SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
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 ss.ss. 240.14a-11(c) or ss. 240.14a-12
ORPHAN MEDICAL, INC.
(Name of Registrant as Specified in its Charter)
------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction: ______________________
5) Total fee paid: _______________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: _______________________________________________
2) Form, Schedule or Registration Statement No.: _________________________
3) Filing Party: _________________________________________________________
4) Date Filed: ___________________________________________________________
<PAGE>
[COMPANY LOGO]
ORPHAN MEDICAL, INC.
13911 RIDGEDALE DRIVE, SUITE 250
MINNETONKA, MINNESOTA 55305
TELEPHONE (952) 513-6900
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 6, 2000
The Annual Meeting of Shareholders of Orphan Medical, Inc. (the
"Company") will be held Tuesday, June 6, 2000, at 3:30 p.m. (Central Standard
Time), at the Hilton Minneapolis/St.Paul Airport Hotel, 3800 East 80th Street,
Minneapolis, Minnesota 55425, for the following purposes:
1. To elect six directors to serve until the next Annual Meeting of
Shareholders;
2. To ratify the selection of Ernst & Young LLP as the independent public
accountants of the Company for the fiscal year ending December 31,
2000; and
3. To consider and act upon any other business that may properly come
before the meeting or any adjournment thereof.
The Board of Directors of the Company has designated the close of
business on April 7, 2000 as the record date for the determination of
shareholders entitled to notice of and to vote at the meeting or any adjournment
thereof. Only shareholders of record of the Company's Common Stock and Senior
Convertible Preferred Stock at the close of business on that date will be
entitled to vote.
You are cordially invited to attend the meeting. However, whether or
not you plan to be personally present at the meeting, please complete, date and
sign the enclosed proxy and return it promptly in the enclosed envelope. If you
later desire to revoke your proxy, you may do so at any time before it is
exercised.
By Order of the Board of Directors
/s/ John Howell Bullion
-----------------------
John Howell Bullion
Chairman of the Board, Chief Executive Officer
and Secretary
Minnetonka, Minnesota
April 14, 2000
<PAGE>
ORPHAN MEDICAL, INC.
13911 RIDGEDALE DRIVE, SUITE 250
MINNETONKA, MINNESOTA 55305
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
JUNE 6, 2000
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of the enclosed proxy by the Board of Directors of Orphan Medical, Inc. (the
"Company") for use at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held on Tuesday, June 6, 2000, at 3:30 p.m. (Central Standard Time), at
the Hilton Minneapolis/St.Paul Airport Hotel, 3800 East 80th Street,
Minneapolis, Minnesota 55425, and at any adjournment thereof, for the purposes
set forth in the Notice of Annual Meeting of Shareholders. This Proxy Statement
and the form of proxy enclosed are being mailed to shareholders with the
Company's Annual Report to Shareholders commencing on or about April 14, 2000.
The only matters the Board of Directors knows will be presented are
those stated in Proposals 1 and 2 of this Proxy Statement. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF PROPOSALS 1 AND 2.
Should any other matter properly come before the meeting, it is intended that
the persons named in the enclosed proxy will have authority to vote such proxy
in accordance with their judgment on such matter.
VOTING RIGHTS AND PROCEDURES
Common Stock and Senior Convertible Preferred Stock shareholders
(collectively, the "shareholders") of record at the close of business on April
7, 2000 will be entitled to vote at the Annual Meeting or any adjournments. As
of that date, a total of 8,342,721 shares of such Common Stock and 8,393 shares
of Senior Convertible Preferred Stock were outstanding (collectively, the
"Voting Stock"), each share of Common Stock being entitled to one vote and each
share of Senior Convertible Preferred Stock being entitled to voted on an "as
converted" basis. On April 7, 2000, the Company's Senior Convertible Preferred
Stock was convertible into an aggregate of 1,031,081 shares of Common Stock on
an "as converted" basis, which approximates 122.850 shares of Common Stock for
each share of Senior Convertible Preferred Stock. There is no cumulative voting.
If a shareholder returns a proxy withholding authority to vote the proxy with
respect to a nominee for director, then the shares of the Voting Stock covered
by such proxy shall be deemed present at the Annual Meeting for purposes of
determining a quorum and for purposes of calculating the vote with respect to
such nominee, but shall not be deemed to have been voted for such nominee. If a
shareholder abstains from voting as to any matter, then the shares held by such
shareholder shall be deemed present at the meeting for purposes of determining a
quorum and for purposes of calculating the vote with respect to such matter, but
shall not be deemed to have been voted in favor of such matter. If a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on such
matter, then the shares covered by such non-vote shall be deemed present at the
Annual Meeting for purposes of determining a quorum, but shall not be deemed to
be present and entitled to vote at the Annual Meeting for purposes of
calculating the vote with respect to such matter.
