<PAGE> 1
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
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Psychemedics Corporation
(Name of Registrant as Specified In Its Charter)
Psychemedics Corporation
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
PSYCHEMEDICS CORPORATION
1280 Massachusetts Avenue
Cambridge, Massachusetts 02138
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Cambridge, Massachusetts
April 5, 1996
The Annual Meeting of Stockholders will be held on May 7, 1996 at 9:30 a.m.
at the Radisson Hotel & Suites Chicago, 160 East Huron Street, Chicago,
Illinois, for the following purposes:
1. To elect directors of the Company for the ensuing year and until their
respective successors are chosen and qualified;
2. To consider and vote upon a proposal to ratify the amendment by the
Company of the Company's 1989 Employee Stock Option Plan;
3. To consider and vote upon a proposal to ratify the amendment by the
Company of the Company's 1989 Non-Qualified Stock Option Plan;
4. To consider and vote upon a proposal to ratify the Company's selection
of Arthur Andersen LLP as auditors of the Company for the year ending
December 31, 1996; and
5. To consider and act upon matters incidental to the foregoing and to
transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on March 22, 1996,
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Annual Meeting of Stockholders.
Edward S. Brewer, Jr.
Secretary
The Company's Annual Report for 1995 containing a copy of the Company's
Form 10-KSB (excluding exhibits) for the year ended December 31, 1995 is
enclosed herewith.
- --------------------------------------------------------------------------------
Please fill in, date, sign and mail promptly the accompanying proxy in the
return envelope furnished for that purpose, whether or not you plan to
attend the meeting.
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<PAGE> 3
PSYCHEMEDICS CORPORATION
1280 Massachusetts Avenue
Cambridge, Massachusetts 02138
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 7, 1996
This statement is furnished to the stockholders of PSYCHEMEDICS CORPORATION
(hereinafter, the "Company") in connection with management's solicitation of
proxies to be used at the Annual Meeting of Stockholders on May 7, 1996 and at
any adjournment of that meeting. The approximate date on which this proxy
statement and accompanying proxy are being sent to stockholders of the Company
is April 5, 1996. Each proxy delivered pursuant to this solicitation is
revocable at the option of the person executing the same by written notice
delivered to the Secretary of the Company at any time before the proxy is voted.
A stockholder who attends the Annual Meeting in person may revoke his or her
proxy at that time and vote his or her shares if such stockholder so desires.
The presence in person or by proxy of stockholders entitled to cast a majority
of the outstanding shares, or 9,876,435 shares, shall constitute a quorum. With
respect to the election of Directors, the Company will treat votes withheld as
shares that are present for purposes of determining a Quorum. A plurality is
required to elect Directors, so the six persons receiving the greatest number of
votes will be elected. Withheld votes will not affect the outcome of the
election. With respect to the amendment of the 1989 Employee Stock Option Plan,
the amendment of the 1989 Non-Qualified Stock Option Plan (the "Non-Employee
Director Plan") and the approval of auditors, the Company will treat abstentions
as shares that are present and entitled to vote for purposes of determining a
quorum. Since a majority of the shares represented at the meeting and entitled
to vote is required for approval, abstentions will have the effect of a vote
against approval of these proposals. If a broker indicates on a proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will be considered as present for quorum
purposes but not as shares entitled to vote with respect to that matter.
Accordingly, broker non-votes will have no effect on such a matter.
All shares represented by a properly executed proxy will be voted unless it
is revoked and, if a choice is specified, will be voted in accordance with such
specification. If no choice is specified, the proxies will be voted FOR the
election of the six nominees named under "Election of Directors", unless
authority to do so is withheld with respect to one or more of the nominees, FOR
the amendment of the 1989 Employee Stock Option Plan, FOR the amendment of the
Non-Employee Director Plan and FOR the ratification of the Company's selection
of Arthur Andersen LLP as auditors for the year ending December 31, 1996. In
addition, the proxy will be voted in the discretion of the proxy holders with
respect to such other business as may properly come before the meeting. The
officers and directors of the Company as a group own beneficially 35.2% of the
outstanding shares of Common Stock of the Company (see "Principal Stockholders
and Stockholdings of Management"). The Company expects that its officers and
directors will vote shares owned by them FOR the election of such six nominees,
FOR the amendment of the 1989 Employee Stock Option Plan, FOR the amendment of
the Non-Employee Director Plan and FOR the ratification of the Company's
selection of Arthur Andersen LLP as auditors.
As of March 22, 1996, the Company had outstanding 19,752,868 shares of
Common Stock. Each share of the outstanding Common Stock is entitled to one
vote. Only holders of Common Stock of record on the books of the Company at the
close of business on March 22, 1996 will be entitled to receive notice of and to
vote at the Annual Meeting.
<PAGE> 4
ELECTION OF DIRECTORS
At the Annual Meeting, directors are to be elected to hold office for the
ensuing year and until their respective successors are chosen and qualified. The
Board of Directors has fixed the size of the Board at six and has nominated six
persons, all of whom are now directors of the Company, to serve until the next
Annual Meeting of Stockholders and until their successors are elected and
qualified. If the enclosed proxy is duly executed and received in time for the
Meeting, and unless authority to do so is withheld, it will be voted to elect as
directors the following nominees: Raymond C. Kubacki, Jr., Werner A.
Baumgartner, Ph.D., A. Clinton Allen, Donald F. Flynn, John J. Melk and
Frederick J. Weinert. (For a description of the business experience of such
nominees, see "Business Experience of Nominees and Executive Officers" below.)
In the event that any of the nominees become unavailable, then the proxy holders
shall have the right: (i) to vote for such substitute, if any, as the present
Board of Directors may designate; (ii) to leave a vacancy on the Board; or (iii)
to fix the number of directors for the ensuing year at less than six.
The Company does not have any nominating or compensation committees of the
Board of Directors. The Audit Committee, whose members are Messrs. Flynn, Melk
and Weinert, met one time during 1995. The Stock Option Committee, whose members
are Messrs. Flynn, Melk and Weinert, administers the 1989 Employee Stock Option
Plan, including the determination of employees who are to be granted options
under the Plan, the number of shares subject to each option, and the term of
each option. The Stock Option Committee held no meetings but acted by unanimous
written consent in lieu of meetings on six occasions during 1995.
During the year ended December 31, 1995, there were two meetings of the
Board of Directors. All of the directors attended, in person or by telephone,
both meetings of the Board of Directors, except for Messrs. Weinert and Melk who
each attended only one of the meetings. The directors also acted by unanimous
written consent on four occasions during 1995. The directors regularly consult
with management and are kept informed of business developments and financial
results as they occur.
Each director and each officer of the Company who is subject to Section 16
of the Securities Exchange Act of 1934 (the "Act") is required by Section 16(a)
of the Act to report to the Securities and Exchange Commission, by a specified
date, his or her transactions in the Company's securities. Dr. Thomas Cairns and
Bruce Stillwell each filed the initial report relating to his appointment as an
executive officer after the date specified therefor in 1995.
2
<PAGE> 5
BUSINESS EXPERIENCE OF NOMINEES AND
EXECUTIVE OFFICERS
<TABLE>
Following is a list of names, ages and positions with the Company of all
nominees for election as directors and all executive officers of the Company.
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Raymond C. Kubacki, Jr. 51 Chief Executive Officer,
President, Director and
Nominee
Werner A. Baumgartner, Ph.D. 60 Chairman of the Board,
Director and Nominee
A. Clinton Allen 52 Vice Chairman of the
Board, Director and
Nominee
Donald J. Kippenberger, Ph.D. 49 Vice President - Laboratory
Operations
William Thistle 46 Vice President, General Counsel
Thomas Cairns, Ph.D., Dsc. 55 Vice President-Technology
Research & Development
Bruce M. Stillwell 34 Vice President,
Treasurer, Controller
Donald F. Flynn 56 Director and Nominee
John J. Melk 59 Director and Nominee
Frederick J. Weinert 48 Director and Nominee
</TABLE>
All directors hold office until the next Annual Meeting of Stockholders or
until their successors are elected. Officers serve at the discretion of the
Board of Directors.
Mr. Kubacki joined the Company in July, 1991 as a director and as President
and Chief Executive Officer. During the five years prior to joining the Company,
he served as Vice President-National Accounts and Director of Sales and
Marketing for Reliance COMM/TEC Corporation, a subsidiary of Reliance Electric
Co.
