Change-In-Control
Arrangements
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 which is subject to annual merit adjustments, 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.
The Company's policy provides benefits to the named executive officers
in the event of a "change-in-control" of the Company. The term
"Change-in-Control" generally is defined to mean: (i) the acquisition (including
as a result of a merger) by any person or persons acting in concert of
beneficial ownership, directly or indirectly, of securities of the Company
representing more than 33% of the combined voting power of the then outstanding
voting securities of the Company; or (ii) the failure of the individuals who, as
of February 6, 1998 constituted the Board of Directors of the Company (the
"Incumbent Board"), or thereafter were nominated for election to the Board of
Directors by the vote of at least two-thirds of the directors then comprising
the Incumbent Board, to constitute at least a majority of the Board of Directors
subsequent to such date. In the event of a "change-in-control", the Company (1)
in accordance with its then prevailing payroll practices, shall continue to pay
their prevailing annual base salary and an amount equal to the average of the
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annual cash performance bonus the Company paid to the executive officers in the
preceding three years, for 2.99 years, (2) shall continue to provide for their
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 they obtain
employment which provides reasonable similar health and medical coverage and (3)
shall provide full outplacement services for 12 months; provided, however, that
they shall have the option to receive the gross amount of the amounts payable to
them on account of their 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 their participation in and coverage under the Benefit
Plans, and their entitlement to outplacement services, each shall terminate. The
Company also has agreed to pay Mr. Andrews an amount equal to the difference
between $14.25 and the closing price of the Company's Common Stock on the day
any "change-in-control" occurs, multiplied by 30,000.
The Company's policy in the event of the named executive officers'
discharge without cause is as follows: "Discharge without cause" is defined as
the termination of the employment of the named executive officers without "due
cause", any material reduction in their duties or authority or a more than 30%
reduction in their annual base salary from that for the immediately preceding
fiscal year. The term "due cause" is defined as the named executive officers'
material breach of any of the terms of their agreements with the Company,
willful gross negligence in carrying out their 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 officers' annual base
salary for 12 months and to provide for their participation in the Benefit Plans
until they obtain employment which provides reasonably similar health and
medical coverage. The Company also shall provide such officers full outplacement
services for 12 months. In respect of the year of such discharge, they also
shall be entitled to receive, pro rated based on the number of completed months
of service during the year of discharge, their cash bonus and the discretionary
performance-based options they earned, in each case as determined by the
Compensation Committee using the performance level of such officers and the
Company for the prior year as their respective performance levels for the year
of discharge.
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<TABLE>
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 $100,000 (the
"named executive officer").
SUMMARY COMPENSATION TABLE
Annual Compensation
<CAPTION>
Long-Term
Bonus Other Compensation
Earned Annual Securities Underlying All Other
Name & Principal Position Year Salary ($) ($)(1) Compensation ($) Options/SAR's (#) Compensation ($)
- -------------------------- ---- ---------- ------ ---------------- ----------------- ----------------
<S> <C>
Roger D. Blevins, Pharm. D. 1997 230,000 69,902 -- 95,000(2) --
President & Chief Executive 1996 230,000 70,003 -- 185,000(3) --
Officer 1995 180,826 34,266 -- 80,000(4) --
Glenn C. Andrews, CFA 1997 156,000 41,340 -- 69,500(5) --
Vice President, Finance 1996 75,000(6) 22,239 -- 40,000(7)
& Administration and Chief
Financial Officer
</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 45,000 shares associated
with the 1997 annual grant dated February 10, 1997 and 50,000 shares
associated with the 1998 annual grant dated November 12 1997.
(3) 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.
(4) 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.
(5) The options granted to Mr. Andrews consisted of 39,500 shares associated
with the 1997 annual grant dated February 10, 1997 and 30,000 shares
associated with the 1998 annual grant dated November 12, 1997.
(6) Mr. Andrews joined the Company as Chief Financial Officer July 1, 1996 with
an annual base salary of $150,000.
