<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
U. S. BIOSCIENCE, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
R.R. DONNELLEY INC.
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] 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:
Notes:
<PAGE>
U.S. BIOSCIENCE, INC.
One Tower Bridge
100 Front Street
West Conshohocken, PA 19428
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, APRIL 22, 1996
----------------
The Annual Meeting of Stockholders (the "Meeting") of U.S. Bioscience, Inc.,
a Delaware corporation (the "Company"), will be held on Monday, April 22,
1996, at 10:00 a.m. at The Philadelphia Marriott West, 111 Crawford Avenue,
West Conshohocken, Pennsylvania 19428, for the following purposes:
1. To elect eight directors to hold office until the Annual Meeting of
the Stockholders in 1997 and until their respective successors are duly
elected and qualified.
2. To consider and act upon a proposal to amend the Company's Certificate
of Incorporation to effect a reverse stock split (the "Reverse Stock
Split") in which each two shares of issued Common Stock of the Company, par
value $.005 per share, whether issued and outstanding or held in treasury,
will be reclassified and changed into one share of new Common Stock of the
Company, par value $.01 per share. Such amendment to the Company's
Certificate of Incorporation will reduce the number of authorized shares of
Common Stock from 100 million shares to 50 million shares and will increase
the par value of the Common Stock from $.005 per share to $.01 per share.
3. To transact such other business as may properly come before the
Meeting and any and all adjournments and postponements thereof.
The Board of Directors has fixed the close of business on March 4, 1996 as
the record date for the Meeting. Only stockholders of record at that time are
entitled to notice of and to vote at the Meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the accompanying Proxy Statement for further information
with respect to the business to be transacted at the Meeting.
A complete list of the stockholders entitled to vote at the Meeting will be
open to the examination of any stockholder, for any purpose germane to the
Meeting, during ordinary business hours, for a period of at least 10 days
prior to the Meeting, at the offices of the Company, One Tower Bridge, 100
Front Street, West Conshohocken, Pennsylvania 19428.
THE BOARD OF DIRECTORS URGES YOU TO DATE, SIGN AND RETURN THE ENCLOSED PROXY
PROMPTLY. THE RETURN OF THE ENCLOSED PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE
IN PERSON IF YOU DO ATTEND THE MEETING.
By Order of the Board of Directors,
Martha E. Manning
Secretary
West Conshohocken, Pennsylvania
March 19, 1996
<PAGE>
U.S. BIOSCIENCE, INC.
One Tower Bridge
100 Front Street
West Conshohocken, PA 19428
----------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 1996
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of U.S. Bioscience, Inc., a Delaware
corporation (the "Company"), for use at the Company's Annual Meeting of
Stockholders (together with any and all adjournments and postponements, the
"Meeting") which is scheduled to be held at 10:00 a.m. (local Philadelphia
time), on Monday, April 22, 1996 at The Philadelphia Marriott West, 111
Crawford Avenue, West Conshohocken, Pennsylvania 19428 for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. This Proxy
Statement, the foregoing notice and the enclosed proxy are being sent to
stockholders on or about March 19, 1996.
The Board of Directors knows of no other matters which are likely to be
brought before the Meeting. If any other matters properly come before the
Meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the Meeting, will be authorized to vote or
otherwise act thereon in accordance with their judgment on such matters. If
the enclosed proxy is properly executed and returned prior to voting at the
Meeting, the shares represented thereby will be voted in accordance with the
instructions marked thereon. In the absence of instructions, executed proxies
will be voted "FOR" the eight nominees of the Board of Directors for election
as directors and "FOR" the proposal to amend the Company's Certificate of
Incorporation to effect a reverse stock split.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary of the Company in writing, by delivering a duly executed proxy
bearing a later date, or by attending the Meeting and voting in person.
<PAGE>
VOTING SECURITIES AND SECURITY OWNERSHIP
VOTING SECURITIES
At the close of business on March 4, 1996, the record date fixed for the
determination of stockholders entitled to notice of and to vote at the
Meeting, there were outstanding 43,378,620 shares of the Company's Common
Stock, par value $.005 per share ("Common Stock"), which have one vote per
share. The presence at the Meeting, in person or by proxy, of stockholders
entitled to cast at least a majority of the votes which all stockholders are
entitled to cast will constitute a quorum for the meeting. Stockholders do not
have cumulative voting rights in the election of directors or otherwise.
Directors will be elected by a plurality of votes cast. Abstentions and broker
non-votes are not treated as votes cast, and thus are not the equivalent of
votes against and will have no effect on the outcome of the election of
directors. Passage of the proposal to amend the Company's Certificate of
Incorporation requires the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock of the Company; abstentions and broker
non-votes will have the same effect as votes against the proposal.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The table below sets forth certain information as of March 4, 1996 regarding
the holdings of Common Stock of (i) each person who is known to the Company to
be the beneficial owner of more than 5% of the outstanding shares of the
Company's Common Stock, (ii) each Director of the Company, (iii) each nominee
for Director, (iv) the Company's Chief Executive Officer and each of the
Company's four other most highly compensated executive officers who were
serving as executive officers at the end of 1995 and (v) all directors and
executive officers as a group. Unless otherwise specified, the named
beneficial owner has sole voting and investment power. The information in the
table below was furnished by the persons listed, and constitutes beneficial
ownership as defined in regulations of the Securities and Exchange Commission.
Shares issuable pursuant to the exercise of stock options are included in the
table below if such options are currently exercisable or exercisable by May 3,
1996.
<TABLE>
<CAPTION>
AMOUNT AND NATURE % OF
OF BENEFICIAL COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP STOCK
- ------------------------ ----------------- ------
<S> <C> <C>
State of Wisconsin Investment Board(1)................ 3,325,100 7.7
Philip S. Schein, M.D................................. 1,234,350(2) 2.8
Robert L. Capizzi, M.D. .............................. 246,800(3) *
Robert I. Kriebel..................................... 193,500(4) *
Paul Calabresi, M.D. ................................. 30,000(5) *
Douglas J. MacMaster, Jr.............................. 20,000(6) *
Allen Misher, Ph.D.................................... 33,960(7) *
Jonah Shacknai........................................ 40,200(8) *
Betsey Wright......................................... 20,200(9) *
Donald O. Brown....................................... 151,200(10) *
Barbara J. Scheffler.................................. 231,700(11) *
All directors and executive officers as a group (11
persons)............................................. 2,274,010(12) 5.2
</TABLE>
- --------
(*) Less than 1% of class.
(1) The address of this stockholder is State of Wisconsin Investment Board,
P.O. Box 7842, Madison WI 53707.
(2) Includes 460,000 shares issuable upon exercise of stock options held by
Dr. Schein. Also includes 738,722 shares owned directly and as joint
tenant with Dorothy Schein, Dr. Schein's wife, 400 shares held by Mrs.
Schein as custodian for their two children, and 35,230 shares held by
Mrs. Schein as co-trustee of two trusts for the benefit of their two
children. Dr. Schein disclaims beneficial ownership of all of these
shares not owned directly or as joint tenant.
[notes continued on following page]
2
<PAGE>
(3) Includes 246,000 shares issuable upon exercise of stock options held by
Dr. Capizzi.
(4) Represents shares issuable upon exercise of stock options held by Mr.
Kriebel.
(5) Represents shares issuable upon exercise of stock options held by Dr.
Calabresi.
(6) Represents shares issuable upon exercise of stock options held by Mr.
MacMaster.
(7) Includes 20,000 shares issuable upon exercise of stock options held by
Dr. Misher.
(8) Includes 30,000 shares issuable upon exercise of stock options held by
Mr. Shacknai.
(9) Includes 20,000 shares issuable upon exercise of stock options held by
Ms. Wright.
(10) Represents shares issuable upon exercise of stock options held by Mr.
Brown.
(11) Includes 175,500 shares issuable upon exercise of stock options held by
Ms. Scheffler.