Dr. Baumgartner, a founder of the Company, has served as Chairman of the
Board and a director of the Company since its organization in September, 1986.
Dr. Baumgartner has served as the Company's Director of Scientific and
Regulatory Affairs since May, 1989. Dr. Baumgartner received his Ph.D. in
physical chemistry in 1963 from the University of New South Wales, Sydney,
Australia, and has been engaged in physical and biophysical chemistry research
since 1960 holding research and teaching positions at University of New South
Wales; Long Beach State University; the Jet Propulsion Laboratory at the
California Institute of Technology; University of California, Los Angeles; and
University of Southern California. Dr. Baumgartner has been the director of the
Radioimmunoassay and In Vitro Laboratory of the Nuclear Medicine Service,
Veterans Administration Hospital, Wadsworth, Los Angeles, California since 1976,
serving in such capacity on a part-time basis since February, 1987.
3
<PAGE> 6
Mr. Allen is Chairman and Chief Executive Officer of A.C. Allen & Company,
Inc., a financial services consulting firm located in Cambridge, Massachusetts.
Mr. Allen currently serves as a director of The Forschner Group, Inc., Victory
Capital LLC, Tigera Group, Inc. and the SweetWater Corporation. He also serves
as a director and Vice Chairman of The DeWolfe Companies, Inc. Mr. Allen has
been a director of the Company since 1989.
Dr. Kippenberger joined the Company in January, 1994 as Vice President of
Laboratory Operations. From 1987 to 1990 he was the Technical Director of the
Wiesbaden Forensic Toxicology Drug Testing Laboratory, one of the U.S. Army's
largest drug testing laboratories. From 1990 to 1993 he served as the Forensic
Toxicology Consultant to the U.S. Army Surgeon General where he directed policy,
technical operations and inspection oversight of the four U.S. Army toxicology
drug testing laboratories. Dr. Kippenberger is a National Institute on Drug
Abuse (NIDA) inspector.
Mr. Thistle joined the Company in September, 1995 as Vice President and
General Counsel. Prior to joining the Company, he served as Associate General
Counsel for MGM Grand in Las Vegas from 1993 to 1995. From 1989 to 1993, Mr.
Thistle was Associate General Counsel for Harrah's Casino Resorts.
Dr. Cairns joined the Company in July, 1995 as Vice President of Technology
Research & Development. An authority in the field of mass spectrometry, Dr.
Cairns served as a Senior Research Scientist with the Food and Drug
Administration during his 21 year tenure with that agency.
Mr. Stillwell joined the Company in September, 1995 as Vice President and
Controller. In January, 1996 he was elected Treasurer of the Company. Prior to
joining the Company, he was employed by Organogenesis, Inc. where he served in
various positions including Controller. From 1983 to 1988 Mr. Stillwell was
employed in the audit division of Arthur Andersen LLP.
Mr. Flynn has been the sole stockholder and Chairman of the Board of Flynn
Enterprises, Inc., a financial advisory and venture capital firm, since
February, 1988. Mr. Flynn also was Chairman of the Board from July, 1992 until
February, 1996 and Chief Executive Officer from July, 1992 until May, 1995 of
Discovery Zone, Inc., an operator of indoor entertainment and fitness facilities
for children. On March 25, 1996, Discovery Zone, Inc. filed a voluntary petition
under Chapter 11 of the U.S. Bankruptcy Code. From 1972 to December, 1990, Mr.
Flynn served in various positions with WMX Technologies, Inc. (formerly Waste
Management, Inc.) including Senior Vice President and Chief Financial Officer.
Mr. Flynn currently serves as a director of WMX Technologies, Inc. and its
affiliated entities, Waste Management International plc and Wheelabrator
Technologies, Inc. Mr. Flynn has been a director of the Company since 1989.
Mr. Melk currently serves as Chairman and Chief Executive Officer of H20
Plus, L.P. which develops and manufactures health and beauty aid products and
distributes them through a company-owned chain of specialty retail stores as
well as over 300 wholesale/department stores. He also serves as Chairman of MW
Partners, an investor in commercial and residential real estate developments.
From 1987 to 1989, he was Vice Chairman of the Board of Blockbuster
Entertainment Corporation. From 1971 to 1975 Mr. Melk was Vice President of
Corporate Development for WMX Technologies, Inc. and from 1975 to 1984 held the
position of President of WMI International, Ltd. based in London, England. He is
a director of Republic Industries, Inc. and Extended Stay America, Inc. Mr. Melk
has been a director of the Company since 1991.
Mr. Weinert serves as President of San Telmo, Inc. (investment and
international development projects), Barrington Services Group (a business
advisory firm and commercial real estate developer), Here's Hollywood, Inc. (a
Blockbuster Video franchisee) and Vice President of H20 Plus, S.A. (a
distributor of cosmetics, bath products and fragrances in Argentina, Chile and
Uruguay) . From June, 1989 to February, 1995 he was President of H20 Plus L.P.,
MW Partners, and Century Entertainment Ltd. Previous to that he was President of
Waste Management International, Inc. from December, 1983 to June, 1989. He
serves on the Business Advisory Council for the University of Dayton and is a
director of Americas Cooperating for Health & Education. Mr. Weinert has been a
director of the Company since 1991.
4
<PAGE> 7
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until May 24, 1995, Mr. Flynn was Chief Executive Officer and Mr. Melk and
H. Wayne Huizenga were directors of Discovery Zone, Inc., a franchisor and
operator of family indoor entertainment and fitness facilities. Discovery Zone,
Inc. and the Company are parties to an agreement pursuant to which the Company
provides drug testing services to Discovery Zone, Inc. Either party may
terminate the agreement at any time. In calendar year 1995, the Company
received approximately $504,000 from Discovery Zone, Inc. for such services.
The following persons owned the following percentages of Common Stock in
Discovery Zone, Inc. at March 22, 1996 computed in accordance with Rule 13d-3
under the Securities Exchange Act of 1934: Donald F. Flynn, a director of the
Company and owner of 9.9% of the Company - 2%; Mr. Flynn's children and trusts
for their benefit - 4%; H. Wayne Huizenga, owner of 11.4% of the Company -
< 1%; John J. Melk, a director of the Company and owner of 10.5% of the Company,
- - 3%. The Company believes that the terms of its agreement with Discovery Zone,
Inc. are no more or less favorable to the Company than could have been obtained
from an unaffiliated party.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
<TABLE>
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the three year period ended December 31, 1995,
the cash compensation paid by the Company as well as certain other compensation
paid or accrued for such year, to the Company's Chief Executive Officer and the
Company's other executive officers whose compensation exceeded $100,000 in 1995.
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Annual Compensation Awards
-------------------------------------------- ------------
Name and Other Annual Securities
Principal Salary Bonus Compensation Underlying All Other
Position Year $ $ $ Options(#) Compensation($)
- -------- ---- --------- -------- ----------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
A. Clinton Allen 1995 125,000 0 (1) 60,000 -0-
Vice Chairman 1994 103,125 0 (1) -0- -0-
1993 90,000 0 (1) 50,000 -0-
Raymond C. 1995 158,333 0 (1) 250,000 -0-
Kubacki, Jr. 1994 150,000 35,000 (1) 50,000 -0-
President & 1993 141,250 0 (1) 250,000 -0-
CEO
Werner A. 1995 116,887 0 (1) 40,000 2,309(2)
Baumgartner, 1994 115,006 0 (1) -0- 2,705(2)
Ph.D. 1993 105,760 0 (1) 50,000 2,980(2)
Chairman
<FN>
- -----------
(1) Any perquisites or other personal benefits received from the Company by the
named executive was substantially less than the reporting thresholds
established by the Securities and Exchange Commission (the lesser of
$50,000 or 10% of the individual's cash compensation).
(2) Represents life insurance premiums paid by the Company on behalf of Dr.
Baumgartner.
