SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment to Annual Report Pursuant to Section 13 of
the Securities Exchange Act of 1934
Year Ended December 31, 1998
Commission File Number 0-24320
NAPRO BIOTHERAPEUTICS, INC.
Incorporated in Delaware IRS ID No. 84-1187753
6304 Spine Road, Unit A
Boulder, Colorado 80301
(303) 530-3891
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0075 par value; Preferred Stock Purchase Rights
The registrant (1) has filed all reports required to be filed by Section 13 or
15(b) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing require ments for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
reported in Item 11 herein.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $44,833,000 as of April 28, 1999.
The number of shares outstanding of each of the registrant's classes of common
stock, as of April 28, 1999:
Common Stock 18,746,543
Nonvoting Common Stock 395,000
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NaPro BioTherapeutics, Inc. (NaPro) is filing this amendment to its 1998 Form
10-K in order to provide the information required by Part III of Form 10-K.
Part III
Item 10
Directors and Executive Officers
Information concerning the Directors and Executive Officers
Directors
Sterling K. Ainsworth, Ph.D., 57, a co-founder of NaPro, has served as an
executive officer and director of NaPro since its inception, as Chief Executive
Officer since November 1991 and as President since October 1992. In 1990, he
co-founded, with Dr. Pilia, Pacific Biotechnology, Inc. (a predecessor of NaPro)
and served as Chairman and President of such company until NaPro's inception.
From 1972 until 1990, Dr. Ainsworth held various levels of professorships of
Pathology with tenure in the College of Medicine and Dental Medicine and
Graduate Studies at the Medical University of South Carolina ("MUSC"), where he
established, developed and directed MUSC's Immunopathology Diagnostic
Laboratory. Dr. Ainsworth received a Bachelor's degree from the University of
Mississippi in 1963. He received a Master's degree in Medical Microbiology in
1965 and a Doctoral degree in Medical Science in 1969 from the University of
Mississippi Medical School. He completed his post-doctoral fellowship in the
Department of Pathology at Harvard Medical School from 1970 to 1972. Dr.
Ainsworth is engaged to marry Dr. Pilia, a director and officer of NaPro.
Mark B. Hacken, 63, was appointed a director of NaPro in March 1996. Mr. Hacken
served as President and Chief Executive Officer of To Life!, L.L.C. (a privately
held nutritional supplement company) from August 1996 to February 1998, and is a
director of G.G.G. Inc. and American Career College. He was President of MBH
International, a retail and health care consulting company from March 1995 to
August 1996. He is the former Chief Executive Officer of FHP International
Corporation, which was, prior to its sale in 1997, a $4 billion HMO with members
in 11 states, and its operating subsidiary, FHP Incorporated, a diversified
health care services company. He was co-founder and President of Elliott Drugs,
and President of Drug King after the firm was acquired from DART Industries.
After Drug King was sold to Thrifty Corporation, he was instrumental in
converting them to the Thrifty Jr. drug store concept and he was President of
that division. Mr. Hacken received a B.S. in Pharmacy from the University of
Florida.
Leonard P. Shaykin, 55, has served as Chairman of the Board since June 1993. In
1995, Mr. Shaykin founded Shaykin & Co., LLC, a private investment holding
company. Prior to founding Shaykin & Co., Mr. Shaykin served as a founding and a
managing partner in Adler & Shaykin, an equity investment partnership organized
to sponsor leveraged buyouts from 1983 to 1994. Prior thereto, Mr. Shaykin was
Vice President, director and a member of the Investment Committee of Citicorp
Venture Capital, Ltd. and Citicorp Capital Investors, Inc., the venture capital
and equity investment subsidiaries of Citicorp and Citibank. Mr. Shaykin is a
director of the Jerusalem Post, an English-language offshore newspaper, a
governing trustee of The Jackson Laboratories, a privately held genetic research
institute, and a trustee of the University of Chicago Graduate School of
Business. Mr. Shaykin is a graduate of the University of Chicago (B.A., M.A.,
M.B.A.).
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Arthur H. Hayes, Jr., M.D., 65, was appointed a director of NaPro in March 1996.
He is currently President and Chief Operating Officer of MediScience Associates,
Inc., a pharmaceutical consulting company and is a Professor of Medicine at New
York Medical College and Pennsylvania State University College of Medicine. From
1981 to 1983, Dr. Hayes served as the Commissioner of the FDA. From 1986 to
1991, he was President and Chief Executive Officer of EM Pharmaceuticals, as
well as a member of the board of directors. Dr. Hayes served as Provost & Dean
at New York Medical College from 1983 to 1986, and served as the Director of the
Institute of Human Values in Medical Ethics, International Health and Biomedical
Sciences, the latter of which he also served as Chairman. Dr. Hayes has held
several posts with Pennsylvania State University which included Professor of
Medicine and Pharmacology from 1977 to 1981, Dean of Admissions from 1976 to
1979 and Associate Professor of Medicine and Pharmacology and Director of the
Division of Clinical Pharmacology from 1972 to 1977. Dr. Hayes currently serves
on the board of directors of Myriad Genetics, Inc. (a genomic research and
pharmaceuti cal company), Celgene Corporation (a pharmaceutical company), and
Premier Research Worldwide. Dr. Hayes' received his M.D. from Cornell University
Medical College, and also attended Cornell's Graduate School of Medical
Sciences, Department of Pharmacology. He undertook premedical studies, and
attended medical school at Georgetown University. Dr. Hayes received his M.S.
(Philosophy, Politics and Economics) from Oxford University, where he was a
Rhodes Scholar, and his A.B. (Philosophy) from Santa Clara University in 1955.
Stanley Knowlton, 73, was appointed a director of NaPro in July 1998. He is
currently Vice Chairman of Knowlton Brothers, Inc., a private investment company
and a general partner of a number of Limited Partnerships investing in
publicly-traded high-tech and healthcare companies. Mr. Knowlton is a retired
Marine Corps Colonel.
