<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Rule 14a-11(c) or Rule
14a-12
/ / Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
Advanced Polymer Systems, 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)(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:
============================================================
ADVANCED POLYMER SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 16, 1999
-------------------------------
To the Stockholders of Advanced Polymer Systems, Inc.:
The Annual Meeting of Stockholders of Advanced Polymer Systems, Inc. (the
"Company") will be held at the Stanford Park Hotel, 100 El Camino Real, Menlo
Park, California, on June 16, 1999, at 10:00 a.m. local time, for the
following purposes:
1. To elect ten directors to hold office until the next annual meeting of
stockholders and until their successors are elected.
2. To transact such other business as properly may come before the meeting,
or any adjournments or postponements of the meeting.
Only stockholders of record at the close of business on April 22, 1999, are
entitled to notice of, and to vote at, the meeting and any adjournments or
postponements of the meeting. A list of such stockholders will be open to
examination by any stockholders at the Annual Meeting and for a period of ten
days prior to the Annual Meeting during ordinary business hours at the offices
of the Company located at 123 Saginaw Drive, Redwood City, California 94063.
BY ORDER OF THE BOARD OF DIRECTORS,
Julian N. Stern, Secretary
Redwood City, California
May 19, 1999
- IMPORTANT -
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTPAID ENVELOPE.
THANK YOU FOR ACTING PROMPTLY.
ADVANCED POLYMER SYSTEMS, INC.
123 Saginaw Drive
Redwood City, California 94063
(650) 366-2626
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Advanced Polymer Systems, Inc. ("APS" or the "Company"), a
Delaware corporation. The proxy is solicited for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10:00 a.m. local time on
June 16, 1999, at the Stanford Park Hotel, 100 El Camino Real, Menlo Park,
California. The approximate date on which this proxy statement and the
accompanying notice and proxy are first being mailed to stockholders is May
19, 1999.
VOTING
Only stockholders of record at the close of business on April 22, 1999, are
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
or postponements thereof. At the close of business on that date, the Company
had outstanding 20,068,113 shares of its Common Stock, $.01 par value (the
"Common Stock"). Holders of a majority of the outstanding shares of Common
Stock of the Company, either present in person or by proxy, will constitute a
quorum for the transaction of business at the Annual Meeting.
Holders of Common Stock are entitled to one vote for each share of Common
Stock held. In the election of directors, the ten nominees receiving the
highest number of affirmative votes of the shares present and voting at the
Annual Meeting at which a quorum is present will be elected directors. An
affirmative vote of a majority of the shares present and voting at the meeting
is generally required for approval of any other items properly submitted to
the stockholders for their consideration.
Abstentions are included in the determination of whether a quorum is present
at the meeting and are counted in tabulations of the votes cast on proposals
presented to stockholders and have the same effect as negative votes. Proxies
marked to withhold authority for all directors will not be counted in the
election of directors. If a broker indicates on a proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter (a
broker non-vote), while those shares will be included in the determination of
whether a quorum is present, broker non-votes will have no effect on any
matter brought before the Annual Meeting, including the election of directors.
REVOCABILITY OF PROXIES
Proxies which are properly executed and received by the Company before the
Annual Meeting will be voted at the Annual Meeting. Any stockholder giving a
proxy has the power to revoke the proxy at any time prior to its exercise. A
proxy can be revoked by an instrument of revocation delivered prior to the
Annual Meeting to the Secretary of the Company, by a duly executed proxy
bearing a later date or time than the date or time of the proxy being revoked,
or at the Annual Meeting if the stockholder is present and elects to vote in
person. Mere attendance at the Annual Meeting will not serve to revoke a
proxy.
SOLICITATION OF PROXIES
Solicitation of proxies may be made by directors, officers and other employees
of the Company by personal interview, telephone, telegraph, telefax or
electronic communications. No additional compensation will be paid for any
such services. Costs of solicitation will be borne by the Company. APS will,
upon request, reimburse the reasonable fees and expenses of banks, brokerage
houses or other nominees or fiduciaries for forwarding proxy materials to, and
obtaining authority to execute proxies from, beneficial owners for whose
accounts they hold shares of Common Stock.
The Company has retained MacKenzie Partners, Inc. ("MacKenzie") to assist in
the solicitation of proxies. Pursuant to the Company's agreement with
MacKenzie, it will provide various proxy advisory and solicitation services
for the Company at a cost of approximately $6,000, plus reasonable out-of-
pocket expenses and indemnification against certain liabilities.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth beneficial Common Stock ownership as of April
22, 1999, by (i) each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each director,
including nominees, and each executive officer named in the Summary
Compensation Table included in the Proxy Statement, and (iii) all executive
officers and directors as a group. Each person has sole investment and voting
power with respect to the shares indicated, subject to community property laws
where applicable and except as otherwise set forth in the footnotes to the
table.
