<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:
[_] Confidential, for Use of the
[_] Preliminary Proxy Statement 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
INTERNEURON PHARMACEUTICALS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02421
----------------
Notice of Annual Meeting of Stockholders
To be held March 16, 1999
----------------
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of the Stockholders of
Interneuron Pharmaceuticals, Inc. (the "Company") will be held on March 16,
1999, at 10:00 a.m. local time at The Doubletree Guest Suites, 550 Winter
Street, Waltham, Massachusetts 02451. The Annual Meeting is called for the
following purposes:
1.To elect a board of ten directors;
2.To approve and ratify the appointment of PricewaterhouseCoopers LLP as
the independent auditors of the Company; and
3.To consider and take action upon such other matters as may properly
come before the meeting or any adjournment or adjournments thereof.
The close of business on January 22, 1999 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Annual Meeting. The stock transfer books of the Company will not be
closed.
All stockholders are cordially invited to attend the Annual Meeting. Whether
or not you expect to attend, you are respectfully requested by the Board of
Directors to sign, date and return the enclosed proxy promptly. Stockholders
who execute proxies retain the right to revoke them at any time prior to the
voting thereof. A return envelope which requires no postage if mailed in the
United States is enclosed for your convenience.
By Order of the Board of Directors,
Glenn L. Cooper, M.D.
President and Chief Executive
Officer
Dated: January 27, 1999
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<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
One Ledgemont Center
99 Hayden Avenue
Lexington, Massachusetts 02421
(781) 861-8444
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Interneuron Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), for the Annual Meeting of Stockholders
to be held at The Doubletree Guest Suites, 550 Winter Street, Waltham,
Massachusetts 02451 on March 16, 1999, at 10:00 a.m. and for any adjournment
or adjournments thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Stockholders. Any stockholder giving such a proxy has the
power to revoke it at any time before it is voted. Written notice of such
revocation should be forwarded directly to the Vice President, Corporate
Communications of the Company, at the above stated address. Attendance at the
Annual Meeting will not have the effect of revoking the proxy unless such
written notice is given or the stockholder votes by ballot at the Annual
Meeting.
If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the directions thereon
and otherwise in accordance with the judgment of the persons designated as
proxies. Any proxy on which no direction is specified will be voted in favor
of the actions described in this Proxy Statement, including the election of
the nominees set forth under the caption "Election of Directors" and the
approval and ratification of the appointment of PricewaterhouseCoopers LLP as
the independent auditors of the Company.
The approximate date on which this Proxy Statement and the accompanying form
of proxy will first be mailed or given to the Company's stockholders is
February 9, 1999.
Your vote is important. Accordingly, you are urged to sign and return the
accompanying proxy card whether or not you plan to attend the Annual Meeting.
If you do attend, you may vote by ballot at the Annual Meeting, thereby
canceling any proxy previously given.
<PAGE>
VOTING SECURITIES
Holders of shares of Common Stock, par value $.001 per share (the "Shares"),
and holders of shares of Series B and Series C Convertible Preferred Stock,
par value $.001 per share (the "Preferred Shares"), of record as of the close
of business on January 22, 1999, are entitled to notice of and to vote at the
Annual Meeting on all matters except that the holders of the Preferred Shares
are not entitled to vote for the election of directors. Except as set forth in
the preceding sentence, each outstanding Share is entitled to one vote upon
all matters to be acted upon at the Annual Meeting. For purposes of voting at
the Annual Meeting on all matters except the election of directors, the
Preferred Shares are treated as converted into Shares.
Accordingly, on the record date there were issued and outstanding an
aggregate of (i) 41,898,853 Shares entitled to vote for the election of
directors, and (ii) 42,521,075 Shares, giving effect to the right to vote
622,222 Shares held by the holder of the 244,425 Preferred Shares, voting as
one class, entitled to vote on all other matters. A majority of the
outstanding Shares entitled to vote on any matter and represented at the
Annual Meeting in person or by proxy shall constitute a quorum. Assuming a
quorum is present, (i) the affirmative vote of a plurality of the 41,898,853
Shares so represented and entitled to vote is necessary to elect the
directors, and (ii) the affirmative vote of a majority of the 42,521,075
Shares so represented and entitled to vote, excluding broker non-votes, is
necessary to approve the appointment of PricewaterhouseCoopers LLP as the
independent auditors of the Company.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. If a
stockholder, present in person or by proxy, abstains on any matter, the
stockholder's Shares will not be voted on such matter. Thus, an abstention
from voting on any matter has the same legal effect as a vote "against" the
matter, even though the stockholder may interpret such action differently.
Except for determining the presence or absence of a quorum for the transaction
of business, broker non-votes are not counted for any purpose in determining
whether a matter has been approved.
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PRINCIPAL STOCKHOLDERS
Set forth below is information concerning stock ownership of all persons
known by the Company to own beneficially 5% or more of the Shares or Preferred
Shares, each director, each executive officer named under "Executive
Compensation" and all directors and executive officers of the Company as a
group based upon the number of outstanding Shares and Preferred Shares as of
January 22, 1999.
<TABLE>
<CAPTION>
Amount and Nature Percent of
of Beneficial Outstanding
Name of Stockholder Ownership(#)(1) Class(17)
- ------------------- ----------------- -----------
<S> <C> <C>
Lindsay A. Rosenwald, M.D. ................ 2,594,815(2) 6.2%
Glenn L. Cooper, M.D. ..................... 545,540(3) 1.3%
Mark S. Butler............................. 302,167(4)(5) *
Thomas F. Farb............................. 205,055(6) *
Bobby W. Sandage, Jr., Ph.D. .............. 293,062(5)(7) *
Harry J. Gray.............................. 57,317(8) *
Alexander M. Haig, Jr. .................... 109,467(9) *
Peter Barton Hutt.......................... 21,967(10) *
Malcolm Morville, Ph.D. ................... 21,967(10) *
Robert K. Mueller.......................... 21,967(10) *
Lee J. Schroeder........................... 56,967(11) *
David B. Sharrock.......................... 40,167(12) *
Richard Wurtman, M.D. ..................... 653,560(13) 1.6%
J. Morton Davis............................ 10,466,958(14) 25.0%
c/o D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
American Home Products Corp. .............. 244,425(15) 100%
Five Giralda Farms
Madison, New Jersey 07940
All directors and executive officers as a
group (13 persons)...................... 4,924,018(16) 11.3%
</TABLE>
- --------
* less than 1%
(1) Beneficial ownership is defined in accordance with the rules of the
Securities and Exchange Commission ("S.E.C.") and generally means the
power to vote and/or to dispose of the securities regardless of any
economic interest therein.
(2) Includes (i) 2,512,481 Shares, of which 300,000 have been pledged in
favor of a bank to secure certain lease obligations of an affiliate of
Dr. Rosenwald, and (ii) 82,334 Shares issuable upon exercise of options
exercisable within 60 days, but excludes (i) 107,666 Shares issuable upon
exercise of options which are not exercisable within 60 days, (ii)
658,481 Shares owned by Dr. Rosenwald's wife, as to which Shares
Dr. Rosenwald disclaims beneficial ownership, and (iii) 37,800 Shares
owned by two limited partnerships, the limited partners of which include
Dr. Rosenwald's wife and children, as to which Shares Dr. Rosenwald
disclaims beneficial ownership.
(3) Includes (i) 7,206 Shares, (ii) 463,334 Shares issuable upon exercise of
options exercisable within 60 days, and (iii) 75,000 Shares subject to
restricted stock awards which may vest within 60 days, but excludes
(i) 1,356,666 Shares issuable upon exercise of options which are not
exercisable within 60 days, (ii) 75,000 Shares subject to restricted
stock awards which do not vest within 60 days, and (iii) the following
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<PAGE>
held by Dr. Cooper's wife, an employee of the Company: (a) 70,000 Shares
issuable upon exercise of options and (b) 22,800 Shares subject to
restricted stock awards, as to all of which Shares Dr. Cooper disclaims
beneficial ownership.
(4) Includes (i) 7,500 Shares, (ii) 3,000 Shares owned by Mr. Butler's
children, and (iii) 241,667 Shares issuable upon exercise of options
exercisable within 60 days, but excludes 728,333 Shares issuable upon
exercise of options which are not exercisable within 60 days.
(5) Includes 50,000 Shares subject to restricted stock awards which may vest
within 60 days, but excludes 50,000 Shares subject to restricted stock
awards which do not vest within 60 days.
(6) Includes (i) 55 Shares and (ii) 205,000 Shares issuable upon exercise of
options exercisable within 60 days. Mr. Farb resigned as an officer of
the Company effective August 18, 1998. See "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements."
(7) Includes (i) 2,228 Shares and (ii) 240,834 Shares issuable upon exercise
of options exercisable within 60 days, but excludes 704,166 Shares
issuable upon exercise of options which are not exercisable within
60 days.
(8) Includes (i) 50,500 Shares and (ii) 6,817 Shares issuable upon exercise
of options exercisable within 60 days, but excludes 29,683 Shares
issuable upon exercise of options which are not exercisable within
60 days.
(9) Includes (i) 102,500 Shares and (ii) 6,967 Shares issuable upon exercise
of options exercisable within 60 days, but excludes 30,033 Shares
issuable upon exercise of options which are not exercisable within
60 days.
(10) Represents Shares issuable upon exercise of options exercisable within 60
days, but excludes 65,033 Shares issuable upon exercise of options which
are not exercisable within 60 days.
(11) Represents Shares issuable upon exercise of options exercisable within 60
days, but excludes 30,033 Shares issuable upon exercise of options which
are not exercisable within 60 days.
(12) Includes (i) 5,000 Shares and (ii) 35,167 Shares issuable upon exercise
of options exercisable within 60 days, but excludes 95,833 Shares
issuable upon exercise of options which are not exercisable within
60 days.
(13) Includes (i) 593,259 Shares, and (ii) 60,301 Shares issuable upon
exercise of options exercisable within 60 days, but excludes (i) 171,699
Shares issuable upon exercise of options which are not exercisable within
60 days, (ii) 100,000 Shares held in a blind trust of which Dr. Wurtman
is a beneficiary, and (iii) 65,628 Shares owned by Judith Wurtman, Dr.
Wurtman's wife, as to which Dr. Wurtman disclaims beneficial ownership.