</TABLE>
5
<PAGE> 8
STOCK OPTIONS
<TABLE>
The following table contains information concerning the grant of stock
options to the named executive officers of the Company during the Company's
fiscal year ended December 31, 1995:
<CAPTION>
OPTIONS GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
% of Total of Assumed Annual Rate
Options Exercise of Stock Appreciation
Granted to or Base for Option Term
Options Employees in Price Expiration --------------------------
NAME Granted (1) Fiscal Year ($/sh) Date % 5%($) 10%($)
---- ------- --------------- --------- ----------- - ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Raymond C. Kubacki, Jr. 150,000(2) 29% 2.91(6) 4-4-05 0 274,512 695,669
100,000(3) 19% 6.00(6) 9-1-05 0 377,336 956,245
Werner A. Baumgartner 40,000(4) 8% 2.91(6) 4-4-05 0 73,203 185,512
A. Clinton Allen 60,000(5) 11% 2.91(6) 4-4-05 0 109,805 278,267
<FN>
- -------------
(1) All of these options were granted pursuant to the Company's 1989 Employee
Stock Option Plan.
(2) Of these options, options with respect to 53,693 shares are incentive stock
options and vest with respect to 19,329 shares on April 4, 1998, and with
respect to 34,364 shares on April 4, 1999; options with respect to 96,307
shares are non-qualified stock options and vest with respect to 37,500
shares on April 4, 1996, with respect to 37,500 shares on April 4, 1997,
with respect to 18,171 shares on April 4, 1998, and with respect to 3,136
shares on April 4, 1999. Notwithstanding the foregoing vesting schedule,
these options become exercisable in full upon a "change of control" of the
Company. See "Employment Contracts and Change-in-Control Arrangements".
(3) These options are all non-qualified stock options and vest with respect to
one fourth of the shares covered thereby on the first anniversary of the
date of grant, and with respect to an additional one fourth on each of the
three anniversary dates thereafter. Notwithstanding the foregoing vesting
schedule, these options become exercisable in full upon a "change of
control" of the Company. See "Employment Contracts and Change-in-Control
Arrangements".
(4) Of these options, options with respect to 37,066 shares are incentive stock
options and vest with respect to 7,066 shares on April 4, 1996, and with
respect to 10,000 shares on each of the three anniversary dates thereafter;
options with respect to 2,934 shares are non-qualified stock options and
vest in full on April 4, 1996.
(5) Of these options, options with respect to 53,393 shares are incentive stock
options and vest with respect to 8,393 shares on April 4, 1996, and with
respect to 15,000 shares on each of the three anniversary dates thereafter;
options with respect to 6,607 shares are non-qualified stock options and
vest in full on April 4, 1996.
(6) Represents the market value on the date of grant.
</TABLE>
6
<PAGE> 9
OPTION HOLDINGS
<TABLE>
The following table sets forth information with respect to the named
executives concerning unexercised options held as of December 31, 1995. No
options granted to the named executives were exercised during the fiscal year
ended December 31, 1995.
<CAPTION>
AGGREGATE YEAR-END OPTION VALUES
Number of unexercised Value of unexercised
options at fiscal in-the-money options at
year-end(#) fiscal year-end ($) (1)
------------------------------ ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
A. Clinton Allen 137,500 107,500 $ 464,925 $338,824
Raymond C.
Kubacki, Jr. 786,513 250,000 2,695,640 426,060
Werner A.
Baumgartner, Ph.D. 139,000 88,000 464,720 278,789
<FN>
- ------------
(1) Represents the fair market value of the Company's Common Stock on
December 31, 1995 ($5.75 per share based on the closing price on the
American Stock Exchange) minus the exercise price per share, of the
in-the-money options, multiplied by the number of shares subject to
each option.
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
On May 15, 1994, the Company entered into a three-year employment contract
with Werner A. Baumgartner, Ph.D. regarding his services as Director of
Scientific and Regulatory Affairs. Under the contract, which expires May 14,
1997, Dr. Baumgartner is compensated at an annual base salary of $115,672 for
the initial twelve month period, with cost-of-living adjustments thereafter, and
is entitled to compensation for six months following death or disability. The
agreement also provides that in the event Dr. Baumgartner's salary as a
part-time employee at Wadsworth V.A. Hospital, Los Angeles, California should at
any time be reduced, the Company will increase Dr. Baumgartner's salary by the
amount of such reduction.
In connection with the grant by the Company to Mr. Kubacki on April 4, 1995
and September 1, 1995 of options to acquire shares of the Company's Common
Stock, the Company agreed that notwithstanding the vesting schedule stated in
the applicable option agreement, such options would become exercisable in full
upon a change-in-control of the Company. The following events constitute a
change-in-control for purposes of the option agreements: (a) the aggregate
number of shares beneficially owned by the group of investors which purchased
securities of the Company on May 15, 1989 is less than the number held by any
other person or group, (b) the Company sells, leases or transfers all or
substantially all of its assets, or (c) the Company merges or consolidates with
another company and the existing stockholders of the Company end up owning less
than 50% of the combined company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1995, Dr. Baumgartner, and Messrs. Kubacki and Allen,
each of whom was both a director and an executive officer of the Company during
the year ended December 31, 1995, participated in deliberations of the Board of
Directors during such year concerning executive officer compensation.
Until May 24, 1995, Mr. Flynn was Chief Executive Officer and Mr. Melk and
H. Wayne Huizenga were directors of Discovery Zone, Inc., a franchisor and
operator of family indoor entertainment and fitness facilities. Discovery Zone,
Inc. and the Company are parties to an agreement pursuant to which the
7
<PAGE> 10
Company provides drug testing services to Discovery Zone, Inc. Either party may
terminate the agreement at any time. In calendar year 1995, the Company received
approximately $504,000 from Discovery Zone, Inc. for such services. The
following persons owned the following percentages of Common Stock in Discovery
Zone, Inc. at March 22, 1996 computed in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934: Donald F. Flynn, a director of the Company and
owner of 9.9% of the Company - 2%; Mr. Flynn's children and trusts for their
benefit - 4%; H. Wayne Huizenga, owner of 11.4% of the Company - < 1%; John J.
Melk, a director of the Company and owner of 10.5% of the Company, - 3%. The
Company believes that the terms of its agreement with Discovery Zone, Inc. are
no more or less favorable to the Company than could have been obtained from an
unaffiliated party.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
- ---------------------------------------------------
Under rules established by the Securities and Exchange Commission, (the
"SEC"), the Company is required to provide certain data and information in
regard to the compensation and benefits provided to the Company's Chief
Executive Officer and the four other most highly compensated executive officers
(provided that the annual compensation paid to such other executive officers
exceeds $100,000). Subject to the foregoing rules, the Company has provided
information with respect to compensation and benefits paid or provided to Mr.
Kubacki as the Company's Chief Executive Officer, and to Dr. Baumgartner and Mr.
Allen, representing executive officers of the Company whose annual compensation
exceeded $100,000.
In August, 1993 the Omnibus Budget Reconciliation Act of 1993 added Section
162(m) to the Internal Revenue Code. That Section limits the deductibility of
compensation paid or accrued by the Company to the five most highly compensated
employees in excess of $1 million, with certain exceptions. It is not
anticipated that any of the executive officers named in the Summary Compensation
Table will receive compensation for 1995, or for future years that can now be
predicted, which would not be deductible for tax purposes.
The disclosure requirements for the four named individuals (the "named
executive officers") includes the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting those individuals. In fulfillment of this requirement, the
Board of Directors has prepared the following report for inclusion in this Proxy
Statement.
Compensation Philosophy
-----------------------
This report reflects the Corporation's compensation philosophy as endorsed
by the Board of Directors and resulting actions taken by the Company for the
reporting periods shown in the various compensation tables supporting this
report.
Essentially, the executive compensation program of the Company has been
designed to:
- Support a pay for performance policy that differentiates in compensation
amounts based on corporate, business unit and individual performance;
- Motivate key senior officers to achieve strategic business initiatives
and reward them for their achievements;
- Provide compensation opportunities which are comparable to those offered
by other leading companies, thus allowing the Company to compete for, and
retain, talented executives who are critical to the Company's long-term success;
and
- Align the interests of executives with the long-term interests of
stockholders through award opportunities the value of which is based on the
increase in value of the Company's Common Stock.
8
<PAGE> 11
At present, the executive compensation program is comprised of salary, cash
incentive opportunities, long-term incentive opportunities in the form of stock
options, and benefits typically offered to executives by major corporations. As
an executive's level of responsibility increases, the greater the mix of
compensation shifts to reliance on the value of the Common Stock through
stock-based awards.