<TABLE>
<CAPTION>
NUMBER PERCENT
OF OF
NAME SHARES(1) CLASS(1)
- ------------------------------------------- --------- --------
<S> <C> <C>
Stephen A. Drury -- -
Carl Ehmann, M.D., F.A.C.P.(2) 67,686 *
Jorge Heller, Ph.D.(3) 100,686 *
John J. Meakem, Jr.(4) 905,967 4.4
Michael O'Connell(5) 371,526 1.8
Peter Riepenhausen(6) 93,686 *
Les Riley(7) 194,098 1.0
Toby Rosenblatt(8) 266,212 1.3
Subhash Saxena, Ph.D.(9) 149,912 *
Richard D. Spizzirri -- -
Gregory H. Turnbull(10) 75,686 *
C. Anthony Wainwright(11) 24,186 *
Dennis Winger(12) 75,686 *
Johnson & Johnson Development Corporation(13) 1,332,101 6.6
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Citigroup, Inc.(14) 4,657,561 23.2
388 Greenwich Street
New York, NY 10013
Officers and Directors as a group(13 persons) 2,325,331 10.6
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)
<FN>
- --------------
* Less than one percent.
(1) Assumes the exercise of all outstanding options and warrants
to purchase Common Stock held by such person or group to the
extent exercisable on or before June 22, 1999, and that no
other person has exercised any outstanding stock options.
(2) Includes 65,000 shares underlying presently exercisable
stock options.
(3) Includes 90,000 shares underlying presently exercisable
stock options.
(4) Includes 654,247 shares underlying presently exercisable
stock options.
(5) Includes 346,249 shares underlying presently exercisable
stock options.
(6) Includes 8,000 shares held as joint tenant with Mr.
Riepenhausen's spouse and 85,000 shares underlying presently
exercisable stock options.
(7) Includes 172,917 shares underlying presently exercisable
stock options.
(8) Includes 75,000 shares underlying presently exercisable
stock options.
(9) Includes 148,834 shares underlying presently exercisable
stock options.
(10) Includes 75,000 shares underlying presently exercisable
stock options.
(11) Includes 22,500 shares underlying presently exercisable
stock options.
(12) Includes 75,000 shares underlying presently exercisable
stock options.
(13) Based solely on information contained in a Schedule 13G
dated July 6, 1998.
(14) Based solely on information contained in a Schedule 13G
dated January 8, 1999, and includes 1,659,500 shares held by
Mutual Management Corporation and 2,998,061 shares held by
Salomon Smith Barney, Inc.
</FN>
</TABLE>
ELECTION OF DIRECTORS
Ten directors are to be elected to the Board at the Annual Meeting, each to
serve for a one year term until the Annual Meeting to be held in 2000, and
until his or her successor has been elected and qualified. All the nominees
presently are directors of APS. It is intended that proxies received will be
voted "FOR" the election of the nominees, unless marked to the contrary.
The Board has no reason to believe that any of the nominees will be unable or
unwilling to serve as a director if elected. If any nominee should become
unavailable prior to the election, the accompanying proxy will be voted for
the election of any nominee who is designated by the present Board of
Directors to fill the vacancy.
INFORMATION CONCERNING THE BOARD OF DIRECTORS:
The nominees for Directors of APS and their ages and position with the Company
are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
- ----------------------- --- --------------------- --------
<S> <C> <C> <C>
John J. Meakem, Jr. 62 Chairman, President and CEO 1991
Stephen A. Drury 62 Director 1999
Carl Ehmann, M.D. (3) 56 Director 1994
Jorge Heller, Ph.D. (3) 71 Director 1991
Peter Riepenhausen (2) 62 Director 1991
Toby Rosenblatt (1)(2) 60 Director 1983
Richard D. Spizzirri 65 Director 1999
Gregory H. Turnbull (1) 60 Director 1986
C. Anthony Wainwright (2) 65 Director 1996
Dennis Winger (1) 51 Director 1993
<FN>
- ----------------
(1) Member of the Finance and Audit Committee of the Board.
(2) Member of the Compensation and Stock Option Committee of the
Board.
(3) Member of the Science Oversight Committee of the Board.
</FN>
</TABLE>
John J. Meakem, Jr. -- chief executive officer and president of APS since
June 1991, director since July 1991; chairman of APS board of directors since
March 1993; chairman of Premier, Inc., a privately held company, from 1986
until its acquisition by APS in 1993. From 1970 to 1986, Mr. Meakem was with
Combe, Inc. and served as corporate executive vice president and president of
Combe, North America. Prior to that Mr. Meakem was vice president of
Richardson-Vicks, Inc.
Stephen A. Drury -- director of APS since May 1999. Mr. Drury is currently
a healthcare financial advisor and a private investor. Prior to his
retirement in 1997 he was executive vice president and a director of Owen
Healthcare since 1992 and senior vice president and chief financial officer of
Integrated Health Services, Inc. from 1989 until 1992. Prior to that Mr.
