<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
DATATRAK INTERNATIONAL, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
[ ] 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
DataTRAK International, Inc.
August 25, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of DataTRAK International, Inc. to be held on September 22, 1999 at 10:00 a.m.
at The National City Bank Auditorium, Fourth Floor, Atrium Building, 1900 East
Ninth Street, Cleveland, Ohio.
At this year's Annual Meeting, in addition to electing three Directors,
shareholders will be asked to approve an amendment to the Company's Fifth
Amended and Restated Articles of Incorporation to decrease the number of classes
of Directors on the Company's Board of Directors from three classes of Directors
to two classes of Directors. Detailed information about each of these proposals
is set forth in the accompanying Proxy Statement, which shareholders are
encouraged to read carefully.
Whether or not you plan to attend the Annual Meeting in person, it is
important that your shares are represented. Therefore, please complete, sign,
date and promptly return the enclosed Proxy card in the accompanying envelope.
If you do attend the Annual Meeting, you may, of course, withdraw your Proxy
should you wish to vote in person even if you have previously returned your
Proxy card.
On behalf of the Board of Directors and management of DataTRAK
International, Inc., we would like to thank you for your continued support and
confidence.
Sincerely yours,
Dr. Jeffrey A. Green
President and Chief Executive Officer
<PAGE> 3
DATATRAK INTERNATIONAL, INC.
20600 Chagrin Boulevard, Suite 1050
Cleveland, Ohio 44122
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 22, 1999
The 1999 Annual Meeting of Shareholders of DataTRAK International, Inc.,
formerly Collaborative Clinical Research, Inc. (the "Company"), will be held on
September 22, 1999 at 10:00 a.m., Cleveland, Ohio local time at The National
City Bank Auditorium, Fourth Floor, Atrium Building, 1900 East Ninth Street,
Cleveland, Ohio, for the following purposes:
1. To amend the Company's Fifth Amended and Restated Articles of
Incorporation to decrease the number of classes of Directors on the
Company's Board of Directors from three classes of Directors to two classes
of Directors;
2. To nominate and elect three individuals as Directors of the Company
for a two-year term ending at the Annual Meeting of Shareholders in 2001,
effective upon the filing of the amendment to the Company's Fifth Amended
and Restated Articles of Incorporation. However, if the proposed amendment
to the Company's Fifth Amended and Restated Articles of Incorporation is
not approved by the Company's shareholders, shareholders will instead
nominate and elect three individuals as Directors of the Company for a
three-year term ending at the Annual Meeting of Shareholders in 2002; and
3. To transact such other business as may properly come before the
Annual Meeting and such adjournments or postponements thereof.
Approval of the amendment to the Company's Fifth Amended and Restated
Articles of Incorporation requires the affirmative vote of the holders of a
majority of the outstanding Common Shares of the Company entitled to vote at the
Annual Meeting of Shareholders.
Only shareholders of record at the close of business on August 20, 1999
will be entitled to receive notice of and to vote at the meeting or any
adjournments or postponements thereof.
By Order of the Board of Directors,
THOMAS F. MCKEE
Secretary
Cleveland, Ohio
August 25, 1999
EACH SHAREHOLDER IS REQUESTED TO EXECUTE AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED PREPAID ENVELOPE
<PAGE> 4
DATATRAK INTERNATIONAL, INC.
---------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
Mailed on or about August 25, 1999
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of DataTRAK International, Inc., formerly
Collaborative Clinical Research, Inc. (the "Company"), to be used at the Annual
Meeting of Shareholders of the Company on September 22, 1999 at 10:00 a.m.,
local time, and any adjournments or postponements thereof. The time, place and
purposes of the Annual Meeting are stated in the Notice of Annual Meeting of
Shareholders accompanying this Proxy Statement.
The accompanying Proxy is solicited by the Board of Directors of the
Company. All validly executed Proxies received by the Board of Directors of the
Company pursuant to this solicitation will be voted at the Annual Meeting, and
the instructions contained in such Proxies will be followed in each instance. If
no instructions are given, the Proxy will be voted FOR the election of the three
nominees listed on the Proxy and FOR the approval of the amendment to the
Company's Fifth Amended and Restated Articles of Incorporation (the "Articles").
A shareholder may revoke a Proxy at any time before it is exercised by delivery
of written notice to the Secretary of the Company or by a duly executed Proxy
bearing a later date.
The record date for determination of shareholders entitled to vote at the
Annual Meeting was the close of business on August 20, 1999. On that date, the
Company had Common Shares outstanding and entitled to vote at the
Annual Meeting. Each Common Share is entitled to one vote. Shareholders do not
have the right to vote cumulatively in the election of Directors.
The expense of soliciting Proxies, including the cost of preparing,
assembling and mailing the Notice, Proxy Statement and Proxy, will be borne by
the Company. The Company may pay persons holding Common Shares for others their
expenses for sending proxy materials to their principals. In addition to
solicitation of Proxies by mail, the Company's Directors, officers and
employees, without additional compensation, may solicit Proxies by telephone,
telegraph and personal interview. The Company also may retain a third party to
aid in the solicitation of Proxies.
At the Annual Meeting, in accordance with the General Corporation Law of
Ohio and the Company's Code of Regulations (the "Code"), the inspectors of
election appointed by the Board of Directors for the Annual Meeting will
determine the presence of a quorum and will tabulate the results of shareholder
voting. As provided by the General Corporation Law of Ohio and the Code, holders
of Common Shares entitling them to exercise a majority of the voting power of
the Company, present in person or by Proxy at the Annual Meeting, will
constitute a quorum for such meeting. The inspectors of election intend to treat
properly executed Proxies marked "abstain" as present for these purposes. Such
inspectors also will treat as "present" shares held in "street name" by brokers
that are voted on at least one proposal to come before the Annual Meeting.
Nominees for election as Directors receiving the greatest number of votes
will be elected. Votes that are withheld or broker non-votes in respect of the
election of Directors will not be counted in determining the outcome of the
election. Approval of the amendment to the Company's Fifth Amended and Restated
Articles of Incorporation requires the affirmative vote of the holders of a
majority of the outstanding Common Shares of the Company entitled to vote at the
Annual Meeting of Shareholders, and broker non-votes with respect to the
amendment will have the same effect as a vote against the amendment. Pursuant to
the Code, the outcome of the vote relating to all other questions and matters
brought before the Annual Meeting will be, unless otherwise provided by law or
the Articles, decided by the vote of a majority of the Common Shares present in
person or by Proxy and entitled to vote on the matter in question. In voting for
such proposals, votes may be cast in favor, against or abstained. For purposes
of determining whether a proposal, other than a proposal to elect an individual
1
<PAGE> 5
or Director, has received a majority vote, abstentions will be included in the
vote totals with the result that an abstention will have the same effect as a
negative vote. In instances where brokers are prohibited from exercising
discretionary authority for shareholders who have not returned a Proxy, such
broker non-votes will have the same effect as a vote against such proposal. For
all other proposals, unless otherwise provided by law or the Articles, such
broker non-votes will not be included in the vote totals and, therefore, will
have no effect on the outcome of the vote on such other proposals.
SECURITY OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
The following table sets forth, as of July 31, 1999, the beneficial
ownership of the Common Shares of (i) each person who is known to the Company to
own beneficially more than 5% of the outstanding Common Shares, (ii) each
Director of the Company, (iii) each of the Named Executive Officers (as
hereinafter defined) and (iv) all Directors and executive officers as a group.
Unless otherwise indicated, all information with respect to beneficial ownership
has been furnished by the respective Director or executive officer, as the case
may be.