Shares of the Company's Common Stock and Senior Convertible Preferred
Stock represented by proxies in the form solicited will be voted in the manner
directed by a shareholder. If no direction is given, the proxy will be voted for
the election of the nominees for director named in this Proxy Statement and for
approval of the selection of Ernst & Young LLP as the Company's independent
public accountants. So far as the management of the Company is aware, no matters
other than those described in this Proxy Statement will be acted upon at the
Annual Meeting. In the event that any other matters properly come before the
<PAGE>
Annual Meeting and call for a vote of shareholders, the persons named as proxies
in the enclosed form of proxy will vote in accordance with their best judgment
on these matters. A proxy may be revoked at any time before being exercised by
delivery to an officer of the Company of a written notice of termination of the
proxy's authority or a duly elected proxy bearing a later date.
PROPOSAL 1: ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The business and affairs of the Company are managed under the direction
of its Board of Directors, which is presently comprised of six members. Six
directors have been nominated for election to the Company's Board of Directors
at the Annual Meeting to hold office until the next Annual Meeting of
Shareholders or until their successors are duly elected and qualified.
The Company's incumbent directors, John Howell Bullion, Michael Greene,
W. Leigh Thompson, Ph.D., M.D., Julius A. Vida, Ph.D., William M. Wardell, M.D.,
Ph.D., and Lawrence C. Weaver, Ph.D., D.Sc. (Hon.), are being nominated for
election at the Annual Meeting. Each of Messrs. Bullion and Greene and Drs.
Thompson, Vida, Wardell and Weaver have indicated a willingness to serve, but in
case any of them is not a candidate at the Annual Meeting, the person named as
proxy in the enclosed form of proxy may vote for a substitute nominee in their
discretion. Information concerning the director nominees is set forth below.
JOHN HOWELL BULLION Mr. Bullion, 48, has been Chief Executive
Officer of the Company since June 1994 and
Chairman of the Board of Directors since
December 30, 1998. Mr. Bullion is a co-founder
of Chronimed Inc., the company from which Orphan
Medical, Inc. was spun off in 1994. He has been
a director of Chronimed since 1985. Prior to
joining the Company, Mr. Bullion served as
President of Bluestem Partners, an investment
and consulting company; Dahl & Associates, a
soil and ground water remediation company; and
Concurrent Knowledge Systems, Inc., a software
development company. Mr. Bullion also served as
partner and Vice President with First Bank
System Venture Capital Company for seven years.
MICHAEL GREENE Mr. Greene, 38, has been a director of the
Company since July 1998. Mr. Greene is a partner
at UBS Capital, LLC ("UBS") and has been with
UBS since it was founded in 1993. Prior to
joining UBS, Mr. Greene was a senior member of
the Union Bank of Switzerland's Leveraged
Finance Group from 1990 to 1992. Mr. Greene is a
graduate of The College of Holy Cross with a
B.A. in Economics and earned an M.B.A. from
Harvard Business School. Mr. Greene also serves
as a director for Metrocall Inc., and Desa
International.
W. LEIGH THOMPSON, Dr. Thompson, 61, has been a director of the
PH.D., M.D. Company since August 1995. Dr. Thompson is
President and Chief Executive Officer of
Profound Quality Resources, Ltd., which provides
worldwide consulting services to health
institutions and manufacturers. From 1982
through 1995, Dr. Thompson had responsibility
for animal and human product research at Eli
Lilly and Company, where he held a number of
executive positions, including Chief Scientific
Officer, Director, Executive Director, Vice
President, Group Vice President and Executive
Vice President. Prior to Eli Lilly and Company,
Dr. Thompson was Professor of Medicine at Case
Western Reserve University. Dr. Thompson also
serves on the boards of BAS, Inc., DepoMed,
Inspire Pharmaceuticals, LaJolla
Pharmaceuticals, Maret Corporation, Tanabe
Research Laboratory, Ontogeny and Ophidian
Pharmaceuticals.
2
<PAGE>
JULIUS A. VIDA, PH.D. Dr. Vida, 71, has been a director of the Company
since October 1998. Dr. Vida is the President of
Vida International Pharmaceutical Consultants,
which was founded in 1993. Dr. Vida also serves
as a director for Biomatrix, Inc., Madarex, Inc.
and SuperGen, Inc. Past employment includes over
15 years experience with Bristol Myers Squibb
Co., last serving as Vice President, Business
Development, Licensing and Strategic Planning
from 1991 to 1993. Dr. Vida earned his Ph.D.
from the Carnegie Institute of Technology and
his M.B.A. from Columbia University.
WILLIAM M. WARDELL, Dr. Wardell, 61, has been a director of the
M.D., PH.D. Company since August 1995. Since January 1996,
Dr. Wardell has been with Covance, Inc.
(formerly Corning-Besselaar), a contract
research organization, where he is the Senior
Scientific Officer. Dr. Wardell also serves as a
director for PharMetrics, Inc. and PlytoCentra.
From January 1995 to January 1996, Dr. Wardell
was President of Wardell Associates
International, a pharmaceutical consulting firm.
Prior to 1995, Dr. Wardell served as President
of Protein Engineering Corporation, a privately
held biotechnology company. Prior to joining
Protein Engineering Corporation, Dr. Wardell was
Senior Vice President of the Parke-Davis
Pharmaceutical Research Division of Warner
Lambert Company. From 1983 to 1991, Dr. Wardell
was Vice President/Medical Director of Boeringer
Ingelheim Pharmaceuticals, Inc. and was a member
of Boeringer Ingelheim's International Steering
and Medical Committees, which had responsibility
for worldwide research, development, clinical
and regulatory programs. Prior to entering the
pharmaceutical industry, Dr. Wardell was
Associate Professor of Pharmacology and
Toxiology and Assistant Professor of Medicine at
the University of Rochester Medical Center. Dr.
