<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)
COPLEY PHARMACEUTICAL, INC.
------------------------------------------------
(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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________________________________________________________________________
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________________________________________________________________________
[_] 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:
________________________________________________________________________
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________________________________________________________________________
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________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
COPLEY PHARMACEUTICAL, INC.
25 JOHN ROAD
CANTON, MASSACHUSETTS 02021
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 28, 1998
----------------
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 Thursday, May 28, 1998, at 10:00 a.m., Eastern Daylight Savings Time, at
the offices of BankBoston, Inc. 150 Royall Street, Canton, Massachusetts
02021, for the following purposes:
1. To elect three Class I 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, 1998.
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 April 1, 1998 are
entitled to notice of and to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors
/s/ Gene M. Bauer
Gene M. Bauer,
Secretary
Canton, Massachusetts
April 27, 1998
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 1998 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 28, 1998
----------------
April 27, 1998
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 Thursday, May 28, 1998, at
10:00 a.m., Eastern Daylight Savings Time, at the offices of BankBoston, Inc.,
150 Royall Street, Canton, Massachusetts 02021, and at any adjournments
thereof (the "Annual Meeting").
Only shareholders of record at the close of business on April 1, 1998 (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, 19,153,518 shares of common stock, $0.01 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 representation in person or by proxy of at least 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 I 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, 1998, 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.
An Annual Report to Shareholders containing the Corporation's Form 10-K and
financial statements for the year ended December 31, 1997 is being mailed
together with this Proxy Statement to all shareholders entitled to
1
<PAGE>
vote at the Annual Meeting. This Proxy Statement and the form of proxy were
first mailed to shareholders on or about April 27, 1998.
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth as of the Record Date 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
NAME AND ADDRESS* OF BENEFICIAL OWNER OWNERSHIP (1) PERCENT OF CLASS
------------------------------------- ----------------- ----------------
<S> <C> <C>
HCCP Acquisition Corporation(2)............. 9,934,100 51.9%
30 Independence Blvd.
Warren, New Jersey 07059
Theodore L. Iorio(3)**...................... 1,587,641 8.3%
Jane C.I. Hirsh(4)**........................ 1,484,262 7.7%
Kenneth N. Larsen(5)........................ 128,704 ***
Agnes Varis(6).............................. 80,325 ***
Wei-wei Chang(7)............................ 51,341 ***
Gene M. Bauer(8)............................ 30,531 ***
Judith W. Fensterer(9)...................... 18,533 ***
Robert P. Cook(10).......................... 5,000 ***
Jerome Skelly............................... 1,375 ***
Martin Zeiger(11)........................... 1,000 ***
William K. Hoskins(11)...................... 0 ***
Peter W. Ladell(11)......................... 0 ***
Ken E. Starkweather(11)..................... 0 ***
All directors and executive officers as a
group (11 persons) (12).................... 1,799,696 9.2%
</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 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 April 1, 1998 or within 60 days thereafter
("Presently Exercisable Securities"). Also includes 22,202 shares
allocated
2
<PAGE>
under the Corporation's Retirement 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 and over
which Mr. Iorio has shared voting and investment power; and 27,713 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 25,321 shares allocated under the Corporation's Retirement
Plan. Also includes: (i) 200,000 shares held of record by NMJ Limited
Partnership, of which Mrs. Hirsh is a general partner; and (ii) 901,693
shares held by Juliet Partners, of which Mrs. Hirsh is a general partner.
Also includes 191,991 shares held of record by Romeo Partners, a
partnership of which Mrs. Hirsh's husband, Dr. Mark Hirsh, is a general
partner, 45,000 shares issuable to Dr. Hirsh pursuant to Presently
Exercisable Securities and 7,757 shares allocated under the Corporation's
Retirement Plan beneficially owned by Dr. Hirsh. Mrs. Hirsh has shared
voting and investment power with respect to all shares listed.
(5) Includes 51,749 shares issuable pursuant to Presently Exercisable
Securities.
(6) Includes 16,749 shares issuable pursuant to Presently Exercisable
Securities. Ms. Varis has shared investment and voting power over 57,918
of the shares listed.