<TABLE>
<CAPTION>
COMMON SHARES &
BENEFICIALLY OWNED(1)
----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ ---------- --------
<S> <C> <C>
Dr. Jeffrey A. Green(2)..................................... 449,981 6.8%
Timothy G. Biro(3).......................................... 13,200 *
Seth B. Harris(4)........................................... 92,534 1.4%
Terry C. Black.............................................. 45,000 *
Patrick G. Chassaigne(5).................................... 0 *
Gregory A. Folz(6).......................................... 10,000 *
Herbert L. Hugill(7)........................................ 100,000 1.5%
Philip A. Stark(8).......................................... 13,500 *
Dr. Robert M. Stote......................................... 43,974 *
Dr. Alan G. Walton(9)....................................... 622,252 9.4%
Dr. Mark J. Ratain.......................................... 41,500 *
Robert E. Flaherty.......................................... 11,500 *
Axiom Venture Partners Limited Partnership.................. 577,586 8.8%
City Place II
185 Asylum Street
Hartford, Connecticut 06103
Brantley Venture Partners II, L.P........................... 746,052 11.3%
20600 Chagrin Boulevard, Suite 1150
Cleveland, Ohio 44122
Oxford BioScience Funds(9)(10).............................. 622,252 9.4%
315 Post Road West
Westport, Connecticut 06880
Wellington Management Company(11)........................... 448,500 6.8%
75 State Street
Boston, Massachusetts 02109
State of Wisconsin Investment Board(12)..................... 370,000 5.6%
P.O. Box 7842
Madison, Wisconsin 53707
Heartland Advisors, Incorporated(13)........................ 1,261,400 19.1%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
All directors and executive officers as a group (12
persons).................................................. 1,429,491 21.0%
</TABLE>
- ---------------
* Less than one percent.
(1) The number of Common Shares deemed outstanding includes (i) 6,590,322
Common Shares outstanding as of July 31, 1999 and (ii) with respect to each
of the following individuals and group the following number
2
<PAGE> 6
of Common Shares, which may be purchased pursuant to option exercises
within 60 days after the date of this Proxy Statement: Dr. Green (50,000
Common Shares); Mr. Biro (13,000 Common Shares); Mr. Harris (39,500 Common
Shares); Dr. Stote (39,500 Common Shares); Dr. Walton (3,000 Common
Shares); Dr. Ratain (41,500 Common Shares); Mr. Flaherty (11,500 Common
Shares); Mr. Black (35,000 Common Shares); Brantley Venture Partners 11,
L.P. ("Brantley") (5,166 Common Shares); Oxford BioScience Management
Partners ("OBM") (834 Common Shares); all Directors and executive officers
as a group (233,834 Common Shares).
(2) Includes 150,000 Common Shares held by Dr. Green's wife, as to which he
disclaims beneficial ownership.
(3) Includes 200 Common Shares held by Mr. Biro's wife.
(4) Includes 400 Common Shares held by Mr. Harris's wife and 44,634 Common
Shares held in trust for Mr. Harris.
(5) Mr. Chassaigne terminated his employment with the Company on April 16,
1999.
(6) In connection with the sales of the Company's clinical business, Mr. Folz's
employment was terminated on April 20, 1999.
(7) Includes 50,000 Common Shares held in trust for Mr. Hugill. In connection
with the sale of the Company's clinical business, Mr. Hugill's employment
was terminated on April 20, 1999. Mr. Hugill has indicated that he will
retire as a Director of the Company at the Company's Annual Meeting on
September 22, 1999.
(8) Mr. Stark's employment with the Company was terminated on May 4, 1998. The
amount of Common Shares beneficially owned by Mr. Stark was obtained from a
report filed with the Securities and Exchange Commission (the
"Commission"), dated March 3, 1998, pursuant to the requirements of Section
16(a) of the Exchange Act.
(9) Includes 408,690 and 82,517 Common Shares owned by Oxford BioScience
Partners, L.P. ("Oxford") and Oxford BioScience Partners (Adjunct), L.P.
("Oxford Adjunct"), respectively, of which OBP Management, L.P. ("OBP") is
the general partner, and 113,378 Common Shares owned by Oxford BioScience
Partners (Bermuda) Limited Partnership ("Oxford Bermuda"), of which OBP
Management (Bermuda) Limited Partnership ("OBP Bermuda") is the general
partner. OBP may be deemed to be the beneficial owner of Common Shares
owned by Oxford Bermuda. Includes 13,833 Common Shares owned by OBM. Also
includes 834 and 3,000 Common Shares issuable upon exercise of options
owned by OBM and Dr. Walton, respectively, that are currently exercisable.
Dr. Walton, a Director of the Company, is a general partner of OBP, OBP
Bermuda and OBM and may be deemed to be a beneficial owner of the Common
Shares held by such entities. Dr. Walton has indicated that he will retire
as a Director of the Company at the Company's Annual Meeting on September
22, 1999.
(10) The information provided herein with respect to the beneficial ownership of
the Common Shares by the Oxford BioScience Funds was obtained solely from a
Schedule 13G filed with the Commission on February 12, 1999 by the Oxford
BioScience Funds.
(11) The Common Shares listed are held by Wellington Management Company in its
capacity as investment advisor. Various persons other than Wellington
Management Company have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the Common
Shares held. The interests of one such account, Global Health Care
Opportunity, relates to more than 5% of the outstanding Common Shares. The
information provided herein with respect to Wellington Management Company's
beneficial ownership of the Common Shares was obtained solely from a
Schedule 13G filed with the Commission on January 24, 1999 by Wellington
Management Company.
(12) The information provided herein with respect to the beneficial ownership of
the Common Shares by the State of Wisconsin Investment Board was obtained
solely from a Schedule 13G filed with the Commission on January 16, 1999 by
the State of Wisconsin Investment Board.
(13) The Common Shares listed are held by Heartland Advisors, Incorporated in
its capacity as investment advisor. Various persons other than Heartland
Advisors, Incorporated have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the Common
Shares held. The interests of one such account, Heartland Value Fund, a
series of Heartland Group, Incorporated, a registered investment company,
relates to more than 5% of the outstanding Common Shares. The information
provided herein with respect to Heartland Advisors, Incorporated's
beneficial ownership of the Common Shares was obtained solely from the
Schedule 13G filed with the Commission on January 13, 1999 by Heartland
Advisors, Incorporated.
3
<PAGE> 7
ELECTION OF DIRECTORS
The authorized number of Directors of the Company is presently fixed at
nine, with members of the Board of Directors divided into three classes and with
the term of office of one class expiring each year. On July 23, 1998, in
accordance with the Code, the Board of Directors elected Robert E. Flaherty to
fill a vacancy in the class of Directors whose term of office will expire at the
Annual Meeting to be held in the year 2001. Effective April 11, 1999, Dr. Stoll
retired as a Director of the Company. In addition, Mr. Hugill and Dr. Walton
have indicated that they will retire as Directors of the Company at the
Company's Annual Meeting on September 22, 1999.
At the Annual Meeting, shareholders will be asked to approve an amendment
to the Articles to decrease the number of classes of the Company's Board of
Directors from three classes of Directors to two classes of Directors. If that
amendment to the Articles is approved, shareholders will nominate and elect
three individuals as Directors to serve until the Annual Meeting to be held in
the year 2001 and until their successors are duly elected and qualified. At its
July 29, 1999 meeting, the Board of Directors nominated Dr. Jeffrey A. Green,
Timothy G. Biro and Dr. Robert M. Stote to stand for election as Directors at
the Annual Meeting. Dr. Green, Mr. Biro and Dr. Stote are presently Directors of
the Company.
If the proposed amendment to the Articles is approved, after the Annual
Meeting the Board of Directors, pursuant to the Code, will fix the number of the
Company's Directors at six, with the Board of Directors divided into two classes
and with the term of office of one class expiring each year.
If the proposed amendment to the Articles is not approved, shareholders
will instead nominate and elect three individuals as Directors of the Company
for a three-year term ending at the Annual Meeting to be held in the year 2002.
Furthermore, if the proposed amendment to the Articles is not approved, the
Company's Board of Directors will continue to have three classes of Directors
with three vacancies.
Unless otherwise directed, the persons named in the accompanying Proxy will
vote for the election of the three nominees set forth below as Directors of the
Company. In the event of the death of or inability to act of any of the
nominees, the Proxies will be voted for the election of such other persons as
the Board of Directors may recommend. The Board of Directors has no reason,
however, to anticipate that this will occur. In no event will the accompanying
Proxy be voted for more than three nominees or for persons other than those
persons named below or any such substitute nominees for any of them.
Set forth below is certain information concerning the nominees for election
at the Annual Meeting as well as those Directors who will continue in office
subsequent to the Annual Meeting.
NOMINEES FOR ELECTION AT THE 1999 ANNUAL MEETING
Jeffrey A. Green, Pharm.D., FCP. Dr. Green has served as the President and
Chief Executive Officer and a Director of the Company since 1992. Dr. Green
founded the Company in 1992. From 1984 to 1992, Dr. Green served as an Assistant
Professor of Medicine and Radiology at Case Western Reserve University,
Cleveland, Ohio. During his tenure at Case Western Reserve University, Dr. Green
established and directed the Cardiovascular Clinical Pharmacology Research
Program at University Hospitals of Cleveland. In addition, Dr. Green was an
established investigator in clinical cardiology and PET scanning and was
responsible for directing over 90 individual investigations during his tenure.