Wardell has also been a Commissioner of the
Pharmaceutical Manufacturers Association's
Commission on Drugs for Rare Diseases, and a
Vice President and Board member of the American
Society for Clinical Pharmacology and
Therapeutics.
LAWRENCE C. WEAVER, Dr. Weaver, 76, has been a director of the
PH.D., D.SC. (HON.) Company and Chairman of its Advisory Board since
August 1994. Dr. Weaver also serves as a
director for Zinpro Corporation, Zinpro Animal
Nutrition, Inc. and Cranes Pharmacy. Dr. Weaver
has been Dean and Professor Emeritus at the
University of Minnesota since 1989. Dr. Weaver
served as Dean of the College of Pharmacy at the
University of Minnesota from 1966 through 1984,
and as the Interim Dean from 1994 through 1996.
From 1984 through 1989, Dr. Weaver was Vice
President for Professional Relations of the
Pharmaceutical Manufacturers Association ("PMA")
and Executive Director of the PMA Commission on
Rare Diseases. Prior to 1966, Dr. Weaver held
various scientific and management positions in
the pharmaceutical industry. Dr. Weaver has
received the FDA Commissioners Award and other
awards for his work in the orphan drug area, has
organized several international symposia on
orphan drugs and participated in the founding of
other orphan drug companies.
The affirmative vote of a majority of the shares of Voting Stock
present and entitled to vote at the Annual Meeting is necessary to elect the
nominees for director. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF MESSRS. BULLION AND GREENE AND DRS. THOMPSON, VIDA, WARDELL AND WEAVER.
3
<PAGE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During 1999, the Board of Directors of the Company held five meetings.
The Board of Directors has established an Audit Committee consisting of Mr.
Greene and Drs. Vida and Weaver, a Compensation Committee consisting of Mr.
Greene and Drs. Wardell and Weaver and a Regulatory Oversight Committee
consisting of Drs. Thompson, Wardell and Weaver. The Audit Committee's function
is to review and make recommendations to the Board of Directors with respect to
certain financial and accounting matters. The Audit Committee met twice during
1999. The Compensation Committee's function is to review and make certain
determinations with respect to matters concerning the remuneration of employees,
officers and directors. The Compensation Committee met three times during 1999.
The Regulatory Oversight Committee's function is to keep the Board informed on
matters pertaining to regulatory compliance. The Regulatory Oversight Committee
met four times during 1999. The Board of Directors does not have a standing
nominating committee. Each director attended at least 75 percent of the meetings
of the Board of Directors and committees upon which such director served during
1999.
The Board of Directors has also established an Advisory Board
consisting of eight individuals that advise the Company with respect to the
planning or execution of its product acquisition and development programs. Each
of the members of the Advisory Board has development or marketing expertise with
respect to products under development by the Company. Members of the Advisory
Board provide services to the Company on a nonexclusive basis and do not meet on
a formal or regular basis. The Company consults with one or more members of the
Advisory Board from time to time by means of meetings or telephone conference
calls. Dr. Weaver, who is Chairman of the Advisory Board, is the only director
of the Company who is also an Advisory Board member.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $10,000 annually
for serving on the Board of Directors. In addition, until October 1999,
Directors who are not employees received a $200 fee for each meeting and a $100
fee for each telephone meeting attended. After October 1999, Directors who are
not employees will receive $1000 for each meeting, $500 for each telephone
meeting, and $250 for committee meetings. Directors are also reimbursed for
out-of-pocket expenses incurred in attending Board of Directors' and committee
meetings.
In addition, pursuant to the Company's 1994 Stock Option Plan (the
"Stock Plan"), each new non-employee director receives an option to purchase
25,000 shares on the date of such Director's initial election to the Board of
Directors. Each such option has an exercise price equal to the fair market value
of the Company's Common Stock on the date of grant and a term of ten years.
After the first 25,000 shares granted under the Stock Plan vest, each
non-employee Director receives an additional option to purchase 5,000 shares for
each additional year on the Board. Mr. Bullion beneficially owns 471,312 shares
of Common Stock, including 380,000 shares issuable upon exercise of currently
exercisable options. Mr. Greene beneficially owns 10,000 shares of Common Stock,
all of which are issuable upon exercisable options. Dr. Thompson beneficially
owns 37,5000 shares of Common Stock, all of which are issuable upon exercisable
options. Dr. Vida beneficially owns 10,000 shares of Common Stock, all of which
are issuable upon exercisable options. Dr. Wardell beneficially owns 40,500
shares of Common Stock, including 39,000 shares issuable upon exercise of
currently exercisable options. Dr. Weaver beneficially owns 50,340 shares of
Common Stock, including 35,000 shares issuable upon exercise of currently
exercisable options. In December, 1999, Drs. Thompson and Wardell were granted
options to purchase an additional 5,000 shares, exercisable at $5.50 per share.
