<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 240.14a-11(c) or 240.14a-12
TSENG LABS, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
Tseng Labs, Inc.
6 Terry Drive
Newtown, Pennsylvania 18940
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held December 22, 1997
To the Shareholders of Tseng Labs, Inc.:
Notice is hereby given that the 1997 Annual Meeting of Shareholders of Tseng
Labs, Inc. (the "Company") will be held at the Hotel DuPont, 11th and Market
Streets, Wilmington, Delaware 19801, on December 22, 1997 at 10:00 A.M. Eastern
Standard Time, for the following purposes:
(1) To elect five members of the Board of Directors to serve for the
ensuing year and until their respective successors have been duly
elected and qualified.
(2) To vote on a proposal to amend and restate the 1991 Special Directors
Stock Option Plan to (i) increase the number of eligible shares by
100,000, (ii) permit the Board of Directors to modify the number of
shares subject to automatic grants under the plan, (iii) permit the
Board of Directors to make other grants to non-employee directors,
(iv) grant the Board flexibility with respect to vesting and
acceleration of vesting of outstanding options, (v) allow options to
be exercised through a broker, (vi) modify vesting and termination
provisions in the event of a change of control and (vii) make
clarifying changes and changes to correspond to recent modifications
to Rule 16b-3 of the Securities Act of 1934, as amended.
(3) To ratify the appointment of Arthur Andersen LLP as independent
public accountants to audit the financial statements of the Company
for 1997, and
(4) To act upon such other matters that may properly be presented at the
Meeting or any adjournment or postponement thereof.
The close of business on November 7, 1997 has been fixed as the record date for
the meeting. Only shareholders of record at that time are entitled to notice of
and to vote at the meeting or any adjournment thereof. A complete list of
shareholders entitled to vote will be open for examination by any shareholder
during the period before the meeting, beginning two business days after the
date of this notice, at the office of the Secretary, 6 Terry Drive, Newtown,
Pennsylvania.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the attached proxy statement for further information with
respect to the business to be conducted at the meeting. The Board of Directors
urges you to sign, date and return promptly the enclosed form of proxy. The
return of the enclosed proxy will not affect your right to vote in person if
you do attend the Meeting.
Newtown, Pennsylvania By Order of the Board of Directors
November 18, 1997
Barbara J. Hawkins
Secretary
ALL SHAREHOLDERS ARE EARNESTLY REQUESTED TO FILL IN AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE.
<PAGE>
Tseng Labs, Inc.
6 Terry Drive
Newtown, Pennsylvania 18940
PROXY STATEMENT
This Proxy Statement is furnished to the holders of Common Stock (the "Common
Stock") of Tseng Labs, Inc. (the "Company"), a Utah corporation, in connection
with the solicitation of proxies by the Company's Board of Directors for use at
the 1997 Annual Meeting of Shareholders (the "Meeting") to be held at the Hotel
DuPont, 11th and Market Streets, Wilmington, Delaware, on December 22, 1997 at
10:00 A.M., Eastern Standard Time, and at any adjournment or postponement
thereof.
This Proxy Statement, the foregoing notice and the enclosed proxy are being
sent to shareholders on or about November 18, 1997. The shareholders of record
at the close of business on November 7, 1997 (the "Record Date") are entitled
to notice of, and to vote at the Meeting.
If the enclosed proxy is properly executed and returned in time for voting, the
shares of Common Stock represented thereby will be voted as indicated in such
proxy. In the absence of instructions, proxies will be voted FOR the election
of the nominees of the Board of Directors, FOR the proposal to amend and
restate the 1991 Special Directors Stock Option Plan and FOR ratification of
the appointment of Arthur Andersen LLP as the Company's independent public
accountants to audit the financial statements of the Company for 1997. Proxies
will extend to, and will be voted at, any adjourned or postponed session of the
Meeting. The Board of Directors is not aware of any matters to come before the
Meeting other than those described in this Proxy Statement. If any other
matters properly come before the Meeting, the persons named in the enclosed
proxy will vote such proxy in accordance with their judgment with respect to
such matters. At any time before a proxy is exercised, a proxy may be revoked
by a shareholder by delivering a duly executed proxy bearing a later date, by
notice to the Secretary of the Company in writing at the address set forth
above or by voting by ballot at the Meeting.
VOTING SECURITIES AND SECURITY OWNERSHIP
General
On November 7, 1997, there were outstanding 19,084,337 shares of Common Stock,
$.005 par value (the "Common Stock"), which constitutes the only class of
voting securities of the Company. Holders of Common Stock are entitled to one
vote per share, exercisable in person or by proxy, at all meetings of the
shareholders. The presence, in person or by proxy, of the holders of a majority
of the outstanding shares of Common Stock of the Company will constitute a
quorum for the transaction of business at the Meeting.
Directors are elected by a plurality of votes cast. Generally, under Utah law,
action on a matter other than the election of directors is approved if the
votes cast on the matter favoring the action exceed the votes cast opposing the
action. Accordingly, abstentions will have no effect on the vote. In addition,
where brokers are prohibited from exercising discretionary authority in voting
shares for beneficial owners who have not provided voting instructions
(commonly referred to as "broker non-votes"), those shares will not be included
in the vote totals.