Patricia A. Pilia, Ph.D., 50, a co-founder of NaPro, has served as a director of
NaPro since its inception. She was appointed Secretary of NaPro in November
1991, Treasurer of NaPro in October 1992, Vice President of BioResearch and
Toxicology in March 1993, and Executive Vice President in October 1998. In 1990,
she co-founded, with Dr. Ainsworth, Pacific Biotechnology, Inc. (a predecessor
of NaPro) and served as its Vice President and Director of Biotechnology. From
1983 to 1991, Dr. Pilia was an Assistant Professor of Pathology in the College
of Medicine and Dental Medicine and the College of Graduate Studies at MUSC. Dr.
Pilia served as the Assistant Director of the MUSC Immunopathology Diagnostic
and Research Laboratories from 1985 to 1991. Since 1984 she has been a
consultant to industry on the design and development of biomedical devices and
treatment modalities and the design and performance of clinical trials. Dr.
Pilia received a Bachelor's degree in 1970 from Boston University, a Master's
degree in Immunology/Microbiology in 1978 and a Doctoral degree in Pathology in
1980 from MUSC. Dr. Pilia is engaged to marry Dr. Ainsworth, a director and the
chief executive officer of NaPro.
Seth Rudnick, M.D., 50, was appointed a director of NaPro in October 1998. Dr.
Rudnick is a venture partner in Canaan Partners, a venture investment group
based in Connecticut, and a clinical professor of medicine at the University of
North Carolina at Chapel Hill. From 1991 until 1997 he served as Chief Executive
Officer of CytoTherapeutics, Incorporated, a company engaged in the development
of cell- and gene-based therapeutics and he served as its Chairman of the Board
from 1993 until 1998. From 1986 to 1991 Dr. Rudnick held a number of positions
at R.W. Johnson Pharmaceutical Research Institute and Ortho Biotech, including
Senior Vice President, Biotech Research and Development. Dr. Rudnick received
his M.D. from the University of Virginia and his B.A. from the University of
Pennsylvania.
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Other Executive Officers
NaPro has the following executive officers in addition to those who serve as
directors:
Gordon H. Link, Jr., 45, a certified public accountant and a certified
management accountant, joined NaPro as Vice President, Finance and Chief
Financial Officer in September 1993. Prior thereto, Mr. Link served concurrently
as Corporate Controller of Synergen, Inc. and of the Syntex-Synergen
Neuroscience Joint Venture. From February 1991 until April 1993, Mr. Link was
Treasurer of Synergen Development Corporation. From October 1983 through May
1990, Mr. Link practiced as a certified public accountant, most recently in the
position of Audit Manager with Deloitte & Touche. He received undergraduate
degrees in chemistry from Rensselaer Polytechnic Institute in 1976 and in
accounting from Metropolitan State College in 1983.
David L. Denny, 45, has served as Vice President, Operations of NaPro since
September 1995, except for a nine month period during 1997 when he served as
Vice President, Quality Assurance. From 1991 to 1993, Mr. Denny served as
Vice-President of Operations for Somatogen, Inc. Prior thereto, Mr. Denny served
in manufacturing and quality assurance capacities with Miles Pharmaceutical,
Abbott Laboratories and Kabi-Pharmacia. He received a B.S. in Biological
Sciences from Tennessee Technological University in 1972 and attended graduate
school at the same institution from 1972 to 1974.
James D. McChesney, Ph.D., 59, joined NaPro as Vice-President of Natural
Products Chemistry in January 1996. From 1987 until June 1995, he served as
Director of the Research Institute of Pharmaceuti cal Sciences at the University
of Mississippi, specializing in natural product pharmaceutical research and
development. In July 1993, Dr. McChesney was named Frederick A.P. Barnard
Distinguished Professor of Pharmacognosy at the University of Mississippi. Dr.
McChesney joined the School of Pharmacy at the University of Mississippi in 1978
as Professor and Chair of the Department of Pharmacognosy. After graduating with
honors from Iowa State University in 1961 with a B.S. in Chemical Technology, he
earned degrees in Botany (M.A. 1964) and Natural Products Chemistry (Ph.D. 1965)
at Indiana University. He has been a Fulbright Lecturer in Brazil and a Visiting
Professor at several South American universities.
Item 11
Executive Compensation
The following table sets forth compensation paid to Sterling K. Ainsworth,
Leonard P. Shaykin, Patricia A. Pilia, Gordon H. Link, Jr. and James D.
McChessey (the "Named Executive Officers") during the years indicated.
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<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
---------------------------------------- ----------------------------------------
Awards Payout
-------------------------- ------------
Securities
Other Under-
Annual Restricted lying All Other
Name and Principal Compensa- Stock Options/ LTIP Compensa-
Position Year Salary ($) Bonus($) tion($) Awards($) SARs(#) Payout($) tion (11)
- ----------------------- -------- ------------ ------------ ------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sterling K. Ains 1998 $175,673 0 0 0 232,000(1) 0 $16,000
worth 1997 $178,631 0 0 0 100,000(2) 0 $ 1,000
President and 1996 $159,000 $20,000 0 0 50,000(2) 0 $ 1,000
C.E.O.
Leonard P. Shaykin 1998 $159,611 0 0 0 280,000(3) 0 $20,000
Chairman of the 1997 $158,999 0 0 0 100,000(4) 0 $ 1,000
Board 1996 $159,000 $20,000 0 0 50,000(4) 0 0
Patricia A. Pilia 1998 $135,519 0 0 0 136,000(5) 0 $20,000
Vice President, 1997 $137,972 0 0 0 50,000(6) 0 $ 1,000
Secretary and 1996 $121,900 $20,000 0 0 25,000(6) 0 $ 1,000
Treasurer
Gordon H. Link, Jr. 1998 $121,733 $25,433 0 0 110,000(7) 0 $19,460
Chief Financial 1997 $119,005 0 0 0 35,000(8) 0 $ 1,000
Officer 1996 $109,156 $13,370 0 0 20,000(8) 0 $ 1,000
James D. McChes 1998 $117,049 0 0 0 90,000(9) 0 $16,198
ney 1997 $118,098 0 0 0 15,000(10) 0 $ 1,000
Vice-President, 1996 $101,538 $10,000 0 0 10,000(10) 0 0
Natural Product
Chemistry
</TABLE>
- -----------
(1) On March 27, 1998, Dr. Ainsworth held options to purchase, in
aggregate, 190,000 shares of Common Stock having exercise prices over
$3.00. As a result of Dr. Ainsworth's decision to participate in the
Option Restructuring Plan, as described more fully below, those options
were amended to become 152,000 of the options to purchase Common Stock
reported for 1998.