(7) The options granted to Mr. Andrews of 40,000 shares was associated with
joining the Company July 1, 1996.
Stock Option Plans And Stock Option Grants And Exercises In 1997
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
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to purchase shares of Common Stock to directors, officers, significant employees
of the Company 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 to immediate family members and trusts created for
their benefit, charitable organizations, and by will or the laws of descent and
distribution. Options generally must be exercised three months after the
termination of the optionee's association with the Company, except in certain
cases such as 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, by
broker-assisted cashless exercises 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.
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 following table sets forth information regarding the number of
stock options that were granted during the calendar year ended December 31, 1997
to the named executive officers. In addition, in accordance with the rules of
the Commission, the table shows the alternative grant date valuation for option
grants in 1997.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs Exercise Grant
Underlying Granted to or Base Date
Options/SARs Employees in Price Present
Name Granted (#)(1) Fiscal Year ($/Sh) Expiration Date Value (2)
- ---- -------------- ----------- ------ --------------- ---------
<S> <C>
Roger D. Blevins..... 45,000 12% 12.88 02/10/07 248,620
Roger D. Blevins..... 50,000 13% 15.75 11/12/07 337,930
Glenn C. Andrews..... 39,500 10% 12.88 02/10/07 218,233
Glenn C. Andrews..... 30,000 8% 15.75 11/12/07 202,758
</TABLE>
(1) For 1997 annual option grants, granted February 10, 1997, 50% of the
options awarded vest on and after the first anniversary of the grant date,
and the remaining 50% vest on and after the second anniversary of the grant
date. For 1998 annual option grants, granted November 11, 1997, 25% of the
options awarded vest on and after the first anniversary date of the grant,
25% vest on and after the second anniversary date of the grant, 25% vest on
and after the third anniversary of the grant date, and the remaining 25%
vest on and after the fourth anniversary of the grant date.
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(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 1997: dividend yield of zero; expected volatility of 37%;
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, 1997.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND OPTION/SAR VALUES AT DECEMBER 31, 1997
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the-Money
Acquired on Value Options/SARs at Options/SARs at
Exercise Realized Fiscal Year-End Fiscal Year-End ($)(2)
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- --- ------ ----------- ------------- ----------- -------------
<S> <C>
Roger D. Blevins..... -- -- 121,400 258,600 208,550 825,825
Glenn C. Andrews..... -- -- 40,000 69,500 167,500 44,438
</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, 1997
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 the first four years of service.
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Report of the Compensation Committee for 1997 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 1997
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 10% on each executive's performance of his or her own set of individual
objectives and 90% on the Company's achievement of its corporate objectives, 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
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 1997 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
corporate objectives, and it also recognizes meaningful differences in
individual performance and offers the opportunity to earn rewards when merited
by individual performance.
For 1997 the Board of Directors determined that the Company's corporate
objectives were 80% achieved, and the Compensation Committee determined that
achievement of individual objectives ranged from 114% to 150%.
The policies with respect to each of these elements, as well as the
basis for determining the 1997 compensation of the Company's President and Chief
Executive Officer, Dr. Blevins, are described below.
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(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 percentage of base salary is 35% for the Chief Executive
Officer and 30% for other executive officers. These bonus percentages were
consistent with the information provided in the Comparative Study. Ninety
percent (90%) of the bonus is based on the Company's achievement of its
corporate objectives, and 10% of the bonus is awarded based on the Committee's
evaluation of the officer's achievement during the year of his or her individual
objectives. The Committee allows up to a maximum of 125% of the named executive
officer's bonus to be awarded based on over-achievement of corporate and
individual objectives; however, no bonus shall be awarded in respect of the
achievement of corporate and individual objectives unless at least 67% or 80%,
respectively, of the corporate or individual objectives is achieved. All
objectives were approved by the President of the Company except that the Chief
Executive Officer'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 Chief Executive Officer and other
executives. 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 1997 and 1998
option grants, the Committee considered such events and factors which occurred
during the year and took into account the accomplishment of corporate and
individual objectives. For 1997 annual option grants, granted February 10, 1997,
50% of the options awarded vest on the first anniversary of the grant date, and
the remaining 50% vest on the second anniversary of the grant date. For 1998
annual option grants, granted November 11, 1997, 25% of the options awarded vest
on the first anniversary date of the grant, 25% vest on the second anniversary
date of the grant, 25% vest on the third anniversary of the grant date, and the
remaining 25% vest on the fourth anniversary of the grant date. The Committee
allows up to a maximum of 125% of the named executive officers' option grant to
be awarded based on over-achievement of corporate and individual objectives;
however, no option grant shall be awarded in respect of the achievement of
corporate and individual objectives unless at least 67% or 80%, respectively, of
the corporate or individual objectives is achieved. 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.