Dr. Green has authored over 90 publications and has been an invited speaker at
more than 125 national meetings. He was the recipient of the McKeen Cattell
Distinguished Achievement Award from the American College of Clinical
Pharmacology in 1988. Dr. Green is a graduate of Purdue University (B.S.) and
the University of Texas (Pharm.D.). Dr. Green is 43 years of age.
Timothy G. Biro. Mr. Biro has been a Director of the Company since 1992.
Mr. Biro is the General Partner of Ohio Innovation Fund I, L.P., a venture
capital firm. Prior to starting Ohio Innovation Fund in 1997, Mr. Biro was a
consultant with Cleveland Tomorrow, an economic development corporation. From
1991 to 1996, Mr. Biro was a General Partner of Brantley Venture Partners II,
L.P. and Brantley Venture Partners III, L.P. Prior to joining Brantley Venture
Partners in 1991, Mr. Biro was Superintendent of Pharmaceutical Manufacturing at
Merck & Co., Inc. Mr. Biro has a B.S. Degree in Microbiology from Pennsylvania
State University and in Pharmacy from Temple University and an MBA from The
Wharton School of Business at the University of Pennsylvania. He is a
4
<PAGE> 8
Director of OXIS International, Inc., a developer of pharmaceuticals to treat
diseases of oxidative stress. Mr. Biro is 45 years of age.
Robert M. Stote, M.D. Dr. Stote has been a Director of the Company since
1993 and has served as the Senior Vice President and Chief Science Officer and a
Director of Bentley Pharmaceuticals, Inc., a pharmaceutical company, since 1992.
Prior to that time, Dr. Stote was employed for 20 years by SmithKline Beecham
Corporation, serving as Senior Vice President and Medical Director, Worldwide
Medical Affairs, from 1989 to 1992 and Vice President--Clinical
Pharmacology--Worldwide from 1987 to 1989. Dr. Stote was Chief of Nephrology at
Presbyterian Medical Center in Philadelphia from 1972 to 1989 and served as
Clinical Professor of Medicine at the University of Pennsylvania. Dr. Stote is
60 years of age.
DIRECTORS CONTINUING IN OFFICE
Mark J. Ratain, M.D. Dr. Ratain has been a Director of the Company since
April 1998. Dr. Ratain is a hematologist/oncologist and a clinical
pharmacologist. He is a Professor of Medicine and Chairman of the Committee on
Clinical Pharmacology at the University of Chicago. Dr. Ratain has been
associated with the Department of Medicine at the University of Chicago since
1983. He has authored and co-authored more than 150 articles and book chapters
principally relating to the treatment of cancer. Prior to becoming a Director,
Dr. Ratain served as Chairman of the Company's Scientific Advisory Board for
four years. He received his A.B. Degree in Biochemical Sciences from Harvard
University and his M.D. from the Yale University School of Medicine. Dr. Ratain
is 44 years of age. Notwithstanding the outcome of the shareholder vote
regarding the amendment to the Articles, Dr. Ratain will continue in office as a
Director until the Company's Annual Meeting to be held in the year 2000.
Seth B. Harris. Mr. Harris has been a Director of the Company since 1992
and has been the Chairman of Freider the Source, a distributor of consumer
products, since 1993. Mr. Harris is the Retired Chairman of the Board and
President of Harris Wholesale, Inc., a wholesale pharmaceutical distribution
company. Mr. Harris is also a Director of Bindley Western Industries, Inc., one
of the largest distributors of pharmaceuticals in the United States. Mr. Harris
is 59 years of age. If the Company's shareholders approve the amendment to the
Articles, Mr. Harris will resign his current position as Director in the class
of Directors to be elected at the Company's Annual Meeting to be held in the
year 2001 and subsequently be appointed by the remaining members of the Board of
Directors to serve as a Director in the class of Directors to be elected at the
Company's Annual Meeting to be held in the year 2000. If the Company's
shareholders do not approve the amendment to the Articles, Mr. Harris will
continue in office as a Director in the class of Directors to be elected at the
Company's Annual Meeting to be held in the year 2001.
Robert E. Flaherty. Robert E. Flaherty has been a Director of the Company
since July 1998. Mr. Flaherty is President and Chief Executive Officer of Athena
Diagnostics, Inc., a unit of the Athena Neurosciences division of Elan
Corporation, plc. Mr. Flaherty has held his position with Athena Diagnostics,
Inc. since 1992. Athena Neurosciences is involved in the discovery, development
and marketing of therapeutic agents for the diagnosis and treatment of central
nervous system diseases and disorders. From 1976 through 1992 Mr. Flaherty was
employed in various management positions with Becton Dickinson & Company. Mr.
Flaherty is 53 years of age. If the Company's shareholders approve the amendment
to the Articles, Mr. Flaherty will resign his current position as Director in
the class of Directors to be elected at the Company's Annual Meeting to be held
in the year 2001 and subsequently be appointed by the remaining members of the
Board of Directors to serve as a Director in the class of Directors to be
elected at the Company's Annual Meeting to be held in the year 2000. If the
Company's shareholders do not approve the amendment to the Articles, Mr.
Flaherty will continue in office as a Director in the class of Directors to be
elected at the Company's Annual Meeting to be held in the year 2001.
5
<PAGE> 9
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee, a Compensation Committee and
an Executive Committee. The Company does not have a standing nominating
committee or a committee performing similar functions. Set forth below is the
current membership of each of the above-described Committees:
<TABLE>
<CAPTION>
AUDIT COMPENSATION EXECUTIVE
COMMITTEE COMMITTEE COMMITTEE
--------- ------------ ---------
<S> <C> <C>
Dr. Mark J. Ratain Robert E. Flaherty Dr. Jeffrey A. Green
Timothy G. Biro Seth B. Harris Timothy G. Biro
Dr. Alan G. Walton Dr. Robert M. Stote Dr. Alan G. Walton
</TABLE>
The Audit Committee recommends the annual appointment of the Company's
auditors, with whom the Audit Committee members review the scope of audit and
non-audit assignments and related fees, the accounting principles used by the
Company in financial reporting, internal financial auditing procedures and the
adequacy of the Company's internal control procedures. The Audit Committee met
two times during the 1998 fiscal year.
The Compensation Committee has the authority to administer the Company's
stock option plans, including the selection of optionees and the timing of
option grants, and to review and monitor key employee compensation and benefits
policies and administer the Company's management compensation plans. The
Compensation Committee met two times during the 1998 fiscal year.
The Executive Committee has the authority to exercise all the powers of the
Board of Directors in the management of the business and affairs of the Company
at any time when the entire Board of Directors cannot meet.
During the last fiscal year, the Board of Directors met eleven times. No
Director attended fewer than 75% of the aggregate number of meetings of the
Board of Directors and the committees on which each served during the period for
which each was a member of the Board of Directors.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash compensation for their service
on the Board of Directors. However, they do receive reimbursement for reasonable
expenses incurred in attending meetings of the Board of Directors. Directors who
are not also employees receive options to purchase Common Shares under the
Company's Amended and Restated 1996 Outside Directors' Stock Option Plan. Under
the terms of this plan, each non-employee Director receives an annual option
grant to purchase 2,500 Common Shares at an exercise price equal to the fair
market value of a share on the date of grant. The annual grant occurs
automatically on the day after the Company's Annual Meeting. As of July 31,
1999, options to purchase an aggregate of 69,500 Common Shares had been awarded
and were outstanding under this plan at exercise prices ranging from $4.19 to
$9.60. Options awarded under this plan vest in periods ranging from six months
to three years after the date of grant and expire ten years from the date of
grant. As a result of the consummation of the sale of its clinical business, all
options previously awarded by the Company immediately became vested and
exercisable. Prior to the Company's initial public offering in June 1996,
Directors received options under other option plans maintained by the Company,
as described below.
Non-employee Directors received options to purchase Common Shares under the
Company's Amended and Restated 1992 Share Incentive Plan (the "1992 Plan").