(14) Based on information contained in Form 4s and amendments to a Schedule
13-D filed with the S.E.C. Includes (i) 6,956 Shares owned by J. Morton
Davis; (ii) 8,711,337 Shares owned by D.H. Blair Investment Banking Corp.
("Blair Banking") which is owned by J. Morton Davis; (iii) 323,300 Shares
owned by Mr. Davis' wife; (iv) 677,865 Shares owned by Rivkalex Corp.,
the sole stockholder of which is Mr. Davis' wife; (v) 247,500 Shares
owned by Engex, Inc., a closed-end investment company of which Mr. Davis
is the Chairman of the Board and Blair Banking is the largest
stockholder; and (vi) 500,000 Shares held by the J. Morton Davis
Retirement Annuity Trust of which Mr. Davis' wife is the trustee. Blair
Banking and Mr. Davis disclaim beneficial ownership of the Shares owned
by Mr. Davis' wife and Rivkalex.
Excludes (i) an aggregate of 2,665,424 Shares owned by the adult children
(including the wife of Dr. Rosenwald) of Mr. Davis; (ii) an aggregate of
286,599 Shares owned by sons-in-law of Mr. Davis; (iii) 91,250 Shares owned
jointly by two adult children of Mr. Davis and their respective spouses;
(iv) 37,800 Shares owned by two limited partnerships, the limited partners
of which are family members of Mr. Davis (including the wife and children
of Dr. Rosenwald); (v) 777,297 Shares owned by The Morton Foundation, a
charitable foundation of which Mr. Davis' wife and two of their adult
children are the trustees and for which a proxy to vote and dispose of such
Shares is held by a third party; and (vi) 600,000 Shares owned by four
charitable foundations, the trustees, officers and directors of which are
various family members of Mr. Davis, and for three of which a proxy to vote
and dispose of such Shares is held by a third party, as to all of which
Shares Blair Banking and Mr. Davis disclaim beneficial ownership.
4
<PAGE>
(15) Represents Preferred Shares, which constitute all of the outstanding
Preferred Shares, and which are convertible into 622,222 Shares, each
entitled to one vote per Share, on a converted basis, on all matters
except the election of directors. American Home Products Corp. ("AHP")
also owns 9,935 Shares.
(16) Includes (i) 1,465,289 Shares issuable upon exercise of options
exercisable within 60 days, and (ii) 175,000 Shares subject to restricted
stock awards which may become fully vested within 60 days, but excludes
(i) 3,449,211 Shares issuable upon exercise of options which are not
exercisable within 60 days and (ii) 175,000 Shares subject to restricted
stock awards which do not vest within 60 days.
(17) All holders own Shares, with the exception of AHP which owns (i) 244,425
Preferred Shares (convertible into 622,222 Shares) and (ii) 9,935 Shares.
The percent of class in this column is calculated as follows:
(a) for holders of Shares, on the basis of 41,898,853 Shares outstanding,
excluding 622,222 Shares issuable upon conversion of the Preferred
Shares, representing the number of Shares outstanding and entitled to
vote for the election of directors of the Company, except that Shares
issuable or which may be issuable within 60 days are deemed to be
outstanding for purposes of calculating the percent owned by the holder
of such securities.
(b) for holders of Preferred Shares, the percent of class is calculated on
the basis of 244,425 Preferred Shares outstanding.
5
<PAGE>
ELECTION OF DIRECTORS
At the Annual Meeting, ten directors will be elected by the stockholders to
serve until the next Annual Meeting of Stockholders or until their successors
are elected and shall qualify. Each of the nominees is currently a director of
the Company. Management recommends that the persons named below be elected as
directors of the Company and it is intended that the accompanying proxy will
be voted for the election as directors of the ten persons named below, unless
the proxy contains contrary instructions. The Company has no reason to believe
that any of the nominees will not be a candidate or will be unable to serve.
However, in the event that any of the nominees should become unable or
unwilling to serve as a director, the persons named in the proxy have advised
that they will vote for the election of such person or persons as shall be
designated by management.
The following sets forth certain information relating to the ten nominees
for election to the Board of Directors.
Lindsay A. Rosenwald, M.D. (43) was a co-founder and since February 1989 has
been Chairman of the Board of Directors of the Company. Dr. Rosenwald has been
the Chairman and President of The Castle Group Ltd. ("Castle"), a
biotechnology and biopharmaceutical venture capital firm, since October 1991,
the founder and Chairman of Paramount Capital Investments, LLC, a
biotechnology, biomedical and biopharmaceutical merchant banking firm, since
1995, the founder and Chairman of Paramount Capital, Inc., an investment
banking firm, since February 1992, and the founder and Chairman of Paramount
Capital Asset Management, Inc., a money management firm specializing in the
life sciences industry since June 1994. Dr. Rosenwald received his M.D. from
Temple University School of Medicine and his B.S. in Finance from Pennsylvania
State University. Dr. Rosenwald is also a director of the following publicly-
traded pharmaceutical or biotechnology companies: BioCryst Pharmaceuticals,
Inc., Neose Technologies, Inc., Sparta Pharmaceuticals, Inc.,
VIMRx Pharmaceuticals, Inc. and is a director of a number of privately held
companies in biotechnology or pharmaceutical fields.
Glenn L. Cooper, M.D. (46) has been President, Chief Executive Officer and a
director of the Company since May 1993. From September 1992 to June 1994, Dr.
Cooper served as President and Chief Executive Officer of Progenitor, Inc.
("Progenitor"), a minority-owned subsidiary of the Company, which announced
its decision to cease operations effective December 1998. Dr. Cooper is
Chairman of the Board of Directors of Progenitor and of Intercardia, Inc.
("Intercardia"), a majority-owned subsidiary of the Company and a director of
the Company's other subsidiaries. Dr. Cooper is also a director of Genta,
Inc., a public biotechnology company. Prior to joining Progenitor, Dr. Cooper
was Executive Vice President and Chief Operating Officer of Sphinx
Pharmaceuticals Corporation from August 1990. Dr. Cooper had been associated
with Eli Lilly since 1985, most recently, from June 1987 to July 1990, as
Director, Clinical Research, Europe, of Lilly Research Center Limited; from
October 1986 to May 1987 as International Medical Advisor, International
Research Coordination of Lilly Research Laboratories; and from June 1985 to
September 1986 as Medical Advisor, Regulatory Affairs, Chemotherapy Division
at Lilly Research Laboratories. Dr. Cooper received his M.D. from Tufts
University School of Medicine, performed his postdoctoral training in Internal
Medicine and Infectious Diseases at the New England Deaconess Hospital and
Massachusetts General Hospital and received his A.B. from Harvard College.
Harry J. Gray (79) has been a director of the Company since May 1993. Mr.
Gray was associated with United Technologies Corp. for 17 years and was its
President from 1971 until 1972 when he became its Chairman and Chief Executive
Officer until his retirement in 1986. Mr. Gray is currently Chairman and Chief
Executive Officer of Harry Gray Associates of Florida, a private investment
firm, Chairman and Chief Executive Officer of Mott Corporation and Chairman
and Chief Executive Officer of Worldwide Fulfillment and Distribution, Inc.
Alexander M. Haig, Jr. (74) has been a director of the Company since January
1990. Since August 1982, General Haig has been Chairman and President of
Worldwide Associates, Inc., a business adviser to both U.S. and foreign
companies in connection with international marketing and venture capital
activities. From January 1981 until July 1982, General Haig served as
Secretary of State of the United States. From December 1979 until
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<PAGE>
January 1981, General Haig was President and Chief Operating Officer of United
Technologies Corp. and is currently a senior consultant to such corporation.
From 1974 through 1979, General Haig was the Supreme Allied Commander of NATO.
Prior to that, he was White House Chief of Staff under the Nixon and Ford
Administrations. General Haig currently serves on the Board of Directors of
America Online, Inc., MGM Grand, Inc., Metro Goldwyn Mayer Inc., Preferred
Employers Holdings Inc. and Progenitor.
Peter Barton Hutt (64) has been a director of the Company since April 1994.
Mr. Hutt has been a partner of Covington & Burling, a Washington, D.C. law
firm, since 1975 and from 1968 through 1971, and has been associated with the
firm since 1960. He served as Chief Counsel of the Food and Drug
Administration ("FDA") from 1971 to 1975. He currently serves on the Board of
Directors of several developmental stage pharmaceutical companies, including
Emisphere Technologies, Inc. and Sparta Pharmaceuticals, Inc. Mr. Hutt
received a B.A. from Yale University, an L.L.B. from Harvard University and an
L.L.M. from New York University.
Malcolm Morville, Ph.D. (53) has been a director of the Company since
February 1993. Since February 1993, Dr. Morville has been President and Chief
Executive Officer and a director of Phytera, Inc., a plant and marine
microbial-based biotechnology company. Dr. Morville is also Chairman and a
member of the Board of Directors of Phytera A/S and a member of the Board of
Directors of Phytera Ltd. and Phytera Symbion ApS, all of which are wholly-
owned subsidiaries of Phytera, Inc. From June 1988 through January 1993, Dr.
Morville held various positions with ImmuLogic Pharmaceutical Corporation,
including Division Vice President, Allergic Diseases Strategic Business Unit
and Senior Vice President, Development and Preclinical Research. From 1970 to
June 1988, Dr. Morville held various positions with Pfizer Central Research,
including Director, Immunology and Infectious Diseases and Assistant Director,
Metabolic Diseases and General Pharmacology. Dr. Morville received his Ph.D.
and his B.Sc. in Biochemistry at the University of Manchester Institute of
Science and Technology (U.K.).
Robert K. Mueller (85) has been a director of the Company since February
1993. Mr. Mueller was Chairman of the Board of Arthur D. Little, Inc. from
1977 until his retirement in 1989 and currently serves as a consultant to such
entity, and is a member of the Board of Directors of its U.K. subsidiary,
Arthur D. Little, Ltd. (U.K.) and Decision Resources, Inc. From 1935 to 1968,
when he joined Arthur D. Little, Inc., Mr. Mueller held various positions with
Monsanto Company, including director, member of the executive committee and
vice president positions. Mr. Mueller received his M.S. in Chemistry from the
University of Michigan, his B.S. in Chemical Engineering from Washington
University and completed the Advanced Management Program at Harvard
University.
Lee J. Schroeder (70) has been a director of the Company since August 1991.
