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))
CHRONIMED INC.
- --------------------------------------------------------------------------------
(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):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which 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>
[LOGO] CHRONIMED INC.
13911 RIDGEDALE DRIVE
MINNETONKA, MINNESOTA 55305
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To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Chronimed Inc., which will be held at the Minneapolis Athletic Club, 615 Second
Avenue South, Minneapolis, Minnesota on Wednesday, December 3, 1997 at 3:30 p.m.
Central Standard Time.
At the Annual Meeting, in addition to the election of six directors and the
appointment of independent auditors, shareholders will be asked to consider and
vote upon proposed amendments to the Company's Articles of Incorporation and
Bylaws. The proposals are fully described in the attached proxy statement which
I urge you to review.
The Board of Directors has determined that the proposals are in the best
interests of Chronimed and its shareholders. Accordingly, the Board of Directors
recommends that shareholders vote in favor of the proposals.
It is important that your shares are represented at the meeting. Whether or not
you plan to attend, please sign and date the enclosed proxy and return it
promptly in the enclosed, postage-paid envelope.
Chronimed has retained D.F. King & Co., Inc., a proxy solicitation firm, to
assist with the solicitation of proxies in connection with the Annual Meeting.
If you require assistance with voting or have any questions regarding the Annual
Meeting, please call D.F. King toll free at (800) 859-8511.
Thank you for your continued interest and support.
Sincerely yours,
/s/ Maurice R. Taylor, II
Maurice R. Taylor, II
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
October 17, 1997
<PAGE>
CHRONIMED INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 3, 1997
TO THE SHAREHOLDERS OF CHRONIMED INC.:
Notice is hereby given to the holders of common shares of Chronimed Inc.
that the Annual Meeting of Shareholders of the Company will be held at the
Minneapolis Athletic Club, 615 Second Avenue South, Minneapolis, Minnesota, on
Wednesday, December 3, 1997, at 3:30 p.m. Central Standard Time, or at any
adjournments thereof, to consider and act upon the following matters:
1. To approve an amendment to the Company's Articles of Incorporation to
increase the authorized shares of capital stock of the Company from 25
million to 45 million shares.
2. To approve amendments to the Company's Articles of Incorporation and
Bylaws to classify the Board of Directors of the Company and modify
the removal requirements for directors.
3. To elect six directors to serve for terms of one to three years.
4. To ratify the appointment of Ernst & Young LLP as independent auditors
for the current fiscal year.
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on October 6, 1997,
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the meeting or any adjournments thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. EVEN IF YOU PLAN TO ATTEND
THE MEETING, WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Norman A. Cocke
Norman A. Cocke
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
October 17, 1997
<PAGE>
CHRONIMED INC.
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 3, 1997
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PROXY STATEMENT
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GENERAL
The Annual Meeting of Shareholders of Chronimed Inc. ("Company") will be
held on Wednesday, December 3, 1997, at 3:30 p.m., Central Standard Time, at the
Minneapolis Athletic Club, 615 Second Avenue South, Minneapolis, Minnesota, for
the purposes set forth in the Notice of Annual Meeting of Shareholders. This
Proxy Statement, accompanying form of proxy, and Chronimed Inc. annual report
are first being mailed to shareholders on or about October 17, 1997.
The only matters the Board of Directors knows will be presented are those
stated in Items 1, 2, 3, 4 and 5 of the notice. THE BOARD OF DIRECTORS
RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF ITEMS 1, 2, 3, 4 AND 5. Should any
other matter properly come before the meeting, it is intended that the persons
named in the enclosed proxy will have authority to vote such proxy in accordance
with their judgment on such matter.
OUTSTANDING SHARES AND VOTING RIGHTS
The enclosed proxy is solicited on behalf of the Board of Directors for use
at the Annual Meeting. Such solicitation is being made by mail and may also be
made by directors, officers, and regular employees of the Company personally or
by telephone. Any proxy given pursuant to such solicitation may be revoked by
the shareholder at any time prior to the voting thereof by so notifying the
Company in writing or by appearing in person at the meeting. Subject to any such
revocation, all shares represented by properly executed proxies that are
received prior to the meeting will be voted in accordance with the directions on
the proxy. If no direction is made, the proxy will be voted (i) FOR an amendment
of the Articles of Incorporation to increase the number of authorized shares of
capital stock from 25 million shares to 45 million shares, (ii) FOR amendments
of the Articles of Incorporation and Bylaws to classify the Board of Directors
of the Company and modify the removal requirements for directors, (iii) FOR the
election of the Board of Directors' nominees named in this Proxy Statement, for
the respective terms described in this Proxy Statement, (iv) FOR ratification of
the appointment of Ernst & Young LLP as the independent auditors of the Company
for the current fiscal year, and (v) in the Proxy's discretion on such other
business as may come before the Annual Meeting. So far as the management of the
Company is aware, no matters other than those described in this Proxy Statement
will be acted upon at the Annual Meeting.
Each shareholder will be entitled to cast one vote in person or by proxy
for each share of Common Stock held by the shareholder. Only shareholders of
record at the close of business on October 6, 1997, will be entitled to vote at
the meeting. Common Stock, $.01 par value per share, of which there were
11,946,508 shares outstanding on the record date, constitutes the only class of
outstanding voting securities issued by the Company. Each share is entitled to
cast one vote on each proposal before the meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether or
not a quorum is present. The election inspectors will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any
<PAGE>
particular matter submitted to the shareholders for a vote. If a broker
indicates on the form of proxy that the broker does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
be considered to be present for the purpose of determining whether a quorum is
present, but will not be considered as present and entitled to vote with respect
to that particular matter.
All of the expenses involved in preparing, assembling, and mailing this
Proxy Statement and the material enclosed herewith will be paid by the Company.
The Company may reimburse banks, brokerage firms, and other custodians,
nominees, and fiduciaries for reasonable expenses incurred by them in sending
proxy material to beneficial owners of stock. The Company has retained the
services of D. F. King & Co., Inc. to assist with the solicitation of proxies at
an anticipated cost of approximately $7,500 plus reimbursement of expenses.
PROPOSAL 1:
AMENDMENT OF ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF STOCK
Under the Company's current Articles of Incorporation, the Company has
authority to issue 20,000,000 shares of Common Stock, par value $.01 per share,
of which 11,946,508 shares were issued and outstanding as of October 6, 1997,
and 5,000,000 shares of Preferred Stock, par value $.01 per share, of which 0
shares were issued and outstanding as of October 6, 1997. Proposal 1 recommends
to the shareholders an amendment to the Company's Articles of Incorporation that
would increase the number of authorized shares of Common Stock from 20,000,000
shares to 40,000,000 shares and thereby increase the number of authorized shares
of capital stock of the Company from 25,000,000 shares to 45,000,000 shares. The
Board of Directors has unanimously approved the amendment contained in Proposal
1.
The Board of Directors considers Proposal 1 to be in the best interests of
the Company and its shareholders. Although the Company currently has no specific
plans to use the additional authorized shares of Common Stock, the proposed
increase will ensure that a sufficient number of shares will be available, if
needed, for issuance in connection with any possible future transactions
approved by the Board of Directors, including, among others, stock splits, stock
dividends, acquisitions, financings and other corporate purposes. The Board of
Directors believes that the availability of the additional shares of Common
Stock for such purposes without delay or the necessity for a special
shareholders' meeting (except as may be required by applicable law or regulatory
authorities or by the rules of any stock exchange on which the Company's
securities may then be listed) will be beneficial to the Company by providing it
with the flexibility required to consider and respond to future business
opportunities and needs as they arise. The availability of additional authorized
shares of Common Stock will also enable the Company to act promptly when the
Board of Directors determines that the issuance of additional shares of Common
Stock is advisable. It is possible that shares of Common Stock may be issued at
a time and under circumstances that may increase or decrease earnings per share
and increase or decrease the book value per share of shares presently held.
The additional Common Stock to be authorized by the adoption of Proposal 1
would have rights identical to the currently outstanding Common Stock of the
Company. The adoption of Proposal 1 and the issuance of Common Stock authorized
thereby would not affect the rights of the holders of currently outstanding
Common Stock of the Company, except for effects incidental to increasing the
number of outstanding shares of the Company's Common Stock. Any future issuance
of Common Stock will be subject to the rights of holders of any outstanding
shares of any Preferred Stock which the Company may issue in the future.
The securities laws require that proxy materials pertaining to an increase
in the number of authorized shares of stock contain a brief description of
provisions in the Articles of Incorporation or Bylaws that would have the effect
of delaying, deferring or preventing a change in control of the Company. A
description of those provisions is included under "Corporate Action Regarding
Takeover Attempts" on page 6 of this Proxy Statement.
<PAGE>
RESOLUTION AND VOTE REQUIRED FOR PROPOSAL 1
The following resolution will be submitted for approval at the meeting:
"RESOLVED, that ARTICLE III of the Articles of Incorporation of
Chronimed Inc., as heretofore amended, be further amended by deleting
the first sentence thereof in its entirety and substituting therefore
the language set forth on Appendix A attached hereto."
The affirmative vote of the holders of a majority of the voting power of
the shares of Common Stock, present or represented at the meeting and entitled
to vote on Proposal 1, is required to approve Proposal 1.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
PROPOSAL 1 TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF STOCK.