(2) As a result of amendments made to these options pursuant to the Option
Restructuring Plan, these options have been, in effect, canceled and
replaced by options to purchase, in aggregate, 152,000 of the options
reported above for 1998.
(3) On March 27, 1998, Mr. Shaykin held options to purchase, in aggregate,
250,000 shares of Common Stock having exercise prices over $3.00. As a
result of Mr. Shaykin's decision to participate in the Option
Restructuring Plan, as described more fully below, those options were
amended to become 200,000 of the options to purchase Common Stock
reported for 1998.
(4) As a result of amendments made to these options pursuant to the Option
Restructuring Plan, these options have been, in effect, canceled and
replaced by options to purchase, in aggregate, 200,000 of the options
reported above for 1998.
(5) On March 27, 1998, Dr. Pilia held options to purchase, in aggregate,
95,000 shares of Common Stock having exercise prices over $3.00. As a
result of Dr. Pilia's decision to participate in the Option
Restructuring Plan, as described more fully below, those options were
amended to become 76,000 of the options to purchase Common Stock
reported for 1998
(6) As a result of amendments made to these options pursuant to the Option
Restructuring Plan, these options have been, in effect, canceled and
replaced by options to purchase, in aggregate, 76,000 of the options
reported above for 1998.
(7) On March 27, 1998, Mr. Link held options to purchase, in aggregate,
75,000 shares of Common Stock having exercise prices over $3.00. As a
result of Mr. Link's decision to participate in the Option
Restructuring Plan, as described more fully below, those options were
amended to become 60,000 of the options to purchase Common Stock
reported for 1998.
(8) As a result of amendments made to these options pursuant to the Option
Restructuring Plan, these options have been, in effect, canceled and
replaced by options to purchase, in aggregate, 60,000 of the options
reported above for 1998.
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(9) On March 27, 1998, Dr. McChesney held options to purchase, in
aggregate, 50,000 shares of Common Stock having exercise prices over
$3.00. As a result of Dr. McChesney's decision to participate in the
Option Restructuring Plan, as described more fully below, those options
were amended to become 40,000 of the options to purchase Common Stock
reported for 1998.
(10) As a result of amendments made to these options pursuant to the Option
Restructuring Plan, these options have been, in effect, canceled and
replaced by options to purchase, in aggregate, 40,000 of the options
reported above for 1998.
(11) Represents NaPro's 401(k) plan contributions of the Company's Common
Stock (valued at fair market value as of the date of contribution) for
each of the Named Executive Officers.
The following table sets forth each grant of options to purchase Common Stock
made during the year ended December 31, 1998, to the Named Executive Officers.
Grants of options to such Named Executive Officers were made under the 1994
Plan:
<TABLE>
<CAPTION>
Option Grants in Last Year
% of Total
Number of Options
Securities Granted to Exercise or Base Potential Realizable
underlying Employees in Price Per Share Expiration Value at Assumed Annual Rates of
Name Options Year(2) ($/sh) Date(3) Stock Price Appreciation for
Granted (#)(1) Option Terms ($)(4)
5% 10%
- ------------------------- --------------- -------------- --------------- -------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sterling K. Ainsworth 152,000(5) 9.37% $1.8125 3/27/08 $173,260 $439,076
80,000 4.93% $1.00 10/5/08 $ 50,311 $127,499
Leonard P. Shaykin 200,000(6) 12.33% $1.8125 3/27/08 $227,974 $577,731
80,000 4.93% $1.00 10/5/08 $ 50,311 $127,499
Patricia A. Pilia 76,000(7) 4.69% $1.8125 3/27/08 $ 86,630 $219,538
60,000 3.70% $1.00 10/5/08 $ 37,773 $ 95,624
Gordon H. Link, Jr. 60,000(8) 3.70% $1.8125 3/27/08 $ 68,392 $173,319
50,000 3.08% $1.00 10/5/08 $ 31,444 $ 79,687
James D. McChesney 40,000(9) 2.47% $1.8125 3/27/08 $ 45,594 $115,546
50,000 3.08% $1.00 10/5/08 $ 31,444 $ 79,687
</TABLE>
- -----------
(1) Each of the options listed on this table were granted under the 1994
Plan and become exercisable at the rate of 25% of the shares subject to
the option one year after the date of grant and 25% of the shares
subject to the option each year thereafter.
(2) Based on the aggregate of 1,621,504 options granted to employees of
NaPro, including the Named Executive Officers, in 1998, and consisting
of options granted under the 1994 Plan, options granted under the 1993
Stock Option Plan, and options granted under the 1998 Stock Option
Plan.
(3) Options granted under the 1994 Plan have a 10-year term and are subject
to earlier termination upon death, disability or termination of
employment.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years) assuming that the stock price on
the date of grant appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated
stock price. No gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.
(5) On March 27, 1998, Dr. Ainsworth held options to purchase 190,000
shares of Common Stock having exercise prices over $3.00. As a result
of Dr. Ainsworth's decision to participate in the Option Restructuring
Plan, as described more fully below, those options were amended to
become options to purchase 152,000 shares of Common Stock.
(6) On March 27, 1998, Mr. Shaykin held options to purchase 250,000 shares
of Common Stock having exercise prices over $3.00. As a result of Mr.
Shaykin's decision to participate in the Option Restructuring Plan, as
described more fully below, those options were amended to become
options to purchase 200,000 shares of Common Stock.