Drury served as senior vice president of Thomson McKinnon Securities and
managing director of its Healthcare Capital Markets Group from 1985 to 1989.
Mr. Drury has been appointed to the Board and has been nominated for election
at the Annual Meeting pursuant to an agreement among APS, Providence
Investors, LLC and related entities (the "Providence Agreement").
Carl Ehmann, M.D., F.A.C.P. -- director of APS since June 1994. Dr. Ehmann
currently serves as Group Director, Global Research and Development of Reckitt
& Colman plc. Formerly, he was executive vice president-research and
development of R.J. Reynolds Tobacco Company where he also served as a member
of the executive and operating committee from 1992 until 1996. From 1987
until 1992, he was executive vice president of research and development at
Johnson & Johnson Consumer Products, Inc.
Jorge Heller, Ph.D. -- director of APS since April 1991. Dr. Heller is a
full time consultant to the Company and its Chief Scientist. Prior to joining
the Company, Dr. Heller was director of the controlled release and biomedical
polymers program at SRI International until January 1994, where he was a staff
member since 1974. He is also adjunct professor of pharmacy at the University
of California, San Francisco, and at the University of Utah. He is editor of
the Journal of Controlled Release and past president of the Controlled Release
Society.
Peter Riepenhausen -- director of APS since April 1991. Mr. Riepenhausen
is currently a business consultant. He was president and chief executive
officer of ReSound Corporation from 1994 to 1998. He serves as a director of
Weru A.G. He also served as a director of Caradon (Europe) plc from April
1994 until September 1998. He served as vice chairman of the board of
directors of The Cooper Companies, Inc. from January, 1987 until September,
1989, and from January, 1984 until December, 1986 he was executive vice
president of The Cooper Companies, Inc. Mr. Riepenhausen has also held
executive positions with Blendax-Werke R. Schneider GmbH & Co. of West Germany
and Pepsico, Inc.
Toby Rosenblatt -- director of APS since September 1983. Mr. Rosenblatt is
president of The Glen Ellen Company and vice president of Founders
Investments, Ltd. Both companies are involved in private investment
activities. Mr. Rosenblatt also serves as a director of State Street Research
Mutual Funds and is a trustee of numerous civic and educational institutions.
Richard D. Spizzirri -- director of APS since May 1999. Mr. Spizzirri has
been senior counsel to the law firm of Davis Polk & Wardwell since 1995 and
was a partner of Davis Polk & Wardwell from 1967 to 1994. He serves as a
director of Centocor, Inc. and SUGEN, Inc. Mr. Spizzirri was appointed to the
Board and has been nominated for election at the Annual Meeting pursuant to
the Providence Agreement.
Gregory H. Turnbull -- director of APS since February 1986. Mr. Turnbull
is currently a business consultant and a director of Planar Systems, Inc.
Previously, he was a general partner of Cable & Howse Ventures, a venture
capital organization which he first joined in 1983, and of which he is
currently a special limited partner. Prior to his work as a venture
capitalist, Mr. Turnbull was an investment banker for 15 years with Morgan
Stanley & Co. and White Weld & Co.
Charles Anthony Wainwright -- director of APS since November 1996. Mr.
Wainwright is currently vice chairman of McKinney & Silver, a national
advertising agency and a director of the following companies: Gibson
Greetings, American Woodmark Corp., Del Webb Corp., Caribiner Corp., and
Marketing Services Group, Inc. He was the chairman of Harris Drury Cohen from
1995 until early 1997 and from 1990 to 1995, he was the chairman of Compton
Partners, Saatchi & Saatchi. He was also the president and chief operating
officer of the Bloom Companies from 1980 until 1989.
Dennis Winger -- director of APS since February 1993. Mr. Winger is senior
vice president and chief financial officer of Perkin-Elmer Corporation. From
1989 to 1997, Mr. Winger was senior vice president, finance and administration
and chief financial officer of Chiron Corporation. He was also a member of
Chiron's Strategy Committee. Prior to joining Chiron, Mr. Winger held a
series of financial positions at The Cooper Companies, Inc., including chief
financial officer.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors met four times during 1998. Except for Mr. Toby
Rosenblatt, each of the directors participated in at least 75% of the total
number of meetings of the Board and of the committees of the Board on which
each served.
