SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
MEDICIS PHARMACEUTICAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] 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 transactions 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:
<PAGE>
[MEDICIS LOGO]
--------------------------------------
NOTICE OF
1998 ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 24, 1998
--------------------------------------
Dear Fellow Stockholder:
The 1998 Annual Meeting of Stockholders (the "Meeting") of Medicis
Pharmaceutical Corporation (the "Company") will be held at The Phoenician, 6000
East Camelback Road, in Scottsdale, Arizona, on November 24, 1998, at 9:30 a.m.,
local time, for the following purposes:
1. To elect three directors for a term of three years;
2. To approve the adoption of the Medicis Pharmaceutical
Corporation 1998 Stock Option Plan;
3. To ratify the appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending June 30, 1999; and
4. To transact such other business as may properly come before
the Meeting and all adjournments thereof. The Company is
currently unaware of any additional business to be presented
at the Meeting.
The Board of Directors has fixed the close of business on October 2,
1998, as the record date for the determination of stockholders entitled to
notice of and to vote at the Meeting.
IN ORDER THAT YOUR STOCK MAY BE REPRESENTED AT THE MEETING IN CASE
YOU ARE NOT PERSONALLY PRESENT, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY/VOTING CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING ADDRESSED ENVELOPE
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU ATTEND THE MEETING, YOU
MAY VOTE YOUR SHARES IN PERSON EVEN IF YOU HAVE SIGNED AND RETURNED THE PROXY
CARD.
By Order of the Board of Directors,
/s/ Mark A. Prygocki, Sr.
Mark A. Prygocki, Sr.
Chief Financial Officer,
Treasurer and Secretary
October 9, 1998
Phoenix, Arizona
<PAGE>
[MEDICIS LOGO]
--------------------------------------
PROXY STATEMENT
--------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 24, 1998
This Proxy Statement is furnished to stockholders of Medicis
Pharmaceutical Corporation (the "Company") in connection with the solicitation
of proxies by the Company's Board of Directors (the "Board") for use at the
Annual Meeting of Stockholders to be held on November 24, 1998, at 9:30 a.m.,
local time, at The Phoenician, 6000 East Camelback Road, Scottsdale, Arizona,
and at all adjournments thereof (the "Meeting"). It is anticipated that this
Proxy Statement and the accompanying form of proxy will first be mailed to
stockholders on or about October 16, 1998.
The Company will bear the cost of solicitation of proxies, including
the charges and expenses of brokerage firms and others that forward solicitation
material to beneficial owners of the Company's stock. Proxies may be solicited
by mail, telephone, telegraph, or personal communications. The Company has
retained Stockholder Communications Corporation ("SCC") to assist in the
solicitation of proxies for a fee of approximately $10,000 and reimbursement of
certain expenses.
The close of business on October 2, 1998, has been fixed as the
"Record Date" for the determination of stockholders entitled to notice of and to
vote at the Meeting. On that date, there were 18,501,195 shares of Class A
Common Stock and 281,974 shares of Class B Common Stock outstanding
(collectively, the "Capital Stock"). Each such share of Class A Common Stock is
entitled to one vote on each matter of business to be considered at the Meeting.
Each such share of Class B Common Stock is entitled to ten votes on each such
matter. The outstanding shares of Capital Stock representing the majority of the
voting power thereof and entitled to vote at the Meeting shall constitute a
quorum.
Each proxy properly executed and returned to the Company will be
voted FOR (i) the election of the three director nominees named herein; (ii) the
approval of the Medicis Pharmaceutical Corporation 1998 Stock Option Plan; (iii)
the appointment of Ernst & Young LLP as auditors, unless the stockholder
otherwise directs in his or her proxy, in which case the proxy will be voted
according to the stockholder's direction.
Proxies may be revoked by written notice to the Secretary of the
Company at any time prior to their being voted at the Meeting. Stockholders who
are present at the Meeting may revoke in writing their proxies previously
submitted and vote in person, if they so desire.
The headquarters office of the Company is located at 4343 East
Camelback Road, Suite 250, Phoenix, Arizona 85018.
--------------------------------------
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
At the Meeting, three directors will be elected to serve a three
year term which is scheduled to expire at the close of the Annual Meeting of
Stockholders in 2001. The shares represented by the enclosed proxy will be voted
for the election as directors of the three nominees named below, unless a vote
is withheld from any of the individual nominees. If a nominee becomes
unavailable for any reason or if a vacancy should occur before election (which
events are not anticipated), the shares represented by the enclosed proxy may be
voted for such other person as may be determined by the holders of the proxy.
Jonah Shacknai, Michael A. Pietrangelo and Lottie Shackelford have
been proposed unanimously by the Board as nominees for election as directors at
the meeting. Mr. Shacknai, Mr. Pietrangelo and Ms. Shackelford are currently
directors of the Company. Biographical information on Mr. Shacknai, Mr.
Pietrangelo and Ms. Shackelford is furnished below under "Directors, Nominees
and Executive Officers."
VOTE REQUIRED
The three nominees receiving the highest number of votes cast at the
meeting will be elected to serve for terms of three years, or until their
successors are duly elected and qualified.
BOARD RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH DIRECTOR
SPECIFIED IN PROPOSAL 1.
--------------------------------------
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following biographical information is furnished with regard to
the directors, the nominees for election as a director at the Meeting, and the
executive officers.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE POSITION SINCE EXPIRES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jonah Shacknai(1) 41 Chairman and Chief Executive Officer 1988 1998
Mark A. Prygocki, Sr. 32 Chief Financial Officer, Treasurer, and N/A N/A
Secretary
Arthur G. Altschul, Jr.(2) 34 Director 1992 2000
Richard L. Dobson, M.D.(2) 70 Director 1991 1999
Peter S. Knight, Esq. (1)(3) 47 Director 1997 1999
Michael A. Pietrangelo(1)(3) 56 Director 1990 1998
Philip S. Schein, M.D.(2) 59 Director 1990 2000
Lottie H. Shackelford(2) 57 Director 1993 1998
</TABLE>
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Stock Option and Compensation Committee
--------------------------------------
2
<PAGE>
JONAH SHACKNAI is a founder of the Company and has served as its
Chairman and Chief Executive Officer since July 1988. From 1977 until late 1982,
Mr. Shacknai served as chief aide to the House of Representative's committee
with responsibility for health policy, and in other senior legislative
positions. During his service with the House of Representatives, Mr. Shacknai
drafted significant legislation affecting health care, environmental protection,
science policy, and consumer protection. He was also a member of the Commission
on the Federal Drug Approval Process, and the National Council on Drugs. From
1982 to 1988, as senior partner in the law firm of Royer, Shacknai, and Mehle,
Mr. Shacknai represented approximately 34 multinational pharmaceutical and
medical device concerns, as well as four major industry trade associations. He
provided these firms advice in areas of governmental regulation, strategic
planning, mergers and acquisitions, and marketing. Mr. Shacknai simultaneously
served in an executive position with Key Pharmaceuticals, Inc., prior to its
acquisition by Schering-Plough Corporation. Mr. Shacknai is Vice Chairman of the
Board of Directors of Delta Society, a public service organization promoting
animal-human bonds. He is also a director of GHBM Healthworld, an integrated
healthcare, marketing and communications concern, and a member of the Board of
Trustees of the National Public Radio Foundation. Mr. Shacknai serves as a
member of the National Arthritis and Musculoskeletal and Skin Diseases Advisory
Council of the National Institutes of Health, and the U.S.-Israel Science and
Technology Commission, both of which are federal cabinet-appointed positions.
MARK A. PRYGOCKI, SR., CPA, has served as Chief Financial Officer,
Treasurer, and Secretary since May 1995 and served as Controller of the Company
from October 1992 until May 1995. From July 1990 through October 1992, Mr.
Prygocki was employed by Salomon Brothers, Inc., an investment banking firm, as
an Accountant in the Regulatory Reporting Division. Mr. Prygocki was employed by
Ernst & Young LLP as a Senior Auditor in the Financial Service Division from
September 1988 through July 1990.
ARTHUR G. ALTSCHUL, JR., has been a director of the Company since
December 1992. He has worked in investment banking, venture capital, and as a
member of senior management of a publicly-traded healthcare concern. Mr.
Altschul is a founder and Co-Chairman of Diaz & Altschul Group, LLC, a merchant
banking organization which, through its subsidiaries, provides investment
banking and investment advisory services. Between 1985 and 1991, Mr. Altschul
worked in the Equity and Fixed-Income trading departments at Goldman, Sachs &
Co., was a founding limited partner of The Maximus Fund, LP, and worked in the
Equity Research department at Morgan Stanley & Co. From 1992 to 1996, Mr.
Altschul worked at SUGEN, Inc., most recently as Senior Director of Corporate
Affairs. SUGEN is a NASDAQ-traded biopharmaceutical company focused on cancer
research and drug development. Mr. Altschul serves on the Board of Directors of
General American Investors, Inc., a NYSE-traded closed-end investment company;
Delta Opportunity Fund, Ltd., an offshore investment fund which invests
primarily in private placements of publicly-traded technology companies;
Microbes Inc.; NY Council for Humanities; and Prototek II, Inc. Mr.
Altschul holds a B.Sc. from Columbia University in Computer Science.
RICHARD L. DOBSON, M.D., has been a director of the Company since
September 1991. He was a Professor of Dermatology at the Medical University of
South Carolina from 1980-1998 and he has been Professor Emeritus since July
1998. He is a past President of the American Board of Dermatology and a past
President of the American Academy of Dermatology. Dr. Dobson also served, as the
Editor-in-Chief of the JOURNAL OF THE AMERICAN ACADEMY OF DERMATOLOGY from
1988-1998.
