<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
- -------------------------------------------------------------------------------
THERATX, INCORPORATED
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
Board of Directors of Registrant
--------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: N/A
- -------------------------------------------------------------------------------
(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:
N/A
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: N/A
- -------------------------------------------------------------------------------
(5) Total fee paid: N/A
- -------------------------------------------------------------------------------
/X/ 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: N/A
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: N/A
- -------------------------------------------------------------------------------
(3) Filing Party: N/A
- -------------------------------------------------------------------------------
(4) Date Filed: N/A
- -------------------------------------------------------------------------------
<PAGE> 2
TO THE STOCKHOLDERS OF THERATX, INCORPORATED
You are cordially invited to attend the Annual Meeting of Stockholders of
TheraTx, Incorporated ("TheraTx" or the "Company") on Thursday, May 30, 1996 at
9:00 a.m., Eastern Daylight Savings Time. The Annual Meeting will be held at the
Doubletree Hotel at Concourse, Atlanta, Georgia.
At the meeting, you will be asked to consider and vote upon the following
proposals: (i) the approval of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock,
$0.001 par value per share, from 30,000,000 to 50,000,000 shares; (ii) the
approval of the Company's 1996 Stock Option/Stock Issuance Plan; (iii) the
approval of the Company's Employee Stock Purchase Plan; (iv) the election of
four (4) individuals to serve as directors of the Company until the 1999 Annual
Meeting; and (v) the ratification of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1996. The proposals
included in the proxy statement are very important to the continued growth and
development of the Company. In addition, I will be pleased to report on the
affairs of the Company and a discussion period will be provided for questions
and comments of general interest to the stockholders.
We look forward to greeting personally those stockholders who are able to be
present at the Annual Meeting; however, whether or not you plan to attend the
Annual Meeting, please mark, sign, date and return the enclosed proxy card
promptly in the accompanying postage-paid reply envelope. By returning the
proxy, you can help TheraTx avoid the expense of duplicate proxy solicitations
and possibly having to reschedule the Annual Meeting if a quorum of the
outstanding shares is not present or represented by proxy. If you decide to
attend the Annual Meeting and wish to change your proxy vote, you may do so
simply by voting in person at the Annual Meeting.
May 11, 1996
JOHN A. BARDIS
President and Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
THERATX, INCORPORATED
-------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of TheraTx,
Incorporated, a Delaware corporation ("TheraTx" or the "Company"), will be held
on Thursday, May 30, 1996 at 9:00 a.m. Eastern Daylight Savings Time at the
Doubletree Hotel at Concourse, Atlanta, Georgia, for the following purposes:
1. To approve an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of Common Stock, $0.001 par value
per share, from 30,000,000 to 50,000,000 shares;
2. To approve the Company's 1996 Stock Option/Stock Issuance Plan;
3. To approve the Company's Employee Stock Purchase Plan;
4. To elect four (4) members to the Company's Board of Directors to serve
as directors until the 1999 Annual Meeting from the following nominees: Bret W.
Jorgensen, Craig T. Davenport, Robert J. Erra and Patrick T. Hackett;
5. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the current fiscal year ending December 31, 1996; and
6. To transact such other business as may properly come before the meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on May 1, 1996 as the
record date for the determination of stockholders entitled to notice of and to
vote at this Annual Meeting and at any continuation or adjournment thereof.
By Order of the Board of Directors
JONATHAN H. GLENN
Secretary
Atlanta, Georgia
May 11, 1996
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU
EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT
THE MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING.
<PAGE> 4
PROXY STATEMENT
------------
THERATX, INCORPORATED
-----------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement and the enclosed proxy card are solicited on behalf
of the Board of Directors of TheraTx, Incorporated ("TheraTx" or the "Company")
for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be held
on Thursday, May 30, 1996 at 9:00 a.m., Eastern Daylight Savings Time, and at
any and all adjournments or postponements thereof for the purposes set forth in
the Notice of Annual Meeting accompanying this Proxy Statement.
TheraTx intends to mail this Proxy Statement and the accompanying proxy
card on or about May 13, 1996 to all stockholders entitled to vote at the Annual
Meeting. TheraTx's principal executive offices are located at 400 Northridge
Road, Suite 400, Atlanta, Georgia 30350. The telephone number at that address is
(770) 518-9449.
VOTING
Only stockholders of record as of close of business on May 1, 1996 are
entitled to notice of, and to vote, at the Annual Meeting. As of May 1, 1996,
20,609,889 shares of the Company's Common Stock were issued and outstanding. On
each matter to be considered at the meeting, each holder of Common Stock will be
entitled to cast one vote for each share of the Company's Common Stock held of
record by such stockholder on May 1, 1996. Pursuant to Delaware law, directors
are elected by a plurality vote and the increase to the Company's authorized
capital stock is approved by the affirmative vote of a majority of the Company's
shares outstanding and entitled to vote at the Annual Meeting. The other matters
submitted for stockholder approval at this Annual Meeting will be decided by the
affirmative vote of a majority of shares present in person or represented by
proxy at the Annual Meeting and entitled to vote on each matter. With regard to
the election of directors, votes may be cast in favor of or withheld from each
nominee; votes that are withheld will be excluded entirely from the vote and
will have no effect.
A majority of the Company's Common Stock entitled to vote will constitute
a quorum for the transaction of business at the Annual Meeting. Abstentions may
be specified on all proposals except the election of directors and will be
counted as present for purposes of determining the existence of a quorum
regarding the item on which the abstention is noted. If shares are not voted by
the broker who is the record holder of the shares, or if shares are not voted in
other circumstances in which proxy authority is defective or has been withheld
with respect to any matter, these non-voted shares are not deemed to be present
or represented for purposes of determining whether stockholder approval of that
matter has been obtained.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by the holder of
record by filing with the Secretary of TheraTx at TheraTx's principal executive
office, a written notice of revocation or a new duly executed proxy bearing a
date later than the date indicated on the previous proxy, or it may be revoked
by the holder of record attending the meeting and voting in person. Attendance
at the meeting will not, by itself, revoke a proxy.
2
<PAGE> 5
SOLICITATION
TheraTx will bear the entire cost of proxy solicitation, including costs
of preparing, assembling, printing and mailing this Proxy Statement, the proxy
card and any additional material furnished to stockholders. The Company has
engaged the firm of Georgeson & Company Inc. to solicit proxies for the Annual
Meeting. The fee for this service is estimated at $7,500 plus reasonable
out-of-pocket expenses, which costs and expenses will be borne by the Company.
Copies of the solicitation materials will be furnished to brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others, to forward to such beneficial owners. TheraTx may
reimburse persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of
TheraTx. No additional compensation will be paid to directors, officers or other
regular employees for such services.
3
<PAGE> 6
PROPOSAL NO. 1
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
The present capital structure of the Company authorizes 30,000,000 shares
of Common Stock. The Board of Directors believes this capital structure is
inadequate for the present and future needs of the Company. Therefore, the Board
of Directors, on April 25, 1996, unanimously approved the amendment of the
Company's Certificate of Incorporation to increase the number of shares of
Common Stock authorized by Article 4 from 30,000,000 shares to 50,000,000
shares. The Board believes this capital structure more appropriately reflects
the present and future needs of the Company and recommends such amendment to the
Company's stockholders for adoption.
Of the 30,000,000 shares of Common Stock now authorized to be issued under
the Company's Certificate of Incorporation, as of May 1, 1996, approximately
20,609,889 shares were outstanding, 3,325,239 shares were reserved for issuance
upon the exercise of outstanding options under the 1994 Plan and 4,166,667
shares were reserved for issuance upon conversion of the Company's 8%
Convertible Subordinated Notes Due 2002. In addition, the Board of Directors has
adopted the 1996 Plan and the Employee Stock Purchase Plan, subject to
stockholder approval, pursuant to which 2,000,000 and 1,000,000 shares,
respectively, will be reserved for issuance. Holders of TheraTx Common Stock
have no preemptive rights.
PURPOSE OF AUTHORIZING ADDITIONAL COMMON STOCK
Authorizing an additional 20,000,000 shares of Common Stock would give the
Board of Directors the express authority, without further action of the
stockholders, to issue such Common Stock from time to time as the Board of
Directors deems necessary. The Company has no present plans or commitments with
respect to the issuance of the proposed additional shares of Common Stock except
for the reservation and issuance of additional shares pursuant to the 1996 Plan
and the Employee Stock Purchase Plan if approved by the stockholders at the
Annual Meeting. The Board of Directors believes it is necessary to have the
ability to issue such additional Common Stock for general corporate purposes.
Potential uses of the additional authorized shares may include acquisition
transactions, equity financings, stock dividends or stock splits without further
action by the stockholders, unless such action were specifically required by
applicable law or rules of any stock exchange on which the Company's securities
may then be listed.
The proposed increase in the authorized number of shares of Common Stock
could have a number of effects on the Company's stockholders depending upon the
exact nature and circumstances of any actual issuances of authorized but
unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
the Company more difficult. For example, additional shares could be issued by
the Company so as to dilute the stock ownership or voting rights of persons
seeking to obtain control of the Company. Similarly, the issuance of additional
shares to certain persons allied with the Company's management could have the
effect of making it more difficult to remove the Company's current management by
diluting the stock ownership or voting rights of persons seeking to cause such
removal. In addition, an issuance of additional shares by the Company could have
an effect on the potential realizable value of a stockholder's investment. In
the absence of a proportionate increase in the Company's earnings and book
value, an increase in the aggregate number of outstanding shares of the Company
caused by the issuance of the additional shares would dilute the earnings per
share and book value per share of all outstanding shares of the Company's Common
Stock. If such factors were reflected in the price per share of Common Stock,
the potential realizable value of a stockholder's investment could be adversely
affected.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company entitled to vote at the Annual Meeting is required for approval of the
amendment of the Company's Certificate of Incorporation authorizing 20,000,000
additional shares of Common Stock. If such approval is obtained, then the
amendment will become effective immediately upon filing with the Delaware
Secretary of State.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK FROM 30,000,000 TO 50,000,000.
4
<PAGE> 7
PROPOSAL NO. 2
APPROVAL OF THE 1996 STOCK OPTION/STOCK ISSUANCE PLAN
PLAN BACKGROUND
The Company's stockholders are being asked to approve the 1996 Stock
Option/Stock Issuance Plan (the "1996 Plan") pursuant to which 2,000,000 shares
of Common Stock will be reserved for issuance. The Board of Directors has
authorized the implementation of the 1996 Plan as a comprehensive equity
incentive program. As there are only limited number of shares available for
grant under the existing 1994 Stock Option/Stock Issuance Plan (the "1994
Plan"), the Board of Directors believes the adoption of the 1996 Plan is
necessary to attract and retain the services of those persons essential to the
Company's growth and financial success. The 1996 Plan became effective upon
adoption by the Board on April 25, 1996, subject to stockholder approval at the
Annual Meeting.