<PAGE>
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of November 7, 1997, as
to shares of the Company's Common Stock beneficially owned by: (i) each
shareholder known to beneficially own more than 5% of the Company's Common
Stock, (ii) each director, (iii) each of the Company's executive officers named
in the Summary Compensation Table, included below under "Executive
Compensation," and (iv) all directors and executive officers of the Company as
a group. Except as otherwise noted, each person named below, either alone or
together with such person's family, had sole voting power and investment power
with respect to the shares listed next to such person's name.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name of Beneficial Owner (1) Beneficially Owned Common Stock
- ----------------------------------- ------------------------------- -------------
<S> <C> <C>
John J. Gibbons .................. 162,512 (2) *
David Kwok Ping Hui ............... 175,123 (3) *
Mark H. Karsch .................. 160,914 (4) *
Christopher F. Sutphin ............ 60,000 (5) *
Mark Dorfman ..................... 14,000 (6) *
Directors and executive officers as
a group (8 persons) ............ 795,549 (7) 4.0%
Jack Tseng ........................ 5,532,424 (8) 27.6%
</TABLE>
- ------------
* less than 1%
(1) The address for all persons listed in this table, with the exception of Mr.
Tseng, is c/o Tseng Labs, Inc., 6 Terry Drive, Newtown, Pennsylvania
18940. The address for Mr. Tseng is 6029 Atkinson Road, New Hope,
Pennsylvania 18938.
(2) Includes 162,500 shares underlying options exercisable within 60 days of
November 7, 1997.
(3) Includes 175,123 shares underlying options exercisable within 60 days of
November 7, 1997.
(4) Includes 160,714 shares underlying options exercisable within 60 days of
November 7, 1997.
(5) Includes 50,000 shares underlying options exercisable within 60 days of
November 7, 1997.
(6) Includes 10,000 shares underlying options exercisable within 60 days of
November 7, 1997.
(7) Includes a total of 781,337 shares underlying options either currently
exercisable or exercisable within 60 days of November 7, 1997. All
directors and officers as a group owned an aggregate of 14,212 shares of
Common Stock.
(8) Shares are owned by Mr. Tseng and his wife as joint tenants. Includes
1,140,000 shares owned by Mr. and Mrs. Tseng's minor children, as to which
Mr. and Mrs. Tseng disclaim beneficial ownership. Includes 153,612 shares
issuable upon exercise of options within 60 days of November 7, 1997 which
were granted to Mr. Tseng while he was the Company's President. Mr. Tseng
resigned as the Company's President and as a Director of the Company
effective October 31, 1997. Pursuant to a severance agreement, Mr. Tseng
has agreed to vote his shares in accordance with the terms specified in
the severance agreement. See "Termination Agreements".
2
<PAGE>
ELECTION OF DIRECTORS
Nominees for Election
At the Meeting, the shareholders will elect five directors to hold office until
the Annual Meeting of Shareholders in 1998 and until their respective
successors are duly elected and qualified. Unless contrary instructions are
given, the shares represented by a properly executed proxy will be voted FOR
the election of the following nominees: John J. Gibbons, David Kwok Ping Hui,
Mark H. Karsch, Christopher F. Sutphin and Mark Dorfman. All of the nominees
are currently members of the Board of Directors of the Company.
The Board of Directors believes that all the nominees will be able to serve as
directors. If any nominee is unable to serve, the persons named in the enclosed
proxy will vote the share they represent FOR the election of such other persons
as the Board of Directors may recommend, unless the Board of Directors reduces
the number of directors.
Set forth below is certain information concerning the nominees for election as
directors:
<TABLE>
<CAPTION>
Director
Name Age Since Positions with the Company
- --------------------------------------- ----- --------- ---------------------------------------
<S> <C> <C> <C>
John J. Gibbons(3) .................. 59 1983 President, Chief Executive Officer
and Director
David Kwok Ping Hui .................. 49 1991 Executive Vice President, Technology
Officer and Director
Mark H. Karsch ........................ 41 1991 Senior Vice President, Chief Financial
Officer and Director
Christopher F. Sutphin(1)(2)(3) ...... 61 1991 Director
Mark Dorfman(1)(2)(3) ............... 54 1996 Director
</TABLE>
- ------------
(1) Member of Stock Option Committee
(2) Member of Audit Committee
(3) Member of Executive Compensation Committee
Set forth below is information regarding the nominees for election as
directors.
Mr. Gibbons has been the Company's President and Chief Executive Officer since
November 1997. From December 1996 until November 1997 Mr. Gibbons was Executive
Vice President and Chief Operating Officer. From January 1996 to November 1996,
Mr. Gibbons served as a consultant to the Company. Mr. Gibbons served as the
Company's Chief Financial Officer from January 1989 to May 1991, and as a Vice
Chairman from May 1991 to December 1995. Mr. Gibbons has been a director of the
Company since 1983.