Compensation Elements
---------------------
Base Salary
-----------
At the executive officer level, base salaries are conservative when
compared with companies of similar size and financial performance. Salary ranges
are assigned to each position based on a comparison of Psychemedics positions
with similar positions in companies of similar size in the Company's industry,
with range midpoints established at the average of the marketplace. Actual
salaries within the appropriate range depend upon individual performance,
experience and internal equity and are reviewed and may be adjusted annually by
the Company.
Incentive Compensation
----------------------
The Company has historically not paid cash bonuses to executive officers as
rewards for superior performance, preferring instead to reward executive
officers with equity-based compensation in the form of stock options. However,
the Company did pay to Mr. Kubacki in 1994 a cash bonus and awarded to him a
relatively smaller amount of stock options.
Stock Options
-------------
The Company's current stock option plan for executive officers and other
employees has been in existence since 1989. Prior to its amendment on March 15,
1996 (subject to shareholder approval), the 1989 Employee Stock Option Plan was
last amended in 1993. Under the plan, the Stock Option Committee of the Board of
Directors may grant options with terms of up to ten years. The options generally
become exercisable with respect to 25% of the shares covered thereby on the
first anniversary of the date of grant and with respect to an additional 25% on
each of the next three anniversary dates thereafter. In granting the stock
options to each of the named executives, the Stock Option Committee of the Board
of Directors takes into account the practices of other companies of comparable
size as well as the named executive's level of responsibility and past
contributions to the Company, particularly in light of the Company's practice
not to award cash bonuses. The Board of Directors believes that the granting of
options provides an element of compensation that also aligns the interests of
Executive Officers with other shareholders.
Compensation to the Chief Executive Officer
-------------------------------------------
Mr. Kubacki's base salary was increased only marginally in 1995. A
substantial portion of his total compensation package consisted of stock
options. The number of shares subject to options granted to Mr. Kubacki was
based on both subjective factors which the Board considered as well as financial
factors which the board considered, including revenue and net income growth of
the Company. Revenue grew by 33% in 1994 and pre-tax earnings nearly doubled to
$1,897,330 in 1994.
A. Clinton Allen
Donald F. Flynn
Frederick J. Weinert
John J. Melk
Werner A. Baumgartner, Ph.D.
Raymond C. Kubacki, Jr.
9
<PAGE> 12
COMPENSATION OF DIRECTORS
Messrs. Kubacki, Baumgartner and Allen receive no additional
compensation for serving on the Company's Board of Directors. As non-employee
("outside") directors, Messrs. Flynn, Melk and Weinert participate in the
Non-Employee Director Plan. Under the Non-Employee Director Plan, each outside
director automatically received a grant of an option for 25,000 shares upon the
adoption of the Plan. Each such option has an exercise price equal to the market
value per share of the Company's Common Stock on the automatic grant date, has a
term of five years and becomes exercisable over a period of twenty-four months
from the date of grant in equal monthly installments on a cumulative basis.
Under the Non-Employee Director Plan as amended on March 15, 1996
(subject to shareholder approval) each outside director automatically received,
effective March 15, 1996, a grant of an option for 20,000 shares. In addition,
each person serving as an outside director as of March 15 of each calendar year
thereafter receives an additional automatic grant of an option to acquire 20,000
shares. All of such options are for terms of ten years, and are exercisable in
full twelve (12) months after the date of grant. Each newly appointed outside
director automatically receives a grant of an option to acquire 25,000 shares
upon the date of appointment. All such options to newly appointed directors are
for terms of ten years but become exercisable over a period of twenty-four
months from the date of grant in equal cumulative monthly installments. All
options granted under the Non-Employee Director Plan, as so amended, have
exercise prices equal to the market value per share of the Company's Common
Stock on the automatic grant date.
Options under the Non-Employee Director Plan are not transferable by
the optionee otherwise than by will or the laws of descent and distribution and
terminate if the optionee ceases to serve as a member of the Company's Board of
Directors. In the event of the optionee's death or permanent disability, the
option becomes exercisable in full and the optionee or his heirs, legatees or
legal representatives may exercise the option during the following one year
period or the remainder of the option term, whichever period is shorter. See
"Amendment of the Non-Employee Director Plan" for a summary description of the
Non-Employee Director Plan as amended on March 15, 1996 (subject to shareholder
approval).
10
<PAGE> 13
PSYCHEMEDICS CORPORATION
STOCK PRICE PERFORMANCE GRAPH(1)
[GRAPHIC OMITTED]
<TABLE>
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
<S> <C> <C> <C> <C> <C> <C>
Psychemedics $100.00 $264.52 $329.03 $303.23 $345.16 $593.55
AMEX Market Value Index(2) $100.00 $128.22 $129.51 $154.56 $140.75 $177.93
AMEX High Tech Sub Index(3) $100.00 $172.60 $146.37 $162.53 $156.46 $242.82
<FN>
(1) The above graph assumes a $100 investment on December 31, 1990, through the
end of fiscal year 1995 in the Company's Common Stock, the AMEX Composite, and
AMEX High Tech Stocks. The prices for the AMEX Composite and AMEX High Tech
Stocks assume the reinvestment of dividends. Psychemedics Corporation did not
declare or pay any dividends during the operative period.
(2) The AMEX Market Value Index includes companies whose shares are traded on
the American Stock Exchange.
(3) The AMEX High Tech Sub Index is comprised of companies which are in the high
technology industry and whose shares are traded on the American Stock Exchange.
</TABLE>
11
<PAGE> 14
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS
OF MANAGEMENT
<TABLE>
The following table shows, as of March 22, 1996, the number of shares
beneficially owned (i) by those stockholders who are known to the Company to own
beneficially more than five percent of the outstanding Common Stock of the
Company, (ii) by each director and nominee for director of the Company, (iii) by
each named executive officer, and (iv) by all directors and executive officers
as a group.
<CAPTION>
Amount and Nature of Percentage
Name Beneficial Ownership(1) Owned(2)
- ---- ----------------------- ----------
<S> <C> <C>
H. Wayne Huizenga 2,288,148(4)(5) 11.4
200 South Andrews Avenue
Fort Lauderdale, Florida 33301
John J. Melk 2,112,270(3)(4) 10.5
676 North Michigan Avenue
Chicago, Illinois 60611
Donald F. Flynn 1,978,137(4)(6) 9.9
2898 Date Palm Road
Boca Raton, Florida 33432
Werner A. Baumgartner, Ph.D. 1,551,467(3)(7) 7.8
Psychemedics Corporation
5832 Uplander Way
Culver City, California 90230
Raymond C. Kubacki, Jr. 824,013(3) 4.0
A. Clinton Allen 724,572(3) 3.6
Frederick J. Weinert 360,328(3) 1.8
All Executive Officers and 7,568,287(8) 35.2
Directors as a group (10 persons)
<FN>
(1) Shares are considered beneficially owned, for the purpose of this table
only, if held by the person indicated as beneficial owner, or if such
person, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares the power to vote,
to direct the voting of and/or to dispose of or to direct the disposition
of such security, or if the person has the right to acquire beneficial
ownership within sixty (60) days, unless otherwise indicated in these
footnotes.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person shown in this table.
(3) Includes the following number of shares of Common Stock which the
individual has a right to acquire within 60 days pursuant to the exercise
of options: Mr. Allen - 162,500; Dr. Baumgartner - 159,500; Mr. Kubacki -
824,013; and Messrs. Melk and Weinert - 25,000 each.
(4) Includes the following number of shares of Common Stock which the
individual has a right to acquire within 60 days pursuant to the exercise
of warrants: Mr. Melk - 232,200; Mr. Flynn, as
</TABLE>
12
<PAGE> 15
trustee under Grantor Trust Agreement dated April 24, 1989, as amended -
270,000; and Mr. Huizenga - 270,000.
(5) Includes 8,142 shares owned by said individual's spouse.
(6) Includes: (i) 19,326 shares owned by Mr. Flynn as trustee under Grantor
Trust Agreement dated April 24, 1989, as amended; (ii) 1,392,700 shares
held by DNB LP as to which said individual, as President and sole director
of the general partner, has sole dispositive and voting power, and (iii)
296,111 shares owned by said individual's spouse.
(7) Includes 1,395,967 shares held by said individual as trustee of the
Baumgartner Family Trust dated April 26, 1994.
(8) Includes: (i) 1,213,513 shares which the executive officers and directors
have the right to acquire within 60 days pursuant to the exercise of
options; and (ii) 502,200 shares which the executive officers and directors
have the right to acquire within 60 days pursuant to the exercise of Common
Stock Purchase Warrants.
