<PAGE>
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
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GALAGEN 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 transaction applies:
--------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
--------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------
4) Date Filed:
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<PAGE>
GALAGEN INC.
1275 RED FOX ROAD
ARDEN HILLS, MINNESOTA 55112
(651) 634-4230
April 14, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of GalaGen Inc. to be held at Radisson Hotel Metrodome, 615 Washington Avenue
Southeast, Minneapolis, Minnesota, commencing at 10:30 a.m., Central Daylight
Time, on Tuesday, May 23, 2000.
The Secretary's Notice of Annual Meeting and the Proxy Statement which
follow describe the matters to come before the meeting. During the meeting, we
will also review the activities of the past year and items of general interest
about the Company.
We hope that you will be able to attend the meeting in person and we
look forward to seeing you. Please mark, date and sign the enclosed proxy and
return it in the accompanying envelope as quickly as possible, even if you plan
to attend the meeting. If you later desire to revoke the proxy, you may do so at
any time before it is exercised.
Sincerely,
Robert A. Hoerr, M.D., Ph.D.
CHAIRMAN AND CHIEF TECHNOLOGY OFFICER
<PAGE>
GALAGEN INC.
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 23, 2000
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of GalaGen Inc. (the "Company") will
be held at Radisson Hotel Metrodome, 615 Washington Avenue Southeast,
Minneapolis, Minnesota, on Tuesday, May 23, 2000, commencing at 10:30 a.m.,
Central Daylight Time, for the following purposes:
1. To elect six directors to serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and
qualified.
2. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31,
2000.
3. To transact such other business as may properly be brought
before the meeting.
The Board of Directors of the Company has fixed March 27, 2000 as the
record date for the meeting and only stockholders of record at the close of
business on that date are entitled to receive notice of and vote at the meeting.
YOUR PROXY IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. EVEN IF YOU
OWN ONLY A FEW SHARES, AND WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE
MEETING, PLEASE MARK, DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE. THE PROXY MAY BE REVOKED BY YOU AT ANY TIME PRIOR TO
BEING EXERCISED, AND RETURNING YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING AND REVOKE THE PROXY.
By Order of the Board of Directors,
Robert A. Hoerr, M.D., Ph.D.
CHAIRMAN AND CHIEF TECHNOLOGY OFFICER
Arden Hills, Minnesota
April 14, 2000
<PAGE>
------------------------
PROXY STATEMENT
------------------------
GENERAL INFORMATION
The enclosed proxy is being solicited by the Board of Directors (the
"Board of Directors" or "Board") of GalaGen Inc., a Delaware corporation (the
"Company"), for use in connection with the Annual Meeting of Stockholders to be
held on Tuesday, May 23, 2000, at Radisson Hotel Metrodome, 615 Washington
Avenue Southeast, Minneapolis, Minnesota, commencing at 10:30 a.m., Central
Daylight Time, and at any adjournments thereof. Only stockholders of record at
the close of business on March 27, 2000 will be entitled to vote at such meeting
or adjournments. Proxies in the accompanying form which are properly signed,
duly returned to the Company and not revoked will be voted in the manner
specified. If no instructions are indicated, properly executed proxies will be
voted for the proposals set forth in this Proxy Statement. As of the date of
this Proxy Statement, the Board of Directors of the Company does not know of any
matters, other than those described in the Notice of Annual Meeting and this
Proxy Statement, that are to come before the meeting. If any other matters are
properly presented at the meeting for action, the persons named in the enclosed
form of proxy and acting thereunder will have the discretion to vote on such
matters in accordance with their best judgment. A stockholder executing a proxy
retains the right to revoke it at any time before it is exercised by notice in
writing to the Secretary of the Company of termination of the proxy's authority
or by properly signing and duly returning a proxy bearing a later date.
The address of the principal executive office of the Company is 1275
Red Fox Road, Arden Hills, Minnesota 55112 and the Company's telephone number is
(651) 634-4230. The mailing of this Proxy Statement and form of proxy to
stockholders will commence on or about April 14, 2000.
The Company will pay the cost of soliciting proxies in the accompanying
form. In addition to solicitation by the use of the mails, certain directors,
officers and employees of the Company may solicit proxies by telephone,
telecopier, telegram or personal contact, and have requested brokerage firms and
custodians, nominees and other record holders to forward soliciting materials to
the beneficial owners of stock of the Company and will reimburse them for their
reasonable out-of-pocket expenses in so forwarding such materials.
The Common Stock of the Company, par value $.01 per share, is the
only authorized and issued voting security of the Company. At the close of
business on March 27, 2000, there were 10,493,962 shares of Common Stock of
the Company issued and outstanding, each of which is entitled to one vote.
Holders of Common Stock are not entitled to cumulate their votes for the
election of directors.
Provided a quorum is present at the meeting, directors shall be elected
by a plurality of the votes present in person or represented by proxy at the
meeting and entitled to vote and any other matters considered at the meeting
shall be decided by an affirmative vote of a majority of the shares present in
person or represented by proxy at the meeting and entitled to vote with respect
to such matters. Proxies marked to abstain with respect to a proposal have the
same effect as shares submitted with a "withhold" or "against" vote for such
proposal. Broker non-votes are not considered as votes for or against a
proposal.
