<PAGE>
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 Section 240.14a-11(c) or Section
240.14a-12
Focal, 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)(1)
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:
------------------------------------------------------------------------
<PAGE>
FOCAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1998
The Annual Meeting of Stockholders of Focal, Inc. (the "Company") will be
held on Wednesday, May 27, 1998, at 8:30 a.m., local time, at The Doubletree
Guest Suites, located at 550 Winter Street, Waltham, Massachusetts (telephone
781-890-6767) for the following purposes (as more fully described in the Proxy
Statement accompanying this Notice):
1. To elect two Class I directors of the Company.
2. To confirm the appointment of Ernst & Young LLP as the independent
public accountants of the Company for the fiscal year ending December
31, 1998.
3. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on April 22, 1997 are
entitled to vote at the Annual Meeting and are cordially invited to attend the
meeting. However, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. If you attend the meeting,
you may vote in person even if you return a proxy.
FOR THE BOARD OF DIRECTORS
David M. Clapper
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Lexington, Massachusetts
April 27, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING,
YOU MAY VOTE IN PERSON, EVEN IF YOU RETURN A PROXY.
<PAGE>
FOCAL, INC.
PROXY STATEMENT FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Focal, Inc. ("Focal" or the "Company") for use at the Annual Meeting of
Stockholders to be held on Wednesday, May 27, 1998 at 8:30 a.m., local time, or
at any adjournment thereof. The Annual Meeting will be held at The Doubletree
Guest Suites, located at 550 Winter Street, Waltham, Massachusetts. The
telephone number at the meeting location is (781) 890-6767.
This Proxy Statement was mailed on or about April 27, 1998, to all
stockholders entitled to vote at the meeting.
RECORD DATE AND STOCK OWNERSHIP
Stockholders of record at the close of business on April 22, 1998 (the
"Record Date") are entitled to vote at the meeting. As of December 31, 1997,
12,868,570 shares of the Company's Common Stock were issued and outstanding and
held of record by approximately 160 stockholders.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of December 31, 1997, as to (i)
each person who is known to the Company to beneficially own more than five
percent of the outstanding shares of its Common Stock, (ii) each director and
nominee for election, (iii) each officer named in the Summary Compensation Table
below and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED
- --------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Entities affiliated with Patricof & Co. Ventures (2)................................... 1,591,513 12.4%
(Janet Effland)
2100 Geng Road, Suite 150
Palo Alto, CA 94303
Entities affiliated with Mayfield Fund (3)............................................. 1,530,338 11.9
(Michael J. Levinthal)
2800 Sand Hill Rd., Suite 250
Menlo Park, CA 94025
Domain Partners II, L.P................................................................ 585,854 4.6
(Jesse I. Treu, Ph.D.)
c/o Domain Associates
One Palmer Square, Suite 515
Princeton, NJ 05815
General Electric Pension Trust......................................................... 849,522 6.6
3000 Summer Street
Stanford, CT 06904
Entities affiliated with Frazier & Company(4).......................................... 523,860 4.1
(Fred E. Silverstein, M.D.)
601 Union Street, Suite 2110
Seattle, WA 98101
David M. Clapper(5)(6)................................................................. 417,289 3.2
David Enscore, Ph.D.(5)(7)............................................................. 89,555 *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED
- --------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Stephen J. Herman (5)(8)............................................................... 121,575 *
Glenn M. Kazo(5)(9).................................................................... 82,211 *
Arthur J. Coury, Ph.D.(5)(10).......................................................... 111,072 *
Henry Brem, M.D.(5).................................................................... 129,231 1.0
Janet Effland(5)(11)................................................................... 1,599,461 12.4
Robert Langer, Ph.D.(5)................................................................ 227,693 1.8
Mark J. Levin(5)....................................................................... 54,102 *
Michael J. Levinthal(12)............................................................... 1,538,283 12.0
Fred E. Silverstein, M.D.(13).......................................................... 531,808 4.1
Jesse I. Treu, Ph.D.(14)............................................................... 951,050 7.4
All directors and executive officers as a group (15 persons)(15)....................... 6,074,865 47.2
</TABLE>
- ------------------------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
The number of shares of Common Stock outstanding used in calculating the
percentage for each listed person includes the shares of Common Stock
underlying options or warrants held by such person that are exercisable
within 60 days of March 31, 1998, but excludes shares of Common Stock
underlying options or warrants held by any other person.