Since 1985, Mr. Schroeder has been the President of Lee Schroeder &
Associates, Inc., a pharmaceutical consulting firm. Mr. Schroeder was
President and Chief Operating Officer of FoxMeyer Lincoln Drug Co., a
wholesale drug company, from February 1983 to March 1985 and was the Executive
Vice President, responsible for United States pharmaceutical operations, and a
member of the executive committee of Sandoz, Inc. from April 1981 to February
1983, and was Vice President and General Manager of Dorsey Laboratories, a
division of Sandoz, Inc., from November 1974 to April 1981. Mr. Schroeder is
also a member of the Board of Directors of Ascent Pediatrics, Inc., Celgene
Corporation, MDS Harris Laboratories, and MGI Pharma Inc.
David B. Sharrock (62) has been a director of the Company since February
1995. Mr. Sharrock was associated with Marion Merrell Dow Inc. and its
predecessor companies for over thirty-five years until his retirement in
December 1993. Most recently, since December 1989, he served as Executive Vice
President and Chief Operating Officer and a director, and in 1988, he was
named President and Chief Operating Officer of Merrell Dow Pharmaceuticals
Inc. Mr. Sharrock has been a consultant to the Company since February 1994 and
is also a director of Intercardia, Progenitor and Cincinnati Bell Inc.
Richard Wurtman, M.D. (62) was a co-founder of the Company and has been a
director of the Company and Chairman of the Scientific Advisors since the
Company's inception in October 1988. Dr. Wurtman is the Cecil H. Green
Distinguished Professor in the Department of Brain and Cognitive Sciences at
the Massachusetts
7
<PAGE>
Institute of Technology ("MIT") where he has been a full-time Professor of
Neuroendocrine Regulation since 1967 and a Professor of Neuropharmacology at
the Whitaker College of Health Sciences, Technology and Management at MIT.
Since July 1985, he has been the Director of the Clinical Research Center at
MIT. Since 1978, he has been a part-time Professor of Neuroendocrine
Regulation at Harvard University. Dr. Wurtman received his M.D. from Harvard
University and his B.A. from the University of Pennsylvania. Dr. Wurtman is a
consultant to the Company and devotes only a portion of his time (limited to a
maximum of five days per month) to the Company and also is a consultant to
other pharmaceutical entities, including Les Laboratoires Servier ("Servier")
and Grupo Ferrer ("Ferrer").
Directors are elected by the Company's stockholders at each annual meeting
or, in the case of a vacancy, are appointed by the directors then in office,
to serve until the next annual meeting or until their successors are elected
and qualified. Officers are appointed by and serve at the discretion of the
Board of Directors.
MEETINGS OF THE BOARD OF DIRECTORS
Board of Directors
The Board of Directors of the Company held fifteen meetings during the
fiscal year ended September 30, 1998 ("fiscal 1998"). Each of the directors,
except for Mssrs. Hutt and Morville, attended at least 75% of the aggregate
number of meetings of the Board of Directors and the committees thereof on
which such director served, held during fiscal 1998. As a result of
significant corporate developments during fiscal 1998, there were eleven
special meetings of the Board of Directors, each of which were held on
relatively short notice. In addition, as a result of a potential conflict of
interest relating to matters to be discussed at the special meetings of the
Board of Directors, Mr. Hutt advised that he would not attend the special
meetings.
Audit Committee
The Audit Committee consists of General Haig, Mr. Mueller and Mr. Schroeder.
The Audit Committee reviews, with the Company's independent auditors, the
annual financial statements of the Company and makes annual recommendations to
the Board of Directors for the appointment of independent public auditors for
the ensuing year. The Audit Committee also reviews the plans and results for
the audit engagement, the effectiveness and adequacy of the financial and
accounting functions, organization, internal controls and related party
transactions. The Audit Committee met three times during fiscal 1998.
Compensation Committee
The Compensation Committee, which consists of Mr. Gray, General Haig, Dr.
Morville and Mr. Sharrock, reviews and determines the compensation of all
executive officers of the Company, reviews general policy matters relating to
compensation and benefits of employees of the Company, administers the
Company's stock option and other employee compensation plans, including the
1989 Stock Option Plan (the "1989 Plan"), the 1994 Long-Term Incentive Plan,
as amended (the "1994 Plan"), the 1995 Employee Stock Purchase Plan, as
amended (the "1995 Plan"), the 1997 Equity Incentive Plan (the "1997 Plan")
and the 1998 Employee Stock Option Plan (the "1998 Plan"), consults with
management on matters concerning compensation and makes recommendations to the
Board of Directors on compensation matters where approval of the Board of
Directors is required. During fiscal 1998, the Compensation Committee did not
meet separately, although it took action by unanimous consent two times.
The Company does not have a nominating committee.
8
<PAGE>
DIRECTOR COMPENSATION
Cash Compensation
With the exception of General Haig, who receives a $10,000 fee per meeting
attended, non-employee directors (except Drs. Rosenwald and Wurtman) of the
Company receive a fee of $2,000 per in-person meeting attended. For each
meeting held by telephone conference, such directors receive a percentage of
the regular meeting fee. Except for Dr. Rosenwald, each non-employee director
is reimbursed for expenses actually incurred in attending meetings.
Options
On the date following each annual meeting of the stockholders, each director
of the Company (except Drs. Rosenwald and Cooper) is entitled to receive
automatic grants of options to purchase 5,000 Shares under the 1994 Plan,
which options will be exercisable at a price equal to the fair market value of
Shares on the date of grant. Accordingly, during fiscal 1998 each director
(except Drs. Rosenwald and Cooper) received options to purchase 5,000 Shares,
subject to annual vesting, as an automatic grant under the 1994 Plan. In
October 1997, pursuant to the Employee Retention Plan adopted in fiscal 1998,
the Company also granted options to purchase 25,000 Shares, all immediately
exercisable, to each of the directors of the Company, except Dr. Cooper, under
the 1994 Plan.
On May 5, 1998 and August 17, 1998 the Board of Directors offered (the
"Repricing Offers") each eligible employee, officer, consultant and director
of the Company (the "Option Holders") the right to exchange certain of his or
her then outstanding options or warrants (the "Exchanged Options") for new
options or warrants to purchase the number of Shares represented by the
existing options or warrants at an exercise price equal to the fair market
value of the Shares on the date of each Repricing Offer (the "Repriced
Options"). All of the directors were eligible to participate in each of the
May and August 1998 Repricing Offers, and exchanged in the aggregate options
to purchase 839,500 Shares for Repriced Options (excluding Dr. Cooper, who
exchanged in the aggregate options to purchase 1,760,000 Shares for Repriced
Options). See "Compensation Committee Report on Option Repricing." All of the
options granted to directors of the Company during fiscal 1998 are exercisable
at a price equal to the fair market value of Shares on the date of grant.
Consulting Agreements and Subsidiary Compensation
The Company has a Consulting and Non-Competition Agreement with each of Dr.
Wurtman and Mr. Sharrock and a Management Agreement with Dr. Rosenwald. During
fiscal 1998, the Company paid Drs. Wurtman and Rosenwald fees of $165,000 and
$30,000, respectively, pursuant to their agreements. In fiscal 1998, the
Company and its subsidiaries paid or accrued to Mr. Sharrock, who also serves
as a director of Intercardia and a director of and consultant to Progenitor:
(i) consulting fees for consulting services rendered by Mr. Sharrock to the
Company and to Progenitor of $20,000 and $8,000, respectively; (ii) $4,000 in
directors' fees from Intercardia; and (iii) granted options, including options
to purchase 35,000 and 6,000 shares of common stock of Progenitor and
Intercardia, respectively, to Mr. Sharrock. General Haig also serves as a
director of Progenitor. In fiscal 1998, Progenitor granted options to purchase
32,500 shares of Progenitor common stock to General Haig. The options granted
by Progenitor to each of General Haig and Mr. Sharrock, and by Intercardia to
Mr. Sharrock, were granted at an exercise price equal to the fair market value
of such company's common stock on the date of grant. Certain of the options
granted by Intercardia to Mr. Sharrock, and all of the options granted by
Progenitor to each of Mr. Sharrock and General Haig were issued pursuant to an
exchange offer for options granted previously with a higher exercise price.
9
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer,
the two other executive officers of the Company whose annual compensation
exceeded $100,000 for fiscal 1998 who were serving as executive officers at
September 30, 1998 and one executive officer who was no longer serving in such
capacity at September 30 1998 (collectively, the "named executive officers")
for services during the fiscal years ended September 30, 1998, 1997 and 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------
Long Term
Compensation Awards
---------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Salary Bonus Compensation Awards Options Compensation
Position Year ($) (2) ($) (3) ($) (3) (4) ($)(5) (#) (6) ($) (7)
------------------ ---- ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn L. Cooper, M.D.... 1998 351,673 73,500 -- 3,037,033 2,414,292 5,544
President and Chief 1997 337,115 126,000 105,896 -- 345,000 4,571
Executive Officer 1996 287,500 195,000 215,202 -- 95,000 4,152
Mark S. Butler.......... 1998 258,069 46,375 -- 1,734,375 1,160,000 3,801
Executive Vice
President, Chief 1997 242,505 71,550 6,188 -- 150,000 3,385
Administrative Officer
and 1996 222,500 138,750 65,872 -- 150,000 2,968
General Counsel
Thomas F. Farb(1)....... 1998 229,531 39,750 -- 1,734,375 980,000 16,310
Executive Vice
President, 1997 219,353 66,780 -- -- 150,000 10,626
Chief Financial Officer 1996 207,500 130,500 -- -- 125,000 5,369
and Treasurer
Bobby W. Sandage, Jr.,
Ph.D................... 1998 253,911 46,375 -- 1,734,375 1,135,000 2,502
Executive Vice
President, 1997 219,353 66,780 -- -- 250,000 1,627
Research and
Development, 1996 203,962 115,500 -- -- -- 1,575
Chief Scientific
Officer
</TABLE>
- --------
(1) Mr. Farb resigned as an officer of the Company, effective August 18, 1998.
See "Employment Contracts and Termination of Employment and Change-in-
Control Arrangements."
(2) The salaries listed include contributions made by the named executive
officers to the Company's 401(k) Plan in the following amounts: (i) for
fiscal 1998, $9,967 for Dr. Cooper, $8,908 for Mr. Butler, $402 for Mr.
Farb, and $10,000 for Dr. Sandage; (ii) for fiscal 1997, $11,600 for Dr.