A majority of the shares of the Common Stock of the Company entitled to
vote shall constitute a quorum for purposes of the meeting. Abstentions and
broker non-votes are counted as being present in person or represented by proxy
at the meeting and entitled to vote for purposes of determining the presence or
absence of a quorum for the transaction of business. If a quorum is not present
at the meeting, the stockholders present, by vote of a majority of the votes
cast by stockholders present in person or represented by proxy and entitled to
vote, may adjourn the meeting, and at any such adjourned meeting at which a
quorum is present any business may be transacted which might have been
transacted at the meeting as originally called.
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth, as of April 1, 2000, the beneficial
ownership of the Common Stock by (i) each person known by the Company to
beneficially hold more than 5% of the outstanding Common Stock, (ii) each
director or nominee for director of the Company, (iii) each officer of the
Company named in the Summary Compensation Table on page 8, and (iv) all
executive officers and directors of the Company as a group. Except as otherwise
noted, the listed beneficial owner has sole voting and investment power with
respect to the listed shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OUTSTANDING SHARES
------------------- ------------------------ ------------------
<S> <C> <C>
Perkins Capital Management (2).......................... 1,392,500 13.3%
730 East Lake Street
Wayzata, MN 55391
Land O'Lakes, Inc....................................... 1,194,383 11.3
4001 Lexington Ave. N.
Arden Hills, MN 55126
Lombard Odier & Cie..................................... 1,015,000 9.7
11, re de la Corraterie
1204 Geneva, Switzerland
Helmut B. Breuer........................................ 2,000 *
Henry J. Cardello....................................... 227,500 2.1
Austen S. Cargill II, Ph.D.............................. 10,000 *
Robert A. Hoerr, M.D., Ph.D............................. 200,456 1.9
Ronald O. Ostby (3)..................................... 1,224,383 11.6
Winston R. Wallin ...................................... 245,707 2.3
Eileen F. Bostwick, Ph.D................................ 69,130 *
Michael E. Cady......................................... 76,700 *
All executive officers and directors
as a group (9 persons) (3)........................ 2,055,876 18.4
</TABLE>
- --------------------
* Represents less than 1%.
(1) The number of shares listed for the following beneficial owners includes
the following numbers of shares issuable under options and warrants
exercisable within 60 days of April 1, 2000: Land O'Lakes, Inc. ("Land
O'Lakes"), 35,779 shares; Henry J. Cardello, 227,500 shares; Austen S.
Cargill II, Ph.D., 10,000 shares; Robert A. Hoerr, M.D., Ph.D., 189,333
shares; Ronald O. Ostby, 65,779 shares; Winston R. Wallin, 45,707 shares;
Eileen F. Bostwick, Ph.D., 58,507 shares; Michael E. Cady, 58,714 shares
and all executive officers and directors as a group, 655,540 shares.
(2) Based on a Statement on Schedule 13G filed by Perkins Capital Management
dated February 2, 2000.
(3) Mr. Ostby is the Land O'Lakes representative serving on the Board. The
shares listed as being beneficially owned include 1,194,383 shares
beneficially owned by Land O'Lakes, which are the same shares listed as
being beneficially owned by Land O'Lakes.
2
<PAGE>
ELECTION OF DIRECTORS
The Company's By-Laws provide that the number of directors constituting
the Board of Directors shall be fixed from time to time by resolution of the
Board. The Board of Directors has fixed the size of the Board to be elected at
the meeting at six and has nominated the six current members of the Board.
Proxies solicited by the Board of Directors will, unless otherwise directed, be
voted to elect the six nominees named below to constitute the entire Board.
Directors elected at the meeting will serve until the next annual
meeting of stockholders or until their successors are elected and qualified.
Each nominee named below has indicated a willingness to serve as a director for
the ensuing year. In case any nominee is not a candidate at the meeting for any
reason, the proxies named in the enclosed form of proxy may vote for a
substitute nominee in their discretion.
Information regarding the nominees is set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE DIRECTOR SINCE
Robert A. Hoerr, M.D., Ph.D....................... 50 August 1996
Helmut B. Breuer (1) (2).......................... 63 June 1999
Henry J. Cardello................................. 48 January 1999
Austen S. Cargill II, Ph.D. (2).................. 49 March 1999
Ronald O. Ostby (2)............................... 62 August 1994
Winston R. Wallin (1)............................. 74 April 1993
</TABLE>
- -----------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Robert A. Hoerr, M.D., Ph.D., was named Chairman of the Board and Chief
Technology Officer in March 2000. Dr. Hoerr served as Vice President, Medical
and Regulatory Affairs of the Company from January 1993 to December 1993, Senior
Vice President from December 1993 to February 1994, President and Chief
Operating Officer of the Company from February 1994 to September 1994, President
and Chief Executive Officer from September 1994 to November 1998 and Chairman of
the Board and Chief Executive Officer from November 1998 to March 2000. Dr.