4
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Compensation Committee determines the policies for and structure
and amount of all compensation for the Board of Directors and the executive
officers of the Company. The Compensation Committee's goal is to establish
compensation policies and programs that will attract and retain qualified
executives and align their financial interests closely with long-term
shareholder interests. The Compensation Committee is composed entirely of
directors who are not employees of the Company.
The Company has a "pay for performance" compensation program for its
executive officers. The compensation program is designed to motivate and reward
executives responsible for attaining the financial and strategic objectives
essential to the Company's success and continued growth, while at the same time
allowing the Company to attract and retain high-caliber executives. The
Company's compensation practices reward executives commensurately with their
ability (1) to meet the Company's established financial targets and other goals,
through cash bonuses, and (2) to drive increases in shareholder value, through
stock options.
A central feature of the Company's compensation program is its emphasis
on objective performance incentives. The Company's practice has been to
establish annual financial performance targets and other goals at the outset of
each year with the Compensation Committee, and to pay bonuses based on
performance against these pre-established targets. In 2000, the Company expects
to establish base salaries and annual bonus targets for its executive officers
that are generally average in comparison to its peer companies. Achievement of
these objective annual financial targets and other goals, is expected to give
executives an opportunity to earn above average compensation, as compared to
peer companies, based on performance.
An additional aspect of the Company's compensation program is its use
of stock options. Through the use of stock based incentives, the Company
believes that an executive officer's interests will be aligned with the
long-term interests of its shareholders. Executive officers are, thereby, given
an incentive to not only meet their annual performance objectives, but also to
achieve longer term strategic goals.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The key components of the Company's compensation program for its
executive officers are (a) base salary, (b) annual cash bonus compensation, (c)
long-term incentive compensation in the form of stock options and (d) a 401(k)
plan and certain medical and miscellaneous fringe benefits. The Company
currently makes no contribution to the 401(k) plan.
BASE SALARY. The Chief Executive Officer makes annual recommendations
to the Compensation Committee regarding the base salaries for the executive
officers (other than the Chief Executive Officer). In making base salary
recommendations, the Chief Executive Officer takes into account individual
experience and performance, as well as specific issues particular to the
Company. The Compensation Committee generally approves the Chief Executive
Officer's base salary recommendations.
The Chief Executive Officer reviewed the base salary of each executive
officer in 1999. In determining the appropriate base salary for 2000, an
executive officer's base salary for the previous year and individual
performance, including performance in relation to performance targets for the
current fiscal year, were considered. The Company believes it has established
2000 base salaries for its executive officers that are consistent with its
compensation philosophy.
Effective October 29, 1999, Mr. Bullion, Chief Executive Officer,
entered into an employment agreement with the Company that provides for an
annual base salary of $180,000 in fiscal 2000 and $200,000 in fiscal 2001 and
2002. During 1997, Mr. Bullion voluntarily reduced his base salary from $175,000
to $110,000 on an annualized basis through October 1998 and from $175,000 to
$160,000 on an annualized basis from November 1998 through October, 1999.
5
<PAGE>
ANNUAL CASH BONUS COMPENSATION. For the year ended December 31, 1999,
the Compensation Committee awarded cash bonuses to all executive officers,
except the Chief Executive Officer and Chief Operating Officer, and to other
employees in recognition of achieving certain predetermined financial and
operational objectives. The Compensation Committee, in its discretion, may award
other cash bonuses to executive officers in future years.
For 2000, Patti Engel, Vice President of Sales and Marketing and Dayton
Reardan, Vice President of Regulatory Affairs, have been given specified bonus
targets, which could result in cash bonus compensation equal to approximately
30% of base salary. The Company believes it has established 2000 cash bonus
incentive arrangements for Ms. Engel and Dr. Reardan that are consistent with
its compensation philosophy. For the year 1999, Ms. Engel was awarded a cash
bonus under an incentive plan of $26,850 out of a potential $50,000 award.
A cash bonus incentive arrangement for Dr. William Houghton, Chief
Operating Officer, Mr. Bullion and Timothy McGrath, Vice President and Chief
Financial Officer, has not been established for 2000. The Compensation Committee
intends to set goals for Dr. Houghton and Mr. Bullion based in part upon the
achievement of Company wide financial objectives and in part upon individualized
performance criteria, which are consistent with the Company's compensation
philosophy.
LONG TERM INCENTIVE PROGRAM. Stock options are granted to key
management employees under the Company's 1994 Stock Option Plan (the "Option
Plan"). The purpose of the Option Plan is to aid in maintaining and developing
personnel capable of assuring the future success of the Company, to offer such
personnel additional incentives to put forth maximum efforts for the success of
the business, and to afford them an opportunity to acquire a proprietary
interest in the Company through stock options. The Option Plan authorizes the
Compensation Committee to grant stock options to executives and other key
employees. All stock options outstanding were granted at an option price equal
to the fair market value of the Company's Common Stock on the date of grant and
generally vest and become exercisable in installments over a four-year period.
Options granted under the Option Plan are issued to participants with terms of
up to ten years for incentive stock options or up to 15 years for nonqualified
stock options.