PROPOSAL 2:
AMENDMENTS OF ARTICLES OF INCORPORATION AND BYLAWS
TO CLASSIFY THE BOARD OF DIRECTORS AND MODIFY THE
REMOVAL REQUIREMENTS FOR DIRECTORS
The Company's current Articles of Incorporation do not contain provisions
relating to the election, term or removal of directors. Proposal 2 recommends to
the shareholders an amendment to the Company's Articles of Incorporation and
Bylaws that would divide the Board of Directors into classes to allow for
staggered terms of office, with one class of directors elected each year and
each director so elected serving for a term of three years. In addition,
Proposal 2 recommends to the shareholders amendments to the Company's Articles
of Incorporation (as described in Appendix A) and Bylaws (as described in
Appendix B) that would: (i) authorize the Board of Directors to increase or
decrease (to no fewer than four) the size of the Board of Directors (ii)
authorize the Board of Directors to fill vacancies on the Board created by
increases in the number of directors or by death, resignation, retirement,
disqualification, or removal of a director (whether such removal is by the
shareholders or by the Board of Directors), (iii) authorize the Board of
Directors to remove a director for cause, (iv) authorize the Board of Directors
to remove a director, with or without cause, to the extent permitted by the
Minnesota Business Corporation Act, (v) require the affirmative vote of the
holders of at least 80% of the voting power of the then outstanding shares of
capital stock of the Company entitled to vote to (1) remove a director, with or
without cause, or (2) amend, modify or repeal the above-described provisions of
the Articles of Incorporation and Bylaws pertaining to the classification or
removal of directors, and (vi) make non-substantive changes to the Articles of
Incorporation and Bylaws to conform the number, ordering and content of the
sections of the Articles of Incorporation and Bylaws to the changes described
above. The Board of Directors has unanimously approved the amendments contained
in Proposal 2. The summary of Proposal 2 contained in this Proxy Statement is
qualified by the description of the proposed amendments to the Articles of
Incorporation in Appendix A and the Bylaws in Appendix B.
The Board of Directors believes that Proposal 2 will provide the Board of
Directors a greater opportunity to protect shareholder interests and to assure
continuity in the affairs and business strategies of the Company. Proposal 2 may
have an impact upon the rights of shareholders and may be characterized as an
anti-takeover measure which, if adopted, may tend to insulate management and
make the accomplishment of certain transactions involving a potential change of
control of the Company more difficult. The Board of Directors believes that
Proposal 2 will supplement and strengthen the Company's existing anti-takeover
measures, including the Company's previously adopted Rights Plan and the
"business combination" and "control share acquisition" provisions of the
Minnesota Business Corporation Act, which are described under "Corporate Action
Regarding Takeover Attempts" on page 6 of this Proxy Statement. The Board of
Directors believes that, in certain situations, a third party could acquire a
block of the Company's stock and try to gain control of the Company or attempt
to realize a return on its investment without purchasing the remainder of the
Company's stock through a tender offer or other means of acquisition. Such a
purchaser might attempt to force the Company to accept a merger or restructuring
or accept another proposal by launching a proxy contest to unseat the
<PAGE>
Company's Board of Directors. Following a substantial accumulation of stock of
the Company, a hostile purchaser could seek representation on the Company's
Board of Directors to increase the likelihood that its proposal would be
implemented by the Company. The Board of Directors believes that the threat of
removal from the Board in such a situation could curtail the Board's ability to
negotiate effectively with a potential purchaser and its efforts to have the
time and information necessary to evaluate the merits of such proposal and
attempt to maximize the price obtained in any transaction based on such
proposal. The Board of Directors believes that, if the amendments contained in
Proposal 2 are adopted by the shareholders, a potential hostile purchaser will
be forced to negotiate directly with the Board of Directors, and that the Board
of Directors will be in a better position to negotiate effectively on behalf of
all shareholders in order to realize fair and equitable shareholder value.
Proposal 2, if adopted by the shareholders, will apply to every election of
directors and not only an election of directors occurring after a change in
control of the Company.
The amendments contained in Proposal 2 are not being recommended in
response to any specific effort to which the Company is aware to accumulate the
Company's stock or to obtain control of the Company or its Board of Directors by
means of a solicitation in opposition to management. The Board of Directors has
considered the potential adverse effects of the proposed amendments and has
concluded that such adverse effects are outweighed by the benefits Proposal 2
would afford the Company and its shareholders.
DESCRIPTION AND INTENDED EFFECT OF PROPOSAL 2
CLASSIFICATION OF BOARD OF DIRECTORS. The Minnesota Business Corporation
Act provides that the Articles of Incorporation and/or Bylaws of a corporation
may permit the directors to be divided into classes. Neither the Company's
current Articles of Incorporation nor its current Bylaws contain any provisions
relating to the classification of directors. The amendment contained in Proposal
2 relating to the classification of directors provides for the creation of three
classes of directors with such classes to be as nearly equal in number as
reasonably possible. Upon their initial election, the Class I directors will
hold office for a term expiring at the 1998 Annual Meeting of shareholders, the
Class II directors will hold office for a term expiring at the 1999 Annual
Meeting of shareholders, and the Class III directors will hold office for term
expiring at the 2000 Annual Meeting of shareholders. Commencing with the 1998
Annual Meeting of shareholders, the shareholders will elect only one class of
directors each year, with each director so elected to hold office for a term
expiring at the third annual meeting of shareholders following their election.
The same procedure would be repeated each year, with the result that only
approximately one-third of the whole Board of Directors would be elected each
year.
The purpose of this amendment is to encourage potential acquirers of the
Company to deal directly with the Board of Directors by making it difficult to
replace the entire Board of Directors at any one annual meeting. By staggering
the terms of directors, this amendment prevents any outside group or individual
from gaining control of the Board of Directors at any one election of directors
unless such group or individual obtains the approval of the holders of at least
80% of the voting power of the outstanding shares of capital stock entitled to
vote on a change in the composition of the Board of Directors through an
amendment to the Articles of Incorporation and Bylaws. If such vote is not
obtained, it would take such group or individual at least two elections of
directors to gain control of the Board of Directors. The effect of this two year
period is to discourage any outside group or individual from attempting to gain
control of the Board of Directors and thereby undermining the ability of the
Board to negotiate effectively with such a group or individual.
INCREASE OR DECREASE IN THE NUMBER OF DIRECTORS. The Minnesota Business
Corporation Act provides that the number of directors of a corporation shall be
fixed by or in the manner provided in the corporation's articles of
incorporation or bylaws. The Company's current Articles of Incorporation provide
that the number of directors of the Company shall be four persons or shall be
fixed in the manner provided in the Bylaws of the Company. The Company's current
Bylaws provide that the number of directors shall be fixed from time to time by
resolution of the shareholders, subject to increase by the Board of Directors.
In the event that the shareholders fail to fix a minimum number of directors,
the number of directors shall be the number provided in the Company's Articles
of Incorporation, subject to increase by the Board of Directors.
<PAGE>
The Company's current Articles of Incorporation and Bylaws do not authorize
the directors to decrease the size of the Board of Directors.
The amendment contained in Proposal 2 does not modify the minimum number of
four directors or the Board of Director's continued authority to increase the
number of directors above that minimum. Under Proposal 2, the shareholders could
increase the number of directors only by an amendment to the Articles of
Incorporation and Bylaws approved by the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares of capital stock of
the Company entitled to vote. The amendment would continue to allow the Board of
Directors to increase the number of directors, and would expressly authorize the
Board of Directors to decrease the number of directors to no fewer than four
(but no decrease could result in the removal of a director unless the removal
were authorized in the manner described below). The purpose of this amendment is
to provide flexibility to the directors in determining the optimal size of the
Board of Directors, and to inhibit a third party from increasing the number of
directors with a simple majority vote of the shares entitled to vote and filling
the newly created vacancies in an attempt to gain control of the Board of
Directors.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS. The
Minnesota Business Corporation Act controls the procedures for the removal of
directors and the filling of vacancies on the Board of Directors caused by such
removal or by any other reason, unless those procedures are modified by the
corporation's articles of incorporation or bylaws. The Company's current
Articles of Incorporation do not contain provisions relating to the removal of
directors or the filling of vacancies on the Board of Directors. The Company's
current Bylaws conform to the procedures established by the Minnesota Business
Corporation Act and permit the shareholders to remove a director at any time,
with or without cause, by the affirmative vote of the holders of a majority of
shares entitled to vote at an election of directors. The Bylaws also allow the
Board of Directors to remove a director, with or without cause, but only if such
director was appointed by the Board of Directors and the shareholders have not
elected directors in the time period between the appointment and the removal.
Finally, the current Bylaws allow any vacancy occurring on the Board of
Directors, whether as a result of death, resignation, removal or any other
reason to be filled by the affirmative vote of a majority of directors then
remaining in office, even though less than a quorum, or by a resolution of the
shareholders. A director so elected to fill a vacancy holds office until the
next annual meeting of shareholders and until his or her successor is elected
and qualified.