Hoerr was Director of Medical Affairs for Sandoz Nutrition Ltd., an
international nutrition company (now Novartis Nutrition Ltd., a division of
Novartis Consumer Health Products, Ltd.), a research-based nutrition company,
from March 1990 to January 1993. From 1986 to 1990, Dr. Hoerr was Research
Scientist and Assistant Program Director at the Clinical Research Center,
Massachusetts Institute of Technology ("MIT"). Dr. Hoerr received his A.B. in
Biology from Indiana University, his M.D. from Indiana University School of
Medicine and his Ph.D. in Nutritional Biochemistry and Metabolism from MIT.
Helmut B. Breuer, since January 1997, has served as a consultant and
Chairman of the Advisory Board of Lombard Odier Nutrition Fund, a mutual fund
based in Zurich, Switzerland that invests exclusively in science-based nutrition
companies worldwide. Prior to January 1997, Mr. Breuer was responsible for the
global Medical Nutrition and Infant Nutrition businesses for Sandoz Nutrition
Ltd., an international nutrition company (now Novartis Nutrition Ltd., a
division of Novartis Consumer Health Products, Ltd.) from October 1992 to
January 1997.
Henry J. Cardello, was named President and Chief Executive Officer in
March 2000. Mr. Cardello served as President from January 1999 to March 2000,
and had been advising the Company since April 1998 through Marketing Ventures of
America, Inc. ("MVA"), a consumer-marketing firm that specializes in
commercializing consumer-based products, of which he has been Chairman and
President since July 1987. Prior to July 1987, Mr. Cardello was President of
Sunkist Soft Drinks, Inc., a unit of Cadbury Schweppes, Vice President of
Marketing for Cadbury's Canada Dry business and Director of Marketing for
Coca-Cola USA. Additionally, Mr. Cardello has
3
<PAGE>
held several brand management positions with Anheuser-Busch and General Mills,
Inc. Mr. Cardello received his B.S. degree in engineering from Lehigh University
and his M.B.A. from The Wharton Graduate School of Business.
Dr. Austen S. Cargill II joined Cargill, Inc., an international
marketer, processor and distributor of agricultural, food, financial and
industrial products company ("Cargill") in 1984 and has served in numerous
positions. Dr. Cargill has served as Corporate Vice President since 1998 and has
been Director of Research and Development worldwide since June 1996. He served
as Director of Corporate Food Safety from January 1990 to December 1998. Dr.
Cargill established and currently supervises Cargill's Nutraceuticals Product
Line. He is also a member of the American Association for The Advancement of
Science and the Institute of Food Technologists. Dr. Cargill received his B.S.
and M.S. degrees from the University of Minnesota and his Ph.D. in fisheries
ecology from Oregon State University. Dr. Cargill also serves as a director of
Cargill, Renessen (Cargill's joint venture with Monsanto Company) and the Boyce
Thompson Plant Research Institute.
Ronald O. Ostby served as Group Vice President and Chief Financial
Officer of Land O'Lakes, a Minnesota-based dairy cooperative, from 1986 to
December 1999. He served in various capacities at The Pillsbury Company, an
international food company, from 1961 until 1984, most recently as Vice
President of Finance and Planning. Mr. Ostby was Vice President of Finance and
Chief Financial Officer of Ag Processing, Inc., an oil seed processing company,
from 1984 to 1986.
Winston R. Wallin served as Chairman of the Board of Directors of
Medtronic, Inc., the world's leading manufacturer of cardiac pacemakers, from
January 1986 to August 1996. Mr. Wallin also served as Chief Executive Officer
of Medtronic from June 1985 to April 1991 and as President of Medtronic from
June 1985 to March 1989. He has served as Chairman Emeritus of the Board of
Directors of Medtronic since August 1996. Prior to joining Medtronic, Mr. Wallin
was with The Pillsbury Company for 37 years, last serving as its President,
Chief Operating Officer and Vice Chairman. Mr. Wallin also serves as a director
of Integ Incorporated.
Land O'Lakes has an understanding with the Company that the Company
will nominate a representative from Land O'Lakes for election to the Board of
Directors so long as Land O'Lakes remains a significant stockholder.
Mr. Ostby is the current Land O'Lakes representative on the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has appointed an Audit Committee and a
Compensation Committee. The Board has not appointed a nominating committee. The
Audit Committee, among other duties, reviews and evaluates significant matters
relating to the audit and internal controls of the Company, reviews the scope
and results of audits by, and the recommendations of, the Company's independent
auditors and approves additional services to be provided by the auditors. The
Audit Committee also reviews the activities of the Company's accounting staff
and reviews audited financial statements of the Company and is responsible for
determining the consideration to be received for stock issued by the Company in
any private or public offering by the Company. The Compensation Committee
reviews and makes recommendations to the Board of Directors regarding salaries,
compensation and benefits of officers and key employees.
BOARD AND COMMITTEE MEETINGS AND MEETING ATTENDANCE
The Board of Directors met five times and took action in writing in
lieu of a meeting on one occasion during 1999. The Audit Committee met two
times during 1999. The Compensation Committee met one time during 1999 and
took action in writing in lieu of a meeting on one occasion during 1999. Each
incumbent director attended more than 75% of the meetings of the Board of
Directors and Board committees on which he serves, with the exception of Mr.