The Committee set the 1997 annual and long-term compensation for Dr.
Blevins near the median of the range paid by comparable companies. Effective
September 26, 1997, his annual salary was adjusted to $241,500, and in February
1997 he received a 1997 annual option grant of 45,000 shares which are to be
earned and vested as described above. The Committee determined that for 1997 Dr.
Blevins was entitled to 86% of his bonus potential of up to 35% of base salary,
based 90% on the Company's 80% achievement of its corporate objectives and 10%
on Dr. Blevins' 114% achievement of his individual objectives: (1) increasing
shareholder value; (2) providing for commercialization of products; and (3)
acquisition of adenosine-based technology.
11 of 17
<PAGE>
Medco Research, Inc.
The Compensation Committee of the Board of Directors
Albert D. Angel, Chairman
Jay N. Cohn, M.D.
Marvin S. Hausman, M.D.
Compensation of Directors
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. In
order to attract experienced individuals, pursuant to the Company's stock option
plans persons initially elected to the Company's Board of Directors who are not
full-time employees of the Company automatically are granted an option to
purchase 20,000 shares of the Company's Common Stock, and upon each re-election
as a director at the Annual Meeting of Shareholders, directors automatically are
granted an option to purchase 3,000 shares of the Company's Common Stock. All
such director options have a term of 10 years, 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.
In October 1996 the Company changed its option grant policy by
increasing the term of new option grants to directors and employees from four to
ten years. Accordingly, in order to extend the benefits of such policy to the
current directors whose initial option grant had a term of four years and have
expired, on November 12, 1997 the Board granted to Eugene L. Step and William B.
Bartlett a ten-year option to purchase 20,000 and 10,000 shares of Common Stock,
respectively, at a price of $15.75, the closing price of the Company's Common
Stock on the American Stock Exchange on the trading date of grant. The expired
initial election options granted to Messrs. Step and Bartlett had exercise
prices of $16.5625 and $12.875, respectively. On November 12, 1997, the Company
also granted Mr. Bartlett a ten-year option to purchase 10,000 shares of Common
Stock at $15.75 in consideration of consulting services rendered.
Mr. Richard C. Williams, Chairman of the Board, continued to provide
consulting services to the Company during 1997 pursuant to a consulting
agreement which commenced December 1, 1994. For his consulting services in 1997
on, among other things, the Company's potential acquisitions, its then pending
litigations and its financial public relations, the Company paid Mr. Williams
$144,000 as well as related travel expenses.
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<PAGE>
Medco Research, Inc.
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. The
Industry Peer Index comprises of the 45 U.S. pharmaceutical and biotechnological
companies listed below, with 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. The investment comparisons assume the base
year (1992) 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 1993, 1994, 1995, 1996 and 1997 calendar years.
<TABLE>
INDEXED CUMULATIVE RETURNS
<CAPTION>
<S> <C>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Medco Research, Inc.......................................... 100 88.97 66.91 61.03 61.76 82.35
Industry Peer Index (1)...................................... 100 78.41 39.90 77.85 83.23 82.48
S&P 500 Index................................................ 100 110.08 111.54 153.45 188.69 251.64
</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., Sano Corp.,
Sciclone Pharmaceuticals Inc., Shaman Pharmaceuticals Inc., Sonus
Pharmaceuticals Inc., T Cell Sciences Inc., Technical Chemicals & Products,
Techniclone Corp., and Theragenics Corp.