(2) Consists of 1,072,834 shares beneficially owned by APA Excelsior IV, L.P.,
309,461 shares beneficially owned by The P/A Fund, 189,324 shares
beneficially owned by APA Excelsior IV/Offshore, L.P and 19,894 shares
beneficially owned by Patricof Private Investment Club, L.P. (the "Patricof
Funds").
(3) Consists of 904,716 shares beneficially owned by Mayfield VI, 382,570 shares
beneficially owned by Mayfield VII, 130,438 shares beneficially owned by
Mayfield Medical Partners, 48,676 shares beneficially owned by Mayfield
Medical Partners (1992), 43,130 shares beneficially owned by Mayfield
Associates Fund and 20,808 shares beneficially owned by Mayfield Associates
Fund II (the "Mayfield Funds").
(4) Consists of 398,566 shares beneficially owned by Frazier Healthcare
Investments, L.P, 38,080 shares beneficially owned by Frazier & Co. L.P, 171
shares owned by Frazier Management, L.L.C. (the "Frazier Funds") and an
aggregate of 87,043 shares issuable upon the exercise of warrants held by
Frazier Investment Securities, L.P.
(5) Includes shares issued pursuant to an early stock option exercise program.
The unvested portion of such shares are subject to a repurchase option in
favor of the company at cost in the event of the termination of such
individual's employment or consultant relationship with the company prior to
vesting. See "Certain Transactions."
(6) Includes 3,365 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(7) Includes 897 shares issuable upon the exercise of options exercisable within
60 days of March 31, 1998.
(8) Includes 1,076 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
2
<PAGE>
(9) Includes 673 shares issuable upon the exercise of options exercisable within
60 days of March 31, 1998.
(10) Includes 897 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(11) Includes shares beneficially owned by the Patricof Funds. Ms. Effland
disclaims beneficial ownership of the shares beneficially owned by the
Patricof Funds except to the extent of her proportional partnership interest
therein. Includes 7,948 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 1998.
(12) Includes shares beneficially owned by the Mayfield Funds. Mr. Levinthal
disclaims beneficial ownership of the shares beneficially owned by the
Mayfield Funds except to the extent of his proportional partnership interest
therein. Includes 7,948 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 1998 held by Mr. Levinthal.
(13) Includes shares beneficially owned by the Frazier Funds and an aggregate of
87,043 shares issuable upon the exercise of warrants held by Frazier &
Company L.P. Dr. Silverstein disclaims beneficial ownership of the shares
beneficially owned by the Frazier Funds except to the extent of his
proportional partnership interest therein. Includes 7,948 shares issuable
upon the exercise of options exercisable within 60 days of March 31, 1998.
(14) Consists of 585,854 shares beneficially owned by Domain Partners II, L.P.
Dr. Treu is a general partner of One Palmer Square Associates II, L.P., the
general partner of Domain Partners II, L.P. and has indirect beneficial
ownership of these shares. Also includes 357,248 shares owned by
Biotechnology Investments Limited ("BIL"). Pursuant to a contractual
agreement, Domain Associates, of which Dr. Treu is a general partner, is the
U.S. venture capital advisor to BIL. Domain Associates has no voting or
investment power over BIL's shares and Dr. Treu disclaims beneficial
ownership of BIL's shares. Includes 7,948 shares issuable upon the exercise
of options exercisable within 60 days of March 31, 1998.