Breuer who became a director in June of 1999, and attended 67% of the
meetings of the Board of Directors and committees on which he serves.
DIRECTOR COMPENSATION
Upon election or appointment to the Board of Directors, each
non-employee director is automatically granted a non-qualified stock option to
purchase 30,000 shares of Common Stock at its fair market value on the date of
grant. These options have a term of ten years and vest ratably over three years
at the end of each year. In 1999, Mr. Breuer and Dr. Cargill each received a
stock option grant under the Company's 1997 Incentive Plan pursuant to this
policy.
4
<PAGE>
Each non-employee director receives an automatic grant of 30,000 shares
of Common Stock at its fair market value on the date of grant upon the full
vesting of each succeeding grant, providing the non-employee director continues
to serve on the Board. The options have a term of ten years and vest ratably
over 3 years at the end of each year. In 1999, Mr. Ostby and Mr. Wallin each
received a stock option grant under the Company's 1992 Stock Plan pursuant to
this policy.
Each director is reimbursed for expenses for attending Board of
Directors meetings. Other than the foregoing, the Company has no regular
compensation arrangements with its directors.
REPORT OF THE COMPENSATION COMMITTEE
The general compensation policies of the Company and the specific
compensation for each of the Company's executive officers are established by the
Compensation Committee, comprised entirely of non-employee directors.
The Company's executive compensation program for executive officers is
designed to attract, retain and reward executives who are capable of leading the
Company in the achievement of its business objectives. All decisions by the
Compensation Committee relating to the compensation of the Company's officers
are reviewed and approved by the Board.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's compensation program for executive officers is designed
to promote the financial performance, business strategies and other values and
objectives of the Company. This program seeks to enhance stockholder value by
linking the financial interests of the Company's executives with those of its
stockholders. Under the guidance of the Compensation Committee, the Company has
developed and implemented an executive compensation program to achieve the
following objectives:
- To provide formal performance appraisals as measured against
objectives.
- To provide compensation that will attract, retain and reward
executives of superior talent who will contribute to the success
of the Company.
- To align executives' interests with the Company's by linking a
portion of compensation to the long-term success of the Company by
providing executives with equity ownership in the Company.
The Company's executive compensation program consists of the following
elements:
- BASE SALARY determined by individual contributions and sustained
performance within an established competitive salary range.
- INCENTIVE COMPENSATION which rewards executives for attaining
pre-determined Company goals which create stockholder value
through an increase in the market value of the Company's Common
Stock.
- OTHER COMPENSATION which includes certain benefits, such as
employee relocation, medical benefits, a 401(k) Savings Plan and
an Employee Stock Purchase Plan, most of which are generally
available to all employees of the Company.
THE COMPENSATION PROCESS
BASE SALARY. Base salaries for executive officers are determined by
reviewing and comparing salaries, and the corresponding job descriptions,
offered for similar positions reported by a survey and by reviewing salaries of
persons with comparable qualifications, experience and responsibilities at other
companies of comparable size in the appropriate industry. The Chief Executive
Officer's salary is partly determined by this process and by other
5
<PAGE>
factors described below. After reviewing these salaries and job descriptions,
the Company establishes a range of salaries paid for various executive
positions. The Compensation Committee believes that the Company's executive
base salaries should be set at the lower end of the salary ranges described
above but that the overall executive compensation package should be
comparable or higher than other executive compensation packages if overall
Company goals and individual objectives are met. As an executive officer's
level of responsibility increases, a greater portion of the total
compensation package is based on incentive compensation, described below,
which may cause greater variability in the individual's overall compensation
package from year to year. In addition, the higher that an executive officer
rises in the organization, the more the compensation package shifts to
reliance on appreciation of the value of the Company's stock through stock
options. The Company also strives to achieve equitable relationships both
among the compensation of individual executives and between the compensation
of executives and other employees throughout the organization.
INCENTIVE COMPENSATION. Short-term cash incentive compensation for
each executive officer, with the exception of the Chief Executive Officer, is
determined based upon the executive's annual performance, as measured against
pre-determined Company and individual goals. Under this short-term cash
incentive bonus program, a bonus pool is established by the Compensation
Committee from which all employees are eligible to receive bonuses at the
discretion of the Compensation Committee. The amount of the pool is based
upon a percentage of the total annualized base salaries of eligible employees
and the achievement of corporate goals approved by the Board of Directors.
Each executive officer may earn an annual targeted cash incentive from the
bonus pool based upon the accomplishment of corporate goals, the achievement
of individual goals set at the beginning of each year and on other subjective
factors. Subjective performance criteria include an executive's ability to
motivate others, develop the skills necessary to grow as the Company matures,
recognize and pursue new business opportunities and initiate programs to
enhance the Company's growth and success. The Compensation Committee does not
use a specific formula based on these subjective criteria, but makes an
evaluation of each executive officer's contributions in light of all such
criteria. Such targeted cash incentive amounts range up to 45% of base salary
depending upon the level of the executive officer. Long-term incentive
compensation, in the form of stock options, is used to align the interests of
officers and stockholders and enables executives to develop a long-term stock
ownership position in the Company. Stock option grants are intended to focus
executives on managing the Company from the perspective of an owner with an
equity position in the business. Executives, including the Chief Executive
Officer, are granted options to purchase shares of the Common Stock upon
commencement of employment and are eligible for consideration of additional
annual option grants at the discretion of the Compensation Committee and the
Board. Factors considered (which are not given a particular relative
weighting) include increases in the level of responsibility, promotions,
sustained exceptional performance over a period of years and overall stock
performance. In granting new options, the Compensation Committee takes into
account the number of options already granted to an officer. Stock options
are granted at an option price equal to the fair market value of the Common
Stock on the date of grant and generally vest over a five-year period.