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(7) On March 27, 1998, Dr. Pilia held options to purchase 95,000 shares of
Common Stock having exercise prices over $3.00. As a result of Dr.
Pilia's decision to participate in the Option Restructuring Plan, as
described more fully below, those options were amended to become
options to purchase 76,000 shares of Common Stock.
(8) On March 27, 1998, Mr. Link held options to purchase 75,000 shares of
Common Stock having exercise prices over $3.00. As a result of Mr.
Link's decision to participate in the Option Restructuring Plan, as
described more fully below, those options were amended to become
options to purchase 60,000 shares of Common Stock.
(9) On March 27, 1998, Dr. McChesney held options to purchase 50,000 shares
of Common Stock having exercise prices over $3.00. As a result of Dr.
McChesney's decision to participate in the Option Restructuring Plan,
as described more fully below, those options were amended to become
options to purchase 40,000 shares of Common Stock.
The following table sets forth information concerning outstanding
options held by the Named Executive Officers as of the year ended December 31,
1998.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Year And
Year-end Option Values
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the-Money Options at Year
Acquired on Value Options at End($)(2)
Name Exercise (#) Realized ($) Year End(#)(1) Exercisable/Unexercisable
Exercisable/Unexercisable
- -------------------------- -------------- -------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Sterling K. Ainsworth 106,667 126,667 16,000 / 232,000 $ 19,500 / $32,500
President and C.E.O.
Leonard P. Shaykin 0 0 0 / 280,000 $0 / $32,500
Chairman of the Board
Patricia A. Pilia 36,800 43,700 0 / 136,000 $0 / $24,375
Vice President,
Secretary and Treasurer
Gordon H. Link, Jr. 20,000 2,500 13,334 / 110,000 $4,375 / $20,312
Chief Financial Officer
James D. McChesney 0 0 0 / 90,000 $0 / $20,312
VP, Natural Products
Chemistry
</TABLE>
- ----------
(1) Represents the difference between the option exercise price and the
closing price of the Common Stock as quoted on the NASDAQ National
Market on the date of exercise multiplied by the number of shares
exercised.
(2) Represents the difference between the option exercise price and the
closing price of the Common Stock as quoted on the NASDAQ National
Market on December 31, 1998 ($1.40625), multiplied by the corresponding
number of underlying shares.
Compensation of Directors
Pursuant to the 1994 Plan, each year non-employee directors are automatically
granted, on the date of NaPro's annual meeting of stockholders, non-qualified
options to purchase 10,000 shares of Common Stock. In addition, any non-employee
director who is first appointed or elected other than at an annual meeting of
stockholders automatically receives non-qualified options to purchase 10,000
shares of Common Stock upon such appointment or election. The 1994 Plan also
provides for automatic annual grants of non-qualified stock options to purchase
10,000 shares of Common Stock to directors who serve as chair of the Audit,
Compensation and Strategic Planning Committees of the Board of Directors. In
addition, the 1994 Plan permits the discretionary grant by the Board of
Directors of non-qualified options
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to non-employee directors under certain circumstances. All such options are
exercisable at an exercise price equal to the fair market value of the Common
Stock on the date of grant and are subject to certain vesting schedules. Upon
the election by Dr. Hayes and Mr. Hacken to participate in NaPro's Option
Restructuring Plan, options to purchase 25,000 shares of Common Stock held by
Dr. Hayes and options to purchase 45,000 shares of Common Stock held by Mr.
Hacken were canceled and replacement options to purchase 20,000 and 36,000
shares were granted to Dr. Hayes and Mr. Hacken, respectively.
Directors are paid $2,000 for each meeting attended in person and $500 for each
meeting attended by telephone. In addition, directors serving on committees of
the Board of Directors are paid for attendance at each committee meeting as
follows: $1,000 for the committee chairperson attending in person and $500 for
non-chair committee members attendance in person or any committee members'
attendance by telephone. Directors are reimbursed for their costs incurred in
attending Board of Directors meetings.
NaPro and MediScience Associates are parties to a consulting agreement (the
"MediScience Agreement") whereby Dr. Hayes, who is President and Chief Operating
Officer of MediScience, provides NaPro with consulting services in a variety of
areas, including clinical research planning, strategic positioning and
regulatory guidance. NaPro makes quarterly payments to MediScience under the
MediScience Agreement of $12,500 for such services. Dr. Hayes is obligated to
provide consulting services under the MediScience Agreement indefinitely, but
the MediScience Agreement is terminable by NaPro or MediScience at any time with
90 days prior notice.
Dr. Rudnick, who was appointed as a director of NaPro in October 1998, provides
consulting services to NaPro pursuant to a consulting agreement dated June 1,
1998 (the "Rudnick Agreement") whereby Dr. Rudnick provides NaPro with
consulting services in the areas of clinical trial strategies and corporate
partnering activities. Dr. Rudnick is paid $1,750 per day spent providing
consulting services and $700 per day spent traveling on NaPro's behalf. As
additional compensation for such services Dr. Rudnick has been granted options
to purchase 15,000 shares of Common Stock at an exercise price of $2.00 which
vest as services are performed. As compensation for providing consulting
services under the Rudnick Agreement during 1998, Dr. Rudnick was paid $34,825
and options to purchase 6,265 shares of Common Stock vested.
Employment Agreements and Termination of Employment Arrangements
NaPro entered into an Amended Employment Agreement with each of Mr. Shaykin and
Drs. Ainsworth and Pilia (collectively, the "Senior Executives") on October 5,
1998 (collectively, the "Amended Employment Agreements"). In addition, on
October 5, 1998, NaPro entered into Employment Agreements (the "Employment
Agreements") with each of Gordon Link and Dr. James McChesney (collectively, the
"Executive Officers"). The Amended Employment Agreements and the Employment
Agreements are referred to collectively as the "Executive Agreements," and the
Senior Executives and the Executive Officers are referred to collectively as the
"Executives."