PETER S. KNIGHT, ESQ., has been a director of the Company since June
1997. Mr. Knight has been a partner of the law firm of Wunder, Knight, Levine,
Thelen & Forscey since 1991, where he specializes in pharmaceutical,
environmental, and communication matters. In 1996, at the request of President
Clinton, Mr. Knight served as the National Campaign Manager for Clinton/Gore
'96. Mr. Knight served as the General Counsel and Secretary of the Company from
1989 to 1991. Mr. Knight currently serves on the Boards of COMSAT, Whitman
Education Group, Healthworld, and the Schroder Series Trust . He also serves on
the Board of the Center for National Policy, and the Vice President's Residence
Foundation.
MICHAEL A. PIETRANGELO has been a director of the Company since
October 1990. Admitted to the bar in New York, Tennessee and the District of
Columbia, he was an attorney with the Federal Trade Commission and later for
Pfizer, Inc., from 1967 to 1972. Joining Shering-Plough Corporation in Memphis,
Tennessee in 1972, Mr. Pietrangelo served in legal capacities first as Legal
Director and then Associate General Counsel. During that time he was also
appointed Visiting Professor of Law by the University of Tennessee and
University of Mississippi
3
<PAGE>
Schools of Pharmacy. In 1980, Mr. Pietrangelo left corporate law and focused on
consumer products management, serving in a variety of executive positions at
Shering-Plough Corporation prior to being named President of the Personal Care
Products Group in 1985. In 1989, he was asked to join Western Publishing Group
as President and Chief Operating Officer. From 1990 to 1994, Mr. Pietrangelo was
the President and Chief Executive Officer of CLEO, Inc., a Memphis-based
subsidiary of Gibson Greetings, Inc., a manufacturer of specialized paper
products. In 1994, he accepted a position as President of Johnson Products Co.,
a subsidiary of IVAX Corporation. He served in that capacity until February
1998, when he returned to the practice of law with Pietrangelo Cook PLC, based
in Memphis, Tennessee.
PHILIP S. SCHEIN, M.D., has been a director of the Company since
October 1990. Dr. Schein was the Chairman and Chief Executive Officer of U.S.
Bioscience, Inc., a publicly held pharmaceutical company involved in the
development and marketing of chemotherapeutic agents, from 1987 to 1998. His
prior appointments included Scientific Director of the Vincent T. Lombardi
Cancer Research Center at Georgetown University, Vice President for Worldwide
Clinical Research and Development, SmithKline and French Labs. He has served as
President of the American Society of Clinical Oncology and has chaired the Food
and Drug Administration Oncology Drugs Advisory Committee. Dr. Schein presently
serves as a member of the National Cancer Advisory Board and as Adjunct
Professor of Medicine and Pharmacology at the University of Pennsylvania School
of Medicine.
LOTTIE H. SHACKELFORD has been a director of the Company since July
1993. Ms. Shackelford has been Executive Vice President of Global USA, Inc., a
government relations firm, since April 1994 and has been Vice Chair of the
Democratic National Committee since February 1989. Ms. Shackelford was Executive
Vice President of U.S. Strategies, Inc., a government relations firm, from April
1993 to April 1994. She was also Co-Director of Intergovernmental Affairs for
the Clinton/Gore presidential transition team between November 1992 and March
1993, Deputy Campaign Manager of Clinton for President from February 1992 to
November 1992, and Executive Director, Arkansas Regional Minority Purchasing
Council, from February 1982 to January 1992. In addition, Ms. Shackelford has
served in various local government positions, including Mayor of Little Rock,
Arkansas. She also is a director of Philander Smith College, the Chapman Funds
in Baltimore, Maryland, and the Overseas Private Investment Corporation.
COMMITTEES AND MEETINGS
The Stock Option and Compensation Committee, which met one time in
the Company's fiscal year ended June 30, 1998 ("Fiscal 1998"), administers the
Company's Stock Option Plans (the "Plans") and oversees the compensation of the
Company's officers. The members of the Stock Option and Compensation Committee
in Fiscal 1998 were Michael A. Pietrangelo and Peter S. Knight, Esq. The Audit
Committee, which met twice in Fiscal 1998, reviews the work of the auditors and
the adequacy of the Company's internal accounting and financial control systems.
The members of the Audit Committee are Lottie Shackelford, Arthur G. Altschul,
Jr., Richard L. Dobson, M.D., and Philip S. Schein, M.D. The Executive
Committee, which did not meet in Fiscal 1998, exercises the rights, power, and
authority of the Board of Directors in certain situations. The members of the
Executive Committee in Fiscal 1998 were Jonah Shacknai, Michael A. Pietrangelo
and Peter S. Knight, Esq. The Company does not have a Nominating Committee, and
the consideration of nominations to serve as a member of the Board is made by
the entire Board.
The Board held four meetings in Fiscal 1998. Each member of the
Board of Directors attended at least 75% of the aggregate of (i) all Board
meetings and (ii) all meetings of committees of the Board of which such person
was a member.
DIRECTOR COMPENSATION
Since April 28, 1990, the Company has made available to each
non-employee director $1,000 plus reasonable expenses for each Board and
committee meeting attended, excluding telephonic meetings. Non-employee
directors of the Company are also entitled to automatic, annual grants of
non-qualified options to purchase 4,500 shares of Class A Common Stock. Under
the Plans, these options are granted at the fair market value of the Class A
Common Stock on the last business day of September and are exercisable on the
one year anniversary of the date of the grant. Each such option shall be
exercisable in whole or in part one year after the date of grant, provided such
non-employee director has continued as a non-employee director for one year.
4
<PAGE>
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
The information set forth below includes information as of September
14, 1998, regarding the shares of Capital Stock beneficially owned by (i) each
person who is known by the Company to own beneficially five percent (5%) or more
of the Capital Stock, (ii) each of the other present directors and executive
officers of the Company, and (iii) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------
CLASS A CLASS B PERCENTAGE OF PERCENTAGE
COMMON COMMON OUTSTANDING OF VOTING
NAME(1) STOCK STOCK CAPITAL STOCK POWER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jonah Shacknai(2) 579,878 252,677 4.35% 14.31%
Mark A. Prygocki, Sr.(3) 31,764 -- * *
Arthur G. Altschul, Jr.(4) 17,173 -- * *
Richard L. Dobson, M.D.(5) 25,789 -- * *
Peter S. Knight, Esq.(6) 15,437 -- * *
Michael A. Pietrangelo(7) 45,776 -- * *
Philip S. Schein, M.D.(8) 9,321 -- * *
Lottie H. Shackelford(9) 22,173 -- * *
All executive officers and directors 746,833 252,677 5.17% 14.98%
as a group (8 persons)(10)
Pilgrim, Baxter and Associates 1,860,819 -- 9.91% 8.62%
1255 Drummer's Lane, Suite 300
Wayne, PA 19087(11)
Putnam Investments 2,495,929 -- 13.29% 11.56%
One Post Office Square
Boston, MA 02109(11)
</TABLE>
- ----------------------------
* Less than 1%.
(1) The address of each beneficial owner is c/o Medicis Pharmaceutical
Corporation, 4343 East Camelback Road, Suite 250, Phoenix, Arizona
85018-2700.
(2) Includes: 358,796 shares of Class A Common Stock subject to options
granted pursuant to the Plans which were exercisable as of September 14,
1998, or which become exercisable within 60 days thereafter (November 13,
1998).
(3) Includes 31,464 shares of Class A Common Stock subject to options granted
pursuant to the Plans which were exercisable as of September 14, 1998, or
which become exercisable within 60 days thereafter (November 13, 1998).
(4) Includes 17,173 shares of Class A Common Stock subject to options granted
pursuant to the Plans which were exercisable as of September 14, 1998, or
which become exercisable within 60 days thereafter (November 13, 1998).
(5) Includes 21,774 shares of Class A Common Stock subject to options granted
pursuant to the Plans which were exercisable as of September 14, 1998, or
which become exercisable within 60 days thereafter (November 13, 1998).
Does not include 159 shares of Class A Common Stock owned by Dr. Dobson's
spouse, as to which shares Dr. Dobson disclaims beneficial ownership.
(6) Includes 12,000 shares of Class A Common Stock subject to options granted
pursuant to the Plans which were exercisable as of September 14, 1998, or
which become exercisable within 60 days thereafter (November 13, 1998).
(7) Includes 19,764 shares of Class A common Stock subject to options granted
pursuant to the Plans which were exercisable as of September 14, 1998, or
which become exercisable within 60 days thereafter (November 13, 1998).
(8) Includes 9,321 shares of Class A Common Stock subject to options granted
pursuant to the Plans which were exercisable as of September 14, 1998, or
which become exercisable within 60 days thereafter (November 13, 1998).
(9) Includes 22,173 shares of Class A Common Stock subject to options granted
pursuant to the Plans which were exercisable as of September 14, 1998, or
which become exercisable within 60 days thereafter (November 13, 1998).
(10) Includes an aggregate of 492,465 shares of Class A Common Stock subject to
options granted pursuant to the Plans which were exercisable as of
September 14, 1998, or which become exercisable within 60 days thereafter
(November 13, 1998), held by eight executive officers and directors.