Although an executive's past performance is considered when awarding
incentive compensation, the Company's desire to retain an individual is also
a consideration in this determination.
OTHER COMPENSATION. The Company's executives are entitled to
relocation benefits upon commencement of employment. They also receive
medical benefits and participate in the Company's 401(k) Savings Plan on the
same basis as other full-time employees of the Company. Executive officers of
the Company are also eligible to participate in the Company's Employee Stock
Purchase Plan. The plan is available to virtually all employees of the
Company and generally permits participants to purchase Common Stock at a
discount of 15% from fair market value at the beginning or end of the
applicable purchase periods.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee evaluates the performance and fixes the
base salary of the Chief Executive Officer on an annual basis based in part
on the compensation package data discussed above and the Compensation
Committee's assessment of his past performance and its expectation as to his
future contributions in leading the Company and its development. In addition,
the Compensation Committee also considers significant accomplishments made by
the Company during the prior year and other performance factors, such as the
effectiveness of the Chief Executive Officer in establishing the Company's
strategic direction. Any incentive compensation is entirely dependent on the
accomplishment by the Company of certain corporate goals approved by the
Board and the Company's ability to pay. Factors considered by the
Compensation Committee in determining the Chief Executive Officer's base
salary and cash bonus, if any, are not subject to any specific weighting
factor or formula.
6
<PAGE>
In determining the Chief Executive Officer's base salary for 1999 as
reported in the Summary Compensation Table on page 8, the Committee considered
the comparative compensation data and performance factors discussed above. The
1999 base salary for all executive officers, excluding the Chief Executive
Officer, were changed from the base salary set in 1998 based upon the criteria
discussed above. No annual cash bonuses were paid to the Chief Executive Officer
or to any of the other executive officers for 1999.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1 million paid to the
corporation's chief executive officer or any of the four other most highly
compensated executive officers. Compensation is not subject to the deduction
limit if certain requirements are met, including that the compensation be
performance-based. The Company intends to structure the performance-based
portion of the compensation of its executive officers in a manner that complies
with the statute to mitigate any disallowance of deductions.
COMPENSATION COMMITTEE
Helmut B. Breuer
Winston R. Wallin, Chairman
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the years ended
December 31, 1999, 1998 and 1997 of the Chief Executive Officer of the Company
and the three other executive officers of the Company earning salary and bonus
compensation in excess of $100,000 for 1999 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------- ------- -------------------------- ------------------ -----------------------
Long-Term
Annual Compensation Compensation
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options (Shares) Compensation
- --------------------------------------- ------- -------------- ----------- ------------------ -----------------------
<S> <C> <C> <C> <C> <C>
Robert A. Hoerr, M.D., Ph.D. 1999 $200,000 $ -0- 115,000 $ 9,704 (3)
Chairman of the Board and Chief 1998 200,000 -0- 379,895 (2) 9,570 (3)
Executive Officer (1) 1997 200,000 -0- 73,000 10,411 (3)
Henry J. Cardello 1999 $240,000 -0- 365,000 $ 2,108 (5)
President (4) 1998 --- 137,500 (6) 342,000 (7)
Eileen F. Bostwick, Ph.D. 1999 $110,000 -0- 14,000 $ 1,744 (8)
Vice President, 1998 105,000 -0- 123,159 (2) 1,653 (8)
Research and Development 1997 105,000 -0- 19,400 1,520 (8)
Michael E. Cady 1999 $120,000 -0- 12,000 $ 1,914 (9)
Vice President, 1998 115,000 -0- 123,159 (2) 1,827 (9)
Manufacturing and Engineering 1997 115,000 -0- 24,300 3,012 (9)
- --------------------------------------- ------- -------------- ----------- ------------------ -----------------------
</TABLE>
(1) Dr. Hoerr was named Chairman of the Board and Chief Technology Officer in
March 2000.
(2) Of the options granted to the Named Executive Officers in 1998, 368,644
were replacement options granted in connection with a May 13, 1998 stock
option repricing. Of these replacement options, 229,895 were granted to
Dr. Hoerr, 67,083 were granted to Dr. Bostwick, and 71,666 were granted
to Mr. Cady.
(3) Amount reflects payment by the Company of premiums for a life insurance
policy and premium payments of group life insurance in excess of $50,000
the proceeds of which are both payable to a beneficiary chosen by Dr.
Hoerr. Also includes payment by the Company of premiums for long-term
disability policies the proceeds of which are payable to Dr. Hoerr.
(4) Mr. Cardello began his employment with the Company in January 1999 as
President and was named President and Chief Executive Officer in March
2000.