Cooper, $11,600 for Mr. Butler, $11,600 for Mr. Farb and $9,500 for Dr.
Sandage; and (iii) for fiscal 1996, $9,800 for Dr. Cooper, $8,063 for Mr.
Butler $6,300 for Mr. Farb and $9,878 for Dr. Sandage.
(3) Amounts shown in this column include compensation accrued in the specified
fiscal year, portions of which may have been paid in a subsequent fiscal
year.
(4) Amounts shown in this column consist of the following: (i) debt
forgiveness for Dr. Cooper in the following amounts: (a) for fiscal 1997,
$56,897, and (b) for fiscal 1996, $115,626; (ii) moving and relocation or
temporary living expenses for Mr. Butler in the following amounts: (a) for
fiscal 1997, $6,188; and (b) for fiscal 1996, $43,309; and (iii)
reimbursements for the payment of taxes incurred and tax gross-up payments
to cover such taxes, in connection with compensation, as listed in (i) and
(ii) herein, in the following amounts: (a) for fiscal 1997, $48,999 for
Dr. Cooper; and (b) for fiscal 1996, $99,576 for Dr. Cooper, and $22,563
for Mr. Butler.
(5) Amounts shown in this column consist of the value of the Shares subject to
restricted stock awards granted to named executive officers under the 1997
Plan, including for Dr. Cooper, $435,470 representing the value of the
40,850 Shares subject to restricted stock awards granted to Dr. Cooper's
wife, the Company's Vice President of Human Resources, as to which Dr.
Cooper disclaims beneficial ownership. Amounts shown in this column were
calculated based on the fair market value of Shares at November 7, 1997
($11.5625), as quoted by the Nasdaq Stock Market ("Nasdaq"), multiplied by
the number of Shares subject to the restricted stock award, except for
6,650 Shares subject to an award made to Dr. Cooper's wife on May 5, 1998,
for which the fair market value was $6.02.
10
<PAGE>
The number of Shares subject to restricted stock awards granted to the
named executive officers in fiscal 1998 were as follows: 225,000 to Dr.
Cooper; and 150,000 to each of Messrs. Butler and Farb, and Dr. Sandage.
The Shares subject to the restricted stock awards may be sold immediately
upon their vesting, which commenced in May 1998 and is scheduled to extend
through May 2000, and which is subject to automatic extension during a
Black-Out Period (as defined in the 1997 Plan). Prior to their issuance
upon vesting and satisfaction of any other required conditions, no
dividends are payable with respect to the Shares subject to the restricted
stock awards. See "Employee Retention Plan Adopted in Fiscal 1998."
In May 1998, a portion of the Shares subject to the restricted stock awards
vested, and, upon payment representing the par value of the Shares, were
issued to the named executive officers as follows: 75,000 Shares to Dr.
Cooper and 50,000 Shares to each of Messrs. Butler and Farb and Dr.
Sandage. The Shares were sold by the named executive officers immediately
upon vesting. The value of the Shares issued at the May 1998 vesting,
determined by the weighted average of the fair market value of the Shares
sold in the aggregate by named executive officers each day of vesting,
multiplied by the number of Shares minus the amount of consideration paid,
was as follows: $442,613 for Dr. Cooper (excluding $103,613 for Tessa
Cooper), $278,975 for Mr. Butler, $246,750 for Mr. Farb and $283,300 for
Dr. Sandage.
The number and value of restricted stock holdings of the named executive
officers at the end of fiscal 1998 were as follows:
<TABLE>
<CAPTION>
Number of Shares
Subject to Value of Restricted
Named Executive Officer Restricted Stock Awards Stock Awards (1)
----------------------- ----------------------- -------------------
<S> <C> <C>
Glenn L. Cooper, M.D............ 150,000 $450,000
Mark S. Butler.................. 100,000 $300,000
Thomas F. Farb(*)............... -- --
Bobby W. Sandage, Jr., Ph.D..... 100,000 $300,000
</TABLE>
--------
(*) Mr. Farb resigned as an executive officer of the Company effective
August 18, 1998. In connection with his resignation, the restricted
stock awards held by him to acquire 100,000 Shares, which were not
vested, were canceled.
(1) The value is calculated by multiplying the number of Shares subject to
restricted stock awards at year end by the fair market value of the
Shares on September 30, 1998 ($3.00), as quoted by Nasdaq.
(6) Consists of options granted by the Company to the named executive
officers, except (a) Dr. Cooper (i) for fiscal 1998, which also includes
25,792 and 33,500 options granted by Intercardia and Progenitor,
respectively; (ii) for fiscal 1997, which also includes 20,000 and 25,000
options granted by Transcell and Progenitor, respectively, and (iii) for
fiscal 1996, which consists of 50,000 options granted by Transcell; and
(b) for fiscal 1998 and 1996, options to purchase an aggregate of 95,000
and 45,000 Shares, respectively, granted to Dr. Cooper's wife, the
Company's Vice President of Human Resources, as to which Shares Dr. Cooper
disclaims beneficial ownership.
For fiscal 1998, this column includes Exchanged Options granted to each
named executive officer, which were exchanged for Repriced Options,
including Exchanged Options in the following amounts: 500,000 to
Dr. Cooper; 250,000 to Mr. Butler; 250,000 to Mr. Farb; and 250,000 to Dr.
Sandage. See "Compensation Committee Report on Option Repricing."
(7) Amounts shown in this column include the following:
(a) disability insurance premiums on behalf of the named executive
officers, in the following amounts: (i) for fiscal 1998, $1,368 for Dr.
Cooper, $1,009, for Mr. Butler, $9,590 for Mr. Farb and $992 for Dr.
Sandage; (ii) for fiscal 1997, $1,235 for Dr. Cooper, $893 for Mr.
Butler, $9,833 for Mr. Farb and $834 for Dr. Sandage; and (iii) for
fiscal 1996, $1,054 for Dr. Cooper, $935 for Mr. Butler, $4,710 for Mr.
Farb and $853 for Dr. Sandage.
(b) group term life insurance premiums on behalf of the named executive
officers, in the following amounts: (i) for fiscal 1998, $1,771 for Dr.
Cooper, $2,792 for Mr. Butler, $738 for Mr. Farb and
11
<PAGE>
$1,510 for Dr. Sandage; (ii) for fiscal 1997, $1,122 for Dr. Cooper,
$2,492 for Mr. Butler, $793 for Mr. Farb and $793 for Dr. Sandage; and
(iii) for fiscal 1996, $1,020 for Dr. Cooper, $2,033 for Mr. Butler,
$659 for Mr. Farb and $722 for Dr. Sandage. The Company has also made
term life insurance premium payments on behalf of Dr. Cooper in the
following amounts: (i) for fiscal 1998, $2,405; (ii) for fiscal 1997,
$2,214; and (iii) for fiscal 1996, $2,078.
(c) for fiscal 1998, for Mr. Farb, $5,982 in income recognized on the
disposition of shares of common stock of Intercardia purchased by him
through participation in the 1995 Intercardia Employee Stock Purchase
Plan.
The following table sets forth certain information with respect to
individual grants of stock options made by the Company and its subsidiaries
during fiscal 1998 to the named executive officers:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value at
Individual Grants Assumed Annual
------------------------------------------------- Rates of Stock
Number of % of Total Exercise Price Appreciation
Securities Options Price for Option Term ($)
Underlying Granted to Per (11)
Options Employees in Share Expiration -------------------
Name Granted Fiscal Year (10) ($) Date 5% 10%
---- ---------- ---------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Glenn L. Cooper, M.D. .. 500,000(1) 6.7% 11.4375 10/6/07 3,596,491 9,114,215
800,000(2) 10.7 6.1875 5/5/05 3,113,028 7,889,025
60,000(3) 0.8 4.15625 3/22/02 156,831 397,440
300,000(3) 4.0 4.15625 5/24/05 784,153 1,987,198
600,000(3) 8.1 4.15625 5/12/03 1,568,306 3,974,395
1,632(4) 0.1 3.19 3/20/07 3,274 8,297
4,080(5) 0.2 11.03 5/17/06 28,302 71,722
3,000(6) 0.2 16.3125 5/6/08 30,777 77,994
5,000(6) 0.3 19.25 12/12/07 60,531 153,398
3,000(7) 0.2 8.00 5/6/08 15,093 38,250
4,080(7) 0.2 8.00 5/17/06 20,527 52,020
5,000(7) 0.3 8.00 12/12/07 25,156 63,750
8,500(8) 0.2 1.594 6/15/04 n/a n/a
25,000(8) 0.7 1.594 8/6/07 n/a n/a
Mark S. Butler.......... 250,000(1) 3.4 11.4375 10/06/07 1,798,246 4,557,107
550,000(2) 7.4 6.1875 5/5/05 2,140,207 5,423,705
300,000(3) 4.0 4.15625 12/06/03 784,153 1,987,198
60,000(3) 0.8 4.15625 3/22/02 156,831 397,440
Thomas F. Farb.......... 250,000(9) 3.4 11.4375 10/6/07 1,798,246 4,557,107
525,000(9) 7.1 6.1875 5/5/05 2,042,925 5,177,173
205,000(9) 2.8 8.125 2/18/99 1,047,503 2,654,577
Bobby W. Sandage, Jr.,
Ph.D. ................. 250,000(1) 3.4 11.4375 10/6/07 1,798,246 4,557,107
500,000(2) 6.7 6.1875 5/5/05 1,945,643 4,930,641
60,000(3) 0.8 4.15625 3/22/02 156,831 397,440
100,000(3) 1.3 4.15625 10/18/01 261,384 662,399
125,000(3) 1.7 4.15625 6/9/03 326,730 827,999
100,000(3) 1.3 4.15625 7/21/05 261,384 662,399
</TABLE>
- --------
(1) Subsequent to the date of issuance, this option was surrendered by the
named recipient and canceled in exchange for a Repriced Option to purchase
the same number of Shares represented by this option at a price equal to
the fair market value of the Shares on the date of the May 1998 Repricing
Offer. See "Compensation Committee Report on Option Repricing."
12
<PAGE>
(2) Represents a Repriced Option issued in May 1998 in exchange for previously
issued stock options, including the option referred to in (1) above. The
Repriced Options are exercisable over a three-year period commencing six
months from the date of the May 1998 Repricing Offer in six equal
installments. See "Compensation Committee Report on Option Repricing."