(11) Based on Schedule 13G filed with the SEC.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the annual compensation and long-term
compensation for each of the three most recent fiscal years for the Company's
Chief Executive Officer and the one other executive officer whose salary and
bonus for the most recent fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------------
--------------------- OTHER ANNUAL NUMBER OF LTIP
NAME AND POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jonah Shacknai 1998 437,000 400,000 -- 100,000
Chairman of the Board 1997 412,000 320,000 -- 78,751
and Chief Executive 1996 310,000 240,000 -- 171,431(1)
Officer
Mark A. Prygocki, Sr 1998 150,000 150,000 -- 30,000
Chief Financial Officer, 1997 130,400 80,000 -- 22,500
Treasurer and Secretary 1996 94,600 50,000 -- 19,286(2)
</TABLE>
(1) Includes repriced options approved by the Stock Option and Compensation
Committee of the Board of Directors upon an independent recommendation and
in accordance with the Plans and previously issued to Mr. Shacknai for the
purchase of 208,929 shares of Class A Common Stock. Such options were
repriced to the closing market price of the Class A Common Stock on
September 30, 1995.
(2) Includes repriced options approved by the Stock Option and Compensation
Committee of the Board of Directors upon an independent recommendation and
in accordance with the Plans and previously issued to Mr. Prygocki for the
purchase of 18,483 shares of Class A Common Stock. Such options were
repriced to the closing market price of the Class A Common Stock on
September 30, 1995.
The Company has no defined benefit or defined contribution
retirement plans other than the Medicis Pharmaceutical Corporation 401(k)
Employee Savings Plan (the "401(k) Plan") established under Section 401(k) of
the Internal Revenue Code of 1986, as amended (the "Code"). Contributions to the
401(k) Plan are voluntary and all employees are eligible to participate. While
the 401(k) Plan provides for the ability of the Company to match certain
employee contributions, the Company has not made any matching contributions.
STOCK OPTIONS
The Plans provide for the grant to key employees and key consultants
of the Company options which qualify as incentive stock options under the Code
and non-qualified stock options. The Plans are administered by the Stock Option
and Compensation Committee appointed by the Board. The following table sets
forth certain information for the Company's last fiscal year with respect to
options to purchase shares of Class A Common Stock granted to certain executive
officers pursuant to the Plans:
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
PERCENTAGE OF ASSUMED ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION --------------------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE ($/SH) DATE 0%($) 5%($) 10%($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jonah Shacknai NQ 100,000 16.0% 43.25 7/8/07 -- 2,719,969 6,892,936
Mark A. Prygocki, Sr. ISO 3,440 0.6% 43.25 7/8/07 -- 93,567 237,119
NQ 26,560 4.2% 43.25 7/8/07 722,424 1,830,781
------- -----
30,000 4.8%
======= =====
</TABLE>
(1) Of Mr. Shacknai's non-qualified options noted above, 33,333 vested on July
8, 1998; 33,333 vest on July 8, 1999; and 33,334 vest on July 8, 2000. Of
Mr. Prygocki's ISO's noted above, 210 vested on July 8, 1998; 210 vest on
July 8, 1999; 290 vest on July 8, 2000; 420 vest on July 8, 2001; and
2,310 vest on July 8, 2002. Of Mr. Prygocki's non-qualified options noted
above, 5,790 vested on July 8, 1998; 5,790 vest on July 8, 1999; 5,710
vest on July 8, 2000; 5,580 vest on July 8, 2001; and 3,690 vest on July
8, 2002.
(2) The potential realizable value portion of the foregoing table illustrates
amounts that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming the specified compounded
rates of appreciation on the Class A Common Stock, over the scheduled life
of the options. This schedule does not take into account provisions of
certain options providing for termination of the option following
termination of employment, nontransferability or vesting schedules. The
dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if
any, of the Company's stock price. The column indicating 0% appreciation
is included to reflect the fact that a zero percent gain in stock price
appreciation from the market price of the Class A Common Stock on the date
of grant will result in zero dollars for the optionee. No gain to the
optionees is possible without an increase in stock price, which will
benefit all stockholders commensurately. Dollar amounts shown are not
discounted to present value.
--------------------------------------
The following table sets forth the number and value of unexercised
options held by the named individuals as of the end of the Company's last fiscal
year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
NUMBER OF VALUE OPTIONS AT FISCAL YEAR END AT FISCAL YEAR-END ($)
SHARES ACQUIRED REALIZED ---------------------------- ----------------------------
NAME ON EXERCISE(1) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jonah Shacknai 0 0 284,435 201,139 9,353,497 2,464,065
Mark A. Prygocki, Sr. 16,000 767,395 16,945 58,128 500,433 675,900
</TABLE>
(1) The Company does not grant stock appreciation rights.
During the last fiscal year, 133 employees of the Company and six
non-employee directors of the Company were granted options to purchase an
aggregate of 651,728 shares of Common Stock under the Plans. As of June 30,
1998, 111 employees and all directors of the Company were participants in the
Plans. During the last fiscal year, an aggregate of 708,122 options to purchase
shares of Class A Common Stock had been granted to a total of 153 optionees
under the Plans and were outstanding, 27,000 of which had been granted to
non-employee directors as annual grants in accordance with the Plans. Certain of
such options are vested and others vest at various times through June 22, 2003.
Qualified and non-qualified stock options vest over a period determined at the
time the options are granted, ranging from 1 year to 5 years. The options are
generally granted at the fair market value on the date of the grant and are
exercisable at prices ranging from $1.55 to $54.00 per share.
--------------------------------------
7
<PAGE>
STOCK OPTION AND COMPENSATION COMMITTEE REPORT
The Stock Option and Compensation Committee (the "Committee") is
responsible for the oversight of the compensation of the Company's officers and
administration of the Plans. Compensation of the Company's executive officers is
composed of salary, stock options and, in some cases, cash bonuses. Jonah
Shacknai, Chairman and Chief Executive Officer of the Company, recommends the
annual salary and any cash bonus for each executive officer other than himself.
Currently, the Company has only one other executive officer, Mr. Prygocki, the
Company's Chief Financial Officer, Treasurer, and Secretary. In the case of an
increase in salary or a substantial bonus to an executive officer, Mr. Shacknai
makes a recommendation to the Committee to approve such increase. Mr. Shacknai
and the Committee apply the largely subjective and non-quantitative criteria
discussed below in evaluating compensation and have not assigned any particular
numerical weight to these factors. The salary of an executive officer is
determined based on the significance of the position to the Company, individual
experience, talents and expertise, individual performance as it relates to
effort and achievement of or progress toward particular objectives for the
executive officer and to the Company's immediate and long-term goals and
information gathered informally as to comparable companies in the same
geographic location as the Company. Due to the Company's phase of growth and
development, in addition to the Company's goal of increasing profitability,
other elements of the Company's performance that are used in fixing executive
compensation levels are increases in revenues, new product introductions,
progress in research, raising new capital, strategic alliances, customer service
values, and cost-effective operation as the personal commitment to the ideals
and mission of the Company. The Committee believes the compensation of the
Company's executive officers is generally in the middle section of the range of
compensation data obtained when the Company informally gathered data as to
comparable companies. However, this belief should be considered in light of the
facts that (i) the data gathered were not gathered with a statistically reliable
methodology, and (ii) the elements of compensation of such comparable companies
are not necessarily directly comparable to those of the Company.
Although the Company does not have a formal bonus plan for its
executive officers, the Company, from time to time, awards cash bonuses to
certain executive officers after fiscal year end. The amount awarded to a
particular executive officer is based on the Company's overall performance as
described above, individual performance, the particular executive officer's base
salary level, and overall equity and fairness.
Stock options granted by the Company to its executive officers are
intended to link the interests and risks of the executive officers with those of
the stockholders. Stock options will provide value to the optionee only when the
price of the Company's stock increases. The Committee generally grants stock
options to executive officers with respect to each fiscal year after the close
of the fiscal year. The Committee bases its decisions on Company performance and
individual performance as discussed above, base salary and bonus levels, the
amount of prior option grants, length of service, and overall equity and
fairness.
For Fiscal 1998, Jonah Shacknai, Chairman of the Board and Chief
Executive Officer, received an annual salary of $437,000, was paid a bonus of
$400,000, and was granted options to purchase 100,000 shares of Class A Common
Stock (at an exercise price of $43.25 per share). The Committee made these
decisions based upon a subjective analysis of his contributions to the Company's
improved performance in the most recent fiscal year, particularly in regard to
the formation of a collaboration with Abbott Laboratories, the acquiring of all
the Common Stock of GenDerm Corporation, the successful completion of the
Company public offering in excess of $200 million, achieving continued growth in
sales and profitability for the Company, the launch of the Company's Lustra
product, the attainment of market leadership of the Company's TRIAZ(R) products,
and controlling expenses and improving the ratio oF current assets to current
liabilities. The Committee did not assign any particular numerical weight to any
of these matters.
August 10, 1998 Stock Option and Compensation Committee
Michael A. Pietrangelo, Chairman
Peter S. Knight, Esq.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No Compensation Committee interlocks were present at June 30, 1998.
EMPLOYMENT AGREEMENT
In July 1996, the Company entered into an employment agreement (the
"Employment Agreement") with Mr. Shacknai, effective July 1, 1996, to continue
to serve as Chairman and Chief Executive Officer of the Company. The Employment
Agreement expires on June 30, 2001, and automatically renews for successive
periods of five years, unless either party gives timely notice of an intention
not to renew. Mr. Shacknai also may terminate the Employment Agreement prior to
the end of the term. Under the Employment Agreement, Mr. Shacknai agreed that,
during his employment by the Company and for a period of one year following
termination for reasons other than a change in ownership or control of the
Company, he will not engage in, consult with or be employed by any Competing
Business (as defined in the Employment Agreement). The Employment Agreement
contains customary non-solicitation provisions and provides for the transfer to
the Company of any intellectual property relating to the business of the
Company.