AMENDMENT OF THE
1989 EMPLOYEE STOCK OPTION PLAN
On September 22, 1989 the Company adopted the 1989 Employee Stock Option
Plan (the "Plan"). In 1993 the Plan was amended to increase the number of shares
reserved for issuance under the Plan to 2,300,000, 1,725,000 of which may be
subject to options granted to Directors of the Company and/or its subsidiaries
who also serve as employees.
The Board of Directors has now voted unanimously to amend the Plan subject
to the ratification of such amendment by the stockholders of the Company at the
Annual Meeting, to increase the number of shares of Common Stock of the Company
on which options may be granted thereunder to 3,300,000 shares, 2,475,000 shares
of which may be subject to options granted to Directors of the Company and/or
its subsidiaries who also serve as employees. A copy of the Plan, as amended, is
included with this proxy statement a Exhibit A.
The Plan is intended to benefit the Company and its subsidiaries through
offering certain present and future key employees a favorable opportunity to
become holders of stock in the Company over a period of years, thereby giving
them a permanent stake in the growth and prosperity of the Company and
encouraging the continuance of their services with the Company and/or its
subsidiaries.
Options granted under the Plan are designated at "non-qualified stock
options" or "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986. The price at which shares may be purchased pursuant to the options
may not be less than the fair market value of the stock at the time the option
is granted (110% of fair market value to optionees of incentive stock options
who are greater than 10% stockholders). The full purchase price for the shares
being purchased must be paid in cash, by check, by delivery of shares of Common
Stock at the time of exercise of options, or by a combination of these methods.
Each option is for a term of not less than five nor more than ten years from the
date of grant, and become exercisable with respect to 25% of the total number of
shares subject to the option twelve months after the date of the grant and with
respect to an additional 25% at the end of each twelve-month period thereafter
on a cumulative basis during the succeeding three years. However, the Stock
Option Committee may, in its discretion, accelerate the dates on which options
become exercisable.
Options under the 1989 Employee Plan are not transferable by the optionee
otherwise than by will or the laws of descent and distribution and terminate if
the optionee leaves the employ of the Company for any reason other than death,
permanent disability or retirement. In the event of termination of employment
because of death, permanent disability or retirement, the optionee or his
heirs, legatees or
13
<PAGE> 16
legal representative may exercise the option, to the extent exercisable at the
date of such death, permanent disability or retirement within one year after the
date of termination.
The grant of an option will have no immediate tax consequences to the
optionee or the Company. The exercise of a non-qualified stock option will
require an optionee to include in income, as compensation, the amount by which
the fair market value of the acquired shares on the exercise date exceeds the
option price. Upon a subsequent sale or taxable exchange of shares acquired upon
exercise of a non-qualified stock option, an optionee will recognize long- or
short-term capital gain or loss equal to the difference between the amount
realized on the sale and the tax basis of such shares. The Company will be
entitled (provided applicable withholding requirements are met) to a deduction
at the same time and in the same amount as the optionee is in receipt of income
in connection with the exercise of a non-qualified stock option.
If the optionee exercises an incentive stock option and does not dispose of
the acquired shares within two years after the date of grant of the option or
within one year after the date of the transfer of such shares to him (a
"disqualifying disposition"), the optionee will realize no compensation income
and any gain or loss that the optionee realizes on a subsequent disposition of
such shares will be treated as long-term capital gain or loss. For purposes of
computing the alternative minimum tax, however, the option generally will be
treated as if it were a non-qualified stock option. If an optionee makes a
disqualifying disposition, the optionee will be required to include in income,
as compensation, the lesser of (i) the difference between the option price and
the fair market value of the acquired shares on the exercise date or (ii) the
amount of gain realized on such disposition. In addition, depending on the
amount received as a result of such disposition, the optionee may realize
long-tem or short-term capital gain or loss. The Company will be entitled to a
deduction at the same time and in the same amount as the optionee is in receipt
of compensation income as a result of a disqualifying disposition. If there is
no disqualifying disposition, no deduction will be available to the Company.
Certain information as to option grants and exercises under the Plan on
behalf of the named executive officers during the last three years is set forth
under "EXECUTIVE COMPENSATION AND OTHER INFORMATION." As of March 22, 1996
options to purchase 1,689,213 shares under the Plan were outstanding and 6,702
shares were reserved and available for additional grants under the Plan. The
closing price of the Company's Common Stock on the American Stock Exchange on
March 22, 1996 was $6.00 per share.
The amendment to the Plan to increase the number of shares subject to the
Plan can only be made with the approval of the stockholders. The Board of
Directors may further amend or discontinue the Plan at any time, provided that
no such amendment or discontinuance may change or impair any option previously
granted without the consent of the optionee or increase the maximum number of
shares which may be purchased by all employees without the approval of the
stockholders.
The affirmative vote of the holders of a majority of the shares of Common
Stock present or represented and entitled to vote at the Annual Meeting is
necessary to ratify the amendment.
THE BOARD OF DIRECTORS BELIEVES THAT THE AMENDMENT OF THE PLAN WILL
CONTINUE TO PROMOTE THE LONG-TERM FINANCIAL SUCCESS OF THE COMPANY BY AFFORDING
AN ADDITIONAL OPPORTUNITY TO ALIGN THE INTERESTS OF EXECUTIVE OFFICERS WITH
THOSE OF SHAREHOLDERS.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF THE
AMENDMENT OF THE 1989 EMPLOYEE STOCK OPTION PLAN.
14
<PAGE> 17
AMENDMENT OF THE 1989 NON-QUALIFIED
STOCK OPTION PLAN
On September 22, 1989 the Company adopted the Non-Qualified Stock Option
Plan (the "Non-Employee Director Plan") pursuant to which 200,000 shares of
Common Stock were reserved for issuance to outside (non-employee) directors. On
March 15, 1996 the Board of Directors voted unanimously to amend the
Non-Employee Director Plan subject to the ratification of such amendment by the
stockholders of the Company at the Annual Meeting, to increase the number of
shares of Common Stock of the Company on which options may be granted thereunder
from 200,000 to 300,000 shares, to increase the term of options granted
thereunder from five years to ten years and to authorize the automatic grant of
options to purchase 20,000 shares of Common Stock to each outside director
serving on the Board of Directors as of March 15 of each year beginning March
15, 1996. A copy of the Non-Employee Director Plan, as amended, is included with
this proxy statement as Exhibit B.
Under the Non-Employee Director Plan as in effect prior to the March 15,
1996 amendment, each newly-appointed outside director of the Company
automatically received an option to purchase 25,000 shares of Common Stock
effective upon the date such person was first named a director. Each such option
was for a term of five years and became exercisable over a period of twenty-four
months from the date of grant in equal monthly installments on a cumulative
basis, provided that the optionee continued to serve as a director during such
period.
Under the Non-Employee Director Plan as amended on March 15, 1996 (subject
to shareholder approval) each outside director receives, in addition to the
option to purchase 25,000 shares of Common Stock granted automatically upon such
outside director's initial appointment to the Board, an additional option to
purchase 20,000 shares of Common Stock granted automatically as of March 15 of
each year beginning March 15, 1996. Such additional options have terms of ten
years and are exercisable in full twelve (12) months after the date of grant.
The March 15, 1996 amendments to the Non-Employee Director Plan also increase
the term of options automatically granted to newly-appointed directors after
March 15, 1996 from five years to ten years, but such options continue to become
exercisable over a twenty-four month period as provided prior to the amendment.
The March 15, 1996 amendments also increase the number of shares of Common Stock
on which options may be granted from 200,000 to 300,000 shares.
Options granted under the Non-Employee Director Plan are non-qualified
stock options. The price at which shares may be purchased pursuant to the
options is the fair market value of the stock at the time the option is granted.
The full purchase price for shares being purchased must be paid in cash, by
check, or by the delivery of shares of Common Stock at the time of exercise, or
by a combination of these methods. Except for the optionee's services as a
director, the Company does not receive any consideration for the granting of
options under the Non-Employee Director Plan.
The grant of an option under the Non-Employee Director Plan has no
immediate tax consequences to the optionee or the Company. Upon the exercise of
an option, the excess of the market value of the shares acquired over their cost
to the participant is taxable to the participant as ordinary income and is
deductible by the Company.