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<PAGE>
Medco Research, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
Security Ownership Of Management And Others
The following table sets forth as of April 20, 1998 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, 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>
<S> <C>
Number of Shares Percent of
Name And Address Beneficially Owned Common Stock
- ---------------- ------------------ ------------
State of Wisconsin........................................... 1,000,000 9.49
Investment Board
P.O. Box 7842
Madison, Wisconsin 53707
G. W. Capital, Inc........................................... 607,900 5.77
10900 N.E. 8th Street
Suite 235
Bellevue, Washington 98004
Glenn C. Andrews............................................. 60,750 (1) *
Roger D. Blevins, Pharm.D.................................... 203,532 (2) 1.93
Albert D. Angel.............................................. 26,500 (3) *
William M. Bartlett.......................................... 10,120 (4) *
Jay N. Cohn, M.D............................................. 23,000 (5) *
Marvin S. Hausman, M.D....................................... 107,347 (6) 1.02
Mark B. Hirsch............................................... 23,000 (7) *
Eugene L. Step............................................... 9,000 (8) *
Richard C. Williams.......................................... 123,100 (9) 1.17
All Directors and Executive Officers of the Company
as a Group (nine persons).................................... 586,349 (10) 5.56
</TABLE>
(1) Includes 59,750 shares subject to currently exercisable options held by Mr.
Andrews.
(2) Includes 172,175 shares subject to currently exercisable options held by
Dr. Blevins.
(3) Includes 26,000 shares subject to currently exercisable options held by Mr.
Angel.
(4) Includes 9,000 shares subject to currently exercisable options held by Mr.
Bartlett.
(5) Includes 23,000 shares subject to currently exercisable options held by Dr.
Cohn.
(6) Includes 23,000 shares subject to currently exercisable options held by Dr.
Hausman.
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Medco Research, Inc.
(7) Includes 23,000 shares subject to currently exercisable options held by Mr.
Hirsch.
(8) Includes 9,000 shares subject to currently exercisable options held by Mr.
Step.
(9) Includes 9,000 shares subject to currently exercisable options held by Mr.
Williams.
(10) Includes an aggregate of 353,925 shares subject to currently exercisable
options held by executive officers and directors of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 11, "Executive Compensation - Compensation of Directors" , for
a discussion of the Company's Consulting Agreement with its Chairman of the
Board.
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<PAGE>
Medco Research, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEDCO RESEARCH, INC.
By: /s/ Roger D. Blevins
--------------------------------
Roger D. Blevins, Pharm. D.,
President and Chief Executive
Officer
Date: April 30, 1998
By: /s/ Glenn C. Andrews
--------------------------------
Glenn C. Andrews
Vice President, Finance and
Administration and Chief
Financial Officer
Date: April 30, 1998
By: /s/ Adam C. Derbyshire
--------------------------------
Adam C. Derbyshire
Corporate Controller and
Secretary
Date: April 30, 1998
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ Richard C. Williams Date: April 30, 1998
-----------------------------------
Richard C. Williams,
Chairman of the Board
By: /s/ Albert D. Angel Date: April 30, 1998
-----------------------------------
Albert D. Angel, Director
By: /s/ William M. Bartlett Date: April 30, 1998
-----------------------------------
William M. Bartlett, Director
By: /s/ Jay N. Cohn, M.D. Date: April 30, 1998
-----------------------------------
Jay N. Cohn, M.D., Director
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<PAGE>
Medco Research, Inc.
By: /s/ Marvin S. Hausman, M.D. Date: April 30, 1998
-----------------------------------
Marvin S. Hausman, M.D., Director
By: /s/ Mark B. Hirsch Date: April 30, 1998
-----------------------------------
Mark B. Hirsch, Director
By: /s/ Eugene L. Step Date: April 30, 1998
-----------------------------------
Eugene L. Step, Director
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