(12) Includes 1,418,200 shares issuable upon exercise of stock options.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
At the Meeting, the stockholders will elect eight directors to hold office
until the Annual Meeting of Stockholders in 1997 and until their respective
successors are duly elected and qualified. Unless contrary instructions are
given, the shares represented by a properly executed proxy will be voted "FOR"
the election of the following nominees: Paul Calabresi, M.D., Robert L.
Capizzi, M.D., Robert I. Kriebel, Douglas J. MacMaster, Jr., Allen Misher,
Ph.D., Philip S. Schein, M.D., Jonah Shacknai and Betsey Wright. All of the
nominees are presently members of the Board of Directors of the Company.
The Board of Directors believes that the nominees are willing to serve as
directors. If any nominee at the time of election is unable or unwilling to
serve or is otherwise unavailable for election and, as a result, another
nominee is designated, the persons named in the enclosed proxy or their
substitutes will have discretion and authority to vote for or to refrain from
voting for the other nominee in accordance with their judgment.
Set forth below is certain information concerning the nominees for election
as directors:
<TABLE>
<CAPTION>
DIRECTOR POSITIONS WITH
NAME AGE SINCE THE COMPANY
---- --- -------- --------------------------
<S> <C> <C> <C>
Philip S. Schein, M.D. ................. 56 1987 Chief Executive Officer,
President and Chairman of
the Board of Directors
Robert L. Capizzi, M.D.................. 57 1992 Senior Scientific Adviser
and Director
Robert I. Kriebel....................... 53 1991 Senior Vice President--
Finance and
Administration, Treasurer
and Director
Paul Calabresi, M.D.(1)................. 65 1992 Director
Douglas J. MacMaster, Jr.(2)............ 65 1994 Director
Allen Misher, Ph.D.(1).................. 63 1988 Director
Jonah Shacknai(2)....................... 39 1987 Director
Betsey Wright(1)........................ 52 1994 Director
</TABLE>
- --------
(1) Member of Executive Compensation Committee
(2)Member of Audit Committee
3
<PAGE>
Dr. Schein has been Chief Executive Officer and a Director of the Company
since its formation in May 1987 and Chairman since 1990. He was also President
of the Company from its formation until April 1992 and again from May 1995 to
the present. From April 1987 to May 1987 he was employed by U.S. Healthcare,
Inc., a publicly-owned operator of health maintenance organizations ("HMO's"),
to commence the business undertaken by the Company. From January 1987 to
February 1987 Dr. Schein was a consultant in drug development to Unimed, Inc.,
a pharmaceutical company, and Professor of Medicine and Pharmacology at the
University of Pennsylvania. Dr. Schein served as Vice President of Worldwide
Clinical Research and Development, Smith, Kline & French Laboratories, the
pharmaceutical division of SmithKline Beckman Corporation, from October 1983
to December 1986. Dr. Schein was the Scientific Director of the Vincent T.
Lombardi Cancer Research Center at Georgetown University School of Medicine in
Washington, D.C. from July 1982 to October 1983, Chief of the Division of
Medical Oncology from August 1974 to October 1983 and Professor in the
Departments of Medicine and Pharmacology from August 1974 to October 1983.
From July 1971 to August 1974 he was a senior investigator at the National
Cancer Institute and Head of the Clinical Pharmacology Section. Dr. Schein is
a former President of the American Society of Clinical Oncology and a former
Chairman of the FDA Oncologic Drugs Advisory Committee, where he received the
Commissioner's Special Citation and the Wiley Medal for outstanding service.
In September 1994 Dr. Schein was appointed by President Clinton to a six-year
term on the National Cancer Advisory Board. He has published more than 350
articles and texts relating to basic and clinical research and drug
development and is the recipient of numerous scientific and medical awards and
honors. He is a director of Oncor, Inc., a biotechnology-based diagnostics
company, and Medicis Pharmaceutical Corporation, a research intensive
pharmaceutical company focused on dermatology.
Dr. Capizzi has been Senior Scientific Adviser to the Company since March
1996. From September 1991, when he joined the Company, through February 1996,
he was Executive Vice President-Worldwide Research and Development of the
Company. From September 1982 until joining the Company, Dr. Capizzi was
Charles L. Spurr Professor, and Director of the Comprehensive Cancer Center,
of Wake Forest University, Chief of the Section on Hematology/Oncology, and
Chairman of the Piedmont Oncology Association at the Bowman Gray School of
Medicine of Wake Forest University, Winston-Salem, North Carolina. Dr. Capizzi
is a former member of the FDA Oncologic Drugs Advisory Committee and the Board
of Directors of the American Society of Clinical Oncology. He has published
over 300 manuscripts and texts relating to clinical pharmacology and cancer
treatment.
Mr. Kriebel joined the Company in April 1991 as Senior Vice President-
Finance and Administration and Treasurer. He held various positions with
Rhone-Poulenc Rorer Inc. (formerly Rorer Group Inc.) from 1974 until November
1990. From 1987 to November 1990 he was Vice President and Controller of Rorer
Group Inc.'s Armour Pharmaceutical Company subsidiary. In 1986, Mr. Kriebel
was Vice President-Investor Relations of Rorer Group Inc. and from 1979 to
1985 he was Treasurer of Rorer Group Inc.
Dr. Calabresi has since 1993 been Chairman Emeritus and Professor of
Medicine, and from 1974 to 1993 was Chairman of the Department of Medicine, of
Brown University School of Medicine. He is a member of the Institute of
Medicine of the National Academy of Sciences, was the recipient in 1992 of the
Oscar B. Hunter Memorial Award in Therapeutics of the American Society for
Clinical Pharmacology and Therapeutics, and was the recipient in 1995 of the
American Cancer Society's St. George Medal. Dr. Calabresi was president of the
American Society of Clinical Oncology from 1969 to 1970, and Chairman of the
National Cancer Advisory Board from 1991 to 1994. He is the author or editor
of over 200 manuscripts and books relating to the pharmacology of anticancer
agents and the management of cancer patients.
Mr. MacMaster has been retired since 1991. For 30 years prior to his
retirement, Mr. MacMaster was employed by Merck & Co., as a Senior Vice
President from 1988 to 1991 and as President of its Merck, Sharpe & Dohme
Division from 1985 to 1988. He is a director of American Precision Industries,
Inc., a manufacturer of heat transfer and motion control equipment, and Martek
Biosciences Corp., a research-intensive pharmaceutical company.
4
<PAGE>
Dr. Misher was President of the Philadelphia College of Pharmacy and Science
from 1984 until his retirement on December 31, 1994, and since February 1995
has been President Emeritus. He was Senior Vice President of National Medical
Care, Inc. from 1982 to 1984, and President of SmithKline Medical Diagnostics,
a division of SmithKline Beckman Corporation, from 1978 to 1982. He is a
director of U.S. Healthcare, Inc., Marsam Pharmaceuticals Inc., a manufacturer
of generic injectable drugs, and Cortech, Inc., a biopharmaceutical company
engaged in drug research and development.
Mr. Shacknai has been Chairman and Chief Executive Officer of Medicis
Pharmaceutical Corporation, a research-intensive pharmaceutical company, since
July 1988. From 1982 to June 1988 he was a partner of Royer, Shacknai & Mehle,
a law firm specializing in regulatory and legislative matters relating to
food, drugs, medical devices, cosmetics and other health issues.
Ms. Wright has since March 1996 been Senior Director, and from March 1993 to
March 1996 was Executive Vice President, of The Wexler Group, a government
relations and public affairs firm in Washington, DC. She specializes in policy
areas of healthcare, transportation and trade. From 1980 until March 1993, she
was associated in Arkansas with Governor Bill Clinton, as his chief of staff
for seven years, as manager of three re-election campaigns, as chair and
executive director of the Arkansas Democratic Party, as deputy chair of his
presidential campaign, and as a member of his transition staff.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and an Executive Compensation Committee,
but does not have an Executive Committee or a Nominating Committee. The Audit
Committee, which held one meeting in 1995, consists of Dr. Gordon and Messrs.
MacMaster and Shacknai. The functions of the Audit Committee generally include
reviewing with the independent auditors the scope and results of their
engagement and reviewing the adequacy of the Company's system of internal
accounting controls.
