<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Copley Pharmaceutical, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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):
________________________________________________________________________
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________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
COPLEY PHARMACEUTICAL, INC.
25 JOHN ROAD
CANTON, MASSACHUSETTS 02021
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 30, 1997
----------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Copley
Pharmaceutical, Inc., a Delaware corporation (the "Corporation"), will be held
on Friday, May 30, 1997, at 10:00 a.m., Eastern Daylight Savings Time, at The
First National Bank of Boston, 150 Royall Street, Canton, Massachusetts 02021,
for the following purposes:
1. To elect three Class II directors, each to serve for a three year term.
2. To ratify the selection of the firm of KPMG Peat Marwick LLP as auditors
for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Only shareholders of record at the close of business on March 31, 1997 are
entitled to notice of and to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors
(ART)
Gene M. Bauer,
Secretary
Canton, Massachusetts
April 25, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL PRIOR TO THE DATE OF THE
ANNUAL MEETING OF SHAREHOLDERS IN ORDER TO ASSURE REPRESENTATION OF YOUR
SHARES.
<PAGE>
COPLEY PHARMACEUTICAL, INC.
25 JOHN ROAD
CANTON, MASSACHUSETTS 02021
----------------
PROXY STATEMENT
FOR THE 1997 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 30, 1997
----------------
April 25, 1997
Proxies in the form enclosed with this Proxy Statement are solicited by the
Board of Directors of Copley Pharmaceutical, Inc. (the "Corporation") for use
at the Annual Meeting of Shareholders to be held on Friday, May 30, 1997, at
10:00 a.m., Eastern Daylight Savings Time, at The First National Bank of
Boston, 150 Royall Street, Canton, Massachusetts 02021, and at any
adjournments thereof (the "Annual Meeting").
Only shareholders of record at the close of business on March 31, 1997 (the
"Record Date"), the record date fixed by the Board of Directors, will be
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
thereof. As of the Record Date, 19,119,236 shares of common stock, $.01 par
value per share, of the Corporation (the "Common Stock") were issued and
outstanding. Shareholders are entitled to cast one vote for each share of
Common Stock held of record by them on each proposal submitted to a vote at
the Annual Meeting. Shareholders may vote in person or by proxy. Any
shareholder giving a proxy has the right to revoke that proxy by (i) filing a
later-dated proxy or a written notice of revocation with the Secretary of the
Corporation at any time before it is exercised or (ii) voting in person at the
Annual Meeting. The holders of a majority of the outstanding shares of Common
Stock entitled to vote at the Annual Meeting will constitute a quorum for the
transaction of business.
The persons named as proxies, Gene M. Bauer and Ken E. Starkweather, were
selected by the Board of Directors and are officers of the Corporation. All
properly executed proxies returned in time to be counted at the Annual Meeting
will be voted as stated below under "Voting Procedures." Any shareholder
giving a proxy has the right to withhold authority to vote for any individual
nominee to the Board of Directors by so marking the proxy in the space
provided thereon.
In addition to the election of three Class II directors, each to serve for a
three year term, the shareholders will consider and vote upon a proposal to
ratify the selection of the Corporation's auditors for the fiscal year ending
December 31, 1997, each as further described in this Proxy Statement. Where a
choice has been specified on the proxy with respect to the foregoing matters,
including the election of any director, the shares represented by the proxy
will be voted in accordance with the specifications indicated on the proxy and
will be voted FOR any such proposal if no specification is otherwise
indicated.
The Board of Directors of the Corporation knows of no other matters to be
presented at the Annual Meeting. If any other matter should be presented at
the Annual Meeting upon which a vote properly may be taken, shares represented
by all proxies received by the Board of Directors will be voted with respect
thereto in accordance with the judgment of the persons named as attorneys in
the proxies.
<PAGE>
An Annual Report to Shareholders containing the Corporation's Form 10-K and
financial statements for the year ended December 31, 1996 is being mailed
together with this Proxy Statement to all shareholders entitled to vote at the
Annual Meeting. This Proxy Statement and the form of proxy were first mailed
to shareholders on or about April 25, 1997.
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
COMMON STOCK OWNERSHIP
The following table sets forth as of March 31, 1997 certain information
regarding the ownership of shares of the Corporation's Common Stock by (i)
each person who, to the knowledge of the Corporation, beneficially owned more
than 5% of the shares of Common Stock of the Corporation outstanding at such
date, (ii) each director of the Corporation, (iii) each Named Executive
Officer (as defined below under "Compensation and Other Information Concerning
Directors and Officers-Executive Compensation") and (iv) all directors and
executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS* OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
------------------------------------- ------------- --------
<S> <C> <C>
HCCP Acquisition Corporation (2)........................ 9,934,100 52.1%
Route 202/206
P.O. Box 2500
Somerville, New Jersey 08876
Theodore L. Iorio(3)**.................................. 1,596,582 8.3%
Jane C.I. Hirsh(4)**.................................... 1,412,677 7.3%
Kenneth N. Larsen(5).................................... 125,371 ***
Agnes Varis(6).......................................... 76,991 ***
Jerome Skelly(7)........................................ 38,875 ***
Judith W. Fensterer(8).................................. 10,200 ***
Martin Zeiger(9)........................................ 1,000 ***
Barbara Sherrill........................................ 750 ***
Gabriel R. Cipau........................................ 502 ***
Madhaven Balachandran................................... 0 ***
Peter W. Ladell(9)...................................... 0 ***
James P. Mitchum(9)..................................... 0 ***
Ken E. Starkweather(9).................................. 0 ***
All directors and executive officers as a group (9 per-
sons)(10).............................................. 1,665,114 8.6%
</TABLE>
- --------
* Addresses furnished only for holders of five percent (5%) or more of the
Corporation's Common Stock
** c/o Copley Pharmaceutical, Inc., 25 John Road, Canton, MA 02021
*** Less than 1%
(1) To the Corporation's knowledge, except as otherwise noted in the
footnotes to this table, each person or entity named in the table has
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by such person.
(2) HCCP Acquisition Corporation is a wholly-owned subsidiary of Hoechst
Corporation ("Hoechst"). Hoechst is wholly-owned by Hoechst
Aktiengesellschaft ("Hoechst AG"), a large chemical and
2
<PAGE>
pharmaceutical company headquartered in Frankfurt, Germany. For a
description of certain voting and other arrangements with respect to these
shares, see "Compensation and Other Information Concerning Directors and
Officers--Certain Relationships and Related Transactions."
(3) Includes 150,605 shares issuable upon the exercise of outstanding stock
options exercisable on March 31, 1997 or within 60 days thereafter
("Presently Exercisable Securities"). Also includes 22,202 shares
allocated under the Corporation's Profit Sharing and 401(k) Savings Plan.
Also includes: 653,454 shares held by The Theodore L. Iorio Standard
Trust, a revocable trust of which Mr. Iorio is the beneficiary and
settlor and over which Mr. Iorio has shared voting and investment power;
163,932 shares held by the Theodore L. Iorio Charitable Remainder Trust
of which Mr. Iorio is a co-trustee, over which Mr. Iorio has shared
voting and investment power; and 36,654 shares held by The Iorio Family
Foundation, of which Mr. Iorio is a co-trustee and over which Mr. Iorio
has shared voting and investment power. Also includes 433,455 shares held
by trusts for the benefit of certain members of Mr. Iorio's family, for
which Mr. Iorio's spouse is custodian, the beneficial ownership of which
Mr. Iorio disclaims. Mr. Iorio also disclaims beneficial ownership of
shares held by the Theodore L. Iorio Charitable Remainder Trust and The
Iorio Family Foundation.