Stock options are granted upon commencement of employment after
considering the recommendation of the Chief Executive Officer. In determining
whether to recommend additional option grants to an executive officer and other
employees, the Chief Executive Officer and the Compensation Committee typically
consider the individual's performance and any planned change in functional
responsibility. The stock option position of executive officers and other
employees are reviewed on an annual basis. The Company's policy is to not grant
stock options annually, but to review each individual's stock option position,
at which point the Compensation Committee may or may not grant additional
options in its discretion. The determination of whether or not additional
options will be granted is based on a number of factors, including Company
performance, individual performance and levels of options granted by other
comparable companies.
In 1999, the following options were granted: Mr. Bullion was granted an
option to purchase 65,000 shares at $6.50; Dr. Houghton was granted an option to
purchase 36,000 shares at $5.50; Dr. Reardon was granted an option to purchase
7,000 shares at $5.50; Ms. Engel was granted an option to purchase 15,000 shares
at $7.250 and an option to purchase 2,920 shares at $5.500; Mr. McGrath was
granted an option to purchase 40,000 shares at $6.8750 and an option to purchase
1,475 shares at $5.50. Additional stock option awards, if any, to Dr. Houghton
or Mr. Bullion will be determined in a manner consistent with the Company's
compensation philosophy.
SAVINGS AND INVESTMENT PLAN AND OTHER BENEFITS. The Company maintains a
401(k) Savings Plan (the "Savings Plan"), which is funded by elective salary
deferrals by employees. The Savings Plan covers executive officers and
substantially all employees meeting minimum eligibility requirements. The
Savings Plan does not require mandatory contributions by the Company, but
discretionary contributions may be made at the election of the Company. Through
December 31, 1999, the Company had not made any discretionary contributions to
the Savings Plan. In addition, the Company provides medical and other
6
<PAGE>
miscellaneous benefits to executive officers that are generally available to
Company employees. The amount of perquisites did not exceed 10% of total annual
salary and bonus for any executive officer for the fiscal year ended December
31, 1999.
CHIEF EXECUTIVE OFFICER COMPENSATION
BASE SALARY AND ANNUAL BONUS COMPENSATION. Mr. Bullion's annual base
salary and bonus compensation are set by the Compensation Committee of the Board
using the same policies and criteria used for other executive officers. For the
year ended December 31, 1999, the Compensation Committee did not award Mr.
Bullion a bonus. However, the Compensation Committee approved the payment of
$16,000 in 1998 and $1,875 in 1999 to Mr. Bullion as repayment of voluntary
salary reductions.
STOCK OPTION AWARDS. Mr. Bullion has options to purchase up to 350,000
shares of Common Stock at $5.00 per share under the Stock Plan. One option is
for 200,000 shares of Common Stock, all of which have vested as of December 31,
1999. The second option is for 150,000 shares of Common Stock, all of which have
vested as of December 31, 1999. Mr. Bullion has received additional options
granted pursuant to his execution of an Employment Agreement in October, 1999.
One option is for 25,000 shares that vested immediately at $6.50. The second
option is for 25,000 shares at $6.50 that vested 20% immediately and 20% on each
anniversary date thereafter. The third option is for 15,000 shares, with 5,000
shares exercisable December 31, 2000 and 10,000 shares exercisable December 31,
2001, all at $6.50.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the corporate deduction for compensation paid to
executive officers to $1,000,000, unless the compensation qualifies as
"performance based compensation" under the Code. This limitation should not
affect the deductibility of compensation paid to the Company's executive
officers for the foreseeable future. The Stock Plan complies with Section 162(m)
in order that compensation resulting from stock options under the Stock Plan
will not be counted toward the $1,000,000 limit on deductible compensation under
Section 162(m). The Committee has not formulated any policy with respect to
qualifying other types of compensation for deductibility under Section 162(m).
Michael Greene
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.)
William M. Wardell, M.D., Ph.D.
Members of the Compensation Committee
7
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for
the three (3) fiscal years ended December 31, 1999 earned by the Chief Executive
Officer and all other executive officers of the Company.
<TABLE>
<CAPTION>
Long-Term
Compensation
Compensation Awards
--------------------- ------------
Securities All Other
Period Base Underlying Compensation($)
Name and Principal Position Ended Salary($) Bonus($) Options # (3)
- ------------------------------------ -------- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
John Howell Bullion 12/31/99 175,000 1,875 65,000 264
Chairman of the Board, Chief 12/31/98 118,333 16,000 -- --
Executive Officer and Secretary 12/31/97 136,250 24,000 -- --
William Houghton, M.D. (1) 12/31/99 200,000 -- 36,000 2,260(4)
Chief Operating Officer 12/31/98 71,212 -- 100,000 --
12/31/97 -- -- -- --
Dayton T. Reardan, Ph.D. 12/31/99 146,667 -- 7,000 155
Vice President of 12/31/98 124,087 35,000 -- --
Regulatory Affairs 12/31/97 111,986 3,500 38,000 --
Patti A. Engel 12/31/99 111,344 45,704 17,920 118
Vice President of Sales and 12/31/98 111,300 68,943 -- --
Marketing 12/31/97 106,599 3,500 23,000 --
Timothy G. McGrath (2) 12/31/99 33,750 68,943 41,475 15
Vice President and Chief 12/31/98 -- -- -- --
Financial Officer 12/31/97 -- -- -- --
</TABLE>
(1) Dr. Houghton was hired as the Company's Chief Operating Officer in
August 1998.