Options to purchase an aggregate of 80,000 Common Shares were awarded to
non-employee Directors under the 1992 Plan at an exercise price of $0.15 per
share. Each Director who is not a Named Executive Officer received options to
purchase the following numbers of Common Shares under the 1992 Plan: Mr. Harris,
25,000 Common Shares; Dr. Stote, 25,000 Common Shares; and Dr. Ratain, 30,000
Common Shares. Dr. Ratain was awarded stock options for his service as a
consultant to the Company prior to his current service on the Board of
Directors. In addition, prior to the Company's initial public offering in June
1996, members of the Board who were designated to serve as such by certain
investors received, in lieu of Directors' fees, options to purchase Common
Shares having a value equal to $1,000 for each meeting attended ($500 for each
meeting attended by telephone). These awards were made under the Company's
6
<PAGE> 10
Amended and Restated 1994 Directors' Share Option Plan (the "1994 Plan"). An
aggregate of 4,500 Common Shares were awarded and are outstanding under the 1994
Plan at exercise prices ranging from $0.80 to $9.60 per share.
EXECUTIVE OFFICER COMPENSATION
The table below sets forth certain information concerning the annual or
long-term compensation for services in all capacities to the Company during the
fiscal years ended December 31, 1996, 1997 and 1998 to the Company's Chief
Executive Officer, the four other highest paid executive officers of the Company
whose annual salary and bonus exceeded $100,000 and the former Vice President of
Corporate Development (the "Named Executive Officers").
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION(1) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)(2)
- --------------------------- ---- ---------- --------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Dr. Jeffrey A. Green........ 1998 $180,000 $ -- -- $ --
President, Chief Executive 1997 160,984 -- -- --
Officer and Director 1996 150,000 -- 25,000(3) --
Herbert L. Hugill(4)........ 1998 170,000 -- -- --
Chief Operating Officer 1997 11,589 -- 50,000(5) --
And Director 1996 -- -- -- --
Terry C. Black.............. 1998 125,645 -- -- --
Vice President of Finance, 1997 86,145 -- 15,000(6) --
Chief Financial Officer, 1996 90,000 --
Treasurer and Assistant
Secretary
Patrick G.
Chassaigne(4)(7).......... 1998 150,000 -- -- --
President of DataTRAK, Inc. 1997 68,081 -- 30,000(7) --
1996 -- -- -- --
Gregory A. Folz(8).......... 1998 130,000 -- -- --
Vice President of Marketing 1997 101,904 -- -- --
And Sales 1996 53,653 22,107 10,100(9) --
Philip A. Stark(4).......... 1998 47,462 8,000 -- 255,342(10)
Vice President of 1997 77,618 8,000 40,000(11)
Corporate Development 1996 -- -- -- --
</TABLE>
- ---------------
(1) No Named Executive Officer received perquisites or other personal benefits
in excess of the lesser of $50,000 or 10% of such individual's salary plus
annual bonus. No long-term incentive plan payouts or restricted stock
awards have been made to any of the Named Executive Officers.
(2) No other compensation was received by the Named Executive Officers.
(3) Dr. Green's options were granted on January 2, 1997, at an exercise price
of $10.75 per share, all of which became exercisable on April 20, 1999 as a
result of the sale of the Company's clinical business.
(4) Messrs. Hugill, Stark and Chassaigne were not employees of the Company at
any time during 1996.
(5) Mr. Hugill's options were granted on December 9, 1997, at an exercise price
of $4.50 per share, all of which became exercisable on April 20, 1999 as a
result of the sale of the Company's clinical business. In
7
<PAGE> 11
connection with the sale of the Company's clinical business, Mr. Hugill's
employment with the Company was terminated on April 20, 1999.
(6) Mr. Black's options were granted on January 2, 1997, at an exercise price
of $10.75 per share, all of which became exercisable on April 20, 1999 as a
result of the sale of the Company's clinical business.
(7) Mr. Chassaigne's options were granted on July 7, 1997, at an exercise price
of $7.13 per share, 33.3% of which are exercisable on each of July 7, 1998,
July 7, 1999, July 7, 2000 and July 7, 2001. Mr. Chassaigne terminated his
employment with the Company on April 16, 1999, and his options were
subsequently canceled.
(8) In connection with the sale of the Company's clinical business, Mr. Folz's
employment with the Company was terminated on April 20, 1999.
(9) Mr. Folz's options were granted on July 29, 1996, at an exercise price of
$10.50 per share, all of which became exercisable on April 20, 1999 as a
result of the sale of the Company's clinical business.
(10) In connection with the Company's 1998 corporate reorganization, Mr. Stark's
employment with the Company was terminated on May 4, 1998. Pursuant to Mr.
Stark's employment agreement, Mr. Stark was entitled to receive severance
pay of $255,342 upon his involuntary termination. In 1998, $126,402 of the
$255,342 was paid to Mr. Stark and the remainder was paid to him in 1999.
(11) Mr. Stark's options were granted on May 2, 1997 at an exercise price of
$6.25 per share, 25% of which became exercisable on May 2, 1998 and 75% of
which became exercisable on May 4, 1998, pursuant to the terms of Mr.
Stark's employment with the Company, when Mr. Stark's employment with the
Company was terminated. These options were not exercised, and were
subsequently canceled.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The table below sets forth certain information with respect to the exercise
of options to purchase Common Shares by the Named Executive Officers and
unexercised options to purchase Common Shares for the Named Executive Officers
as of December 31, 1998.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1998 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE MONEY OPTIONS AT
STOCK DECEMBER 31, 1998(#) DECEMBER 31, 1998 (%)(1)
ACQUIRED ON VALUE --------------------------- ------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Jeffrey A. Green.... $-- $-- 25,000 25,000 $ -- $--
Herbert L. Hugill....... -- -- 12,500 37,500 -- --
Terry C. Black.......... -- -- 26,250 13,750 57,750 --
Patrick G. Chassaigne... -- -- 10,000 20,000 -- --
Gregory A. Folz......... -- -- 5,050 5,050 -- --
Philip A. Stark......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options are in-the-money if the market value of the Common Shares exceeds
the exercise price.
(2) Represents the total gain which would be realized if all in-the-money
options beneficially held at December 31, 1998 were exercised, determined by
multiplying the number of Common Shares underlying the options by the
difference between the per share option exercise price and $4.00, the
closing price for the Common Shares as reported on Nasdaq on December 31,
1998.
8
<PAGE> 12
EMPLOYMENT AGREEMENTS
Dr. Jeffrey A. Green. In 1994, the Company entered into an employment
agreement with Dr. Green providing for an initial term of four years. This
agreement will automatically renew for successive one-year periods thereafter
unless certain prior notice requirements are satisfied. The base salary provided
for in this agreement may be changed from time to time as determined by the
Compensation Committee and so long as evidenced by a written memorandum executed
by the parties. Bonuses may be paid to Dr. Green at the discretion of the
Compensation Committee. The agreement also provides Dr. Green with the right to
participate in all benefit plans made available to the Company's executives
and/or employees. Dr. Green's employment with the Company may be terminated with
or without cause, upon his death or disability or with sufficient cause.
Additionally, under this agreement, Dr. Green is entitled to terminate his
employment for "good reason." "Good reason" for such termination will exist if
at any time, except in connection with the termination of Dr. Green's employment
in strict compliance with the terms of the agreement, the Board of Directors
fails to elect Dr. Green to his current position with the Company or
significantly diminishes his responsibilities, duties, power or authority. If
Dr. Green terminates his employment with the Company for good reason, he will be
entitled to continue to receive his base salary for two years following the date
of such termination. If Dr. Green's employment with the Company is terminated in
connection with the sale of the Company, he will be entitled to continue to
receive his base salary for one year following the date of such termination. If
his employment is terminated without cause or without sufficient reason, he will
be entitled to continue to receive his base salary for a period of two years
subsequent to the date of termination. If Dr. Green terminates his employment
with the Company without good reason, or if he is terminated by the Company for
"cause," then he will be entitled to receive his base salary through the date of
termination. For purposes of Dr. Green's agreement, "cause" is defined as a
determination by the Board of Directors that the employee was engaged in (i)
fraud, (ii) a breach of the material provisions of the employment agreement or
(iii) a willful failure to perform his duties as required under this agreement.
"Sufficient reason" shall mean a good faith determination that the employee
failed to adequately perform his duties as an officer of the Company or achieve
the business objectives mutually agreed upon by the parties. Dr. Green also
agreed to certain noncompetition and nondisclosure provisions which, under
certain conditions, continue for a period of up to eighteen months following a
termination of Mr. Green's employment with the Company.