(4) Includes 112,500 shares issuable pursuant to Presently Exercisable
Securities and 24,429 shares allocated under the Corporation's Profit
Sharing and 401(k) Savings Plan. Also includes (i) 29,718 shares held by
The Hirsh Family Foundation, of which Mrs. Hirsh is a co-trustee, the
beneficial ownership of which shares Mrs. Hirsh disclaims; (ii) 200,000
shares held of record by NMJ Limited Partnership, of which Mrs. Hirsh is
a general partner; and (iii) 860,378 held by Juliet Partners, of which
Mrs. Hirsh is a general partner. Also includes 133,763 shares held of
record by Romeo Partners, a partnership of which Mrs. Hirsh's husband Dr.
Mark Hirsh is a general partner as well as 45,000 shares issuable
pursuant to Presently Exercisable Securities and 6,889 shares allocated
under the Corporation's Profit Sharing and 401(k) Savings Plan
beneficially owned by Dr. Hirsh. Mrs. Hirsh has shared voting and
investment power with respect to all shares listed.
(5) Includes 48,416 shares issuable pursuant to Presently Exercisable
Securities.
(6) Includes 13,416 shares issuable pursuant to Presently Exercisable
Securities. Ms. Varis has shared investment and voting power over 57,918
of the shares listed.
(7) Includes 37,500 shares issuable pursuant to Presently Exercisable
Securities.
(8) Includes 10,000 shares issuable pursuant to Presently Exercisable
Securities.
(9) Excludes 9,934,100 shares of common stock held by HCCP Acquisition
Corporation, of which such person may be considered an affiliate. Mr.
Zeiger is Vice President--Strategic Planning and Administration-Generics
of Hoechst Marion Roussel, Inc., ("HMRI") a majority-owned subsidiary of
HMR Pharma, Inc. which is wholly-owned by Hoechst AG. Mr. Mitchum is Vice
President and Chief Financial Officer for HMRI. Mr. Ladell is President
and Chief Executive Officer of HMRI and Chief Operating Officer of
Hoechst Marion Roussel, the pharmaceutical division of Hoechst AG. Mr.
Starkweather serves as the Corporation's Vice President-Finance and
Treasurer. He is an employee of and receives employee benefits offered by
HMRI. The Corporation reimburses HMRI for any employment related expenses
incurred in connection with the foregoing. See "Certain Relationships and
Related Transactions." Each such person disclaims beneficial ownership of
any shares held by HCCP Acquisition Corporation or any of its affiliates.
(10) Includes 266,832 shares issuable pursuant to Presently Exercisable
Securities.
3
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business and affairs of the Corporation are managed under the direction
of its Board of Directors. The Board of Directors met eleven (11) times during
the year ended December 31, 1996.
The following table sets forth for each nominee for election at the Annual
Meeting and for each director whose term of office will extend beyond the
Annual Meeting: the year each such nominee or director first became a
director; the positions currently held by each nominee or director with the
Corporation; the year each nominee's or director's term will expire; and the
class of director of each nominee or director.
<TABLE>
<CAPTION>
NOMINEE OR DIRECTOR'S NAME AND
YEAR
NOMINEE OR DIRECTOR YEAR TERM CLASS OF
FIRST BECAME A DIRECTOR POSITION(S) HELD WILL EXPIRE DIRECTOR
- ------------------------------ -------------------------- ----------- --------
<S> <C> <C> <C>
NOMINEES:
Kenneth N. Larsen (1985)(2)... Chairman of the Board 2000(1) II
Agnes Varis (1992)............ Director 2000(1) II
Martin Zeiger (1995).......... Director 2000(1) II
ONGOING DIRECTORS:
Jane C.I. Hirsh (1972)........ President of International 1998 I
Business and Director
Peter W. Ladell (1995)........ Director 1998 I
Judith W. Fensterer (1994).... Director 1999 III
James P. Mitchum (1997)....... Director 1999 III
</TABLE>
- --------
(1) Assumes election of each of the Class II Directors at the Annual Meeting.
(2) Mr. Larsen resigned as a Director in November 1986 and was re-elected to
the Board in 1989.
The Audit Committee of the Board of Directors currently consists of Jane
C.I. Hirsh, Judith W. Fensterer and James P. Mitchum. Mrs. Hirsh was appointed
to the Audit Committee by the Board of Directors on April 30, 1996 to replace
Kenneth N. Larsen who had served on the Audit Committee since prior to the
beginning of 1996. James Mitchum was appointed to the Audit Committee by the
Board of Directors on March 21, 1997, replacing Alban W. Schuele who had
served since November 1995. The Audit Committee is responsible for assisting
the Board of Directors in fulfilling its responsibilities by overseeing the
annual audit process, including matters relating to the appointment and
activities of the Corporation's independent auditors, assessing the adequacy
of the Corporation's internal controls and reviewing the reliability of the
financial information provided to the shareholders and others. The Audit
Committee plans the scope of the Corporation's annual audit and meets with the
Corporation's independent auditors to plan, and later to review the results
of, the annual audit. The Audit Committee met four (4) times as a Committee
during the year ended December 31, 1996.
The Compensation Committee of the Board of Directors currently consists of
Kenneth N. Larsen, Agnes Varis and Peter W. Ladell. Mr. Larsen was appointed
to the Compensation Committee by the Board of Directors on April 30, 1996,
joining Mr. Ladell and Ms. Varis who had served since prior to the beginning
of 1996. The Compensation Committee reviews executive performance, equity and
non-equity executive compensation, and administers the Corporation's 1992
Stock Plan. The Compensation Committee met once as a Committee during the year
ended December 31, 1996.
4
<PAGE>
Each of the Corporation's incumbent directors has attended at least 75% of
all meetings of the Board of Directors and of all Committees on which he or
she serves which were held while such person served on the Board of Directors
during the year ended December 31, 1996.
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the Class II nominees for election at the
Annual Meeting, the current Class I and Class III directors who will continue
to serve as directors after the Annual Meeting and the executive officers of
the Corporation, their ages and the positions currently held by them with the
Corporation:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Judith W. Fensterer(1).. 59 Director
Jane C.I. Hirsh(1)...... 55 President of International Business and Director
Peter W. Ladell(2)...... 53 Director
Kenneth N. Larsen(2).... 71 Chairman of the Board
James P. Mitchum(1)..... 44 Director
Jerome P. Skelly........ 64 Executive Vice President--Scientific and Regulatory Affairs
Ken E. Starkweather..... 44 Vice President--Finance and Treasurer
Agnes Varis(2).......... 67 Director
Martin Zeiger........... 59 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
KENNETH N. LARSEN, Chairman of the Board of the Corporation since May 24,
1995, a director since 1989 and President from November 1994 to May 1995 and
July 1996 to January 1997, also served as a director from September 1985 to
November 1986. Mr. Larsen served as Managing Director of Midlar Pharma, Inc.,
a pharmaceutical product development company from January 1996 to July 1996. A
consultant and advisor to numerous healthcare companies from 1989 to the
present, Mr. Larsen served as Chairman of the Board and Acting Chief Executive
Officer of Marquest Medical Products from August 1991 to February 1993. Mr.