(15) See footnotes 2 through 14.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person. Attending the Annual
Meeting in and of itself may not constitute a revocation of a proxy.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share held as of the
record date. Stockholders will not be entitled to cumulate their votes in the
election of directors.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's Transfer Agent. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority of shares present in person or represented by proxy at a duly
held meeting at which a quorum is present is required under Delaware law for
approval of proposals presented to stockholders. In general, Delaware law also
provides that a quorum consists of a majority of shares entitled to vote and
present or represented by proxy at the meeting. The Inspector will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but will not be treated as votes in favor
of approving any matter submitted to the stockholders for a vote. Any proxy
which is returned using the form of proxy enclosed and which is not marked as to
a particular item will be voted for the election of directors, for the
confirmation of the appointment of the designated independent public accountants
and, as the proxy holders deem advisable, on other matters that may come before
the meeting, as the case may
3
<PAGE>
be with respect to the items not marked. If a broker indicates on the enclosed
proxy or its substitute that it does not have discretionary authority as to
certain shares to vote on a particular matter ("Broker Non-Votes"), those shares
will not be considered as present with respect to that matter. The Company
believes that the tabulation procedures to be followed by the Inspector are
consistent with the general statutory requirements in Delaware concerning voting
of shares and determination of a quorum.
The cost of soliciting proxies will be borne by the Company. The Company may
retain the services of its transfer agent, Norwest Bank Minnesota, N.A., or
other proxy solicitors to solicit proxies, for which the Company estimates that
it would pay fees not to exceed an aggregate of $10,000. In addition, the
Company expects to reimburse brokerage firms and other persons representing
beneficial owners of shares for their expense in forwarding solicitation
material to such beneficial owners. Proxies may be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, in person or by telephone or facsimile.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals that are intended to be presented by stockholders of the Company
at the 1999 Annual Meeting must be received by the Company no later than
December 1, 1998 in order that they may be included in the proxy statement and
form of proxy relating to that meeting.
4
<PAGE>
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
Pursuant to the Company's Restated Certificate of Incorporation, the
Company's Board of Directors currently consists of eight persons, divided into
three classes serving staggered terms of three years. Currently there are two
directors in Class I, three directors in Class II and three directors in Class
III. Two Class I directors are to be elected at the Annual Meeting. The Class II
and Class III directors will be elected at the Company's 1999 and 2000 Annual
Meetings of Stockholders, respectively. Each of the two Class II directors
elected at the Annual Meeting will hold office until the year 2001 Annual
Meeting of Stockholders or until his successor has been duly elected and
qualified.
In the event that any of such persons becomes unavailable or declines to
serve as a director at the time of the Annual Meeting, the proxy holders will
vote the proxies in their discretion for any nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that any of
the nominees will be unavailable to serve.
The names of the two Class I nominees for election to the Board of Directors
at the Annual Meeting, their ages as of the Record Date and certain information
about them are set forth below. The names of the current Class II and Class III
directors with unexpired terms, their ages as of the Record Date and certain
information about them are also set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ------------------------------------------------ --- ------------------------------------------------ -----------
<S> <C> <C> <C>
NOMINEES FOR CLASS I DIRECTORS
David M. Clapper................................ 46 President and Chief Executive Officer of Focal, 1993
Inc.
Fred E. Silverstein, M.D........................ 55 Member of Frazier Management LLC 1996
CONTINUING CLASS II DIRECTORS
Henry Brem, M.D................................. 45 Director of the Brain Tumor Research Center at 1991
The Johns Hopkins University
Janet Effland................................... 49 Managing Director of Patricof & Co. Ventures, 1996
Inc.
Jesse I. Treu, Ph.D............................. 50 General Partner of Domain Associates 1996
CONTINUING CLASS III DIRECTORS
Mark J. Levin................................... 45 President and Chief Executive Officer of 1991
Millennium Pharmaceuticals, Inc.
Robert Langer, Ph.D............................. 49 Professor of Chemical and Biomedical Engineering 1996
at the Massachusetts Institute of Technology
Michael J. Levinthal............................ 43 General Partner of Mayfield Fund 1992
</TABLE>
HENRY BREM, M.D. is Director of the Brain Tumor Research Center and
Professor of Neurosurgery, Ophthalmology and Oncology at The Johns Hopkins
University. Dr. Brem has served as a member of the Company's Board of Directors
since June 1991. Dr. Brem is a Scientific Founder of the Company. Dr. Brem holds
an M.D. from Harvard University.