(2) Mr. McGrath was hired as the Company's Vice President and Chief
Financial Officer effective October 1, 1999. From April 1999 through
September 1999, the Company retained Mr. McGrath as a consultant and
paid him $38,175 in consulting fees during 1999.
(3) Except as indicated below, amounts paid for group term life insurance
paid by the Company for each executive.
(4) Consists of $708 group term life insurance and $1,552 travel expenses
paid by the Company.
8
<PAGE>
EMPLOYMENT AGREEMENTS
An employment agreement between the Company and John Howell Bullion was
executed on October 29, 1999. The agreement commenced on October 20, 1999 and is
to continue thereafter for a period of three years, and will automatically renew
for successive two-year terms, unless terminated by either party in accordance
with the terms of the agreement. Mr. Bullion's employment agreement provides for
an annual base salary of $180,000 for the calendar year 2000 and $200,000 for
the calendar year 2001 and 2002. In addition, Mr. Bullion's employment agreement
provides that if he is terminated by the Company for any reason other than by
the parties' mutual agreement, his death, his total disability or his breach of
any term of the employment agreement, then he will receive up to one years
salary, a bonus equal to the minimum bonus which would be payable for the fiscal
year in which he was terminated and certain other benefits specified in the
employment agreement. None of the Company's other executive officers have
employment agreements.
CHANGE IN CONTROL
The Company has entered into agreements with its officers providing for
the payment of certain benefits to the officers if their employment terminates
following a "change in control" of the Company. The agreements provide for
benefits if an officer's employment is terminated within the twelve months
following a change in control if the officer was terminated without cause,
required to relocate or accept less pay or less responsibility. The Formula and
payout for the change in control agreement is the highest annual salary and
incentive payment within the last two years divided by twelve multiplied by the
following number of months for the appropriate officer's responsibility: Dr.
Houghton, 18 months; Mr. McGrath, 12 months; Ms. Engel, 12 months; and Dr.
Reardan, 12 months.
9
<PAGE>
STOCK OPTIONS
OPTION GRANTS DURING TWELVE MONTHS ENDED DECEMBER 31, 1999
The following table contains information concerning grants of stock
options to the executive officers named in the Summary Compensation Table above
during 1999.
1999 OPTION GRANTS
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term (1)
------------------------------------------------------- -----------------------------
% of Total
Options
Granted to
Number of Employees Exercise or
Options Year Ended Base Price Expiration
Name Granted 12/31/99 ($/Share) Date 5%($) 10%($)
- ------------------------ --------- ---------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John Howell Bullion 65,000 28.98% $6.5000 10/29/09 265,708 673,356
William Houghton, M.D. 36,000 16.05% $5.5000 12/16/09 124,521 315,561
Dayton T. Reardan, Ph.D. 7,000 3.12% $5.5000 12/16/09 24,212 61,359
Patti A. Engel 15,000 $7.2500 03/03/09 68,392 173,319
2,920 $5.5000 12/16/09 10,100 25,596
------
17,920 7.99%
Timothy G. McGrath 40,000 $6.8750 10/20/09 172,946 438,279
1,475 $5.5000 12/16/09 5,102 12,929
------
41,475 18.49%
</TABLE>
(1) Potential realizable value is based on an assumption that the market
price for the Company's Common Stock appreciates at the stated rate,
compounded annually, from the date of grant until the expiration date
of the option. These values are calculated based on regulations
promulgated by the Securities and Exchange Commission and do not
reflect the Company's estimate of future stock price appreciation.
There is no assurance that the actual stock price over the term of the
option will appreciate at the assumed 5% or 10% levels, or at any
other defined level.
AGGREGATED OPTION EXERCISES FOR THE YEAR ENDED DECEMBER 31, 1999 AND
VALUE OF OPTIONS HELD AT DECEMBER 31, 1999
The following tables summarizes stock option exercises in 1999 by the
executive officers named in the Summary Compensation Table above, and the value
of options held by such persons at December 31, 1999.
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-the-Money Options
Unexercised Options Held at
Shares Held at December 31, December 31, 1999
Acquired on Value 1999 (Exercisable/ (Exercisable/
Name Exercise Realized($) Unexercisable) Unexercisable)($)(1)
- ------------------------ ----------- ----------- -------------------- ---------------------
<S> <C> <C> <C> <C>
John Howell Bullion -0- -0- 380,000/35,000 65,625/-0-
William Houghton, M.D. -0- -0- 49,000/87,000 -0-/-0-
Dayton T. Reardan, Ph.D. -0- -0- 68,200/13,800 6,938/-0-
Patti A. Engel -0- -0- 52,120/25,800 6,938/-0-
Timothy G. McGrath -0- -0- 9,475/32,000 -0-/-0-
</TABLE>
(1) "Value" is based upon the difference between the per share option
exercise price and the market value of the Common Stock at the date of
exercise or the December 31, 1999 last sale price of $5.1875.