Each Amended Employment Agreement provides for an initial three-year employment
term that expires October 5, 2001 (the "Initial Term"), and is automatically
renewed on each anniversary of the date of the agreement for a new three-year
term (each, a "Renewal Term") unless either party gives notice of termination to
the other party at least 180 days prior to the commencement of any Renewal Term.
No such notice of termination has been given by any of the Senior Executives.
Each Employment Agreement provides for an initial three-year employment term
that expires on October 5, 2001 (the "Initial Term") and is automatically
renewed at the end of the Initial Term and on October 5th of each year
thereafter for an additional one-year term (each a "Renewal Term") unless either
party gives notice of termination to the
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other party at least 180 days prior to the commencement of any Renewal Term. No
such notice of termination has been given by any of the Executive Officers.
The Amended Employment Agreements provide for annual base salaries for Mr.
Shaykin and Drs. Ainsworth, and Pilia of $159,000, $175,000, and $135,000
respectively. Under the Amended Employment Agreements, in the event of a change
of control of NaPro, the Senior Executives are to be granted annual bonuses in
amounts determined by the Board's Compensation Committee, but not less than the
greater of $20,000 or the amount of the highest annual bonus paid to the Senior
Executive for the three prior years. Mr. Shaykin is a part-time employee of
NaPro, and is not required under his Amended Employment Agreement to spend more
than 20 hours in any week or 80 hours per month on NaPro's affairs.
The Employment Agreements provide for annual base salaries for Mr. Link and Dr.
McChesney of $125,000 and $116,600. Under the Amended Employment Agreements, the
Senior Executives are to be granted annual bonuses in amounts determined by the
Board's Compensation Committee, but not less than the greater of $15,000 or the
amount of the highest annual bonus paid to the Senior Executive for the three
prior years.
Each Amended Employment Agreement provides for certain benefits if, prior to the
end of the Initial Term or any Renewal Term, a Senior Executive's employment is
terminated either by NaPro other than for Cause (as defined in the Executive
Agreements) or by the Senior Executive for Good Reason (as defined in the
Amended Employment Agreements). In general, each Executive would be entitled to
receive, subject to certain limitations, (i) a continuance of their respective
salary and bonus, if any, through the end of the Initial Term or the
then-current Renewal Term, if applicable (but in no event for longer than three
years or less than two years), and (ii) health and welfare benefits as in effect
immediately prior to termination for a maximum of 18 months following
termination. The foregoing benefits would be limited by the amount deductible
for income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code").
Each Employment Agreement provides for certain benefits if, prior to the end of
the Initial Term or any Renewal Term, an Executive Officer's employment is
terminated either by NaPro other than for Cause (as defined in the Executive
Agreements) or by the Executive Officer for Good Reason (as defined in the
Employment Agreements). In general, each Executive Officer would be entitled to
receive, subject to certain limitations, (i) a continuance of their respective
salary and bonus, if any, through the end of the Initial Term or the
then-current Renewal Term, if applicable (but in no event for longer than three
years or less than two years in the case of Mr. Link or less than one year in
the case of Dr. McChesney), and (ii) health and welfare benefits as in effect
immediately prior to termination for a maximum of 18 months following
termination. The foregoing benefits would be limited by the amount deductible
for income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code").
In addition, each Executive Agreement provides for payment of a "stay bonus"
equal to one year's then current base salary in the event that a Change in
Control (as defined in the Executive Agreements) occurs and the Executive
remains employed by NaPro (or its successor) and either remains so employed on
the first anniversary of the Change in Control or is terminated by NaPro without
Cause or by the Executive for Good Reason during the first year following the
Change in Control.
The Executive Agreements also contain provisions (i) prohibiting disclosure of
confidential information, (ii) granting to NaPro rights to intellectual property
developed by the Executives that relate to NaPro's
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business or developed in the course of employment with NaPro and (iii)
prohibiting competition with NaPro under certain circumstances during and for
five years after the Executive's employment.
Report on Repricing of Options
On March 25, 1998, the Compensation Committee reviewed the status of NaPro's
outstanding options. The Compensation Committee determined that as a result of
the drop in the value of the Common Stock at the end of 1997 and beginning of
1998, which was the result of regulatory issues not within the control of the
grantees, the existing options did not effectively serve their purpose of
helping to retain directors, officers, employees and consultants and to closely
align the interests of these groups with those of NaPro. In order to renew these
incentives, on March 25, 1998, the Compensation Committee approved and
recommended to the Board of Directors a plan to restructure NaPro's outstanding
options (the "Option Restructuring Plan"). The Option Restructuring Plan gave
holders of NaPro's options the opportunity to have their existing options with
exercise prices above $3.00 (the "Covered Options") amended such that the number
of shares of Common Stock underlying such options was reduced by 20% or 50%,
depending upon the option holder's relationship with NaPro. In addition, the
vesting period and expiration date were reset with the result that vested
Covered Options became unvested and the time necessary for vesting reset as of
that date. Finally, as to options held by former directors and former
consultants, the period during which the options could be exercised was
shortened. Messrs. Shaykin and Link and Drs. Ainsworth, Pilia and McChesney each
elected to participate in the Option Restructuring Plan.
On March 27, 1998, Mr. Shaykin held Covered Options to purchase 250,000 shares
of Common Stock (including options to purchase 100,000 shares which were granted
by the Compensation Committee but had not been issued because the 1994 Plan had
insufficient options remaining), of which options to purchase 62,500 shares were
vested. Pursuant to the Option Restructuring Plan, the Covered Options were
amended into options to purchase, in aggregate, 200,000 shares of Common Stock
which will vest at a rate of 25% per year on each anniversary of the amendments.
On March 27, 1998, Dr. Ainsworth held Covered Options to purchase 190,000 shares
of Common Stock (including options to purchase 100,000 shares which were granted
by the Compensation Committee but had not been issued because the 1994 Plan had
insufficient options remaining), of which options to purchase 32,500 shares were
vested. Pursuant to the Option Restructuring Plan, the Covered Options were
amended into options to purchase, in aggregate, 152,000 shares of Common Stock
which will vest at a rate of 25% per year on each anniversary of the amendments.