The Executive Compensation Committee, which held two meetings in 1995,
consists of Drs. Calabresi and Misher and Ms. Wright. The Executive
Compensation Committee is responsible for establishing salaries, bonuses and
other compensation, and granting stock options, for the Company's officers.
The Board of Directors held five meetings in 1995. In 1995 each director
attended at least 75% of the combined number of meetings of the Board and of
the Committees on which such directors served.
COMPENSATION OF DIRECTORS
Until May 1995 the Company paid to each of its non-employee directors $1,000
for each day upon which the director attends a meeting of the Board of
Directors or a committee of the Board of Directors. At its meeting in May 1995
the Board of Directors discontinued the payment of fees on the foregoing basis
and instituted a $10,000 annual fee for each non-employee director.
The Company's 1992 Stock Option Plan (the "Plan") contains special
provisions with regard to those directors of the Company who are not employees
of the Company, which provisions are intended to permit no discretion with
regard to the timing of grants of stock options to such directors, the price
at which shares of common stock covered by such options may be purchased and
the number of shares of common stock covered by such options. These provisions
are intended to enable the Plan to satisfy the conditions relating to
administration of employee stock option plans set forth in Rule 16b-3 ("Rule
16b-3") promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Rule 16b-3 provides exemptions for officers and directors
from the "short-swing" profit provisions of Section 16(b) under the Exchange
Act with respect to, among other things, the grant of options under a stock
option plan. Pursuant to the terms of the Plan, each non-employee director who
was a director when the Plan was adopted on April 15, 1992 was granted on
November 16, 1993 an option to purchase 30,000 shares of common stock
exercisable in three equal installments on the three anniversary dates of the
date of grant, at an exercise price equal to the fair market value of the
shares on the date of grant, and each such director will receive a grant of
30,000 shares on the same basis every
5
<PAGE>
three years thereafter. With respect to non-employee directors first elected
to the board after April 15, 1992 each such director received, or will
receive, on the date such director becomes a director, an option to purchase
30,000 shares of common stock on the same basis described above and will
receive a similar option every three years thereafter. Such options expire ten
years from the date of grant.
For service as special FDA consultant to the Company, on December 16, 1992
Mr. Shacknai received a stock option to purchase an aggregate of 30,000 shares
of the Company's Common Stock. The option will become exercisable in
increments of 10,000 shares at such time as the Company obtains an FDA
approval (if Mr. Shacknai, at the Company's request, assisted the Company with
respect to such approvals) to market one of its pharmaceutical products. The
exercise price of Mr. Shacknai's options is $11.00 per share, the fair market
value on date of grant. The options granted to Mr. Shacknai expire ten years
from the date of grant. On December 8, 1995, the date of the FDA's approval
for the Company to market Ethyol(R), an option to purchase 10,000 shares of
the Company's Common Stock became exercisable.
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
TO EFFECT THE ONE-FOR-TWO REVERSE COMMON STOCK SPLIT
The Board of Directors believes that the recent share price of the Company's
Common Stock has negatively affected the marketability of the Company's
shares, increased the amount and percentage of transaction costs paid by
individual stockholders and negatively affected the ability of the Company to
raise capital through the issuance of additional shares. The Company believes
there are several reasons for these effects, as summarized below.
As a means of improving marketability of the Common Stock, reducing
stockholders' transaction costs, and other considerations, on January 23,
1996, the Board of Directors of the Company approved, subject to the
stockholders' approval solicited hereby, a proposal to amend the Company's
Certificate of Incorporation to effect a one-for-two reverse Common Stock
split (the "Reverse Stock Split"). The proposed amendment to the Company's
Certificate of Incorporation will reduce by half the number of shares of
Common Stock which the Company is authorized to issue from 100 million shares
to 50 million shares, and will increase the par value per share of Common
Stock from $.005 per share to $.01 per share. Accordingly the first paragraph
of Article Four of the Company's Certificate of Incorporation, which presently
reads "The aggregate number of shares which the Corporation shall have
authority to issue shall be 105,000,000 shares consisting of 100,000,000
shares of Common Stock, par value $.005 per share, and 5,000,000 shares of
Preferred Stock, par value $.005 per share," will be replaced by a provision
reading "The aggregate number of shares which the Corporation shall have
authority to issue shall be 55,000,000 shares consisting of 50,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.005 per share. Effective upon the filing in the Office of
the Secretary of State of Delaware of the Certificate reflecting this
amendment to Article Four of this corporation's Certificate of Incorporation
(the "Effective Date"), each two issued shares of the corporation's Common
Stock (whether outstanding or held as treasury stock), par value $.005 per
share ("Old Common") shall thereupon be combined into and reclassified as one
share of Common Stock, par value $.01 per share ("New Common"). Each
certificate that theretofore represented shares of Old Common shall thereupon
represent the number of shares of New Common into which the shares of Old
Common represented by such certificate shall be combined. The corporation
shall not issue fractional shares as a result of the combination of shares but
shall arrange for the disposition of fractional shares on behalf of those
record holders of Old Common at the close of business on the Effective Date
who would otherwise be entitled to a half share as a result of the combination
of shares."
Although the Company's Board of Directors believes as of the date of this
Proxy Statement that a one-for-two Reverse Stock Split is advisable, the
Reverse Stock Split may be abandoned by the Board of Directors at any time
before, during or after the Annual Meeting. In addition, depending upon
prevailing market conditions, the Board of Directors may deem it advisable to
implement the Reverse Stock Split and concurrently declare a Common Stock
dividend in an amount to be determined, which Common Stock dividend would not
require
6
<PAGE>
stockholder approval. Any such Common Stock dividend would partially offset
the decrease in the number of issued shares of new Common Stock resulting from
the one-for-two Reverse Stock split. No such Common Stock dividend is
presently contemplated.
REASONS FOR THE REVERSE STOCK SPLIT PROPOSAL
The Board of Directors of the Company believes that the relatively low
market price of the Common Stock may impair the acceptability of the Common
Stock to certain institutional investors and other members of the investing
public. Theoretically, the number of shares outstanding should not, by itself,
affect the marketability of a stock, the type of investor who acquires it, or
the company's reputation in the financial community. In practice this is not
necessarily the case, as certain investors view low-priced stocks as
unattractive or, as a matter of policy, will not extend margin credit on
stocks trading at low prices, although certain other investors may be
attracted to low-priced stocks because of the greater trading volatility
sometimes associated with such securities. Many brokerage houses are reluctant
to recommend lower-priced stocks to their clients or to hold them in their own
portfolios. Further, a variety of brokerage house policies and practices
discourage individual brokers within those firms from dealing in low-priced
stocks because of the time-consuming procedures that make the handling of low-
priced stocks economically unattractive.
In addition, since the broker's commissions on low-priced stocks generally
represent a higher percentage of the stock price than commissions on higher
priced stocks, the current share price of the Common Stock can result in
individual stockholders paying transaction costs (commissions, markups or
markdowns) which are a higher percentage of their total share value than would
be the case if the share price was substantially higher. This factor is also
believed to limit the willingness of institutions to purchase the Common Stock
at its current relatively low market price. If approved, the Reverse Stock
Split will result in some stockholders owning "odd-lots" of less than 100
shares of Common Stock. Brokerage commissions and other costs of transactions
in odd-lots may be higher, particularly on a per-share basis, than the cost of
transactions in lots of 100 shares or more.
The Board of Directors believes that the decrease in the number of shares of
Common Stock outstanding as a consequence of the proposed Reverse Stock Split
and the resulting anticipated increased price level will encourage greater
interest in the Common Stock by the financial community and the investment
public and possibly promote greater liquidity for the Company's stockholders,
although it is possible that such liquidity could be affected adversely by the
reduced number of shares outstanding after the Reverse Stock Split. Also,
although any increase in the market price of the new Common Stock resulting
from the Reverse Stock Split may be proportionately less than the decrease in
the number of shares outstanding, the proposed Reverse Stock Split could
result in a market price for the shares that would be high enough to overcome
the reluctance, policies and practices of brokerage houses and investors
referred to above and to diminish the adverse impact of correspondingly higher
trading commissions on the market for the shares.