The following is a summary of the principal features of the 1996 Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1996 Plan. Any stockholder of the Company who wishes to obtain
a copy of the actual plan document may do so upon written request to the
Corporate Secretary at the Company's principal executive offices in Atlanta,
Georgia.
STRUCTURE OF EQUITY INCENTIVES PROGRAM
The 1996 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program; (ii) a Stock Issuance Program; and (iii) an
Automatic Option Grant Program. The principal features of these programs are
described below. The Discretionary Option Grant Program and the Stock Issuance
Program will be administered by the Compensation Committee of the Board (the
"Committee"). The Committee will have complete discretion (subject to the
provisions of the 1996 Plan) to determine which eligible individuals are to
receive option grants or stock issuances, the number of shares subject to each
such grant or issuance, the status of any granted option as either an incentive
option or a non-statutory option under the federal tax laws, the vesting
schedule to be in effect for the option grant or stock issuance and the maximum
term for which any granted option is to remain outstanding. However, all grants
under the Automatic Option Grant Program will be made in strict compliance with
the provisions of that program, and no administrative discretion will be
exercised by the Committee with respect to the grants made thereunder.
SHARE RESERVE
A total of 2,000,000 shares of Common Stock has initially been reserved
for issuance over the ten year term of the 1996 Plan. This share reserve will
automatically increase on the first trading day of each calendar year, beginning
with the 1997 calendar year, by an amount equal to 2% of the total number of
shares of Common Stock outstanding on the last trading day of the immediately
preceding calendar year. In no event may any one participant in the 1996 Plan be
granted stock options, separately exercisable stock appreciation rights or
direct stock issuances for more than 750,000 shares in the aggregate under the
1996 Plan per calendar year.
ELIGIBILITY
Officers and other employees of the Company and its parent or subsidiaries
(whether now existing or subsequently established), non-employee members of the
Board (other than those serving as members of the Committee) and consultants in
the service of the Company and its parent and subsidiaries will be eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs.
Non-employee members of the Board (including members of the Committee) will also
be eligible to participate in the Automatic Option Grant Program.
As of May 1, 1996, approximately nine executive officers, 5,000 other
employees and three non-employee Board members were eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs, and six non-employee
Board members were eligible to participate in the Automatic Option Grant
Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1996 Plan will be the closing selling price per share on the date of grant
as reported on the Nasdaq National Market. On April 15, 1996, the closing
selling price per share was $13 3/8.
5
<PAGE> 8
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than one hundred percent (100%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Committee will have complete discretion to
extend the period following the optionee's cessation of service during which his
or her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.
The Committee is authorized to issue two types of stock appreciation
rights in connection with option grants made under the Discretionary Option
Grant Program:
Tandem stock appreciation rights provide the holders with the right
to surrender their options for an appreciation distribution from the
Company equal in amount to the excess of (i) the fair market value of the
vested shares of Common Stock subject to the surrendered option over (ii)
the aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Committee, be made in cash or
in shares of Common Stock.
Limited stock appreciation rights may be granted to officers of the
Company as part of their option grants. Any option with such a limited
stock appreciation right in effect for at least six (6) months may be
surrendered to the Company upon the successful completion of a hostile
take-over of the Company. In return for the surrendered option, the
officer will be entitled to a cash distribution from the Company in an
amount per surrendered option share equal to the excess of (i) the
take-over price per share over (ii) the exercise price payable for such
share.
STOCK ISSUANCE PROGRAM
Shares may be issued under the Stock Issuance Program for such valid
consideration under the Delaware General Corporation Law as the Plan
Administrator deems appropriate, including a full-recourse, interest-bearing
promissory note secured by the purchased shares. However, the value of such
consideration as determined by the Plan Administrator may not be less than one
hundred percent (100%) of the fair market value of the issued shares at the time
of issuance. Shares may also be issued solely as a bonus for past services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a vesting
schedule tied to the performance of service or the attainment of performance
goals. The following requirements will govern the applicable vesting schedule:
- For any shares which are to vest solely through the performance of
services, the Committee will impose a minimum service period of at least
three (3) years before any of the shares will vest.
- For any shares which are to vest upon the participant's performance
of services and the Company's attainment of one or more prescribed
performance milestones, the Committee will impose a minimum service period
of at least one (1) year.
The Committee will have the sole and exclusive authority, exercisable upon
a participant's termination of service, to vest any or all unvested shares of
Common Stock at the time held by that participant, to the extent the Committee
determines that such vesting provides an appropriate severance benefit under the
circumstances.
AUTOMATIC OPTION GRANT PROGRAM
The Automatic Option Grant Program will become effective upon stockholder
approval of the 1996 Plan at the Annual Meeting, and no further option grants to
non-employee Board members will be made under the Automatic Option Grant Program
currently in effect for non-employee Board members under the 1994 Plan.
Under the Automatic Option Grant Program to be in effect under the 1996
Plan, each individual who first becomes a non-employee Board member at or after
the 1996 Annual Meeting will automatically be granted at that time an option for
25,000 shares of Common Stock. In addition, at each Annual Stockholders Meeting
beginning with the 1996 Annual Meeting, each individual who is to continue to
serve as a non-employee Board
6
<PAGE> 9
member will be granted an option to acquire 5,000 shares of Common Stock,
provided such person has served as a non-employee Board member for at least six
months. There will be no limit on the number of such 5,000 share options which
any one non-employee Board member may receive over the period of Board service.
Each option will have an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the option grant date and a
maximum term of ten years measured from such grant date. Each option will be
immediately exercisable for all the option shares, but any purchased shares will
be subject to repurchase by the Company, at the exercise price paid per share,
upon the optionee's cessation of Board service prior to vesting in those shares.
Each initial option grant for 25,000 shares will vest (and the Company's
repurchase rights will lapse) in thirty-six successive equal monthly
installments over the optionee's period of Board service measured from the
option grant date. Each 5,000 share grant will vest (and the Company's
repurchase right will lapse) in twelve successive equal monthly installments
over the optionee's period of Board service measured from the option grant date.
The shares subject to each automatic option grant will immediately vest
upon the happening of certain events, including the optionee's death or
permanent disability while serving as a Board member, an acquisition of the
Company by merger or asset sale, or a hostile change in control of the Company
effected through a hostile tender offer for more than 50% of the Company's
outstanding voting securities or a change in the majority of the Board by reason
of one or more contested elections for Board membership. In addition, upon the
successful completion of such hostile tender-over, each automatic option grant
which has been outstanding for at least six months may be surrendered to the
Company for a cash distribution per surrendered option share in an amount equal
to the excess of (i) the highest price per share of Common Stock paid in such
tender offer over (ii) the exercise price payable per share.
GENERAL PROVISIONS
ACCELERATION
In the event the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option
will automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Under certain circumstances, the terminating options may
be exercised on a deferred payment basis, provided the optionee remains
personally liable and interest accrues on the unpaid amount over the deferral
period. Any options assumed or replaced in connection with such acquisition will
be subject to immediate acceleration, and any unvested shares which do not vest
at the time of such acquisition will be subject to full and immediate vesting,
in the event the optionee's service with the successor entity is subsequently
terminated within 24 months following the acquisition. The Committee also has
the discretionary authority to provide for the automatic acceleration of
outstanding options under the Discretionary Option Grant Program and the
automatic vesting of unvested shares under the Stock Issuance Program under the
1996 Plan upon such terms and conditions as the Committee deems appropriate.
This discretion may be exercised at the time of grant or at any time an option
remains outstanding and may be exercised in a variety of events, including a
transaction involving a change in ownership or control of the Company.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and/or class of securities issuable under
the 1996 Plan; (ii) the maximum number and/or class of securities for which any
one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1996 Plan per calendar
year; (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members and (v) the number and/or class of
securities
7
<PAGE> 10
and the exercise price per share in effect under each outstanding option in
order to prevent the dilution or enlargement of benefits thereunder.
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program in order to assist one
or more individuals in financing the purchase of shares under the 1996 Plan. The
form in which such assistance is to be made available (including loans or
installment payments) and the terms upon which such assistance is to be provided
will be determined by the Committee. However, all promissory notes will be full
recourse, and the maximum amount of financing provided any individual may not
exceed the amount of cash consideration payable for the issued shares plus all
applicable Federal, state and local taxes incurred in connection with the
acquisition of the shares.
SPECIAL TAX ELECTION
The Committee may provide one or more holders of outstanding options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Committee may allow
such individuals to deliver previously acquired shares of Common Stock in
payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1996 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the 1996 Plan at any time, and the 1996 Plan will in all events terminate on
April 25, 2006.
NEW PLAN BENEFITS AND STOCK AWARDS
No option grants or stock issuances have been made to date under the 1996
Plan. The following table sets forth certain information regarding the options
which will be granted under the Automatic Option Grant Program on the date of
the Annual Meeting to each individual who is to continue to serve as a
non-employee Board member. Each option will have an exercise price per share
equal to the closing selling price per share of Common Stock on that date on the
Nasdaq National Market.
<TABLE>
<CAPTION>
Number of
Name Option Shares
---- -------------
<S> <C>
DIRECTORS
Craig T. Davenport....................................... 5,000
Robert J. Erra........................................... 5,000
Patrick T. Hackett....................................... 5,000(1)
W. David Holder.......................................... 5,000
Donald B. Milder......................................... 5,000
L. John Wilkerson........................................ 5,000
All non-employee directors as a group.......................... 30,000
(6 persons)
</TABLE>
- --------------------
(1) The economic benefit of the option to be granted to Mr. Hackett has been
assigned to E. M. Warburg, Pincus & Co., Inc., or an affiliate thereof,
for the account of Warburg, Pincus Investors, L.P.
8
<PAGE> 11
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1996 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee
at the time of the option grant, and no taxable income is generally recognized
at the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of a taxable disposition. For Federal tax purposes,
dispositions are divided into two categories: qualifying and disqualifying. A
qualifying disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two years after the option grant date
and more than one year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which such ordinary income
is recognized by the optionee.
DIRECT STOCK ISSUANCES
The tax principles applicable to direct stock issuances under the 1996
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Internal Revenue Code Section 162(m) and will not
have to be taken into account for purpose of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company.