(5) Amount reflects premium payments of group life insurance in excess of
$50,000 the proceeds of which are payable to a beneficiary chosen by Mr.
Cardello.
(6) Amount reflects warrants to purchase Common Stock issued to Mr. Cardello
for services performed under a consulting agreement with MVA, a
consumer-marketing firm that specializes in commercializing consumer-based
products.
(7) Amount reflects fees and expenses made to MVA, of which Mr. Cardello is
Chairman and President, for the consulting services of Mr. Cardello.
(8) Amount reflects payment by the Company of premiums for a life insurance
policy of which one-half of the proceeds are payable to a beneficiary
chosen by Dr. Bostwick and premium payments of group life insurance in
excess of $50,000 the proceeds of which are payable to a beneficiary chosen
by Dr. Bostwick.
(9) Amount reflects payment by the Company of premiums for a life insurance
policy of which one-half of the proceeds are payable to a beneficiary
chosen by Mr. Cady and premium payments of group life insurance in excess
of $50,000 the proceeds of which are payable to a beneficiary chosen by Mr.
Cady. Also includes payment by the Company of premiums for long-term
disability policies the proceeds of which are payable to Mr. Cady.
8
<PAGE>
STOCK OPTIONS
The following table provides certain information concerning grants of
stock options during the fiscal year ended December 31, 1999 to the Named
Executive Officers. In accordance with the rules of the Securities and Exchange
Commission (the "Commission"), the table sets forth the potential realizable
value over the terms of the options (the period from the grant date to the
expiration date) based on assumed rates of stock appreciation of five percent
and ten percent, compounded annually. These amounts do not represent the
Company's estimate of future stock price. Actual realizable values, if any, of
stock options will depend on the future performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------- -------------------------------
Individual Grants Potential Realizable
- ----------------------- ----------------- --------------- ------------ ------------ Value at Assumed
% of Total Annual Rates of Stock Price
Options Appreciation for Option
Number of Shares Granted to Exercise Term (2)
Underlying Options Employees in Price Per Expiration --------------------------------
Name Granted (1) Fiscal Year Share Date 5% 10%
- ----------------------- ----------------- --------------- ------------ ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Hoerr,
M.D., Ph.D. 115,000 13.8% $1.88 12/13/09 $135,605 $343,651
Henry J. Cardello 250,000 30.1 2.09 1/01/09 329,226 834,324
115,000 13.8 1.88 12/13/09 135,605 343,651
Eileen F. Bostwick,
Ph.D. 14,000 1.7 1.88 12/13/09 16,508 41,836
Michael E. Cady 12,000 1.4 1.88 12/13/09 14,150 35,859
- ----------------------- ----------------- --------------- ------------ ------------ ---------------- ---------------
</TABLE>
(1) The listed options become exercisable with respect to one-fifth of the
shares covered thereby on each of the first five anniversaries of the date
of grant. The options each have a maximum term of ten years, subject to
earlier termination in the event of the optionee's cessation of service
with the Company. In the event of (i) a dissolution or liquidation of the
Company, (ii) a merger, consolidation of the Company with or into any
other entity, regardless of whether the Company is a surviving
corporation, or a proposed statutory share exchange with any other entity,
or (iii) a sale of substantially all of the assets of the Company, the
listed options granted under the 1997 Incentive Plan will either be
replaced with substitute options or become exercisable in full, and upon
an event changing control of the Company (as defined in the 1997 Incentive
Plan), the listed options granted under the 1997 Incentive Plan will
become exercisable in full.
(2) The potential realizable value is based on the term of the option at the
time of grant (ten years) and on the assumption that the fair value of the
Common Stock appreciates at the indicated rate for the entire term or
remaining term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated
price.
9
<PAGE>
The following table summarizes option exercises during the year ended
December 31, 1999 and provides information regarding the number of all
unexercised stock options held by the Named Executive Officers as of December
31, 1999, the end of the Company's last fiscal year:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ----------------------- -------------- ------------- ------------------------------- ---------------------------
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at Fiscal Year-End Fiscal Year-End (2)
Acquired on Value ------------------------------- ---------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- -------------- ------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Hoerr,
M.D., Ph.D. -- -- 189,333 305,562 $ -0- $ -0-
Henry J. Cardello -- -- 227,500 (3) 275,000 32,850 -0-
Eileen F. Bostwick,
Ph.D. -- -- 58,507 78,652 -0- -0-
Michael E. Cady -- -- 58,714 76,445 -0- -0-
</TABLE>
(1) Calculated on the basis of the fair market value of the underlying shares
of Common Stock on the date of exercise minus the exercise price.
(2) Calculated on the basis of the fair market value of the underlying shares
of Common Stock at December 31, 1999, as reported by The Nasdaq Stock
Market, of $1.813 per share, minus the per share exercise price, multiplied
by the number of shares underlying the option.
(3) Includes warrants to purchase 137,500 shares of Common Stock issued to Mr.
Cardello for services performed under a consulting agreement with MVA, a
consumer-marketing firm that specializes in commercializing consumer-based
products, prior to the time Mr. Cardello joined the Company.