The Board has a Finance and Audit Committee, a Compensation and Stock Option
Committee, a Science Oversight Committee and a Committee on Strategic
Alternatives. The Finance and Audit committee, which met two times during the
last fiscal year, consisted of Messrs. Rosenblatt, Turnbull and Winger. The
Finance and Audit Committee recommends engagement of the Company's independent
auditors and reviews the scope and results of the annual independent audit of
the Company's books and records. The Committee is also responsible for
reviewing and evaluating the Company's accounting principles and its system of
internal accounting controls, and reviewing its plans for providing
appropriate financial resources to sustain the Company's operations. The
Compensation and Stock Option Committee, which met four times during the year,
consisted of Messrs. Riepenhausen, Rosenblatt and Wainwright. The function of
the Compensation and Stock Option Committee is to propose and review the
compensation policies of the Company and to administer the Company's stock
option and stock purchase plans. The Science Oversight Committee, which met
three times during the year, consisted of Dr. Ehmann and Dr. Heller. The
function of the Science Oversight Committee is to review the Company's
research and development activities. The Committee on Strategic Alternatives
is newly formed and will be chaired by Dennis Winger. The function of the
Committee on Strategic Alternatives will be to review with the Company's
outside advisors and management the progress of the Company's process for
evaluating and pursuing strategic alternatives for maximizing stockholder
value, including review of any proposed transactions involving the sale of all
or any material part of the Company.
COMPENSATION OF DIRECTORS
Under the Company's 1992 Stock Option Plan, each nonemployee director of the
Company is automatically granted an option to acquire 10,000 shares of Common
Stock annually and receives a one-time automatic grant to acquire 25,000
shares when first elected as a director. In addition, nonemployee directors
of the Company receive $12,000 per year, payable in installments, one-half in
cash and one-half in unregistered Common Stock of the Company valued at the
closing price of the Company's Common Stock on the last trading date of the
relevant period. Each nonemployee director of the Company is also paid $1,000
for each meeting of the Board of Directors attended and $500 for each
committee meeting attended on a date other than the date of a regularly
scheduled Board meeting. The Company paid no other Directors' fees for the
fiscal year ended December 31, 1998. Certain directors of the Company have
received consulting fees. See "Certain Transactions."
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, as well as any holders of more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission
certain reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Based solely on review of
such reports and certain representations furnished to it, the Company believes
that during the fiscal year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its officers and directors were complied with.
EXECUTIVE COMPENSATION
<TABLE>
The following Summary Compensation Table shows the total compensation for
fiscal years 1998, 1997 and 1996 of the chief executive officer and the other
most highly compensated executive officers whose salary exceeded $100,000 in
1998.
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
------------ -------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL
SALARY BONUS AWARDS OPTIONS OTHER
NAME AND POSITION YEAR ($) ($) ($)(1) (#) COMPENSATION
- ----------------- ---- ------ ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
John J. Meakem, Jr. 1998 373,654 0 359,400 198,000 4,800(2)
Chairman, President 1997 339,635 100,000 0 50,000 4,569(2)
and Chief Executive 1996 324,693 0 0 0 4,500(2)
Officer
Michael O'Connell 1998 235,616 0 119,800 110,000 4,800(2)
Executive Vice 1997 211,769 56,000 0 40,000 4,750(2)
President, Chief 1996 195,962 10,000 0 40,000 4,500(2)
Financial and
Administrative
Officer; President
of Pharmaceutical
Sciences
Les Riley 1998 235,616 0 119,800 75,000 4,800(2)
Senior Vice 1997 211,769 56,000 0 40,000 169,799(3)
President, President 1996 190,769 10,000 0 125,000 3,249(2)
of Dermatology and
Skin Care
Subhash Saxena, Ph.D. 1998 188,077 0 0 70,000 4,800(2)
Senior Vice 1997 166,731 37,500 0 20,000 4,560(2)
President, Research 1996 137,846 5,000 0 20,000 4,285(2)
and Development/
Regulatory Affairs
<FN>
- ---------------
(1) The dollar value of restricted stock awards net of consideration paid by
the named executive officer was calculated using the closing market price
of the Company's Common Stock on date the restricted stock award was
granted. Each restricted stock award provides that for a period of three
years after the award of restricted stock, the recipient may not sell,
assign, transfer, pledge or otherwise encumber the shares of restricted
stock. Any cash dividends with respect to shares of restricted stock are
automatically reinvested in additional shares of restricted stock. Each
restricted stock award provides that if the employee should leave the
employ of the Company prior to three years from the date of award, unless
waived by the administrator of the plan under certain circumstances, the
Company will have the right to repurchase the restricted stock at their
original purchase price of $.01 per share. As of December 31, 1998, the
Company had a total of 100,000 shares of restricted stock outstanding with
an aggregate value of $537,500 based on the value of the Company's shares
at December 31, 1998.
(2) The stated amounts are Company matching contributions to the Advanced
Polymer Systems Salary Reduction Profit Sharing Plan. In 1998, the
Company made matching contributions equal to 50% of each participant's
contribution during the plan year up to a maximum amount equal to the
lesser of 3% of each participant's annual compensation or $4,800.