Options under the Non-Employee Director Plan are not transferable by the
optionee otherwise than by will or the laws of descent and distribution and
terminate if the optionee ceases to serve as a member of the Company's Board of
Directors. In the event of the optionee's death or permanent disability, the
option becomes exercisable in full and the optionee or his heirs, legatees or
legal representatives may exercise the option during the one year period
following such death or disability or the remainder of the option term,
whichever period is shorter.
No options were granted during fiscal year 1995 under the Non-Employee
Director Plan. Effective as of March 15, 1996, options to acquire 20,000 shares
were granted to each of the outside directors (Mr. Flynn, Mr. Melk and Mr.
Weinert) under the provisions of the Non-Employee Director Plan as amended
(subject to shareholder approval). As of March 22, 1996 no options had been
exercised
15
<PAGE> 18
under the Non-Employee Director Plan as amended and an aggregate of 190,000
shares remained available for grant thereunder. The closing price of the
Company's Common Stock on the American Stock Exchange on March 22, 1996 was
$6.00 per share.
The Board of Directors may further amend or discontinue the Non-Employee
Director Plan at any time, provided that no such amendment or discontinuance may
change or impair any option previously granted without the consent of the
optionee or increase the maximum number of shares which may be purchased by the
non-employee directors or materially change the requirements as to eligibility
for participation in the Plan without the approval of the stockholders.
The affirmative vote of the holders of a majority of the shares of Common
Stock represented in person or by proxy and entitled to vote at the Annual
Meeting is required to approve the amendment to the Non-Employee Director Plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE AMENDMENT OF THE PLAN WILL
CONTINUE TO PROMOTE THE LONG-TERM FINANCIAL SUCCESS OF THE COMPANY BY AFFORDING
AN ADDITIONAL OPPORTUNITY TO ALIGN THE INTERESTS OF NON-EMPLOYEE DIRECTORS WITH
THOSE OF SHAREHOLDERS.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF THE
AMENDMENT OF THE NON-EMPLOYEE DIRECTOR PLAN.
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected as auditors of the Company for the year
ended December 31, 1996, the firm of Arthur Andersen LLP. The Company does not
expect a representative of Arthur Andersen LLP to be present at the Annual
Meeting.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders must comply with Rule 14a-8 of the Securities and
Exchange Commission issued under the Securities Exchange Act of 1934, and must
be received at the principal executive offices of the Company not later than
December 4, 1996.
OTHER MATTERS
The Board of Directors knows of no other matters which may come before the
Meeting. However, if any matter not now known is presented at the Meeting, it is
the intention of the persons named in the accompanying form of proxy to vote
said proxy in accordance with their judgment on such matter.
The Company will bear the cost of solicitation of proxies. Solicitations of
proxies by mail may be followed by telephone or other personal solicitation of
certain stockholders by officers or other employees of the Company.
By order of the Board of Directors
EDWARD S. BREWER, JR.
Secretary
April 5, 1996
16
<PAGE> 19
EXHIBIT A
PSYCHEMEDICS CORPORATION
1989 EMPLOYEE STOCK OPTION PLAN
1. STATEMENT OF PURPOSE. The purpose of this Employee Stock Option Plan
(the "Plan") is to benefit PSYCHEMEDICS CORPORATION (the "Company") through the
maintenance and development of its businesses by offering certain present and
future key employees a favorable opportunity to become holders of stock in the
Company over a period of years, thereby giving them a permanent stake in the
growth and prosperity of the Company and encouraging the continuance of their
involvement with the Company and/or its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by the Stock Option
Committee (the "Committee"), consisting of not less than two directors of the
Company appointed by the Board of Directors, all of whom, to the extent
possible, shall be "disinterested" within the meaning of the rules and
regulations promulgated under Section 16(b) of the Securities Exchange Act of
1934. If no Committee shall be appointed, this Plan shall be administered by the
Board of Directors, which Board shall be deemed the Committee for purposes of
this Plan. The Committee shall have full and plenary authority to interpret the
terms and provisions of the Plan.
3. ELIGIBILITY. Options shall be granted only to key employees of the
Company and its subsidiaries, (including officers, and including directors of
the Company and its subsidiaries who are also employees) selected initially and
from time to time thereafter by the Committee on the basis of their importance
to the business of the Company or its subsidiaries.
4. GRANTING OF OPTIONS. The Committee may grant options under which a total
of not in excess of 3,300,000 shares of the $.005 par value Common Stock of the
Company ("Common Stock") may be purchased from the Company, subject to
adjustment as provided in Section 12 hereof. The Committee may, in its
discretion grant under the Plan either non-qualified stock options or incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986
(the "Code"). A maximum of 2,475,000 shares may be subject to options granted to
Directors of the Company and/or its subsidiaries who also serve as employees.
The grant of a non-qualified stock option shall be evidenced by a written
Non-Qualified Stock Option Agreement, executed by the Company and the holder of
a non-qualified stock option, stating the number of shares of Common Stock
subject to such non-qualified stock option evidenced thereby and in such form as
the Committee may from time to time determine. The grant of an incentive stock
option shall be evidenced by a written Incentive Stock Option Agreement,
executed by the Company and the holder of the incentive stock option, stating
the number of shares of Common Stock subject to such incentive stock option
evidenced thereby and in such form as the Committee may from time to time
determine.
In the event that an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a canceled option). Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock.
Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be continued in the employment of
the Company or any subsidiary of the Company, or interfere in any way with the
right of the Company or its subsidiaries to terminate an employee's employment
at any time.
5. OPTION PRICE. The option price shall be determined by the Committee and,
subject to the provisions of Section 12 hereof, shall be not less than the fair
market value, at the time the option is granted, of the shares of Common Stock
subject to the option. If one or more incentive stock options are granted to an
employee who, at the time of grant, owns more than ten (10%) percent of the
total voting power of all classes of stock of the Company or its subsidiaries,
the option price
17
<PAGE> 20
under such incentive stock option shall be not less than 110% of said fair
market value. Such fair market value shall be deemed to be the mean of the bid
and asked prices of the Common Stock at the close of the trading day next
preceding the grant of the option except that if the Common Stock is then listed
on any national exchange, fair market value shall be the mean between the high
and low sales price on the date next preceding the grant of the option.
6. DURATION OF OPTIONS, INCREMENTS, AND EXTENSIONS. Subject to the
provisions of Section 8 hereof, each option shall be for a term of five years
but may be increased by the Committee at the date of grant for a period of up to
ten years. Each option shall become exercisable with respect to 25% of the total
number of shares subject to the option twelve months after the date of its grant
and, with respect to each additional 25%, at the end of each twelve-month period
thereafter during the succeeding three years, provided however, that the
Committee may, at any time during the period in which any such outstanding
option is not exercisable in full accelerate the exercisability of such option
subject to such terms as the Committee deems necessary and appropriate. Subject
to the foregoing, all or any part of the shares to which the right to purchase
has accrued may be purchased at the time of such accrual or at any time or times
thereafter during the option period.
7. EXERCISE OF OPTION. An option may be exercised by giving written notice
to the Company, attention of the Secretary, specifying the number of shares to
be purchased, accompanied by the full purchase price for the shares to be
purchased either in cash or by check, or by shares of the Common Stock of the
Company, or by a combination of these methods of payment. For this purpose, the
per share value of the Common Stock of the Company shall be the fair market
value on the date of exercise. Payment may also be made, in the discretion of
the Committee, by delivery (including delivery by facsimile transmission) to the
Company or its designated agent of an executed irrevocable option exercise form
together with irrevocable instructions to a broker-dealer to sell a sufficient
portion of the shares and deliver the sale proceeds directly to the Company to
pay for the exercise price. Any employee holding two or more options that are
partially or wholly exercisable at the same time may exercise said options (to
the extent they are then exercisable) in any order the employee chooses,
regardless of the order in which said options were granted.
At the time of exercise of any option, the Company may, if it shall
determine it necessary or desirable for any reason, require the optionee (or his
heirs, legatees, or legal representatives, as the case may be) as a condition
upon the exercise thereof to deliver to the Company a written representation of
present intention to purchase the shares for investment and not for
distribution. In the event such representation is required to be delivered, an
appropriate legend may be placed upon each certificate delivered to the optionee
upon his exercise of part or all of the option and a stop transfer order may be
placed with the transfer agent. Each option shall also be subject to the
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the shares subject to the option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition of or in connection with, the issue or purchase of shares thereunder,
the option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
8. TERMINATION OF RELATIONSHIP - Exercise Thereafter. In the event the
relationship between the Company and a director, officer or other employee who
is an optionee is terminated for any reason other than death, permanent
disability or retirement, such optionee's option shall expire and all rights to
purchase shares pursuant thereto shall terminate immediately. Temporary absence
from employment because of illness, vacation, approved leaves of absence, and
transfers of employment among the Company and its subsidiaries, shall not be
considered to terminate employment or to interrupt continuous employment.