9
<PAGE> 12
ACCOUNTING TREATMENT
Option grants with an exercise price equal to the fair market value of the
option shares on the grant date will not result in any compensation expense to
be charged against the Company's earnings, but the Company must disclose, in
proforma statements to the Company's financial statements, the impact those
options would have upon the Company's reported earnings were the value of those
options to be treated as a compensation expense. In addition, the number of
outstanding options may be factor in determining the Company's earnings per
share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then those rights will result in compensation expense to the
Company's earnings.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the 1996 Plan, and the 1996 Plan will become effective
immediately upon such stockholder approval. However, if such stockholder
approval is not obtained, then the 1996 Plan will not be implemented, any option
grants made under the 1996 Plan prior to the Annual Meeting will terminate
without becoming exercisable for any of the option shares, and no further option
grants or stock issuances will be made under the 1996 Plan. The Company's 1994
Stock Option/Stock Issuance Plan will, however, continue to remain in effect,
and option grants and stock issuances may continue to be made pursuant to the
provisions of the 1994 Plan until the available balance of Common Stock reserved
under the 1994 Plan is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE 1996 PLAN. THE BOARD BELIEVES THAT IT IS IN THE BEST INTERESTS
OF THE COMPANY TO IMPLEMENT A COMPREHENSIVE EQUITY INCENTIVE PROGRAM FOR THE
COMPANY WHICH WILL PROVIDE A MEANINGFUL OPPORTUNITY FOR OFFICERS, EMPLOYEES AND
NON- EMPLOYEE BOARD MEMBERS TO ACQUIRE A SUBSTANTIAL PROPRIETARY INTEREST IN THE
ENTERPRISE AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO REMAIN IN THE COMPANY'S
SERVICE AND MORE CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE STOCKHOLDERS.
10
<PAGE> 13
PROPOSAL NO. 3
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN
PLAN BACKGROUND
The stockholders are also being asked to vote on a proposal to approve
the Company's Employee Stock Purchase Plan (the "Purchase Plan"), pursuant to
which 1,000,000 shares will be reserved for issuance. The Purchase Plan is
intended to provide eligible employees of the Company and its participating
affiliates with the opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction based employee stock purchase plan
designed to operate in compliance with Section 423 of the Internal Revenue Code.
The Purchase Plan was adopted by the Board on April 25, 1996, and will become
effective on November 1, 1996 (the "Effective Date"),subject to approval by the
stockholders at the Annual Meeting.
The following is a summary of the principal features of the Purchase
Plan. The summary, however, does not purport to be a complete description of all
the provisions of the Purchase Plan. Any stockholder of the Company who wishes
to obtain a copy of the actual plan document may do so upon written request to
the attention of the Corporate Secretary of the Company at the Company's
corporate offices in Atlanta, Georgia.
ADMINISTRATION
The Purchase Plan will be administered by the Compensation Committee of
the Board. The Compensation Committee as the Plan Administrator will have full
authority to adopt such rules and procedures as it may deem necessary for proper
plan administration and to interpret the provisions of the Purchase Plan. All
costs and expenses incurred in plan administration will be paid by the Company
without charge to participants.
SHARE RESERVE
A total of 1,000,000 shares of Common Stock have been reserved for
issuance over the ten (10)-year term of the Purchase Plan. In the event any
change is made to the outstanding shares of Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the Company's
receipt of consideration, appropriate adjustments will be made to (i) the class
and maximum number of securities issuable under the Purchase Plan, including the
class and number of securities purchasable per participant during any one (1)
purchase period, and (ii) the class and maximum number of securities subject to
each outstanding purchase right and the purchase price payable per share
thereunder.
PURCHASE PERIODS
The Purchase Plan will be implemented in a series of successive six
(6)-month purchase periods. Purchase periods will run from the first business
day in April to the last business day in October each year and from the first
business day in November each year to the last business day in March in the
following year. The initial purchase period will begin on November 1, 1996 and
end on the last business day in April 1997.
ELIGIBILITY
Any individual (other than an executive officer) who is expected to
work on a regular basis for more than twenty (20) hours per week for more than
five (5) months per calendar year in the employ of the Company or any
participating affiliate ("Eligible Employee") will be eligible to participate in
the Plan. Each individual who is an Eligible Employee on the start date of any
purchase period may participate in such purchase period.
Participating affiliates include any parent or subsidiary corporations
of the Company, whether now existing or hereafter organized, which elect, with
the approval of the Committee, to extend the benefits of the Purchase Plan to
their eligible employees.
As of December 31, 1995, approximately 5,000 employees, were eligible
to participate in the Purchase Plan.
11
<PAGE> 14
PURCHASE PROVISIONS
Each participant will be granted a separate purchase right for each
purchase period in which he or she participates. The purchase right will be
granted on the start date of that purchase period and will be automatically
exercised on the last business day of that purchase period.
Each participant may authorize payroll deductions in any multiple of
one percent (1%) of his or her base salary, up to a maximum of the lesser of ten
percent (10%) or five thousand dollars ($5,000).
On the last business day of each purchase period, the accumulated
payroll deductions of each participant will automatically be applied to the
purchase of whole shares of Common Stock at the purchase price in effect for
that purchase period. No participant may, during any one purchase period,
purchase more than 500 shares of Common Stock.
PURCHASE PRICE
The purchase price per share at which Common Stock will be purchased on
the participant's behalf on the last day of each purchase period will be no less
than ninety-five percent (95%) of the lower of (i) the fair market value per
share of Common Stock on the start date of that purchase period or (ii) the fair
market value per share of Common Stock on the purchase date.
VALUATION
The fair market value per share of Common Stock on any relevant date
will be the closing selling price per share on such date on the Nasdaq National
Market. On April 15, 1996, the fair market value per share of Common Stock was
$133/8 per share.
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following limitations:
(i) No purchase right may be granted to any individual who owns
stock (including stock purchasable under any outstanding purchase
rights) possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company of any of
its affiliates.
(ii) No purchase right granted to a participant may permit such
individual to purchase Common Stock at a rate greater than $25,000
worth of such Common Stock (valued at the time such purchase right is
granted) for each calendar year the purchase right remains outstanding
at any time.
TERMINATION OF PURCHASE RIGHTS
The purchase right will immediately terminate upon the participant's
loss of Eligible Employee status, and any payroll deductions collected for the
purchase period in which such termination occurs will be refunded. The purchase
right will also terminate upon the participant's affirmative withdrawal from the
purchase period, and any payroll deductions collected for the purchase period in
which the withdrawal occurs will be immediately refunded.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the
shares of Common Stock covered by his or her purchase right until the shares are
actually purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
ASSIGNABILITY
Purchase rights will not be assignable or transferable and will be
exercisable only by the participants.
12
<PAGE> 15
ACQUISITION
Should the Company be acquired by merger or asset sale during any
purchase period, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of such acquisition. The purchase price
will not be less than ninety-five percent (95%) of the lower of (i) the fair
market value per share of Common Stock on the start date of that purchase period
or (ii) the fair market value per share of Common Stock immediately prior to
such acquisition.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earliest to occur of (i) the
last business day in October, 2006, (ii) the date on which all available shares
are issued or (iii) the date on which all outstanding purchase rights are
exercised in connection with an acquisition of the Company.
The Board may at any time alter, suspend or discontinue the Purchase
Plan. However, the Board may not, without stockholder approval, (i) materially
increase the number of shares issuable under the Purchase Plan or the number of
shares purchasable per participant during any one purchase period, except in
connection with certain changes in the Company's capital structure, (ii) alter
the purchase price formula so as to reduce the purchase price, (iii) materially
increase the benefits accruing to participants or (iv) materially modify the
requirements for eligibility to participate in the Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, in connection with the grant or
the exercise of an outstanding purchase right. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the Purchase Plan or in the event the participant should die while still
owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the purchase period in which such
shares were acquired, then the participant will recognize ordinary income in the
year of sale or disposition equal to the amount by which the fair market value
of the shares on the purchase date exceeded the purchase price paid for those
shares, and the Company will be entitled to an income tax deduction, for the
taxable year in which such sale or disposition occurs, equal in amount to such
excess. Any additional gain recognized by the participant upon the disposition
will be capital gain.
If the participant sells or disposes of the purchased shares more than
two (2) years after the start date of the purchase period in which such shares
were acquired, then the participant will recognize ordinary income in the year
of sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) five percent (5%) of the fair market value
of the shares on the start date of the purchase period, and any additional gain
upon the disposition will be taxed as a long-term capital gain. The Company will
not be entitled to any income tax deduction with respect to such sale or
disposition.
If the participant still owns the purchased shares at the time of
death, the lesser of (i) the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or (ii) five percent (5%) of the
fair market value of the shares on the start date of the purchase period in
which those shares were acquired will constitute ordinary income in the year of
death.
ACCOUNTING TREATMENT
Under current accounting rules, the issuance of shares of Common Stock
under the Purchase Plan will not result in a compensation expense chargeable
against the Company's reported earnings. However, the Company must disclose, in
proforma statements to the Company's financial statements, the impact the
outstanding purchase rights under the Purchase Plan would have upon the
Company's reported earnings were the value of those rights to be treated as a
compensation expense.
13
<PAGE> 16
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the Purchase Plan. Should such stockholder approval not
be obtained, then the Purchase Plan will not be implemented.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE PURCHASE PLAN. THE BOARD BELIEVES THAT IT IS IN THE BEST
INTERESTS OF THE COMPANY TO IMPLEMENT A PROGRAM OF STOCK OWNERSHIP FOR THE
COMPANY'S EMPLOYEES WHICH PROVIDES THEM WITH AN OPPORTUNITY TO ACQUIRE A
SUBSTANTIAL PROPRIETARY INTEREST IN THE COMPANY AND THEREBY ENCOURAGE SUCH
INDIVIDUALS TO REMAIN IN THE COMPANY'S SERVICE AND MORE CLOSELY ALIGN THEIR
INTERESTS WITH THOSE OF THE STOCKHOLDERS.
14
<PAGE> 17
PROPOSAL NO. 4
ELECTION OF DIRECTORS
The Certificate of Incorporation of the Company provides for the
division of the Board of Directors into three classes, each class serving for a
period of three years. The foregoing notwithstanding, directors serve until
their successors have been duly elected and qualified or until they resign,
become disqualified or disabled, or are otherwise removed. The class of
directors whose term expires as of the Annual Meeting includes incumbent
directors Bret W. Jorgensen, Craig T. Davenport, Robert J. Erra and Patrick T.
Hackett.
Proxyholders will vote all proxies received by them FOR the nominees
listed below unless otherwise instructed in writing on such proxy. The four (4)
candidates receiving the highest number of affirmative votes of shares entitled
to vote at the Annual Meeting will be elected directors of TheraTx. Stockholders
of TheraTx are not entitled to cumulative voting rights. In the event any
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for an additional nominee who shall be
designated by the current Board of Directors to fill the vacancy. As of the date
of this Proxy Statement, the Board of Directors is not aware of any nominee who
is unable or will decline to serve as director.
DIRECTORS AND NOMINEES
INFORMATION WITH RESPECT TO NOMINEES
Set forth below, as of May 1, 1996, for each nominee for director of
TheraTx is information regarding his age, position(s) with TheraTx, the period
he has served as a director, any family relationship with any other director or
executive officer of TheraTx and the directorships currently held by him in
corporations whose shares are publicly registered.
NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bret W. Jorgensen 37 President, TheraTx
Health Services Group
and Director
Craig T. Davenport (1) 43 Director
Robert J. Erra (1) (2) 53 Director
Patrick T. Hackett (2) 34 Director
</TABLE>
- ----------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Bret W. Jorgensen, a co-founder of the Company, has served as a
director since May 1993 and has been President, TheraTx Health Services Group
since February 1995. From May 1994 until February 1995, Mr. Jorgensen served as
Vice President and General Manager, TheraTx Health Services Division and as Vice
President Operations from February 1991 to May 1994. From the Company's
inception in July 1989 to August 1991, Mr. Jorgensen served as the Company's
Secretary. Mr. Jorgensen was responsible for all operations of the Company from
inception through May 1994, and has overseen the operations of TheraTx Health
Services Division since June 1994. From July 1986 to August 1990, Mr. Jorgensen
served as President of Praendex San Diego, a management consulting firm.
Craig T. Davenport has served as a director since December 1991. From
October 1, 1994 to the present, Mr. Davenport has been the President, Chief
Operating Officer and a director of Home Healthcare Interactive, Inc. From May
1985 through December 1993, Mr. Davenport was the President, Chief Operating
Officer and a director of Tokos Medical Corporation ("Tokos"), a company
specializing in providing women's home health care services for complicated
obstetrical and gynecological conditions. Prior to joining Tokos, Mr. Davenport
was President of American Hospitex and American Physicians' Service and Supply.
Mr. Davenport is a director of Tokos and several privately held companies.
15
<PAGE> 18
Robert J. Erra has served as a director since April 1990 and served as
Chairman of the Board from June 1990 to May 1994. Since November 1993, Mr. Erra
has been a partner of MCG Healthcare Consultants. From December 1988 to October
1993, Mr. Erra was the Senior Vice President and Chief Operating Officer of the
Scripps Clinic and Research Foundation. Prior to December 1988, Mr. Erra served
in a variety of positions, including as President of Western Health Plans, as
Administrator of the Santa Barbara Medical Foundation, as Associate Vice
Chancellor for the School of Medicine at University of California at San Diego,
and as a Senior Vice President with Scripps Medical Clinic. Mr. Erra is also a
director of Quantum Health Resources, Inc. and two privately held companies.
Patrick T. Hackett became a director effective May 31, 1994. Mr. Hackett
has served as a Managing Director of E.M. Warburg, Pincus & Company, since
January 1994. Mr. Hackett served as Vice President of Warburg, Pincus Ventures,
Inc., a venture capital subsidiary of E.M. Warburg, Pincus & Company, from
January 1991 to December 1993 and as an associate from May 1990 to December
1991. From February 1988 to May 1990, Mr. Hackett served as Vice President and
Treasurer of Cove Capital Associates, Inc., a private investment firm. Mr.
Hackett also serves as a director of three privately held companies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOUR NOMINEES NAMED
ABOVE.
CONTINUING DIRECTORS
DIRECTORS CONTINUING TO SERVE UNTIL 1997
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John A. Bardis 39 Director, President and Chief
Executive Officer
L. John Wilkerson, Ph.D.(1) 52 Chairman of the Board of Directors
</TABLE>
---------------------
(1) Member of the Compensation Committee
John A. Bardis has been President, Chief Executive Officer and a director
since November 1992. From October 1987 to November 1992, Mr. Bardis was a senior
executive with Kinetic Concepts, Inc. ("KCI"), a publicly traded medical
equipment supplier. Mr. Bardis served in various positions with KCI, including
President of KCI Medical Services and as a Senior Vice President of the
Healthcare Products and Services Group. From 1978 to 1987, Mr. Bardis held
various senior management positions with American Hospital Supply, International
Sales Corporation and Baxter International, Inc. including Vice President of the
Baxter Operating Room Division and General Manager of the Eastern Zone.
L. John Wilkerson, Ph.D. has served as a director since June 1992 and as
Chairman of the Board since May 1994. Since March 1990, Dr. Wilkerson has served
as a General Partner of Galen Associates, a venture capital fund. Since 1982,
Dr. Wilkerson has served as President and subsequently Chairman of the Wilkerson
Group, one of the leading health care consulting groups in the United States.
Dr. Wilkerson is a board member of Gensia, Inc., British BioTechnology Group,
plc, Pyxis Corporation and several private health care companies. Dr. Wilkerson
is also a board member of Morristown Memorial Hospital, a 650-bed hospital
system.
DIRECTORS CONTINUING TO SERVE UNTIL 1998
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
W. David Holder 54 Director
Donald B. Milder(1) 41 Director
</TABLE>
----------------------
(1) Member of the Audit Committee
W. David Holder has served as a director since April 1990. For more than
five years Mr. Holder has been an investor, director and consultant with, and
currently serves as President of, David Holder Associates, a firm investing in
and providing consulting services to a number of emerging growth health care
companies. Mr. Holder has over 18 years of direct experience in health care
sales, marketing and operations. Since
16
<PAGE> 19
February 1994, Mr. Holder has served as the Chairman of the Board, Chief
Executive Officer and Vice President of Sales of Edix Corporation. From January
1980 to May 1984, Mr. Holder served as Vice President of Sales of Caremark
International.
Donald B. Milder has served as a director since June 1990. Since March
1989, Mr. Milder has served as a General Partner of Crosspoint Venture Partners,
a venture capital fund. From September 1985 to March 1989, Mr. Milder served as
Chief Executive Officer of Infusion Systems, a medical delivery device company.
Mr. Milder also serves as a director of five privately held companies.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met seven (7) times during the year ended December
1995. Each Director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all Committees of the Board on which such Director served.
During 1995, TheraTx had a standing Audit Committee comprised of Messrs.
Erra, Milder and Hackett. The Audit Committee is primarily responsible for
approving the services performed by the Company's independent public accountants
and for reviewing and evaluating the Company's accounting principles and
reporting practices and its system of internal accounting controls. Selection of
independent auditors, however, is made by the Company's Board of Directors. The
Audit Committee held two (2) meetings during the year ended December 31, 1995.
TheraTx has a standing Compensation Committee which met four (4) times
during the year ended December 31, 1995. The Compensation Committee consists of
Messrs. Davenport and Erra and Dr. Wilkerson. The Compensation Committee reviews
and acts on matters relating to compensation levels and benefit plans for key
executives of TheraTx.
REMUNERATION
Effective January 1, 1995, each non-employee director became eligible to
receive an annual retainer of $6,000, payable quarterly. In addition, at the
1995 Annual Stockholders Meeting held on May 31, 1995, each of the non-employee
Board members received an option grant for 18,333 shares under the Automatic
Option Grant Program under the 1994 Stock Option/Stock Issuance Plan, except
that the automatic option grant to Mr. Hackett was for 25,000 shares. Each of
these option grants will become exercisable for the option shares in 36
successive equal monthly installments over the optionee's period of continued
Board service measured from the grant date. Each grant has an exercise price of
$14.00 per share, the fair market value per share on the grant date, and a
maximum term of 10 years measured from such grant date. The option will vest in
full should any of the following events occur while the optionee remains in
Board service: the optionee's death or disability or certain changes in control
or ownership of the Company.
Except as set forth below under "Acquisition of PersonaCare," there are no
arrangements or understandings involving any director or any nominee regarding
such person's status as a director or nominee.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and stockholders owning greater than 10% of the
Common Stock of the Company are required by SEC regulation to furnish the
Company with copies of all reports filed pursuant to Section 16(a).
Based solely on a review of copies of such reports required by Section
16(a) or written representations that no such reports were required, the Company
believes that its officers, directors and stockholders owning greater than 10%
of the Common Stock of the Company complied with all applicable Section 16(a)
filing requirements during fiscal 1995.
17
<PAGE> 20
CERTAIN TRANSACTIONS
LOANS TO EXECUTIVE OFFICERS
On January 4, 1993, John A. Bardis, the Company's President and Chief
Executive Officer, exercised an option to purchase an aggregate of 587,133
shares of the Company's Common Stock granted to him on August 11, 1992 pursuant
to the Company's 1990 Stock Option Plan. Mr. Bardis executed a five-year
promissory note in favor of the Company, secured by 587,133 shares, in the
amount of $281,824 representing the purchase price of the shares. The shares
securing the promissory note are released as the promissory note is paid down by
Mr. Bardis. The promissory note is due on January 4, 1998, bears interest at the
rate of 6.34% compounded annually, and is currently secured by 110,087 shares
issued to Mr. Bardis upon exercise of the option. The shares purchased by Mr.
Bardis are subject to repurchase by the Company in the event Mr. Bardis ceases
service with the Company prior to November 15, 1996. The repurchase right lapses
in accordance with the terms governing Mr. Bardis' option. As of February 23,
1996, the Company's repurchase right had lapsed with respect to 477,046 shares,
and Mr. Bardis had repaid $260,728 in principal plus accrued interest owing
under his note. The highest amount outstanding on this note during the 1995
fiscal year was $281,824.
ACQUISITION OF PERSONACARE
On May 31, 1994, pursuant to an Agreement and Plan of Reorganization dated
May 6, 1994 with PersonaCare, Inc. ("PersonaCare"), PC Acquisition Corp. and
certain principal stockholders of PersonaCare, the Company acquired all of the
outstanding shares of PersonaCare (the "PersonaCare Merger"). In connection with
the PersonaCare Merger, the Company agreed to nominate one individual designated
by Warburg for election to the Company's Board of Directors, so long as Warburg
owns between 7.5% and 17.0% of TheraTx's voting securities. The designee is
Patrick T. Hackett.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("Delaware
Law"), the Company has broad powers to indemnify its directors and officers
against liabilities they may incur in such capacities, including liabilities
under the 1933 Act. The Company's Bylaws provide that the Company will indemnify
its directors and officers to the fullest extent permitted by law and require
the Company to advance litigation expenses upon receipt by the Company of an
undertaking by the director or officer to repay such advances if it is
ultimately determined that the director or officer is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws shall not be deemed to be exclusive of any other right such persons may
have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
The Company's Certificate of Incorporation provides that, pursuant to
Delaware Law, its directors shall not be liable for monetary damages for breach
of the directors fiduciary duty of care to the Company and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware Law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to the Company or its stockholders, for acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware Law. The provision also does not
effect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
In addition, the Company has entered into agreements to indemnify its
directors and certain of its officers in addition to the indemnification
provided for in the Certificate of Incorporation and Bylaws. These agreements
will, among other things, indemnify the Company's directors and certain of its
officers for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the Company, on account of services
as a director or officer of the Company, or as a director or officer of any
other company or enterprise that the person provides services to at the request
of the Company.
18
<PAGE> 21
PROPOSAL NO. 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The accounting firm of Ernst & Young LLP served as independent auditors
for TheraTx for the fiscal year ended December 31, 1995. The Board of Directors,
on the recommendation of TheraTx's management, has selected that firm to
continue in this capacity for the current fiscal year. TheraTx is asking the
stockholders to ratify the selection by the Board of Directors of Ernst & Young
LLP as independent auditors to audit the consolidated financial statements of
TheraTx for the fiscal year ending December 31, 1996 and to perform other
appropriate services. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting to respond to stockholders' questions, and that
representative will be given an opportunity to make a brief presentation to the
stockholders if he or she so desires and will be available to respond to
appropriate questions. TheraTx has been advised by Ernst & Young LLP that
neither that firm nor any of its associates has any material relationship with
TheraTx nor any affiliate of TheraTx.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION.