Under the Employment Agreement, Mr. Shacknai receives an annual base
salary of $400,000, effective July 1996, plus certain benefits and an annual
grant of options to purchase shares of Common Stock representing a minimum
specified percentage of the fully diluted capitalization of the Company. Mr.
Shacknai is also eligible for annual cash bonuses and increases in his base
compensation.
The Employment Agreement provides that, if Mr. Shacknai's employment
is terminated as a result of a change in control of the Company, the Company is
obligated to pay Mr. Shacknai a lump sum amount equal to four times the sum of
(i) his base salary at the highest rate in effect during the proceeding 12
months and (ii) the average annual bonus, if any, paid during the proceeding
three years. If Mr. Shacknai's employment is terminated without cause or by his
Resignation for Good Reason (as defined in the Employment Agreement) the Company
is obligated to pay him a lump sum equal to the sum of (i) the amount he would
have collected in salary for the unexpired term of the Employment Agreement,
were he paid at the highest salary rate in effect for the 12 months preceding
his termination and (ii) his average annual bonus for the preceding three years
multiplied by the number of years remaining in the Employment Agreement. In no
event, however, will Mr. Shacknai's severance payment for termination without
cause be less than twice the sum of (i) his highest effective salary and (ii)
the average annual bonus for the preceding three years, plus 1/24 of such lump
sum for each full year of Mr. Shacknai's service with the Company. If Mr.
Shacknai's employment is terminated by his death, the Employment Agreement
provides that the Company will continue to pay his salary, at the then-current
rate, to his estate for 12 months. If Mr. Shacknai is terminated pursuant to his
Disability (as defined in the Employment Agreement), the Employment Agreement
provides that the Company will pay him 100% of his base salary for twelve
months, and 50% of that base salary for the remainder of the term of the
Employment Agreement, but in no event for less than an additional 12 months of
his base salary. Finally, the Employment Agreement provides that, if it is not
renewed by the Company for at least three years after its initial expiration,
the Company must pay Mr. Shacknai a lump sum equal to twice the sum of (i) his
annual base salary at the highest rate in effect during his last 12 months of
employment with the Company and (ii) the annual average of bonus payments made
to him over the preceding three years, plus 1/24 of such lump sum for each full
year of Mr. Shacknai's service with the Company.
Upon the termination of Mr. Shacknai's employment, all options
previously granted to him will automatically vest, and will remain exercisable
for the full terms thereof. After termination, Mr. Shacknai will also receive
the employee benefits he was eligible to participate in for four years unless
the Employment Agreement is not renewed, in which event Mr. Shacknai will
receive such employee benefits for two years. Under certain circumstances, the
Employment Agreement may require the Company to make payments that would
constitute excess parachute payments under the Internal Revenue Code of 1986, as
amended. In the event that the Company were required to make payments
constituting excess parachute payments, payments to Mr. Shacknai would not be
deductible by the Company for tax purposes, and Mr. Shacknai would be required
to pay an excise tax.
The Company currently has no employment agreements with other
employees.
9
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STOCK PRICE PERFORMANCE
The graph set forth below provides a comparison of the cumulative
total stockholder return for the Company, the NASDAQ Stock Market (U.S.
Companies) Total Return Index, and the NASDAQ Pharmaceutical Stocks Total Return
Index for the period commencing June 30, 1993, the date the Company completed
its initial public offering, through June 30, 1998. The NASDAQ Stock Market
Total Return Index comprises all domestic common shares traded on the NASDAQ
National Market System and the NASDAQ Small-Cap MarketSM. The NASDAQ
Pharmaceutical Stocks Index represents all companies, including biotechnology
companies, trading on NASDAQ classified under the Standard Industrial
Classification Code for pharmaceuticals. The Company began trading on the New
York Stock Exchange on September 24, 1998, under the ticker symbol MRX.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH (1)
[PLOT POINTS CHART]
(1) The lines represent monthly index levels derived from compounded daily
returns that include all dividends. The indexes are reweighted daily,
using the market capitalization on the previous trading day. If the end of
the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used. The index level for all series was set
to 100.0 on June 30, 1993.
--------------------------------------
PROPOSAL 2: ADOPTION OF THE MEDICIS PHARMACEUTICAL
CORPORATION 1998 STOCK OPTION PLAN
The Board has adopted in 1998, subject to stockholder approval, the
Medicis Pharmaceutical Corporation 1998 Stock Option Plan (the "1998 Plan"). The
1998 Plan provides for the reservation of 3,000,000 shares of Class A Common
Stock for issuance pursuant to incentive stock options or non-qualified options.
The Board believes that approval of the adoption of the 1998 Plan is in the best
interest of the Company and its stockholders in order to permit the grant of
additional options to key employees and key consultants and to continue to
provide non-employee directors with incentives to contribute to the success of
the Company.
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The 1998 Plan also provides for an automatic annual grant of
non-qualified stock options to purchase 10,000 shares of the Company's Class A
Common Stock to each of the Company's Outside Directors (i.e., those who are not
employed by the Company) on the last business day of September of each year
during the term of the Plan, beginning in September 1999. This automatic grant
is in lieu of any further grants after September 1998 under any of the Company's
previous stock plans. Currently, outside directors are granted options to
purchase 4,500 shares on the last business day of each September.
The last reported sale price of the Company's Class A Common Stock
on the New York Stock Exchange on October 6, 1998, was $40.44 per share.
The principal provisions of the 1998 Plan are summarized below. Such
summary is qualified in its entirety by reference to the terms of the 1998 Plan,
which appears in Appendix 1.
GENERAL DESCRIPTION OF THE 1998 STOCK OPTION PLAN
(a) SHARES SUBJECT TO OPTIONS. 3,000,000 shares of Class A Common
Stock subject to incentive stock options or to non-qualified stock options are
reserved in connection with the 1998 Plan from authorized but unissued shares of
Class A Common Stock. Shares of Class A Common Stock subject to an option which
remain unexercised at the time of cancellation, expiration or exchange of such
option become available for use under the 1998 Plan. Shares of Class A Common
Stock which remain after the surrender of an option are not further available.
(b) EFFECTIVE DATE. October 1, 1998, subject to stockholder
approval.
(c) COMMITTEE. The 1998 Plan provides for administration by a
Committee appointed by the Board consisting solely of not less than two (2)
"Non-Employee Directors," as that term is defined in SEC Rule 16b-3(3)(i), or
such other persons as may, from time to time, be required or authorized by such
rule or any successor rules. From time to time, the Committee may appoint a
separate committee (the "Designated Committee") consisting of at least one
Director and one other executive officer of the Company to implement grants of
options to the Company's key individuals and consultants who are not subject to
Section 16 of the Securities and Exchange Act of 1934 ("Section 16 Reporting
Persons"). It is anticipated that the Committee will appoint the Chairman and
Chief Executive Officer of the Company, Jonah Shacknai, and the Chief Financial
Officer of the Company, Mark A. Prygocki, Sr., to serve on such Designated
Committee, which will have the authority to grant stock options subject to the
continuing supervision of the Committee to key individuals and consultants who
are not Section 16 Reporting Persons, but in no circumstance may such
individuals grant options to themselves unless and until the Committee shall
take further action. The Designated Committee may not grant to a single key
individual options for more than 10,000 shares in any one calendar year.
(d) ELIGIBILITY. Only key employees and key consultants of the
Company and its subsidiaries and Outside Directors of the Company are eligible
for the grant of options under the 1998 Plan. Key consultants includes any
Outside Director who has a material written employment agreement with the
Company which has been approved by the Board.
(e) GRANT OF OPTIONS. The grant of options to key employees and key
consultants is in the sole discretion of the Committee and must be evidenced by
an option certificate. To the extent the fair market value of incentive stock
options granted under the 1998 Plan, the Plans or any other plan of the Company
that first become exercisable in a calendar year exceeds $100,000, such options
would be treated as non-qualified options. On the last business day of September
of each year, each then Outside Director is automatically granted a
non-qualified option to purchase 10,000 shares of Class A Common Stock. If an
Outside Director is first elected a director before or after, but not on, the
last business day of September, upon such election, such Outside Director shall
be automatically granted a non-qualified option to purchase 834 shares of Class
A Common Stock for each full month remaining until the last day in September
following the date of the Outside Directors election. The automatic grants to
Outside Directors beginning in September 1999 will be in lieu of any further
grants to Outside Directors under any prior Company Stock Plan.
(f) OPTION PRICE. The price per share of Class A Common Stock
payable upon exercise of an option may not be less than the fair market value of
a share of Class A Common Stock on the date such option is granted or, in
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the case of a ten percent stockholder granted an incentive stock option, the
fifth anniversary of the date granted. The price per share of Class A Common
Stock payable upon exercise of an option granted to a ten percent stockholder
may not be less than 110% of the fair market value of a share of Class A Common
Stock on the date such option is granted. The price payable upon exercise of an
option is payable in full upon exercise and, in its discretion, the Board can
provide for payment in cash or in stock.