(3) Represents a Repriced Option issued in August 1998 in exchange for a
previously issued stock option. The Repriced Options are exercisable over
a two year period commencing six months from the date of the August 1998
Repricing Offer in four installments of approximately 30%, 30%, 20% and
20%. See "Compensation Committee Report on Option Repricing."
(4) Represents options to purchase shares of common stock of Intercardia
issued to Dr. Cooper in exchange for options to purchase shares of common
stock of Transcell Technologies, Inc. ("Transcell") in connection with
the merger of Transcell with and into Intercardia in May 1998. Dr.
Cooper, who was Chairman of the Board and Acting President of Transcell
prior to the Transcell/Intercardia merger, is also a director of
Intercardia. The options are immediately exercisable.
(5) Represents options to purchase shares of common stock of Intercardia
issued to Dr. Cooper in exchange for options to purchase shares of common
stock of Transcell in connection with the Transcell/Intercardia merger.
The options were immediately exercisable. Pursuant to an option repricing
at Intercardia in August 1998, these options were subsequently canceled
in exchange for new options to purchase the same number of shares at a
lower exercise price.
(6) Represents options granted by Intercardia to Dr. Cooper. Pursuant to an
option repricing at Intercardia in August 1998, these options were
subsequently canceled in exchange for new options to purchase the same
number of shares at a lower exercise price. The options were exercisable
in 36 equal monthly installments, with the first installment vesting one
month following the date of grant.
(7) Represents replacement options granted by Intercardia to Dr. Cooper in
exchange for options granted in fiscal 1998, including the options
referred to in (5) and (6) above. The expiration terms of the options
were not amended at the time of repricing. One sixth of the options vest
on February 6, 1999 and the remainder vests in equal monthly installments
over the 28 months subsequent to February 6, 1999.
(8) Represents options granted by Progenitor to Dr. Cooper, pursuant to an
option repricing whereby Dr. Cooper surrendered options issued to him
prior to fiscal 1998 in exchange for new options issued at a lower
exercise price. The vesting and expiration terms of the options were not
amended at the time of repricing. The options are immediately
exercisable.
(9) Mr. Farb resigned as an executive officer of the Company effective August
18, 1998. All of the options granted to Mr. Farb, which were outstanding
at the date of his resignation, were canceled upon his resignation in
exchange for options to purchase 205,000 Shares, at an exercise price of
$8.125 per Share, which expire in February 1999. See "Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements."
(10) Options to purchase a total of 7,446,141 Shares were granted to officers,
employees and consultants in fiscal 1998, including Repriced Options to
purchase 5,296,941 Shares which were issued in replacement of Exchanged
Options which were canceled. See "Report on Repricing and Amendment of
Options." Based on the total number of options granted by the Company to
officers, employees and consultants during fiscal 1998, except for the
grant by (a) Intercardia, which percentage is calculated on the basis of
total option grants by Intercardia during fiscal 1998, and (b)
Progenitor, which percentage is calculated on the basis of total option
grants by Progenitor during fiscal 1998.
(11) Calculated by multiplying the exercise price by the annual appreciation
rate shown (as prescribed by S.E.C. rules and compounded for the term of
the options), subtracting the exercise price per share and multiplying
the gain per share by the number of shares covered by the options. These
amounts are not intended to forecast possible future appreciation, if
any, of the price of the Shares or the price of shares of common stock of
Intercardia. The actual value realized upon exercise of the options to
purchase Shares or shares of common stock of Intercardia will depend on
the fair market value of such shares on the date of exercise. No future
value is presented for the options to acquire common stock of Progenitor,
as this company ceased operations in 1998.
13
<PAGE>
The following table sets forth certain information with respect to each
exercise of stock options during fiscal 1998 by named executive officers and
the number and value of unexercised options held by each of the named
executive officers as of September 30, 1998:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal in-the-Money Options
Acquired Value Year-End Exercisable/ at Fiscal Year-End
Name on Exercise(#) Realized ($) Unexercisable(#) Exercisable/Unexercisable($)(1)
---- -------------- ------------ ---------------------- -------------------------------
<S> <C> <C> <C> <C>
Glenn L. Cooper, M.D. .. -- -- 60,000/1,760,000 -- / --
Mark S. Butler.......... -- -- 60,000/910,000 -- / --
Thomas F. Farb(2)....... -- -- 205,000/-- -- / --
Bobby W. Sandage, Jr.,
Ph.D. ................. -- -- 60,000/885,000 -- / --
</TABLE>
- --------
(1) Calculated by multiplying the number of unexercised in-the-money options
outstanding at September 30, 1998 by the difference between the fair
market value of the Shares at September 30, 1998 ($3.00) as quoted by
Nasdaq, and the option exercise price. As at September 30, 1998, none of
the named executive officers owned options with an exercise price lower
than $3.00.
(2) Mr. Farb resigned as an executive officer of the Company, effective August
18, 1998. The options held by him are exercisable until February 18, 1999,
in accordance with the terms of his resignation. See "Employment Contracts
and Termination of Employment and Change-in-Control Arrangements."
EMPLOYEE RETENTION PLAN ADOPTED IN FISCAL 1998
In line with the general goals of the Company's executive compensation
policy, in October 1997, the Board of Directors authorized for adoption, and,
pursuant to Board authorization, in November 1997, the Compensation Committee
approved, the Retention Plan. The Retention Plan was determined to be in the
best interests of the Company in order to motivate, retain and provide
incentive to the Company's management and other employees, particularly in
response to the perceived risk of attrition of key personnel and employee
morale issues resulting after the withdrawal of Redux, the Company's first
pharmaceutical product, which had accounted for substantially all of the
Company's revenues, and related legal proceedings and negative media coverage.
The components of the Retention Plan were as follows:
Stock Option Grants
Options to purchase an aggregate of 1,745,000 Shares were granted to all
employees of the Company, including the named executive officers. Each of the
named executive officers received a grant of ten year options to purchase
Shares exercisable at $11.4375 per Share pursuant to the 1994 Plan in the
following amounts: 500,000 Shares to Dr. Cooper; and 250,000 Shares to each of
Messrs. Butler and Farb and Dr. Sandage, exercisable in three equal annual
installments on a cumulative basis commencing one year from the date of grant.
Each named executive officer subsequently exchanged these options for Repriced
Options exercisable at $6.1875 per Share having an option term of seven years
in connection with the May 1998 Repricing Offer. See "Compensation Committee
Report on Option Repricing."
Sale of Subsidiary Common Stock
The Company sold to each of Dr. Cooper, Messrs. Butler and Farb and Dr.
Sandage, 2.5% of the common stock owned by the Company of InterNutria, Inc.
("InterNutria"), a majority-owned subsidiary of the Company, (an aggregate of
10% of such common stock) at a purchase price of $.001 per share, subject to
certain repurchase rights. In August 1998, in connection with the resignation
of Mr. Farb, the shares of common stock of InterNutria owned by Mr. Farb were
repurchased by the Company at the original purchase price, the par value of
the shares,
14
<PAGE>
and then resold to Dr. Cooper, Mr. Butler and Dr. Sandage, pro rata to their
existing holdings on the same terms as the original sale. In September 1998,
the Company adopted a plan to discontinue operations at InterNutria. See
"Compensation Committee Report on Executive Compensation" and "Employment
Contracts and Termination of Employment and Change-in-Control Arrangements."
Restricted Stock Awards
The Company adopted the 1997 Plan, which covers an aggregate of 1,750,000
Shares that may be issued pursuant to restricted stock awards upon
satisfaction of specified vesting periods, in consideration of services
rendered to the Company, the par value of the Shares, or such other
consideration as the Board of Directors or the Compensation Committee of the
Board may determine. In October 1997, each of the named executive officers of
the Company received a restricted stock award in consideration of services
rendered to the Company. Shares subject to awards included: (i) 225,000 Shares
issuable to Dr. Cooper (of which 75,000 Shares were issued in May 1998 upon
vesting and payment representing the par value of the Shares); (ii) 150,000
Shares issuable to each of Messrs. Butler and Farb and Dr. Sandage (of which
50,000 Shares were issued to each of such officers in May 1998 upon vesting
and payment representing the par value of the Shares); and (iii) 688,666
Shares issuable to other employees of the Company (of which 276,188 Shares
were issued in April and May 1998 upon vesting and payment representing the
par value of the Shares). The number of Shares subject to each employee's
award was based primarily on the employee's base compensation. Restricted
stock awards granted to Mr. Farb to acquire 100,000 Shares, which were not
vested, expired upon his resignation. See "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements."
The Shares issued and subject to the awards have been and may be sold
immediately upon their vesting, which commenced in May 1998 and is scheduled
to extend through May 2000, and which is subject to automatic extension during
a Black-Out Period (as defined in the 1997 Plan) with respect to Shares
subject to outstanding restricted stock awards. The Company has a registration
statement on Form S-8 relating to the issuance of Shares under the 1997 Plan
and the resale of the Shares subject to awards granted to the named executive
officers.
COMPENSATION COMMITTEE REPORT
ON OPTION REPRICING (1)
General
On May 5 and August 17, 1998, the Board of Directors offered each Option
Holder holding an option or warrant to purchase Shares the opportunity to
exchange certain of his or her then outstanding options or warrants for new
options to purchase 100% of the number of Shares represented by the
outstanding options or warrants at an exercise price equal to the fair market
value of the Shares on the date of each Repricing Offer. All of the Repriced
Options were granted under the Company's 1989 Plan, the 1994 Plan, the 1998
Plan, or outside of the Company's stock option plans, as applicable. Under the
Repricing Offers, options and warrants to purchase an aggregate of 6,241,441
Shares were surrendered in exchange for Repriced Options to purchase the same
number of Shares.
Under the May 1998 Repricing Offer, the Company offered each Option Holder
holding an option or warrant to purchase Shares with an exercise price of at
least $10 per share the opportunity to exchange such options for new options.
The Repriced Options from the May 1998 Repricing Offer are exercisable in six
equal installments over a three year period, commencing six months from the
date of the May 1998 Repricing Offer. The expiration dates of the Repriced
Options were the earlier of: (a) May 5, 2005 or (b) the expiration date of the
Exchanged Options.