(3) This amount consists of $165,349 in relocation costs that were taxable to
Mr. Riley in 1997 and $4,450 in Company matching contribution to the
Advanced Polymer Systems Salary Reduction Profit Sharing Plan. See note
(2) above.
</FN>
</TABLE>
<TABLE>
The following table sets forth certain information with respect to options
granted during 1998 to the executive officers named in the Summary
Compensation Table.
STOCK OPTION GRANTS IN 1998
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------------------------- --------------------
%
OF
TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES
OPTIONS IN EXERCISE
GRANTED FISCAL PRICE EXPIRATION
NAME (#)(2) YEAR ($/SH) DATE 5%($) 10%($)
- -------------------- --------- ---- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
John J. Meakem, Jr. 60,000 8.5 $7.000 03/06/08 264,136 669,372
95,000 13.5 $4.188 10/20/08 250,212 634,086
43,000 6.1 $4.625 12/16/08 125,071 316,956
Michael O'Connell 20,000 2.8 $6.375 01/13/08 80,184 203,202
60,000 8.5 $4.188 10/20/08 158,029 400,476
30,000 4.2 $4.625 12/16/08 87,259 221,132
Les Riley 20,000 2.8 $6.375 01/13/08 80,184 203,202
25,000 3.6 $4.188 10/20/08 65,845 166,865
30,000 4.3 $4.625 12/16/08 87,259 221,132
Subhash Saxena, Ph.D. 20,000 2.8 $6.000 06/23/08 75,467 191,249
30,000 4.3 $4.188 10/20/08 79,014 200,238
20,000 2.8 $4.625 12/16/08 58,173 147,421
<FN>
- ---------------
(1) Potential realizable value is based on an assumption that the price of the
Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten year option term. The
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission ("SEC") and do not reflect the
Company's estimate of future stock price growth.
(2) The options granted under the Company's 1992 Stock Plan typically vest
over 4 years at 25% annually. Payments on exercise, including any taxes
the Company is required to withhold, may be made in cash, by a full
recourse promissory note or by tender of shares. Options are granted at
fair market value on the date of grant.
</FN>
</TABLE>
<TABLE>
The following table sets forth certain information with respect to options exercised during 1998 and the value
of options held at fiscal year end by the executive officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN 1998 AND 1998 YEAR-END OPTION VALUES
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 1998 YEAR-END AT FISCAL YEAR-END (2)
SHARES ------------------------- --------------------------
ACQUIRED
UPON
OPTION VALUE
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($)(1) (#) (#) ($) ($)
- --------------------- -------- -------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
John J. Meakem, Jr. 20,000 100,938 625,081 225,833 189,903 115,369
Michael O'Connell 0 0 330,833 119,167 74,216 71,689
Les Riley 0 0 151,146 88,854 22,500 29,675
Subhash Saxena, Ph.D 0 0 139,667 70,833 55,000 35,923
<FN>
- ---------------
(1) Market value of underlying securities at exercise less the exercise price.
(2) Market value of underlying securities at fiscal year-end minus the
exercise price of "in-the-money" options.
</FN>
</TABLE>
APS did not make any awards during 1998 to any of the executive officers named
in the Summary Compensation Table under any long-term incentive plan providing
compensation intended to serve as an incentive for performance to occur over a
period longer than one fiscal year, excluding options and restricted stock
awards.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee") is responsible for establishing compensation policies applicable
to the Company's executive officers and, pursuant to such policies,
determining the compensation payable to the Company's chief executive officer
and other executive officers of the Company. The committee consists of Peter
Riepenhausen, Toby Rosenblatt and C. Anthony Wainwright, each of whom is a
nonemployee director of the Company. The following report relates to
compensation payable to the Company's executive officers for the year ended
December 31, 1998.
COMPONENTS OF COMPENSATION
There are three components of compensation payable to the Company's executive
officers; base salary, equity-based incentive compensation in the form of
stock options and restricted stock awards and annual incentive compensation in
the form of cash bonuses.
COMPENSATION POLICIES
The Company's compensation policies for all employees, including executive
officers, are designed to provide targeted compensation levels that are
competitive with those of regional high technology companies of similar size,
with whom the company must compete in the recruitment of senior personnel.
The Committee also seeks to tie incentive cash bonuses to the achievement of a
pre-established performance objectives for the Company approved by the
Committee, and to use stock options and restricted stock awards to promote
equity-ownership in the Company at levels deemed appropriate by the Committee
for executive officers. The goals of the Committee are to align compensation
with the Company's objectives and performance, and to enable the Company to
attract, retain and reward executives who contribute to the long-term success
of the Company. The Company does not believe that compensation payable by it
will be subject to the limitations on deductibility provided under Section
162(m) of the Internal Revenue Code.
BASE SALARIES
The salary component of executive compensation is based on the executive's
level of responsibility for meeting the Company's objectives and performance,
and comparison to similar positions in the Company and comparable companies.