Larsen was President of Zetachron, Incorporated from 1988 to 1991. Prior to
1988, Mr. Larsen served as President of Warner Chilcott, a division of Warner-
Lambert Company, and as President and CEO of Zenith Laboratories, Inc.
AGNES VARIS, a director of the Corporation since 1992, is the founder and
has served as President of Agvar Chemicals, Inc., a privately-owned supplier
of bulk pharmaceutical active ingredients, since its inception in 1970.
MARTIN ZEIGER, designated by Hoechst to serve as a director of the
Corporation pursuant to the Governance Agreement (as hereinafter defined), has
been a director of the Corporation since November 1995. Mr. Zeiger serves as
Vice President-Strategic Planning and Administration-Generics for HMRI. He
served as Executive Vice President, Administration and Legal Affairs for the
Rugby Group, a manufacturer and distributor of generic pharmaceutical products
and an affiliate of HMRI or a predecessor, from October 1993 through October
1995 and prior to that as Executive Vice President, Administration and General
Counsel of the Rugby-Darby Group Companies, Inc., from December 1986 to
October 1993.
5
<PAGE>
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
JUDITH W. FENSTERER, a director of the Corporation since September 20, 1994,
is a Senior Vice President of MIR Pharmaceutical, Inc., a generic
pharmaceutical company founded in 1993. From August 1993 to December 1994, Ms.
Fensterer was an independent consultant and from May 1985 to July 1993, she
served as President of the Generic Pharmaceutical Industry Association.
JANE C.I. HIRSH, the founder of the Corporation, serves as its President of
International Business and as a director. Mrs. Hirsh has been a director of
the Corporation since 1972 and served as the Chairman of the Board of
Directors from 1984 to May 24, 1995. Mrs. Hirsh served as President from 1979
to early 1984, and from 1985 to June 1993. Mrs. Hirsh also served as Treasurer
from 1972 to 1992.
PETER W. LADELL, designated by Hoechst to serve as a director of the
Corporation pursuant to the Governance Agreement, has been a director since
November 1995. Mr. Ladell has been Chief Operating Officer of Hoechst Marion
Roussel since January, 1997 and President and Chief Executive Officer of HMRI
since 1995. In 1990, Mr. Ladell became Vice President of Marion Merrell Dow
International and commercial director, Marion Merrell Dow Europe. In 1991, he
became President of MMD Europe. He assumed the position of President, Marion
Merrell Dow International, in July 1992, and was named president of Marion
Merrell Dow North America in May 1993.
JAMES P. MITCHUM, designated by Hoechst to serve as a director of the
Corporation pursuant to the Governance Agreement, has been a director since
March 1997. Mr. Mitchum has been Vice President and Chief Financial Officer of
HMRI since 1996, and was Vice President, Finance and Administration, and
Controller of HMRI from 1995 to 1996. Previously, he served in a number of
positions with HMRI (which was formerly named Marion Merrell Dow Inc.),
including Vice President and International Controller from 1993 to 1995, and
Vice President, Financial Operations and Systems, from 1991 to 1993.
EXECUTIVE OFFICERS
JEROME P. SKELLY joined the Corporation in December 1994 and serves as its
Executive Vice President-Scientific and Regulatory Affairs. Since May 1993,
Dr. Skelly has been an adjunct Professor of Biopharmaceutics at the University
of Cincinnati. Prior to joining the Corporation, Dr. Skelly was the Deputy
Director, Office of Research Resources, Center for Drug Evaluation and
Research at the Food and Drug Administration from May 1988 to January 1993.
During the period from October 1990 to June 1992, Dr. Skelly served
concurrently as Associate Director for Science, Office of Generic Drugs,
Center for Drug Evaluation and Research at the Food and Drug Administration.
Dr. Skelly served as a consultant from January 1993 to December 1994.
KEN E. STARKWEATHER became Vice President-Finance and Treasurer of the
Corporation in September 1996. Prior to this he served as Director of
Procurement for HMRI from October 1995 and from July 1992 to October 1995
served as Director of Finance for Marion Merrell Dow, Inc. During the period
from August 1990 through July 1992 he was Senior Accounting Manager for Dow
Chemical Japan, Ltd. Mr. Starkweather serves the Corporation as Vice
President-Finance and Treasurer under a seconding agreement with HMRI. The
Corporation reimburses HMRI for any employment related expenses incurred in
connection with the foregoing. See "Certain Relationships and Related
Transactions."
6
<PAGE>
Executive officers of the Corporation are elected by the Board of Directors
on an annual basis and serve until their successors have been duly elected and
qualified or until their earlier death, removal or resignation. There are no
family relationships among any of the executive officers or directors of the
Corporation.
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth information for the fiscal years ended
December 31, 1996 and December 31, 1995 (identified in the following tables as
"1996" and "1995," respectively) and for the eleven-month period ended
December 31, 1994 (identified in the following tables as "1994") concerning
the total compensation awarded, earned by or paid to the persons who served as
the Corporation's Chief Executive Officer or President during 1996, each of
the most highly compensated executive officers of the Corporation (other than
the Chief Executive Officer) whose salary and bonus earned during the year
ended December 31, 1996 exceeded $100,000 and two former employees who would
otherwise be among the most highly compensated executive officers except that
they were not serving as such at December 31, 1996, for services rendered to
the Corporation in all capacities. The persons listed below are hereinafter
collectively referred to as the "Named Executive Officers."
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(#) COMPENSATION(2)(3)
- --------------------------- ---- ---------- ---------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Gabriel R. Cipau......... 1996 $ 181,513 -- -- -- $332,800(5)
Former President and 1995 196,923 $ 70,560 $46,052(6) 150,000 --
Chief Executive
Officer(4)
Jerome P. Skelly......... 1996 250,203 -- -- -- 3,315(7)
Executive Vice
President-- 1995 250,000 25,000 45,680(8) 50,000 --
Scientific and Regula-
tory Affairs 1994 16,454 -- -- -- --
Madhaven Balachandran.... 1996 117,816 -- 10,855(10) -- 97,305(11)
Former Executive Vice 1995 89,885 14,250 29,990(12) 40,000 518(13)
President--Operations(9)
Barbara Sherrill......... 1996 137,962 -- -- -- 97,000(15)
Former Executive Vice- 1995 76,731 12,000 46,948(16) 35,000 --
President--Finance and
Chief Financial
Officer(14)
Kenneth N. Larsen........ 1996 218,500(18) -- -- 3,333 --
Former President(17) 1995 202,780(19) -- -- 38,333 --
1994 62,108(20) -- -- -- --
</TABLE>
- --------
(1) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(2) Includes contributions made by the Corporation to vested and unvested
defined contribution plans. Amounts contributed by the Corporation under
the Profit Sharing and 401(k) Savings Plan are allocated among all
eligible employees who participate in the Profit Sharing and 401(k)
Savings Plan in accordance with the terms of the Profit Sharing and
401(k) Savings Plan.