(7) Includes 47,500 shares issuable pursuant to Presently Exercisable
Securities and 187 shares allocated under the Corporation's Retirement
Plan.
(8) Includes 30,000 shares issuable pursuant to Presently Exercisable
Securities.
(9) Includes 18,333 shares issuable pursuant to Presently Exercisable
Securities.
(10) Consists of Presently Exercisable Securities.
(11) 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 of Hoechst Marion Roussel, Inc. ("HMRI"), a
majority-owned subsidiary of HMR Pharma, Inc. which is wholly-owned by
Hoechst AG. Mr. Hoskins was Vice President and General Counsel of HMRI
and remains a consultant. Mr. Ladell is Chief Operating Officer of
Hoechst Marion Roussel AG, the pharmaceutical subsidiary of Hoechst AG.
Mr. Starkweather serves as the Corporation's Vice President, Chief
Financial Officer and Treasurer. He is an employee of and receives
employee benefits offered by HMRI. The Corporation reimburses HMRI for
any 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.
(12) Includes 326,831 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 fifteen (15) times
during the year ended December 31, 1997.
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 YEAR TERM CLASS OF
NOMINEE OR DIRECTOR FIRST BECAME A DIRECTOR POSITION(S) HELD WILL EXPIRE DIRECTOR
- ------------------------------------------- -------------------------- ----------- --------
<S> <C> <C> <C>
NOMINEES:
Robert P. Cook (1997).......... Director 2001(1) I
Jane C.I. Hirsh (1972)......... President of International 2001(1) I
Business and Director
David A. Jenkins(2)............ Director Nominee(2) 2001(1) I
ONGOING DIRECTORS:
Judith W. Fensterer (1994)..... Director 1999 III
William K. Hoskins (1997)...... Director 1999 III
Kenneth N. Larsen (1985)(3).... Chairman of the Board 2000 II
Agnes Varis (1992)............. Director 2000 II
Martin Zeiger (1995)........... Director 2000 II
</TABLE>
- --------
(1) Assumes election of each of the Class I Directors at the Annual Meeting.
(2) Mr. Jenkins currently holds no positions with the Corporation but is
currently a director, President, General Counsel and Secretary of Hoechst
Corporation, wholly-owned by Hoechst AG. Mr. Jenkins has been nominated by
Hoechst pursuant to the Governance Agreement (see "Compensation and Other
Information Concerning Directors and Officers-Certain Relationships and
Related Transactions").
(3) 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 Judith
W. Fensterer, Jane C.I. Hirsh, and William K. Hoskins. Mr. Hoskins was
appointed to the Audit Committee by the Board of Directors on October 10,
1997, replacing James P. Mitchum who had served since March 1997. Mr. Mitchum
was appointed to replace 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 five (5) times as a Committee during the year
ended December 31, 1997.
The Compensation Committee of the Board of Directors currently consists of
Kenneth N. Larsen, Agnes Varis and Martin Zeiger. Mr. Zeiger was appointed to
the Compensation Committee by the Board of Directors on May 30, 1997,
replacing Peter W. Ladell who had served since prior to the beginning of 1996.
The
4
<PAGE>
Compensation Committee reviews executive performance, equity and non-equity
executive compensation and advises the Board of Directors on the Corporation's
benefits and compensation policies. The Compensation Committee met two (2)
times as a Committee during the year ended December 31, 1997.
With the exception of Messrs. Cook and Ladell, 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, 1997. Mr. Ladell has chosen not to seek re-election to the
Corporation's Board of Directors upon the expiration of his term at the Annual
Meeting of Shareholders on May 28, 1998.
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the Class I nominees for election at the
Annual Meeting, the current Class II 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>
Gene M. Bauer........... 48 Executive Vice President, General Counsel and Secretary
Wei-wei Chang........... 52 Executive Vice President--Scientific and Regulatory Affairs
Ken E. Starkweather..... 45 Vice President, Chief Financial Officer and Treasurer
Robert P. Cook.......... 66 Director
Judith W. Fensterer(1).. 60 Director
Jane C.I. Hirsh(1)...... 56 President of International Business and Director
William K. Hoskins(1)... 63 Director
David A. Jenkins........ 57 Director Nominee
Kenneth N. Larsen(2).... 72 Chairman of the Board
Agnes Varis(2).......... 68 Director
Martin Zeiger(2)........ 60 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
ROBERT P. COOK, a director of the Corporation since July 1997, is currently
the Senior Vice President of Marketing and Sales of Scinopharm Int. Ltd.,
which he founded in January of 1995. Prior to that, he served as Director,
Generics Business of Syntex Laboratories, Inc. from October 1986 to December
1994.