There can be no assurance, however, that the foregoing hoped-for effects
will occur following the Reverse Stock Split or that the market price of the
new Common Stock immediately after implementation the proposed Reverse Stock
Split will be maintained for any period of time, that such market price will
approximate two times the market price before the proposed Reverse Stock
Split, or that such market price will exceed or remain in excess of the
current market price.
If the Reverse Stock Split is approved by the stockholders, the total number
of shares of Common Stock held by each stockholder would be converted
automatically into a right to receive an amount of whole shares of new Common
Stock equal to the number of shares owned immediately prior to the Reverse
Stock Split divided by two. No fractional shares will be issued and, in lieu
of any fractional shares, fractional shares otherwise issuable to the
stockholders will be aggregated and sold, by an agent selected by the Company,
for such stockholders' benefit and the cash proceeds from such sales will be
distributed (on a weighted average basis) to such stockholders together with
their stock certificates for the new Common Stock following their surrender of
their stock certificates representing their Common Stock prior to the Reverse
Stock Split.
7
<PAGE>
Approval of the Reverse Stock split will not affect any stockholder's
percentage ownership interest in the Company or proportional voting power,
except for minor differences resulting from the sale of fractional shares. The
Reverse Stock Split should not reduce the number of stockholders of the
Company. The shares of Common Stock which will be issued upon approval of the
Reverse Stock Split will be fully paid and non-assessable. The voting rights
and other privileges of the holders of Common Stock will not be affected
substantially by adoption of the Reverse Stock Split or subsequent
implementation thereof. If for any reason the Board of Directors deems it
advisable to do so, the Reverse Stock Split may be abandoned by the Board of
Directors at any time before, during or after the Annual Meeting and prior to
filing and effectiveness of the amendment to the Company's Certificate of
Incorporation with the Secretary of State of the State of Delaware, pursuant
to the Delaware General Corporation Law, without further action by the
stockholders of the Company. In addition, the effect of the Reverse Stock
Split may be partially offset if the Board of Directors elects to declare a
Common Stock dividend as described above.
EFFECTIVE DATE
If the Reverse Stock Split is approved by the stockholders at the Annual
Meeting, and upon a determination by the Board of Directors that a Reverse
Stock Split is in the best interest of the Company and its stockholders, an
amendment to Article Four of the Company's Certificate of Incorporation will
be filed with the Secretary of State of the State of Delaware on or about
April 22, 1996 or any other date (the "Effective Date") selected by the Board
of Directors on or prior to the Company's next Annual Meeting of Stockholders,
and the Reverse Stock Split will become effective on the date of such filing.
Without any further action on the part of the Company or the stockholders, the
shares of Common Stock held by each stockholder of record as of the Effective
Date will be converted on the Effective Date into the right to receive an
amount of whole shares of new Common Stock equal to the number of such
stockholder's shares divided by two, with any fractional share to be sold on
such stockholder's behalf as described above.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, the Company will send a
letter of transmittal to each stockholder of record on the Effective Date for
use in transmitting certificates representing share of Common Stock ("old
certificates") to the Company's transfer agent, Chemical Mellon Shareholder
Services, L.L.C. (the "Exchange Agent"). The letter of transmittal will
contain instruction for the surrender of old certificates to the Exchange
Agent in exchange for certificates representing the number of whole shares of
new Common Stock. No new certificates will be issued to a stockholder until
such stockholder has surrendered all old certificates together with a properly
completed and executed letter of transmittal to the Exchange Agent.
Upon proper completion and execution of the letter of transmittal and return
thereof to the Exchange Agent, together with all old certificates,
stockholders will receive a new certificate or certificates representing the
number of whole shares of new Common Stock into which their shares of Common
Stock represented by the old certificates have been converted as a result of
the Reverse Stock Split. Stockholders who would otherwise also receive a
fractional share will instead receive a check representing the proceeds from
the sale of such fractional share as described above. Until surrendered,
outstanding old certificates held by stockholders will be deemed for all
purposes to represent the number of whole share of Common Stock to which such
stockholders are entitled as a result of the Reverse Stock Split. Stockholders
should not send their old certificates to the Exchange Agent until they have
received the letter of transmittal. Shares not presented for surrender as soon
as is practicable after the letter of transmittal is sent will be exchanged at
the first time they are presented for transfer.
No service charges will be payable by stockholders in connection with the
exchange of certificates, all expenses of which will be borne by the Company.
The Company will obtain a new CUSIP number for the Common Stock.
8
<PAGE>
EFFECT OF THE REVERSE STOCK SPLIT
If the Reverse Stock Split is approved at the Annual Meeting and the
Company's Board of Directors subsequently determines that it is advisable to
proceed with the Reverse Stock Split, the result (without giving effect to a
Common Stock dividend, if any, referred to above) would be that each Company
stockholder who owns two or more shares of Common Stock will receive one share
of new Common Stock for each two shares of Common Stock held at the time of
the Reverse Stock Split, and a check representing the cash proceeds from the
sale of such stockholder's fractional share, if any.
Dissenting stockholders have no appraisal rights under Delaware law or under
the Company's Certificate of Incorporation or Bylaws in connection with the
Reverse Stock Split.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated federal income tax
consequences of the Reverse Stock Split to stockholders of the Company. This
summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Department Regulations (the "Regulations")
issued pursuant thereto, and published rulings and court decisions in effect
as of the date hereof, all of which are subject to change. This summary does
not take into account possible changes in such laws or interpretations,
including amendments to the Code, applicable statutes, Regulations and
proposed Regulations or changes in judicial or administrative rulings, some of
which may have retroactive effect. No assurance can be given that any such
changes will not adversely affect the discussion in this summary.
This summary is provided for general information only and does not purport
to address all aspects of the possible federal income tax consequences of the
Reverse Stock Split and IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. In
particular, and without limiting the foregoing, this summary does not consider
the federal income tax consequences to stockholders of the Company in light of
their individual investment circumstances or to holders subject to special
treatment under the federal income tax laws (for example, life insurance
companies, regulated investment companies and foreign taxpayers). In addition,
this summary does not address any consequence of the Reverse Stock Split under
any state, local or foreign tax laws. As a result, it is the responsibility of
each stockholder to obtain and rely on advice from his or her personal tax
advisor as to: (i) the effect on his or her personal tax situation of the
Reverse Stock Split, including the application and effect of state, local and
foreign income and other tax laws; (ii) the effect of possible changes in
judicial or administrative interpretations of existing legislation and
Regulations, as well as possible future legislation and Regulations; and (iii)
the reporting of information required in connection with the Reverse Stock
Split on his or her own tax returns. It will be the responsibility of each
stockholder to prepare and file all appropriate federal, state and local tax
returns.
No ruling from the Internal Revenue Service ("Service") or opinion of
counsel will be obtained regarding the federal income tax consequences to the
stockholders of the Company as a result of the Reverse Stock Split.
ACCORDINGLY, EACH STOCKHOLDER IS ENCOURAGED TO CONSULT HIS OR HER TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
The Company believes that the Reverse Stock Split will be a
"recapitalization" under the Code. As a result, no gain or loss will be
recognized by to the Company or its stockholders in connection with the
Reverse Stock Split, except with respect to any cash received in lieu of
fractional shares. If the Reverse Stock Split qualifies as a
"recapitalization" under the Code, a stockholder of the Company who exchanges
his or her Common Stock solely for new Common Stock should recognize no gain
or loss for federal income tax purposes. A stockholder's aggregate tax basis
in his or her shares of new Common Stock received from the Company should be
the same as his or her aggregate tax basis in the Common Stock exchanged
therefor. The holding period of the new Common Stock received by such
stockholder should include the period during which the Common Stock
9
<PAGE>
surrendered in exchange therefor was held, provided all such Common Stock was
held as a capital asset on the date of the exchange. Each stockholder who owns
an odd number of shares of Common Stock on the Effective Date and who
therefore will have one half share of new Common Stock sold on such
stockholder's behalf will recognize capital gain or loss for federal income
tax purposes to the extent that the proceeds from the sale of such half share
exceed or are less than such stockholder's tax basis in such half share.