(g) EXERCISE PERIOD. The option certificate must set forth the
exercise provisions applicable to the options related thereto, but in no case
can the option certificate make an option exercisable before the date of grant
or make it exercisable on a date after the tenth anniversary of the date of
grant or, in the case of an incentive stock option granted to a ten percent
stockholder, the fifth anniversary of the date of grant. The option certificate
may provide for exercise upon termination, death or disability. In connection
with the termination of employment and in the case of change in control by the
Company or any subsidiary of any holder of an option, the Committee may, in its
discretion, accelerate the date at which all or any part of an option first
becomes exercisable or extend the period (but not in excess of ten years after
the date of grant) during which all or any part of an option may be exercised.
(h) TRANSFERABILITY. Options will be granted subject to restrictions
on transfer, if any, that the Committee deems appropriate in order to qualify
the grants for desired treatment under prevailing tax and other laws. The
Committee will have the authority to remove transfer restrictions upon request
of an option holder.
(i) SECURITIES REGISTRATION. The 1998 Plan contains several
provisions requiring compliance with certain provisions of the 1933 Act and the
Securities Exchange Act of 1934, as amended (the "1934 Act"). If the
stockholders approve the 1998 Plan, promptly following the Meeting, the Company
expects to file a registration statement with the SEC for the grant of the
options and issuance of the shares of Class A Common Stock issuable upon
exercise of options granted under the 1998 Plan.
(j) LIFE OF PLAN. Options may be granted under the 1998 Plan until
the earlier of September 30, 2008, or such date as all the stock reserved for
the exercise of options has been issued or is no longer available.
(k) ADJUSTMENT. The number of shares reserved is to be equitably
adjusted to reflect a change in capitalization of the Company, including but not
limited to a stock split or stock dividend.
(l) SALE OR MERGER OF THE CORPORATION. If the Company agrees to sell
all or substantially all of its assets, to merge, consolidate or reorganize the
Company or to engage in another corporate transaction which does not provide for
the assumption or substitution of options granted under the 1998 Plan, each
then-outstanding option may be canceled at the discretion of the Board in
exchange for the same consideration the option holder would have received if the
option had been exercised in full on such date.
(m) AMENDMENT OR TERMINATION. The 1998 Plan can be amended by the
Board, in its discretion, except that the following amendments will require
stockholder approval: amendments to (i) increase the number of shares issuable
under the Plan; (ii) extend the life of the 1998 Plan; (iii) decrease the
minimum option price; (iv) change the class of persons eligible for options; or
(v) to otherwise materially increase the benefits of the 1998 Plan to Plan
participants (if such approval is legally required). The Board may suspend or
terminate the 1998 Plan; however, it may not cancel options granted before the
suspension or termination or, so as to adversely affect the option holder,
modify or amend options granted before the suspension or termination. The 1998
Plan also provides that the Board may amend the 1998 Plan without stockholder
approval in order that the 1998 Plan be in compliance with the conditions of
Rule 16b-3 of the 1934 Act, as such rule may from time to time be amended. Rule
16b-3 of the 1934 Act provides that certain transactions by officers or
directors pursuant to employee stock and option plans which comply with Rule
16b-3 are exempt from the "short swing profit" provisions of Section 16(b) of
the 1934 Act.
(n) CHANGE IN CONTROL VESTING. In the event of a "Change in Control"
of the Company, the 1998 Plan provides for an acceleration in vesting of all
options previously granted under the 1998 Plan, which could have the effect of
delaying, deterring or preventing a Change in Control, including, without
limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Company's Common Stock or limit the
price investors may be willing to pay for shares of Common Stock.
12
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(o) MISCELLANEOUS. Option holders do not have stockholder rights.
The grant of options is not a contract of employment. The 1998 Plan is to be
construed under the laws of Arizona.
NEW PLAN BENEFITS
Other than stock option grants to Outside Directors as described
above and except as noted below, the benefits or amounts that will be received
or allocated in the future under the 1998 Plan are not determinable.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the U.S. federal income tax
consequences under current tax law (without regard to any proposed changes,
which may be retroactive in effect) with respect to incentive stock options and
non-qualified stock options granted to U.S. employees, consultants and directors
under the Plans. For this purpose, it is assumed that the shares acquired
pursuant to the exercise of an option are held by the optionee as a capital
asset. Certain other rules not discussed here apply to the use of previously
acquired shares of Class A Common Stock in payment of the option exercise price.
INCENTIVE STOCK OPTIONS
In general, no taxable income will be recognized by an optionee upon
the grant or exercise of an incentive stock option. The optionee's tax basis in
the shares received on the exercise of such an option will be equal to the
option price paid by the optionee for such shares.
If the stock received upon exercise of an incentive stock option is
held more than one year after the date of transfer of such shares to the
optionee and more than two years from the date of grant of the option, any gain
or loss recognized by the optionee on the subsequent sale of the stock will be a
long-term capital gain or loss, as the case may be. If the shares received upon
the exercise of an incentive stock option are disposed of prior to the end of
such holding periods, an amount equal to the excess (if any) of (a) the lower of
the disposition price or the fair market value of such shares on the date of
exercise of the incentive stock option, over (b) the optionee's tax basis in
such shares will be treated as ordinary income, and any further gain will be a
short-term or long-term capital gain depending upon the period the shares were
held. Any loss on the disposition of such shares will be a short-term or
long-term capital loss depending upon the period the shares were held.
NON-QUALIFIED OPTIONS
No taxable income will be recognized by an optionee upon the grant
of a non-qualified stock option. Upon the exercise of the option, the excess of
the fair market value of the shares at the time of such exercise over the
exercise price will be treated as compensation. Any amounts treated as
compensation (i) will be taxable as ordinary income to the optionee and (ii)
generally will be allowed as an income tax deduction to the Company. The
optionee's tax basis for shares acquired upon exercise of the option will be
increased by any amounts so treated as compensation.
Any gain or loss realized by an optionee on the subsequent sale of
shares acquired upon the exercise of a non-qualified stock option will be
short-term or long-term capital gain depending on the period the shares were
held.
CANCELLATION OR SURRENDER
Consideration received by an optionee upon the surrender to, or
cancellation by, the Company of either an incentive or non-qualified stock
option will be taxable as ordinary income to the optionee and generally allowed
as an income tax deduction to the Company.
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ALTERNATIVE MINIMUM TAX
In addition to the federal income tax consequences described above,
an optionee may also be subject to the federal alternative minimum tax. In
general, upon the exercise of any incentive stock option an amount equal to the
excess of the fair market value of the shares acquired on the exercise date over
the exercise price will be treated as an item of adjustment for purposes of the
alternative minimum tax. If, however, the shares are disposed of in the same
taxable year in which the exercise occurs, the maximum amount that will be
treated as an item of adjustment will be an amount equal to the excess of the
amount received upon such disposition over the exercise price.
TAXATION UPON TRANSFER
If the Committee elects to permit the transfer of any option granted
under the Plan before such option has been exercised, under most circumstances,
the original grantee of the option will be required to recognize compensation
income equal to the difference between the option purchase price and the market
value of the Company's Common Stock at the time of exercise.
REQUIRED VOTE
The proposal to approve the adoption of the 1998 Plan requires the
affirmative vote of a majority of the voting power of the Capital Stock present
at the meeting in person or by proxy.
BOARD RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2 TO APPROVE THE
ADOPTION OF THE 1998 PLAN.
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board has chosen to reappoint Ernst & Young LLP, independent
auditors, to audit the accounts of the Company and its subsidiaries for the
fiscal year ending June 30, 1999. The Company has been advised by Ernst & Young
LLP that no member of that firm to the best of its knowledge and belief has any
direct or any material indirect financial interest in the Company or its
subsidiaries, nor during the past three fiscal years has any member of the firm
had any connection with the Company or its subsidiaries in the capacity of
promoter, underwriter, voting trustee, director, officer or employee. A
representative of Ernst & Young LLP is expected to be present at the Meeting,
will have an opportunity to make a statement should he or she desire to do so,
and is expected to be available to respond to appropriate questions.
REQUIRED VOTE
The proposal to ratify the appointment of Ernst & Young LLP as the
Company's independent auditors requires an affirmative vote of a majority of the
voting power of the Capital Stock present at the meeting in person or
represented by proxy. Notwithstanding ratification of the appointment of Ernst &
Young LLP as the Company's auditors for the fiscal year ending June 30, 1999,
the Board of Directors may select other auditors for such year without any vote
of the stockholders. If the stockholders do not ratify such appointment, the
matter of the appointment of independent auditors will be considered by the
Board.
BOARD RECOMMENDATION
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 3 TO RATIFY THE
APPOINTMENT OF ERNST & YOUNG LLP AS AUDITORS.
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OTHER MATTERS
STOCKHOLDER PROPOSALS
Any stockholder proposal that is intended to be presented at the 1999
Annual Meeting of Stockholders and included in the Company's Proxy Statement and
Proxy relating to that meeting, must be received at the Company's principal
offices no later than June 17, 1999.
In order for a stockholder to bring other business before a stockholder
meeting, timely notice must be received by the Company at its principal offices
no later than August 24, 1999. Such notice must include a description of the
proposed business, the reasons therefore, and other specified matters. These
requirements are separate from and in addition to the requirements a stockholder
must meet to have a proposal included in the Company's proxy statement. The time
limit also applies in determining whether notice is timely for purposes of rules
adopted by the Securities and Exchange Commission relating to exercise of the
discretionary voting authority.
ANNUAL REPORT
The Annual Report of the Company for Fiscal 1998 is being mailed to
stockholders together with this Proxy Statement.