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 1995. Mrs. Hirsh served as President of the
Corporation from 1979 to early 1984, and from 1985 to June 1993. Mrs. Hirsh
also served as Treasurer from 1972 to 1992.
DAVID A. JENKINS is a nominee for director designated by Hoechst pursuant to
the Governance Agreement (as hereinafter defined) (see "Compensation and Other
Information Concerning Directors and Officers--Certain Relationships and
Related Transactions"). Mr. Jenkins has served as the Vice President--General
Counsel and a director of HNA Holdings, Inc. (formerly Hoechst Celanese
Corporation) since April 1989 and as President of
5
<PAGE>
HNA Holdings, Inc. since December 1997. In addition, he has been the President
of Hoechst Corporation since December 1997, General Counsel and Secretary
since October 1995, and a director since May 1994.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
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, has been a director of the
Corporation since November 1995. Mr. Zeiger serves as Vice President 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.
JUDITH W. FENSTERER, a director of the Corporation since September 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.
WILLIAM K. HOSKINS, designated by Hoechst to serve as a director of the
Corporation pursuant to the Governance Agreement, has been a director since
October 1997. Mr. Hoskins served as Vice President, Secretary and General
Counsel of HMRI, and its predecessors, from 1982 through June 1997. In
addition, Mr. Hoskins has served on the Board of Directors of J.C. Nichols Co.
since November 1995 and, effective May 1996, became Chairman of the Board.
KENNETH N. LARSEN, Chairman of the Board of the Corporation since May 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.
Mr. Larsen has been a consultant and advisor to numerous healthcare companies
from 1989 to the present.
EXECUTIVE OFFICERS
GENE M. BAUER assumed the title of Executive Vice President, Secretary and
General Counsel of the Corporation in July 1997. He joined the Corporation in
May 1995 as Vice President, Secretary and General Counsel. Prior to joining
the Corporation he served as Associate General Counsel to The Cooper
Companies, Inc. from January 1993 through April 1995.
WEI-WEI CHANG, the Corporation's Executive Vice President--Scientific and
Regulatory Affairs since July 1997, joined the Corporation in August 1994 as
Vice President Quality Affairs. In September 1996 she became Vice President
Quality and Technical Affairs for the Corporation. Prior to joining the
Corporation, she served as President of NuTec Incorporated, a pharmaceutical
and medical devices consulting company, from 1991 through 1994. She has also
been Director, Quality Improvement and Administration at Warner-Lambert
Company from 1988 through 1991 and held various quality management positions
at Lederle Labs from 1979 through 1988.
KEN E. STARKWEATHER became Vice President--Finance and Treasurer of the
Corporation in September 1996 and Vice President, Chief Financial Officer and
Treasurer in May 1997. Prior to joining the Corporation he served as Director
of Procurement for HMRI from October 1995 and from July 1992 to October 1995
served as
6
<PAGE>
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, Chief
Financial Officer 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."