10
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The comparative stock performance graph below compares the cumulative
stockholder return on the Common Stock of the Company for the period from April
1, 1996 (the effective date of the initial public offering of the Company's
Common Stock) through December 31, 1999 with the cumulative total return on (i)
the CRSP Total Return Index for the Nasdaq Stock Market (US) and (ii) the Nasdaq
Non-Financial Stocks Index. The table assumes the investment of $100 in the
Company's Common Stock, the CRSP Total Return Index for the Nasdaq Stock Market
(US) and the Nasdaq Non-Financial Stocks Index on April 1, 1996, and the
reinvestment of all dividends through the last trading day of the years ended
December 31, 1996, 1997, 1998 and 1999, respectively
<TABLE>
<CAPTION>
April 1, December 31, December 31, December 31, December 31,
1996 1996 1997 1998 1999
--------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
GalaGen Inc. $100 $42.943 $18.404 $21.162 $17.795
CRSP Total Return Index for the
Nasdaq Stock Market (US) $100 $116.916 $143.436 $201.634 $365.063
Nasdaq Non-Financial Stocks Index $100 $115.104 $135.042 $197.795 $380.433
</TABLE>
11
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that the Company's directors and executive officers file initial
reports of ownership and reports of changes in ownership with the Commission.
Directors and executive officers are required to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of the copies of
such forms furnished to the Company and written representations from the
Company's directors and executive officers, all Section 16(a) filing
requirements were met for the fiscal year ended December 31, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Henry J. Cardello joined GalaGen Inc. as President and a member of
the Board of Directors effective January 1, 1999. Previously, Mr. Cardello
advised the Company from April 1998 to January 1999 through MVA, a
consumer-marketing firm that specializes in commercializing consumer-based
products, of which he is Chairman and President. In 1999, the Company paid
MVA approximately $228,000 for purchased product development technology. Also
in 1999, the Company purchased all of the outstanding shares of capital stock
of Gourmet Ventures, Inc. ("GVI") for an aggregate price of approximately
$117,000. Henry J. Cardello was the President of GVI and received $11,641 for
his shares of GVI capital stock purchased by the Company.
The Company is party to a number of agreements with Land O'Lakes, a
11.3% stockholder of the Company, including a license agreement, a royalty
agreement and a master services agreement. Mr. Ostby, a director of the Company,
was an executive officer of Land O'Lakes through December 1999.
The Company has licensed to Land O'Lakes the rights to use the
Company's existing technologies and technology improvements, as defined by the
license agreement, for Land O'Lakes' use in animal products, functional foods
and infant formula. The Company received a lump-sum license fee of $10,000. The
Company has agreed not to compete for fifteen years in the area of animal
products and functional foods based on milk and colostrum based immunoglobulin
technology. Land O'Lakes has agreed not to compete for fifteen years in the
areas of prescription drugs and over-the-counter drugs regulated by the Food and
Drug Administration. The agreement is perpetual.
In March 1997, Land O'Lakes granted the Company a license to use
existing polyclonal antibody technology and future improvements in the
development, formulation, manufacture, marketing, distribution and sale of
kefir-based products, as defined in the license. In consideration of granting
the Company this license, Land O'Lakes will receive a royalty of five percent
from food components or ingredients sold by the Company to be included in a
kefir-based product and one percent of net receipts from a kefir-based finished
product sold by the Company. The Company has accrued approximately $2,700 of
royalty expense to date under this agreement.
In March 1998, the Company and Land O'Lakes signed an amended and
restated license agreement (the "Restated License") in which the Company has
significantly broadened its rights to develop and market functional foods. Under
the Restated License, the Company can use, improve, exploit, license or share
existing Procor technology, Procor technology improvements and new technologies,
as defined in the Restated License, in all areas of functional foods except
under certain "reserved food product" and "first refusal food product"
categories. If the Company intends to engage in manufacturing or marketing any
"first refusal food product", the Company must give Land O'Lakes notice of its
intent, in which case Land O'Lakes can negotiate with the Company, in good faith
and within a defined period of time, to undertake any part of the manufacturing
or marketing areas. If the Company intends to engage in manufacturing or
marketing any "reserved food product", the Company must give Land O'Lakes notice
of its intent and must work only with Land O'Lakes to undertake the
manufacturing or marketing of such products.
Under the royalty agreement, the Company is required to pay Land
O'Lakes a royalty on net receipts from any product which is based on its
polyclonal antibody technology, including future improvements thereon, as
defined by the royalty agreement. Additionally, the Company must pay a royalty
on net receipts from infant formula based on new technology, as defined by the
agreement. The royalty agreement continues until terminated by both parties. The
Company has accrued royalty fees of approximately $3,300 under this agreement.
12
<PAGE>
Under the master services agreement, the Company may purchase services
from Land O'Lakes for certain office, technology and research and development
activities. The services agreement enables the Company to access expertise, on
an as-needed basis, from Land O'Lakes. The cost to the Company for these
services is the pro rata share of Land O'Lakes' cost. In 1999, the Company
rented approximately 5,500 square feet of administrative and laboratory space
from Land O'Lakes. The Company was charged approximately $377,000 for these
services and space in 1999. The services agreement has been extended through
December 31, 2000, and may be terminated by either party upon a one-month
notice. In June 1996, the Company entered into a five-year lease agreement with
Land O'Lakes in connection with the Company's manufacturing facility. The lease
calls for annual payments of approximately $87,000, which amount the Company
paid in 1999 under such lease.