DAVID M. CLAPPER has been President, Chief Executive Officer and a Director
since joining Focal in July 1993. Before joining Focal, Mr. Clapper was employed
at Johnson & Johnson from 1977 until 1993. He served as Vice President and a
Board member at the Critikon, Inc. division of Johnson & Johnson from July 1992
to July 1993. From 1977 to July 1992, Mr. Clapper held a variety of positions,
including Vice President of Sales & Marketing and a Board Member of Ethicon
Endo-Surgery, and Vice President of
5
<PAGE>
Product Management and a Board Member at Ethicon Inc. Mr. Clapper holds a B.S.
in Marketing from Bowling Green State University.
JANET EFFLAND joined the Company's Board of Directors in April 1996. From
August 1988 through December 1997, Ms. Effland was Vice President of Patricof &
Co. Ventures, Inc., a venture capital firm. Since January 1998, Ms. Effland has
been a Managing Director of Patricof & Co. She also serves on the Board of
Directors of Urologix, Inc., a publicly traded company. Ms. Effland holds a J.D.
from Arizona State University.
ROBERT LANGER, PH.D. joined the Company's Board of Directors in January
1996. Dr. Langer has been the Kenneth J. Germeshausen Professor of Chemical and
Biomedical Engineering at the Massachusetts Institute of Technology since 1992.
He is also a member of the National Academy of Sciences, National Academy of
Engineering and the Institute of Medicine. He also serves on the Board of
Directors of Alkermes, Inc., a publicly traded company. Dr. Langer holds a Sc.D.
from the Massachusetts Institute of Technology in Chemical Engineering.
MARK J. LEVIN President and Chief Executive Officer and a Director of
Millennium Pharmaceuticals, Inc., has served as a Director since the Company's
inception in June 1991. Mr. Levin was the founding Chief Executive Officer of
Focal, Inc., as well as Cell Genesys, Inc., CytoTherapeutics, Inc., Tularik,
Inc. and Millennium Pharmaceuticals, Inc. Mr. Levin was previously a General
Partner of several venture capital funds affiliated with Mayfield Fund, a
venture capital firm. Mr. Levin is a member of the Board of Directors of
CytoTherapeutics, Inc. Mr. Levin holds a B.S. and M.S. in Chemical Engineering
from Washington University.
MICHAEL J. LEVINTHAL joined the Company's Board of Directors in December
1992. Since 1984, Mr. Levinthal has been a General Partner of several venture
capital funds affiliated with Mayfield Fund, a venture capital firm. He also
serves on the Board of Directors of Heartstream, InControl, Inc. and Symphonix
Devices, Inc., all of which are publicly traded. Mr. Levinthal holds an M.B.A.
and an M.S. in Engineering from Stanford University.
FRED E. SILVERSTEIN, M.D. joined the Company's Board of Directors in July
1996. Since 1994, Dr. Silverstein has been a member of Frazier Management LLC, a
merchant banking group. From 1986 to 1994, he was a Professor of Medicine at the
University of Washington where he also held the positions of Director,
Gastrointestinal Endoscopy Service (1975-1991) and Director, Endoscopy Training
Program (1991-1994). Dr. Silverstein also serves on the Board of Directors of
Aradigm Corporation and Vision Sciences, Inc. Dr. Silverstein holds an M.D. from
Columbia University College of Physicians and Surgeons.
JESSE I. TREU, PH.D. was a member of the Company's Board of Directors from
March 1993 until April 1995 and from March 1996 to the present. Since 1986, he
has been a General Partner of Domain Associates, a venture capital management
firm. From 1982 through 1985, Dr. Treu was a principal in the management group
Channing, Weinberg and Co., Inc. and its spin-off CW Ventures Capital. Dr. Treu
also serves on the Board of Directors of GelTex Pharmaceuticals, Inc. and
Trimeris, Inc. He received his B.S. from Rensselaer Polytechnic Institute, and
holds an M.A. and Ph.D. in Physics from Princeton University.
BOARD MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors of the Company held seven meetings during the fiscal
year ended December 31, 1997. No nominee who was a director during the entire
fiscal year attended fewer than 75% of the meetings of the Board of Directors or
of committees on which such person served.
The Board of Directors has an Audit Committee and a Compensation Committee.
During 1997, the Company did not have a nominating committee or a committee
performing the functions of a nominating committee. From time to time, during
1997, the Board created various ad hoc committees for special purposes. In March
1998, the Board formed a Nominating Committee. The Nominating Committee
6
<PAGE>
consists of directors Levinthal and Treu. The Nominating Committee will review
and recommend candidates for election to the Company's Board of Directors.