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 INFORMATIONCONCERNING DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth information for the years ended December 31,
1995, 1996 and 1997 concerning the total compensation awarded, earned by or
paid to the person who served as the Corporation's President during part of
1997, each of the most highly compensated executive officers of the
Corporation (other than the former President) whose salary and bonus earned
during the year ended December 31, 1997 exceeded $100,000 and one former
employee who would otherwise be among the most highly compensated executive
officers except that he was not serving as such at December 31, 1997, 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)
- --------------------------- ---- ---------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth N. Larsen....... 1997 167,745(4) -- -- -- --
Former President(3) 1996 218,500(5) -- -- 3,333 --
1995 202,780(6) -- -- 38,333 --
Jerome P. Skelly........ 1997 220,612(8) -- 7,250(9) -- --
Former Executive Vice 1996 250,203 -- 11,852(10) -- 3,315(12)
President--Scientific 1995 250,000 25,000 45,680(11) 50,000 --
and Regulatory Affairs(7)
Gene M. Bauer........... 1997 161,039 17,324 -- -- 5,278(12)
Executive Vice
President,
General Counsel and
Secretary
Wei-wei Chang........... 1997 188,322 29,474 6,875(9) -- 8,869(12)(13)
Executive Vice-
President--Scientific
and Regulatory Affairs
Ken E. Starkweather..... 1997 171,972(14) 62,166(15) 81,892(16) -- --
Vice President, Chief
Financial
Officer and Treasurer
</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 Retirement Plan are allocated among all eligible employees who
participate in the Retirement Plan in accordance with the terms of the
Retirement Plan.
(3) Kenneth N. Larsen resigned as President of the Corporation in January
1997. Since that time, the Board of Directors has evaluated candidates
for President of the Corporation.
(4) Includes $26,500 in fees relating to Mr. Larsen's service as a director
of the Corporation (See "Compensation of Directors") and $141,245 in
consulting fees (See "Certain Relationships and Related Transactions").
(5) Consists of $199,000 of consulting fees and $19,500 in fees relating to
Mr. Larsen's service as a director.
(6) 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").
(7) Dr. Skelly resigned all positions with the Corporation effective May 31,
1997, at which time the Corporation entered into a consulting agreement
with Dr. Skelly.
(8) Includes $105,227 paid to Dr. Skelly by the Corporation pursuant to his
services as a consultant.
(9) Consists of imputed income for an automobile lease.
(10) Consists of relocation expenses and imputed income for an automobile
lease.
(11) Consists of $38,430 in relocation expenses and $7,250 of imputed income
for an automobile lease.
(12) Allocated pursuant to the Corporation's Retirement Plan.
8
<PAGE>
(13) Includes $3,591 in Term Life and Disability Insurance premiums paid by
the Corporation for the benefit of Dr. Chang.
(14) Includes salary and social security taxes paid to HMRI pursuant to a
seconding agreement. See "Occupations of Directors and Executive
Officers" and "Certain Relationships and Related Transactions".
(15) Bonus earned pursuant to HMRI's bonus plan in which Mr. Starkweather
participates. See "Certain Relationships and Related Transactions".
(16) Consists of $47,989 in relocation expenses and $33,903 in fringe benefits
reimbursed to Hoechst.
Option Grants
The following table sets forth information concerning stock options granted
during the year ended December 31, 1997 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, 1997):
OPTION GRANTS IN 1997
<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 5% 10%
- ---- ---------- ---------- ----------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth N. Larsen....... 3,333(3) 8% $ 6.75 5/24/07 $ 14,149 $ 35,856
Jerome P. Skelly........ -- -- -- -- -- --
Gene M. Bauer........... 20,000 46% $ 6.375 5/30/07 $ 80,184 $ 203,202
Wei-wei Chang........... 20,000 46% $ 6.375 5/30/07 $ 80,184 $ 203,202
Ken E. Starkweather..... -- -- -- -- -- --
All Share Owners(4)..... NA NA NA NA 67,689,859 171,539,394
All Optionees........... 693,197 NA $ 11.86(5) 5,170,342 13,102,661
% of Total Share Owners'
Value.................. NA NA NA NA 7.6% 7.6%
</TABLE>
- --------
(1) A total of 43,333 options were granted to employees in the year ended
December 31, 1997; 40,000 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 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 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, 1997.
(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.
9
<PAGE>
OPTION EXERCISES AND UNEXERCISED OPTION HOLDINGS
The following table sets forth certain information concerning options held
by the Named Executive Officers on December 31, 1997. No options were
exercised by the Named Executive Officers during the year ended December 31,
1997.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT YEAR-END YEAR-END
EXERCISABLE/ EXERCISABLE/
NAME (UNEXERCISABLE)(#) (UNEXERCISABLE)($)(1)
---- -------------------- ---------------------
<S> <C> <C>
Kenneth N. Larsen.................... 51,749/(0) 0/(0)
Jerome P. Skelly..................... -- --
Gene M. Bauer........................ 20,000/(20,000) 0/(0)
Wei-wei Chang........................ 42,500/(15,000) 0/(0)
Ken E. Starkweather.................. -- --
</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, 1997
($5.625, the last reported sale price of the Corporation's Common Stock on
the Nasdaq National Market on December 31, 1997, the last trading date in
1997) multiplied by the number of shares underlying the options.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Corporation and each of Mrs. Hirsh, Mr. Bauer and Dr. Chang 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, $155,400 for Mr. Bauer and $175,000 for Dr. Chang.