Under the August 1998 Repricing Offer, the Company offered each Option
Holder (excluding Mr. Farb) holding an option to purchase Shares (excluding
options that were subject to the May 1998 Repricing Offer or
- --------
(1) The material in this report is not soliciting material, is not deemed
filed with the S.E.C. and is not incorporated by reference in any filing
of the Company under the 1933 Act or the 1934 Act, whether made before or
after the date of this proxy statement and irrespective of any general
incorporation language in such filing.
15
<PAGE>
that were exercisable at an exercise price below $4.15625) the opportunity to
exchange such options for new options. The Repriced Options from the August
1998 Repricing Offer are exercisable in four installments of approximately
30%, 30%, 20% and 20%, over a two year period commencing six months from the
date of the August 1998 Repricing Offer. The expiration dates of the Repriced
Options subject to the August 1998 Repricing Offer were the same as the
exchanged options.
May 1998 Repricing Offer
The principal purpose of the May 1998 Repricing Offer was to address certain
employee morale issues resulting from the withdrawal of the NDA relating to
citicoline, particularly as it closely followed the Redux withdrawal and
related lawsuits. At the time of the May 1998 Repricing Offer, recruiting
firms were actively soliciting certain employees, including management, and
the Company had concerns relating to its ability to retain and continue to
motivate and provide incentive to key personnel. The Compensation Committee
determined that although the Retention Plan had been helpful in retaining
employees and improving morale, because of the depressed market price of the
Shares, most of the options held by Option Holders were substantially out-of-
the-money. At the time of the May 1998 Repricing Offer, the Company had
outstanding eligible options and warrants to purchase 4,120,865 Shares at
exercise prices ranging from $11.4375 to $32.00. Prior to the May 1998
Repricing Offer, the Company conducted a survey of recent repricing offers by
biotechnology and high-technology companies and the May 1998 Repricing Offer
adopted by the Board of Directors reflected a review of such survey. The May
1998 Repricing Offer was intended to assist in retaining the Company's key
personnel and provide incentives for such personnel to participate in the
Company's growth and, with respect to the Company's sales force personnel,
provide additional value to their severance package, which the Company
believed was in its best interests.
August 1998 Repricing Offer
Notwithstanding the May 1998 Repricing Offer, by August 1998, certain
employees, including Mr. Farb, the Company's Chief Financial Officer, had left
the Company, and the Company continued to have substantial concerns relating
to its ability to retain and continue to motivate and provide incentive to key
personnel, especially since the loss of certain additional personnel would
have a serious adverse effect on the Company. Because the market price of the
Shares had continued to decline, at August 17, 1998 substantially all the
options held by Option Holders, were no longer in-the-money. At the time of
the August 1998 Repricing Offer, the Company had outstanding eligible options
to purchase 2,508,151 Shares at exercise prices ranging from $4.375 to $9.875.
As a result, the Board of Directors adopted the August 1998 Repricing Offer,
which was intended to assist in retaining the Company's key personnel and
provide incentives and motivation for such personnel to participate in the
Company's growth.
David B. Sharrock, Chairman
General Alexander M. Haig, Jr.
Harry J. Gray
Malcolm Morville, Ph.D.
16
<PAGE>
The following table sets forth certain information concerning repricing of
options held by named executive officers during the last ten completed fiscal
years of the Company, all of which occurred in fiscal 1998:
10-Year Option/SAR Repricing
<TABLE>
<CAPTION>
Number of
Securities Exercise Expiration Date
Underlying Market Price of Price at Time New of Original
Options Stock at Time of Exercise Option at Date of
Repriced or of Repricing or Repricing or Price Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) ($) Amendment (1)
- ---- ------- ----------- --------------- ------------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Glenn L. Cooper, M.D.... 5/5/98 300,000 6.1875 20.125 6.1875 12/18/06(2)
President and Chief 5/5/98 500,000 6.1875 11.4375 6.1875 10/06/07(2)
Executive Officer 8/17/98 60,000 4.15625 6.00 4.15625 3/22/02(3)
8/17/98 300,000 4.15625 7.875 4.15625 5/24/05(3)
8/17/98 600,000 4.15625 8.75 4.15625 5/12/03(3)
Mark S. Butler.......... 5/5/98 250,000 6.1875 11.4375 6.1875 10/06/07(2)
Executive Vice
President, 5/5/98 150,000 6.1875 20.125 6.1875 12/18/06(2)
Chief Administrative
Officer 5/5/98 150,000 6.1875 14.75 6.1875 10/19/05(2)
and General Counsel 8/17/98 300,000 4.15625 9.75 4.15625 12/6/03(3)
8/17/98 60,000 4.15625 6.00 4.15625 3/22/02(3)
Thomas F. Farb(4)....... 5/5/98 250,000 6.1875 11.4375 6.1875 10/6/07(2)
Executive Vice
President, 5/5/98 150,000 6.1875 20.125 6.1875 12/18/06(2)
Chief Financial Officer 5/5/98 125,000 6.1875 19.00 6.1875 12/14/05(2)
and Treasurer
Bobby W. Sandage, Jr.,
Ph.D................... 5/5/98 250,000 6.1875 11.4375 6.1875 10/6/07(2)
Executive Vice
President, 5/5/98 150,000 6.1875 20.125 6.1875 12/18/06(2)
Research and
Development, 5/5/98 100,000 6.1875 28.125 6.1875 3/5/07(2)
Chief Scientific
Officer 8/17/98 100,000 4.15625 6.25 4.15625 10/18/01(3)
8/17/98 125,000 4.15625 9.625 4.15625 6/9/03(3)
8/17/98 60,000 4.15625 6.00 4.15625 3/22/02(3)
8/17/98 100,000 4.15625 9.875 4.15625 7/21/05(3)
</TABLE>
- --------
(1) Represents the expiration date of the original option at the time of
repricing. The expiration dates of the Repriced Options are identical to
those of the original options; except that options subject to the May 1998
Repricing Offer expire no later than May 5, 2005.
(2) The Repriced Options are exercisable over a three year period commencing
six months from the date of the May 1998 Repricing Offer in six equal
installments.
(3) The Repriced Options are exercisable over a two year period commencing six
months from the date of the August 1998 Repricing Offer in four
installments of approximately 30%, 30%, 20% and 20%.
(4) Mr. Farb resigned as an executive officer of the Company effective August
18, 1998. As a result, all of his Repriced Options, together with other
options held by him which were outstanding at the time of his resignation,
were canceled in exchange for options to purchase 205,000 Shares, at an
exercise price of $8.125 per Share, which expire in February 1999. See
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements."
17
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Glenn L. Cooper, M.D.
In April 1996, the Company entered into an employment agreement (the "Cooper
Agreement") with Dr. Cooper, which supersedes a prior agreement, to continue
to serve as President and Chief Executive Officer of the Company for a term of
three years, subject to one-year renewal periods upon the mutual agreement of
Dr. Cooper and the Company. The Cooper Agreement provides for Dr. Cooper to
receive an annual base salary of $300,000, which was increased to $350,000 per
annum in December 1996, plus bonuses based on the achievement of milestones to
be agreed upon between the Company and Dr. Cooper and payable under the Senior
Executive Bonus Plan. In December 1997, the Compensation Committee recommended
an increase in the base annual salary of Dr. Cooper, which Dr. Cooper
voluntarily declined in light of other compensation awarded to him. See
"Employee Retention Plan Adopted in Fiscal 1998." The Company provides Dr.
Cooper with a $1,000,000 life insurance policy payable to the beneficiary of
his choice.
The Cooper Agreement provides that Dr. Cooper may not, during the term of
the agreement and for a year from the date of termination of employment,
engage in any business competitive with the Company or its research
activities. If Dr. Cooper is terminated for reasons other than Cause, as
defined under the Cooper Agreement, he is entitled to receive his base salary
plus pro-rated average bonuses, subject to set-off from other employment, for
a twelve-month period. In the event of a Change in Control, as defined under
the Cooper Agreement, Dr. Cooper is entitled to receive his base salary due
for the remaining portion of his employment agreement, either in a lump sum or
installments, at the discretion of the Company.
Mark S. Butler
Effective December 1993, the Company entered into a letter agreement with
Mark S. Butler, the Company's Executive Vice President, Chief Administrative
Officer and General Counsel. The agreement provides for a base salary, which
was increased to $265,000 in December 1997, to be reviewed annually. Mr.
Butler was also eligible to participate in the Company's Senior Executive
Bonus Plan for fiscal 1998. If Mr. Butler is terminated for reason other than
cause or if Mr. Butler elects to terminate for just cause, Mr. Butler is
entitled to receive salary for a period of nine months following such
termination, subject to set-off from other employment.
Thomas F. Farb
In April 1994, the Company entered into a letter agreement with Thomas F.
Farb, the Company's former Executive Vice President, Chief Financial Officer
and Treasurer. The agreement provides for a base salary, which was increased
to $265,000 in December 1997, to be reviewed annually. Mr. Farb was also
eligible to participate in the Company's Senior Executive Bonus Plan for
fiscal 1998. Mr. Farb resigned as an executive officer of the Company,
effective August 18, 1998. In connection with his resignation, (i) options
(which were not immediately exercisable) held by Mr. Farb to purchase 525,000
Shares were terminated; (ii) restricted stock awards to acquire 100,000 Shares
granted to Mr. Farb expired unvested; and (iii) shares of InterNutria common
stock held by Mr. Farb were repurchased by the Company at the original
purchase price, the par value of the shares, and then resold to Drs. Cooper
and Sandage and Mr. Butler, pro rata to their existing holdings, on the same
terms as the original sale. In addition, upon his resignation and in
consideration of the termination of immediately exercisable options to
purchase 205,000 shares and other covenants by Mr. Farb, Mr. Farb was granted
205,000 options, which are immediately exercisable at $8.125 per share and
expire six months following the date of his resignation.
Bobby W. Sandage, Jr., Ph.D.
Pursuant to a letter agreement between the Company and Bobby W. Sandage,
Jr., Ph.D. effective November 1991, Dr. Sandage, the Company's Executive Vice
President, Research and Development, Chief Scientific Officer receives a base
annual salary, which was increased to $265,000 in December 1997, to be
reviewed
18
<PAGE>
annually. Dr. Sandage was eligible to participate in the Company's Senior
Executive Bonus Plan for fiscal 1998. If Dr. Sandage is terminated for reason
other than cause, he is entitled to salary and benefits coverage for the
earlier of up to six months or until he finds a new position. Dr. Sandage may
continue to consult with third parties in fields unrelated to Company business
during non-working hours.