In the event that a majority of the shares voted at the Annual Meeting do
not vote for ratification of the selection of Ernst & Young LLP, the Board of
Directors will reconsider such selection. Under all circumstances, the Board
retains the corporate authority to change the auditors at a later date.
19
<PAGE> 22
GENERAL
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to TheraTx
regarding the beneficial ownership of TheraTx Common Stock as of February 29,
1996 by (i) each Named Executive Officer (as defined below); (ii) each director;
(iii) all current directors and executive officers of TheraTx as a group; and
(iv) each stockholder known to TheraTx to be a beneficial owner of more than
five percent (5%) of TheraTx Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OWNERSHIP OF CLASS
NAME OF BENEFICIAL OWNER (#)(1) (%)
- ------------------------ -------------------- --------
<S> <C> <C>
Crosspoint Venture Partners III ............. 751,224(2) 3.51%
Donald B. Milder(3) ......................... 52,621 *
18552 MacArthur Boulevard, Suite 400
Irvine, California 92715
Delphi BioVentures, L.P. .................... 1,068,124(4) 5.00
3000 Sand Hill Road, Building 1, Suite 135
Menlo Park, California 94025
Galen Partners, L.P. ........................ 988,918(5) 4.63
L. John Wilkerson, Ph.D.(6) ................. 28,000 *
666 Third Avenue, Suite 135
New York, New York 10017-4011
FMR Corp.(7) ................................ 3,307,347 14.68
82 Devonshire Street
Boston, Massachusetts 02109-0614
Warburg, Pincus Investors, L.P.(8) .......... 2,433,705 11.39
Patrick T. Hackett(8)(9)
466 Lexington Avenue
New York, New York 10017
John A. Bardis(10) .......................... 539,368(11) 2.52
c/o TheraTx, Incorporated
400 Northridge Road, Suite 400
Atlanta, Georgia 30350
</TABLE>
20
<PAGE> 23
<TABLE>
<S> <C> <C>
Bret W. Jorgensen(10)......................................................... 377,916(12) 1.77
Donald R. Myll(13)............................................................ 106,916(14) *
Laura E. Cayce(13)............................................................ 53,374(15) *
Louis E. Hallman, III(13)..................................................... 351,500(16) 1.65
William J. Haffey, Ph.D.(13).................................................. 56,222(17) *
Craig R. Reamsnyder(13)....................................................... 39,723(18) *
Craig T. Davenport(9)......................................................... 30,066(19) *
Robert J. Erra(9)............................................................. 41,666(20) *
W. David Holder(9)............................................................ 148,046(21) *
Jonathan H. Glenn(13)......................................................... 16,770(18) *
B. Wayne Clark (13)........................................................... 20,666(18) *
All directors and executive officers as a group
(15 persons)(22) ........................................................... 1,887,854 8.68
</TABLE>
- ---------------
* Less than 1%.
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them. Shares of Common Stock
subject to stock options or warrants which are currently exercisable or
which become exercisable within 60 days after February 29, 1996 are
deemed outstanding for purposes of computing the percentage ownership
of outstanding Common Stock of the person or group holding such options
or warrants, but are not deemed outstanding for purposes of computing
the percentage ownership of Common Stock of any other person or group.
(2) Includes 48,416 shares of Common Stock issuable upon the exercise of
immediately exercisable warrants. Excludes 25,000 shares of Common
Stock issuable upon exercise of immediately exercisable options granted
to, and 2,000 shares owned directly by, Donald B. Milder. Also excludes
25,621 shares held by the Milder Community Property Trust.
(3) Donald B. Milder, a director of TheraTx, is a General Partner of
Crosspoint Venture Partners III. Except to the extent of his
partnership interest, Mr. Milder disclaims beneficial ownership of the
shares held by Crosspoint Venture Partners III.
(4) Includes 30,257 shares of Common Stock issuable upon the exercise of
immediately exercisable warrants. Also includes 3,774 shares held by
Delphi BioInvestments, L.P., of which 107 shares of Common Stock are
issuable upon the exercise of immediately exercisable warrants.
(5) Includes 25,489 shares of Common Stock issuable upon the exercise of
immediately exercisable warrants. Also includes 92,299 shares held by
Galen Partners International, L.P., of which 2,624 shares of Common
Stock are issuable upon the exercise of immediately exercisable
warrants. Excludes 25,000 shares of Common Stock issuable upon exercise
of immediately exercisable options granted to, and 1,000 shares owned
directly by, L. John Wilkerson. Also excludes 2,000 shares held by The
Wilkerson Family Charitable Lead Trust.
(6) L. John Wilkerson, Ph.D., a director of TheraTx, is a General Partner
of the Galen Partnerships. Except to the extent of his partnership
interest, Dr. Wilkerson disclaims beneficial ownership of the shares
held by the Galen Partnerships.
(7) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., is the beneficial owner of 2,447,721 shares,
as a result of acting as an investment advisor to several investment
companies, which includes 735,821 shares issuable upon conversion of
the Notes (41.66 shares for each $1,000 principal amount of Notes).
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR
Corp., beneficially owns 859,626 shares (including 443,326 issuable
upon conversion of the Notes as determined above). Edward C. Johnson,
III, Chairman of FMR Corp., and family members, through their
collective ownership of voting common stock of FMR Corp. and the terms
of a shareholders' voting agreement, may be deemed to form a
controlling group with respect to FMR Corp. under the Investment
Company Act of 1940.
(8) The sole General Partner of Warburg, Pincus Investors, L.P. ("Warburg")
is Warburg, Pincus & Co., a New York general partnership ("WP"). Lionel
I. Pincus is the Managing Partner of WP and may be deemed to control
WP. E.M. Warburg, Pincus & Company, a New York general partnership,
manages Warburg. WP has a 20% interest in the profits of Warburg and,
through its wholly-owned subsidiary, E.M. Warburg, Pincus & Co., Inc.
("EMW"), owns 1.13% of the limited partnership interests in Warburg.
Mr. Hackett, a director of TheraTx, is a Managing Director of EMW and a
General Partner of WP and E.M. Warburg. As such, Mr. Hackett may be
deemed to have an indirect pecuniary interest, within the meaning of
Rule 16a-1 under the Securities Exchange Act of 1934, in an
indeterminate portion of the shares beneficially owned by Warburg, EMW
and WP. Mr. Hackett disclaims beneficial ownership of these 2,433,705
shares within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934. Includes 25,000 shares of Common Stock issuable upon
exercise of an immediately
21
<PAGE> 24
exercisable option granted to Mr. Hackett, the economic benefit of
which has been assigned to EMW or an affiliate thereof.
(9) Director.
(10) Named executive officer and director.
(11) Includes 56,667 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(12) Includes 24,583 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(13) Named executive officer.
(14) Includes 24,583 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(15) Includes 36,707 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(16) Includes 19,167 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options. Excludes 3,333 shares held as
Trustee for the Nathaniel James Wood Trust dated May 26, 1993.
(17) Includes 21,223 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(18) All shares of Common Stock are issuable upon exercise of vested or
immediately exercisable options.
(19) Shares held as Trustee for the Davenport Family Trust U.T.A. dated
December 3, 1986. Includes 25,000 shares of Common Stock issuable upon
exercise of immediately exercisable options. Also includes 3,000 shares
held in trust for the benefit of Mr. Davenport's minor children.
(20) Includes 25,000 shares of Common Stock issuable upon the exercise of an
immediately exercisable option.
(21) Includes 111,935 shares of Common Stock held with Jan C. Holder, TTEES
for the Holder Family Trust U/A DTD dated January 29, 1985. Excludes
5,847 shares of Common Stock held with Jan C. Holder as TTEES for
Zachary Cartwright Holder TR U/A DTD dated October 23, 1981, and 5,847
shares of Common Stock for Jon David Holder TR U/A DTD dated October
23, 1981, both of which trustors are adult children of Mr. Holder.
Includes 25,000 shares of Common Stock issuable upon exercise of
immediately exercisable options.
(22) Excludes shares beneficially owned by Crosspoint Venture Partners III,
the Galen Partnerships and Investors referenced above, as to which
directors of the Company have disclaimed beneficial ownership as
referenced in footnotes 3, 6 and 8 above. The percentage ownership of
all directors and executive officers as a group would be 27.73% if the
shares as to which directors disclaim beneficial ownership were
included.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers of the Company as of May 1, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John A. Bardis.......................... 39 President, Chief Executive Officer and Director
Bret W. Jorgensen....................... 37 President, TheraTx Health Services Group and Director
Donald R. Myll.......................... 38 Senior Vice President and Chief Financial Officer
Louis E. Hallman, III................... 37 Vice President Corporate Development
William J. Haffey, Ph.D................. 49 Vice President and Chief Clinical Information Systems Officer
Laura E. Cayce 42 President, PersonaCare Group
Jonathan H. Glenn 45 Vice President, General Counsel and Secretary
Craig R. Reamsnyder..................... 41 Vice President and General Manager, Hospital Services Group
B. Wayne Clark.......................... 47 Vice President and Chief Administrative Officer
</TABLE>
John A. Bardis has been President, Chief Executive Officer and a director
since November 1992. From October 1987 to November 1992, Mr. Bardis was a senior
executive with Kinetic Concepts, Inc. ("KCI"), a publicly traded medical
equipment supplier. Mr. Bardis served in various positions with KCI, including
President of KCI Medical Services and as a Senior Vice President of the
Healthcare Products and Services Group. From 1978 to 1987, Mr. Bardis held
various senior management positions with American Hospital Supply, and Baxter
International, Inc. including Vice President of the Baxter Operating Room
Division and General Manager of the Eastern Zone.
22
<PAGE> 25
Bret W. Jorgensen, a co-founder of the Company, has served as a director
since May 1993 and has been President, TheraTx Health Services Group since
February 1995. From May 1994 until February 1995, Mr. Jorgensen served as Vice
President and General Manager, TheraTx Health Services Division and as Vice
President Operations from February 1991 to May 1994. From the Company's
inception in July 1989 to August 1991, Mr. Jorgensen served as the Company's
Secretary. Mr. Jorgensen was responsible for all operations of the Company from
inception through May 1994, and has overseen the operations of TheraTx Health
Services Division since June 1994. From July 1986 to August 1990, Mr. Jorgensen
served as President of Praendex San Diego, a management consulting firm.
Donald R. Myll has been Senior Vice President since September 1995, and
Chief Financial Officer since March 1993. From June 1990 through September 1995,
Mr. Myll served as Vice President, Finance. From November 1987 to May 1990, Mr.
Myll was Financial Manager and Director of Finance of Advanced Marketing
Services, Inc., a publicly traded distributor of books and videos to the
specialty retail industry.