On March 27, 1998, Dr. Pilia held Covered Options to purchase 95,000 shares of
Common Stock (including options to purchase 50,000 shares had been granted by
the Compensation Committee but had not been issued because the 1994 Plan had
insufficient options remaining), of which options to purchase 16,250 shares were
vested. Pursuant to the Option Restructuring Plan, the Covered Options were
amended into options to purchase, in aggregate, 76,000 shares of Common Stock
which will vest at a rate of 25% per year on each anniversary of the amendments.
On March 27, 1998, Mr. Link held Covered Options to purchase 75,000 shares of
Common Stock (including options to purchase 25,000 shares had been granted by
the Compensation Committee but had not been issued because the 1994 Plan had
insufficient options remaining), of which options to purchase 17,500 shares were
vested. Pursuant to the Option Restructuring Plan, the Covered Options were
amended into options to purchase, in aggregate, 60,000 shares of Common Stock
which will vest at a rate of 25% per year on each anniversary of the amendments.
10
<PAGE>
On March 27, 1998, Dr. McChesney held Covered Options to purchase 50,000 shares
of Common Stock (including options to purchase 15,000 shares had been granted by
the Compensation Committee but had not been issued because the 1994 Plan had
insufficient options remaining), of which options to purchase 15,000 shares were
vested. Pursuant to the Option Restructuring Plan, the Covered Options were
amended into options to purchase, in aggregate, 40,000 shares of Common Stock
which will vest at a rate of 25% per year on each anniversary of the amendments.
<TABLE>
<CAPTION>
Ten-Year Option Repricings
Length of
Number of Original
Securities Option Term
Underlying Market Price of Exercise Price Remaining at
Options Stock at Time at Time of New Date of
Repriced or of Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
- ------------------------- ----------- --------------- ------------------ ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sterling K. Ainsworth 3/27/98 40,000 $1.8125 $10.125 $1.8125 7.65
President and C.E.O. 3/27/98 50,000 $1.8125 $7.125 $1.8125 8.64
3/27/98 100,000 $1.8125 $8.313 $1.8125 9.57
Leonard P. Shaykin 3/27/98 100,000 $1.8125 $10.125 $1.8125 7.65
Chairman of the Board 3/27/98 50,000 $1.8125 $7.125 $1.8125 8.65
3/27/98 100,000 $1.8125 $8.313 $1.8125 9.57
Patricia A. Pilia 3/27/98 20,000 $1.8125 $10.125 $1.8125 7.65
Executive VP, 3/27/98 15,000 $1.8125 $8.750 $1.8125 8.35
Secretary and 3/27/98 10,000 $1.8125 $7.125 $1.8125 7.81
Treasurer 3/27/98 50,000 $1.8125 $8.313 $1.8125 9.57
Gordon H. Link, Jr. 3/27/98 10,000 $1.8125 $6.000 $1.8125 4.64
Chief Financial Officer 3/27/98 10,000 $1.8125 $10.125 $1.8125 7.65
3/27/98 15,000 $1.8125 $8.750 $1.8125 8.35
3/27/98 5,000 $1.8125 $7.125 $1.8125 7.81
3/27/98 10,000 $1.8125 $7.125 $1.8125 7.21
3/27/98 25,000 $1.8125 $8.313 $1.8125 9.57
James D. McChesney 3/27/98 25,000 $1.8125 $10.125 $1.8125 7.65
VP, Natural Products 3/27/98 10,000 $1.8125 $7.125 $1.8125 8.64
Chemistry 3/27/98 15,000 $1.8125 $8.313 $1.8125 9.57
David Denny 3/27/98 24,000 $1.8125 $11.750 $1.8125 7.44
VP, Operations 3/27/98 10,000 $1.8125 $7.125 $1.8125 8.64
3/27/98 10,000 $1.8125 $7.125 $1.8125 9.21
3/27/98 30,000 $1.8125 $8.313 $1.8125 9.57
William Fairbairn 3/27/98 5,000 $1.8125 $10.875 $1.8125 7.44
VP, Regulatory Affairs 3/27/98 20,000 $1.8125 $8.750 $1.8125 8.35
3/27/98 5,000 $1.8125 $7.125 $1.8125 8.64
3/27/98 25,000 $1.8125 $7.125 $1.8125 9.21
3/27/98 15,000 $1.8125 $8.313 $1.8125 9.57
</TABLE>
11
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, NaPro's directors
and certain of its officers, and persons holding more than ten percent of
NaPro's Common Stock are required to file forms reporting their beneficial
ownership of NaPro's Common Stock and subsequent changes in that ownership with
the Securities and Exchange Commission. Such persons are also required to
furnish NaPro copies of forms so filed. Based solely upon a review of copies of
such forms filed with NaPro, Mr. Shaykin was late in filing one Form 5 on which
he reported 1 transaction, Mr. Denny and Mr. Fairbairn, a former Vice President
of NaPro, were late in filing Form 5s on which they reported six and seven
transactions, respectively. Stanley Knowlton and Seth Rudnick were each late in
filing a Form 3. No other directors or officers were late in filing any reports
on Forms 3, 4 and 5.
Compensation Committee Interlocks and Insider Participation
Currently, the Compensation Committee, consists of Drs. Hayes and Rudnick and
Messrs. Hacken and Knowlton.
Compensation Committee Report on Executive Compensation.
The report of the Compensation Committee of the Board of Directors (the
"Committee") shall not be deemed incorporated by reference by any general
statement incorporating by reference this report into any filing under the
Securities Act of 1933, or under the Securities Exchange Act of 1934, except to
the extent that NaPro specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
Goals. The Committee implements NaPro's executive compensation policies. NaPro
is committed to executive compensation policies that promote and support NaPro's
goals and that inspire executives to make a significant contribution to the
financial performance of NaPro. The Company's overall compensation philosophy
for executive officers has the following objectives: (1) the attraction and
retention of qualified personnel whose participation is important to the
short-term and long-term success of NaPro; and (2) the creation of a mutual
interest between executive officers and stockholders that permits executive
officers to share in the risks and rewards of strategic decision-making.