In the event of termination of said relationship because of death,
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently
18
<PAGE> 21
amended), or retirement (at age 65 or earlier as may be permitted by the
Company), the option may be exercised to the extent the option was exercisable
at the date of such death, permanent disability, or retirement by the optionee
or, if he is not living, by his heirs, legatees, or legal representatives, as
the case may be, for a period of one (1) year after the date of death, permanent
disability, or retirement, but in any event not later than ten years after the
date the option was granted.
9. WITHHOLDING TAXES. Whenever the Company is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the grantee to remit to the Company an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the delivery
of any certificate or certificates for such shares. Alternatively, the Company
may issue or transfer such shares of Common Stock net of the number of shares
sufficient to satisfy the withholding tax requirements. For withholding tax
purposes, the shares of Common Stock shall be valued on the date the withholding
obligation is incurred.
10. NON-TRANSFERABILITY OF OPTIONS. No option shall be transferable by the
optionee otherwise than by will or the laws of descent and distribution and each
option shall be exercisable during an optionee's lifetime only by him.
11. LIMITATION ON AMOUNTS OF INCENTIVE STOCK OPTIONS GRANTED. The aggregate
fair market value (determined as of the date of grant) of stock for which
incentive stock options granted to an optionee under this Plan become first
exercisable shall not exceed One Hundred Thousand Dollars ($100,000) during any
calendar year.
12. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
outstanding shares of Common Stock of the Company is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to options granted thereunder shall be proportionately adjusted;
(b) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted, on an
equitable basis as determined by the Committee, for each share of Common Stock
then subject to the Plan, whether or not at the time subject to outstanding
options, the number and kind of shares of Stock or other securities to which the
holders of shares of Common Stock of the Company will be entitled pursuant to
the transaction; and (c) in the event of any other relevant change in the
capitalization of the Company, the Committee shall provide for an equitable
adjustment in the number of shares of Common Stock then subject to the Plan,
whether or not then subject to outstanding options. In the event of any such
adjustment, the purchase price per share shall be proportionately adjusted.
13. TERMINATION AND AMENDMENT OF PLAN. This Plan shall terminate ten years
from the effective date of this Plan, and an option shall not be granted under
the Plan after that date. The Plan may at any time or from time to time be
terminated, modified, or amended by the affirmative vote of a majority in
interest of the voting stock of the Company. The Board of Directors may at any
time and from time to time modify or amend the Plan in respects as it shall deem
advisable to conform to any change in the law, or in any other respect, provided
that: (a) any increase in the maximum number of shares for which options may be
granted under the Plan generally or to directors or any change in the provisions
relating to the determination of employees to whom options shall be granted must
be approved by a majority vote of the stockholders within twelve months before
or after the effective date of such increase or change; and (b) the Board of
Directors shall not have authority to (i) change the option prices other than to
change the manner of determining the fair market value of the Common Stock for
the purposes of Section 5 hereof to conform with any then applicable provisions
of the Code or regulations thereunder, or (ii) extend the periods during which
options may be granted or exercised, or (iii) change the provisions relating to
adjustments to be made upon changes in capitalization. The termination or any
modification or amendment of the Plan shall not, without the consent of any
employee, affect his rights under an option previously granted to him.
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<PAGE> 22
14. EFFECTIVE DATE. This Plan was originally adopted by the Board of
Directors of the Company and approved by the stockholders of the Company
effective September 22, 1989. The Plan was amended and restated on March 30,
1992, and further amended on March 25, 1993, and September 1, 1995. The
amendment of the Plan whereby the number of shares reserved for issuance under
the Plan was increased from 2,300,000 shares to 3,300,000 shares was approved by
the Board of Directors on March 15, 1996, subject to the ratification by the
stockholders of the Company. If the amendment of the Plan is ratified by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Company voting in person or by proxy at the 1996 Annual
Stockholders' Meeting, it shall be deemed to have become effective on March 15,
1996, the date on which such amendment was approved by the Board of Directors.
Options may be granted under the plan prior to ratification of such amendment by
the stockholders of the Company and, in each case, the date of grant shall be
determined without reference to the date of ratification of the amendment of the
Plan by the stockholders of the Company; provided, however, that if the
amendment of the Plan is not ratified by the stockholders, all options granted
hereunder on or subsequent to March 15, 1996 which are inconsistent with the
terms of the Plan as in effect prior to such amendment shall be canceled and
void.
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EXHIBIT B
---------
PSYCHEMEDICS CORPORATION
1989 NON-QUALIFIED STOCK OPTION PLAN
------------------------------------
1. STATEMENT OF PURPOSE. The purpose of this Non-Qualified Stock Option
Plan (the "Plan") is to benefit PSYCHEMEDICS CORPORATION (the "Company") through
the maintenance and development of its businesses by enabling the Company to
attract and retain well-qualified "Outside Directors" to serve on its Board by
providing a favorable opportunity to such persons to become holders of stock in
the Company over a period of years, thereby giving them a permanent stake in the
growth and prosperity of the Company and encouraging the continuance of their
involvement with the Company and/or its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by the Board of Directors
of the Company, which Board for purposes of this Plan shall be referred to as
the Committee. The Committee shall have full and plenary authority to interpret
the terms and provisions of the Plan.
3. ELIGIBILITY. Each "Outside Director" of the Company shall be eligible to
receive automatic grants of non-statutory options under this Plan (individually
an "Option" and collectively "Options") pursuant to the provisions of Section 5
hereof. A person shall be deemed an Outside Director if such person serves on
the Board of Directors and is not, at the date such service commences, an
employee of the Company or its subsidiaries. Any person who qualifies as an
Outside Director but subsequently becomes employed by the Company or its
subsidiaries shall not forfeit options granted hereunder unless such employment
commences within six (6) months of the date such person was first named a
director of the Company or any subsidiary.
4. STOCK SUBJECT TO THE PLAN. The stock issuable under this Plan shall be
shares of the Company's Common Stock, par value $.005 per share (the "Common
Stock"). Such shares may be made available from authorized but unissued shares
of Common Stock or shares of Common Stock reacquired by the Company. The
aggregate number of shares of Common Stock issuable upon exercise of Options
under this Plan shall not exceed 300,000 shares, subject to adjustment from time
to time in accordance with Section 10 hereof.
5. AUTOMATIC GRANT OF OPTIONS.
(a) INITIAL GRANT OF OPTIONS. Each individual who is initially elected or
appointed as a Non-employee Director on or subsequent to March 15, 1996 shall
receive, as the date of his or her initial election or appointment, an automatic
grant of an Option to purchase 25,000 shares of Common Stock.
Subject to the provisions of Section 9 hereof, each option granted pursuant
to this Section 5(a)(herein referred to individually as an "Initial Option" and
collectively as "Initial Options") shall be for a term of ten (10) years. Each
Initial Option shall become exercisable cumulatively in twenty-four (24) equal
monthly increments of 1,041 shares (with the last such installment being for
1,057 shares), each commencing on the same numerical day of the month following
the date of automatic grant pursuant to this Section 5(a). Subject to the
foregoing, all or any part of the shares to which the right to purchase has
accrued may be purchased at the time of such accrual or at any time or times
thereafter during the option period.
(b) ANNUAL GRANT OF OPTIONS. Commencing on March 15, 1996, and continuing
in effect on the 15th day of March of each subsequent calendar year, each
individual who is at the time serving as a Non-employee Director shall receive
an additional automatic grant of an Option to purchase 20,000 shares of Common
Stock. Each Option granted pursuant to this Section 5(b)(herein referred to
individually as an "Annual Option" or collectively as "Annual Options") shall be
for a term of ten (10) years. Each Annual Option shall become exercisable in
full twelve (12) months after the date
21
<PAGE> 24
of automatic grant pursuant to this Section 5(b). The Annual Option shall
thereafter remain so exercisable until the expiration or sooner termination of
the Option term.