Louis E. Hallman, III, a co-founder of TheraTx, has been Vice President
Corporate Development since February 1991 and was a Vice President from
TheraTx's inception in July 1989 to February 1991. From December 1986 to July
1989, Mr. Hallman was an independent management consultant to a number of
emerging growth companies focusing on business planning, operations, financial
forecasting, and implementing financial and accounting control systems.
William J. Haffey, Ph.D. joined TheraTx as Director, Clinical Services in
October 1991 and has been Vice President and Chief Clinical Information Systems
Officer since February 1995. From January 1992 until February 1995, Dr. Haffey
served as TheraTx's Vice President Clinical Services. From January 1989 to
September 1991, Dr. Haffey served as Executive Director, Rehabilitation Services
for Sharp HealthCare in San Diego. During his 16 years of rehabilitation
experience, Dr. Haffey has published extensively in areas of outcomes
assessment, program evaluation and patient management and is a recognized expert
in rehabilitation therapy. He is a member of the Editorial Board of the Journal
of Head Trauma Rehabilitation.
Laura E. Cayce has been President, PersonaCare Group since September 1995.
From May 1994 through September 1995, Ms. Cayce served as Vice President and
General Manager, PersonaCare. From July 1992 to May 1994, Ms. Cayce served as
TheraTx's Southern Division Vice President. From November 1991 to June 1992, Ms.
Cayce was Vice President of Development for ReLife, Inc. which acquired
Renaissance America, Inc. where she served as Vice President of Operations for
several years. Ms. Cayce's experience spans 19 years where she served in
operations and consultant roles in four nursing home companies, with an emphasis
on subacute development. She has been a board member of several hospitals and
industry organizations, managed a health care consulting firm, developed
prototypical rehabilitation programs and was Vice President of a large home
health agency.
Jonathan H. Glenn joined TheraTx in June 1994 as General Counsel, became
Secretary in February 1995 and was made Vice President in October 1995. Mr.
Glenn served as general counsel of PersonaCare from May 1992 through May 1994.
Prior to joining PersonaCare, Mr. Glenn was a principal in the law firm of
Tabor, Glenn and Betten, P.A. in Baltimore, Maryland, where he practiced law
since 1978.
Craig R. Reamsnyder has been Vice President and General Manager, Hospital
Services Group since September 1995. From January 1993 through September 1995,
Mr. Reamsnyder served as Vice President Market Development. From April 1988 to
November 1992, Mr. Reamsnyder was Eastern Zone Vice President for KCI. Prior to
1988, Mr. Reamsnyder served in various sales, marketing and management positions
with American Hospital Supply, most recently as Southeast Area Vice President
for the Operating Room Division.
B. Wayne Clark has been Vice President and Chief Administrative Officer
since September 1995. From February 1994 through September 1995, Mr. Clark
served as Vice President Administrative Services. From March 1993 to February
1994, Mr. Clark served as Senior Director, Administrative Services. From August
1983 to February 1993, Mr. Clark served in a variety of roles, including
Salesman, General Manager of Distributorship, District Manager, Director of
National Accounts, Director of Capital Sales, Senior Director of Sales
Administration and Vice President of Operations and Administration with KCI.
23
<PAGE> 26
STOCK PERFORMANCE GRAPH
The graph depicted below shows TheraTx's stock price as an index for the
period commencing June 30, 1994 to December 29, 1995, assuming $100 invested on
June 24, 1994 (the date of TheraTx's initial public offering) and reinvestment
of dividends, along with the composite prices of companies listed on the Long
Term Care Composite ("LTCC"). The Company believes that the LTCC provides a more
appropriate measure of the Company's stock price performance than the University
of Chicago's Center for Research on Security Prices ("CRSP") Total Return Index
for National Association of Securities Dealers Automated Quotation ("Nasdaq")
Stock Market utilized by the Company in last year's proxy statement. The LTCC
listed companies are more comparable to the Company in size and industry focus.
However, the CRSP index is also depicted for comparison purposes.
PERFORMANCE GRAPH FOR THERATX, INCORPORATED
INDEXED COMPARISON OF CUMULATIVE TOTAL RETURN
CRSP TOTAL RETURN INDEX FOR NASDAQ STOCK MARKET
AND THE LONG TERM CARE COMPOSITE(1)
<TABLE>
<CAPTION>
06/30/94 12/30/94 12/29/95
-------- -------- --------
<S> <C> <C> <C>
NASDAQ Stock Market $100.00 $107.05 $151.40
CRSP Index $115.58 $146.67
TheraTx, Inc. $162.50 $100.00
Long Term Care Comp $113.47 $ 84.94
</TABLE>
- ------------------
(1) Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the 1933 Act or the 1934 Act which might
incorporate future filings, including this Proxy Statement, the preceding Stock
Performance Graph will not be incorporated by reference into any of those prior
filings, nor will such report or graph be incorporated by reference into any
future filings made by the Company under those statutes.
24
<PAGE> 27
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT2
It is the responsibility of the Compensation Committee (the "Committee")
of the TheraTx Board of Directors to make recommendations to the Board of
Directors regarding the salary and bonuses to be paid to the Company's executive
officers each fiscal year. The Committee also administers the 1994 Stock
Option/Stock Issuance Plan, as amended (the "1994 Plan"), and will also
administer the 1996 Stock Option/Stock Issuance Program (the "1996 Plan") if the
1996 Plan is approved by the stockholders at the Annual Meeting. Equity
incentives may be granted under both the 1994 Plan and the 1996 Plan to
executive officers as part of their long-term compensation package. The
following is a summary of the policies of the Committee which affect the
compensation paid to executive officers, as reflected in the tables and text set
forth elsewhere in this Proxy Statement.
GENERAL COMPENSATION POLICY. Under the supervision of the Committee,
TheraTx has developed a compensation policy which is designed to attract, retain
and reward qualified key executives critical to the Company's success and to
provide such executives with performance-based incentives tied to the financial
performance of TheraTx. One of the Committee's primary objectives is to have a
substantial portion of each officer's compensation contingent upon the Company's
performance as well as upon the individual's contribution to the success of
TheraTx as measured by his or her personal performance. Accordingly, each
executive officer's compensation package is fundamentally comprised of three
elements: (i) base salary which reflects individual experience, expertise and
responsibility and is designed to be competitive with salary levels in the
industry; (ii) annual incentive compensation which reflects individual and
Company performance for the year; and (iii) long-term stock-based incentive
awards which strengthen the mutuality of interests between the executive
officers and the TheraTx stockholders.
FACTORS. The principal factors which were considered in establishing the
components of each executive officer's compensation package for the year ended
December 31, 1995 are summarized below. However, the Committee may in its
discretion apply entirely different factors, particularly different measures of
financial performance, in setting executive compensation for future fiscal
years.
- BASE SALARY. For comparative compensation purposes for the 1995 fiscal
year, the Committee has, with the assistance of an independent compensation
consultant, identified a peer group of companies which are comparable in size
with the Company, which provide healthcare services or which compete with the
Company for executive talent. The base salary for each officer is determined on
the basis of specific compensation surveys and the following factors: the salary
levels in effect for comparable positions at the peer group companies, the
experience and personal performance of the officer and internal comparability
considerations. The weight given to each of these factors differs from
individual to individual, as the Committee deems appropriate.
For purposes of the stock price performance graph which appears later in
this Proxy Statement, the Company has selected Long Term Care Composite ("LTCC")
as the industry index. Four out of the eight companies included in that index
were also among the companies which the Committee surveyed as part of the peer
group for comparative compensation purposes. However, in selecting companies to
survey for such compensation purposes, the Committee considers many factors not
directly associated with stock price performance, such as differences in
organizational structure and corporate culture, geographic location, growth
rate, annual revenue and profitability, and market capitalization.
- ANNUAL INCENTIVE COMPENSATION. Annual bonuses are earned by each
executive officer primarily on the basis of the Company's achievement of certain
corporate financial performance targets established for each fiscal year. For
fiscal year 1995, bonuses were earned on the basis of the following factors: (i)
the increase in the Company's earnings (before interest and taxes) over the
prior fiscal year and (ii) the personal performance level of the executive
officer. A portion of the Company's earnings for the 1995 fiscal year was
accordingly set aside for distribution under the bonus pool, and each executive
officer was awarded a share of that pool on the basis of the executive's
performance for the year, the responsibilities assigned to the executive and the
executive's relative position in the Company. The total cash compensation paid
to the Company's executive officers for the 1995 fiscal year was, in most cases,
competitive with the total cash compensation paid to executive officers in
comparable positions at the peer group companies which compete with the Company
for executive talent, based on the published
- ------------------
(2) The material in this report is not "soliciting material," is not
deemed filed with the Securities and Exchange Commission (the "SEC") and is not
to be incorporated by reference in any filing of the Company under the
Securities Act of 1933 as amended (the "1933 Act") or the Securities Exchange
Act of 1934, as amended (the "1934 Act").
25
<PAGE> 28
1994 fiscal year data for those companies. The actual bonus paid for the year to
each of the current executive officers named in the Summary Compensation Table
is indicated in the Bonus column.
- LONG-TERM INCENTIVE COMPENSATION. Each option grant under the 1994 Plan
and the 1996 Plan is designed to align the interests of the executive officers
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the business and to remain in the service of the Company. The Committee
has established certain general guidelines in making option grants to the
executive officers in an attempt to target a fixed number of unvested option
shares based upon the individual's position with the Company and his or her
existing holdings of unvested options. The number of shares subject to each
option grant is based upon the officer's tenure, level of responsibility and
relative position in the Company. However, the Committee does not adhere
strictly to these guidelines and will vary the size of the option grant made to
each executive officer as it feels the circumstances warrant. Each grant allows
the officer to acquire shares of the Company's Common Stock at a fixed price per
share (the market price on the grant date) over a specified period of time (up
to 10 years).
Options to purchase 1,105,000 shares of Common Stock were granted to
the executive officers during the 1995 fiscal year. Currently, each of these
options does not become exercisable unless either the optionee completes seven
(7) years of service with the Company measured from the grant date or certain
performance criteria are achieved. The exercise price per share is $18.25. The
Committee is considering modifications of the terms of these options to ensure
that the options will continue to provide a meaningful equity incentive for such
officers to remain in the Company's employ. Potential modifications may include,
without limitation, changing or eliminating the performance criteria and
changing the vesting period to a mere conventional time based vesting, although
the Committee does not currently intend to change the exercise price of these
options.
- CEO COMPENSATION. The base salary established for the Company's Chief
Executive Officer, Mr. John A. Bardis, for the year ended December 31, 1995
reflects the Committee's decision to maintain a level of stability and certainty
with respect to this component of his compensation from year to year, and there
was no intent to have this particular component of compensation affected to any
significant degree by the Company's performance factors. Because it was the
Committee's intent in setting Mr. Bardis' compensation for the 1995 fiscal year
to have a greater emphasis on long-term equity incentive compensation than cash
compensation. Mr. Bardis' base salary was maintained at a level below the median
of the base salaries paid to other chief executive officers at comparable
surveyed companies. Mr. Bardis was, however, awarded an option during 1995 to
acquire 400,000 shares of the Company's Common Stock on the terms discussed in
the preceding paragraph.