The Audit Committee consists of directors Effland, Treu and Silverstein. The
Audit Committee is responsible for reviewing the results and scope of the audit
and other services provided by the Company's independent public accountants. The
Audit Committee held two meetings in the last fiscal year.
The Compensation Committee consists of directors Levinthal, Treu, Brem and
Levin. The Compensation Committee reviews and makes recommendations to the Board
concerning salaries and incentive compensation for executive officers and
certain employees of the Company. The Compensation Committee held two meetings
during the last fiscal year.
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board and
Committee meetings. The Company does not provide additional compensation for
committee participation or special assignments of the Board of Directors. From
time to time, certain of the directors of the Company have received grants of
options to purchase shares of the Company's Common Stock pursuant to the 1992
Incentive Stock Plan (the "Stock Plan"). Since the adoption of the 1997 Director
Option Plan in October 1997, nonemployee directors of the Company will be
eligible to receive nondiscretionary, automatic grants of options to purchase
shares of the Company's Common Stock under substantially similar terms as under
the Stock Plan.
Under the Director Option Plan, each Outside Director will receive (provided
that such Outside Director has been a director for at least six months prior to
such grant), on the date of each year's annual meeting of stockholders, an
automatic grant of an option to purchase up to 5,000 shares of Common Stock.
Such options will have an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant and will vest on a cumulative
monthly basis over a four year period.
7
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
paid by the Company for each of the two years in the period ended December 31,
1997 to the Chief Executive Officer and the four most highly compensated
executive officers of the Company:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS OF
OPTIONS ALL OTHER
FISCAL ---------------------- (# OF COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SHARES)(1) ($)
- --------------------------------------------------- ----------- --------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
David M. Clapper................................... 1997 1996 246,000 25,000 -- 23,077 ----
President and Chief 230,000 299,293
Executive Officer
Stephen J. Herman.................................. 1997 1996 194,964 5,000 -- 7,384 49,402 ----
Vice President, Operations 184,800
David J. Enscore, Ph.D............................. 1997 1996 159,679 5,000 -- 6,154 60,965 -- 9,904(2 )
Vice President, Development 152,075
and Drug Delivery
Arthur J. Coury, Ph.D.............................. 1997 1996 179,597 5,000 -- 6,154 66,636 ----
Vice President, Materials 171,045
Research
Glenn M. Kazo...................................... 1997 1996 169,600 5,000 -- 4,615 81,537 4,152(2)
Vice President, Corporate 160,000 18,456(2)
Development
</TABLE>
- ------------------------
(1) Options were granted under the Company's 1992 Incentive Stock Option Plan
and 1/48 of the shares vest at the end of each month from the date of grant
over four years. Vesting is subject to the optionees continued relationship
with the Company.
(2) Consists of reimbursement for relocation expenses.
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth each
grant of stock options made during the fiscal year ended December 31, 1997 to
each executive officer named in the Summary Compensation Table above:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(4)
OPTIONS EMPLOYEES PRICE(3) EXPIRATION ----------------------
NAME GRANTED(1)(#) IN 1997(2) ($/SH) DATE 5% ($) 10% ($)
- --------------------------------------- ------------- --------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David M. Clapper....................... 23,077 7.4% $ 7.64 10/16/07 $ 110,879 $ 280,990
Stephen J. Herman...................... 7,384 2.4% $ 7.64 10/16/07 $ 35,478 $ 89,909
David J. Enscore, Ph.D................. 6,154 2.0% $ 7.64 10/16/07 $ 29,568 $ 74,932
Arthur J. Coury, Ph.D.................. 6,154 2.0% $ 7.64 10/16/07 $ 29,568 $ 74,932
Glenn M. Kazo.......................... 4,615 1.5% $ 7.64 10/16/07 $ 22,174 $ 56,193
</TABLE>
- ------------------------
(1) Options were granted under the Company's 1992 Incentive Stock Option Plan
and 1/48 of the shares vest at the end of each month from the date of grant
over four years. Vesting is subject to the optionees continued relationship
with the Company.