(3) See "Employment Agreements" below.
(4) Dr. Cipau resigned all positions with the Corporation in July 1996.
(5) Reflects amounts the Corporation agreed to pay Dr. Cipau in connection
with his resignation. The Corporation paid $151,040 during 1996 with the
balance to be paid in 1997.
(6) Consists of $24,522 in relocation expenses and $21,530 for reimbursement
of related income taxes.
(7) Allocated pursuant to the Corporation's Profit Sharing and 401(k) Savings
Plan with respect to 1996.
(8) Consists of $38,430 in relocation expenses and $7,250 for an automobile
lease.
(9) Mr. Balachandran resigned all positions with the Corporation in July
1996.
(10) Consists of $6,687 in relocation expenses and $4,168 for reimbursement of
related income taxes.
(11) Includes $97,000 of salary continuation agreed to by the Corporation in
connection with Mr. Balachandran's resignation. The Corporation paid
$76,107 during 1996 with the balance to be paid in 1997. Also includes
term life insurance premiums paid by the Corporation for the benefit of
Mr. Balachandran.
(12) Consists of $19,689 in relocation expenses and $10,301 for reimbursement
of related income taxes.
8
<PAGE>
(13) Consists of term life insurance premiums paid by the Corporation for the
benefit of Mr. Balachandran.
(14) Ms. Sherrill resigned all positions with the Corporation in August 1996.
(15) Reflects salary continuation agreed to by the Corporation in connection
with Ms. Sherrill's resignation. The Corporation paid $59,692 during 1996
with the balance to be paid in 1997.
(16) Consists of $25,000 in relocation expenses and $21,948 for reimbursement
of related income taxes.
(17) Mr. Larsen resigned as President in May 1995 and temporarily resumed the
position from July 1996 until January 1997.
(18) Consists of $199,000 of consulting fees and $19,500 in fees relating to
Mr. Larsen's service as a director.
(19) Includes $11,630 in fees relating to Mr. Larsen's service as a director
of the Corporation (See "Compensation of Directors") and $41,150 in
consulting fees (See "Certain Relationships and Related Transactions").
(20) Includes $9,500 in fees relating to Mr. Larsen's service as a director of
the Corporation.
Option Grants
The following table sets forth information concerning stock options granted
during the year ended December 31, 1996 under the Corporation's 1992 Stock
Plan and 1995 Non-Employee Director Stock Option Plan to the Named Executive
Officers (the Corporation did not grant any stock appreciation rights during
the year ended December 31, 1996):
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
----------------------------------------------------------- ------------------------------
PERCENT OF
NO. OF TOTAL
SECURITIES OPTIONS EXERCISE OR
UNDERLYING GRANTED TO BASE MARKET
OPTIONS EMPLOYEES PRICE PER PRICE EXPIRATION
NAME GRANTED IN YEAR(1) SHARE PER SHARE DATE 0% 5% 10%
- ---- ---------- ---------- ----------- --------- ---------- --- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gabriel R. Cipau........ -- -- -- -- -- -- -- --
Jane C.I. Hirsh......... -- -- -- -- -- -- -- --
Jerome P. Skelly........ -- -- -- -- -- -- -- --
Madhaven Balachandran... -- -- -- -- -- -- -- --
Barbara Sherrill........ -- -- -- -- -- -- -- --
Kenneth N. Larsen....... 3,333(3) 25% $14.00 $14.00 5/24/06 -- $ 29,345 $ 74,367
All Share Owners(4)..... NA NA NA NA NA -- 111,136,062 281,640,612
All Optionees........... 736,739 NA 12.98(5) 12.98(5) -- 6,014,039 15,240,756
% of Total Share Owners'
Value.................. NA NA NA NA NA NA 5.4% 5.4%
</TABLE>
- --------
(1) A total of 13,333 options were granted to employees in the year ended
December 31, 1996; 10,000 of these were granted under the Corporation's
1992 Stock Plan and 3,333 of these were granted under the Corporation's
1995 Non-Employee Director Stock Option Plan.
(2) The 0%, 5% and 10% assumed rates of appreciation are required by the rules
and regulations of the Securities and Exchange Commission and do not
represent the Corporation's estimate or projection of the
9
<PAGE>
price of the Common Stock in the future. There can be no assurances that
the rates of appreciation in this table can be achieved or that the amounts
reflected will be received by the Named Executive Officer.
(3) This option was granted pursuant to the Corporation's 1995 Non-Employee
Director Stock Option Plan, has a term of ten years and was fully vested
on the date of grant.
(4) Based on the number of shares outstanding on December 31, 1996.
(5) Options expire on various dates; an average expiration date of ten years
was used. Exercise price shown is a weighted average of all outstanding
options.
OPTION EXERCISES AND UNEXERCISED OPTION HOLDINGS
The following table sets forth certain information concerning option
exercises by the Named Executive Officers during the year ended December 31,
1996 and options held by the Named Executive Officers on December 31, 1996:
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT YEAR-END YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED (UNEXERCISABLE)(#) (UNEXERCISABLE)($)(1)
---- ----------- -------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Gabriel R. Cipau........ -- -- -- --
Jane C.I. Hirsh......... -- -- 112,500/(0) 0/(0)
Jerome P. Skelly........ -- -- 25,000/(25,000) 0/(0)
Madhaven Balachandran... -- -- -- --
Barbara Sherrill........ -- -- -- --
Kenneth N. Larsen....... -- -- 48,416/(0) 0/(0)
</TABLE>
- --------
(1) Value is based on the difference between the option exercise price and the
fair market value of the Corporation's Common Stock on December 31, 1996
($9.25, the last reported sale price of the Corporation's Common Stock on
the Nasdaq National Market on December 31, 1996, the last trading date in
1996) multiplied by the number of shares underlying the options.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Corporation and each of Mrs. Hirsh and Dr. Skelly are parties to
employment agreements which are substantially similar, except as set forth
below. The employment agreements provide for initial annual base salaries of
$385,000 for Mrs. Hirsh and $250,000 for Dr. Skelly. Under the employment
agreements, employment may be terminated for "cause," which includes: the
misappropriation of money, assets or property; willful, material and repeated
failure to perform reasonable assignments; conviction of a felony; and breach
of confidentiality, non-competition and non-solicitation provisions. If the
employee dies, or employment is terminated due to disability or without cause,
the employee will receive a severance payment equal to the greater of two
years for Mrs. Hirsh or eighteen months for Dr. Skelly and the remainder of
the employment period of the employee's salary and benefits, and all of the
employee's stock options will be accelerated and become fully exercisable for
a period of 60 days after the date of termination. Each are entitled to
receive discretionary bonuses as determined by the Board of Directors and are
entitled to continue to participate in the Corporation's bonus pool. The
original terms of the employment agreements expire in 1998 for Mrs. Hirsh and
1997 for Dr. Skelly
10
<PAGE>
and will automatically renew for successive one-year periods unless the
Corporation gives the employee six months' written notice of non-renewal,
which for purposes of such agreement is treated as termination without cause.