TAX LIMITATION. As a result of federal tax legislation enacted in 1993, a
publicly-held company such as TheraTx will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any year. This limitation
will apply to all compensation paid to the covered executive officers which is
not considered to be performance-based. However, compensation which does qualify
as performance-based compensation will not have to be taken into account for
purposes of this limitation. The compensation paid to the Company's executive
officers for the year ended December 31, 1995 did not, and the compensation to
be paid for the year ending December 31, 1996 is not expected to, exceed the $1
million limit per officer. In addition, the 1994 and 1996 Plans have been
structured so that any compensation deemed paid to an executive officer in
connection with the exercise of options granted under those plans will qualify
as performance-based compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1 million limitation, the Committee has decided not to take any other
action to limit or restructure the elements of cash compensation payable to the
Company's executive officers. The Committee will reconsider this decision should
the individual compensation of any executive officer ever approach the $1
million level.
Compensation Committee
Craig T. Davenport
Robert J. Erra
L. John Wilkerson
26
<PAGE> 29
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the year ended December 31,
1995 were Messrs. Davenport and Erra, and Dr. Wilkerson. None of these
individuals was at any time during the year ended December 31, 1995 an officer
or employee of the Company or any of its subsidiaries.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation awarded or earned, for
services rendered to the Company in all capacities during the fiscal years ended
December 31, 1993, 1994 and 1995, by (i) the Company's Chief Executive Officer
and (ii) the Company's six other most highly compensated executive officers who
were serving as executive officers as of December 31, 1995 (together, the "Named
Executive Officers"). No executive officer who would have otherwise been
includable in such table on the basis of salary and bonus earned for the year
ended December 31, 1995 resigned or terminated employment during the fiscal
year. During 1995, 1994 and 1993, no Named Executive Officer received any
restricted stock award, stock appreciation right or payment under any long term
incentive plan.
<TABLE>
<CAPTION>
LONG-TERM
---------
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS (#)
--------------------------- ---- ------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
John A. Bardis..................... 1995 $206,000 $45,732 $ -- 400,000
President, Chief Executive 1994 206,000 61,800 42,858(2) 226,667
Officer and Director 1993 204,076 41,200 -- --
Bret W. Jorgensen.................. 1995 150,000 28,500 -- 160,000
President, TheraTx Health 1994 137,789 79,063 14,506(2) 88,333
Services Group and Director 1993 105,212 24,000 37,070(3) --
Donald R. Myll..................... 1995 140,000 25,900 -- 110,000
Senior Vice President and 1994 124,583 41,458 9,655(2) 88,333
Chief Financial Officer 1993 96,689 22,000 50,768(3) --
Laura E. Cayce..................... 1995 150,000 30,000 -- 90,000
President, PersonaCare Group 1994 126,875 28,164 -- 83,333
1993 102,292 25,000 -- 16,666
Craig R. Reamsnyder................ 1995 125,000 23,125 -- 90,000
Vice President and General 1994 116,458 24,708 -- 63,333
Manager, Hospital Services 1993 94,496 19,000 -- 50,000
Group
Louis E. Hallman, III.............. 1995 125,000 25,000 -- 90,000
Vice President Corporate 1994 110,521 26,051 26,865(2) 61,667
Development 1993 86,917 17,000 4,207(3) --
William J. Haffey, Ph.D............ 1995 125,000 25,000 -- 90,000
Vice President and Chief 1994 108,750 26,125 -- 63,333
Clinical Information Services 1993 75,980 14,250 -- 33,333
Officer
</TABLE>
- -----------------
(1) The bonuses reflected in the table for 1995 for all officers were earned
in 1995 although not paid until 1996. The bonuses reflected for 1994 for
Messrs. Bardis, Jorgensen, Myll and Hallman, and Ms. Cayce, and a portion
of the bonus for Messrs. Reamsnyder and Haffey were earned in 1994
although not paid until 1995.
27
<PAGE> 30
(2) "Other Annual Compensation" in 1994 is comprised of (i) relocation
expenses of $42,858, $7,760 and $26,865 paid to or on behalf of Messrs.
Bardis, Jorgensen and Hallman, respectively; and (ii) in the case of
Messrs. Jorgensen and Myll, payments of $6,746 and $9,655, respectively,
to reimburse them for the tax liability attributable to the relocation
expenses previously paid to them.
(3) "Other Annual Compensation" in 1993 is comprised of (i) payments for
unused vacation of $4,178, $6,852 and $4,207 to Messrs. Jorgensen, Myll
and Hallman, respectively; and (ii) payments to Messrs. Jorgensen and Myll
in the amount of $32,892 and $43,916, respectively, for relocation
expenses and reimbursement of the tax liability attributable to the
relocation expenses paid directly to each.
STOCK OPTIONS
The following table sets forth, for the year ended December 31, 1995,
information concerning the grant of options to purchase shares of Common Stock
under the Company's 1994 Plan to the Named Executive Officers. No stock
appreciation rights have been granted to any of the Named Executive Officers.
OPTION/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT POTENTIAL REALIZABLE
NUMBER OF OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR EXPIRATION FOR OPTION TERM(3)
-----------------
NAME GRANTED(1) IN 1995 BASE PRICE(2) DATE 5% 10%
- ---- ---------- ------- ------------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
John A. Bardis 400,000 19.43% $18.25 03/21/05 $4,590,931 $11,634,320
Bret W. Jorgensen 160,000 7.77 18.25 03/21/05 1,836,372 4,653,728
Donald R. Myll 110,000 5.34 18.25 03/21/05 1,262,506 3,199,438
Laura E. Cayce 90,000 4.37 18.25 03/21/05 1,032,959 2,617,722
Craig R. Reamsnyder 90,000 4.37 18.25 03/21/05 1,032,959 2,617,722
Louis E. Hallman, III 90,000 4.37 18.25 03/21/05 1,032,959 2,617,722
William J. Haffey, Ph.D. 90,000 4.37 18.25 03/21/05 1,032,959 2,617,722
</TABLE>
- ---------------
(1) Each of the options was granted March 21, 1995 and will vest upon the
earlier of (i) the optionee's completion of seven (7) years of service
measured from such grant date or (ii) the attainment of certain
performance milestones based upon specific earnings per share targets
or an acquisition of the Company at certain prescribed minimum
valuation thresholds. The Company believes that the options will help
ensure continuity of management and will focus management on the
long-term enhancement of stockholder value.
(2) The exercise price per share of the options granted was equal to the
closing market price of the underlying shares of Common Stock on the
date the options were granted. The exercise price may be paid in cash,
in shares of Common Stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving the same-day
sale of the purchased shares. The Company may also finance the option
exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares.
(3) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of
the Common Stock does in fact appreciate over the option term, no value
will be realized from the option grants.
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning the exercise
of options by Messrs. Haffey, Clark and Reamsnyder and Ms. Cayce during fiscal
year 1995, including the aggregate amount of gain realized at the time of
exercise. No other Named Executive Officer exercised options during 1995. In
addition, the table includes the number of shares covered by both exercisable
and unexercisable stock options held by the Named Executive
28
<PAGE> 31
Officers as of December 31, 1995. Also reported are values of "in-the-money"
options that represent the difference between the respective exercise prices of
outstanding stock options and the closing selling price of the Common Stock as
of December 29, 1995, as reported on the Nasdaq National Market. No stock
appreciation rights were exercised during fiscal year 1995 nor were any
outstanding at December 29, 1995.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND OPTION VALUES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED SECURITIES UNDERLYING IN-THE-MONEY
ON VALUE UNEXERCISED OPTIONS OPTIONS(1)
------------------- ---------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. Bardis.............. 0 $0 56,667(3) 570,000 $200,003 0
Bret W. Jorgensen........... 0 0 24,583(4) 223,570 99,998 0
Donald R. Myll.............. 0 0 24,583(5) 173,750 99,998 0
Craig Reamsnyder............ 31,110 487,166 39,723(6) 132,500 342,174 0
Laura E. Cayce.............. 8,153 158,127 34,276(7) 147,570 173,070 0
Louis E. Hallman, III....... 0 0 19,167(8) 132,500 87,503 0
William J. Haffey, Ph.D..... 48,477 712,936 21,223(9) 141,000 133,549 0
B. Wayne Clark.............. 22,000 358,690 20,666(10) 99,000 24,998 0
</TABLE>
- ---------------
(1) Calculated based on the closing sale price at December 29, 1995 of
$12.00 per share, less the applicable exercise price.
(2) Calculated as the excess of the fair market value of the purchased
shares on the exercise date over the aggregate option exercise paid for
the shares.
(3) As of December 31, 1995, 42,778 of the shares issuable upon exercise of
options held by Mr. Bardis were vested.
(4) As of December 31, 1995, 17,639 of the shares issuable upon exercise of
options held by Mr. Jorgensen were vested.
(5) As of December 31, 1995, 17,639 of the shares issuable upon exercise of
options held by Mr. Myll were vested.
(6) As of December 31, 1995, 20,278 of the shares issuable upon exercise of
options held by Mr. Reamsnyder were vested.
(7) As of December 31, 1995, 24,205 of the shares issuable upon exercise of
options held by Ms. Cayce were vested.
(8) As of December 31, 1995, 13,090 of the shares issuable upon exercise of
options held by Mr. Hallman were vested.
(9) As of December 31, 1995, 10,458 of the shares issuable upon exercise of
options held by Dr. Haffey were vested.
(10) As of December 31, 1995, 8,512 of the shares issuable upon exercise of
options held by Mr. Clark were vested.
MANAGEMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None of the Company's executive officers have employment agreements
with TheraTx, and their employment may be terminated at any time at the
discretion of the Board of Directors. On April 25, 1996, the Board of Directors
approved the adoption of the Executive Officers' Severance Policy (the
"Severance Policy") for the Company's executive officers, pursuant to which each
such executive officer will become entitled to special severance benefits in the
event his or her employment is involuntarily terminated in connection with
certain changes in control of the Company.
A change in control is defined under each agreement to include: (i) an
acquisition of the Company by merger or consolidation in which the Company is
not the surviving entity, (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, (iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to person or persons different from the persons holding those
securities immediately prior to such merger, (iv) the acquisition of securities
possessing fifty percent (50%) or more of the total combined voting power of the
Company's outstanding securities pursuant to a transaction effected without the
approval of the TheraTx Board, (v) a change in the composition of the TheraTx
Board over any period of 36 months or less such that a majority of the Board
29
<PAGE> 32
ceases to be comprised of individuals who either (A) have been Board members
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by a majority of the continuing
Board members described in clause (A) or (vi) the issuance by the Company of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities (determined after such issuance)
in a single transaction or a series of related transactions.