In the event of certain transactions, including those which may result in a
Change in Control, as defined under each of the Company's 1989 Plan, 1994 Plan
and 1997 Plan, unvested installments of options to purchase Shares or awards
of restricted stock held by executive officers of the Company may be subject
to accelerated vesting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's executive officers,
directors and persons who beneficially own more than 10% of a registered class
of the Company's equity securities to file with the S.E.C. initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Such executive officers, directors, and greater
than 10% beneficial owners are required by S.E.C. regulation to furnish the
Company with copies of all Section 16(a) forms filed by such reporting
persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and greater than 10% beneficial owners were complied with
for fiscal 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the members of the Compensation Committee were: Mr.
Gray, General Haig, Dr. Morville and Mr. Sharrock. In fiscal 1998, none of the
members of the Compensation Committee was an officer or employee of the
Company or any of its subsidiaries. In fiscal 1998, the Company and its
subsidiaries paid or accrued to Mr. Sharrock, who also serves as a director of
Intercardia and a director of and consultant to Progenitor: (i) consulting
fees for consulting services rendered by Mr. Sharrock to the Company and to
Progenitor of $20,000 and $8,000, respectively; (ii) $4,000 in directors' fees
from Intercardia; and (iii) granted options, including options to purchase
35,000 and 6,000 shares of common stock of Progenitor and Intercardia,
respectively. In fiscal 1998, options granted to Mr. Sharrock, including an
option to purchase 3,000 shares of common stock granted by Intercardia, and
all of the options granted by Progenitor, were issued pursuant to option
repricings in exchange for options previously granted at a higher exercise
price.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION (1)
General
The goal of the Company's executive compensation policy is to ensure that an
appropriate relationship exists between executive compensation and the
creation of stockholder value, while at the same time attracting, motivating
and retaining qualified executive officers. Accordingly, compensation
structures for the named executive officers of the Company generally include a
combination of salary, bonuses and long-term compensation. The Compensation
Committee's informal executive compensation philosophy (which applies
- --------
(1) The material in this report is not soliciting material, is not deemed
filed with the S.E.C. and is not incorporated by reference in any filing
of the Company under the 1933 Act or the 1934 Act, whether made before or
after the date of this proxy statement and irrespective of any general
incorporation language in such filing.
19
<PAGE>
generally to all executive officers of the Company, including the President
and Chief Executive Officer, Glenn L. Cooper, M.D.) considers a number of
factors, which may include:
. providing compensation levels competitive with companies in comparable
industries which are at a similar stage of development, or undergoing
similar corporate events, and which are located in the Company's
geographic area;
. identifying appropriate performance goals for the Company and providing
flexibility in compensation levels with the achievement of such goals;
. rewarding above average corporate performance; and
. recognizing and providing incentive for individual initiative and
achievement.
Base Salary
Base salary for fiscal 1998 was determined based on a range of measures and
internal targets set before the start of the fiscal year and in part by
comparison to the compensation of executive officers of comparable
biotechnology and pharmaceutical companies.
Bonuses
Bonus compensation for fiscal 1998 was contingent upon the Company achieving
certain business and financial objectives during the fiscal year. In
formulating the Senior Executive Bonus Plan for fiscal 1998 for executive
officers of the Company, including Dr. Cooper, the Compensation Committee
adopted performance measures tied to a number of business and financial
objectives to be achieved during fiscal 1998 and assigned relative weight to
each objective. The Senior Executive Bonus Plan for fiscal 1998 entitled the
named executive officers of the Company to a bonus equal to varying
percentages of base salary depending upon achieving these objectives which
included:
. achieving defined clinical or regulatory product development milestones;
. consummation of certain corporate transactions, including finance events
for the Company;
. in-licensing or acquisition of significant assets;
. specified net sales levels of PMS Escape(TM); and
. the fair market value of Shares relative to fiscal 1997 and specified
indices.
The Chairman of the Compensation Committee consulted with members of the
Committee, who considered the Company's performance under these measures for
fiscal 1998 and used their subjective judgment and discretion, in accordance
with the parameters of the Senior Executive Bonus Plan for fiscal 1998, to
make a recommendation to the Board of Directors in approving individual
compensation. Under the terms of the Senior Executive Bonus Plan for fiscal
1998, the Board approved a bonus to Dr. Cooper of $73,500, and Messrs. Butler
and Farb and Dr. Sandage received bonuses of $46,375, $39,750, and $46,375,
respectively. The bonus paid to Mr. Farb relates only to objectives achieved
during the period of his service for fiscal 1998.
Long-Term Compensation
Long-term compensation grants in fiscal 1998 to named executive officers of
the Company were designed to align the interests of the named executive
officers with those of the stockholders by providing the named executive
officers with long-term incentives, while at the same time addressing employee
retention and morale issues. In October 1997, in response to the perceived
risk of attrition of key management and other personnel and employee morale
issues resulting after the withdrawal of Redux and related legal proceedings
and negative media coverage, and in line with the general goals of the
Company's executive compensation policy, the Board of Directors authorized,
and in November 1997, pursuant to Board authorization, the Compensation
Committee
20
<PAGE>
approved, the Retention Plan, which was designed to motivate, retain and
provide incentive to the Company's management, including the named executive
officers and other employees. Pursuant to the Retention Plan, each of the
named executive officers received (i) options under the 1994 Plan; (ii)
restricted stock awards under the 1997 Plan; and (iii) shares of common stock
of InterNutria owned by the Company, in exchange for nominal consideration.
See "Retention Plan Adopted in Fiscal 1998" and "Employee Contracts and
Termination of Employment and Change-in-Control Arrangements."
In addition, in fiscal 1998, the Board of Directors authorized and approved
the May and August 1998 Repricing Offers, pursuant to which the Company
offered the right to exchange certain options held by Option Holders,
including the named executive officers (except for the August 1998 Repricing
Offer in which Mr. Farb did not participate) for options to purchase Shares at
the market price of the Shares on the date of each of the Repricing Offers.
The Repricing Offers were adopted, in line with the general compensation goals
of the Company, to retain and motivate key employees, and to boost morale,
especially in light of the withdrawal of the NDA relating to citicoline,
particularly after the Redux withdrawal and related legal proceedings. In
fiscal 1998, the named executive officers exchanged options to purchase
4,080,000 Shares for Repriced Options to purchase an identical number of
Shares. See "Compensation Committee Report on Option Repricing."
Glenn L. Cooper, M.D.
The compensation received during fiscal 1998 by Dr. Cooper was governed in
part by the Cooper Agreement, entered into in April 1996, and substantially in
accordance with the policies described above relating to all executive
officers. In addition, in adopting the Senior Executive Bonus Plan for fiscal
1998 and establishing the percentage of salary used in calculating the bonus
payment to Dr. Cooper, and recommending approval of such bonus, members of the
Compensation Committee also considered a subjective evaluation of Dr. Cooper's
performance and ability to influence the Company's near and long-term growth.
The Compensation Committee considered Dr. Cooper's efforts and performance
necessary to achieve specified objective criteria, as described above. In
December 1997, the Compensation Committee recommended an increase in the base
annual salary of Dr. Cooper, which Dr. Cooper voluntarily declined in light of
other compensation awarded to him. See "Employee Retention Plan Adopted in
Fiscal 1998."
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the ability of the Company to deduct for tax purposes
compensation over $1,000,000 to any of the named executive officers unless, in
general, the compensation is paid pursuant to a plan which is performance
related, non-discretionary and has been approved by the Company's
stockholders. In fiscal 1998 the Company granted restricted stock awards
which, depending upon the fair market value of Shares on the date of vesting
of such awards, may result in compensation expense that may not be deductible
pursuant to Section 162(m) when recognized; however, no such limitation on
deductibility is applicable for fiscal 1998.
David B. Sharrock, Chairman
General Alexander M. Haig, Jr.
Harry J. Gray
Malcolm Morville, Ph.D.
21
<PAGE>
STOCK PRICE PERFORMANCE PRESENTATION
The following chart compares the cumulative total stockholder return on
Shares with the cumulative total stockholder return of (i) the Nasdaq Market
Index and (ii) a peer group index consisting of companies reporting under the
Standard Industrial Classification Code 2834 (Pharmaceutical Preparations):
[GRAPH APPEARS HERE]
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
<TABLE>
<CAPTION>
-------------------------- FISCAL YEAR ENDING ---------------------
COMPANY/INDEX/MARKET 9/30/1993 9/30/1994 9/29/1995 9/30/1996 9/30/1997 9/30/1998
<S> <C> <C> <C> <C> <C> <C>
Interneuron Pharma 100.00 76.15 141.54 347.69 147.69 36.92
Pharmaceutical
Preparations 100.00 112.47 162.59 215.72 306.49 406.39
NASDAQ Market Index 100.00 105.82 128.48 150.00 203.88 211.88
</TABLE>
- --------
(1) Assumes $100 invested on September 30, 1993 and assumes dividends
reinvested. Measurement points are at the last trading day of the fiscal
years ended September 30, 1993, 1994, 1995, 1996, 1997 and 1998. The
material in this chart is not soliciting material, is not deemed filed
with the S.E.C. and is not incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act, whether made before or after
the date of this proxy statement and irrespective of any general
incorporation language in such filing. A list of the companies included in
the Peer Group Index will be furnished by the Company to any stockholder
upon written request to the Vice President, Corporate Communications.
22
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1995, the Company entered into a Consultant and Non-Competition
Agreement with Dr. Richard Wurtman which entitles Dr. Wurtman to an annual
consulting fee of $150,000, subject to increases. Under this agreement, Dr.
Wurtman received $165,000 in consulting fees from the Company in fiscal 1998.
Effective as of April 5, 1995, InterNutria entered into a Consultant and Non-
Competition Agreement with Judith Wurtman, Ph.D., the wife of Dr. Richard
Wurtman and a director of InterNutria. InterNutria was organized by the
Company in April 1995 to develop commercial applications of nutritional and
dietary supplement products. In September 1998, the Company adopted a plan to
discontinue operations of InterNutria. In December 1998, the agreement with
Dr. Judith Wurtman was terminated by InterNutria. The agreement with Dr.