David Kwok Ping Hui has been the Company's Executive Vice President and
Technology Officer since December 1995. Mr. Hui joined the Company in 1983 and
had been an Executive Vice President of the Company from May 1991 to December
1995, prior to which he was Senior Vice President responsible for Operations.
Mr. Hui also serves on the Board of Directors of Telan Corporation.
Mark H. Karsch has been the Company's Senior Vice President and Chief Financial
Officer since December 1995. Mr. Karsch joined the Company in May 1991 as
Senior Vice President, Finance and Administration. Prior to joining the
Company, Mr. Karsch was a senior manager at Arthur Andersen LLP. Mr. Karsch had
been with Arthur Andersen LLP since 1978.
Christopher F. Sutphin is President of C B Associates, which is engaged in
consulting, venture capital, and real estate activities. Mr. Sutphin was a Vice
President of General Instrument from June 1987 to June 1990, and President of
its Power Semiconductor Division from June 1987 to September 1990. Prior to
that time, Mr. Sutphin was Senior Vice President of General Instrument's
Components Group.
Mark Dorfman has been Director of Financial Management of Allegheny Health
Education and Research Foundation since February 1996. From October 1994 to
January 1996, Mr. Dorfman was President of Mark Dorfman & Company, which was
engaged in consulting and acquisition-related activities. Mr. Dorfman was
President of Quantum Development Corporation from February to September 1994.
Prior to joining Quantum
3
<PAGE>
Development Corporation, Mr. Dorfman had been the Chief Operating Officer and
Chief Financial Officer of Robec, Inc., a publicly-traded corporation, since
January 1993, and had been the Vice President - Finance since December 1987.
Mr. Dorfman had served on the Board of Directors of Tseng from July 1991 to
August 1996 and rejoined the Board in February 1997.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Stock Option Committee, Executive Compensation
Committee and Audit Committee. The Stock Option Committee and Audit Committee
are comprised entirely of disinterested, non-employee directors. The Board does
not have a nominating committee. The Board of Directors held five meeting
during 1996.
The Stock Option Committee is currently comprised of Messrs. Sutphin and
Dorfman. The Stock Option Committee administers the Company's Stock Option
Plans. The Stock Option Committee held three meetings in 1996 and also acted by
unanimous consent in writing. Mr. Dorfman rejoined the committee in February
1997. Mr. Hollis Caswell served on the Committee with Mr. Sutphin from August
1996 until January 1997.
The Executive Compensation Committee currently consists of Messrs. Sutphin,
Dorfman and Gibbons. The Executive Compensation Committee approves the
Company's compensation and bonus programs for executive officers of the
Company. The Executive Compensation Committee held two meetings and also acted
by unanimous consent in writing during 1996. Mr. Gibbons replaced Mr. Vigna on
the Committee in December 1996 and Mr. Dorfman replaced Mr. Caswell in February
1997.
The Audit Committee, which currently consists of Messrs. Sutphin and Dorfman
was established to review, in connection with the independent auditors, the
Company's financial statements, accounting and other policies, accounting
systems and system of internal control. The Audit Committee held three meetings
during 1996. Mr. Dorfman replaced Mr. Caswell on the Committee in February
1997.
COMPENSATION OF DIRECTORS
Directors who are not employees or consultants to the Company received $5,000
per quarter for meetings attended plus reimbursement for out-of-pocket
expenses. The Company also has a stock option plan for non-employee directors
("Directors Plan") under which the outside directors are granted options to
purchase Common Stock at an exercise price of 100% of the fair market value of
the stock on the date of grant. Directors receive options to purchase 20,000
options after each ensuing two years of service on the Board. The options vest
50% on the date of grant and 50% on the first anniversary of the date of grant.
At December 31, 1996, 127,500 options were outstanding under the plan at an
average exercise price of $10.33 per share. There were no options exercised in
1996, 1995 or 1994 by outside directors.
During 1996, Mr. Gibbons received $76,928 of consulting fees pursuant to a
consulting agreement for 1996 which was in place prior to Mr. Gibbons rejoining
the Company as Executive Vice President and Chief Operating Officer in December
1996. The consulting agreement terminated upon Mr. Gibbons' re-commencement of
employment with the Company.