The amendment contained in Proposal 2 relating to the removal of directors
and the filling of vacancies on the Board of Directors modifies the above
procedures by allowing the shareholders to remove a director at any time, with
or without cause, but only if such removal is approved by the affirmative vote
of the holders of at least 80% of the voting power of the then outstanding
shares of capital stock of the Company entitled to vote on such removal. In
addition, the amendment contained in Proposal 2 leaves intact the Board of
Director's authority to remove a director appointed by the Board to fill a
vacancy, but also grants to the Board of Directors the authority to remove a
director elected by the shareholders but only if such removal is for cause and
is approved by the affirmative vote of a majority of the directors then holding
office. Finally, the amendment contained in Proposal 2 grants to the Board of
Directors the authority to fill any vacancies on the Board, including without
limitations, vacancies caused by a removal approved by the Board of Directors or
shareholders, and designate the class term for which that director would serve.
A director appointed by the Board of Directors to fill a vacancy would hold
office for a term expiring at the next annual meeting of shareholders at which
the term of the class to which such director was appointed would expire (one,
two or up to three years after filling the vacancy), or until his or her
successor is elected and qualified. The purpose of this amendment is to inhibit
a third party from removing incumbent directors with a simple majority vote of
the shares entitled to vote and filling the newly created vacancies in an
attempt to gain control of the Board of Directors.
INCREASE IN THE SHAREHOLDER VOTE REQUIRED FOR AN AMENDMENT, MODIFICATION OR
REPEAL OF AMENDMENTS CONCERNING THE CLASSIFICATION, TERM OR REMOVAL OF
DIRECTORS. The Minnesota Business Corporation Act provides that a corporation's
articles of incorporation may be amended, modified, or repealed by the
affirmative vote of a majority of shareholders entitled to vote on such
amendment, modification or repeal unless the corporation's articles of
incorporation require a larger vote. The
<PAGE>
Company's current Articles of Incorporation do not contain any provisions
relating to the amendment, modification, or repeal of the Articles of
Incorporation. The amendment contained in Proposal 2 provides that the
provisions of the Articles of Incorporation or Bylaws concerning the
classification, term or removal of directors cannot be amended, modified, or
repealed without the affirmative vote of the holders of at least 80% of the
voting power of the then outstanding shares of capital stock of the Company
entitled to vote on such amendment, modification, or repeal. The purpose of this
amendment is to inhibit a third party from eliminating the classified Board or
removing incumbent directors by an amendment to the Articles of Incorporation
obtained with a simple majority vote of the shares entitled to vote and filling
the newly created vacancies in an attempt to gain control of the Board of
Directors.
RESOLUTIONS AND VOTE REQUIRED FOR PROPOSAL 2
The following resolutions will be submitted for approval at the meeting:
"RESOLVED, that the Articles of Incorporation of Chronimed Inc. be
amended to provide for the classification and removal of directors, as
set forth on Appendix A attached hereto.
RESOLVED, that the Bylaws of Chronimed Inc. be amended to provide for
the classification and removal of directors, as set forth on Appendix
B attached hereto."
The affirmative vote of the holders of a majority of the voting power of
the shares of Common Stock, present or represented at the meeting and entitled
to vote on Proposal 2, is required to approve Proposal 2.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
PROPOSAL 2 TO AMEND THE ARTICLES OF INCORPORATION TO CLASSIFY THE BOARD OF
DIRECTORS AND MODIFY THE REMOVAL REQUIREMENTS FOR DIRECTORS.
CORPORATE ACTION REGARDING TAKEOVER ATTEMPTS
As described above, Proposal 2 pertaining to the classification and removal
of directors, would, if approved by the shareholders at the Annual Meeting, have
the effect of deterring or delaying a change in control of the Company. The
following describes the Rights Plan, adopted by the Company in 1996, and the
"business combination" and "control share acquisition" provisions of the
Minnesota Business Corporation Act, which also would have the effect of
deterring or delaying a change in control of the Company.
RIGHTS PLAN
The Company has a shareholder rights plan ("Rights Plan") intended to deter
coercive or unfair takeover tactics and to prevent a potential acquirer from
gaining control of the Company without offering a fair price to all of the
Company's shareholders. The Rights Plan provides a strong incentive for anyone
interested in acquiring the Company to negotiate directly with the Board of
Directors. Under the Rights Plan, adopted in 1996, one right ("Right") has
attached to each share of outstanding Common Stock. Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, par value $.01 (the "Preferred
Shares"), of the Company at a price of $120 per one thousandth of a Preferred
Share (the "Purchase Price"), subject to adjustment.
The Rights will separate from the Common Shares, and a Distribution Date
(as defined below) for the Rights will occur upon the earlier of: (i) the first
date of public announcement that a person or group of affiliated or associated
persons has become an "Acquiring Person" (i.e., has become, subject to certain
exceptions, the beneficial owner of 15% or more of the outstanding Common
Shares) (except pursuant to a Permitted Offer, as defined below) and (ii) the
10th day following the commencement or public announcement of a tender offer or
exchange offer, the consummation of which would result in a person or group of
affiliated or associated persons becoming, subject to certain exceptions, the
beneficial owner of 15% or more of the outstanding Common Shares (or such later
date as may be determined by the Board of Directors of the Company prior to a
person or group of affiliated or associated persons becoming an Acquiring
Person) (the earlier of such dates being called the "Distribution Date"). Until
<PAGE>
the Distribution Date, new Common Share certificates issued after December 31,
1996 upon transfer or new issuance of the Common Shares will contain a notation
incorporating by reference the Rights Plan. The Rights are not exercisable until
the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $.01 per share but will be entitled to an
aggregate dividend of 1,000 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $.01 per share but will be entitled
to an aggregate payment of 1,000 times the payment made per Common Share. Each
Preferred Share will have 1,000 votes, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
1,000 times the amount received per Common Share. These rights are subject to
adjustment in the event of a stock dividend on the Common Shares or a
subdivision, combination or consolidation of the Common Shares.
In the event that the Company is acquired in certain mergers or other
business combination transactions or 50% or more of the assets or earning power
of the Company and its subsidiaries (taken as a whole) are sold after a person
or group becomes an Acquiring Person (except pursuant to a Permitted Offer),
holders of the Rights will thereafter have the Right to receive, upon exercise
thereof at the then current exercise price of the Right, that number of Common
Shares of the acquiring company (or, in certain cases, one of its Affiliates)
having a market value of two times the exercise price of the Right.
A "Permitted Offer" is a tender offer or an exchange offer for all
outstanding Common Shares of the Company at a price and on terms determined by a
majority of the Board of Directors of the Company who are not officers of the
Company and who are not Acquiring Persons or affiliates or associates of an
Acquiring Person and after receiving advice from one or more investment banking
firms, to be (a) fair to shareholders (taking into account all factors which the
Board of Directors deems relevant) and (b) otherwise in the best interests of
the Company and its shareholders, employees, customers, suppliers and creditors
and the communities in which the Company does business, and which the Board of
Directors determines to recommend to the shareholders of the Company.
The Rights will expire on December 18, 2006, unless extended or earlier
redeemed or exchanged by the Company pursuant to the Rights Plan. At any time
before a person has become an Acquiring Person, the Continuing Directors (as
defined in the Rights Plan) may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, subject to adjustment. The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
such Continuing Directors may, in their sole discretion, establish. Until a
Right is exercised, the holder thereof, as such, will have no rights as a
shareholder of the Company, including without limitation, the right to vote or
to receive dividends.
BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITIONS
UNDER THE MINNESOTA BUSINESS CORPORATION ACT
As a public corporation, the Company is also governed by the provisions of
Sections 302A.671 and 302A.673 of the Minnesota Business Corporations Act. These
anti-takeover provisions may eventually operate to deny shareholders the receipt
of a premium on their Common Stock and may also have a depressive effect on the
market price of the Company's Common Stock. Section 302A.671 basically provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless voting rights are approved by the shareholders in a
prescribed manner. A "control share acquisition" is generally defined as an
acquisition of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. Section
302A.673 prohibits a public corporation from engaging in a "business
combination" with an "interested shareholder" for a period of four years after
the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions.
An "interested shareholder" is a person who is the beneficial owner of 10% or
more of the corporation's voting stock. Reference is made to the detailed terms
of Sections 302A.671 and 302A.673 of the Minnesota Business Corporation Act.
<PAGE>
PROPOSAL 3:
ELECTION OF DIRECTORS
Subject to the adoption by the shareholders of the amendments to the
Company's Articles of Incorporation and Bylaws contained in Proposal 2, the
Board of Directors has set the number of directors at six and has nominated six
persons for election to the Board with two directors to be Class I directors,
two directors to be Class II directors, and two directors to be Class III
directors. Each of the nominees is currently a director of the Company whose
current term expires at the 1997 Annual Meeting. Each person nominated has
agreed to serve if elected, and the Company knows of no reason why any of the
listed nominees would be unavailable to serve.
At the 1997 Annual Meeting and assuming the shareholders approve the
amendments contained in Proposal 2, the Class I nominees will be elected to hold
office until the 1998 Annual Meeting or until successors are elected and have
qualified, the Class II nominees will be elected to hold office until the 1999
Annual Meeting or until successors are elected and have qualified, and the Class
III nominees will be elected to hold office until the 2000 Annual Meeting or
until successors are elected and have qualified. Beginning with the 1998 Annual
Meeting and continuing at each annual meeting thereafter, the directors standing
for election in that year shall be elected for three year terms. In the event
that amendments contained in Proposal 2 are not adopted by the shareholders, all
of the nominees shall each be elected to hold office until the 1998 Annual
Meeting or until successors are elected and qualified.