SECTION 16(a) - BENEFICIAL REPORTING COMPLIANCE
Based solely on a review of reports submitted to the Company, the
Company believes that the following director failed to file on a timely basis
with the Securities and Exchange Commission reports of beneficial ownership of
the Company's securities required by Section 16(a) of the Securities Exchange
Act of 1934 during the most recent fiscal year: Lottie Shackelford was late in
filing a Form 5 relating to an annual grant of options under the Company's 1996
Stock Option Plan.
OTHER MATTERS
The Board does not know of any other matters that are to be presented
for action at the Meeting. Should any other matters come before the Meeting or
any adjournments thereof, the persons named in the enclosed proxy will have the
discretionary authority to vote all proxies received with regard to such matters
in accordance with their respective judgments.
MEDICIS PHARMACEUTICAL CORPORATION
/s/ Mark A. Prygocki, Sr.
Mark A. Prygocki, Sr.
Chief Financial Officer,
Treasurer and Secretary
October 9, 1998
STOCKHOLDERS ARE URGED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN
THE ENCLOSED ENVELOPE.
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APPENDIX 1
MEDICIS PHARMACEUTICAL CORPORATION
1998 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
Section 1. PURPOSE..........................................................1
Section 2. DEFINITIONS......................................................1
Section 3. SHARES SUBJECT TO OPTIONS........................................3
Section 4. EFFECTIVE DATE...................................................3
Section 5. COMMITTEE........................................................3
Section 6. ELIGIBILITY......................................................3
Section 7. GRANT OF OPTIONS.................................................4
Section 8. OPTION PRICE.....................................................5
Section 9. EXERCISE PERIOD..................................................5
Section 10. TRANSFERABILITY.................................................5
Section 11. SECURITIES REGISTRATION AND RESTRICTIONS........................6
Section 12. LIFE OF PLAN....................................................6
Section 13. ADJUSTMENT......................................................6
Section 14. SALE OR MERGER OF THE COMPANY...................................7
Section 15. AMENDMENT OR TERMINATION........................................7
Section 16. CHANGE OF CONTROL...............................................7
Section 17. MISCELLANEOUS...................................................7
<PAGE>
MEDICIS PHARMACEUTICAL CORPORATION
1998 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of this Plan is to promote the interests of Medicis
Pharmaceutical Corporation (the "Company") by granting Options to purchase Stock
to Key Employees, Outside Directors and Key Consultants in order to (a) attract
and retain Key Employees and Key Consultants; (b) provide an additional
incentive to each Key Employee and Key Consultant to work to increase the value
of the Stock; and (c) provide each such Key Employee, Outside Director and Key
Consultant with a stake in the future of the Company which corresponds to the
stake of each of the Company's stockholders.
SECTION 2. DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set
forth opposite such term for purposes of this Plan and for any Option granted
under this Plan. For purposes of such definitions, the singular shall include
the plural and the plural shall include the singular. Unless otherwise expressly
indicated, all Section references herein shall be construed to mean references
to a particular Section of this Plan.
2.1 BOARD means the Board of Directors of the Company.
2.2 CHANGE OF CONTROL means any of the following:
(i) the acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended from time to time) (the
"Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 15% or more of either (A) the then
outstanding shares of Stock (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Company Voting
Securities"), provided, however, that any acquisition by (x) the Company or any
of its subsidiaries, or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any of its subsidiaries or (y) any corporation
with respect to which, following such acquisition, more than 60% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Company Voting Securities immediately prior
to such acquisition in substantially the same portion as their ownership,
immediately prior to such acquisition of the Outstanding Company Common Stock
and Company Voting Securities, as the case may be, shall not constitute a change
in control of the Company; or
(ii) individuals who, as of July 31, 1998, constitute the
Board of Directors of the Company (the "incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to July 31, 1998, whose election or nomination
for election by the Company's shareholders was approved by a vote of at least a
majority of the directors then comprising the incumbent Board shall be
considered as though such individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act); or
(iii) approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination"), in each
case, with respect to which all or substantially all of the individuals and
entities who were the respective beneficial owners of the Outstanding Company
Common Stock and Company Voting Securities immediately prior to such Business
Combination do not, following such Business Combination, beneficially own,
directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined
<PAGE>
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination in substantially the same proportion as
their ownership immediately prior to such Business Combination or the
Outstanding Company Common Stock and Company Voting Securities, as the case may
be; or
(iv) (A) a complete liquidation or dissolution of the Company
or a (B) sale or other disposition of all or substantially all of the assets of
the Company other than to a corporation with respect to which, following such
sale or disposition, more than 60% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Company Voting Securities immediately prior
to such sale or disposition in substantially the same proportion as their
ownership of the Outstanding Company Common Stock and Company Voting Securities,
as the case may be, immediately prior to such sale or disposition.
2.3 CODE means the Internal Revenue Code of 1986, as amended.
2.4 COMMITTEE means the committee of Non-Employee Directors
appointed by the Board to administer this Plan as contemplated by Section 5.
2.5 COMPANY means Medicis Pharmaceutical Corporation, a Delaware
corporation, and any successor to such corporation.
2.6 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.7 DESIGNATED COMMITTEE means a committee appointed by the
Committee in accordance with Section 5.
2.8 FAIR MARKET VALUE means the closing quoted selling price for
Stock on the relevant date, as reported in the Wall Street Journal or a similar
publication selected by the Committee.
2.9 INSIDER shall mean an employee who is, at the time of an award
made under this Plan, an insider pursuant to Section 16 of the Exchange Act.
2.10 ISO means any option granted under this Plan to purchase Stock
which satisfies the requirements of Section 422 of the Code.
2.11 KEY CONSULTANT means any consultant or independent contractor
of the Company or a Subsidiary (other than a Non-Employee Director) or any such
consultant or contractor who is a Non-Employee Director and who serves as such a
consultant or contractor pursuant to a written agreement with the Company which
has been approved by the Board, in either case who, in the judgment of the
Committee acting in its absolute discretion, is a key to the success of the
Company or a Subsidiary.
2.12 KEY EMPLOYEE means any employee of the Company or a
Subsidiary, who, in the judgment of the Committee acting in its absolute
discretion, is a key to the success of the Company or a Subsidiary.
2.13 NON-EMPLOYEE DIRECTOR means any member of the Board of
Directors of the Company qualified as such under SEC Rule 16b-3(b)(3)(i) under
the Exchange Act, or any successor rule.
2.14 NON-ISO means any option granted under this Plan to purchase
stock which fails to satisfy the requirements of Section 422 of the Code or has
been specifically denominated as a non-ISO by the Committee as of the time the
option is granted.
2.15 OPTION means an ISO or a Non-ISO.
2.16 OPTION CERTIFICATE means the written agreement or instrument
which sets forth the terms of an Option granted to a Key Employee, Key
Consultant or Outside Director under this Plan.
2
<PAGE>
2.17 OPTION PRICE means the price which shall be paid to purchase
one share of stock upon the exercise of an Option granted under this Plan.
2.18 OUTSIDE DIRECTOR means any member of the Board of Directors of
the Company who is not employed by the Company, regardless of whether such
person qualifies as a Non-Employee Director.
2.19 PARENT CORPORATION means any corporation which is a parent
corporation of the Company within the meaning of Section 424(e) of the Code.
2.20 PLAN means this Medicis Pharmaceutical Corporation 1998 Stock
Option Plan, as amended from time to time.
2.21 PRINCIPAL OFFICER means the Chairman of the Board (if the
Chairman of the Board is a payroll employee), the Chief Executive Officer, the
President, any Executive Vice President, any Senior Vice President, any Vice
President and the Treasurer of the Company and any other person who is an
"officer" of the Company as that term is defined in SEC Rule 16a-1(f) under the
Exchange Act or any successor rule thereunder.
2.22 SECURITIES ACT means the Securities Act of 1933, as amended.
2.23 SEC means the Securities Exchange Commission.
2.24 STOCK means the Class A Common Stock, $.014 par value per
share, of the Company.
2.25 SUBSIDIARY means any corporation which is a subsidiary
corporation of the Company within the meaning of Section 424(f) of the Code.
2.26 TEN PERCENT SHAREHOLDER means a person who owns after taking
into account the attribution rules of Section 424(d) of the Code more than ten
percent (10%) of the total combined voting power of all classes of stock of
either the Company, a Subsidiary or a Parent Corporation.
SECTION 3. SHARES SUBJECT TO OPTIONS
There shall be 3,000,000 shares of Stock reserved for issuance in
connection with ISOs and Non-ISOs granted under this Plan. Such shares of Stock
shall be reserved to the extent that the Company deems appropriate from
authorized but unissued shares of Stock and from shares of Stock which have been
reacquired by the Company. Any shares of Stock subject to an Option which remain
after the cancellation, expiration or exchange of such Option for another Option
thereafter shall again become available for use under this Plan.
SECTION 4. EFFECTIVE DATE
The effective date of this Plan shall be October 1, 1998, subject to
approval by the stockholders of the Company acting at a duly called meeting of
such stockholders or acting by unanimous written consent in lieu of a meeting,
provided such stockholder approval occurs within twelve (12) months after the
date the Board approves and adopts this Plan.