NaPro has established its executive compensation policies using the above
objectives as its foundation. The Committee's current practice is to review the
compensation of each of the corporate officers. The Committee also administers
all annual bonuses and equity based incentive compensation including grants of
stock options and restricted stock. The following describes the three primary
components of NaPro's current executive compensation program.
Base Salary. For 1998, the base salary compensation of NaPro's Chief Executive
Officer, Dr. Ainsworth, and certain other senior executives, was primarily
determined by such officers' employment agreements with NaPro. The Compensation
Committee believes that the current base salaries of NaPro's executive officers
are justified due to NaPro's financial condition.
Annual Bonus. Due to NaPro's financial position, the only bonus granted to
NaPro's executive officers during 1998 was a bonus in the amount of $25,433 paid
to its Chief Financial Officer, Mr. Link.
12
<PAGE>
Equity-based Incentives. NaPro considers equity-based incentives to be an
integral part of executive compensation. The Committee believes that the grant
of restricted stock awards, stock options and other awards pursuant to the 1993
Stock Option Plan, 1994 Long-Term Performance Incentive Plan, and 1998 Stock
Option Plan has been, and will continue to be, an effective method for the
creation of a mutual interest between NaPro's employees and NaPro's
stockholders. During 1998, stock options were granted to seven executive
officers. These grants were recommended to the Committee by the Chairman of the
Board and the President. Factors considered in the grant of restricted stock
awards and stock options include recommendations made to the Committee by the
Chairman of the Board and the president of NaPro and the Committee's own
subjective evaluation of the individual executive's performance and the
performance of NaPro, taking into account the goal and overall compensation
philosophy stated above. The recommendations of such grants to the Committee and
the Committee's approval of such recommendations were not based on any specific
formulas.
For 1998 the total compensation (including bonuses and equity-based incentives)
of NaPro's Chief Executive Officer, Dr. Ainsworth, and other senior executives,
was assessed in light of such executives' performance and the progress of NaPro.
Factors taken into account included the achievements by NaPro in initiating
clinical studies, steps taken toward securing a marketing partner for the United
States and other steps taken by NaPro to support the manufacture, registration,
and marketing of NaPro's primary product, paclitaxel.
13
<PAGE>
Item 12
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of April 19, 1999,
regarding ownership of the Common Stock by (1) persons believed by NaPro to be
the beneficial owners of more than five percent of its outstanding Common Stock;
(2) by each Director and nominee for director and by the officers of NaPro named
in the Summary Compensation Table; and (3) by all current executive officers and
directors of NaPro as a group. Unless otherwise noted, all addresses are care
of: NaPro BioTherapeutics, Inc., 6304 Spine Road, Unit A, Boulder, CO 80301.
Number of
Name of Director, Officer or Shares of Percent of
Beneficial Owner(1) Common Stock Class
- ------------------------------- ------------ ------
Leonard P. Shaykin 759,676(2) 4.06%
Sterling K. Ainsworth 1,156,656(3) 6.17%
Patricia A. Pilia 321,584(4) 1.72%
Gordon H. Link, Jr. 59,959(5) *
James D. McChesney 19,407(6) *
Arthur H. Hayes, Jr. 40,000(7) *
Mark B. Hacken 56,000(8) *
Seth Rudnick 17,665(9) *
Stanley Knowlton 79,500(10) *
All Directors and Executive Of
ficers as a Group (10 persons) 2,523,362(11) 13.37%
State of Wisconsin Investment
Board, P.O. Box 7842
Madison, WI 53707 1,069,500(12) 5.73%
- ---------
* Less than 1%.
(1) Unless otherwise noted, NaPro believes that all persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock or Preferred Stock beneficially owned by them.
(2) Includes 50,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Shaykin under the 1994 Plan.
(3) Includes 16,000 shares of Common Stock issuable upon exercise of non-plan
options granted to Dr. Ainsworth in connection with the formation of NaPro
in 1991; 38,000 shares of Common Stock issuable upon exercise of 1994 Plan
options and 42,550 shares of Common Stock gifted by Dr. Ainsworth to
relatives and certain other persons, which Dr. Ainsworth may be deemed to
beneficially own by virtue of holding powers of attorney to vote and take
certain other actions with
14
<PAGE>
respect to such shares. Does not include shares held by Dr. Pilia, who is
engaged to be married to Dr. Ainsworth, and Dr. Ainsworth disclaims
beneficial ownership of the shares of Common Stock beneficially owned by
Dr. Pilia as well as of the gifted shares over which Dr. Ainsworth holds
powers of attorney.
(4) Includes 19,000 shares of Common Stock issuable upon exercise of 1994 Plan
options and 10,800 shares of Common Stock gifted by Dr. Pilia to relatives
and certain other persons which Dr. Pilia may be deemed to beneficially
own by virtue of holding powers of attorney to vote and take certain other
actions with respect to such shares. Does not include shares held by Dr.
Ainsworth. Dr. Pilia disclaims beneficial ownership of shares of Common
Stock beneficially owned by Dr. Ainsworth and the gifted shares over which
Dr. Pilia holds powers of attorney. See note (3) above.
(5) Includes 13,334 shares of Common Stock issuable upon the exercise of
options granted to Mr. Link under NaPro's 1993 Stock Option Plan and
15,000 shares of Common Stock issuable upon the exercise of options
granted to Mr. Link under the 1994 Plan.
(6) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted to Dr. McChesney under the 1994 Plan.
(7) Includes 40,000 shares of Common Stock issuable upon exercise of options
granted to Dr. Hayes under the 1994 Plan.
(8) Includes 56,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Hacken under the 1994 Plan.
(9) Includes 17,665 shares of Common Stock issuable upon exercise of options
granted to Dr. Rudnick under the 1994 Plan.
(10) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted to Mr. Knowlton under the 1994 Plan, 5,000 shares of Common Stock
held in a limited partnership, and 21,000 shares of Common Stock held by
spouse.