Base salaries for executive officers are reviewed and adjusted annually based
on information regarding competitive salaries, including salary survey data
provided by third parties regarding regional high technology companies.
Individual increases are established by the Committee (taking into account
recommendations of the chief executive officer concerning the overall
effectiveness of each executive).
CASH BONUSES
Cash bonuses for executive officers are determined under the Company's bonus
plan applicable to management-level employees. This plan, adopted by the
Committee, establishes both performance objectives for the Company and a
target-bonus for each executive officer, which is a percentage of each
executive's base salary. A portion of the target bonus is payable only if
pre-established performance objectives are achieved and the percentage of the
bonus which is payable increases as base performance objectives are exceeded.
No cash incentive bonuses were paid in 1998.
STOCK OPTIONS AND RESTRICTED STOCK AWARDS
The Company's compensation policies recognize the importance of stock
ownership by senior executives and equity based incentive compensation is an
integral part of each executive's compensation. The Committee believes that
the opportunity for stock appreciation through stock options which vest over
time promotes the relationship between long-term interests of executive
officers and stockholders. The size of specific options grants takes into
account the executive officer's salary, number of options previously granted,
as well as shares of Common Stock held, and the contributions to the Company's
success.
In 1998, the Company's 1992 Stock Plan was amended to also permit the awards
of restricted stock. The restricted stock awards provide that each recipient
of restricted stock shall pay the purchase price of the stock, which may not
be less than the par value of the stock, within 15 days of grant of the award,
and that for a period of three years after the award of restricted stock, the
recipient may not sell, assign, transfer, pledge or otherwise encumber the
shares of restricted stock. Any cash dividends with respect to shares of
restricted stock are automatically reinvested in additional shares of
restricted stock and any stock dividends are paid in the form of restricted
stock. Unless waived by the administrator of the Company's 1992 Stock Plan in
the event of a sale of or a merger involving the Company, if a recipient's
employment is terminated during the three-year restriction period, all shares
of restricted stock are forfeited and are repurchased by the Company at their
original purchase price.
RETENTION AND STAY BONUS PLANS
The Compensation and Stock Option Committee of the Board has approved a
Retention Incentive Plan ("Retention Plan") for certain key employees,
including the executive officers of the Company named in the Summary
Compensation Table above. The purpose of the Retention Plan is to encourage
key employees to continue their employment with the Company, enhance their
ability to perform effectively and provide the Company with the benefit of
their continued service. Under the Retention Plan, the company will enter
into individual retention agreements with the covered executives providing
that the executive will be eligible for certain benefits if his or her
employment is terminated under specified circumstances. These agreements will
expire no later than December 31, 2001. If the executive's full-time
employment with the Company is terminated by the Company (other than for
cause) or by the executive for good reason (due to a material reduction in the
executive's authority or responsibility, base salary or other compensation or
employee benefits, or a change in the executive's principal place of work more
than 40 miles from the Company's current headquarters), the executive will be
retained as a part-time employee for a period ranging from a minimum of 12
months to a maximum of 24 months (the "Retention Period"). During the
Retention Plan, the executive will receive continuation of salary, payable
one-half in a lump sum following termination of full-time employment and the
remainder ratable over the Retention Period. Under the Retention Incentive
Plan, each executive will also agree not to compete with the Company during
the Retention Period.
The Compensation and Stock Option Committee of the Board also has approved an
Executive Stay Bonus Plan covering key executives, including the named
executive officers. The purpose of this plan is to encourage key executives
who play a critical role in the Company to optimize the Company's previously
announced process of reviewing all strategic alternatives, including the
possible sale of the Company. The plan provides for payments to the covered
executives, in the event of the sale of the Company at a favorable price that
exceeds a specified amount, up to an aggregate total payment to all covered
executives not to exceed $1 million. The right to receive payments under the
Executive Stay Bonus Plan requires a covered executive to remain with the
Company through any sale unless the covered executive's employment is
terminated without cause.
COMPENSATION PAYABLE TO CHIEF EXECUTIVE OFFICER
The 1998 salary for Mr. Meakem, the Company's chairman, president and chief
executive officer, was determined principally from the terms of his employment
agreement with the Company dated May 1, 1993. See "Certain Transactions".
The Compensation Committee and Board of Directors increased the base salary of
$345,000 to $365,000 effective April 1, 1998. This increase in base salary
corresponds to the average percentage increase in salaries payable to all
employees. Mr. Meakem did not receive any incentive cash bonus in 1998. Mr.