Shares represented by proxy will be voted, if authority to do so is not
withheld, for the election of the six nominees named below (to the Class
indicated below), unless one or more of such nominees should become unavailable
for service by reason of death or other unexpected occurrence, in which event
such shares may be voted for the election of such substitute nominee as the
Board of Directors may propose. The affirmative vote of the holders of a
majority of the shares of Common Stock, present or represented at the meeting
and entitled to vote on Proposal 3, is required to approve Proposal 3. For this
purpose, a shareholder (including a broker) who does not give authority to a
proxy to vote, or withholds authority to vote, on the election of directors
shall not be considered present and entitled to vote on the election of
directors.
NOMINEES FOR DIRECTOR
CLASS I DIRECTORS CLASS II DIRECTORS CLASS III DIRECTORS
(ONE YEAR INITIAL TERM) (TWO YEAR INITIAL TERM) (THREE YEAR INITIAL TERM)
----------------------- ----------------------- -------------------------
Donnell D. Etzwiler Henry F. Blissenbach John Howell Bullion
Lawrence C. Weaver Charles V. Owens Maurice R. Taylor, II
Set forth below is information regarding the nominees, including
information furnished by them as to their principal occupations for the last
five years, certain other directorships held by them, and their ages as of the
date hereof. The following table also sets forth the Common Stock ownership of
each of the Company's directors. Unless otherwise indicated, all persons have
sole or joint with spouse voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them. Nominees may be contacted
at the headquarters of the Company.
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF COMMON
STOCK OWNED
NAME AND BENEFICIALLY AS OF PERCENT
POSITIONS WITH THE COMPANY AGE PRINCIPAL OCCUPATION AUGUST 29, 1997(1) OF CLASS
- ---------------------------- ----- -------------------------------------------- ------------------ --------
<S> <C> <C> <C> <C>
Maurice R. Taylor, II 51 Mr. Taylor, a co-founder of the Company, 854,082 6.9%
CHAIRMAN OF THE BOARD has served since 1985 as Chief Executive
OF DIRECTORS AND Officer and a director of the Company
CHIEF EXECUTIVE OFFICER and since June 1994 as Chairman. He
served as President from 1985 through
April 1997, until the hiring of
Dr. Blissenbach. Prior to Chronimed,
Mr. Taylor held various management
positions in companies whose principal
activities were manufacturing, distribution
and international trade. Mr. Taylor is a
director of Orphan Medical, Inc., a
pharmaceutical development company
and formerly a division of the Company.
He is a director of the Whittier/Scripps
Institute, a non-profit organization
dedicated to research, education and
patient care in the field of diabetes. He
is also a director of the Minnesota
Zoological Garden, a public-private
partnership established by the Minnesota
legislature.
Henry F. Blissenbach, 55 Dr. Blissenbach has served as President 67,000 *
Pharm.D. and Chief Operating Officer of the
DIRECTOR, PRESIDENT AND Company since May 1997. He became a
CHIEF OPERATING OFFICER director of the Company in September
1995. From 1992 to 1997, he served as
President of Diversified Pharmaceutical
Services, Inc. (DPS), a subsidiary of
SmithKline Beecham Corp. DPS is a
pharmacy benefit management firm. Prior
to 1992, he served as DPS's Vice
President for Pharmacy Programs for
United Health Care Corporation. Dr.
Blissenbach is a Clinical Assistant
Professor at the College of Pharmacy at
the University of Minnesota. Dr.
Blissenbach also serves as a director of
Ligand Pharmaceuticals Inc., a biomedical
development company.
<PAGE>
NUMBER OF
SHARES OF COMMON
NAME AND STOCK OWNED PERCENT
POSITIONS WITH THE COMPANY AGE PRINCIPAL OCCUPATION AUGUST 29, 1997(1) OF CLASS
- ---------------------------- ----- -------------------------------------------- ------------------ --------
John Howell Bullion 45 Mr. Bullion is a co-founder of the 228,125 1.9%
DIRECTOR Company and has served as a director
since 1985. He has been Chief Executive
Officer and a director of Orphan Medical,
Inc. since its formation in June 1994.
Since September 1993, Mr. Bullion has
also served as President of Bluestem
Partners, Ltd., which invests in and
provides management services to
developing businesses. From March 1992
to July 1993, he was President of Dahl &
Associates, Inc., an environmental soil
and ground water remediation company.
Prior to joining Dahl & Associates, he
served for one year as President of
Concurrent Knowledge Systems, Inc., a
software development company.
Donnell D. Etzwiler, 70 Dr. Etzwiler has served as a director of 121,350 1.0%
M.D. the Company since its inception in 1985.
DIRECTOR He founded in 1967 and, until 1996, served
as the President of the International
Diabetes Center, which was a co-founding
organization of the Company. The
International Diabetes Center is a division
of the Institute of Research Education
(IRE). IRE is a division of Health Services
Minnesota (HSM). Dr. Etzwiler is also a
director of HSM. Since 1969, he has served
as a Clinical Professor of the Department
of Pediatrics at the University of
Minnesota School of Medicine.
Charles V. Owens, Jr. 70 Mr. Owens has served as a director of 51,185 *
DIRECTOR the Company since 1991. Since 1988,
Mr. Owens has served as a consultant to
several medical device and diagnostic
firms in the United States and Japan.
From 1985 to 1988, he was Chief Executive
Officer of Genesis Labs, Inc., a
diagnostics manufacturing company. Before
his employment with Genesis Labs, Inc.,
Mr. Owens was an executive officer with
various medical device companies,
including Miles Laboratories, Inc. Mr.
Owens is a past director of St. Jude
Medical, Inc., a medical device company,
and is a director of DIA - Screen
Corporation.
<PAGE>
NUMBER OF
SHARES OF COMMON
NAME AND STOCK OWNED PERCENT
POSITIONS WITH THE COMPANY AGE PRINCIPAL OCCUPATION AUGUST 29, 1997(1) OF CLASS
- ---------------------------- ----- ------------------------------------------- ------------------ --------
Lawrence C. Weaver, 73 Dr. Weaver has served as a director of 105,150 *
Ph.D., D. Sc. (Hon.) the Company since December 1991. He
DIRECTOR has been Dean and Professor Emeritus
at the University of Minnesota since 1989.
From 1966 through 1984, he served as
Dean of the College of Pharmacy at the
University of Minnesota. From 1984
through 1989, he was Vice President
of the Pharmaceutical Manufacturers
Association. Dr. Weaver also currently
serves as a director of Orphan Medical,
Inc.
</TABLE>
- ----------------------
* Less than 1%
(1) Includes the following options exercisable within 60 days to acquire shares
of Common Stock: Mr. Taylor, 168,400; Dr. Blissenbach, 65,000; Mr. Bullion,
75,000; Dr. Etzwiler, 45,000; Mr. Owens, 15,000; and Dr. Weaver, 45,000.
For each of Messrs. Taylor, Bullion and Owens and Drs. Blissenbach,
Etzwiler, and Weaver, these options exercisable within 60 days include
15,000 shares under the 1994 Stock Option Plan for Directors.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Messrs. Bullion, Owens and Dr. Weaver are the current members of the Audit
Committee of the Board of Directors. Dr. Blissenbach relinquished his Audit
Committee membership in May, 1997, upon his appointment as President and Chief
Operating Officer of the Company. During fiscal 1997, this Committee met five
times. The Audit Committee represents the Board in discharging its
responsibilities relating to the accounting, reporting, and financial control
practices of the Company. The Committee has general responsibility for review
with management of the financial controls, accounting, and audit and reporting
activities of the Company. The Committee annually reviews the qualifications and
objectivity of the Company's independent auditors, makes recommendations to the
Board as to their selection, reviews the scope, fees, and results of their
audit, and reviews their management comment letters.
Mr. Owens and Drs. Etzwiler and Weaver are the current members of the
Compensation Committee, which oversees compensation for directors, officers and
key employees of the Company. During fiscal 1997, the Compensation Committee
met four times.
During fiscal 1997, the Board of Directors met eight times, including three
telephone board meetings. Each director attended 75% or more of the meetings of
the Board of Directors and its committees on which he served during the times of
his appointment. The Board of Directors does not have a standing nominating
committee.
DIRECTOR COMPENSATION
For fiscal 1997, directors who were not employees of the Company received
an annual retainer of $18,000 plus fees of $800 for each board meeting attended
in person; $400 for each telephone board meeting attended; and $500 for each
committee meeting attended whether in person or by telephone. Committee chairmen
received an additional $200 per meeting. In fiscal 1997, directors were also
reimbursed for out-of-pocket expenses incurred in attending Board of Directors
and committee meetings.