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 defined lump sum
severance payment. Each employee will be eligible for medical and other health
insurance benefits for a defined period of time, 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 is entitled to receive
discretionary bonuses as determined by the Board of Directors. The original
terms of the employment agreements expire in 1998 for Mrs. Hirsh, in 2000 for
Mr. Bauer and 1999 for Dr. Chang 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 each 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.
The Corporation reimburses HMRI for any expenses incurred in connection with
the compensation of Ken E. Starkweather, the Corporation's Vice President,
Chief Financial Officer and Treasurer, who serves the
10
<PAGE>
Corporation pursuant to a seconding arrangement whereby he continues to be
paid and is eligible to receive employee benefits offered by HMRI.
In connection with Dr. Skelly's resignation effective May 31, 1997, the
Corporation entered into a consulting agreement with Dr. Skelly pursuant to
which Dr. Skelly provides consulting services to the Corporation. 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 Martin Zeiger. Mr. Zeiger was appointed to
the Compensation Committee by the Board of Directors on May 30, 1997,
replacing Peter W. Ladell who had served since prior to the beginning of 1997.
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 recommends 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
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.
11
<PAGE>
Chief Executive Officer Compensation
Kenneth N. Larsen served as the President of the Corporation from July 1996
until his resignation in January 1997. Mr. Larsen's initial base salary was
based on a number of factors, including the base salaries of executives
performing similar functions for peer companies and 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").
THE COMPENSATION COMMITTEE:
Kenneth N. Larsen
Agnes Varis
Martin Zeiger
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Kenneth N. Larsen, Agnes Varis and Martin Zeiger. Mr. Zeiger was appointed to
the Compensation Committee by the Board of Directors on May 30, 1997 replacing
Peter W. Ladell. 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 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
12
<PAGE>
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, 1997, each of Ms. Fensterer, Mr. Larsen
and Ms. Varis received an option to purchase Three Thousand Three Hundred
Thirty-Three (3,333) shares and Mr. Cook received an option to purchase
Fifteen Thousand (15,000) shares of the Corporation's Common Stock pursuant to
the Director Plan.
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 December 31, 1992 through December 31, 1997 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 December 31, 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.; Taro Pharmaceutical Industries
Ltd.; and Teva Pharmaceutical Industries Ltd.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Copley Pharmaceutical, Inc. Common
Stock............................... 100.0 165.74 55.59 57.69 38.81 23.60
Peer Group........................... 100.0 112.63 84.76 109.63 89.19 107.27
Nasdaq Composite Index (Total
Return)............................. 100.0 114.80 112.21 158.70 195.19 239.53
</TABLE>
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 October 8, 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).
Pursuant to the Product Agreement (as hereinafter defined), the Corporation
purchased in 1997 approximately $39,555,000 worth of generic products from
HMRI and approximately $151,000 worth of bulk pharmaceuticals from a division
of HNA Holdings, Inc. (formerly Hoechst Celanese Corp.) ("HNA"). HNA is
indirectly wholly-owned by Hoechst. The Corporation is aware that Hoechst has
announced its intention to de-emphasize the generic bulk pharmaceutical
manufacturing business and the Corporation is pursuing alternative sources.
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 HNA. Insurance coverage is
provided through a wholly-owned insurance subsidiary of HNA, as well as by
external parties. Total premiums paid by the Corporation for these insurance
policies aggregated approximately $4,763,000 for the year ended December 31,
1997.
Agvar Chemicals, Inc., a corporation of which Agnes Varis, a Director of the
Corporation, is the President and sole beneficial owner, sold approximately
$26,000 worth of pharmaceutical raw materials to the Corporation during the
year ended December 31, 1997.