Meakem was granted stock options to acquire an aggregate of 198,000 shares of
Common Stock, which was based on Mr. Meakem's position with and contribution
to the Company, the number of options previously granted to him and the shares
of Common Stock then held by him. He was also granted a restricted stock
award of 60,000 shares in 1998, which was designed to retain his services to
the Company for at least the next three years following the award. As of
April 22, 1999, Mr. Meakem holds presently exercisable stock options to
purchase 641,747 shares, 60,000 shares of restricted stock, and including
options and restricted stock award, beneficially owns as of that date 893,467
shares of the Company's Common Stock. Mr. Meakem will be eligible to
participate in the Company's Retention Plan, but only to the extent he is not
eligible to receive comparable benefits under his employment agreement. See
"Certain Transactions". He is also a participant under the Company's
Executive Stay Bonus Plan.
Compensation and Stock Option Committee
Peter Riepenhausen
Toby Rosenblatt
Charles Anthony Wainwright
PERFORMANCE GRAPH
The rules of the SEC require APS to include in this Proxy Statement a line
graph presentation comparing cumulative five year stockholder returns, on a
dividend reinvested basis, with broad based equity index and a published
industry index. In previous years, the Company has selected the S&P 500 Stock
Index and H&Q Technology Stock Index for purposes of the comparison which
appears below. For this proxy statement, the Company has also included the
Russell 2000 Index which it believes is a more appropriate comparison of the
performance of the Company's stock to stocks of other companies with a low
market capitalization. The graph assumes that $100 was invested in APS stock
and each index on December 31, 1993, with all dividends reinvested. Past
stock performance is not necessarily indicative of future results.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
<TABLE>
<CAPTION>
12/93 12/94 12/95 12/96 12/97 12/98 3/99
----- ----- ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
ADVANCED POLYMER SYSTEMS INC. 100 83 105 145 126 102 83
S&P 500 100 101 139 171 229 294 309
H&Q TECHNOLOGY 100 120 180 223 262 407 443
RUSSELL 2000 100 98 126 147 180 179 165
</TABLE>
CERTAIN TRANSACTIONS
The Company entered into a three-year employment agreement with Mr. Meakem in
May 1993. In 1995, the employment agreement was amended to extend the term
for an additional three years and provide for automatic yearly extensions
thereafter unless written notice of its intention not to automatically extend
the agreement is given by either party and was further amended in April 1999
to clarify the definition of "change in control". The employment agreement
provides that Mr. Meakem may elect to terminate his employment within stated
periods of a change in control of the Company and receive an amount equal to
his prior twelve months' salary and bonus, payable over the subsequent twelve
month period. Mr. Meakem is entitled to receive an amount equal to twice his
prior twelve months' salary and bonus if the Company should terminate his
employment within stated periods of a change in control or if he elects to
terminate his employment following a change in control if his position with
the Company is reduced in terms of responsibility or indicia of status.
"Change in control" under the agreement is defined to include an acquisition
of more than fifty percent of the outstanding shares of the Company or a
change in the majority of the members of the Board of Directors. Mr. Meakem
will be eligible to participate in the Company's Retention Plan, but only to
the extent he is not eligible to receive comparable benefits under his
employment agreement. He is also a participant under the Company's Executive
Stay Bonus Plan.
As of May 5, 1999, the Company had an outstanding secured loan receivable of
$235,000 from John J. Meakem, Jr. The loan is secured by the shares of
Company stock owned by Mr. Meakem. In 1998, the Company charged an interest
rate of 5% on this loan, which was intended to be equivalent to interest
earned by the Company on its short term investments. At the time that the
Company entered into a loan agreement with a third party in March 1999, the
rate of interest was increased beginning March 1, 1999 to a rate equal to the
Company's cost of funds (approximately 13.87%) or, if lower, the highest rate
permitted under applicable law. The loan was approved by the Compensation and
Stock Option Committee of the Company's Board of Directors. Repayment of the
loan is due on or before December 31, 1999.
During 1998, the Company paid to Dr. Carl Ehmann, Dr. Jorge Heller (who
consults for the Company on a full time basis and is the Company's Chief
Scientist), Peter Riepenhausen and Mr. C. Anthony Wainwright, all who are
directors of the Company for consulting services in their fields of expertise,
the respective amounts of $3,000, $160,000, $7,500 and $4,500, respectively.
Payments for similar services in 1997 were $0, $144,999, $0 and $2,000,
respectively, and in 1996 were $0, $127,000, $0 and $0, respectively.
The Company has entered into agreements with Biosource Technologies, Inc.
("Biosource") of which Toby Rosenblatt is a stockholder and a former director.
All agreements between APS and Biosource have been, and will continue to be,
considered and approved by a vote of the disinterested directors. The
agreements provided APS worldwide rights to use and sell Biosource's
biologically-synthesized melanin in Microsponge(R) systems for all sun
protection, cosmetic, ethical dermatology and over-the-counter skin care
purposes. In return, APS was required to make annual minimum purchases of
melanin, pay royalties on sales of APS melanin-Microsponge products and was
required to prepay $500,000 of royalties. For estimated losses on purchase
commitments and related inventory, the Company accrued $1,400,000 in 1996.