10
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the quarterly dollar change in the cumulative
total shareholder return on the Company's Common Stock with the cumulative total
return on the NASDAQ Total Return Index (U.S. Companies) and the NASDAQ
Pharmaceutical Stock Index for the period beginning on December 31, 1994 and
ending on December 31, 1999. The graph and table assume the investment of $100
on December 31, 1994, in the Company's Common Stock, the NASDAQ Total Return
Index and the NASDAQ Pharmaceutical Stock Index.
[PLOT POINTS CHART]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
NASDAQ Stock Market NASDAQ Pharmaceutical
Annual Period Orphan Medical, Inc. Total Return Index Total Return Index
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 1994 100.00 100.00 100.00
December 1995 140.54 141.33 183.41
December 1996 210.81 173.89 183.98
December 1997 104.06 213.07 189.98
December 1998 167.57 300.25 241.68
December 1999 112.16 542.43 451.62
- -------------------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table on the following page sets forth, as of March 24, 2000,
certain information with respect to the beneficial ownership of the Company's
Common Stock by (i) each person who, to the knowledge of the Company, owned
beneficially more than five percent of such stock, (ii) each director, (iii)
each executive officer named in the "Summary Compensation Table" above, and (iv)
all directors and executive
11
<PAGE>
officers as a group. Unless otherwise noted, the shares listed in the table
below are subject to sole voting and investment power of the indicated person.
Beneficial ownership is determined and presented in the table on the
following page in accordance with rules of the Securities and Exchange
Commission, and includes general voting power and/or investment power with
respect to the securities. Shares of the Company's Common Stock subject to
options currently exercisable or exercisable within 60 days of March 24, 2000,
are deemed to be outstanding for purposes of computing the percentage of the
person holding such options, but are not deemed outstanding for computing the
percentage of any other person. With respect to UBS Capital II LLC, the
percentage of ownership calculation is based on Common Shares outstanding as of
March 24, 2000, plus 1,031,081 shares of Common Stock, which represents 8,393
shares of Senior Convertible Preferred Stock owned by UBS Capital II LLC on an
as converted basis.
<TABLE>
<CAPTION>
Name Number Percentage
- ----------------------------------------------------------------- ----------- ------------
<S> <C> <C>
John Howell Bullion (1) 471,312 5.46%
William Houghton M.D. (2) 50,670 *
Dayton T. Reardan, Ph.D. (3) 77,910 *
Patti A. Engel (4) 57,120 *
Timothy G. McGrath (5) 11,225 *
Lawrence C. Weaver, Ph.D., D.Sc. (Hon.) (6) 50,340 *
W. Leigh Thompson, Ph.D., M.D. (7) 37,500 *
William M. Wardell, M.D., Ph.D. (8) 40,500 *
Michael Greene (9) 10,000 *
Julius A. Vida, Ph.D. (10) 10,000 *
UBS Capital II LLC (11) 1,501,850 15.40%
OrbiMed Advisors Inc. (12) 1,265,000 15.34%
All directors and executive officers as a group (10 persons) (13) 816,577 9.14%
</TABLE>
* Less than 1 percent.
(1) Includes 350,000 and 30,000 shares issuable upon the exercise of
options that are currently exercisable or will become exercisable at a
price of $5.00 and $6.50 per share, respectively.
(2) Includes 40,000 and 9,000 shares issuable upon the exercise of options
that are currently exercisable or will become exercisable at a price
of $7.8125 and $5.50 per share, respectively.
(3) Includes 37,000, 15,000, 9,200 and 7,000 shares issuable upon the
exercise of options that are currently exercisable or will become
exercisable at a price of $5.00, $5.375, $6.125 and $5.50 per share,
respectively.
(4) Includes 37,000, 9,200, 3,000 and 2,920 shares issuable upon the
exercise of options that are currently exercisable or will become
exercisable at a price of $5.00, $6.125, $7.25 and $5.50 per share,
respectively.
(5) Includes 8,000 and 1,475 shares issuable upon the exercise of options
that are currently exercisable or will become exercisable at a price
of $6.875 and $5.50 per share, respectively.
(6) Includes 35,000 shares issuable upon the exercise of options that are
currently exercisable or will become exercisable at a price of $5.00
per share.
(7) Includes 25,000, 7,500 and 5,000 shares issuable upon the exercise of
options that are currently exercisable or will become exercisable at a
price of $7.63, $6.125 and $5.50 per share, respectively.
(8) Includes 25,000, 9,000 and 5,000 shares issuable upon the exercise of
options that are currently exercisable or will become exercisable at a
price of $7.63, $6.125 and $5.50 per share, respectively.
(9) Includes 10,000 shares issuable upon the exercise of options that are
currently exercisable or will become exercisable at a price of $7.8125
per share.
(10) Includes 10,000 shares issuable upon the exercise of options that are
currently exercisable or will become exercisable at a price of $6.625
per share.
(11) UBS Capital II LLC has sole voting power with respect to 8,393 shares
of Senior Convertible Preferred Stock, which is convertible into
1,031,081 shares of Common Stock. UBS Capital II LLC has voting rights
with respect to the Common Stock on an "as converted" basis.