The employment agreements contain non-competition covenants which prohibit
competing with the Corporation for one year after employment terminates,
during which time the employment agreements also prohibit interfering with the
Corporation's business or its relationships with its customers and potential
customers and from soliciting the Corporation's employees.
Pursuant to the terms of the offer letter from the Corporation to Dr. Cipau,
Dr. Cipau's base annual salary was $320,000 with bonuses subject to the
Corporation's and Dr. Cipau's performance. In connection with Dr. Cipau's
resignation the Corporation agreed to provide Dr. Cipau with twelve months'
continuation of salary and benefits as set forth in his offer letter. See
"Summary Compensation Table" above.
In connection with Ms. Sherrill's resignation in August 1996, the
Corporation agreed to provide a six month continuation of salary and benefits.
In connection with Mr. Balachandran's resignation in July 1996, the
Corporation agreed to provide a six month continuation of salary and benefits.
See "Summary Compensation Table" above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors currently consists of
Kenneth N. Larsen, Agnes Varis and Peter W. Ladell. Mr. Larsen was appointed
to the Compensation Committee by the Board of Directors on April 30, 1996,
joining Mr. Ladell and Ms. Varis who had served since prior to the beginning
of 1996.
The Compensation Committee is responsible for developing the compensation
programs for the Corporation's executive officers, key employees and other
senior management. The Compensation Committee also determines the option
grants under the Corporation's stock option plans. The Compensation Committee
administers the Corporation's 1992 Stock Plan and other stock option and stock
purchase plans and has oversight responsibilities with respect to the
Corporation's Retirement Plan.
The Compensation Committee has designated three basic components of the
Corporation's compensation program to implement its philosophy. First, base
salaries are the fixed regular component of executive compensation and are
measured against (i) base salary levels among a competitive peer group, (ii)
the Corporation's past financial performance and future expectations, (iii)
the general and industry-specific business environment and (iv) individual
performance. The Compensation Committee does not assign relative weights or
rankings to these factors, but instead makes a subjective determination based
upon the consideration of all of these factors as well as the progress made
with respect to the Corporation's long-term goals and strategies. Second,
annual bonus compensation, paid in accordance with the Corporation's bonus
plan for key employees, is linked to the financial performance of the
Corporation and is designed to provide additional incentive in the form of
cash compensation determined as a function of the individual performance of
eligible key employees in a given year. Consideration is also given to
exemplary performance in the accomplishment of special and particularly
difficult tasks. Third, stock option grants under the Corporation's 1992 Stock
Plan are designed to motivate the executive officers and other employees to
deliver value to the Corporation's shareholders over a period of several
years. The objective of these awards is to advance the longer-term interests
of the Corporation and its shareholders and to complement the incentives tied
to annual performance. These awards provide rewards to executives upon the
creation of incremental shareholder value and the attainment of long-term
earnings goals. Stock options only produce value to executives if the price of
the Corporation's stock appreciates, thereby directly linking the interests of
executives with those of shareholders. The number of stock options granted is
11
<PAGE>
based, among other things, on the level of an executive's position and the
executive's performance in the prior year. Stock options granted for this
purpose generally vest over a period of three years.
Chief Executive Officer Compensation
Dr. Cipau served as the President and Chief Executive Officer of the
Corporation from May 15, 1995 until his resignation on July 9, 1996. Dr.
Cipau's compensation until his resignation was established pursuant to his
offer letter from the Corporation. See "Employment and Severance Agreements."
His initial base salary was based on a number of factors, including the base
salaries of executives performing similar functions for peer companies; the
expected implementation of long-term strategic plans reflecting the ongoing
relationship with Hoechst and its affiliates and the synergies and other
benefits available under the Product Agreement with Hoechst (see "Compensation
and Other Information Concerning Directors and Officers--Certain Relationships
and Related Transactions"); and the expected continued expansion and
integration of the Corporation's physical plant, including manufacturing,
research and development and computer facilities.
THE COMPENSATION COMMITTEE:
Peter W. Ladell
Kenneth N. Larsen
Agnes Varis
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Kenneth N. Larsen, Agnes Varis and Peter W. Ladell. Mr. Larsen was appointed
to the Compensation Committee by the Board of Directors on April 30, 1996,
joining Mr. Ladell and Ms. Varis who had served since prior to the beginning
of 1996. Mr. Larsen served as the Corporation's President from July, 1996
until January, 1997 but the Compensation Committee did not meet at any time
during the period in which Mr. Larsen served as President and a member of the
Committee. Accordingly, Mr. Larsen did not participate in any Compensation
Committee meetings in his capacity as President of the Corporation.
COMPENSATION OF DIRECTORS
Effective as of October 1, 1994, directors who are not employees of the
Corporation or of Hoechst receive an annual fee of $12,000 and a participation
fee of $500 for each meeting of the Board of Directors or committee thereof
attended (provided such meetings are held on separate dates). All directors
are entitled to be reimbursed for expenses in connection with attending Board
of Directors and Committee meetings.
The Corporation's 1995 Non-Employee Director Stock Option Plan (the
"Director Plan") provides for the automatic grant of stock options to
directors of the Corporation who are not employees or officers of the
Corporation, or of an affiliate (including Hoechst) thereof (a "Non-Employee
Director"). The Director Plan was approved by the shareholders at the
Corporation's annual meeting held on May 24, 1995. Each Non-Employee Director,
who was a serving director as of March 30, 1995, the date the Board of
Directors approved the Director Plan (the "Board Approval Date") and who had
not received a grant of options under any other plan maintained by the
Corporation within a period of twelve months preceding the Board Approval Date
was granted an option to purchase Three Thousand Three Hundred and Thirty-
Three (3,333) shares of Common Stock, and will be granted an option to
purchase an additional Three Thousand Three Hundred and Thirty-Three (3,333)
shares of Common Stock on the anniversary of such date each year thereafter,
subject to such person continuing to be a
12
<PAGE>
Non-Employee Director, at each such date. Each Non-Employee Director, who was
ineligible for the above-described grant because of having received a grant of
options under any other plan maintained by the Corporation within a period of
twelve months preceding the Board Approval Date, shall be automatically
granted on the third anniversary of such grant an option to purchase an
additional Three Thousand Three Hundred and Thirty-Three (3,333) shares of
Common Stock and an option to purchase an additional Three Thousand Three
Hundred and Thirty-Three (3,333) shares of Common Stock on the anniversary of
such date each year thereafter, subject to each person continuing to be a Non-
Employee Director at each such date. Each Non-Employee Director, who first
becomes a member of the Board of Directors subsequent to the Board Approval
Date, will be automatically granted on the date such person is first elected
or appointed to the Board of Directors (the "Initial Election Grant Date") an
option to purchase Fifteen Thousand (15,000) shares of the Common Stock, and
on the third anniversary of the Initial Election Grant Date and each
succeeding anniversary of the Initial Election Grant Date thereafter, an
option to purchase an additional Three Thousand Three Hundred and Thirty-Three
(3,333) shares of Common Stock, subject to such person continuing to be a Non-
Employee Director at each such date. Any director who was an employee or
officer of the Corporation, or of an affiliate thereof (an "Employee"), on the
Board Approval Date or any person who becomes a director thereafter while
already an Employee or concurrently with becoming an Employee, and who
thereafter ceases to be an Employee but continues thereafter as a member of
the Board (i.e., a Non-Employee Director), shall be automatically granted as
of the date such person ceases to be an Employee, an option to purchase Three
Thousand Three Hundred and Thirty-Three (3,333) shares of Common Stock, and an
option to purchase an additional Three Thousand Three Hundred and Thirty-Three
(3,333) shares of Common Stock on the anniversary of such date each year
thereafter, subject to such person continuing to be a Non-Employee Director at
each such date.