SECTION 5. COMMITTEE
This Plan shall be administered by a Committee consisting solely of
not less than two (2) Non-Employee Directors. The Committee acting in its
absolute discretion shall exercise such powers and take such action as expressly
called for under this Plan. Furthermore, the Committee shall have the power to
interpret this Plan and to take such other action in the administration and
operation of this Plan as the Committee deems equitable under the circumstances,
which action shall be binding on the Company, on each affected Key Employee, Key
Consultant or Outside Director and on each other person directly or indirectly
affected by such action. The Committee may appoint a separate committee
comprised of two or more persons, at least one of which is a member of the Board
(and who may also be a Key Employee or a Key Consultant) and the other of whom,
if not a member of the Board, is a Principal Officer of the Company (the
"Designated Committee"), to administer this Plan with respect to Key Employees
who are not Principal
3
<PAGE>
Officers and to Key Consultants, subject to such conditions, restrictions and
limitations as may be imposed by the Committee: including (i) Options to
purchase not more than 700,000 shares of Common Stock may be granted by the
Designated Committee in any one calendar year to all employees of the Company in
the aggregate; and (ii) the Committee shall establish a maximum number of shares
that may be subject to Options granted under the Plan in any one calendar year
to any single Key Employee or Key Consultant by the Designated Committee. The
maximum number of shares that may be subject to Options granted under the Plan
in any one calendar year by the Designated Committee to any single Key Employee
or Key Consultant shall be 10,000 Shares. Any actions duly taken by the
Designated Committee with respect to the grant of Options to Key Employees who
are not Principal Officers and to Key Consultants shall be deemed to have been
taken by the Committee for purposes of the Plan.
SECTION 6. ELIGIBILITY
Only Key Employees, Key Consultants and Non-Employee Directors shall
be eligible for the grant of Options under this Plan. Only Key Employees may be
granted ISOs.
SECTION 7. GRANT OF OPTIONS
7.1 COMMITTEE ACTION. The Committee acting in its absolute
discretion shall grant Options to Key Employees and Key Consultants under this
Plan from time to time to purchase shares of Stock and, further, shall have the
right to grant new Options in exchange for outstanding Options. Options shall be
granted to Non-Employee Directors as provided in Section 7.3 of this Plan. Each
grant of an Option shall be evidenced by an Option Certificate, and each Option
Certificate shall:
(a) specify whether the Option is an ISO or Non-ISO; and
(b) incorporate such other terms and conditions as the
Committee acting in its absolute discretion deems consistent with the terms of
this Plan, including, without limitation, a limitation on the number of shares
subject to the Option which first became exercisable or subject to surrender
during any particular period.
If the Committee grants an ISO and a Non-ISO to a Key Employee on the same date,
the right of the Key Employee to exercise or surrender one such Option shall not
be conditioned on his or her failure to exercise or surrender the other such
Option. In connection with the termination for any reason of employment by or
service to the Company or any Subsidiary of any particular holder of any Option,
the Committee may, in its discretion, determine to modify the number of shares
of Stock as to which such Option first becomes exercisable during any particular
period as provided in the related Option Certificate; provided, however, that
the Committee may not extend any such period with respect to any shares of Stock
subject to such Option.
7.2 $100,000 LIMIT. To the extent that the aggregate Fair Market
Value of the stock with respect to which ISOs and other incentive stock options
satisfying the requirements of Section 422 of the Code granted to a Key Employee
under this Plan and under any other stock option plan adopted by the Company, a
Subsidiary or a Parent Corporation first become exercisable in any calendar year
exceeds $100,000 (based upon the Fair Market Value on the date of the grant),
such Options shall be treated as Non-ISOs.
7.3 GRANTS OF NON-ISOS TO OUTSIDE DIRECTORS. (a) On the last
business day of each September during the term of this Plan each then Outside
Director shall be granted, without any further action on the part of the
Committee, a Non-ISO hereunder to purchase 10,000 shares of Stock at the Fair
Market Value of such Stock on the date of grant. If an Outside Director is first
elected a director before or after, but not on, the last business day of
September, upon such election, such Outside Director shall be automatically
granted a non-qualified option to purchase 834 shares of Class A Common Stock
for each full month remaining until the last business day in September following
the date of the Outside Director's election. Each such Option shall be
exercisable in whole or in part one year after the date of grant, provided that
such Outside Director has continued as an Outside Director for one year (or
until his or her date of death, if earlier), and shall remain exercisable until
the tenth anniversary of the date such Option is granted. The aforementioned
grants of options to Outside Directors shall be in lieu of any and all further
grants of options to Outside Directors after the last business day of September
1998 pursuant to the Medicis Pharmaceutical Corporation 1988 Stock Option Plan,
the Medicis Pharmaceutical Corporation 1990 Stock Option Plan, the Medicis
Pharmaceutical Corporation 1992 Stock Option Plan, the Medicis Pharmaceutical
Corporation 1995 Stock Option Plan, or the Medicis Pharmaceutical
4
<PAGE>
Corporation 1996 Stock Option Plan. In all respects, a Non-ISO grant to an
Outside Director hereunder shall conform to the terms and conditions of a
Non-ISO under this Plan and, except as otherwise permitted with respect to
Outside Directors who are Key Consultants or as otherwise provided in Section
7.4(b), Outside Directors shall only be eligible to receive options under this
Plan as provided in this Section 7.3(a).
SECTION 8. OPTION PRICE
The Option Price for each share of Stock subject to an Option shall
not be less than the Fair Market Value of a share of Stock on the date the
Option is granted or, if the Option is an ISO and the Key Employee is a Ten
Percent Shareholder, the Option Price for each share of Stock subject to such
Option shall not be less than 110% of the Fair Market Value of a share of Stock
on the date the Option is granted. The Option Price shall be payable in full
upon the exercise of any Option, and an Option Certificate at the discretion of
the Committee (except for an Option granted to a Non-Employee Director) may
provide for the payment of the Option Price either in cash or in Stock
acceptable to the Committee or in any combination of cash and Stock acceptable
to the Committee. Any payment made in Stock shall be treated as equal to the
Fair Market Value of such Stock on the date the properly endorsed certificate
for such Stock is delivered to the Committee.
SECTION 9. EXERCISE PERIOD
(a) Each Option granted under this Plan shall be exercisable in
whole or in part at such time or times as set forth in the related Option
Certificate, but no Option Certificate shall provide that:
(1) an Option is exercisable before the date such Option is
granted, or
(2) an Option is exercisable after the date which is the
tenth anniversary of the date such Option is granted.
If an option that is an ISO is granted to a key employee who is a Ten Percent
Shareholder, the Option Certificate shall provide that the Option is not
exercisable after the expiration of five years from the date the Option is
granted. An Option Certificate may provide for the exercise of an Option after
the employment of a Key Employee or service by a Key Consultant has terminated
for any reason whatsoever, including death or disability. In connection with the
termination for any reason of employment by or service to the Company or any
Subsidiary of any particular holder of any Option, the Committee may, in its
discretion, determine to extend the period during which such Option may be
exercised as provided in the related Option Certificate; provided, however, that
no such extension shall permit an Option to be exercised beyond the date
specified in paragraph (b) of this Section or the date applicable to Options
granted to a Ten Percent Shareholder, as the case may be.
(b) Notwithstanding any other provision of this Section, upon a
Change of Control each Option granted under this Plan prior to such Change of
Control (whether prior to or after the amendment of the Plan to include this
provision) shall immediately become exercisable to the full extent of the
original grant and, in the case an Option held by a Key Employee shall remain
exercisable for three months (or such longer period as specified in the
particular Option with regard to all or any shares of Stock covered by such
Option) after any termination of employment of such Key Employee.
SECTION 10. TRANSFERABILITY
The Committee shall impose such restrictions on the transfer of
options granted under the Plan as it may deem advisable, including, without
limitation, restrictions deemed necessary or advisable under applicable federal
securities laws, under the requirements of any stock exchange or market upon
which Stock is then listed in or traded, and under any Blue Sky or state
securities laws applicable to such Stock. Upon request of any person receiving
an award of an Option under the Plan, the Committee may, in its sole and
absolute discretion, determine to remove any such transfer restriction
originally imposed and may, in connection with the removal of such transfer
restriction, impose such conditions (including restrictions on further transfers
of the Option or upon transfers of the Shares upon exercise of the Option) as
the Committee, in its discretion, may deem advisable, including, without
limitation, restrictions deemed by the Committee to be necessary or advisable in
order to comply with applicable federal and state securities laws or the
requirements of any stock exchange or market upon which the Stock is then listed
or traded. Subject to its authority to
5
<PAGE>
impose such conditions on further transfers, the Committee shall authorize the
transfer of Options for bona fide estate planning purposes or for contributions
to qualified charities or charitable trusts. Notwithstanding the foregoing, ISOs
shall be non-transferable other than by will or according to the laws of descent
and distribution.
SECTION 11. SECURITIES REGISTRATION AND RESTRICTIONS
Each Option Certificate shall provide that, upon the receipt of
shares of Stock as a result of the exercise or surrender of an Option, the Key
Employee, Key Consultant or Outside Director shall, if so requested by the
Company, hold such shares of Stock for investment and not with a view toward
resale or distribution to the public and, if so requested by the Company, shall
deliver to the Company a written statement to that effect satisfactory to the
Company. Each Option Certificate shall also provide that, if so requested by the
Company, the Key Employee, Key Consultant or Outside Director shall represent in
writing to the Company that he or she will not sell or offer to sell any such
shares of Stock unless a registration statement shall be in effect with respect
to such Stock under the Securities Act and any applicable state securities law
or unless he or she shall have furnished to the Company an opinion, in form and
substance satisfactory to the Company, of legal counsel acceptable to the
Company, that such registration is not required. Certificates representing the
Stock transferred upon the exercise or surrender of an Option granted under this
Plan may at the discretion of the Company bear a legend to the effect that such
Stock has not been registered under the Securities Act or any applicable state
securities law and that such Stock may not be sold or offered for sale in the
absence of (i) an effective registration statement as to such Stock under the
Securities Act and any applicable state securities law or (ii) an opinion, in
form and substance satisfactory to the Company, of legal counsel acceptable to
the Company, that such registration is not required. Furthermore, the Company
shall have the right to require a Key Employee, Key Consultant or Outside
Director to enter into such stockholder or other related agreements as the
Company deems necessary or appropriate under the circumstances as a condition to
the issuance of any Stock under this Plan to a Key Employee, Key Consultant or
Outside Director.