Herbert L. Hugill. In 1997, the Company entered into an employment
agreement with Mr. Hugill providing for a term of four years. The base salary
provided for in this agreement was $170,000 per year. Mr. Hugill was granted
50,000 options to purchase Common Shares within the first 30 days of employment
with the Company, and was entitled to 50,000 additional options on each of
January 1, 1999, 2000 and 2001, so long as certain performance objectives are
met. Mr. Hugill was not awarded 50,000 options on January 1, 1999. The agreement
also provided Mr. Hugill with the right to participate in all benefits plans
made available to the Company's executives and/or employees. Mr. Hugill's
employment with the Company could have been terminated with or without cause or
upon his death or disability. Additionally, under this agreement, Mr. Hugill
would have been entitled to terminate his employment for "good reason." "Good
reason" for such termination would have existed if at any time, except in strict
compliance with the terms of the agreement, Mr. Hugill's duties,
responsibilities or title had been materially reduced or Mr. Hugill had been
involuntarily removed from any position previously held. If Mr. Hugill would
have terminated his employment with the Company for good reason, he would have
been entitled to receive his base salary for a period of six months following
the date of such termination. If Mr. Hugill's employment with the Company had
been terminated in connection with the sale of the Company, he would have been
entitled to continue to receive his base salary for one year following the date
of such termination. If his employment had been terminated without cause, he
would have been entitled to receive his base salary for a period of one year
subsequent to the date of termination. If Mr. Hugill had terminated his
employment with the Company without good reason, or if he had terminated by the
Company for "cause," he would have been entitled to receive his base salary
through the date of termination. For purposes of Mr. Hugill's agreement, "cause"
was defined as a determination by the Board of Directors that the employee was
engaged in (i) a felony involving moral turpitude or a felony in connection with
his employment, (ii) fraud, (iii) use or possession of illegal drugs on the
Company's premises or reporting to work under the influence of same or (iv)
conduct, in or out of the workplace, which may reasonably be determined to have
an adverse effect on the reputation or business of the Company. Mr. Hugill also
agreed to certain noncompetition and nondisclosure
9
<PAGE> 13
provisions which continue for a period of six to fifteen months following a
termination of Mr. Hugill's employment with the Company. In connection with the
sale of the Company's clinical business, Mr. Hugill's employment with the
Company was terminated on April 20, 1999. Since April 1999, Mr. Hugill has
served as President of the Clinical Services Group for West Pharmaceutical
Services.
Terry C. Black. In 1994, the Company entered into an employment agreement
with Mr. Black providing for an initial term of four years. This agreement will
automatically renew for successive one-year periods thereafter unless certain
prior notice requirements are satisfied. The base salary initially provided for
in this agreement was $85,000 per year, to be reviewed at least annually by the
Compensation Committee. Bonuses may be paid to Mr. Black at the discretion of
the Compensation Committee. The agreement also provides Mr. Black with the right
to participate in all benefits plans made available to the Company's executives
and/or employees. Mr. Black's employment with the Company may be terminated with
or without cause or upon his death or disability. Additionally, Mr. Black is
entitled to terminate his employment for "good reason." If Mr. Black terminates
his employment with the Company for good reason, he will be entitled to receive
his base salary for a period of one year following the date of such termination.
If Mr. Black's employment with the Company is terminated in connection with the
sale of the Company, he will be entitled to continue to receive his base salary
for one year following the date of such termination. If his employment is
terminated without cause, he will be entitled to receive his base salary for a
period of one year subsequent to the date of termination. If Mr. Black
terminates his employment with the Company without good reason, or if he is
terminated by the Company for "cause," he will be entitled to receive his base
salary through the date of termination. For purposes of Mr. Black's agreement,
"cause" is defined as a determination by the Board of Directors that the
employee was engaged in (i) fraud, (ii) breach of the material provisions of the
employment agreement or (iii) a willful failure to perform his duties as
required under this agreement. Mr. Black also agreed to certain noncompetition
and nondisclosure provisions which continue, under certain conditions for a
period up to two years following a termination of Mr. Black's employment with
the Company.
Patrick G. Chassaigne. In 1997, the Company entered into an employment
agreement with Mr. Chassaigne providing for an initial term of three years, and
thereafter automatically renewed for successive one-year periods unless certain
prior notice requirements were satisfied. The base salary provided for in this
agreement was $150,000 per year. The base salary provided for in this agreement
could have been changed from time to time after a determination by the
Compensation Committee and so long as evidenced by a written memorandum executed
by the parties. The agreement also provided Mr. Chassaigne with the right to
participate in all benefits plans made available to the Company's executives
and/or employees. Mr. Chassaigne's employment with the Company could have been
terminated with or without cause, upon his death or disability or with
"sufficient reason." Additionally, under this agreement, Mr. Chassaigne was
entitled to terminate his employment for "good reason." "Good reason" for such
termination existed if at any time, except in strict compliance with the terms
of the agreement, Mr. Chassaigne's duties, responsibilities or title were
significantly reduced or the Board failed to elect Mr. Chassaigne as an officer
of the Company or of DataTRAK, Inc., or if he was involuntarily removed from any
such position. If Mr. Chassaigne terminated his employment with the Company for
good reason, he would have been entitled to receive his base salary for a period
of two years following the date of such termination. If Mr. Chassaigne's
employment with the Company was terminated in connection with the sale of the
Company, he would have been entitled to continue to receive his base salary for
one year following the date of such termination. If his employment was
terminated without cause, he would have been entitled to receive his base salary
for a period of one year subsequent to the date of termination. If Mr.
Chassaigne terminated his employment with the Company without good reason, or if
he was terminated by the Company for "cause," he would have been entitled to
receive his base salary through the date of termination. For purposes of Mr.
Chassaigne's agreement, "cause" was defined as a determination by the Board of
Directors that the employee was engaged in (i) fraud, (ii) breach of the
material provisions of the employment agreement or (iii) a willful failure to
perform his duties as required under this agreement. If Mr. Chassaigne was
terminated by the Company with "sufficient reason," he would have been entitled
to receive his base salary for a period of one year subsequent to the date of
termination. If Mr. Chassaigne was terminated by the Company without sufficient
reason," he would have been entitled to receive his base salary for a period of
two years subsequent to the date of termination. "Sufficient reason" meant a
good faith determination by the Company's Chief Executive Officer that the
employee failed to (i) adequately perform his duties as an officer of the
Company, (ii) exercise a level of
10
<PAGE> 14
judgment and skill in the management of the Company comparable to other
similarly situated executives, following 60 days notice from the Chief Executive
Officer of dissatisfaction with the employee's performance or (iii) achieve the
business objectives mutually agreed upon by the parties. Mr. Chassaigne also
agreed to certain noncompetition and nondisclosure provisions which, under
certain conditions, continue for a period of up to fifteen months following a
termination of Mr. Chassaigne's employment with the Company. Mr. Chassaigne
terminated his employment with the Company on April 16, 1999.
Gregory A. Folz. In 1998, the Company entered into an employment agreement
with Mr. Folz providing for an initial term of one year, and thereafter
automatically renewed for successive one-year periods unless otherwise
terminated in accordance with the agreement. The base salary provided for in
this agreement was $130,000 per year. The agreement also provided Mr. Folz with
the right to participate in all benefits plans made available to the Company's
executives and/or employees. Mr. Folz's employment with the Company could have
been terminated with or without cause or upon his death or disability.
Additionally, under this agreement, Mr. Folz was entitled to terminate his
employment for "good reason." "Good reason" for such termination would have
existed if at any time, except in strict compliance with the terms of the
agreement, (i) Mr. Folz's duties, responsibilities or title are materially
reduced, (ii) Mr. Folz's base salary is reduced or (iii) Mr. Folz is required by
the Company to relocate his business offices to a new city. If Mr. Folz had
terminated his employment with the Company for good reason, he would have been
entitled to receive his base salary for a period of one year following the date
of such termination. If Mr. Folz's employment with the Company had been
terminated in connection with the sale of the Company, he would have been
entitled to continue to receive his base salary for one year following the date
of such termination. If his employment had been terminated without cause, he
would have been entitled to receive his base salary for a period of one year
subsequent to the date of termination. If Mr. Folz had terminated his employment
with the Company without good reason, or if he had terminated by the Company for
"cause," he would have been entitled to receive his base salary through the date
of termination. For purposes of Mr. Folz's agreement, "cause" was defined as (i)
failure to complete satisfactorily the Company's routine pre-employment
background check, (ii) conviction of a felony involving moral turpitude or a
felony in connection with his employment, (iii) fraud, (iv) use or possession of
illegal drugs on the Company's premises or reporting to work under the influence
of same, or (v) engaging in conduct, in or out of the workplace, which may be
reasonably determined to have an adverse effect on the reputation or business of
the Company. Mr. Folz also agreed to certain noncompetition and nondisclosure
provisions which continue for a period of one year following a termination of
Mr. Folz's employment with the Company. In connection with the sale of the
Company's clinical business, Mr. Folz's employment with the Company was
terminated on April 20, 1999. Since April 20, 1999, Mr. Folz has been an
employee of the Clinical Services Group of West Pharmaceutical Services.