In December 1996, the Company entered into an operating lease with
Cargill Leasing Corporation for $835,393 of manufacturing equipment for the
Company's pilot plant facility. Lease payments continue for a period of seven
years with the Company's option to extend for an additional 12 months. The lease
calls for annual payments of approximately $131,000 and is guaranteed by Land
O'Lakes.
APPOINTMENT OF AUDITORS
Ernst & Young LLP, independent public accountants, have been the
auditors for the Company since 1992. Upon recommendation of the Audit Committee,
the Board of Directors again has selected Ernst & Young LLP to serve as the
Company's auditors for the year ending December 31, 2000, subject to
ratification by the stockholders. While it is not required to do so, the Board
of Directors is submitting the selection of that firm for ratification in order
to ascertain the view of the stockholders. If the selection is not ratified, the
Board of Directors will reconsider its selection.
A representative of Ernst & Young LLP will be present at the meeting
and will be afforded an opportunity to make a statement if such representative
so desires and will be available to respond to appropriate questions during the
meeting.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2001
Annual Meeting of Stockholders must be received by the Secretary of the
Company, 1275 Red Fox Road, Arden Hills, Minnesota 55112, no later than
December 16, 2000 for inclusion in the Proxy Statement and form of proxy for
such meeting. Notice of any other stockholder proposal intended to be
presented at the 2001 Annual Meeting but not intended to be included in the
Company's Proxy Statement and form of proxy for such meeting must be received
by the Company 60 days prior to the date fixed for the 2001 Annual Meeting of
Stockholders. If, however, the date of the 2001 Annual Meeting is announced
less than 70 days prior to meeting date, notice of any stockholder proposal
intended to be presented at the 2001 Annual Meeting but not intended to be
included in the Company's Proxy Statement and form of proxy for such meeting
must be received by the Company by the tenth day following such announcement.
If on or before March 1, 2001 the Company receives notice of a
stockholder proposal intended to be presented at the 2001 Annual Meeting, the
proxy solicited by the Board of Directors of the Company for use in
connection with the meeting may confer authority on the proxies named therein
to vote in their discretion on such proposal if the Company includes in the
Proxy Statement for such meeting advice on the nature of the matter and how
the Company intends to exercise its discretion to vote on such matter. The
proxy solicited for use in connection with the meeting may confer authority
on the proxies named therein to vote in their discretion on any other
proposal validly presented at the meeting without any discussion in the
Company's Proxy Statement for that meeting of either the proposal or how such
proxies intend to exercise their voting discretion.
13
<PAGE>
ADDITIONAL MATTERS
The Annual Report to Stockholders of the Company for 1999 is being
mailed with this Proxy Statement.
As of the date of this Proxy Statement, management knows of no matters
that will be presented for determination at the meeting other than those
referred to herein. If any other matters properly come before the meeting
calling for a vote of stockholders, it is intended that the shares represented
by the proxies solicited by the Board of Directors will be voted by the proxies
named therein in accordance with their best judgment.
By Order of the Board of Directors,
Robert A. Hoerr, M.D., Ph.D.
CHAIRMAN AND CHIEF TECHNOLOGY OFFICER
Dated: April 14, 2000
14
<PAGE>
GALAGEN INC.
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 23, 2000
10:30 A.M.
RADISSON HOTEL METRODOME
615 WASHINGTON AVENUE SE
MINNEAPOLIS MN 55414
GALAGEN INC.
1275 RED FOX ROAD, ARDEN HILLS, MN 55112 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 23, 2000.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1 AND 2.
By signing the proxy, you revoke all prior proxies and appoint Robert A. Hoerr,
M.D., Ph.D. and Henry J. Cardello, and each of them, with full power of
substitution, to vote your shares on the matters shown on the reverse side and
any other matters which may come before the Annual Meeting and all adjournments.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
-- PLEASE DETACH HERE --
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
<TABLE>
<S> <C> <C> <C> <C> <C>
1. Election of directors. 01 Robert A. Hoerr, M.D., Ph.D. 02 Helmut B. Breuer / / Vote FOR / / Vote WITHHELD
03 Henry J. Cardello 04 Austen S. Cargill II, Ph.D. all nominees from all
05 Ronald O. Ostby 06 Winston R. Wallin (except as nominees
marked)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE -----------------------------------
THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
-----------------------------------
2. Ratify the appointment of Ernst & Young LLP as independent auditors for / / For / / Against / / Abstain
the 2000 fiscal year.
</TABLE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
<TABLE>
<S> <C> <C> <C>
Address Change? Mark Box / / I plan to attend the meeting. / /
Indicate changes below: Date
------------------------------
-----------------------------------------------
-----------------------------------------------
Signature(s) in Box
Please sign exactly as your name(s) appear on Proxy.
If held in joint tenancy, all persons must sign.
Trustees, administrators, etc., should include title
and authority. Corporations should provide full name
of corporation and title of authorized officer
signing the proxy.
</TABLE>