During the year ended December 31, 1996, each of Mr. Larsen and Ms. Varis
received an option to purchase Three Thousand Three Hundred Thirty-Three
(3,333) shares of the Corporation's Common Stock pursuant to the Director
Plan. Although Ms. Fensterer is a Non-Employee Director she will not be
eligible for an option grant under the Director Plan until 1997.
13
<PAGE>
STOCK PERFORMANCE GRAPH
The following performance graph compares the percentage change in the
cumulative total shareholder return on the Corporation's Common Stock during
the period from the Corporation's initial public offering on October 14, 1992
through December 31, 1996 with the cumulative total return on (i) a group
consisting of the Corporation's peer corporations on a line-of-business basis
(the "Peer Group") and (ii) the Nasdaq Composite Index (Total Return) (the
"Nasdaq Index"). The comparison assumes $100 was invested on October 14, 1992
in the Corporation's Common Stock, the Peer Group and the Nasdaq Index and
assumes reinvestment of dividends, if any. The Peer Group consists of
ALPHARMA, Inc.; Barr Laboratories, Inc.; Carrington Laboratories Inc.; Duramed
Pharmaceuticals, Inc.; Elan Corporation, p.l.c.; Faulding, Inc.; Forest
Laboratories, Inc.; Gensia Pharmaceuticals, Inc.; Halsey Drug Co. Inc.; Ivax
Corp.; Jones Medical Industries Inc.; K-V Pharmaceutical Company (Class A &
Class B Stock); Mylan Laboratories Inc.; Noven Pharmaceuticals Inc.; Perrigo
Company; Pharmaceutical Resources, Inc.; Roberts Pharmaceutical Corp.; Royce
Laboratories Inc.; Taro Vit Industries Ltd.; and Teva Pharmaceutical
Industries Ltd.
[CHART]
<TABLE>
<CAPTION>
OCTOBER 14, JANUARY 31, JANUARY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 (%) 1993 (%) 1994 (%) 1994 (%) 1995 (%) 1996 (%)
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Copley Pharmaceutical,
Inc. Common Stock...... 100.0 161.70 194.58 84.53 87.72 73.01
Peer Group.............. 100.0 129.57 142.80 108.90 145.84 112.22
Nasdaq Composite Index
(Total Return)......... 100.0 110.11 138.71 134.89 188.74 218.48
</TABLE>
- --------
* Prior to October 14, 1992, the Corporation's Common Stock was not publicly
traded. Comparative data is provided only for the period from that date
through December 31, 1996.
14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation has adopted a policy that all transactions between the
Corporation and its officers, directors, affiliates and principal shareholders
be on terms no less favorable to the Corporation than terms of transactions
with unrelated parties and be approved by a majority of disinterested
directors. Under the terms of the Governance Agreement (as hereinafter
defined), until November 11, 1998 every transaction or series of related
transactions between the Corporation and Hoechst (or any of its affiliates)
and every corporate action which presents a potential conflict of interest
between Hoechst (or any of its affiliates) and the Corporation and its other
shareholders is subject to the prior approval of a majority of the Independent
Directors (as defined in the Governance Agreement).
The Corporation leased a warehouse and packaging site from 1985 until 1996
from a real estate trust that is 50% owned by Jane C.I. Hirsh, and her
husband, Dr. Mark Hirsh. Lease payments under this agreement totaled $180,000
during the year ended December 31, 1996.
Pursuant to the Product Agreement (as hereinafter defined), the Corporation
purchased in 1996 approximately $30,280,000 worth of generic products from
HMRI and approximately $230,000 worth of bulk pharmaceuticals from a division
of Hoechst Celanese Corp. ("HCC"). HCC is wholly-owned by Hoechst. The
Corporation also purchased Heptalac and Evalose from HMRI in the approximate
aggregate amount of $532,000. The Corporation obtains its comprehensive
general liability, product liability, umbrella liability and all risks
property insurance coverage through an insurance and risk sharing arrangement
with Hoechst AG, and its various subsidiaries, including Hoechst and HCC.
Insurance coverage is provided, through a wholly-owned insurance subsidiary of
HCC, as well as by external parties. Total premiums paid by the Corporation
for these insurance policies aggregated approximately $5,140,000 for the year
ended December 31, 1996.
Agvar Chemicals, Inc., a corporation of which Agnes Varis, a Director of the
Corporation, is the President and sole beneficial owner, sold approximately
$265,000 worth of pharmaceutical raw materials to the Corporation during the
year ended December 31, 1996.
The Corporation utilized Mr. Larsen, a director of the Corporation, as a
consultant during 1996 incurring an aggregate of $199,000 in fees. The
Corporation also paid $100,826 in consulting fees to Midlar Pharma, Inc., a
corporation 30% beneficially owned by Mr. Larsen.
At December 31, 1996, the Corporation was a 49% owner of Chia Tai Copley
Pharmaceutical ("CTCP") which, in turn, was an 85% owner of Wuxi Chia Tai
Copley Pharmaceutical ("WCTCP"). CTCP and WCTCP were formed to manufacture and
market multi-source drug products in the People's Republic of China. The
Corporation's investment in CTCP totaled $2.4 million at December 31, 1996. A
subsidiary of Hoechst AG has indicated its interest in purchasing an interest
in WCTCP and it is anticipated that if this transaction is completed, the
Corporation will receive the return of approximately $2.1 million of its
investment in CTCP and will have its ownership interest in CTCP reduced.
On July 18, 1995, Hoechst completed its purchase of Marion Merrell Dow, Inc.
("MMD") and changed MMD's name to Hoechst Marion Roussel, Inc. ("HMRI"). The
acquisition of MMD and the formation of HMRI resulted in a related party
relationship between the Corporation and its customer Rugby Laboratories
("Rugby"), which was a subsidiary of MMD and is now a subsidiary of HMRI. Net
sales to Rugby totaled approximately $1.0 million for the year ended December
31, 1996. Total amounts due from Rugby at December 31, 1996 were $61,000.
15
<PAGE>
In connection with Hoechst's acquisition of MMD, on December 5, 1995 the
Federal Trade Commission ("FTC") issued its Decision and Order ("Order")
which, among other things, requires either Hoechst or MMD to divest its assets
relating to research, development, manufacture and sale of the compounds
mesalamine and rifampin. For purposes of the Order, the Corporation is
considered part of Hoechst, its indirect majority owner. The Corporation has
agreed to divest its assets relating to mesalamine and rifampin and has
entered into agreements for the sale of these assets. The sale of rifampin was
approved by the FTC on April 14, 1997; the mesalamine divestiture is awaiting
FTC approval. Both of these products are in the developmental stage and the
Corporation has not submitted an ANDA (Abbreviated New Drug Application) for
either product. The Corporation expects that it will be compensated by its
majority owner if it is not able to obtain a satisfactory price for these
assets.