4
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION TABLE
The following table summarizes all compensation paid to the Company's former
Chief Executive Officer and to each of the Company's most highly compensated
current or former executive officers for services rendered in all capacities to
the Company during the fiscal 1996, 1995 and 1994, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------- -------------
Name and All Other
Principal Position Year Salary Bonus(2) Options Compensation (1)(3)(4)(5)(6)
- -------------------------- ------ ---------- ---------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C>
Jack Tseng 1996 $246,635 -- 75,000 $ 76,497
President 1995 $296,085 $71,005 150,000 $ 78,339
1994 $206,145 $20,225 -- $ 91,412
John J. Gibbons 1996 $ 15,984 -- 10,000 $ 77,187
Executive Vice 1995 $116,249 $ 4,625 80,000 $ 3,234
President 1994 $112,200 $14,925 -- $ 9,272
John A. Vigna 1996 $164,567 -- 78,000 $ 18,173
Executive Vice
President
David Kwok Ping Hui 1996 $171,658 -- 55,000 $ 3,334
Executive Vice 1995 $169,768 $ 6,100 90,000 $ 3,234
President 1994 $159,135 $19,925 -- $ 11,840
Mark H. Karsch 1996 $126,237 -- 45,000 $ 3,334
Senior Vice President, 1995 $121,258 $ 4,625 60,000 $ 3,234
Chief Financial Officer 1994 $116,952 $14,925 -- $ 9,499
Barbara J. Hawkins 1996 $137,067 -- 45,000 $ 3,334
Vice President, Chief 1995 $127,321 $ 6,100 90,000 $ 3,234
Administrative Officer 1994 $123,604 $19,925 -- $ 9,821
</TABLE>
- ------------
(1) Represents amounts contributed by the Company for such executives under
the Company's 401(k) Profit Sharing Plan.
(2) Pursuant to a study undertook by the Executive Compensation Committee
completed during 1995, the base salary of Mr. Tseng was increased
retroactive to January 1, 1994 to $250,000 and an additional bonus of
$71,005 was awarded for 1994. These awards are included above in Mr.
Tseng's 1995 salary and bonus, respectively.
(3) Mr. Tseng's "Other Compensation" includes the present value of the
interest free use of loans to fund a split dollar insurance policy of
$73,163, $75,105 and $76,897 in 1996, 1995 and 1994, respectively, through
Mr. Tseng's assumed retirement at age 62 (see "Termination Agreements").
(4) Mr. Gibbons' "Other Compensation" includes $76,928 of consulting fees paid
pursuant to a consulting agreement for 1996 which was in place prior to
Mr. Gibbons rejoining the Company as Executive Vice President and Chief
Operating Officer in December 1996. The consulting agreement terminated
upon Mr. Gibbons re-commencement of employment with the Company.
(5) Mr. Vigna resigned as the Company's Executive Vice President and Chief
Operating Officer effective December 2, 1996. In connection with the
resignation, Mr. Vigna agreed to be available as an advisor to the
Company's Board of Directors for a period of 6 months from the date of his
resignation. Additional compensation payable to Mr. Vigna during this
advisory period was $87,500.
(6) Mr. Tseng resigned as the Company's President and as a Director of the
Company effective October 31, 1997. In connection with this resignation,
Mr. Tseng will receive severance payments for a period of 30 months from
the date of his resignation. Additional compensation payable to Mr. Tseng
during the period will aggregate $625,000.
5
<PAGE>
STOCK OPTIONS
The following tables summarize options granted to, and exercised by, the
Company's former President and to each of the Company's four most highly
compensated current and former executive officers during fiscal 1996, and
the value of the options held by each such person at the end of fiscal
1996.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Rates of Stock Price
Appreciation for Option
Individual Grants Term (4)
------------------------------------------------------------------------ -------------------------
% of Total
Number of Securities Options
underlying Granted Exercise
Options to Employees in Price Expiration
Name Granted (1) Fiscal Year ($/Sh) (2) Date (3) 5% ($) 10% ($)
- --------------------- ---------------------- ----------------- ------------ --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack Tseng 75,000 5.6% $8.75 Aug. 3, 2000 $ 412,712 $ 1,045,893
John J. Gibbons 10,000 .8% $8.75 Jan. 15, 2006 $ 55,028 $ 139,452
20,000 1.5% $9.75 Aug. 19, 2006 $ 125,150 $ 317,155
John A. Vigna 78,000 5.3% $8.75 Feb. 1, 1998 $ 429,000 $ 1,088,100
David Kwok Ping Hui 55,000 4.1% $8.75 Jan. 15, 2006 $ 302,656 $ 766,989
Mark H. Karsch 45,000 3.4% $8.75 Jan. 15, 2006 $ 247,627 $ 627,536
Barbara H. Hawkins 45,000 3.4% $8.75 Jan. 15, 2006 $ 247,627 $ 627,536
</TABLE>
------------
(1) Options granted in fiscal 1996, with the exception of those granted to
Mr. Gibbons, vest in equal annual installments over a three-year period
from the date of grant and become exercisable upon vesting. Mr. Gibbons
options vest in installments over a one-year period.
(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant.
(3) At grant, the options had a term of 10 years, subject to earlier
termination in certain events related to termination of employment.
Pursuant to Mr. Tseng's and Mr. Vigna's separation agreements, the
expiration date on the options granted to these former executive
officers is August 3, 2000 and February 1, 1998, respectively.
(4) The 5% and 10% assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price.