Philip A. Stark. In 1997, the Company entered into an employment agreement
with Mr. Stark providing for an initial term of four years, and thereafter
automatically renewed for successive one-year terms unless otherwise terminated
in accordance with the agreement. The base salary provided for in this agreement
for the first year of employment was $116,000, with the base salary increasing
to $132,000 for each year thereafter. On the first anniversary of the agreement,
Mr. Stark was entitled to a bonus of $16,000. The agreement also provided Mr.
Stark with the right to participate in all benefits plans made available to the
Company's executives and/or employees. Mr. Stark's employment with the Company
could have been terminated with or without cause, upon his death or disability
or with "sufficient reason." Additionally, under his. agreement, Mr. Stark was
entitled to terminate his employment for "good reason." "Good reason" for such
termination would have existed if at any time the Company committed a material
breach of the agreement, failed to employ Mr. Stark as a management executive or
failed to vest Mr. Stark with the powers and authority customarily associated
with executives of the Company. If Mr. Stark had terminated his employment with
the Company for good reason, he would have been entitled to continue to receive
his base salary for a period of one year following the date of such termination.
If Mr. Stark's employment had been terminated in connection with the sale of the
Company, he would have been entitled to receive a payment equal to three times
his then current base salary, and all of his previously unvested stock options
would become vested prior to such sale. If Mr. Stark's employment had been
terminated without cause or sufficient reason, he would have been entitled to
receive his base salary for a period of two years following the date of such
termination, and all of his unvested options would have become fully vested. If
Mr. Stark had terminated his employment without good reason, or if he had been
terminated by the Company with sufficient reason or for "cause," he would have
been entitled to receive his base salary through the date of
11
<PAGE> 15
termination. For purposes of Mr. Stark's agreement, "cause" was defined as a
determination that the employee engaged in (i) fraud, (ii) breach of the
material provisions of the agreement or (iii) a willful failure to perform his
duties as required under the agreement. "Sufficient reason" was defined as a
good faith determination that the employee failed to (i) adequately perform his
duties as an officer of the Company or (ii) exercise a level of judgment and
skill in the management of the Company comparable to other similarly situated
executives, following 60 days notice from the Chief Executive Officer of
dissatisfaction with the employee's performance or (iii) achieve the business
objectives mutually agreed upon by the parties. Mr. Stark also agreed to certain
noncompetition provisions which continue for a period of two years following the
termination of his employment with the Company.
In connection with the Company's 1998 corporate reorganization, Mr. Stark's
employment with the Company was terminated on May 4, 1998. Pursuant to Mr.
Stark's employment agreement, Mr. Stark was entitled to receive $255,342 upon
his termination. In 1998, $126,402 of the $255,342 was paid to Mr. Stark and the
remainder was paid to him in 1999.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee administers the Company's stock option plans,
including the selection of optionees and the timing of option grants, and
reviews and monitors key employee compensation and benefits policies and
administers the Company's management compensation plans. The current members of
the Compensation Committee are Messrs. Flaherty and Harris and Dr. Stote, all of
whom are non-employee Directors.
Set forth below is a discussion of the Company's compensation philosophy,
together with a discussion of the factors considered by the Committee in
determining the compensation of the Company's President and Chief Executive
Officer and the Named Executive Officers.
COMPENSATION PHILOSOPHY
The Company's compensation philosophy is that compensation paid to
executive officers and other management personnel should consist of four
elements: (1) salary, (2) annual incentive bonus, (3) stock options and (4)
welfare, retirement and other benefits. The compensation package is designed to
attract and retain top quality management employees. In the opinion of the
Committee, it reflects competitive conditions of peer group companies. To some
extent, elements of compensation are designed to vary as Company performance
varies. In general, the elements of compensation that most typically have a
significant relationship to Company performance are awards under its stock
option and bonus plans. The Committee's decisions concerning compensation make
use of independent surveys of executive compensation of similarly situated
companies.
The Company has entered into employment agreements with all of its
executive officers. In general, the Committee believes that employment
agreements are a useful tool in attracting and retaining qualified executives.
Set forth below is a discussion of the various components of the
compensation arrangements provided to the executive officers, as well as a
discussion of the compensation arrangements provided to the Company's President
and Chief Executive Officer.
1998 COMPENSATION DECISIONS
Base Salary and Benefits. Salaries of executive officers are subject to
minimum levels set by the terms of each executive's employment arrangement with
the Company. The primary factor in setting salary levels pursuant to these
arrangements was the Company's desire to provide compensation in amounts
sufficient to induce these individuals to either join or continue with the
Company. Salary levels for executive officers reflect the Committee's judgments
on appropriate salaries in light of the duties and responsibilities inherent in
the executives' respective positions. The particular qualifications of an
individual holding the position and his or her level of experience, as well as
information concerning compensation paid by other companies in the industry, are
12
<PAGE> 16
considered in establishing salary levels. The Committee's assessment of the
individual's performance and contribution to the Company's performance are the
primary criteria influencing decisions regarding salary. For those executives
who joined the Company during the year, the primary factor in setting salary
levels was the Company's desire to provide compensation in amounts sufficient to
induce these individuals to join the Company.
Stock Options. The Company uses stock options as a long-term incentive
program for executive officers. Stock options are used because they directly
relate the amounts earned by the executive officers to the amount of
appreciation realized by the Company's shareholders over comparable periods.
Stock options also provide executive officers with the opportunity to acquire
and build a meaningful ownership interest in the Company. The Committee
considers stock option awards throughout the year. In determining the number of
options awarded to an individual executive officer, the Committee generally
establishes a level of award based upon the position of the individual and his
or her level of responsibility and upon recommendations made by the Company's
President and Chief Executive Officer. The Committee's decisions concerning
individual option awards are based on its judgment concerning the appropriate
amount of long-term compensation that should be paid to the executive in
question. The Company did not award any such stock options during the 1998
fiscal year.
Bonuses. Pursuant to the terms of its employment agreements with the
executive officers of the Company, the Company may pay additional compensation
in the form of discretionary bonuses. In general, the bonus structure is
open-ended and the bonus amount in any given year is determined by the
Committee. Bonuses may be provided either in the form of cash, Common shares or
a combination of the two, as the Committee determines. The Company did not pay
bonuses to its executive officers with respect to performance during the 1998
fiscal year. However, in 1999, in connection with the sale of the Company's
clinical division, Mr. Hugill was paid a cash bonus of $20,000.
PRESIDENT AND CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Green's employment contract with the Company contemplates compensation
in two broad areas: (i) a base salary and (ii) stock options under a long-term
compensation plan. His employment agreement provided for a base salary of
$180,000 for 1997 and 1998. When the Company failed to meet certain objectives
with regard to financial performance during 1997, Dr. Green elected to defer a
portion of his 1997 salary. As a result, Dr. Green was paid $160,984 in salary
for 1997. Dr. Green was paid his full salary of $180,000 in 1998. Dr. Green did
not receive a bonus in 1998.
THE COMPENSATION COMMITTEE
Robert E. Flaherty
Seth B. Harris
Dr. Robert M. Stote
13
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has engaged in various private transactions with the members of
its Compensation Committee or entities with which they are affiliated. The
Company believes that these transactions have been on terms no less favorable to
the Company than could have been obtained from unaffiliated third parties.
The Company engaged in various private equity financing transactions with
Mr. Harris and Dr. Stote and other shareholders in 1992, 1993 and 1994. As a
result of those transactions, Mr. Harris and Dr. Stote are among the parties to
a registration rights agreement with the Company under which they have been
provided certain rights to have their Common Shares registered under the
Securities Act of 1933 (the "Securities Act"). See "Certain Transactions."