WARRANTS AND STOCK OPTIONS
The Company had outstanding on the March 4, 1996 (the record date for the
Meeting) 1,096,528 stock purchase warrants which expire on April 24, 1998 and
which entitle the holders to purchase one share of the Company's Common Stock
at a price of $9.20 per share. If the Reverse Stock Split is approved at the
Meeting, the number of shares subject to the stock purchase warrants will be
reduced by half to 548,264, and the exercise price per share will double to
$18.40. On March 4, 1996 the Company also had outstanding options issued under
its various stock option plans to employees and consultants and advisors to
acquire up to an aggregate of 5,451,172 shares of the Company's Common Stock
at various exercise prices. If the Reverse Stock Split is approved at the
Meeting, the number of shares subject to these options will be reduced by half
to 2,725,586 shares (subject to minor adjustments for the rounding of
fractional shares) and the various exercise prices per share will double.
VOTE REQUIRED
In order to effect the Reverse Stock Split, the Company's Certificate of
Incorporation must be amended, which requires, under Delaware law, the
affirmative vote of holders of a majority of the outstanding shares of Common
Stock. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE PROPOSAL TO AMEND
THE RESTATED CERTIFICATE OF INCORPORATION TO EFFECT THE ONE-FOR-TWO REVERSE
SPLIT OF THE COMMON STOCK.
10
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid or accrued during each of the last three fiscal years to the Company's
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------- -------------------------------- --------------
OTHER PAYOUTS
ANNUAL RESTRICTED LONG-TERM ALL OTHER
COMPEN- STOCK INCENTIVE COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS PLAN(S) SATION (3)
POSITION YEAR ($) ($) ($) ($) (SHARES) ($) ($)
------------------ ---- ------- ------- ------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Philip S. Schein........ 1995 346,610 121,313 0 N/A 650,000(2) N/A 109,572
Chief Executive Officer
and 1994 346,610 57,763 0 N/A 50,000 N/A 96,196
Chairman 1993 343,435 86,652 0 N/A 50,000 N/A 75,971
Robert L. Capizzi....... 1995 254,100 63,525 0 N/A 450,000(2) N/A 72,941
Executive Vice
President 1994 254,100 42,346 0 N/A 40,000 N/A 67,011
Worldwide Research and 1993 251,773 63,525 19,601(1) N/A 40,000 N/A 52,140
Development
Robert I. Kriebel....... 1995 168,000 58,800 0 N/A 312,500(2) N/A 51,100
Senior Vice President 1994 168,000 27,997 0 N/A 30,000 N/A 43,078
Finance and 1993 166,462 42,000 0 N/A 30,000 N/A 39,301
Administration and
Treasurer
Donald O. Brown......... 1995 160,000 48,000 0 N/A 283,000(2) N/A 46,264
Senior Vice President 1994 160,000 26,664 0 N/A 33,000 N/A 39,749
Pharmaceutical
Operations 1993 139,290 44,000 0 N/A 20,000 N/A 36,271
Barbara J. Scheffler.... 1995 162,000 56,700 0 N/A 285,500(2) N/A 48,078
Senior Vice President 1994 144,690 26,997 0 N/A 69,000 N/A 37,645
Project Management 1993 143,365 36,172 0 N/A 30,000 N/A 37,352
</TABLE>
- --------
(1) Reflects employee relocation costs including income tax gross-up.
(2) On February 21, 1995, the Company amended all outstanding employee stock
options with an exercise price greater than $2.44 per share, including the
options for employees described in the table above, to change the exercise
price to $2.44 per share, the closing market price of the Company's Common
Stock on February 21, 1995. Excluding repriced option amounts, included in
the 1995 amounts above, actual new options granted to the named executives
during 1995 were: Dr. Schein, 50,000; Dr. Capizzi, 40,000; Mr. Kriebel,
Mr. Brown and Ms. Scheffler, 30,000 each.
(3) Represents employer contributions to life insurance, Executive Deferred
Compensation Plan, Employee Pension Plan and Employee Savings Plan
(401(k)). For each above named executive, the 1995 amounts are as follows:
Dr. Schein: life insurance, $9,802; deferred compensation, $79,594;
pension, $17,096; and 401(k), $3,080. Dr. Capizzi; life insurance; $8,601,
deferred compensation; $45,102, pension; $17,096 and 401(k); $2,142. Mr.
Kriebel; life insurance; $4,320, deferred compensation; $26,604, pension;
$17,096 and 401(k); $3,080. Mr. Brown; life insurance; $3,596, deferred
compensation; $22,492, pension; $17,096 and 401(k); $3,080. Ms. Scheffler;
life insurance; $1,792, deferred compensation; $27,452, pension; $17,096
and 401(k); $1,738.
Dr. Schein has an employment agreement terminable by the Company or Dr.
Schein upon notice, pursuant to which he will receive a minimum annual salary
of $346,610.
The Company has entered into agreements (the "Executive Severance
Agreements") with the Company's Controller, the Company's vice presidents and
with all officers holding higher office, pursuant to which the
11
<PAGE>
Company has agreed to provide specified severance benefits to each such
executive. Each of the Executive Severance Agreements provides that if the
executive's employment with the Company is terminated by the Company for any
reason other than the executive's death, disability or for "cause" (as defined
in the Executive Severance Agreements to cover specified serious misconduct),
or if the executive resigns for "good reason" (as defined in the Executive
Severance Agreements to cover a downgrading of the executive by the Company or
non-fulfillment by the Company of certain contractual commitments to the
executive), within three years following a "change in control of the Company,"
the Company will make a lump sum severance payment to the executive equal to
the product determined by multiplying the highest annual compensation paid or
payable by the Company to the executive with respect to each of the three
calendar years ending with the year in which the date of termination occurs,
by the number of years (including any fraction of a year) remaining in the
three-year period commencing with the date of change in control of the
Company. The compensation base on which such payment is calculated includes
bonuses and deferred compensation as well as salary. In addition, in lieu of
any fringe benefits to be paid to the executive with respect to the remainder
of the aforesaid three-year period, the executive will receive an additional
lump sum equal to the product of multiplying $20,000 (in the case of
Dr. Schein $35,000, and in the case of Dr. Capizzi $30,000) by the number of
years (including any fraction of a year) remaining in the aforesaid three-year
period, and a further payment designed to compensate the executive for lost
pension benefits by reason of his or her termination of employment earlier
than three years following the change in control of the Company.
A "change in control of the Company" is deemed to have occurred if (i) there
has been a change in control of a nature that would be required, if the
Company would be subject to reporting requirements under the Exchange Act, to
be reported in response to Securities and Exchange Commission disclosure
requirements for proxy statements and Current Reports on Form 8-K relating to
changes in control; or (ii) any person, entity or group (within the meaning of
certain provisions of the Exchange Act), other than any employee benefit plan
(or related trust) sponsored or maintained by the Company or any subsidiary of
the Company, is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 30% or more of the combined voting
power in the election of directors; or during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board
cease for any reason to have authority to cast at least a majority of the
votes which all directors on the Board are entitled to cast, unless the
election, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least two-thirds of the votes
entitled to be cast by the directors then still in office who were directors
at the beginning of the period.
The Executive Severance Agreements provide that payments required to be made
to an executive are to be reduced to the extent they would not be deductible
by the Company for federal income tax purposes due to the provisions of
Section 280G of the Internal Revenue Code, as determined by independent tax
counsel.