6
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End Fiscal Year-End (1)
Shares --------------------- --------------------
Acquired
on Value Exer- Unexer- Exer- Unexer-
Name Exercise Realized (1) cisable cisable cisable cisable
- --------------------- ---------- -------------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Jack Tseng -- $ -- 150,000 75,000 $ -- $ --
John J. Gibbons -- $ -- 180,000 10,000 $ -- $ --
John A. Vigna -- $ -- 105,000 -- $ -- $ --
David Kwok Ping Hui 20,000 $ 107,500 180,000 55,000 $ -- $ --
Mark H. Karsch 10,000 $ 51,250 165,000 45,000 $ -- $ --
Barbara J. Hawkins -- $ -- 180,000 45,000 $ -- $ --
</TABLE>
- ------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date or year-end, as the case may be, minus the
exercise price.
FISCAL 1997 OPTION REPRICING
On April 2, 1997, the Compensation Committee of the Board of Directors
authorized an option repricing and exchange program concerning certain
outstanding stock options of key employees and executive officers who were
identified as important to the Company's future success in order to provide a
meaningful long-term incentive compensation opportunity in light of recent
trading price for the Company's Common Stock. The repricing program provided
for an exercise price equal to the higher of the closing price of the Company's
stock on the date the repricing program was approved or a future specified date
. The repricing program also provided for a deferred vesting of all repriced
stock options which had been vested on the date the program was approved.
Among the Named Executives, the Compensation Committee authorized Mr. Tseng to
exchange stock options to purchase 225,000 shares of Common Stock at an average
exercise price of $8.17 per share for 197,500 stock options with an average
exercise price of $2.94. Mr. Tseng resigned as the Company's President and as a
Director of the Company effective October 28, 1997. Under the terms of the
separation agreement, 153,612 of Mr. Tseng's options are vested and exercisable
through August 3, 2000 (see "Termination Agreements"). The Compensation
Committee also authorized Mr. Gibbons to exchange stock options to purchase
170,000 shares of Common Stock at an average exercise price of $9.10 per share
for 142,500 stock options with an average exercise price of $2.94 per share,
Mr. Hui to exchange stock options to purchase 235,000 shares of Common Stock at
an average exercise price of $9.04 per share for 207,500 stock options with an
exercise price of $2.94, and Mr. Karsch to exchange stock options to purchase
210,000 shares of Common Stock at an average exercise price of $8.55 per share
for 187,500 stock options with an average exercise price of $2.94. Excluding
Named Executives, the Company permitted key employees to exchange an aggregate
of 255,000 stock options with an average exchange price of $9.05 per share for
an aggregate of 202,500 stock options with an exercise price of $2.94 per
share.
7
<PAGE>
TERMINATION AGREEMENTS
On December 2, 1996, John Vigna resigned his duties as Executive Vice President
and Chief Operating Officer, and also resigned as a director of the Company.
Mr. Vigna agreed to be available as a consultant to the Board of Directors for
a period of six months from the date of his resignation. Mr. Vigna received
additional compensation of $87,500 during this advisory period. The Company
also provided Mr. Vigna the same medical benefits as were available to Company
employees during this period. In addition, the Company agreed that options to
purchase 105,000 shares of the Company Common Stock at an average price of
$8.08 per share held by Mr. Vigna will remain exercisable until February 1,
1998.
On November 11, 1997, Jack Tseng resigned his duties as Chairman of the Board,
President and Chief Executive Officer of the Company effective October 31,
1997. Pursuant to a severance agreement, dated November 11, 1997, between the
Company and Mr. Tseng (the "Severance Agreement") the Company has agreed to
provide a severance payment to Mr. Tseng of $625,000 payable in monthly
installments of $20,833 from November 1997 until May 2000. The Company has also
agreed to provide to Mr. Tseng the same medical benefits as are available to
Company employees. In addition, the Company agreed that options to purchase
153,612 shares of Company Common Stock at a price of $2.9375 per share held by
Mr. Tseng will remain exercisable until August 3, 2000 and forgave
approximately $23,000 of indebtedness due from Mr. Tseng to the Company. In
addition, as of the date of termination, Mr. Tseng owed the Company $504,464
for premium loans made by the Company for Mr. Tseng under a funded split dollar
insurance policy. The amount of the loans may increase to $636,464 if Mr. Tseng
elects to keep this policy in force and Tseng Labs makes the next scheduled
payment. Tseng Labs has a security interest in the policy and its cash value
and expects to collect the full loan balance in January 1998 as provided in the
Severance Agreement either through repayment by Mr. Tseng or exercising its
rights to collect the cash surrender value of the policy, which value exceeds
the outstanding loan balance due from Mr. Tseng.
In addition, under the Severance Agreement, Mr. Tseng has agreed to vote, or
authorize a person designated by the Company's Board of Directors to vote, all
shares of Common Stock of the Company over which Mr. Tseng has voting power as
of the record date of any meeting of shareholders of the Company in proportion
to the votes of all other shareholders of the Company cast at such meeting.
8
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return of the
Company's Common Stock with the Dow Jones Equity Market Index and the Dow Jones
Semiconductor Index. The comparison assumes $100 was invested January 1, 1991
and that all quarterly dividends, if any, were reinvested each quarter. Two
dividends of $.05 per share were paid to holders of the Company's Common Stock
in 1994 and two dividends of $.05 per share were paid to holders of the
Company's Common Stock in 1995. The comparisons in the graph are required by
the Securities and Exchange Commission and are not intended to forecast or be
indicative of possible future performance of the Company's Common Stock.