(2) Based on an aggregate of 313,058 options granted by the Company in the year
ended December 31, 1997 to employees of and consultants to the Company,
including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the Company's Common Stock on the date of grant appreciates
at the indicated annual rate compounded annually for the term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price. These numbers are calculated based on the
requirements promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate of future stock price growth.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES.
The following table sets forth, for each of the executive officers named in the
Summary Compensation Table above, each exercise of stock options during the
fiscal year ended December 31, 1997 and the year-end value of unexercised
options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT DECEMBER 31, OPTIONS AT DECEMBER 31,
ACQUIRED ON VALUE 1997 1997(2)
EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (#) ($)
- ------------------------------------- ----------- ----------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
David M. Clapper..................... 413,924 $ 497,623 961/22,116 $ 2,869/$66,016
Stephen J. Herman.................... 58,960 $ 70,899 307/7,077 $ 916/$21,125
David J. Enscore, Ph.D............... 88,658 $ 106,611 256/5,898 $ 764/$17,606
Arthur J. Coury, Ph.D................ 110,175 $ 132,485 256/5,898 $ 764/$17,606
Glenn M. Kazo........................ 81,538 $ 98,049 192/4,423 $ 573/$13,203
</TABLE>
- ------------------------
(1) Based on the fair market value of the Company's Common Stock on the date of
exercise.
(2) Based on a fair market value of $10.625 per share, minus the per share
exercise price, multiplied by the number of shares underlying the option.
9
<PAGE>
COMPENSATION COMMITTEE REPORT
THE FOLLOWING IS PROVIDED TO STOCKHOLDERS BY THE MEMBERS OF THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS:
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for the administration of the Company's compensation programs. These
programs include base salary for executive officers and both short-term and
long-term incentive compensation programs. The Company's compensation programs
are designed to provide a competitive level of total compensation and include
incentive and equity ownership opportunities linked to the Company's performance
and shareholder return.
COMPENSATION PHILOSOPHY
The design and implementation of the Company's executive compensation
programs are based on a series of guiding principles derived from the Company's
values, business strategy and management requirements. These principles may be
summarized as follows:
- Align the financial interests of the management team with the Company and
its stockholders;
- Attract, motivate and retain high-caliber individuals necessary to
increase total return to stockholders;
- Provide a total compensation program where a significant portion of pay is
linked to individual achievement and short-term and long-term Company
performance; and
- Emphasize reward for performance at the individual, team and Company
levels.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code adopted under the Federal Revenue Reconciliation Act of
1993. Section 162(m) disallows a tax deduction for any publicly-held corporation
for individual compensation exceeding $1 million in any taxable year for any of
the named executive officers, unless compensation is performance based. Since
the targeted cash compensation of each of the named executive officers is well
below the $1 million threshold and the Committee believes that any options
granted under the Company's stock option plan will meet the requirement of being
performance based under the transition provisions provided in the regulations
under Section 162(m), the Committee believes that Section 162(m) will not reduce
the tax deduction available to the Company. The Company's policy is to qualify
to the extent reasonable its executive officers' compensation for deductibility
under applicable tax laws.
COMPENSATION PROGRAM
The Company's executive compensation program has three major components, all
of which are intended to attract, retain and motivate executive officers
consistent with the principles set forth above. The Committee considers these
components of compensation individually as well as collectively in determining
total compensation for executive officers.
BASE SALARY. Each fiscal year the Committee establishes base salaries for
individual executive officers based upon (i) industry and peer group surveys,
(ii) responsibilities, scope and complexity of each position and (iii)
performance judgments as to each individual's past and expected future
contributions. The Committee reviews with the Chief Executive Officer and
approves, with appropriate modifications, an annual base salary plan for the
Company's executive officers other than the Chief Executive Officer. The
Committee reviews and fixes the base salary of the Chief Executive Officer based
on similar competitive compensation data and the Committee's assessment of his
past performance and its expectations as to his future contributions in leading
the Company.