12
<PAGE>
STOCK OPTION GRANTS IN 1995
The following table sets forth certain information with respect to
individual grants of new stock options and the repricing of existing stock
options in 1995 to the Company's Chief Executive Officer and each of the
Company's four other most highly compensated executive officers:
<TABLE>
<CAPTION>
NUMBER PERCENT
OF OF POTENTIAL REALIZABLE VALUE AT
SECURITIES TOTAL ASSUMED ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS PRICE APPRECIATION FOR OPTION
OPTIONS/SARS GRANTED TO TERM (2)
GRANTED EMPLOYEES EXERCISE -----------------------------
IN FISCAL IN FISCAL OR BASE 5% 10%
YEAR (1) YEAR PRICE EXPIRATION -----------------------------
NAME (#) (%) ($/SH) DATE ($) ($)
---- ------------ ------------ -------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Philip S. Schein........ 50,000 6.1% $2.44 2/21/05 76,647 194,237
150,000 N/A(3) $2.44 02/22/00 229,940 582,712
100,000 N/A(3) $2.44 11/18/01 153,293 388,475
250,000 N/A(3) $2.44 05/29/02 383,233 971,187
50,000 N/A(3) $2.44 02/26/03 76,647 194,237
50,000 N/A(3) $2.44 03/01/04 76,647 194,237
Robert L. Capizzi....... 40,000 4.9% $2.44 2/21/05 61,317 155,390
330,000 N/A(3) $2.44 05/29/02 505,867 1,281,967
40,000 N/A(3) $2.44 02/26/03 61,317 155,390
40,000 N/A(3) $2.44 03/01/04 61,317 155,390
Robert I. Kriebel....... 30,000 3.6% $2.44 2/21/05 45,988 116,542
60,000 N/A(3) $2.44 04/01/01 91,976 233,085
162,500 N/A(3) $2.44 05/29/02 249,101 631,271
30,000 N/A(3) $2.44 02/26/03 45,988 116,542
30,000 N/A(3) $2.44 03/01/04 45,988 116,542
Donald O. Brown......... 30,000 3.6% $2.44 2/21/05 45,988 116,542
200,000 N/A(3) $2.44 04/27/02 306,586 776,949
20,000 N/A(3) $2.44 02/26/03 30,659 77,695
33,000 N/A(3) $2.44 03/01/04 50,587 128,197
Barbara J. Scheffler.... 30,000 3.6% $2.44 2/21/05 45,988 116,542
55,500 N/A(3) $2.44 05/15/00 85,078 215,603
140,000 N/A(3) $2.44 05/29/02 214,610 543,865
30,000 N/A(3) $2.44 02/26/03 45,988 116,542
30,000 N/A(3) $2.44 02/01/04 45,988 116,542
</TABLE>
- --------
(1) The Company's stock option plans are administered with respect to senior
officers by the Executive Compensation Committee, made up entirely of
members of the Board of Directors who are not employees of the Company.
The Committee determines the number of options to be granted to each
senior officer and the terms of such options. All stock options granted to
the above named executives in 1995 are non-statutory options receiving no
special tax benefit, have an exercise price equal to the fair market value
on the date of grant, become exercisable at a rate of 20% per year
following the date of grant and have a term of 10 years.
(2) Potential realizable value is based on the assumption that the price of
the Company's common stock as of the date of option grant ($2.44 per
share), appreciates at the annual rate shown (compounded annually) until
the end of the 10-year option term. These amounts are calculated based on
requirements promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate of future common stock price growth. If
the Company's stock price does not appreciate in value from the date of
grant, options granted in 1995 will have no value. Similarly, if the
assumed annual rates of stock price appreciation illustrated above are
achieved, total stockholder value will have increased by approximately
$64,527,000 at the 5% assumed annual rate and approximately $163,524,000
at the 10% assumed annual rate based upon a stock price equal to the stock
price on the date of grant. Under both assumed annual rates of stock price
appreciation illustrated above, potential value realized by the above
named executives for all listed options represents less than 5% of the
potential value realizable by all stockholders.
(3) N/A = Not Applicable. These options do not reflect new option grants.
Amounts reflected are existing options which were repriced in 1995.
13
<PAGE>
TEN--YEAR OPTION/SAR REPRICINGS
The table below sets forth a summary of the effect of all option repricings
and replacements since the inception of the Company on options held by the
Company's executive officers. The Company has never granted Stock Appreciation
Rights (SAR's).
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET PRICE EXERCISE ORIGINAL
SECURITIES OF STOCK AT PRICE AT OPTION TERM
UNDERLYING TIME OF TIME OF REMAINING AT
OPTIONS/SARS REPRICING REPRICING NEW DATE OF
REPRICED OR OR OR EXERCISE REPRICING OR
AMENDED (1) AMENDMENT AMENDMENT PRICE AMENDMENT
NAME DATE (#) ($) ($) ($) (YEARS)
- ---- ------- ------------ ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Philip S. Schein........ 2/21/95 150,000(2) $ 2.44 $ 4.69 $ 2.44 0.0
2/21/95 100,000 $ 2.44 $14.46 $ 2.44 6.7
2/21/95 250,000 $ 2.44 $12.63 $ 2.44 7.3
2/21/95 50,000 $ 2.44 $ 7.13 $ 2.44 8.0
2/21/95 50,000 $ 2.44 $ 8.25 $ 2.44 9.0
5/29/92 100,000 $11.38 $19.28 $12.63 9.5
5/29/92 100,000 $11.38 $37.63 $12.63 9.5
Robert L. Capizzi....... 2/21/95 330,000 $ 2.44 $12.63 $ 2.44 7.3
2/21/95 40,000 $ 2.44 $ 7.13 $ 2.44 8.0
2/21/95 40,000 $ 2.44 $ 8.25 $ 2.44 9.0
5/29/92 160,000 $11.38 $19.13 $12.63 9.3
5/29/92 160,000 $11.38 $14.35 $12.63 9.3
Robert I. Kriebel....... 2/21/95 60,000(2) $ 2.44 $11.66 $ 2.44 1.1
2/21/95 162,500 $ 2.44 $12.63 $ 2.44 7.3
2/21/95 30,000 $ 2.44 $ 7.13 $ 2.44 8.0
2/21/95 30,000 $ 2.44 $ 8.25 $ 2.44 9.0
5/29/92 60,000 $11.38 $15.54 $12.63 8.8
5/29/92 80,000 $11.38 $37.63 $12.63 9.5
Donald O. Brown......... 2/21/95 200,000 $ 2.44 $10.00 $ 2.44 7.2
2/21/95 20,000 $ 2.44 $ 7.13 $ 2.44 8.0
2/21/95 33,000 $ 2.44 $ 8.25 $ 2.44 9.0
Barbara J. Scheffler.... 2/21/95 55,500(2) $ 2.44 $ 5.88 $ 2.44 0.2
2/21/95 140,000 $ 2.44 $12.63 $ 2.44 7.3
2/21/95 30,000 $ 2.44 $ 7.13 $ 2.44 8.0
2/21/95 30,000 $ 2.44 $ 8.25 $ 2.44 9.0
5/29/92 15,000 $11.38 $19.28 $12.63 9.5
5/29/92 15,000 $11.38 $14.46 $12.63 9.5
5/29/92 80,000 $11.38 $37.63 $12.63 9.5
Martha E. Manning....... 2/21/95 150,000 $ 2.44 $ 8.38 $ 2.44 8.2
2/21/95 20,000 $ 2.44 $ 8.25 $ 2.44 9.0
</TABLE>
- --------
(1) The repricings included in the above table were open to all Company
employees. On May 29, 1992, a majority of the options granted in 1991 were
canceled at the election of the employee and most of the options granted
in 1992 were granted to replace such canceled options. Replacement options
were granted to all employees who elected to participate in the program,
at an exercise price lower than that of the canceled options but 11%
higher than the closing market price of the Company's Common Stock on the
date of grant. On February 21, 1995, the Company amended all outstanding
employee stock options with an exercise price greater than $2.44 per
share, including the options for employees described in the table above,
to change the exercise price to $2.44 per share, the closing market price
of the Company's Common Stock on February 21, 1995.