COMPARATIVE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG TSENG LABS,
Dow Jones Equity Market Index and
Dow Jones Semiconductor Index
800 |-------------------------------------------------------------------------|
| * |
| |
700 |-------------------------------------------------------------------------|
| |
| |
600 |-------------------------------------------------------------------------|
| |
| |
500 |-------------------------------------------------------------------------|
| |
| * |
400 |-------------------------------------------------------------------------|
| |
| |
300 |-------------------------------------------------------------------------|
| |
| * * & |
200 |-------------------------------------------------------------------------|
| * & |
| &@ & & |
100 |*&@----------------------------------------------------------------------|
| @ @ |
| @ @ |
0 |-------------------------------------------------------------------------|
1991 1992 1993 1994 1995 1996
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
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<S> <C> <C> <C> <C> <C> <C>
* Dow Jones Semiconductor Index 100.00 166.11 239.40 257.38 424.15 762.47
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& Dow Jones Equity Market Index 100.00 108.61 119.41 120.33 166.31 205.57
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@ Tseng Labs, Inc. 100.00 102.70 78.04 43.81 70.95 23.65
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9
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REPORT OF EXECUTIVE COMPENSATION AND STOCK
OPTION COMMITTEES ON EXECUTIVE COMPENSATION
The Executive Compensation Committee of the Board of Directors is comprised of
two outside directors and one executive officer of the Company. It is
responsible for reviewing and approving the Company's compensation practices,
executive pay levels, and variable or bonus compensation programs. The role of
the executive officer on the committee is to provide the committee with
competitive information of salaries and compensation packages of other well
managed competitive information technology companies, review individual
executive officer performance, and make recommendations to the committee for
salaries for executive officers other than himself. Competitive compensation
information is gathered from published surveys of high technology company
compensation levels and from proxy statements of particular companies that are
considered comparable to the Company. This group includes fabless semiconductor
companies that are high growth, public entities, profitable and similar in
revenue size to the Company.
The Company's compensation philosophy is to pay for performance. As such, the
Committee believes that total cash compensation should vary with the
performance of the Company and long-term incentives should be used to ensure
the alignment of executive and shareholder interests. Consistent with this
philosophy, the Company provides significant annual incentive opportunities and
utilizes stock options as a long-term incentive vehicle.
It is the Company's policy generally to qualify compensation paid to executive
officers for deductibility under Section 162(m) of the Internal Revenue Code.
Section 162(m) prohibits the Company from deducting compensation of executive
officers unless the compensation is based on the satisfaction of objective
performance goals. Both the Company's Stock Option Plans and the Company's
executive bonus plans described below are intended to meet the requirements of
"performance-based compensation." While it is the Company's policy to qualify
executive compensation under Section 162(m), the Company reserves the
discretion to pay compensation to its executive officers that may not be
deductible.
There are three primary components of executive compensation: Base Salary,
Bonus, and Stock Options.
Base Salary
Base salaries for 1996 reported herein were determined by the Executive
Compensation Committee. Base salaries for fiscal 1996 reported herein for
executive officers other than the President and chief executive officer were
established in January 1996, based upon individual executive officer
performance, overall Company performance and review of compensation practices
of executives in other fabless semiconductor companies. The Executive
Compensation Committee independently determines the base salary for the
Company's President by (a) examining the Company's performance against its
present revenues and earnings goals, (b) examining the Company's performance
within the graphics industry, (c) evaluating the overall performance of the
President, and (d) comparing the base salary of the President to that of other
chief executive officers of other fabless semiconductor companies.
Bonus
The Executive Committee, and the Board of Directors as a whole, has maintained
the philosophy that the compensation of executive officers, specifically that
of both the President and the Company's Chief Operating Officer (COO), should
be contingent on the financial performance of the Company. The bonus plan
provides that the bonus paid to these executive officers is directly related to
the achievement of predetermined earnings per share (EPS) targets. No bonus was
paid to these executives in 1996 as the Company did not meet its EPS targets.
Executive officers other than the President and Chief Operating Officer
participate in a plan which establishes bonus guidelines and ties the bonus
payments to both the achievement of predetermined EPS targets and to the
individual achievement of the pre-established operational and departmental
goals for each executive. There were no bonus paid to eligible executive
officers as the Company did not meet minimum predetermined EPS goals.
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Stock Options
The Company has a Stock Option Committee (the "Committee"), consisting of two
outside directors, who administer the Company's stock option plans. The
Committee periodically grants options to executive officers with an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant. The number of shares subject to each option grant is based on the
employee's current and anticipated future performance and ability to affect
achievement of strategic goals and objectives. The grants are intended to
retain and motivate the executives and to provide a direct link with the
interests of the shareholders of the Company. The Committee, in making its
determination as to grant levels, evaluates a number of factors including (i)
potential contributions of the executive to the long-term success for the
Company, (ii) prior award levels, (iii) total grants received to date by
individual executives, and (vi) total options to be granted and the executive's
participation in the award. The 1995 Stock Option Plan limits the total number
of shares that may be granted to any participant in any calendar year to
300,000.