10
<PAGE>
CASH (SHORT-TERM) INCENTIVES. The Company has not historically used annual
cash incentive bonuses as a compensation tool for executive officers. In
particular, no cash bonus plan based on the achievement of corporate or
individual goals was in effect for fiscal 1997. However, in January 1998, the
Committee approved the establishment of a discretionary cash bonus pool of
$150,000 to be allocated by the Chief Executive Officer to officers and certain
key employees based on extraordinary effort and contribution during 1997. In
addition, the Committee awarded a discretionary cash bonus to Mr. Clapper in the
amount of $25,000 in recognition of his contributions to the Company's
performance during 1997. Recipients of bonus awards under this program included
certain executive officers. See "Executive Compensation." The Committee has
approved a cash bonus plan for fiscal 1998. Bonus awards under this program will
be based on the achievement of corporate goals, individual goals or a
combination thereof.
EQUITY BASED (LONG-TERM) INCENTIVES. Long-term incentives for the Company's
employees are provided under the Company's stock option plans. Each fiscal year,
the Committee considers the desirability of granting to executive officers
long-term incentives in the form of stock options. These option grants are
intended to motivate the executive officers to manage the business to improve
long-term Company performance and align the financial interests of the
management team with the Company and its stockholders. The Committee established
the grants of stock options to executive officers (other than the Chief
Executive Officer) in the last fiscal year, based upon a review with the Chief
Executive Officer of proposed individual awards, taking into account each
officer's scope of responsibility and specific assignments, strategic and
operational goals applicable to the officer, anticipated performance
requirements and contributions of the officer and competitive data for similar
positions. The Committee independently reviewed these same factors in
determining the option grant to Mr. Clapper as Chief Executive Officer. During
1997, an option award of 75,000 shares of Common Stock was granted to Mr.
Clapper, which vests over a four-year period.
THE FOREGOING COMPENSATION COMMITTEE REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL" OR TO BE "FILED" WITH THE SEC, NOR SHALL SUCH INFORMATION
BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE EXCHANGE ACT, EXCEPT TO THE
EXTENT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
Respectfully submitted,
Michael J. Levinthal, Jesse I. Treu, Ph.D., Henry Brem, M.D. and Mark J.
Levin
11
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
the Company's Common Stock at December 31, 1997 since December 11, 1997 (the
date the of the Company's initial public offering) to the cumulative total
return over such period of (i) the Nasdaq Stock Market Composite Index and (ii)
Hambrecht & Quist "Healthcare, Excluding Biotechnology" index. The graph assumes
the investment of $100 on December 11, 1997 in the Company's Common Stock and
each of such indices and reflect the change in the market price of the Company's
Common Stock relative to the noted indices at December 31, 1997 and not for any
interim period. The performance shown is not necessarily indicative of future
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF 1 MONTH CUMULATIVE TOTAL RETURN*
<S> <C> <C>
AMONG FOCAL, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST BIOTECHNOLOGY INDEX
NASDAQ STOCK
FOCAL, INC. MARKET COMPOSITE INDEX
12/11/97 $100 $100
12/31/97 $106.25 $100.84
<CAPTION>
COMPARISON OF 1 MONTH CUMULATIVE TOTAL RETURN*
<S> <C>
AMONG FOCAL, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST BIOTECHNOLOGY INDEX
HAMBRECHT & QUIST
HEALTHCARE INDEX
12/11/97 $100
12/31/97 $101.20
</TABLE>
12
<PAGE>
PROPOSAL NO. 2:
CONFIRMATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP, independent public
accountants, to audit the financial statements of the Company for the year
ending December 31, 1998. Ernst & Young LLP has audited the financial statements
of the Company for each fiscal year since the Company's inception. The
affirmative vote of holders of a majority of the shares of Common Stock
represented at the meeting is necessary to appoint Ernst & Young LLP as the
Company's independent public accountants and the Board of Directors recommends
that the stockholders vote FOR confirmation of such selection. In the event of a
negative vote, the Board of Directors will reconsider its selection.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
CERTAIN TRANSACTIONS
In January 1997, the Company implemented a program under which directors,
executive officers and certain other key employees were permitted to exercise
their outstanding options as to both vested and unvested shares, with unvested
shares being subject to a right of repurchase at cost in favor of the Company in
the event of termination of employment prior to vesting of all then-unvested
shares. Under this program, the participants paid the exercise price for their
outstanding options pursuant to full recourse promissory notes. The notes bear
interest at 6.0% per annum and are due and payable on December 31, 2000. The
principal amounts of each note payable by a director or executive officer are