(11) Includes an aggregate of 299,799 shares of Common Stock issuable upon
exercise of outstanding stock options held by such persons. This amount
does not include 10,215 shares held by an executive officer who resigned
in February 1999.
(12) Information in the table as to beneficial ownership of Common Stock by the
State of Wisconsin Investment Board is based upon filings made on Schedule
13G by the State of Wisconsin Investment Board.
15
<PAGE>
Item 13
Certain Relationships and Related Transactions
In June 1993, NaPro entered into a 20-year strategic alliance (the "IVAX
Agreement") with Baker Norton Pharmaceuticals, a subsidiary of IVAX, one of the
largest generic pharmaceutical companies in the United States, which provides
for certain exclusive and non-exclusive rights for IVAX to develop and market
NaPro's paclitaxel. NaPro supplied IVAX with paclitaxel pursuant to the terms of
the IVAX Agreement until March 1997 when NaPro and IVAX terminated the IVAX
Agreement. During 1998, NaPro's sales of paclitaxel to IVAX were $2,722,000, or
55% of NaPro's revenues during such period. Until April 1998, IVAX, through D&N,
beneficially owned 1,126,398 shares of the Common Stock.
On March 20, 1998, NaPro and IVAX entered into an agreement (the "Termination
Agreement") terminating the IVAX Agreement. Under the Termination Agreement,
NaPro is obligated to sell a fixed quantity of paclitaxel to IVAX, at a fixed
price, in installments with the final installment due in the first quarter of
1999. In addition, the Termination Agreement grants IVAX a royalty-free,
limited, non-exclusive license for NaPro's patent application entitled
"Injectable Composition" (the "NaPro Patent"), in the United States, Europe, and
certain other world markets. As consideration for this licence, NaPro has
received $6,070,000, $2,000,000 of which was placed in escrow to be released in
installments corresponding to delivery of paclitaxel to IVAX, and has received
1,126,398 shares of Common Stock owned by D&N Holding Company, a wholly-owned
subsidiary of IVAX. In addition, upon issuance of the NaPro Patent in the United
States and various countries, IVAX made the following additional payments to
NaPro: $3,750,000 upon issuance of the NaPro Patent in the United States, and
$2,610,000 upon issuance of the NaPro Patent in the European Patent Office.
On the same day the Termination Agreement was executed, NaPro, IVAX, and Mr.
Shaykin entered into an agreement relating to a warrant (the "Warrant") to
purchase 111,111 shares of Common Stock at an exercise price of $0.075 per
share. Mr Shaykin acquired the Warrant from IVAX in 1996. Pursuant to
16
<PAGE>
the agreement, Mr. Shaykin paid $100,000 to IVAX and IVAX forgave the
indebtedness represented by a promissory note in the principal amount of
$944,443 that had represented the original purchase price of the Warrant by Mr.
Shaykin. In exchange for remission of the warrant to NaPro by Mr. Shaykin, NaPro
agreed to indemnify IVAX from any loss associated with such transaction.
NaPro and Seth Rudnick, M.D. entered into a consulting agreement whereby Dr.
Rudnick provides consulting services for NaPro pursuant to a consulting
agreement dated June 1, 1998 (the "Rudnick Agreement") whereby Dr. Rudnick
provides NaPro with consulting services in the areas of clinical trial
strategies and corporate partnering activities. Dr. Rudnick is paid $1,750 per
day spent providing consulting services and $700 per day spent traveling on
NaPro's behalf. As additional compensation for such services Dr. Rudnick has
been granted options to purchase 15,000 shares of Common Stock at an exercise
price of $2.00 which vest as services are performed. As compensation for
providing consulting services under the Rudnick Agreement during 1998, Dr.
Rudnick was paid $34,825 and options to purchase 6,265 shares of Common Stock
vested.
NaPro and MediScience Associates, Inc. ("MediScience"), entered into a
consulting agreement (the "MediScience Agreement") whereby Dr. Hayes, who is
President and Chief Operating Officer of MediScience, will provide NaPro with
consulting services in a variety of areas, including clinical research planning,
strategic positioning and regulatory guidance. NaPro makes quarterly payments to
MediScience under the MediScience Agreement of $12,500 for such services. Dr.
Hayes is obligated to provide consulting services under the MediScience
Agreement indefinitely, provided that the MediScience Agreement is terminable by
NaPro with 90 days prior notice or by MediScience at any time with 90 days prior
notice.
17
<PAGE>
Signatures
Pursuant to Section 13 of the Securities Exchange Act of 1934, NaPro caused this
amendment to its report on Form 10-K to be signed on its behalf.
<TABLE>
<CAPTION>
NAPRO BIOTHERAPEUTICS, INC.
<S> <C> <C>
*
Sterling K. Ainsworth, Ph.D. President, Chief April 30, 1999
Executive Officer; Director
Pursuant to the Exchange Act, this report has been signed on behalf of NaPro and
in the capacities indicated.
* Chairman of the Board of April 30, 1999
- ---------------------------------------
Leonard P. Shaykin Directors
* President, Chief April 30, 1999
- ---------------------------------------
Sterling K. Ainsworth, Ph.D. Executive Officer; Director
/s/ Gordon H. Link, Jr. Vice President, Chief April 30, 1999
- -----------------------
Gordon H. Link, Jr Financial Officer
(Principal Financial Officer)
/s/ Robert L. Poley Controller April 30, 1999
- -------------------
Robert L. Poley (Principal Accounting Officer)
* Director April 30, 1999
- ------------------------------------
Arthur H. Hayes, Jr., M.D.
* Director April 30, 1999
- ------------------------------------
Mark B. Hacken
* Director April 30, 1999
- ------------------------------------
Stanley Knowlton
* Director April 30, 1999
- ---------------------------------------
Patricia A. Pilia, Ph.D.
* Director April 30, 1999
- ------------------------------------
Seth Rudnick, M.D.
</TABLE>
*By:/s/ Gordon H. Link, Jr.
Gordon H. Link, Jr., Attorney in Fact
18
<PAGE>