All minimum financial commitments under the current agreements have been
expensed by APS. In 1996, APS paid Biosource the 1995 minimum purchase
commitment by issuing Biosource 94,000 shares of APS common stock. In
November 1997 Biosource filed a complaint against the Company in the San Mateo
Superior Court alleging failure to make annual minimum purchases of melanin
and the Company cross complained. In December 1998, the Company reached a
settlement agreement with Biosource for a net amount of $1,300,000, which
consists of a $1,500,000 settlement of Biosource's claims and a $200,000
settlement of the Company's cross claims.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected KPMG LLP ("KPMG") as independent public accountants to
audit the financial statements of the Company for the fiscal year ending
December 31, 1999. KPMG has acted as the Company's auditors since the
Company's inception in 1983. A representative of KPMG will be present at the
Annual Meeting and will have an opportunity to make a statement if such
representative desires to do so. The representative of KPMG also will be
available to respond to questions raised during the meeting.
FINANCIAL STATEMENTS
The Company's annual report to stockholders for the fiscal year ended December
31, 1998, containing audited consolidated balance sheets as of the end of each
of the past two fiscal years and audited consolidated statements of
operations, shareholders' equity and cash flows for each of the last three
fiscal years, is being mailed with this proxy statement to stockholders
entitled to notice of the Annual Meeting.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Under the applicable rules of the Securities and Exchange Commission, a
stockholder who wishes to submit a proposal for inclusion in the proxy
statement of the Board of Directors for the annual meeting of stockholders to
be held in the spring of 2000 must submit such proposal in writing to the
Secretary of the Company at the Company's principal executive offices no later
than January 20, 2000. The applicable rules of the SEC impose certain
limitations on the content of proposals and also contain certain eligibility
and other requirements (including the requirement that the proponent must have
continuously held at least $2000 in market value or 1% of the Company's Common
Stock for at least one year before the proposal is submitted).
OTHER MATTERS
As of the date of this Proxy Statement, the Board does not intend to bring any
other business before the Annual Meeting, and so far as is known to the Board,
no other matters which will be presented to the Annual Meeting. If, however,
any other matter is properly presented at the Annual Meeting, it is intended
that proxies in the form enclosed with this Proxy Statement will be voted on
such matter in accordance with the judgment of the person or persons voting
such proxies.
BY ORDER OF THE BOARD OF DIRECTORS,
Julian N. Stern, Secretary
Redwood City, California
May 19, 1999
You Are Cordially Invited To Attend The Meeting In Person. Whether Or Not
You Plan To Attend The Meeting, You Are Requested To Sign And Return
The Accompanying Proxy In The Enclosed Postpaid Envelope.
ADVANCED POLYMER SYSTEMS, INC.
Proxy Solicited by the Board of Directors
for the Annual Meeting of Stockholders
to be held June 16, 1999
The undersigned hereby appoints John J. Meakem, Jr. and Julian N. Stern, or
either of them, each with full power of substitution, as the proxyholder(s) of
the undersigned to represent the undersigned and vote all shares of the Common
Stock of Advanced Polymer Systems, Inc. (the "Company"), which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Stockholders of the Company to be held at the Stanford Park Hotel, 100 El
Camino Real, Menlo Park, California at 10:00 a.m., local time, on June 16,
1999, and at any adjournments or postponements of such meeting, as follows:
The Board of Directors recommends that you vote FOR the proposals on the
reverse side. This proxy, when properly executed, will be voted in the manner
directed. WHEN NO CHOICE IS INDICATED THIS PROXY WILL BE VOTED FOR THE
FOLLOWING PROPOSAL. This proxy may be revoked by the undersigned at any time,
prior to the time it is voted, by any of the means described in the
accompanying proxy statement.
[X] Please mark
votes as in
this example
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
1. To elect as directors, to hold office until the next annual meeting of
stockholders and until their successors are elected, the ten nominees listed
below:
Nominees: Stephen Drury, Carl Ehmann, Jorge Heller, John J. Meakem, Jr.,
Peter Riepenhausen, Toby Rosenblatt, Richard Spizzirri, Gregory H. Turnbull,
Charles Anthony Wainwright and Dennis Winger
[ ] FOR [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[ ]
----------------------------
For all nominees, except as noted above.
2. In their discretion, the proxyholders are authorized to transact such
other business as properly may come before the meeting or any adjournments or
postponements of the meeting. The Board of Directors at present knows of no
other business to be presented by or on behalf of the Company or the Board of
Directors at the meeting.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
Date and sign exactly as name(s) appear(s) on this proxy. If signing for
estates, trusts, corporations or other entities, title or capacity should be
stated. If shares are held jointly, each holder should sign.
Signature: Date: Signature: Date:
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