Judith Wurtman entitled her to an annual consulting fee from InterNutria of
$85,000, subject to increases. In addition, Dr. Judith Wurtman received
options to purchase approximately 5% of the outstanding common stock of
InterNutria. During fiscal 1998, Dr. Judith Wurtman received $91,000 in
consulting fees from InterNutria.
Drs. Richard Wurtman and Judith Wurtman have advised the Company that in
accordance with MIT policy, they are entitled to receive from MIT a percentage
of any royalties received by MIT in connection with MIT's licenses of
dexfenfluramine to Servier and citicoline to Ferrer. They have further advised
that in accordance with such policy, they are not entitled to share in
royalties derived by MIT from any licensee in which they have an equity
interest (such as the Company).
In fiscal 1998, the Company made contributions of approximately $147,000 to
The Center for Brain Science and Metabolism Charitable Trust, of which Dr.
Richard Wurtman is the Scientific Director. This trust provides grants and
fellowships to not-for-profit institutions, including MIT, and post-doctoral
fellows for research in brain behavior, nutrition and pharmacology and has
supported research on citicoline and melatonin.
In November 1995, the Company and InterNutria entered into an Asset Purchase
Agreement with AVAX Technologies, formerly Walden Laboratories, Inc. ("AVAX"),
pursuant to which InterNutria purchased substantially all of the assets of
AVAX, including PMS Escape, a product developed for the treatment of
pre-menstrual syndrome, and related intellectual property, for consideration
payable in Shares with a fair market value at the date of payment equal to an
aggregate of $2,400,000. The Company issued an aggregate of 55,422 and 112,793
Shares, in December 1996 and January 1998, respectively, which were
distributed to certain stockholders of AVAX in accordance with the terms of
the Asset Purchase Agreement. Dr. Richard Wurtman and Dr. Rosenwald are
stockholders of AVAX, Dr. Judith Wurtman previously served as an executive
officer, director and principal stockholder of AVAX, and certain other
officers and directors of the Company are stockholders of AVAX. None of such
individuals received any of the Shares constituting the purchase price for the
AVAX assets.
In October 1997, the Company sold to each of Dr. Cooper, Messrs. Butler and
Farb and Dr. Sandage, 2.5% of the capital stock of InterNutria held by the
Company (an aggregate of 10%) for a purchase price of $.001 per share, subject
to vesting restrictions. In connection with his resignation, the capital stock
of InterNutria held by Mr. Farb was repurchased by the Company at the original
purchase price, the par value of the shares, and then resold by the Company to
Drs. Cooper and Sandage and Mr. Butler, pro rata to their existing holdings,
on the same terms as the original sale. See "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements."
Dr. Rosenwald receives a management fee, which includes his out-of-pocket
expenses incurred in providing services to the Company, of $2,500 per month
under a management agreement with the Company. For fiscal 1998, the Company
paid $30,000 to Dr. Rosenwald pursuant to this agreement.
Dr. Rosenwald is the Chairman and President of Castle, a venture capital
firm engaged in locating, investigating and funding scientific inventions or
technologies which are perceived to have potential commercial application in
the pharmaceutical or health care industries, generally with the goal of
forming a new company to exploit such inventions or technologies. Castle has
presented certain of such opportunities to the Company, as
23
<PAGE>
well as to other companies, and may in the future continue to do so, although
neither Dr. Rosenwald nor Castle has any agreement to do so and there can be
no assurance that any inventions, technologies or companies discovered or
funded by Castle will be presented to the Company. The Board of Directors of
the Company adopted a policy for compensating Castle or the Castle employee
(excluding Dr. Rosenwald) responsible for the introduction (the "Castle
Finder") for any arrangement entered into by the Company as a result of
Castle's introduction. No compensation was paid to Castle Finders during
fiscal 1998.
In fiscal 1996, the Company entered into a consulting agreement with Dr.
Gale Cooper, a psychiatrist and the sister of Glenn L. Cooper, M.D., for a
term of one year subject to automatic renewals of one year periods, pursuant
to which Dr. Gale Cooper performs certain medical marketing services on behalf
of the Company. Dr. Gale Cooper received $100,000 in consulting fees pursuant
to such agreement in fiscal 1998. This agreement was terminated in November
1998. Dr. Cooper also received $34,000 during fiscal 1998 in fees from the
Company in connection with services rendered as a principal investigator in a
clinical trial for a product under development. The Company believes that the
terms of each of these agreements were at least as favorable to the Company as
could have been obtained from a non-affiliated third party.
In fiscal 1998, the Company and its subsidiaries paid or accrued to Mr.
Sharrock, who also serves as a director of Intercardia and a director of and
consultant to Progenitor: (i) consulting fees for consulting services rendered
by Mr. Sharrock to the Company and to Progenitor of $20,000 and $8,000,
respectively; (ii) $4,000 in directors' fees from Intercardia; and (iii)
granted options, including options to purchase 35,000 and 6,000 shares of
common stock of Progenitor and Intercardia, respectively. In fiscal 1998,
options granted to Mr. Sharrock, including an option to purchase 3,000 shares
of common stock granted by Intercardia, and all of the options granted by
Progenitor, were issued pursuant to option repricings in exchange for options
previously granted at a higher exercise price.
In fiscal 1998, the Company retained the services of Covington & Burling, a
law firm of which Mr. Hutt, a director of the Company, is a partner.
In fiscal 1998, each of the named executive officers received certain
options, restricted stock awards and the right to purchase capital stock of a
subsidiary of the Company under the Retention Plan. In fiscal 1998, the
Company also granted options to certain of the Company's directors pursuant to
automatic grant provisions and the Retention Plan. Pursuant to the May and
August 1998 Repricing Offers, named executive officers and directors of the
Company exchanged options to purchase 4,919,500 Shares for Repriced Options.
In accordance with the terms of the 1994 Plan, on the date following the
Annual Meeting date, all of the directors of the Company (except Drs.
Rosenwald and Cooper) will receive automatic grants of options to purchase
5,000 Shares, which will be exercisable at a price equal to the fair market
value of the Company's Shares on the date of grant. See "Director
Compensation," "Option Grants in Last Fiscal Year," "Employee Retention Plan
Adopted in Fiscal 1998," and "Compensation Committee Report on Option
Repricing."
APPROVAL AND RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT AUDITORS
The Management of the Company recommends a vote for the approval and
ratification of the appointment of PricewaterhouseCoopers LLP, Certified
Public Accountants, as the Company's independent auditors for the fiscal year
ending September 30, 1999. PricewaterhouseCoopers LLP has been the Company's
auditors for the past fiscal year and has no direct or indirect financial
interest in the Company. A representative of PricewaterhouseCoopers LLP is
expected to be present at the Annual Meeting of Stockholders with the
opportunity to make a statement if he or she desires to do so, and shall be
available to respond to appropriate questions.
24
<PAGE>
GENERAL
The Management of the Company does not know of any matters other than those
stated in this Proxy Statement which are to be presented for action at the
Meeting. If any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form will be voted on any such other
matters in accordance with the judgment of the persons voting such proxies.
Discretionary authority to vote on such matters is conferred by such proxies
upon the persons voting them.
The Company will bear the cost of preparing, printing, assembling and
mailing the proxy, Proxy Statement and other material which may be sent to
stockholders in connection with this solicitation. It is contemplated that
brokerage houses will forward the proxy materials to beneficial owners at the
request of the Company. In addition to the solicitation of proxies by use of
the mails, officers and regular employees of the Company may solicit by
telephone proxies without additional compensation. The Company does not expect
to pay any compensation for the solicitation of proxies.
The Company will provide without charge to each person being solicited by
this Proxy Statement, on the written request of any such person, a copy of the
Annual Report of the Company on Form 10-K for the fiscal year ended September
30, 1998 (as filed with the S.E.C.) including the financial statements
thereto. All such requests should be directed to Vice President, Corporate
Communications, Interneuron Pharmaceuticals, Inc., One Ledgemont Center, 99
Hayden Avenue, Lexington, Massachusetts 02421.
STOCKHOLDER PROPOSALS
The Annual Meeting of Stockholders for the fiscal year ending September 30,
1999 is expected to be held in March 2000. All proposals intended to be
presented at the Company's next Annual Meeting of Stockholders must be
received in writing and in compliance with S.E.C. requirements at the
Company's executive office no later than September 30, 1999, for inclusion in
the Proxy Statement and form of proxy related to that meeting.
By Order of the Board of Directors,
Glenn L. Cooper, M.D.
President and Chief Executive
Officer
Dated: January 27, 1999
25
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PROXY
INTERNEURON PHARMACEUTICALS, INC. (the "COMPANY")
ANNUAL MEETING OF STOCKHOLDERS
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Glenn L. Cooper, M.D. or Lindsay A.
Rosenwald, M.D. as proxy to represent the undersigned at the Annual Meeting of
Stockholders to be held at The Doubletree Guest Suites, 550 Winter Street,
Waltham, Massachusetts 02451 on March 16, 1999 at 10:00 a.m. and at any
adjournment thereof, and to vote the shares of Common Stock the undersigned
would be entitled to vote if personally present, as indicated below.
1. Election of Directors
FOR all nominees listed below [_] WITHHOLDING AUTHORITY [_]
(except as marked to the to vote for all
contrary below) nominees listed below
Lindsay A. Rosenwald, M.D., Glenn L. Cooper, M.D.,
Harry J. Gray, Alexander M. Haig, Jr.,
Peter Barton Hutt, Malcolm Morville, Ph.D.,
Robert K. Mueller, Lee J. Schroeder,
David B. Sharrock, Richard Wurtman, M.D.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
print that nominee's name on the line provided below.)
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2. Approval and ratification of the appointment of PricewaterhouseCoopers
LLP as independent auditors of the Company.
FOR [_] AGAINST [_] ABSTAIN [_]
3. In their discretion, proxies are authorized to vote upon such business
as may properly come before the meeting.
The Shares represented by this proxy will be voted as directed. If no
contrary instruction is given, the Shares will be voted FOR the election of the
nominees and FOR the approval and ratification of the appointment of
PricewaterhouseCoopers LLP as the independent auditors of the Company.
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DATED: , 1999
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Signature
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Signature if held jointly
(Please date, sign as name appears
at the left, and return promptly.
If the Shares are registered in the
names of two or more persons, each
should sign. When signing as
Corporate Officer, Partner,
Executor, Administrator, Trustee
or Guardian, please give full title.
Please note any changes in your
address alongside the address as
it appears in the proxy.)