SECTION 12. LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier
of
(a) the tenth anniversary of the original effective date of
this Plan as determined under Section 4; PROVIDED, HOWEVER, that after such
anniversary date this Plan otherwise shall continue in effect until all
outstanding Options have been exercised in full or no longer are exercisable, or
(b) the date on which all of the Stock reserved under Section
3 of this Plan has, as a result of the exercise of Options granted under this
Plan, been issued or no longer is available for use under this Plan, in which
event this Plan also shall terminate on such date.
SECTION 13. ADJUSTMENT
The number of shares of Stock reserved under Section 3 of this Plan,
the number of shares of Stock to be granted from time to time pursuant to
Section 7.3 of this Plan (if permitted by the exemption in Rule 16b-3 under the
Exchange Act or any successor rule), the number of shares of Stock that may be
granted pursuant to Section 5 of this Plan by the Designated Committee to any
single Key Employee or Key Consultant, and the number of shares of Stock subject
to Options granted under this Plan and the Option Price of such Options shall be
adjusted by the Board in an equitable manner to reflect any change in the
capitalization of the Company, including, but not limited to, such changes as
stock dividends or stock splits. Furthermore, the Board shall have the right to
adjust in a manner which satisfies the requirements of Section 424(a) of the
Code the number of shares of Stock reserved under Section 3 of this Plan and the
number of shares subject to Options granted under this Plan and the Option Price
of such Options in the event of any corporate transaction described in Section
424(a) of the Code that provides for the substitution or assumption of such
Options. If any adjustment under this Section 13 would create a fractional share
of Stock or a right to acquire a fractional share of Stock, such fractional
share shall be disregarded and the number of shares of Stock reserved under this
Plan and the number subject to any Options granted under this Plan shall be the
next lower number of shares of Stock, rounding all fractions downward. An
adjustment made under this Section 13 by the Board shall be conclusive and
binding on all affected persons and, further, shall not constitute an increase
in "the number of shares reserved under Section 3" within the meaning of Section
15(a) of this Plan.
6
<PAGE>
SECTION 14. SALE OR MERGER OF THE COMPANY
If the Company agrees to sell all or substantially all of its assets
for cash or property or for a combination of cash and property or agrees to any
merger, consolidation, reorganization, division or other corporate transaction
in which Stock is converted into another security or into the right to receive
securities or property and such agreement does not provide for the assumption or
substitution of the Options granted under this Plan, each then outstanding
Option at the direction and discretion of the Board may be canceled unilaterally
by the Company as of the effective date of such transaction in exchange for a
payment in cash or Stock, or in a combination of cash and Stock, equal in amount
to the excess of the Fair Market Value on such date of the shares represented by
the cancelled Options over the Option Price for such shares.
SECTION 15. AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the
extent that the Board deems necessary or appropriate; provided, however, that no
such amendment shall be made absent the approval of the stockholders of the
Company (a) to increase the aggregate number of shares reserved under Section 3,
(b) to change the class of persons eligible for Options under Section 6 or (c)
to materially modify the requirements as to eligibility for participation in
this Plan, (d) to otherwise materially increase the benefits accruing under this
Plan to Plan participants if such approval would be required in order for the
Company to comply with applicable law or the rules or regulations of any stock
exchange or market on which the Stock is traded or listed. The Board also may
suspend the granting of Options under this Plan at any time and may terminate
this Plan at any time; PROVIDED, HOWEVER, that the Company shall not have the
right to unilaterally cancel or, in a manner which would materially adversely
affect the holder, amend or modify any Option granted before such suspension or
termination unless (i) the Key Employee, Key Consultant or Outside Director
consents in writing to such modification, amendment or cancellation or (ii)
there is a dissolution or liquidation of the Company or a transaction described
in Section 13 or Section 14 of this Plan.
It is the intention of the Company that the Plan shall comply with
the conditions of Rule 16b-3 of the Exchange Act, as such Rule may from time to
time be amended. The Board shall have the authority, without the approval of the
stockholders, to amend the Plan from time to time to include any conditions,
terms or other provisions which may be required to be set forth in a plan in
order for transactions by directors or officers to be exempt under Rule 16b-3 of
the Exchange Act or any successor exemption.
SECTION 16. CHANGE OF CONTROL
Notwithstanding any other provision of this Section, upon a Change
of Control each Option granted under this Plan prior to such Change of Control
(whether prior to or after the amendment of the Plan to include this provision)
shall immediately become exercisable to the full extent of the original grant
and shall remain exercisable for three months (or such longer period as
specified in the particular Option with regard to all or any shares of Stock
covered by such Option) after (i) any termination of employment of any Key
Employee; or (ii) resignation or removal of any Outside Director from the
Company's Board of Directors.
SECTION 17. MISCELLANEOUS
17.1 NO STOCKHOLDER RIGHTS. No Key Employee, Key Consultant or
Outside Director shall have any rights as a stockholder of the Company as a
result of the grant of an Option to him or to her under this Plan or his or her
exercise or surrender of such Option pending the actual delivery of Stock
subject to such Option to such Key Employee, Key Consultant or Non-Employee
Director.
17.2 NO CONTRACT OF EMPLOYMENT. The grant of an Option to a Key
Employee, Key Consultant or Outside Director under this Plan shall not
constitute a contract of employment or consulting or right to continue to serve
on the Company's Board of Directors and shall not confer on a Key Employee, Key
Consultant or Outside Director any rights upon his or her termination of
employment or service in addition to those rights, if any, expressly set forth
in the Option Certificate which evidences his or her Option.
7
<PAGE>
17.3 WITHHOLDING. The exercise or surrender of any Option granted
under this Plan shall constitute a Key Employee's full and complete consent to
whatever action the Committee elects to satisfy the federal and state tax
withholding requirements, if any, which the Committee in its discretion deems
applicable to such exercise or surrender.
17.4 CONSTRUCTION. This Plan and the Option Certificates shall be
construed under the laws of the State of Arizona.
8
<PAGE>
MEDICIS PHARMACEUTICAL CORPORATION
4343 EAST CAMELBACK ROAD
PHOENIX, ARIZONA 85018 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints Jonah Shacknai and Mark A. Prygocki, Sr., or
either of them, with full power of substitution to each, as attorneys and
proxies to represent the undersigned at the Annual Meeting of Stockholders of
Medicis Pharmaceutical Corporation to be held at The Phoenician, 6000 East
Camelback Road, Scottsdale, Arizona, on the 24th day of November, 1998 at 9:30
a.m. M.S.T. and at any adjournment(s) thereof, and to vote all shares of Common
Stock which the undersigned may be entitled to vote at said meeting as directed
below with respect to the proposals as set forth in the Proxy Statement, and in
their discretion upon any other matters that may properly come before said
meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES ON
THE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS EXCEPT THAT SHARES HELD
IN EMPLOYEE BENEFIT PLANS FOR WHICH A PROXY IS NOT RECEIVED WILL BE VOTED BY
THE TRUSTEE IN THE SAME PROPORTION AS VOTES ACTUALLY CAST BY PLAN PARTICIPANTS.
THE TABULATOR CANNOT VOTE YOUR SHARES UNLESS YOU SIGN, DATE AND RETURN THIS
PROXY CARD.
PLEASE MARK, SIGN AND DATE THE REVERSE SIDE AND
RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
[LOGO]
MEDICIS
PHARMACEUTICAL CORP.
THE DERMATOLOGY COMPANY
UNLESS YOU INDICATE OTHERWISE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
BOARD OF DIRECTORS' RECOMMENDATIONS.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: 01 JONAH SHACKNAI [ ] FOR all nominees listed [ ] WITHHOLD
02 LOTTIE SHACKELFORD (except as marked to the AUTHORITY
03 MICHAEL A. PIETRANGELO contrary below):
</TABLE>
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
the number(s) in the box provided to the right.)
____________________________
| |
|____________________________|
2. APPROVAL OF THE MEDICIS PHARMACEUTICAL CORPORATION 1998 STOCK
OPTION PLAN.
[ ]For [ ] Against [ ] Abstain
3. APPROVAL OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
[ ]For [ ] Against [ ] Abstain
4. TO CONSIDER AND ACT UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
Address Change? Mark Box [ ] I PLAN TO ATTEND THE MEETING. [ ]
Indicate change below.
Dated ____________________________________________
____________________________
| |
|____________________________|
Signature(s) in Box
This Proxy Card must be Signed
Exactly as Name Appears
Thereon. When shares are held
by joint tenants both should
sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
president or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
THE MEDICIS PHARMACEUTICAL CORPORATION
ANNUAL MEETING
THE PHOENICIAN
6000 EAST CAMELBACK ROAD
SCOTTSDALE, ARIZONA 85251
(602) 941-8200
NOVEMBER 24, 1998
9:30 A.M. MOUNTAIN STANDARD TIME