Should an executive officer's employment be involuntarily terminated
(other than for cause) within a designated period (20 or 24 months, as
determined by the Board of Directors) following a change in control, then that
officer will become entitled to the following severance benefits from the
Company: (i) a cash lump sum payment equal to such executive officer's base
salary for a designated 20 or 24 month period and (ii) a cash lump sum payment
equal to the then current monthly health care insurance premium paid by the
Company for such executive officer, multiplied by 20 or 24, as the case may be.
Involuntary termination is defined as the termination of the officer's
employment, whether voluntary or involuntary (other than for cause), following a
material reduction in the officer's level of responsibilities, a reduction in
his or her compensation or a change in job location without his or her consent.
Termination for cause includes any involuntary termination attributable to the
officer's fraudulent behavior or other intentional misconduct adversely
affecting the business reputation of the Company in a material manner.
In addition, the Compensation Committee will have the discretionary
authority as administrator of the 1994 Plan and the 1996 Plan to provide for the
accelerated vesting of options held by executive officers in connection with a
change in control of the Company. Under both the 1994 Plan and the 1996 Plan,
all options held by executive officers automatically vest in connection with
certain changes of control in which the options are not assumed by the acquiring
company. Furthermore, under the 1996 Plan, executive officers' options will vest
in the event of an involuntary termination (other than for cause) within certain
designated periods following a change in control.
Should the total value of all payments or benefits which vest or become
due to an executive officer in connection with his or her termination of
employment following the occurrence of a change in control, as described above,
constitute an excess parachute payment under the federal tax laws, then the
Company will provide such executive officer with a cash lump sum payment equal
to 145% of the excise tax initially payable by such executive. The Company will
not, however, provide any such payment to the extent the excise taxes are
attributable to accelerated vesting of stock option grants or restricted stock
issuances made to the executive officer within one year prior to the change of
control.
THE 1994 STOCK OPTION/STOCK ISSUANCE PLAN
PLAN BACKGROUND AND STRUCTURE
The Company's 1994 Stock Option/Stock Issuance Plan (the "1994 Plan")
is the successor equity incentive program to the Company's 1990 Stock Option
Plan, as amended. The 1994 Plan was originally adopted by the Board of Directors
on March 3, 1994 and approved by the Company's stockholders on June 15, 1994. On
July 16, 1994, October 27, 1994 and March 21, 1995, the Board approved increases
in the number of shares authorized for grant under the 1994 Plan of 75,000,
900,000, and 1,800,000 shares, respectively. Such increases were approved by the
Company's stockholders at the 1995 Annual Meeting of Stockholders held May 31,
1995.
A total of 4,495,467 shares of Common Stock has been reserved for
issuance over the ten year term of the 1994 Plan. In no event may any one
participant in the 1994 Plan be granted stock options, separately
30
<PAGE> 33
exercisable stock appreciation rights or direct stock issuances for more than
1,498,489 shares in the aggregate over the term of the 1994 Plan after December
31, 1994. As of February 29, 1996, a total of 1,145,590 shares had been issued
under the 1994 Plan, 3,325,239 shares were subject to outstanding options and
24,638 shares were available for future grant under the 1994 Plan.
The 1994 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program under which eligible individuals may be
granted options to purchase shares of Common Stock at an exercise price not less
than 85% of the fair market value of such shares on the grant date; (ii) a Stock
Issuance Program under which such individuals may be issued shares of Common
Stock directly, either through the purchase of such shares at a price not less
than 85% of their fair market value at the time of issuance or as a bonus tied
to the performance of services or the Company's attainment of financial
objectives; and (iii) an Automatic Option Grant Program under which eligible
non-employee Board members may be granted options to purchase shares of Common
Stock at an exercise price equal to 100% of the fair market value of such shares
on the grant date. The terms of the Automatic Option Grant Program under the
1996 Plan are identical to the terms of the Automatic Option Grant Program under
the 1996 Plan, except that the initial 25,000-share option grants which were
made under the 1994 Plan at the 1995 Annual Stockholders Meeting were reduced by
certain prior option grants made to the non-employee Board members. No further
option grants to non-employee Board members will be made under the Automatic
Option Grant Program of the 1994 Plan once the 1996 Plan is approved by the
stockholders at the Annual Meeting.
The Discretionary Option Grant Program and the Stock Issuance Program
are administered by the Compensation Committee. The Committee has complete
discretion to determine which eligible individuals are to receive option grants
or stock issuances, the time or times when such option grants or stock issuances
are to be made, the number of shares subject to each such grant or issuance, the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the Federal tax laws, the vesting schedule to
be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding.
Upon an acquisition of the Company by merger or asset sale, the vesting
of outstanding options and unvested stock issuances will accelerate under
certain circumstances.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock.
The Committee has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of Common Stock and
to issue replacement options with an exercise price based on the market price of
Common Stock at the time of the new grant.
The Committee may permit one or more optionees to pay the exercise
price of outstanding options under the 1994 Plan by delivering a promissory note
payable in installments. The Committee will determine the terms of any such
promissory note. However, the maximum amount of financing provided any optionee
may not exceed the cash consideration payable for the purchased shares plus all
applicable taxes incurred in connection with the acquisition of the shares. Any
such promissory note may be subject to forgiveness in whole or in part, at the
discretion of the Committee, over the optionee's period of service.
The Board may amend or modify the 1994 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the 1994 Plan at any time, and the 1994 Plan will in all events terminate on
March 2, 2004.
31
<PAGE> 34
RECENT STOCK AWARDS UNDER THE 1994 PLAN
The following table sets forth certain information regarding the
options granted under the 1994 Plan since January 1, 1995 to (i) the Company's
Named Executive Officers, (ii) the Company's non-employee directors, (iii) all
executive officers as a group, (iv) all non-employee directors as a group, and
(v) all employees as a group.
<TABLE>
<CAPTION>
NUMBER OF
OPTION EXERCISE
NAME SHARES PRICE
- ---- ------ -----
<S> <C> <C>
EXECUTIVE OFFICERS
John A. Bardis........................................................ 400,000(1) $18.25
Bret W. Jorgensen..................................................... 160,000(1) 18.25
Donald R. Myll........................................................ 110,000(1) 18.25
Laura E. Cayce........................................................ 90,000(1) 18.25
Craig R. Reamsnyder................................................... 90,000(1) 18.25
Louis E. Hallman, III................................................. 90,000(1) 18.25
William J. Haffey, Ph.D............................................... 90,000(1) 18.25
Jonathan H. Glenn..................................................... 10,000(1) 18.25
B. Wayne Clark........................................................ 65,000(1) 18.25
DIRECTORS
Craig T. Davenport.................................................... 18,333 14.00
Robert J. Erra........................................................ 18,333 14.00
Patrick T. Hackett.................................................... 25,000(2) 14.00
W. David Holder...................................................... 18,333 14.00
Donald B. Milder...................................................... 18,333 14.00
L. John Wilkerson.................................................... 18,333 14.00
All current executive officers as a group............................. 1,105,000 18.25(3)
(9 persons)
All non-employee directors as a group................................. 116,665 14.00(3)
(6 persons)
All employees, including current officers who are..................... 789,482(2)(3) 15.28(3)
not executive officers as a group (374 persons)
</TABLE>
- ----------------------
(1) These options, granted March 21, 1995, will vest upon the earlier of
seven (7) years following the date of grant or on such dates as the
Company achieves certain performance criteria. The performance criteria
may either be fulfilled by the Company achieving certain earnings per
share targets or the Company being acquired at certain minimum price
thresholds.
(2) The economic benefit of the option granted to Mr. Hackett has been
assigned to E. M. Warburg, Pincus & Co., Inc., or an affiliate thereof,
for the account of Warburg, Pincus Investors, L.P.
(3) Exercise price per share is equal to the weighted average exercise
price per share.
32
<PAGE> 35
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Under the present rules of the SEC, the deadline for stockholders to
submit proposals to be considered for inclusion in TheraTx's Proxy Statement for
next year's Annual Meeting of Stockholders is December 31, 1996. Such proposals
may be included in next year's Proxy Statement if they comply with certain rules
and regulations promulgated by the Commission.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, it is intended that the proxy holders will vote
on such matters in accordance with their best judgment.
33
<PAGE> 36
THERATX, INCORPORATED
PROXY
ANNUAL MEETING OF STOCKHOLDERS, MAY 30, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of Annual Meeting of Stockholders to be held on May 30, 1996 and the
proxy statement and appoints John A. Bardis and Donald R. Myll, or either of
them, the proxy of the undersigned, with full power of substitution, to vote all
shares of Common Stock of TheraTx, Incorporated which the undersigned is
entitled to vote, either on his or her own behalf or on behalf of an entity or
entities, at the Annual Meeting of Stockholders of TheraTx to be held at the
Doubletree Hotel at Concourse, Atlanta, Georgia on Thursday, May 30, 1996 at
9:00 a.m. Eastern Daylight Savings Time, and at any adjournment or postponement
thereof, and to vote in their discretion on such other business as may properly
come before the Annual Meeting and any postponement or adjournment thereof.
1. APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 30,000,000
TO 50,000,000.
FOR AGAINST ABSTAIN
/ / / / / /
2. APPROVAL OF THE COMPANY'S 1996 STOCK OPTION/STOCK ISSUANCE PLAN.
FOR AGAINST ABSTAIN
/ / / / / /
3. APPROVAL OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN.
FOR AGAINST ABSTAIN
/ / / / / /
4. ELECTION OF DIRECTORS
/ / FOR all nominees / / WITHHOLD AUTHORITY / / EXCEPTIONS
listed below to vote for all nominees
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE MARK THE
"EXCEPTIONS" BOX, AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW:
BRET W. JORGENSEN
CRAIG T. DAVENPORT
ROBERT J. ERRA
PATRICK T. HACKETT
5. RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 1996.
FOR AGAINST ABSTAIN
/ / / / / /
The Board of Directors recommends a vote FOR each of the director nominees
listed above and for the other proposals set forth above. This Proxy, when
properly executed, will be voted as specified above. This Proxy will be voted
FOR Proposals No. 1, 2, 3 and 5 and FOR each of the nominees listed under
Proposal No. 4 if no specification is made. THIS PROXY WILL ALSO BE VOTED AT THE
DISCRETION OF THE PROXY HOLDERS ON SUCH MATTERS OTHER THAN THE FIVE SPECIFIC
ITEMS AS MAY COME BEFORE THE MEETING.
Please print the name(s) appearing
on each share certificate(s) over
which you have voting authority: Dated:
<PAGE> 37
(Print name(s) as it (they) appear on certificate)
Please sign exactly as your name(s) is (are) shown on the share certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or guardian,
please give full title, as such. If a corporation, please sign in full corporate
name by the President or another authorized officer. If a partnership, please
sign in the partnership name by an authorized person
(Authorized Signature(s))
PLEASE RETURN YOUR EXECUTED PROXY TO THERATX'S AGENT IN THE ENCLOSED ENVELOPE,
OR, IF NECESSARY, DELIVER IT TO THERATX'S ATTENTION: CHIEF FINANCIAL OFFICER.
2