The Corporation utilized Mr. Larsen, a director of the Corporation, as a
consultant during 1997 incurring an aggregate of $141,245 in fees.
At December 31, 1997, 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, 1997. 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 $17,000 for the year ended December 31,
1997. Effective February 27, 1998, Rugby was sold by HMRI to an unrelated
third party.
For the year ended December 31, 1997, the Corporation invested approximately
$360,000 in a multi-source pharmaceutical company, MIR Pharmaceutical, whose
Senior Vice President, Ms. Fensterer, is a Director of the Corporation. This
company was founded in 1993 to market multi-source drugs, including products
manufactured by the Corporation, in certain republics of the former Soviet
Union. This investment was written off in June
15
<PAGE>
1997. The Corporation plans to continue to manufacture and market products for
sale in certain republics of the former Soviet Union through MIR
Pharmaceutical.
The Corporation reimburses HMRI for any expenses incurred in connection with
the compensation of Ken E. Starkweather, the Corporation's Vice President,
Chief Financial Officer 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
On November 11, 1993, HCCP Acquisition Corporation ("HCCP"), a wholly-owned
subsidiary of HNA, acquired a 51% interest in the Corporation on a fully
diluted basis (the "Acquisition"). In connection with the Acquisition, the
Corporation, HNA and HCCP entered into a Corporate Governance and Standstill
Agreement dated as of October 8, 1993, as amended (the "Governance
Agreement"), to govern the relationship between the Corporation and HNA and
its affiliates. In accordance with the provisions of the Governance Agreement,
Class I of the Board of Directors currently consists of three directors, Jane
C.I. Hirsh (considered a "Corporation Director" under the Governance
Agreement), Robert P. Cook (considered an "Independent Director" under the
Governance Agreement) and director nominee David A. Jenkins (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 William K.
Hoskins (a "Hoechst Director").
On October 8, 1998, the Governance Agreement will expire by its terms, with
the exception of certain limited protections that will continue in force as
described below.
16
<PAGE>
Some of the more significant protections in the Governance Agreement that
will expire are: (a) the requirement that the Board of Directors consist of
nine members, three being Corporation Directors, three being Hoechst Directors
and three being Independent Directors (meaning jointly selected by the
Corporation Directors and Hoechst Directors), and that committees of the Board
of Directors be similarly constituted; (b) the prohibition against Hoechst and
its affiliates acquiring additional shares (other than as necessary to
maintain its pre-existing percentage ownership) or otherwise seeking to
increase their control of ownership of the Corporation without the
Corporation's consent (including the consent of at least one Corporation
Director); (c) the prohibition against amendments of the Corporation's charter
and by-laws without the consent of at least one Corporation Director; (d) the
requirement that Hoechst vote its shares in accordance with all
recommendations of the Board of Directors and not vote in opposition to any
recommendation of the Board of Directors; (e) the requirement that all
transactions between the Corporation, on the one hand, and Hoechst and its
affiliates, on the other hand, and each transaction in which there is a
potential conflict of interest between the Corporation and its shareholders
(other than Hoechst and its affiliates) on the one hand, and Hoechst or its
affiliates on the other hand, must be approved by a majority of the
Independent Directors; and (f) the requirement that Hoechst not sell its
shares to any person whom Hoechst knows would own 5% or more of the
outstanding shares unless such person agrees in writing to be bound by the
restrictions of the Governance Agreement and to forego certain benefits under
the Governance Agreement.
The restrictions that continue in effect after October 8, 1998, are: (a) the
prohibition against Hoechst or its affiliates acquiring shares of the
Corporation without the approval of a majority of the Independent Directors,
except in certain privately negotiated, unsolicited transactions which do not
reduce the liquidity of the shares below the level expected to be necessary to
maintain a viable market for the shares and liquidity for the Corporation's
shareholders; and (b) the requirement that, so long as the Corporation is a
public company, the Board of Directors include at least three Independent
Directors. For these purposes, an "Independent Director" is a person who (i)
is in fact independent, (ii) does not have any direct financial interest or
any material indirect financial interest in Hoechst or the Corporation or any
of their respective affiliates, and (iii) is not connected with Hoechst or the
Corporation or any of their respective affiliates as an officer, employee,
consultant, agent advisor, representative, trustee, partner, director (other
than of the Corporation) or person performing similar functions. Other than
these limited restrictions and subject only to such fiduciary duties as a
majority shareholder may have to minority shareholders under Delaware law,
Hoechst, as a majority shareholder, will be able to exercise substantial
control of the Corporation, including the right to decide in its discretion
most matters requiring shareholder approval, such as the election of future
members of the Board of Directors and approval of any proposed merger or
acquisition of the Corporation.