Pursuant to the Company's 1994 Stock Option Plan for Directors, each
director automatically receives an option to purchase 30,000 shares on the date
of the director's initial election to the Board of Directors. Each option has an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant. The option vests on the seventh anniversary of the date of
grant unless vesting is accelerated. The option will vest as to 5,000 shares if
the Company's share price becomes
<PAGE>
20 percent greater than the exercise price on or before the third anniversary of
the grant. The option will vest as to an additional 10,000 shares if the price
per share becomes 60 percent greater than the exercise price on or before the
fourth anniversary of the grant. The option will vest as to the final 15,000
shares if the price per share becomes 100 percent greater than the exercise
price on or before the fifth anniversary of the grant. Acceleration requires the
maintenance of share-price benchmarks for at least five trading days during any
consecutive 30-day period. Further, these options may become immediately
exercisable upon certain change-in-control events as described in the Company's
1994 Stock Option Plan for Directors. The options expire ten years after date of
grant.
Based on the above-noted terms and the price of the Company's Common Stock
during fiscal 1997, 15,000 shares of the total 30,000 shares have vested for
each of the participating directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company
consists of three non-employee directors. Mr. Owens is the committee chair, and
Drs. Etzwiler and Weaver are the other members. Mr. Owens and Dr. Weaver also
act as a stock option subcommittee of the Board.
Mr. Taylor, Mr. Bullion, and Dr. Weaver, in addition to being directors of
the Company, are also directors of Orphan Medical, Inc. (OMI). The Company
incorporated OMI in June 1994 to engage in the development of pharmaceutical
products. The Company subsequently declared a dividend of all of the OMI Common
Stock to Company shareholders. Mr. Taylor serves on the Compensation Committee
of the Board of OMI. Mr. Taylor and Mr. Bullion are the Chief Executive
Officers of the Company and OMI, respectively. William B. Adams, Chairman of
OMI, was Chairman of the Company from 1985 to June 1994, and Bertram A.
Spilker, Ph.D., M.D., President of OMI, was Vice President of the Company from
January 1993 to July 1994. See "Certain Transactions" for a description of
continuing business arrangements between the Company and OMI.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
COMPENSATION COMMITTEE CHARTER. The purpose of the Compensation Committee
of the Board of Directors is to oversee compensation of directors, officers, and
key employees of the Company. The Committee's policy is to insure that
compensation programs contribute directly to the success of the Company,
including enhanced share value. The Company's Compensation Committee comprises
three outside directors.
EXECUTIVE COMPENSATION POLICIES AND PROGRAMS. The Company's executive
compensation programs are designed to attract and retain highly qualified
executives and to motivate them to maximize shareholder investment by achieving
strategic Company goals. There are three basic components to the Company's
executive compensation program: base pay, annual incentive bonus, and long-term,
equity-based incentive compensation in the form of stock options. Each component
is established in light of Company and individual performance, compensation
levels at comparable companies, equity among employees, and cost effectiveness.
In addition, employees are eligible to participate in the Company's 401(k) plan
and certain insurance plans. With the exception of Maurice R. Taylor, II,
Chairman of the Board of Directors and Chief Executive Officer of the Company,
employees are also eligible to participate in the Company's Employee Stock
Purchase Plan.
BASE PAY. Base pay is designed to be competitive as compared to salary
levels for equivalent positions at comparable companies. An executive's
actual salary within this competitive framework will depend on the
individual's performance, responsibilities, experience, leadership, and
potential future contribution. Base pay is determined in a way that allows
a significant percentage of compensation to be earned through incentive
programs. The more senior the executive, the larger the percentage of
compensation payable through incentive programs.
ANNUAL INCENTIVE BONUS. In addition to base pay, each executive is
eligible to receive an annual cash bonus based on a mix of the Company's
and the executive's performance. Performance
<PAGE>
targets are intended to motivate the Company's executives by providing
bonus payments for the achievement of specific financial goals within the
Company's business plan. Bonuses were paid to all named executive officers
with respect to fiscal 1997 performance.
LONG-TERM, EQUITY-BASED INCENTIVE COMPENSATION. The long-term,
equity-based compensation program is tied directly to shareholder return.
Long-term incentive compensation consists of stock options that generally
do not fully vest until after five years and are exercisable only if an
executive is then an employee of the Company. Stock options are awarded
with an exercise price equal to the fair market value of the Common Stock
on the date of grant. Accordingly, an executive is rewarded only if Company
shareholders receive the benefit of appreciation in the price of the Common
Stock. Because long-term options vest over time, the Company periodically
grants new options to provide continuing incentives for future performance.
The size of periodic option grants is a function of the breadth of an
executive's scope of accountability, recent performance as determined by
the Committee, and other factors.
SAVINGS AND INVESTMENT PLAN; BENEFITS. The Company maintains a 401(k)
Savings Plan ("Savings Plan"), which is funded by elective salary deferrals
by employees. The Savings Plan covers executive officers and substantially
all employees meeting minimum eligibility requirements. The Savings Plan
requires that the Company match up to 40% of the first 5% of an employee's
pay and provides for additional discretionary contributions by the Company.
Through June 27, 1997, the Company had not made any additional
discretionary contributions to the Savings Plan. In addition, the Company
provides medical and other miscellaneous benefits, including a diagnostic
services plan that provides significant coverage for annual physicals.
These benefits are generally available to Company employees with the
exception of the diagnostic services plan.
ANNUAL REVIEWS. Each year the Committee reviews its executive compensation
policies and programs and determines what changes, if any, are appropriate for
the following year. In addition, the Committee reviews the performance of the
Chief Executive Officer and, with the assistance of the Chief Executive Officer,
the individual performance of the other executive officers. The Committee makes
recommendations to the Board of Directors for final approval of all material
compensation matters.
CHIEF EXECUTIVE OFFICER. Pursuant to the terms of Mr. Taylor's three-year
employment agreement with the Company, dated April 22, 1996, he received a base
salary of $260,000 in fiscal 1996, a base salary of $290,000 in fiscal 1997, and
will receive a base salary of $304,500 in fiscal 1998. Base salaries were
determined at the time of entering into the employment agreement, when the
Committee considered compensation programs of comparable companies, Mr. Taylor's
individual performance and salary history, and the Company's historical and
planned performance. For fiscal 1997, Mr. Taylor earned a bonus of $50,000 in
recognition of his and Chronimed's performance against criteria established by
the Compensation Committee of the Board of Directors at the beginning of the
year. In fiscal 1997, Mr. Taylor was granted options to purchase up to 49,000
shares of Common Stock at $20.00 per share under the Company's 1986 Stock Option
Plan. He was also granted options to purchase up to 174,000 shares of Common
Stock under the Company's 1997 Stock Option Plan, of which 21,000 were at
$14.625 per share and 153,000 were at $7.5625. These options are designed to
encourage Mr. Taylor to enhance the future value of the Company and, hence, the
price of the Common Stock and the investment of shareholders. Deferred vesting
also creates an incentive for Mr. Taylor to remain with the Company.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162(m) of the Internal
Revenue Code of 1986, as amended, should not affect the deductibility of
compensation paid to the Company's executive officers for the foreseeable
future. The majority of the options available for grant under the Company's
stock option plans will comply with Section 162(m), so that compensation
resulting from these stock options will not be counted toward the $1,000,000
limit on deductible compensation under Section 162(m). The Compensation
Committee has not formulated any policy with respect to qualifying other types
of compensation for deductibility under Section 162(m).
Members of the Compensation Committee: Charles V. Owens, Jr., Chairman
Donnell D. Etzwiler, M.D.
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.)
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid for the Company's
fiscal year ended June 27, 1997, and for fiscal 1996 and 1995, to the Company's
Chairman of the Board of Directors and Chief Executive Officer, and the five
other most highly paid executive officers (collectively, "named executive
officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS($)(1) OPTIONS (#) COMPENSATION(8)
- --------------------------------- ----------- ---------- ----------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Maurice R. Taylor, II(2)......... 1997 $290,000 $ 50,000 223,000 $4,100
CHAIRMAN OF THE BOARD AND 1996 260,000 200,000 84,000 4,400
CHIEF EXECUTIVE OFFICER 1995 210,000 -- 250,000 --
Henry F. Blissenbach(3).......... 1997 33,300 -- 129,000 --
PRESIDENT AND CHIEF 1996 -- -- -- --
OPERATING OFFICER 1995 -- -- -- --
Norman A. Cocke(4)............... 1997 164,300 32,000 62,700 4,100
SENIOR VICE PRESIDENT, CHIEF 1996 155,000 90,000 25,000 3,500
FINANCIAL OFFICER AND SECRETARY 1995 49,900 14,800 110,000 --
Steven A. Crees(5)............... 1997 149,000 32,000 56,600 3,500
SENIOR VICE PRESIDENT 1996 130,000 100,000 22,000 2,000
1995 115,000 7,000 50,000 --
Patrick L. Taffe(6).............. 1997 112,800 20,500 60,000 --
VICE PRESIDENT 1996 -- -- -- --
1995 -- -- -- --
Perry L. Anderson(7)............. 1997 110,000 15,000 51,725 2,100
VICE PRESIDENT 1996 -- -- -- --
1995 -- -- -- --
</TABLE>
- ------------------
(1) Bonus amounts were earned for the fiscal year shown but paid in the next
fiscal year.
(2) Mr. Taylor received no additional cash compensation for service as a
director.