set forth below:
<TABLE>
<CAPTION>
DIRECTOR OF EXECUTIVE OFFICER NOTE AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
David M. Clapper................................................................ $ 448,993
Arthur J. Coury, Ph.D. ......................................................... 113,733
David J. Enscore, Ph.D. ........................................................ 106,612
Stephen J. Herman............................................................... 70,897
Glenn M. Kazo................................................................... 98,050
Mary Lou Mooney................................................................. 54,218
Ronald S. Rudowsky.............................................................. 92,223
W. Bradford Smith............................................................... 102,341
Henry Brem, M.D. ............................................................... 51,800
Robert Langer, Ph.D. ........................................................... 88,800
Mark J. Levin................................................................... 33,000
</TABLE>
The Company has from time to time made loans to executive officers and key
employees in connection with their employment with the Company to assist them
with respect to relocation expenses. From August 1993 through February 1997, the
Company lent Dr. Coury an aggregate of $120,000. These loans bear interest at
interest rates ranging from 5.0% to 7.0% per annum and are due and payable in
full on December 31, 1999. However, the outstanding principal of these loans and
accrued, unpaid interest thereon will be forgiven on December 31, 1999 if the
value of Dr. Coury's stock and stock options has not attained a certain
threshold by such date.
The Company has a consulting agreement with Dr. Brem under which it pays Dr.
Brem $30,000 per annum for scientific advisory and consulting services provided
by Dr. Brem. Dr. Brem is a founder and director of the Company and has, from
time to time, been granted options to purchase Common Stock of the Company.
13
<PAGE>
The Company has a consulting agreement with Dr. Langer under which it pays
Dr. Langer $60,000 per annum for scientific advisory and consulting services
provided by Dr. Langer. Dr. Langer is a founder and director of the Company and
has, from time to time, been granted options to purchase Common Stock of the
Company.
The Company's Restated Certificate of Incorporation provides that the
personal liability of its directors for monetary damages arising from a breach
of their fiduciary duties in certain circumstances shall be eliminated to the
fullest extent permitted by Delaware law. The Restated Certificate of
Incorporation also authorizes the Company to indemnify its directors and
officers to the fullest extent permitted by Delaware law. The Company has
entered into indemnification agreements with its officers and directors
providing such indemnification. The indemnification agreements may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance.
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will require the
approval of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares they
represent as the Board of Directors may recommend.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K. REQUESTS SHOULD BE SENT TO
INVESTOR RELATIONS, FOCAL, INC., 4 MAGUIRE ROAD, LEXINGTON, MASSACHUSETTS 02173.
14
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOCAL, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS
MAY 27, 1998
The undersigned stockholder of FOCAL,INC., a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, each dated April , 1998, and hereby appoints David M. Clapper, W.
Bradford Smith, or either of them, proxies and attorneys-in-fact with full power
to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the 1998 Annual Meeting of Stockholders of FOCAL,
INC. to be held on May 27, 1998 at 8:30 a.m., local time, at The Doubletree
Guest Suites, located at 550 Winter Street, Waltham, Massachusetts, and at any
adjournment or adjournments thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below.
1. ELECTION OF CLASS I
DIRECTORS:
/ / FOR all nominees / / VOTE WITHHELD
listed below
(except as indicated.)
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
David M. Clapper; Fred E. Silverstein, M.D.
2. Proposal to ratify the appointment of Ernst & Young LLP as the independent
public accounts of the Company for the year ending December 31, 1998:
/ / FOR / / AGAINST / / ABSTAIN
and in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournemtns thereof.
(CONTINUED ON REVERSE SIDE)
<PAGE>
This Proxy will be voted as directed or, if no contrary direction is
indicated, will be voted for the election of the two nominated Class I
directors, for the ratification of the appointment of Ernst & Young LLP as
independent public accountants, and as said proxies deem advisable on such other
matters as may properly come before the meeting.
Dated ______________________, 1998
__________________________________
SIGNATURE
_______________________________
SIGNATURE
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his, her or its name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If shares
are held by joint tenants or as community property, both should sign.)