The foregoing automatic grant dates under Sections 5(a) and 5(b) are herein
referred to individually as an "Automatic Grant Date" and collectively as
"Automatic Grant Dates" and the Non-employee Directors receiving Options are
herein referred to individually as an "Optionee" and collectively as
"Optionees." Options granted under this Plan are not intended to be treated as
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
In the event that an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a canceled option). Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock.
Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be nominated by management of the
Company as a director of the Company, or interfere in any way with the right of
the Company and its Board of Directors to remove such optionee as a director of
the Company in accordance with the Company's by-laws and applicable state law.
6. EXERCISE PRICE. The price per share payable upon exercise of an Option
("Exercise Price") shall be the fair market value per share of Common Stock as
of the applicable Automatic Grant Date.
For purposes of establishing the Exercise Price, the "fair market value"
shall be deemed to be the mean of the bid and asked prices of the Common Stock
at the close of the trading day next preceding the applicable Automatic Grant
Date, except that if the Common Stock is then listed on any national exchange,
fair market value shall be the mean between the high and low sales prices on the
date next preceding the applicable Automatic Grant Date.
7. EXERCISE OF OPTION. An option may be exercised by giving written notice
to the Company, attention of the Secretary, specifying the number of shares to
be purchased, accompanied by the full purchase price for the shares to be
purchased either in cash or by check, or by shares of the Common Stock of the
Company, or by a combination of these methods.
At the time of exercise of any Option, the Company may, if it shall
determine it necessary or desirable for any reason, require the Optionee (or his
heirs, legatees, or legal representative, as the case may be) as a condition
upon the exercise thereof to deliver to the Company a written representation of
present intention to purchase the shares for investment and not for
distribution. In the event such representation is required to be delivered, an
appropriate legend may be placed upon each certificate delivered to the Optionee
upon his exercise of part or all of the Option and a stop transfer order may be
placed with the transfer agent. Each Option shall also be subject to the
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the shares subject to the Option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition of or in connection with, the issue or purchase of shares thereunder,
the Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
8. TERMINATION OF RELATIONSHIP - EXERCISE THEREAFTER. In the event the
Optionee's service on the Board of Directors is terminated for any reason other
than death or permanent disability such optionee's option shall cease to further
vest and all rights to purchase shares which have accrued pursuant thereto shall
terminate within ten (10) days of such termination of service on said Board.
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<PAGE> 25
In the event of termination of said relationship because of death or
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), the option may be exercised to the
extent the option was exercisable at the date of such death or permanent
disability by the optionee or, if he is not living, by his heirs, legatees, or
legal representative, as the case may be, for a period of one (1) year after the
date of death or permanent disability, but in any event not later than ten years
after the date the option was granted.
9. NON-TRANSFERABILITY OF OPTIONS. No option shall be transferable by the
optionee otherwise than by will or the laws of descent and distribution , or
pursuant to a qualified domestic relations order as defined by the Code, or
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or the rules thereunder. Subject to the foregoing, each option shall
be exercisable during an Optionee's lifetime only by the Optionee.
10. ADJUSTMENT. The number of shares subject to the Plan and to Options
granted under the Plan shall be adjusted as follows: (a) in the event that the
outstanding shares of Common Stock of the Company is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to Options granted thereunder shall be proportionately adjusted;
(b) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, all Options shall fully vest unless
the Committee should determine otherwise that there shall be substituted, on an
equitable basis, for each share of Common Stock then subject to the Plan,
whether or not at the time subject to outstanding Options, the number and kind
of shares of Stock or other securities to which the holders of shares of Common
Stock of the Company will be entitled pursuant to the transaction; and (c) in
the event of any other relevant change in the capitalization of the Company, the
Committee shall provide for an equitable adjustment in the number of shares of
Common Stock then subject to the Plan, whether or not then subject to
outstanding Options. In the event of any such adjustment, the purchase price per
share shall be proportionately adjusted.
11. AMENDMENT OR DISCONTINUANCE OF PLAN. This Plan may from time to time be
amended or discontinued by action of the Board of Directors or by the
stockholders of the Company; provided that: (a) any increase in the maximum
number of shares for which Options may be granted under the Plan, any change in
the method of automatic grant, or any change in the provisions relating to the
persons to whom Options shall be granted must be approved by a majority vote of
the stockholders within twelve months before or after the effective date of such
increase or change; and (b) the Board of Directors shall not have authority to
change (i) the Option prices, or (ii) the periods during which Options may be
granted or exercised, or (iii) the provisions relating to adjustments to be made
upon changes in capitalization. The termination or any modification or amendment
of the Plan shall not, without the consent of any Optionee, affect his rights
under an Option theretofore granted to him.
12. EFFECTIVE DATE. The Plan was adopted by the Board of Directors and
approved by the stockholders of the Company effective September 22, 1989. The
amendment of the Plan whereby Plan was amended and restated and the number of
shares reserved for issuance under the Plan was increased from 200,000 shares to
300,000 shares was approved by the Board of Directors on March 15, 1996, subject
to the ratification by the stockholders of the Company. If the amendment of the
Plan is ratified by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of the Company voting in person or by proxy
at the 1996 Annual Stockholders' Meeting, it shall be deemed to have become
effective on March 15, 1996, the date on which such amendment was approved by
the Board of Directors. Options may be granted under the plan prior to
ratification of such amendment by the stockholders of the Company and, in each
case, the date of grant shall be determined without reference to the date of
ratification of the amendment of the Plan by the stockholders of the Company;
provided, however, that if the amendment of the Plan is not ratified by the
stockholders, all options granted hereunder on or subsequent to March 15, 1996
which are inconsistent with the terms of the Plan as in effect prior to such
amendment shall be canceled and void.
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<PAGE> 26
PSYCHEMEDICS CORPORATION
PROXY FOR 1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 7, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Werner A. Baumgartner, Ph.D. and Raymond C.
Kubacki, Jr., or either of them, attorneys or attorney of the undersigned (with
full power of substitution in them), to vote for and in the name of the
undersigned, at the 1996 Annual Meeting of Stockholders of Psychemedics
Corporation (the "Company") to be held on Tuesday, May 7, 1996 at 9:30 a.m. at
the Radisson Hotel & Suites Chicago, 160 East Huron Street, Chicago, Illinois
and any adjournments thereof, according to the number of shares and as fully as
the undersigned would be entitled to vote if personally present.
Without limiting the general authorization hereby given, said proxies are, and
each of them is, instructed to vote or act as follows on the proposals set
forth in the Company's Proxy Statement dated April 5, 1996 and on such other
matters as may properly come before the meeting.
----------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.
----------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this proxy exactly as your name appears on the books of the
Company. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more
than one name appears, a majority must sign. If a corporation, this signature
should be that of an authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
<PAGE> 27
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
With- For All
For hold Except
1.) Election of Directors. / / / / / /
WERNER A. BAUMGARTNER, PH.D.; RAYMOND C. KUBACKI, JR.; A. CLINTON ALLEN;
DONALD F. FLYNN; JOHN J. MELK; AND FREDERICK J. WEINERT
IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE, MARK THE
"FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NOMINEE(S) NAME. YOUR
SHARES WILL BE VOTED FOR THE REMAINING NOMINEE(S).
For Against Abstain
2.) Amendment of the Company's 1989 / / / / / /
Employee Stock Option Plan
3.) Amendment of the Company's 1989 / / / / / /
Non Qualified Stock Option Plan
4.) Selection of Arthur Andersen LLP as / / / / / /
auditors of the Company.
RECORD DATE SHARES:
The Board of Directors recommends a vote FOR Proposals 1, 2, 3 and 4
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSALS SET FORTH IN PARAGRAPHS (1), (2), (3) AND (4).
-----------------------------
Please be sure to sign and date this Proxy. Date
- --------------------------------------------------------------------------------
- ------Shareholder sign here---------------Co-owner sign here--------------------
Mark box at right if comments or address change have / /
been noted on the reverse side of this card.
DETACH CARD
PSYCHEMEDICS CORPORATION
Dear Shareholder:
Please take note of the important information enclosed with this Proxy
Ballot.
Your vote counts, and you are strongly encouraged to exercise your
right to vote your shares.
Please mark the boxes on the proxy card to indicate how your shares
shall be voted. Then sign the card, detach it and return your proxy
vote in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders,
May 7, 1996.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Psychemedics Corporation