This report is submitted by the members of the Executive Compensation and Stock
Option Committees.
Executive Compensation Committee Stock Option Committee
- ---------------------------------- -----------------------
John J. Gibbons Mark Dorfman
Mark Dorfman Christopher F. Sutphin
Christopher F. Sutphin
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company's Chief Operating Officer (formerly Mr. John A. Vigna
and currently Mr. John J. Gibbons, who succeeded Mr. Vigna as Chief Operating
Officer in December 1996) was a member of the Executive Compensation Committee
and, as a result, participated in deliberations of the Executive Compensation
Committee concerning executive compensation, other than deliberations
concerning his own compensation.
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APPROVAL OF AMENDMENT AND RESTATEMENT
OF 1991 SPECIAL DIRECTORS STOCK OPTON PLAN
To vote upon a proposal to amend and restate the 1991 Special Directors Stock
Option Plan (the "Plan") (i) to increase the number of shares authorized to be
issued under the Plan from 200,000 shares to 300,000 shares, (ii) to permit the
Board of Directors (the "Board") to increase or decrease the number of shares
for which automatic option grants are made under the Plan, (iii) to permit the
Board to make other grants of options to non-employee directors, (iv) to permit
the Board to grant options with varying vesting provisions and to accelerate
the vesting of options, (v) to allow options to be exercised through a broker,
(vi) to provide that, in the event of a change of control, options will be
fully exercisable, unless the Board determines otherwise, and allows the Board
to take such other actions as it deems appropriate with respect to outstanding
options, and (vii) to make clarifying changes and changes to correspond to
recent modifications of Rule 16b-3 under the Securities Exchange Act of 1934,
as amended.
The Plan is intended to encourage non-employee directors to serve on the Board
and to devote their efforts to the Company's success. The Plan is administered
by the Board. All directors of the Company who are not employees of the Company
are eligible to receive options under the Plan. As of November 7, 1997, two
non-employee directors were eligible to receive options under the Plan, and
options for 100,000 shares were outstanding under the Plan.
PROPOSAL TO AMEND AND RESTATE THE 1991
SPECIAL DIRECTORS STOCK OPTION PLAN
The key provisions of the Special Directors Plan, are as follows:
Number of Shares. The aggregate maximum number of shares for which options may
be granted under the Special Directors Plan is 300,000 shares of Common Stock,
subject to adjustment upon the occurrence of a stock dividend, stock split,
recapitalization or certain other capital adjustments.
Administration. The directors to whom options will be granted, the timing of
grants for all eligible directors, the option price for options granted to
directors, and the number of shares of Common Stock to be covered by options
granted to each eligible director will be as set forth in the Special Directors
Plan. Subject to the foregoing and other provisions of the Special Directors
Plan, the Board of Directors will administer the Special Directors Plan.
Eligibility. All directors of the Company who are not employees of the Company
or an affiliate will be eligible to receive options.
Term of Plan. The Special Directors Plan provides that no option may be granted
under it after May 31, 2001.
Grant of Options. Each eligible director elected to the Board subsequent to
June 1, 1991 will be granted options to purchase 20,000 shares of Common Stock
upon becoming a director. Thereafter, each director who holds options granted
under the Special Directors Plan will be granted additional options to purchase
20,000 shares of Common Stock on the second anniversary of the date of the next
previous grant of stock options to the director. The Board may increase or
decrease the number of shares of Common Stock granted upon initial election or
on the second anniversary of the next previous grant, and/or make other grants
of options to purchase Common Stock as it deems appropriate.
Vesting Provisions. Except as otherwise provided below, each option granted
under the Special Directors Plan will be exercisable in two installments, each
covering 10,000 of the shares underlying the option. The first installment is
exercisable on the date of grant and the second installment will become
exercisable on the first anniversary of the date of grant. Nonwithstanding the
foregoing, the Board may grant options with different vesting provisions from
those described above and may accelerate the vesting of outstanding options, as
it deems appropriate. Subject to certain exceptions respecting the dissolution
or liquidation of the Company or certain other corporate transactions, if an
option holder ceases to be a director prior to the date one or more
installments becomes exercisable, the option will expire with respect to the
option shares covered by installments that did not become exercisable.
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Termination of Stock Options as a Result of Ceasing to be a Director,
Disability, or Death. All options must terminate on the earliest of (a) the
expiration of the term specified in the option document, which may not exceed
ten years from the date of grant; (b) the expiration of six months from the
date the option holder ceases to be a director of the Company for any reason
other than disability or death; (c) the expiration of one year from the date
the option holder ceases to be a director of the Company due to the option
holder's disability or death.
Option Price. The option price for shares covered by any option will be equal
to 100 percent of the fair market value of the shares subject to the option on
the date that the option is granted.