(2) Options with original terms of 5 years. Concurrent with the repricing of
these options their terms were extended to ten years.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
The following table sets forth a summary of options exercised during 1995
and presents the value of unexercised options as at December 31, 1995, held by
the Company's Chief Executive Officer and each of the Company's four other
most highly compensated executive officers:
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END AT FISCAL YEAR-END (1)
ACQUIRED ON VALUE ------------------------- -------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip S. Schein........ 0 0 430,000 220,000 994,375 508,750
Robert L. Capizzi....... 0 0 222,000 228,000 513,375 527,250
Robert I. Kriebel....... 0 0 175,502 136,998 405,848 316,808
Donald O. Brown......... 40,000 111,780 94,600 148,400 218,763 343,175
Barbara J. Scheffler.... 39,000 176,638 157,500 128,000 364,219 296,000
</TABLE>
- --------
(1) Total value of "in-the money" unexercised options is based upon a
calculation of the difference between the closing market value of the
Company's Common Stock on December 31, 1995 ($4.75 per share) and the
exercise price of the "in-the-money" options, multiplied by the number of
"in-the-money" option shares.
EXECUTIVE COMPENSATION COMMITTEE REPORT
The Executive Compensation Committee of U.S. Bioscience, Inc. (the
"Committee") is pleased to present its report on executive compensation. The
report describes the underlying philosophy and objectives of the Company's
executive compensation program, the various elements of the program, and the
basis for the 1995 compensation determinations made by the Committee with
respect to executive officers.
EXECUTIVE COMPENSATION PHILOSOPHY AND OBJECTIVES
The fundamental philosophy of the Company is to ensure that executive
compensation is linked directly to continuous improvements in corporate
performance, the achievement by officers of corporate objectives which are
linked to the Company's annual strategic plan, and increases in long-term
shareholder value.
The compensation of the Company's top executives is established and reviewed
annually by the Committee, which is comprised entirely of non-employee
directors. The following guidelines have been adopted by the Committee in
making its compensation decisions:
. Providing a competitive total compensation package that enables the
Company to attract and retain key executives.
. Focusing executive behavior on fulfillment of both short and longer-term
business objectives and strategies.
. Emphasizing stockholders' interest by maintaining variable compensation
opportunities directly linked to corporate performance and stock
appreciation.
COMPENSATION PROGRAM ELEMENTS FOR 1995
The Company's executive compensation is comprised of three components, as
described below. Each component is intended to serve the Company's
compensation philosophy and guidelines.
Base salary: Base salary levels are established annually through a review of
the executives performance and experience, against industry comparisons
including pharmaceutical/biotechnology companies which are provided by an
outside consulting advisor. Except for one key executive, due to
considerations in recruiting that individual, salaries for the Company's key
executives are generally in the median range within this comparison group,
some of whom are represented within the stock performance graph.
15
<PAGE>
Annual Incentive Compensation: The executive officers of the Company are
eligible to receive annual incentive payments. The objective of annual
incentive compensation is to deliver competitive levels (using the same
competitor group as described above) of total cash compensation (base salary
and incentive award) when annual financial and operational accomplishments are
made. The specific areas used to measure key executive performance are
described below:
(1) Progress in product development, clinical preparation and development
of drugs for regulatory approval;
(2) Preparation for product commercial launch, and organizational
readiness; and
(3) Financial goals--keeping within budget guidelines.
Each of these factors is considered in the Chief Executive Officer's (CEO)
performance assessment of each executive officer. These performance
evaluations are reviewed by the Committee for final determination of incentive
awards.
The performance of the CEO is evaluated by the Committee and based on the
overall progress of the Company in the specific areas described above viewed
retrospectively by the Committee. Accomplishments considered by the Committee
in the overall judgment of the 1995 incentive awards are described below:
. In 1995, the Company made significant progress in moving its compounds
through the regulatory process. The company achieved FDA approval for
Ethyol(R) (amifostine), and local regulatory approvals for Ethyol in the
following European countries: Belgium, Denmark, France, Germany, Greece
and Portugal. The Company also received regulatory approval for Ethyol in
Argentina and Uruguay. The Company achieved local regulatory approvals
for NeuTrexin(R) (trimetrexate glucuronate for injection) in Denmark,
France, Germany, Greece, Ireland and Sweden. Hexalen(R) (altretamine) was
approved in the United Kingdom, Norway, South Korea, China, Hong Kong and
Egypt.
. The Company's manufacturing facility in Nijmegen, The Netherlands
received FDA regulatory approval to manufacture NeuTrexin for commercial
sale in the United States.
. The Company entered into a Marketing and Distribution Agreement for
Ethyol in the United States with the ALZA Corporation and in Canada with
Eli Lilly InterAmerica, Inc., an affiliate of Eli Lilly and Company.
. Additional licenses and distribution agreements were executed with
commercial organizations covering additional international markets.
. The Company kept substantially within its budget guidelines.
. The Company completed private placement financing raising an additional
$20 million for the Company.
Target incentive compensation award levels for key executive officers are
slightly lower than industry standards as measured using the competitor group
described above. Incentives are, however, rational given the Company's stage
of development and relatively greater focus on longer-term (versus annual)
objectives. The Incentive award target level for 1995 was 25% of base salary.
Actual incentive awards were based on performance in the areas described above
and, on a selective basis, were awarded above the target level at the
discretion of the Committee. The Committee set actual incentive awards for
1995 at a maximum of 35% of base salary levels. The competitive position of
total cash compensation awarded to the Company's executives vary. They are
competitive in the median range for all positions with one exception, due to
considerations in recruiting that individual.
Stock Option Programs: The Committee strongly believes that the interests of
stockholders are best served by linking executives' financial success with the
Company's stock performance. Therefore, the Company maintains a stock option
program pursuant to which the Committee grants stock options to executives
with an exercise price equal to the fair market value on the date of grant.
The target award for each executive position is based on historical practice
of the company. Whether an individual receives more or less than his or her
target grant is based on the result of an individual performance review which
measures such individual's overall job
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performance. In making stock option awards, the Executive Compensation
Committee does not consider prior grants or the amount of stock options
currently held by an executive officer before granting the executive officer
new awards.
As a young company, the Committee believes stock options are a particularly
important and useful compensation element in the Company's efforts to attract,
retain, motivate and reward key executives who have been successful in larger,
more established companies.
In February 1995, stock options which had been granted to executive officers
of the Company at exercise prices ranging from $37.63 to $4.69 per share were
repriced to $2.44 per share. This repricing was done after a decision by the
Oncologic Drug Advisory Committee of the Food and Drug Administration on
December 12, 1994 not to recommend for approval, at that time, the Company's
New Drug Application for its compound Ethyol. Following that decision, the
Company's price per share of common stock fell to a low of $1.00. The
Committee believed that repricing of the stock options was an important action
to be taken to retain highly qualified personnel necessary to continue the
development of Ethyol. All employee options with an exercise price above $2.44
were repriced to $2.44 per share, the fair market value of the Company's
common stock on the date of the repricing.
The Committee also amended outstanding stock options held by executive
officers which had been granted in 1990 and 1991, to extend the expiration
date from five years to ten years (the term of options granted to employees
since 1992). On the same date, the Company's Management Option Committee
amended the outstanding stock options held by the Company's other employees in
the same respect. The Committee believed that such option term extensions were
in the best interest of the Company to encourage a long term commitment of the
employees to the Company's success.
1995 COMPENSATION OF THE CEO AND OTHER EXECUTIVE OFFICERS
The Committee met in February 1995 to set salary levels for 1995 for the
Company's executive officers and the Committee met again in February 1996 to
award bonuses and stock option awards with respect to 1995 for the CEO and the
executive officers and to set salary levels for 1996. The current base salary
and total cash compensation awarded to the CEO with respect to 1995 are
competitive at the median levels, using the competitive group described above.
Base salary earned in the 1995 fiscal year by Philip S. Schein, M.D., the
Company's CEO, remained constant with his base salary level in 1993 and 1994.
As CEO, Dr. Schein spearheaded the Company's outstanding progress in 1995 and
in February 1996 the Executive Compensation Committee awarded him a bonus with
respect to 1995 of 35% of base salary, the maximum allowed under the
Committee's target award program for 1995, and an incentive stock option award
of options for 50,000 shares, the 1995 target level.