(12) OrbiMed Advisors Inc. has shared voting and investment power with
respect to 1,265,000 shares of the Company's Common Stock. The number
of shares beneficially owned is based on a Schedule 13G filed by
OrbiMed Advisors on March 24, 2000.
(13) Includes 690,295 shares that may be acquired within 60 days of March
24, 2000 through the exercise of options by all executive officers and
directors as a group.
12
<PAGE>
CERTAIN TRANSACTIONS
John Howell Bullion, Chief Executive Officer and a director of the
Company, is also a director of Chronimed. The Company was spun off by Chronimed
in 1994 as a stock dividend to the then shareholders of Chronimed.
SECTION 16(a) REPORTING
Under federal securities laws, the Company's directors and officers,
and any beneficial owner of more than 10% of a class of equity securities of the
Company, are required to report their ownership of the Company's equity
securities and any changes in such ownership to the Securities and Exchange
Commission (the "Commission"). Specific due dates for these reports have been
established by the Commission, and the Company is required to disclose in this
Proxy Statement any delinquent filing of such reports and any failure to file
such reports during 1999. Based solely on a review of the copies of such Section
16(a) reports filed by the directors, executive officers and more than 10%
shareholders, the Company believes that all Section 16(a) filing requirements
applicable to these individuals and shareholders were complied with.
PROPOSAL 2: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as independent
public accountants for the Company for the fiscal year ending December 31, 2000.
A proposal to ratify the appointment of Ernst & Young LLP will be presented at
the Annual Meeting. Ernst & Young LLP has audited the Company's financial
statements for the fiscal year ended December 31, 1999, and for all prior years.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they desire to do so
and will be available to answer appropriate questions from shareholders. If the
appointment of Ernst & Young LLP is not ratified by the shareholders, the Board
of Directors is not obligated to appoint other independent public accountants,
but the Board of Directors will give consideration to such unfavorable vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
SOLICITATION OF PROXIES
All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the material enclosed herewith will be paid by the Company.
The Company may reimburse banks, brokerage firms, and other custodians, nominees
and fiduciaries for reasonable expenses incurred by them in sending proxy
materials to beneficial owners of the Company's Common Stock. Although proxies
are being solicited primarily by mail, officers and regular employees of the
Company who will receive no extra compensation for their services, may solicit
such proxies by telephone, telegraph, facsimile transmission or in person.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a shareholder to be presented at the 2001 Annual
Meeting must be received at the Company's executive offices, 13911 Ridgedale
Drive, Suite 250, Minnetonka, Minnesota 55305 not later than December 5, 2000.
In addition, the form of Proxy issued with next year's Proxy Statement will
confer discretionary authority to vote for or against any proposal made by a
shareholder at the 2001 Annual Meeting of Shareholders and which is not included
in next year's Proxy Statement. However, under the rules of the Securities and
Exchange Commission, such discretionary authority may not be exercised if the
shareholder proponent has given the Secretary of the Company notice of such
proposal prior to March 1, 2001, and certain other conditions provided for in
the Commission's rules have been satisfied.
13
<PAGE>
ORPHAN MEDICAL, INC.
ANNUAL MEETING OF SHAREHOLDERS
JUNE 6, 2000
3:30 P.M.
HILTON MINNEAPOLIS/ST. PAUL AIRPORT HOTEL
3800 EAST 80TH STREET
MINNEAPOLIS, MN 55425
[LOGO] ORPHAN 13911 RIDGEDALE DRIVE, SUITE 250
MEDICAL MINNETONKA, MN 55305 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, having duly received the Notice of Annual Meeting of
Shareholders and Proxy Statement dated April 14, 2000, revoking all prior
proxies, hereby appoints John Howell Bullion with full power to vote all shares
the undersigned is entitled to vote at the Annual Meeting of Shareholders of
Orphan Medical, Inc. (the "Company") to be held on June 6, 2000, and at all
adjournments thereof, as specified on the reverse side on each matter referred
to, and, in their discretion, upon any other matters which may be brought before
the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
[ARROW] PLEASE DETACH HERE [ARROW]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
<TABLE>
<S> <C>
1. Election of 01 John Howell Bullion 04 Lawrence C. Weaver, Ph.D., D.Sc. (Hon.) [ ] Vote FOR [ ] Vote WITHHELD
directors: 02 Michael Greene 05 William M. Wardell, M.D., Ph.D. all nominees from all nominees
03 Julius A. Vida, Ph.D. 06 W. Leigh Thompson, Ph.D., M.D. (except as marked)
_________________________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, | |
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) |_________________________________________|
2. Proposal to ratify the appointment of Ernst & Young LLP as independent
public accountants for the fiscal year ended December 31, 2000. [ ] For [ ] Against [ ] Abstain
3. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR NAMED IN ITEM 1, FOR ITEM 2, AND
IN THE DISCRETION OF THE NAMED PROXIES ON ALL OTHER MATTERS.
Address Change? Mark Box [ ] Indicate changes below: Date ______________________________
_________________________________________
| |
| |
|_________________________________________|
Signature(s) in Box
Please sign exactly as name appears at left.
When shares are held by joint tenants, both
must sign. When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name
by an authorized person.
</TABLE>