PERFORMANCE CHART
The following line graph compares the percentage change in the cumulative
total shareholder return on the Common Shares against the cumulative total
return of The Nasdaq Stock Market U.S. Index and the Nasdaq Health Services
Index for the period commencing June 11, 1996 (the initial trading date for the
Common Shares) and ending December 31, 1998. The graph assumes that the value of
the investment in Common Shares and each index was $100 on June 11, 1996, and
that all dividends, if any, were reinvested.
COMPARISON OF 30 MONTH CUMULATIVE TOTAL RETURN*
AMONG DATATRAK INTERNATIONAL, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ HEALTH SERVICES INDEX
<TABLE>
<CAPTION>
DATA TRAK NASDAQ STOCK NASDAQ HEALTH
INTERNATIONAL MARKET (U.S.) SERVICES
------------- ------------- -----------
<S> <C> <C> <C>
06/11/96 100 100 100
12/96 80 104 83
12/97 38 127 85
12/98 30 179 73
</TABLE>
* $100 invested on 6/11/96 in
stock or on 5/31/96 in index,
including reinvestment of
dividends. Fiscal year ending
December 31.
14
<PAGE> 18
AMENDMENT TO THE COMPANY'S FIFTH AMENDED AND
RESTATED ARTICLES OF INCORPORATION
On July 29, 1999, the Board of Directors authorized an amendment to the
Articles to decrease the number of classes of Directors to two classes, with the
number of Directors in each class as nearly equal as possible and with each
class serving for a two-year term. Article V of the Articles currently provides
that the Company's Board of Directors shall be divided into three classes, with
each class as nearly equal in number of Directors as possible. The text of
Article V, as proposed to be amended, is attached as Appendix A to this Proxy
Statement. The Board of Directors does not presently contemplate proposing any
other changes to the Articles or the Code.
The Company's purpose in decreasing the number of classes of Directors on
its Board of Directors is to eliminate vacancies on the Board of Directors
resulting from the retirement of certain Directors and the current three-class
structure of the Board of Directors. On April 11, 1999, Dr. Stoll retired as a
Director of the Company. Furthermore, Mr. Hugill and Dr. Walton have indicated
that they will retire as Directors of the Company at the Company's Annual
Meeting on September 22, 1999. As a result of these retirements, and prior to
the approval of the amendment to the Company's Articles, the Company's Board of
Directors would consist of six Directors in three classes, with one class having
three Directors, a second class having two Directors, and the third class with
only one Director.
Section 1701.57 of the Ohio Revised Code provides that the Board of
Directors may be classified into two or three classes, with each class
consisting of at least three Directors. Given the Company's recent changes and
its new focus on its DataTRAK business, the current Board of Directors concluded
that it is unlikely that the three present vacancies on the Board of Directors
could be filled with qualified candidates in a timely manner. Accordingly, the
Board of Directors concluded that a six member Board of Directors consisting of
two classes of Directors with three Directors in each class would eliminate the
vacancies on the Board of Directors and comply with the provisions of the Ohio
Revised Code.
Decreasing the number of classes may have the effect of discouraging an
attempt to acquire control of the Company with a view to effecting a merger,
sale of the Company's assets or similar transaction, since approval by a
majority of Directors is required prior to any such business combination to
circumvent certain super-majority voting requirements in the Articles. Although
approval by a fewer aggregate number of Directors would be required to effect a
business combination under the proposed amendment to the Articles, a greater
percentage of Directors serving on the Board of Directors must now agree to such
business combination. Under the current Articles, approval of five out of nine
Directors is required for approval of a business combination, while four out of
six Directors must give their approval to a business combination under the
proposed structure of the Board of Directors.
The Articles contain provisions requiring a super-majority vote by the
shareholders to approve certain business combination transactions that have not
received the approval of the Board of Directors, as described above. Applicable
provisions of Ohio law also restrict the ability of the Company to engage in
certain business combination transactions. Certain provisions of Ohio law and
the Articles allow the Company to issue Preferred Shares with rights senior to
those of the Common Shares without any further vote or action by the
shareholders. The issuance of Preferred Shares could decrease the amount of
earnings and assets available for distribution to the holders of Common Shares
or could adversely effect the rights and powers, including voting rights, of the
holders of the Common Shares. In certain circumstances, such issuance could have
the effect of decreasing the market price of the Common Shares. In addition, the
Company is subject to the anti-takeover provisions of Section 1701.831 of the
Ohio Revised Code, which require the prior approval of a majority of the
disinterested shareholders for acquisitions of specified percentages of the
outstanding Common Shares. The application of Section 1701.831 also could have
the effect of delaying or preventing a change in control of the Company.
To the extent that the proposed amendment to the Articles has an incidental
anti-takeover effect, it could discourage speculation or short-term trading in
the Common Shares, which could reduce trading and lower the price of the Common
Shares. In addition, shareholders may favor a proposed change in management or
control. However, the Company recognizes that any purported increase in
anti-takeover protection afforded by the reduction of classes of Directors on
its Board of Directors is significantly offset by the fact that each of the two
classes of Directors will face re-election, and possible replacement, every two
years instead of every three years
15
<PAGE> 19
under the present Articles. There presently is no takeover proposal before the
Company, nor is the Company aware that any person contemplates such a proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE ARTICLES. THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING COMMON SHARES IS REQUIRED TO APPROVE
THE AMENDMENT TO THE ARTICLES.
CERTAIN TRANSACTIONS
In connection with various financing transactions, the Company entered into
certain agreements with certain of its Directors, executive officers and
shareholders who beneficially own more than 5% of the Common Shares. Since these
arrangements were the result of arm's length negotiation among the Company and
these shareholders prior to their acquisition of an interest in the Company, the
Company believes that the agreements are on terms no less favorable to it than
could have been obtained from unaffiliated third parties. Relationships between
the Company and those investors who are affiliated with members of the
Compensation Committee of the Board of Directors are described under the caption
"Compensation Committee Interlocks and Insider Participation."
As a result of various financing transactions, the Company is a party to a
registration rights agreement with Brantley, Oxford, Oxford Bermuda, Oxford
Adjunct, Axiom Venture Partners Limited Partnership, Drs. Green, and Stote and
Mr. Harris, each of whom is either a Director, executive officer or beneficial
owner of greater than 5% or more of the Common Shares. Under the terms of this
agreement, the holders of an aggregate of 1,990,332 Common Shares (the
"Registrable Shares") have the right to demand, no more than once every six
months, registration under the Securities Act of Common Shares having a market
value of at least $5,000,000 (in the case of a registration on Form S-1) or
$1,000,000 (in the case of a registration on Form S-2 or S-3). Such demand right
may be exercised by the holders of at least 40% of the Registrable Shares. The
holders of Registrable Shares may exercise their right to demand registration of
the Registrable Shares on Form S-1 up to two times at the Company's expense, and
any demand registrations on Form S-2 or S-3 an unlimited number of times at the
Company's expense. Although the holders of Registrable Shares have the right to
demand additional registrations on Form S-1, they will be required to pay their
share of the expenses associated with such registrations. The agreement also
provides the holders of an aggregate of 497,116 Common Shares (the "Related
Shares"), with the limited right to participate, at their own expense, in a
registration statement demanded by the holders of Registrable Shares. In
addition, under certain conditions, the holders of Registrable Shares and
Related Shares have the limited right to include some or all of such shares in
any registration statement filed by the Company with respect to the sale of its
Common Shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's Directors and certain of its executive officers and
persons who beneficially own more than 10% of the Common Shares to file reports
of ownership and changes in ownership on Forms 3, 4 and 5 with the Commission
and The Nasdaq Stock Market. Such persons are further required to furnish the
Company with copies of all such forms filed by them. Based solely on the
Company's review of the copies of such forms it has received, the Company
believes that all of the Section 16(a) filing requirements were satisfied by the
Company's Directors, executive officers and beneficial owners of more than 10%
of the Common Shares, except for reports relating to the following: (i) Mr.