(3) Dr. Blissenbach was hired as President and Chief Operating Officer in May
1997. He was not a participant in the fiscal 1997 bonus plan. Prior to his
hire date in May 1997, Dr. Blissenbach received $26,800 for his services as
director in Fiscal 1997. Going forward, Dr. Blissenbach will receive no
additional cash compensation for services as a director.
(4) Mr. Cocke was hired as Senior Vice President in February 1995.
(5) Mr. Crees was promoted to Senior Vice President in July 1994.
(6) Mr. Taffe was hired as Vice President in July 1996.
(7) Mr. Anderson was hired July 1996 and was promoted to Vice President in July
1997.
(8) All other compensation consists of Company 401(k) contribution matches and
long-term disability insurance paid on behalf of the officers (discontinued
in fiscal 1997).
<PAGE>
STOCK OPTIONS
The following tables summarize stock option grants and exercises during
fiscal 1997 to or by the named executive officers and the value of all options
held by the named executive officers at June 27, 1997.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTION TERM
UNDERLYING OPTIONS EXERCISE -----------------------------
OPTIONS GRANTED TO PRICE EXPIRATION
NAME GRANTED(1) EMPLOYEES ($/SHARE) DATE 5% 10%
- ----------------------------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Maurice R. Taylor, II ....... 49,000 $ 20.000 6/30/03 $398,958 $ 929,743
21,000 14.625 11/12/03 125,031 291,375
153,000 7.563 6/26/04 471,041 1,097,725
------- -------- ----------
223,000 23.9% 995,030 2,318,842
Henry F. Blissenbach(2) ..... 50,000 8.250 4/30/04 167,929 391,346
79,000 7.563 6/26/04 243,217 566,799
------- -------- ----------
129,000 13.8% 411,146 958,145
Norman A. Cocke ............. 14,000 20.000 6/30/03 113,988 265,641
5,700 14.625 11/12/03 33,937 79,087
43,000 7.563 6/26/04 132,384 308,511
------- -------- ----------
62,700 6.7% 280,309 653,239
Steven A. Crees ............. 11,600 20.000 6/30/03 94,447 220,102
5,000 14.625 11/12/03 29,769 69,375
40,000 7.563 6/26/04 123,148 286,987
------- -------- ----------
56,600 6.1% 247,364 576,464
Patrick L. Taffe ............ 20,000 18.375 7/7/03 149,609 348,654
40,000 7.563 6/26/04 123,148 286,987
------- -------- ----------
60,000 6.4% 272,757 635,640
Perry L. Anderson ........... 15,000 20.000 6/30/03 122,130 284,615
10,725 8.000 4/21/04 34,929 81,400
26,000 7.563 6/26/04 80,046 186,541
------- -------- ----------
51,725 5.5% 237,105 552,557
</TABLE>
- ------------------
(1) The options were granted under the Company's 1986, 1994 and 1997 Stock
Option Plans. These options vest with respect to 20% of such shares on the
first year anniversary date and become exercisable with respect to an
additional 20% of the shares on each of the next four anniversary dates.
The options may become immediately exercisable upon certain
change-in-control events as described in the Company's 1986, 1994 and 1997
Stock Option Plans.
(2) Pursuant to the terms of his employment agreement, Dr. Blissenbach received
50,000 options to purchase Chronimed shares which were immediately vested
as of the 5/1/97 grant date.
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND OPTION VALUES AT JUNE 27, 1997
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(2)
SHARES AT JUNE 27, 1997 AT JUNE 27, 1997
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE(#) EXERCISABLE/UNEXERCISABLE($)
- ------------------------------ ----------- -------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Maurice R. Taylor, II ........ 147,500 1,591,776 141,800/415,200 0/0
Henry F. Blissenbach ......... 0 0 65,000/99,000 0/0
Norman A. Cocke .............. 0 0 61,791/124,700 0/0
Steven A. Crees .............. 0 0 38,800/107,800 35,700/8,925
Patrick L. Taffe ............. 0 0 0/60,000 0/0
Perry L. Anderson ............ 0 0 0/51,725 0/0
</TABLE>
- ------------------
(1) The value realized was determined by multiplying the number of shares
exercised by the difference between the exercise price per share and the
closing price on the exercise date.
(2) The value of unexercised in-the-money options was determined by multiplying
the number of shares subject to such options by the favorable difference
between the exercise price per share and $7.5625, the closing price per
share on June 27, 1997.
EMPLOYMENT AGREEMENT
The Company has an employment agreement with Maurice R. Taylor, II, under
which he received a base salary of $260,000 in fiscal 1996 and $290,000 in
fiscal 1997. Base salary for fiscal 1998 and 1999 is based on corporation and
employee performance prior to each year. For fiscal 1998, Mr. Taylor's salary
has been set at $304,500. Mr. Taylor's employment agreement expires on June 30,
1999, and includes a non-competition provision for up to two years following
termination of employment. Upon a termination without cause, Mr. Taylor is
entitled to receive (i) base salary payments for a period of twelve months after
such termination at the rate in effect prior to such termination and (ii) a pro
rata share of the bonus that would have been payable for the bonus period that
includes the termination date and (iii) a pro rata share of other benefits as
specified in the contract.
The Company's stock option plans generally provide that upon the occurrence
of certain "acceleration events," the options will become fully vested. An
acceleration event occurs (i) when a person, or group of persons acting
together, becomes the beneficial owner of 20 percent or more of the Company's
outstanding shares; (ii) when a change in a majority of the Board occurs without
the approval of at least 60% of the prior Board; or (iii) upon the approval by
shareholders of a sale of all or substantially all the assets or of a
liquidation or dissolution of the Company.
<PAGE>
SHAREHOLDER RETURN COMPARISON
Shown below is a line graph comparing the yearly dollar change in the
cumulative total shareholder return on the Company's Common Stock as against the
cumulative total return of the NASDAQ Total Return Index (U.S. Companies) and
the NASDAQ Health Services Stock Index for the period June 30, 1992 through June
30, 1997. The graph and table assume the investment of $100 on June 30, 1992, in
the Company's Common Stock, the NASDAQ Total Return Index, and the NASDAQ Health
Services Stock Index. The cumulative return calculations were performed by CRSP.
COMPARISON OF CUMULATIVE RETURN
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CHRONIMED(1) .............................. 100.0 147.6 332.1 367.9 546.2 250.8
NASDAQ Total Return Index ................. 100.0 125.8 127.0 169.5 217.6 264.6
NASDAQ Health Services Stock Index ........ 100.0 115.4 131.0 142.8 218.5 200.7
</TABLE>
- ------------------
(1) Share prices have been adjusted to reflect a three-for-two stock split in
the form of a stock dividend effective as of February 21, 1994.
<PAGE>
OWNERSHIP OF CHRONIMED COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND EXECUTIVE OFFICERS
The following table shows information concerning each person who to the
knowledge of the Company was the beneficial owner of more than 5% of the
Company's Common Stock and the number of shares of Common Stock beneficially
owned by the Company's named executive officers and directors and executive
officers as a group, as of August 29, 1997. All persons have sole or joint with
spouse voting and investment power with respect to all shares shown as
beneficially owned by them.
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) OF CLASS
------------------------------------ -------------------------- --------
Maurice R. Taylor, II .............. 854,082 6.9%
Henry F. Blissenbach ............... 67,000 *
Norman A. Cocke .................... 94,800 *
Steven A. Crees .................... 82,544 *
Patrick L. Taffe ................... 4,481 *
Perry L. Anderson .................. 4,028 *
All directors and executive officers
as a group (10 persons) ........... 1,612,745 13.1%
- ----------------------
* Less than 1%
(1) Includes the following options exercisable within 60 days to acquire shares
of Common Stock: Mr. Taylor, 168,400; Mr. Anderson, 3,000; Dr. Blissenbach,
65,000; Mr. Cocke, 69,591; Mr. Crees, 55,520; Mr. Taffe, 4,000; and all
directors and executive officers as a group, 545,511.
SECTION 16(a) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors, and certain shareholders to file reports of ownership and
changes in ownership of the Company's Common Stock with the Securities and
Exchange Commission. To the Company's knowledge, based on a review of the copies
of such reports furnished to the Company and written representations that no
other reports were required, during fiscal 1997, all Section 16(a) filing
requirements were met.
CERTAIN TRANSACTIONS
ORPHAN MEDICAL, INC.
The Company incorporated Orphan Medical, Inc. (OMI) in July 1994 and on
July 2, 1994, declared a dividend of all of the OMI Common Stock to Company
shareholders. Maurice R. Taylor, II, John Howell Bullion, and Dr. Lawrence C.
Weaver, directors of the Company, are also directors of OMI. Mr. Taylor and Mr.
Bullion are the Chief Executive Officers of the Company and OMI, respectively.
The following is a brief summary of the material continuing arrangements
between the Company and OMI. Although the Company believes these arrangements
with OMI are on commercially reasonable terms, they were not the product of
arm's-length negotiations.