The base salaries of most of the Company's executives for 1995 were at the
same level as their salaries in 1993 and 1994. The Committee reviewed the
performance of the executive officers against the same key elements that were
considered significant in the evaluation of the CEO. The executives were
awarded bonuses ranging from 25% to 35% of base salary and incentive stock
options (with one exception) at target levels, which aggregated options for
110,000 shares.
At its February 1996 meeting, the Executive Compensation Committee
determined to increase most executive officer salaries for 1996 by an average
of 5.8%.
THE LEGISLATIVE CAP ON DEDUCTIBILITY OF PAY
The Internal Revenue Code imposes a $1 million dollar limit on the
deductibility of pay for executives. The Company's cash compensation level is
far below the limit. Therefore, this legislation will not impact current pay
levels.
The Company believes that the stock options granted to their executives are
exempt from the limitations of the regulation, because they are a form of
performance based pay.
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The foregoing report has been furnished by the members of the Committee who
are listed below. No member of the Committee is a former or current officer or
employee of the Company.
Allen Misher, Ph.D., Chairman
Paul Calabresi, M.D.
Betsey Wright
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total stockholder return
(assuming reinvestment of dividends, if any) to U.S. Bioscience Inc.'s
stockholders during the five year period ended December 31, 1995. (See Note 1
below) compared to the cumulative total stockholder return of a published
industry peer group index (AMEX Biotechnology Index) and an overall stock
market index (AMEX Market Value Index):
[STOCK PERFORMANCE GRAPH APPEARS HERE]
(1) The stock performance graph assumes $100 invested on December 31, 1990 in
U.S. Bioscience, Inc., AMEX Biotechnology Index and AMEX Market Value
Index. Assumes dividends, if any, reinvested.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Schein serves as a member of the Board of Directors, and the Stock
Option and Executive Compensation Committee, of Medicis Pharmaceutical
Corporation. Jonah Shacknai, a member of the U.S. Bioscience, Inc. Board of
Directors, is Chairman and Chief Executive Officer of Medicis Pharmaceutical
Corporation. Mr. Shacknai does not serve on the Executive Compensation
Committee of U.S. Bioscience, Inc.
CERTAIN TRANSACTIONS
Russell C. McLauchlan resigned as President and Chief Operating Officer of
the Company, and as a member of the Board of Directors, in January 1995. Mr.
McLauchlan received severance payments of $180,400 (39 weeks salary
continuation), the continuation of medical, supplemental life and long term
disability benefits for approximately the same period and executive out
placement services.
Robert L. Capizzi resigned as Executive Vice President--Worldwide Research
and Development effective March 4, 1996. Dr. Capizzi will continue with the
Company as Senior Scientific Adviser, a part-time position, through May 31,
1997 at a salary at the annual rate of $203,280. On March 11, 1996 the Company
granted to Dr. Capizzi an option to purchase 20,000 shares of common stock at
an exercise price of $6.9375 per share, the fair market value of the Company's
common stock on that date. The option will become exercisable as to 10,000
shares only at the time, if ever, of a submission by the Company to the United
States Food and Drug Administration ("FDA") of a supplemental new drug
application, on or before March 31, 2001, for Ethyol's use as a bone marrow
stimulation in myelodysplastic bone marrow syndrome, and as to an additional
10,000 shares only at such time, if ever, as the Company obtains, on or before
March 31, 2001, approval by the FDA of an Ethyol supplemental new drug
application for bone marrow stimulation indication in the setting of
chemotherapy induced myelosuppression, and provided that the Company receives,
if requested, assistance from Dr. Capizzi in obtaining such approval. The
option granted to Dr. Capizzi expires March 11, 2006.
INFORMATION CONCERNING INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP to serve
as independent auditors for the Company for the current fiscal year.
Representatives of Ernst & Young LLP are expected to be present at the Meeting
and will have the opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Annual Meeting of
Stockholders in 1997 must be received by the Company at its principal office
in West Conshohocken, Pennsylvania, no later than November 18, 1996 in order
to be considered for inclusion in the Company's proxy statement and form of
proxy relating to that meeting. Stockholder proposals should be directed to
Martha E. Manning, Secretary, at the address of the Company set forth on the
first page of this proxy statement.
SOLICITATION OF PROXIES
The accompanying form of proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of solicitation of proxies for the
Meeting will be paid by the Company. In addition to the mailing of the proxy
material, such solicitation may be made in person or by telephone or telecopy
by directors, officers or regular employees of the Company. The Company has
engaged Chemical Mellon Shareholder Services, L.L.C. ("Chemical Mellon") to
assist in the solicitation of proxies from stockholders by mail, telephone or
telecopy. Pursuant to this engagement Chemical Mellon will receive fees of
approximately $4,000, plus reimbursement of reasonable out-of-pocket expenses.
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ANNUAL REPORT ON FORM 10-K
The Company will provide without charge to each person solicited by this
proxy statement, on the written request of any such person, a copy of the
Company's Annual Report on Form 10-K (including the financial statements and
the schedules thereto but excluding exhibits) as filed with the Securities and
Exchange Commission for its most recent fiscal year. Such written request
should be directed to Robert I. Kriebel, Senior Vice President--Finance and
Administration, at the address of the Company appearing on the first page of
this proxy statement.
By Order of the Board of Directors,
Martha E. Manning
Secretary
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF U.S.
BIOSCIENCE, INC.
U.S. BIOSCIENCE, INC.
ONE TOWER BRIDGE, 100 FRONT STREET, WEST CONSHOHOCKEN, PA 19428
The undersigned, a stockholder of U.S. BIOSCIENCE, INC. hereby constitutes
and appoints PHILIP S. SCHEIN, ROBERT I. KRIEBEL and MARTHA E. MANNING, and
each of them acting individually, as the attorney and proxy of the
undersigned, with full power of substitution, for and in the name and stead of
the undersigned, to attend the Annual Meeting of Stockholders of the Company
to be held on April 22, 1996, at 10:00 a.m., at The Philadelphia Marriott
West, 111 Crawford Avenue, West Conshohocken, Pennsylvania, and any
adjournment or postponement thereof, and thereat to vote all shares of Common
Stock which the undersigned would be entitled to vote if personally present.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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FOLD AND DETACH HERE
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THE SHARES
WILL BE VOTED "FOR" THE ELECTION OF ALL EIGHT NOMINEES FOR DIRECTOR. THIS
PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT TO ANY OTHER
BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
[X] Please mark
your votes
as this
1. NOMINEES FOR ELECTION AS DIRECTORS ARE: Philip S. Schein, M.D., Robert L.
Capizzi, M.D., Robert I. Kriebel, Paul Calabresi, M.D., Douglas J.
MacMaster, Jr., Allen Misher, Ph.D., Jonah Shacknai and Betsey Wright.
FOR WITHHELD
To vote FOR all [_] To WITHHOLD [_]
nominees check AUTHORITY to
this box vote for all
nominees check
this box
To WITHHOLD AUTHORITY to vote for any individual nominee, so indicate on the
line below (your shares will be voted FOR the remaining nominees):
FOR AGAINST ABSTAIN
2. PROPOSAL TO AMEND THE [_] [_] [_]
COMPANY'S CERTIFICATE OF
INCORPORATION:
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER
BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING.
NOTE: PLEASE SIGN THIS PROXY EXACTLY AS NAME(S) APPEARS ON THIS PROXY. WHEN
SIGNING AS ATTORNEY-IN-FACT, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE ADD YOUR TITLE AS SUCH. IF SIGNER IS A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY DULY AUTHORIZED OFFICER OR OFFICERS. WHERE STOCK IS ISSUED
IN THE NAME OF TWO OR MORE PERSONS, ALL SUCH PERSONS SHOULD SIGN. THE
UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING, PROXY
STATEMENT AND ANNUAL REPORT OF U.S. BIOSCIENCE, INC.
Signature(s) Date 1996
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Please sign, date and return in the enclosed postage-paid envelope.
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FOLD AND DETACH HERE