During the year ended December 31, 1996, the Corporation invested $59,000 in
a generic pharmaceutical company, MIR Pharmaceutical whose Senior Vice
President, Ms. Fensterer, is a Director of the Corporation. This company was
founded in 1993 to market generic drugs in certain republics of the former
Soviet Union.
The Corporation reimburses HMRI for any expenses incurred in connection with
the compensation of Ken E. Starkweather, the Corporation's Vice President-
Finance and Treasurer, who serves the Corporation pursuant to a seconding
arrangement whereby he continues to be paid and is eligible to receive
employee benefits offered by HMRI.
Indemnification
Pursuant to Section 145 of the Delaware General Corporation Law ("DGCL"),
corporations incorporated under the laws of the State of Delaware are
permitted to indemnify their current and former directors, officers, employees
and agents under certain circumstances against certain liabilities and
expenses incurred by them by reason of their serving in such capacities, if
such persons acted in good faith and in a manner which they reasonably
believed to be in or not opposed to the best interest of the corporation, and
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful.
The Corporation's Restated Certificate of Incorporation provides that each
director, officer, employee and agent will be indemnified by the Corporation
to the fullest extent permitted under the DGCL against liabilities and
expenses in connection with any threatened, pending or completed legal
proceeding to which he or she may be made a party or threatened to be made a
party by reason of being, agreeing to be or having been an officer, director,
employee or agent of the Corporation. The Corporation's Restated Certificate
of Incorporation also provides that no director of the Corporation shall be
personally liable to the Corporation or its shareholders for monetary damages
for breach of his or her fiduciary duty as a director. These provisions
eliminate personal liability to the extent permitted by the DGCL and do not
excuse any director for breach of his or her duty of loyalty, for acts not
taken in good faith or for transactions in which the director derives an
improper personal benefit.
The Corporation has also entered into indemnification agreements with
certain of its directors, executive officers and consultants providing for the
Corporation to indemnify those persons to the fullest extent permitted by the
DGCL against liabilities and expenses incurred as a result of, or arising
from, their acting in that capacity.
Governance Agreement and Product Agreement
On November 11, 1993, HCCP Acquisition Corporation ("HCCP"), a wholly-owned
subsidiary of Hoechst Celanese Corporation, acquired a 51% interest in the
Corporation on a fully diluted basis (the "Acquisition"). In connection with
the Acquisition, the Corporation, HCC and HCCP entered into a Corporate
Governance and Standstill Agreement dated as of October 8, 1993, as amended
(the "Governance Agreement"), to govern the
16
<PAGE>
relationship between the Corporation and HCC and its affiliates. In accordance
with the provisions of the Governance Agreement, Class I of the Board of
Directors currently consists of two directors, Jane C.I. Hirsh (considered a
"Corporation Director" under the Governance Agreement) and Peter W. Ladell
(considered a "Hoechst Director" under the Governance Agreement); Class II
currently consists of three directors, Agnes Varis (considered an "Independent
Director" under the Governance Agreement), Kenneth N. Larsen (a "Corporation
Director") and Martin Zeiger (a "Hoechst Director"); and Class III currently
consists of two directors, Judith W. Fensterer (an "Independent Director") and
James P. Mitchum (a "Hoechst Director"). The Corporation and HCC also entered
into a Product Agreement dated as of October 8, 1993 (the "Product Agreement")
to establish certain relationships between the Corporation and HCC and its
affiliates concerning the supply of certain raw materials to the Corporation,
the synthesis of certain new bulk active ingredients, the establishment of a
managed care market development and sales organization with Hoechst-Roussel
Pharmaceuticals Incorporated ("HRPI"), at that time an affiliate of HCC, and
the right of the Corporation to act as a generic arm of HRPI with respect to
any HRPI products which HRPI may decide to sell in a generic version as they
come off patent. The Product Agreement also contemplated the Corporation pre-
launching generic versions of certain HRPI products before the relevant patent
has expired. The Product Agreement has an initial term of five years, until
November 11, 1998, and continues unless terminated by either party giving one
year's notice.
On June 30, 1995, HCC transferred its ownership of HCCP to Hoechst (the
parent corporation of HCC), which assumed HCC's rights and obligations
pursuant to the Governance Agreement. On January 1, 1996, HRPI was merged into
HMRI, which was then a subsidiary of Hoechst and a sister corporation to HCC.
On December 19, 1996, HMRI became a subsidiary of HMR Pharma, Inc. HMRI has
agreed to be bound by the Product Agreement to the extent that HRPI was bound;
that is, the Product Agreement continues to be in effect for products
manufactured by the former HRPI but not for products manufactured by HMRI
prior to the merger with HRPI nor for products developed by HMRI after January
1, 1996. Since the date of the Product Agreement, the Corporation has entered
into specific distribution agreements with HRPI with respect to glyburide and
micronized glyburide; HRPI's obligations under those agreements have also been
assumed by HMRI.
In order to assure continuity of supply under a variety of circumstances and
to provide other competitive benefits, the Corporation has agreed to
renegotiate the distribution agreement relating to glyburide and micronized
glyburide; as a result, the profit contribution of these products may likely
decrease in the future.
Pursuant to the provisions of the Governance Agreement, Hoechst and its
affiliates are required to vote all of their shares of Common Stock at the
Annual Meeting in accordance with the Board of Directors' recommendations.
Consequently, since Hoechst and its affiliates own over 50% of the outstanding
shares of Common Stock, the voting of the Hoechst shares will be able to
control the outcome of each matter to be voted upon at the Annual Meeting.
Registration Rights
The Governance Agreement grants Hoechst and its affiliates the right, on
three occasions, to have the Corporation register for resale under the
Securities Act of 1933, as amended, shares held by Hoechst Celanese
Corporation and its affiliates, provided that at each such time they are
requesting the registration of an aggregate number of shares having a market
value on the date of demand of at least $25,000,000. The Corporation has the
right to postpone a registration in certain circumstances.
The Corporation is required to pay all the expenses incurred in a requested
registration, except for the fees of any independent counsel retained by
Hoechst or its affiliates or any underwriting discounts. Hoechst or its
affiliate can require that the requested registration be underwritten, and can
require the Corporation to enter into an indemnification agreement on
customary terms.
17
<PAGE>
CHANGES IN THE CORPORATION'S INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. were previously the principal accountants for the
Corporation. On September 6, 1995, that firm's appointment as principal
accountants was terminated and KPMG Peat Marwick L.L.P. were engaged as
principal accountants by the Corporation's Board of Directors.
In connection with the audits of the eleven-month transition period ended
December 31, 1994 and during the interim period from December 31, 1994, the
date of the last audited financial statements, to September 6, 1995, the date
of dismissal, there were no disagreements with Coopers & Lybrand L.L.P. on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements if not resolved to their
satisfaction would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement.
The audit reports of Coopers & Lybrand L.L.P. on the financial statements of
Copley Pharmaceutical, Inc. as of and for the eleven-month transition period
ended December 31, 1994 did not contain any adverse opinion or disclaimer of
opinion.