In June 1994, the Company initially retained the rights to market and
distribute in the United States and its territories those products being
developed by OMI at the time of the spin-off. The products under development are
for "orphan" drug populations where the population in the United States expected
to benefit from the drug is limited. Chronimed has determined that two of the
products for which it had initial rights, Elliotts B(TM) solution and
Antizol-Vet(TM), both of which have received FDA approval, can be more
effectively distributed by a hospital distribution company and a distributor of
veterinary products, respectively. OMI has, therefore, agreed to pay Chronimed a
royalty in consideration for releasing OMI from the provision in the Marketing
and Distribution Agreement which had granted Chronimed exclusive domestic
distribution rights with respect to these two products. Further, as of June 27,
1997, Chronimed sold its remaining rights to market and distribute orphan drugs
back to OMI (see Related Party Transactions noted below). Thus, the Marketing
and Distribution Agreement between Chronimed
<PAGE>
and OMI has been terminated effective June 27, 1997, along with certain other
agreements that secured OMI's obligations under the marketing agreement.
Under the marketing agreement, OMI had the right to designate one
individual to hold a seat on the Company's Board of Directors, or alternatively,
to have a representative present at all Company Board meetings. The Company had
the right to designate two directors on OMI's Board or, alternatively, the right
to have a representative attend all of OMI's Board meetings. With the
termination of the marketing agreement effective June 27, 1997, these rights no
longer exist. Going forward, Chronimed intends to have Mr. Bullion continue to
serve on its Board.
RELATED PARTY TRANSACTIONS
On April 9, 1997, the Company entered into a guarantee of indebtedness of
Mr. Maurice R. Taylor, II, Chronimed's Chairman and Chief Executive Officer.
Such indebtedness permitted Mr. Taylor to continue to hold large amounts of
Company stock. There was $537,000 of indebtedness under the guarantee as of
August 26, 1997. The Company is charging Mr. Taylor an arm's-length guarantee
fee.
On June 27, 1997, the Company entered into an agreement to sell its
exclusive rights to market and distribute certain Orphan Medical, Inc. products
back to Orphan Medical for cash, royalties, and Orphan Medical stock totaling
$2.5 million. The Company has estimated the net present value of these payments
to be $1.7 million, and as such has recorded $1.7 million as Other Income in its
1997 financial statements. Orphan Medical, Inc. was created in July 1994 as a
spin-off from Chronimed Inc.
DIVERSIFIED PHARMACEUTICAL SERVICES, INC.
The Company currently has a non-exclusive contract with Diversified
Pharmaceutical Services, Inc. (DPS) to provide oral and self-injectable
pharmaceuticals to patients who have had organ transplants or who have certain
other chronic conditions. Henry F. Blissenbach, Pharm.D., President and Chief
Operating Officer of the Company, was President of DPS, ending April, 1997.
PROPOSAL 4:
APPOINTMENT OF INDEPENDENT AUDITORS
Based on the recommendation of the Audit Committee, the Board of Directors
has unanimously voted to retain Ernst & Young LLP to serve as independent
auditors for the Company for fiscal year 1998 and is submitting its appointment
of such firm to the shareholders for ratification. Ernst & Young LLP has served
as the Company's independent auditors since the Company's inception. If the
appointment is not ratified, the Board of Directors will reconsider its
selection. Ernst & Young LLP will have a representative at the meeting who will
have an opportunity to make a statement if he or she so desires and who will be
available to answer appropriate questions. The affirmative vote of a majority of
the voting power of the shares of Common Stock, present or represented at the
meeting and entitled to vote on Proposal 4, is required to approve Proposal 4.
Unless otherwise instructed, shares represented by proxy will be voted for
ratification of the appointment of Ernst & Young LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
FOR THE CURRENT FISCAL YEAR.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder intended to be presented at the 1998 Annual
Meeting of Shareholders must be received at the Company's offices no later than
June 18, 1998.
<PAGE>
ANNUAL REPORT AND
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report to Shareholders for fiscal year 1997 is being
mailed with this Proxy Statement to shareholders entitled to notice of the
Annual Meeting. The Company's Annual Report to Shareholders for fiscal year 1997
and its Annual Report on Form 10-K for fiscal year 1997 are incorporated by
reference herein.
The Company will furnish without charge to each person whose proxy is being
solicited, upon the written request of any such person, a copy of the Company's
Annual Report on Form 10-K for fiscal year 1997, as filed with the Securities
and Exchange Commission, including financial statements and schedules. Requests
for copies of such Annual Report on Form 10-K should be directed to Investor
Relations at the address below.
Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
that also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall be deemed to constitute
a part hereof except as so modified or superseded.
OTHER MATTERS
Please vote, sign and return promptly the enclosed proxy in the envelope
provided. The signing of a proxy will not prevent you from attending the meeting
and voting in person.
By Order of the Board of Directors
/s/ Norman A. Cocke
Norman A. Cocke
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
Chronimed Inc.
13911 Ridgedale Drive
Minnetonka, MN 55305
October 17, 1997
<PAGE>
APPENDIX A
PROPOSED AMENDMENTS TO THE
ARTICLES OF INCORPORATION OF CHRONIMED INC.
1. The first sentence of Article III is deleted in its entirety and replaced
with the following:
The total number of shares of all classes of stock that this
corporation shall be authorized to issue is Forty-five Million
(45,000,000) shares, divided into the following: (i) Five Million
(5,000,000) shares of Preferred Stock, of the par value of $.01 per
share; and (ii) Forty Million (40,000,000) shares of Common Stock, of
the par value of $.01 per share.
2. The first sentence of Article VI is deleted in its entirety and the
remainder of Article VI is renumbered as Article VII.
3. Article VI is added to the Articles of Incorporation as follows:
ARTICLE VI
(a) The Board of Directors of this corporation shall consist of
four directors or such greater number of directors as shall be fixed
in the manner provided in the By-Laws of this corporation; provided,
however, that if the holders of any class or series of Preferred
Stock, voting as a separate class or series, have the right to elect
director(s) and such right is in effect, the number of directors shall
be increased by the number of directors that such holders may so elect
and upon termination of such right the number of directors shall be
decreased by the number of directors equal to such previous increase.
(b) The directors (other than those directors who may be elected
by the holders of any class or series of Preferred Stock voting as a
separate class or series) shall be divided into three classes (Class
I, Class II and Class III), with the number of directors in each class
as nearly equal as reasonably possible. The initial terms of office
for the Class I, Class II and Class III directors shall be as follows:
(i) Class I directors shall be elected to serve until the
conclusion of the 1998 Annual Meeting of Shareholders,
(ii) Class II directors shall be elected to serve until the
conclusion of the 1999 Annual Meeting of Shareholders, and
(iii) Class III directors shall be elected to serve until
the conclusion of the 2000 Annual Meeting of Shareholders,
and until such director's successor shall have been duly elected and
qualified. Commencing with the 1998 Annual Meeting of Shareholders and
continuing at each annual meeting of shareholders thereafter, a
director (other than those directors who may be elected by the holders
of any class or series of Preferred Stock voting as a separate class
or series) elected to succeed a director whose term has expired shall
be elected to serve until the conclusion of the third succeeding
annual meeting of shareholders from the date of such director's
election and until such director's successor shall have been duly
elected and qualified.
(c) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, newly created directorships
resulting from any increase in the number of authorized directors or
eliminated directorships resulting from any decrease in the number of
authorized directors shall be apportioned by the Board of Directors
among the Class I, Class II and Class III directors to keep the number
of directors in each such class as nearly equal as reasonably
possible; provided, however, that no decrease in the number of
authorized directors shall shorten the term or effect the removal of
any incumbent director except upon compliance with the provisions of
sections (e) or (f) of this Article VI. Vacancies on the Board of
Directors created by any increase in the number of authorized
directors may be filled by the affirmative vote of a majority of the
directors then holding office. A director so chosen shall hold office
for a term expiring at the next annual meeting of shareholders at
which the term of office of the
<PAGE>
class of directors to which such director has been elected expires and
until such director's successor shall have been duly elected and
qualified.
(d) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, any vacancies on the Board of
Directors resulting from the death, resignation, retirement,
disqualification, removal pursuant to sections (e) and (f) of this
Article VI, or other cause (other than a vacancy due to an increase in
the number of authorized directors) may be filled by the affirmative
vote of a majority of the directors then holding office, though less
than a quorum. A director so chosen shall hold office for a term
expiring at the next annual meeting of shareholders at which the term
of office of such director's predecessor expires and until such
director's successor shall have been duly elected and qualified.
(e) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, the shareholders may remove a
director, at any time, with or without cause, but only if such removal
is approved by the affirmative vote of the holders of at least 80% of
the voting power of all of the then outstanding shares of capital
stock of this corporation entitled to vote on such removal.
(f) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, the Board of Directors of this
corporation, by the affirmative vote of a majority of the directors
then holding office, (i) may remove a director, at any time, with or
without cause, pursuant to the terms and provisions of Minnesota
Statutes, Section 302A.223, subdivision 2 (or similar provision of
future law) or (ii) may remove a director, at any time, but only if
such removal is for cause (as defined below), regardless of whether
(a) such director was appointed by the Board of Directors to fill a
vacancy on the Board of Directors and the shareholders have elected
any directors in the interval between the time of appointment to fill
such vacancy and the time of the removal or (b) such director was
elected by the shareholders. For purposes of this section (f), "cause"
shall mean (1) misconduct as a director of this corporation or any
subsidiary of this corporation which involves dishonesty with respect
to a substantial or material corporate activity or corporate assets or
(2) conviction of an offense punishable by one (1) or more years of
imprisonment (other than minor regulatory infractions and traffic
violations which do not materially and adversely affect this
corporation).