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.
Product Agreement
The Corporation and HNA also entered into a Product Agreement dated as of
October 8, 1993 (the "Product Agreement") to establish certain relationships
between the Corporation and HNA 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 HNA, 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
17
<PAGE>
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, HNA transferred its ownership of HCCP to Hoechst
Corporation (the parent corporation of HNA), which assumed HNA'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 HNA. 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 and pentoxyfylline; HRPI's
obligations under those agreements have also been assumed by HMRI. The
Corporation does not expect to distribute any new or additional products
pursuant to the Product Agreement.
In order to assure continuity of supply under a variety of circumstances and
to provide other competitive benefits, the Corporation has renegotiated the
distribution agreement relating to glyburide and micronized glyburide; as a
result, the profit contribution of these products decreased in 1997.
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.
SECTION 16 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, 1997 with the following exception: Matthew
Costigan, formerly a consultant to the Corporation, failed to file his initial
statement of beneficial ownership of securities in a timely manner. Mr.
Costigan subsequently filed a Form 3.
18
<PAGE>
PROPOSAL RELATING TO ELECTION OF DIRECTORS
Three persons have been nominated by the Board of Directors for election as
Class I directors of the Corporation at the Annual Meeting. The nominees for
election as Class I directors are Robert P. Cook, Jane C.I. Hirsh and David A.
Jenkins. Mr. Cook and Ms. Hirsh are currently serving as directors of the
Corporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FORAPPROVAL OF THE
ELECTION OF ROBERT P. COOK, JANE C.I. HIRSHAND DAVID A. JENKINS AS CLASS I
DIRECTORS
The terms of the Class I directors expire at the Annual Meeting, the terms
of the Class II directors expire at the Annual Meeting of Shareholders to be
held following the completion of the Corporation's year ending December 31,
2000, 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 I
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 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 shall be
voted in accordance with the judgment of the persons named as attorneys in the
proxies. 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, 1998. 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 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 THERATIFICATION OF
THE SELECTION OF THE FIRM OF KPMG PEAT MARWICK LLPTO SERVE AS AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 1998
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.
19
<PAGE>
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 I 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 I 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 voting on that matter 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. Broker "non-votes" and shares voted to
abstain are neither votes for nor against a matter and therefore have the
effect of reducing the number of affirmative votes needed to obtain a majority
of votes cast on a given matter. 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.
SHAREHOLDER PROPOSALS FOR 1999
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 18, 1998. 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
PROXY
COPLEY PHARMACEUTICAL, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS--MAY 28, 1998
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of Copley Pharmaceutical, Inc., a Delaware
corporation, revoking all prior proxies, hereby appoints Gene M. Bauer and Ken
E. Starkweather, and each of them, proxies, with full power of substitution, to
vote all shares of Common Stock of Copley Pharmaceutical, Inc. which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Corporation to be held at BankBoston, 150 Royall Street, Canton, Massachusetts
on May 28, 1998 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 ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------ ------------
<PAGE>
DETACH HERE
[X] Please mark
votes as in
this sample.
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. Proposal to elect three (3) Class I Directors, each to serve for
a three-year term.
Class I Nominees: Robert P. Cook, Jane C.I. Hirsh
and David A. Jenkins
FOR WITHHELD
[_] [_]
[_]_____________________________________
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. To ratify the selection of the firm of [_] [_] [_]
KPMG Peat Marwick LLP as auditors
for the fiscal year ending
December 31, 1998.
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 ARE HELD BY JOINT
TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.
Signature_____________________________Date_________________
Signature_____________________________Date_________________