Payment. An option holder may pay for shares purchased upon the exercise of an
option in cash, by certified check payable to the order of the Company, in
shares of Common Stock held by the option holder for more than six months or by
such other method as the Board may approve, including payment through a broker
in accordance with procedures permitted by Regulation T of the Federal Reserve
Board ("Regulation T Payment").
Restrictions on Transferability of Stock Options. Subject to the exceptions set
forth in the following sentence, no Stock Option granted under the Special
Directors Plan may be transferred, except by will or the laws of descent and
distribution. However, (i) a NQSO may be transferred pursuant to a "qualified
domestic relations order," within the meaning of Rule 16b-3(a)(2) of the
Exchange Act or of Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
Amendment of Special Directors Plan. The Board of Directors may amend the Plan
from time to time as it may deem advisable. Nevertheless, the Board may not,
without obtaining shareholder approval, amend the plan to materially increase
benefits accruing to Optionees under the plan, to materially increase the
number of securities which may be issued under the Plan or materially modify
the requirements as to eligibility for participation in the Plan.
Adjustment Provisions. If there is any change in the number or kind of shares
of Common Stock outstanding by reason of a stock dividend, a recapitalization,
stock split, combination, or exchange of such shares, or merger,
reorganization, or consolidation of the Company, reclassification or change in
the par value or similar event, or if the value of outstanding shares of Common
Stock is substantially reduced due to the Company's payment of an extraordinary
dividend or distribution, the number of shares of Common Stock available for
Grants, and the number of shares and price per share subject to outstanding
Stock Options will be proportionately adjusted to reflect any increase or
decrease in the number or kind of issued shares of Common Stock.
Change of Control. In the event of a change of control, unless the Board
determines otherwise, all outstanding options shall become fully exercisable,
and the Board may take such other actions as it deems appropriate with respect
to outstanding options. A change of control is defined as (i) a dissolution or
liquidation of the Company, (ii) a sale of substantially all the assets of the
Company, (iii) a merger or consolidation of the Company, other than one in
which the holders of the Common Stock immediately prior to the merger or
consolidation will hold at least a majority of the stock of the surviving
corporation immediately after the merger or consolidation and in the same
proportions, (iv) any person shall become the beneficial owner of, or shall
have obtained voting control over, more than 50% of the outstanding Common
Stock, or (v) directors are elected such that a majority of the Board shall
have been members of the Board for less than 12 months, unless the nomination
of each new director who was not a director at the beginning of the 12-month
period was approved by at least two-thirds of the director then still in office
who were directors at the beginning of the period.
Federal Tax Consequences. Options granted under the Special Directors Plan will
not be "incentive stock options" within Section 422A of the Internal Revenue
Code.
There are no federal income tax consequences to Grantees or to the Company upon
the grant of non-qualified stock option (NQSO) under the Special Directors
Plan. Upon the exercise of NQSO's, a Grantee will recognize ordinary
compensation income in an amount equal to the excess of the fair market value
of the shares of Common Stock at the time of exercise over the exercise price
of the NQSO, and the Company
13
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generally will be entitled to a corresponding federal income tax deduction.
Upon the sale of shares of Common Stock acquired by exercise of an NQSO, a
Grantee will have a capital gain or loss (long-term or short-term depending
upon the length of time the shares of Common Stock were held) in an amount
equal to the difference between the amount realized upon the sale and the
grantee's adjusted tax basis in the shares of Common Stock (the exercise price
plus the amount of ordinary income recognized by the Grantee at the time of the
NQSO).
Option Grants. No options have been granted to non-employee directors which are
subject to shareholder approval of the proposed amendment and restatement of
the 1991 Special Directors Plan.
As of November 7, 1997, the last reported sales price of the Company's Common
Stock as reported on NASDAQ was $2.25.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE PROPOSAL TO AMEND AND
RESTATE THE 1991 SPECIAL DIRECTORS PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Arthur Andersen LLP as the
independent public accountants to audit the financial statements of the Company
for 1997. In accordance with the resolution of the Board of Directors, this
selection will be presented to the shareholders for ratification at the
Meeting. The firm of Arthur Andersen LLP has audited the Company's financial
statements annually since 1983. If the shareholders do not ratify the
appointment of Arthur Andersen LLP, the selection of independent public
accountants will be reconsidered by the Board of Directors. A representative of
Arthur Andersen is expected to be present at the Meeting and will have an
opportunity to make a statement if he or she desires to do so and will also be
available to respond to appropriate questions raised at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP.
OTHER MATTERS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and beneficial owners of more than ten percent of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). The Company believes that
all filings required to be made during 1996 were made on a timely basis.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be presented at the 1998 Annual Meeting of
Shareholders must be received by the Company on or before April 15, 1998 in
order to be included in the proxy statement relating to the Meeting.
SOLICITATION OF PROXIES
The expense of solicitation of proxies for the Meeting will be paid by the
Company. In addition to the mailing of the proxy material, such solicitation
may be made in person or by telephone or telecopy by directors, officers or
regular employees of the Company.
November 18, 1997
14