4. Article VII is renumbered as Article VIII.
5. Article IX is added to the Articles of Incorporation as follows:
ARTICLE IX
No amendment, addition, alteration, change or repeal of the
Articles of Incorporation of this corporation shall be made unless
such amendment, addition, alteration, change or repeal is approved
pursuant to Minnesota Statutes, Section 302A.437 (or similar provision
of future law) unless a different vote is required by law.
Notwithstanding the foregoing sentence, any other provision of these
Restated Articles of Incorporation of this corporation, the By-Laws of
this corporation, or any provision of law which might otherwise permit
a lesser vote or no vote, no amendment, addition, alteration, change
or repeal of this Article IX or Article VI of these Restated Articles
of Incorporation, after which this corporation is to continue in
existence, shall be made unless such amendment, addition, alteration,
change or repeal is approved by the affirmative vote of the holders of
at least 80% of the voting power of all of the then outstanding shares
of capital stock entitled to vote on such amendment, addition,
alteration, change or repeal.
<PAGE>
APPENDIX B
PROPOSED AMENDMENTS TO THE
BY-LAWS OF CHRONIMED INC.
1. Article III, Section 2 is deleted in its entirety and replaced with the
following:
Section 2. Number, Tenure and Qualification.
(a) The Board of Directors of this corporation shall consist of
four directors, subject to increase by the Board of Directors or
decrease by the Board of Directors to no fewer than four directors;
provided, however, that if the holders of any class or series of
Preferred Stock, voting as a separate class or series, have the right
to elect director(s) and such right is in effect, the number of
directors shall be increased by the number of directors that such
holders may so elect and upon termination of such right the number of
directors shall be decreased by the number of directors equal to such
previous increase. No decrease in the number of directors pursuant to
this section shall effect the removal of any director then in office
except upon compliance with the provisions of these By-Laws and the
Articles of Incorporation. Directors shall be natural persons but need
not be shareholders.
(b) The directors (other than those directors who may be elected
by the holders of any class or series of Preferred Stock voting as a
separate class or series) shall be divided into three classes (Class
I, Class II and Class III), with the number of directors in each class
as nearly equal as reasonably possible. The initial terms of office
for the Class I, Class II and Class III directors shall be as follows:
(i) Class I directors shall be elected to serve until the
conclusion of the 1998 Annual Meeting of Shareholders,
(ii) Class II directors shall be elected to serve until the
conclusion of the 1999 Annual Meeting of Shareholders,
and
(iii) Class III directors shall be elected to serve until the
conclusion of the 2000 Annual Meeting of Shareholders,
and until such director's successor shall have been duly elected and
qualified. Commencing with the 1998 Annual Meeting of Shareholders and
continuing at each annual meeting of shareholders thereafter, a
director (other than those directors who may be elected by the holders
of any class or series of Preferred Stock voting as a separate class
or series) elected to succeed a director whose term has expired shall
be elected to serve until the conclusion of the third succeeding
annual meeting of shareholders from the date of such director's
election and until such director's successor shall have been duly
elected and qualified.
2. Article III, Section 6 is deleted in its entirety and replaced with the
following:
Section 6. Vacancies and Newly Created Directorships.
(a) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, newly created directorships
resulting from any increase in the number of authorized directors or
eliminated directorships resulting from any decrease in the number of
authorized directors shall be apportioned by the Board of Directors
among the Class I, Class II and Class III directors to keep the number
of directors in each such class as nearly equal as reasonably
possible; provided, however, that no decrease in the number of
authorized directors shall shorten the term or effect the removal of
any incumbent director except upon compliance with the provisions of
sections 7(a) or 7(b) of this Article III and the Articles of
Incorporation. Vacancies on the Board of Directors created by any
increase in the number of authorized directors may be filled by the
affirmative vote of a majority of the directors then holding office. A
director so chosen shall hold office for a term expiring at the next
annual meeting of shareholders at which the term of office of the
class of directors to which such director has been elected expires and
until such director's successor shall have been duly elected and
qualified.
(b) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, any vacancies on the Board of
Directors resulting from the death, resignation,
<PAGE>
retirement, disqualification, removal pursuant to sections 7(a) and
7(b) of this Article III and the Articles of Incorporation, or other
cause (other than a vacancy due to an increase in the number of
authorized directors) may be filled by the affirmative vote of a
majority of the directors then holding office, though less than a
quorum. A director so chosen shall hold office for a term expiring at
the next annual meeting of shareholders at which the term of office of
such director's predecessor expires and until such director's
successor shall have been duly elected and qualified.
3. Article III, Section 7 is deleted in its entirety and replaced with the
following:
Section 7. Removal of Directors.
(a) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, the shareholders may remove a
director, at any time, with or without cause, but only if such removal
is approved by the affirmative vote of the holders of at least 80% of
the voting power of all of the then outstanding shares of capital
stock of this corporation entitled to vote on such removal.
(b) Subject to the rights of the holders of any class or series
of Preferred Stock then outstanding, the Board of Directors of this
corporation, by the affirmative vote of a majority of the directors
then holding office, (i) may remove a director, at any time, with or
without cause, pursuant to the terms and provisions of Minnesota
Statutes, Section 302A.223, subdivision 2 (or similar provision of
future law) or (ii) may remove a director, at any time, but only if
such removal is for cause (as defined below), regardless of whether
(a) such director was appointed by the Board of Directors to fill a
vacancy on the Board of Directors and the shareholders have elected
any directors in the interval between the time of appointment to fill
such vacancy and the time of the removal or (b) such director was
elected by the shareholders. For purposes of this section (b), "cause"
shall mean (1) misconduct as a director of this corporation or any
subsidiary of this corporation which involves dishonesty with respect
to a substantial or material corporate activity or corporate assets or
(2) conviction of an offense punishable by one (1) or more years of
imprisonment (other than minor regulatory infractions and traffic
violations which do not materially and adversely affect this
corporation).
4. Article VII, Section 4 is deleted in its entirety and replaced with the
following:
Section 4. Amendments.
(a) Except as limited by the Articles of Incorporation or section
4(b) of this Article VII, these By-laws may be amended, added to,
altered, changed or repealed by the Board of Directors at any meeting
of directors to the full extent permitted by law, subject, however, to
the power of the shareholders of this corporation to amend, add to,
alter, change or repeal such By-Laws.
(b) No amendment, addition, alteration, change or repeal of
sections 2, 6 or 7 of Article III of these By-Laws, after which this
corporation is to continue in existence, shall be made unless such
amendment, addition, alteration, change or repeal is approved by the
affirmative vote of the holders of at least 80% of the voting power of
all of the then outstanding shares of capital stock entitled to vote
on such amendment, addition, alteration, change or repeal.
<PAGE>
PROXY CHRONIMED INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF
PROPOSALS 1, 2, 3, 4, AND 5
The undersigned, having duly received the Notice of Annual Meeting and the
Proxy Statement dated October 17, 1997, hereby appoints the Chairman and Chief
Executive Officer, Maurice R. Taylor, II, and the Senior Vice President, Chief
Financial Officer and Secretary, Norman A. Cocke, as proxies (each with the
power to act alone and with the power of substitution and revocation), to
represent the undersigned and to vote, as designated below, all common shares of
Chronimed Inc. held of record by the undersigned on October 6, 1997, at the
Annual Meeting of Shareholders to be held on Wednesday, December 3, 1997, at the
Minneapolis Athletic Club, 615 Second Avenue South, Minneapolis, Minnesota, at
3:30 p.m. Central Standard Time, and at any adjournment thereof.
1. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK OF THE COMPANY FROM 25 MILLION
TO 45 MILLION SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS TO
CLASSIFY THE BOARD OF DIRECTORS OF THE COMPANY AND MODIFY THE REMOVAL
REQUIREMENTS FOR DIRECTORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO ELECT SIX DIRECTORS FOR TERMS OF ONE TO THREE YEARS.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY TO VOTE FOR ALL NOMINEES LISTED
BELOW) BELOW:
CLASS I DIRECTORS CLASS II DIRECTORS CLASS III DIRECTORS
(ONE YEAR INITIAL TERM) (TWO YEAR INITIAL TERM) (THREE YEAR INITIAL TERM)
----------------------- ----------------------- -------------------------
Donnell D. Etzwiler Henry F. Blissenbach John Howell Bullion
Lawrence C. Weaver Charles V. Owens Maurice R. Taylor, II
INSTRUCTION: To withhold authority to vote for an individual nominee or
nominees, write the person's name on the line below.
---------------------------------------------------------------------------
(CONTINUED ON OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS FOR THE 1998 FISCAL YEAR.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This Proxy, when properly executed, will be voted in the manner directed on
the Proxy by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ELECTION OF EACH OF THE NOMINEES TO THE BOARD LISTED IN
PROPOSAL 3 AND FOR PROPOSALS 1, 2, 4 AND 5.
Please sign exactly as the name appears on this card. When shares are held
by joint tenants, both should sign. If 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 an authorized
person.
________________________________________
(Signature)
________________________________________
(Signature if held jointly)
Dated:____________________________, 1997
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
BUSINESS REPLY ENVELOPE.