Harris's February 28, 1998 receipt of an option to purchase 1,500 Common Shares,
fully exercisable at $4.38 per share, on August 28, 1998 under the Company's
Amended and Restated 1996 Outside Directors Stock Option Plan, as amended ("1996
Director Plan"); (ii) Mr. Harris's July 23, 1998 receipt of an option to
purchase 10,000 Common Shares, exercisable in three equal yearly increments each
of 3,333 Common Shares beginning on July 23, 1999 and continuing through July
23, 2001 at $4.19 per share under the 1996 Director Plan; (iii) Dr. Stoll's
April 21, 1998 receipt of an option to purchase 1,500 Common Shares, fully
exercisable at $4.50 per share, on October 21, 1998 under the 1996 Director
Plan; (iv) Dr. Stoll's July 23, 1998 receipt of an option to purchase 10,000
Common Shares beginning on July 23, 1999 and continuing through July 23, 2001 at
$4.19 per share under the 1996 Director Plan; (v) Dr. Stote's July 23, 1998
receipt of an option to purchase 10,000 Common Shares, exercisable in three
equal yearly increments each of 3,333 Common Shares
16
<PAGE> 20
beginning on July 23, 1999 and continuing through July 23, 2001 at $4.19 per
share under the 1996 Director Plan; and (vi) Dr. Ratain's April 1, 1998 receipt
of an option to purchase 1,500 Common Shares, fully exercisable at $4.19 per
share, on October 1, 1998 under the 1996 Director Plan.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any shareholder who meets the requirements of the proxy rules under the
Exchange Act may submit to the Board of Directors proposals to be considered for
submission to the Annual Meeting of Shareholders to be held in 2000. Any such
proposal should be submitted in writing by notice delivered or mailed by
first-class United States mail, postage prepaid, to DataTRAK International,
Inc., 20600 Chagrin Boulevard, Suite 1050, Cleveland, Ohio 44122, Attention:
Investor Relations and must be received no later than December 31, 1999. Any
such notice shall set forth: (a) the name and address of the shareholder and the
text of the proposal to be introduced, (b) the number of Common Shares held of
record, owned beneficially and represented by proxy by such shareholder as of
the date of such notice and (c) a representation that the shareholder intends to
appear in person or by proxy at the meeting to introduce the proposal specified
in the notice. The Chairman of the meeting may refuse to acknowledge the
introduction of any shareholder proposal not made in compliance with the
foregoing procedures.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, independent auditors, audited the
consolidated financial statements of the Company and its subsidiaries for fiscal
1998. Representatives of Ernst & Young LLP will be present at the Annual Meeting
and will have an opportunity to make a statement should they so desire. The
representatives will also be available to respond to appropriate questions from
shareholders.
OTHER MATTERS
The Board of Directors is not aware of any matter to come before the Annual
Meeting other than those mentioned in the accompanying Notice. However, if other
matters shall properly come before the Annual Meeting, it is the intention of
the persons named in the accompanying Proxy to vote in accordance with their
best judgment on such matters.
A copy of the Company's Annual Report on Form 10-K has been provided to
shareholders with this Proxy Statement. If a shareholder entitled to vote at the
Annual Meeting did not receive a copy of the Annual Report on Form 10-K with
this Proxy Statement, that shareholder may request a copy of the Annual Report
from the Company. Upon the receipt of a written request from any shareholder
entitled to vote at the Annual Meeting, the Company will mail, at no charge to
the shareholder, a copy of the Company's Annual Report on Form 10-K, including
the financial statements and schedules required to be filed with the Commission
pursuant to Rule 13a-1 under the Exchange Act, for the Company's most recent
fiscal year. Requests from beneficial owners of Common Shares must set forth a
good-faith representation that, as of the record date of the Annual Meeting, the
person making the request was the beneficial owner of securities entitled to
vote at such Annual Meeting. Written requests for the Annual Report on Form 10-K
should be directed to: Investor Relations, DataTRAK International, Inc., 20600
Chagrin Boulevard, Suite 1050, Cleveland, Ohio 44122.
You are urged to sign and return your Proxy promptly in order to make
certain your shares will be voted at the Annual Meeting. For your convenience, a
return envelope is enclosed requiring no additional postage if mailed in the
United States.
By Order of the Board of Directors,
Thomas F. McKee
Secretary
August 25, 1999
17
<PAGE> 21
APPENDIX A
PROPOSED AMENDMENT
TO THE COMPANY'S
FIFTH AMENDED AND RESTATED ARTICLES OF INCORPORATION
Article V of the Company's Fifth Amended and Restated Articles of
Incorporation (which is the only portion of the Fifth Amended and Restated
Articles of Incorporation affected by this proposal) shall be deleted and
replaced by the following:
"ARTICLE V
1. Number and Classification of Directors.
(a) The Board of Directors shall consist of not less than three nor more
than fifteen members and shall be divided into two classes, Class I and Class
II, which shall be as nearly equal in number as possible. Subject to the
foregoing limitations, the number of Directors shall be fixed by, or in the
manner provided in, the Code of Regulations of the Corporation. In the event
that the total number of Directors is not divisible by two, the extra Director
shall be assigned to Class I. The Directors to be elected at each annual meeting
of Shareholders shall be the only members of the class whose term of office then
expires. The term of office if the initial Directors in each class shall be as
follows: (a) Directors in Class I shall hold office until the annual meeting of
Shareholders held in 2001 and (b) Directors in Class II shall hold office until
the annual meeting of Shareholders held in 2000. Each Director elected at any
Shareholders' meeting commencing with the 1999 annual meeting shall serve for a
term ending on the date of the second annual meeting of Shareholders following
the meeting at which such Director was elected.
(b) In the event of any increase or decrease in the authorized number of
Directors, each Director then serving as such shall nevertheless continue as a
Director of the class of which he or she is a member until the expiration of his
or her current term, or his or her prior death, retirement, resignation or
removal, and the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
two classes of Directors as provided above in this Article V.
(c) Notwithstanding any of the foregoing provisions of this Article, each
Director shall serve until his or her successor is elected and qualified or
until his or her prior death, retirement, resignation or removal. No Director
may be removed except for cause and (in addition to the affirmative vote which
may be required of the holders of any series of Preferred Shares which may then
be outstanding) by the affirmative vote of the holders of at least a majority of
the outstanding Common Shares of the Corporation entitled to vote thereon.
Should a vacancy occur or be created, whether arising through death, resignation
or removal of a Director or through an increase in the number of Directors, such
vacancy shall be filled by a majority vote of the Directors then in office, or
by the sole remaining Director if only one Director remains in office. A
Director so elected to fill a vacancy shall serve for the remainder of the
present term of office of the class to which he or she was elected."
<PAGE> 22
DATATRAK INTERNATIONAL, INC.
PROXY FOR COMMON SHARES
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF SHAREHOLDERS ON SEPTEMBER 22,
1999.
The undersigned hereby (i) appoints Terry C. Black and Robert J.
Fisher, and each of them, his true and lawful agents and Proxy
holders with full power of substitution in each to appear and vote
all of the Common Shares of DataTRAK International, Inc. that the
undersigned will be entitled to vote at the Annual Meeting of
Shareholders of DataTRAK International, Inc. to be held at The
National City Bank Auditorium, Fourth Floor, Atrium Building, 1900
East Ninth Street, Cleveland, Ohio on September 22, 1999, and at
any adjournments thereof, hereby revoking any and all proxies
heretofore given, and (ii) authorizes and directs said Proxy
holders to vote all of the Common Shares of the Company represented
by this Proxy as follows.
(1) Approval of an Amendment to the Company's Fifth Amended and
Restated Articles of Incorporation to decrease the number of
classes of Directors on the Company's Board of Directors from
three classes of Directors to two classes of Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) Election of the following nominees to serve on the Board of
Directors of the Company:
DR. JEFFREY A. GREEN FOR [ ] WITHHELD [ ]
TIMOTHY G. BIRO FOR [ ] WITHHELD [ ]
DR. ROBERT M. STOTE FOR [ ] WITHHELD [ ]
(To be signed on other side)
P
R
O
X
Y
PROXY NO. SHARES
(Continued from other side.)
(3) In their discretion to act on any other matters that may
properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS INDICATED IN
THE SPACES ABOVE. TO THE EXTENT THAT NO DIRECTIONS ARE GIVEN FOR
PROPOSALS 1 OR 2, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED "FOR" PROPOSALS 1 OR 2. THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDERS ON ALL OTHER
MATTERS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING AND ANY
ADJOURNMENTS THEREOF.
You are encouraged to specify your choices by marking the
appropriate boxes, SEE REVERSE SIDE. The Proxy holders cannot vote
your shares unless you sign and return this card.
Please date, sign and return
promptly in the accompanying
envelope.
DATE
SIGNATURE(S)
SIGNATURE(S)
NOTE: Please sign exactly as
name appears hereon.
Joint owners should each
sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give
full title as such.