SECTION 16(A) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors, executive officers and holders of more than 10% of
the Corporation's Common Stock (collectively, "Reporting Persons") to file
with the Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers, Inc. initial reports of beneficial
ownership and reports of changes in beneficial ownership of securities of the
Corporation. Based solely upon its review of copies of such filings and
written representations that no other reports were required pursuant to
regulations promulgated by the SEC, the Corporation believes that all
Reporting Persons have complied with the filing requirements of Section 16(a)
for the year ended December 31, 1996.
PROPOSAL RELATING TO ELECTION OF DIRECTORS
Three persons have been nominated by the Board of Directors for election as
Class II directors of the Corporation at the Annual Meeting. The nominees for
election as Class II directors are Kenneth N. Larsen, Agnes Varis and Martin
Zieger. All of the nominees are currently serving as directors of the
Corporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE ELECTION OF KENNETH N. LARSEN, AGNES VARIS AND
MARTIN ZEIGER AS CLASS II DIRECTORS
The terms of the Class II directors expire at the Annual Meeting, the terms
of the Class I directors expire at the Annual Meeting of Shareholders to be
held following the completion of the Corporation's year ending December 31,
1997, and the terms of the Class III directors expire at the Annual Meeting of
Shareholders to be held following the completion of the Corporation's year
ending December 31, 1998. Thus, the shareholders will elect three Class II
directors at the Annual Meeting, each to serve for a three-year term.
Shares represented by all proxies received by the Board of Directors and not
marked so as to withhold authority to vote for the nominees will be voted
(unless a nominee is unable or unwilling to serve) FOR the
18
<PAGE>
election of the nominees. The Board of Directors knows of no reason why the
nominees should be unable or unwilling to serve, but if that should be the
case, proxies may be voted for the election of such other persons as
management may recommend in the place of such nominees. A plurality of the
votes cast by the shareholders present or represented by proxy and entitled to
vote at the Annual Meeting is required for the election of directors. See
"Voting Procedures" below.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of KPMG Peat Marwick LLP,
independent certified public accountants, to serve as auditors for the year
ending December 31, 1997. KPMG Peat Marwick LLP has served as the
Corporation's auditors since September 6, 1995. It is expected that a member
of KPMG Peat Marwick LLP will be present at the Annual Meeting with the
opportunity to make a statement if so desired and will be available to respond
to appropriate questions. In the ratification of the selection of auditors,
the affirmative vote of a majority of the shares present, in person or
represented by proxy, and voting on that matter is required for approval.
The ratification of this selection is not required under the laws of the
State of Delaware, where the Corporation is incorporated, but the results of
this vote will be considered by the Board of Directors when selecting auditors
for future years.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF
THE SELECTION OF THE FIRM OF KPMG PEAT MARWICK LLP TO SERVE AS AUDITORS FOR
THE YEAR ENDING DECEMBER 31, 1997
VOTING PROCEDURES
The presence, in person or by proxy, of at least a majority of the issued
and outstanding shares of Common Stock entitled to vote at the Annual Meeting
is necessary to constitute a quorum for the transaction of business. Votes
withheld from any nominee and abstentions are counted as present or
represented for purposes of determining the presence or absence of a quorum
for the Annual Meeting. Broker non-votes (see below) are counted as present or
represented for quorum purposes. In the election of Class II Directors, the
three nominees receiving the highest number of affirmative votes of the shares
present, in person or represented by proxy, and entitled to vote at the Annual
Meeting shall be elected as Class II Directors. For all other matters being
submitted to shareholders at the Annual Meeting, the affirmative vote of the
holders of a majority of the shares of Common Stock present, in person or
represented by proxy, and entitled to vote at the Annual Meeting is required
for approval. An automated system administered by the Corporation's transfer
agent tabulates the votes. The vote on each matter submitted to shareholders
is tabulated separately. Shares voted to abstain, since they are not
affirmative votes for a matter, will have the same affect as votes against the
matter. Broker "non-votes", although they are not affirmative votes, will have
no effect other than for quorum purposes. A "non-vote" occurs when a broker or
other nominee holding shares for a beneficial owner votes on one proposal, but
does not vote on another proposal because, in respect of such other proposal,
the broker or other nominee does not have discretionary voting power and has
not received instructions from the beneficial owner.
19
<PAGE>
SHAREHOLDER PROPOSALS FOR 1998
Proposals of shareholders intended for inclusion in the proxy statement to
be furnished to all shareholders entitled to vote at the next annual meeting
of shareholders of the Corporation must be received at the Corporation's
principal executive offices not later than December 19, 1997. In order to
curtail controversy as to the date on which a proposal is received by the
Corporation, it is suggested that proponents submit their proposals by
Certified Mail, Return Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation, and in
addition to soliciting shareholders by mail through its regular employees, the
Corporation may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Corporation
registered in the names of a nominee and, if so, will reimburse such banks,
brokers, and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket costs. Solicitation by officers and employees of the Corporation
may also be made of some shareholders in person or by mail, telephone or
telegraph following the original solicitation.
20
<PAGE>
DETACH HERE
COPLEY PHARMACEUTICAL, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS - MAY 30, 1997
SOLICITED BY THE BOARD OF DIRECTORS
P
R The undersigned shareholder of Copley Pharmaceutical, Inc., a
Delaware corporation, revoking all prior proxies, hereby appoints Gene M.
O Bauer and Ken E. Starkweather, and each of them, proxies, with full power
of substitution, to vote all shares of Common Stock of Copley
X Pharmaceutical, Inc. which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Corporation to be held at The First
Y National Bank of Boston, 150 Royall Street, Canton, Massachusetts on May
30, 1997 at 10:00 a.m., local time, and at any adjournments thereof, upon
matters set forth in the Notice of Annual Meeting and Proxy Statement, a
copy of which has been received by the undersigned, and in their
discretion upon any other business that may properly come before the
meeting or any adjournments thereof. Attendance of the undersigned at the
meeting or at any adjourned session thereof will not be deemed to revoke
this proxy unless the undersigned shall affirmatively indicate thereat
the intention of the undersigned to vote said shares in person.
-------------
SEE REVERSE
CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE SIDE
-------------
<PAGE>
[X] Please mark votes as in this example.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR THE
PROPOSAL IN ITEM 2.
1. To elect three (3) Class II Directors, each to service for a three-year term.
Class II Nominees:
FOR WITHHELD ABSTAIN
Kenneth N. Larsen [_] [_] [_]
Agnes Varis [_] [_] [_]
Martin Zeiger [_] [_] [_]
2. To ratify the selection of the firm of KPMG Peat Marwick LLP as auditors for
the fiscal year ending December 31, 1997.
FOR AGAINST ABSTAIN
[_] [_] [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
THIS PROXY SHOULD BE DATED AND SIGNED BY THE SHAREHOLDER(S); EXACTLY AS HIS OR
HER NAME APPEARS HEREON AND RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE. PERSONS
SIGNING IN A FIDUCIARY CAPACITY SHALL SO INDICATE. IF SHARES HELD BY JOINT
TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.
Signature: _______________________________________ Date: ___________________
Signature: _______________________________________ Date: ___________________
