SCHEDULE
14A
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 o
| Check the appropriate box: | ||
| o | Preliminary Proxy Statement | |
| o | Confidential, for Use of the | |
| Commission Only (as permitted | ||
| by Rule 14a-6(e)(2)) | ||
| x | Definitive Proxy Statement | |
| o | Definitive Additional Materials | |
| o | Soliciting Material Pursuant to § 240.14a-12 |
DISCOVERY
LABORATORIES, INC.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant): not
applicable
Payment
of Filing Fee (Check the appropriate box):
x No fee required.
o Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
|
(1) |
Title
of each class of securities to which transaction applies: not
applicable |
|
(2) |
Aggregate
number of securities to which transaction applies: not
applicable |
|
(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): not
applicable |
|
(4) |
Proposed
maximum aggregate value of transaction: not
applicable |
| (5) | Total fee paid: not applicable |
o Fee paid previously with preliminary
materials.
o 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: not
applicable
(2) Form,
Schedule or Registration Statement No.: not
applicable
(3)
Filing Party: not
applicable
(4) Date
Filed: not
applicable
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976
(215)
488-9300
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To be
held on May 13, 2005
To the
Stockholders of Discovery Laboratories, Inc.:
The
Annual Meeting of Stockholders of Discovery Laboratories, Inc., a Delaware
corporation (the “Company”), will be held on May 13, 2005, at 9:00 a.m. Eastern
Daylight Time at the James A. Michener Art Museum located at 138 South Pine
Street, Doylestown, Pennsylvania, 18901 for the following purposes:
|
I. |
To
elect six members to the Board of Directors to serve for the ensuing year
and until their respective successors have been duly elected and
qualified; |
| II. |
To
act upon the selection of Ernst & Young LLP as the Company’s
independent auditors for the fiscal year ending December 31,
2005; |
| III. |
To
consider and approve an amendment to the Company’s Amended and Restated
1998 Stock Incentive Plan to increase the number of shares of the
Company’s common stock, par value $.001 per share (the “Common Stock”),
available for issuance under such Plan by 3 million shares;
|
| IV. | To consider and approve an amendment to the Company’s Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of Common Stock available for issuance by the Company from 80 million to 180 million; and |
| V. |
To
transact such other business as may properly come before the meeting and
any adjournments or postponements thereof. |
Only stockholders of record of the Common Stock at the close of business on March 16, 2005, are entitled to notice of, and to vote at, the meeting and any adjournment or postponements thereof. A complete list of those stockholders will be open to examination by any stockholder, for any purpose germane to the meeting, during ordinary business hours at the Company’s executive offices at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania 18976 for a period of 10 days prior to the meeting. The stock transfer books of the Company will not be closed.
The vote
of each stockholder is important. Whether or not you expect to attend the Annual
Meeting, please complete, date and sign the enclosed proxy card and mail it
promptly in the enclosed envelope in order to assure representation of your
shares of Common Stock at the Annual Meeting. If you do attend the Annual
Meeting you may revoke your proxy and vote by ballot at that time.
| By Order of the Board of Directors | ||
 |
||
| David L. Lopez, Esq., CPA | ||
| Corporate Secretary | ||
| Warrington, Pennsylvania | ||
| April 12, 2005 |
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976
(215)
488-9300
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
May
13, 2005
Proxies
in the form enclosed with this Proxy Statement are solicited by the Board of
Directors of Discovery Laboratories, Inc., a Delaware corporation (“Discovery”
or the “Company”), with its principal executive offices at 2600 Kelly Road,
Suite 100, Warrington PA 18976, for use at the Annual Meeting of Stockholders
and any adjournment thereof (the “Annual Meeting”) to be held on Friday, May 13,
2005, at 9:00 a.m. Eastern Daylight Time at the James A. Michener Art Museum
located at 138 South Pine Street, Doylestown, Pennsylvania, 18901. It is
expected that this Proxy Statement and the form of proxy will be mailed to
stockholders on or about April 12, 2005.
Only
holders of record, as of March 16, 2005 (the “Record Date”), of shares of common
stock, par value $.001 per share (the “Common Stock”), of the Company will be
entitled to vote at the Annual Meeting and any adjournments or postponements
thereof. As of the Record Date, there were 53,511,946 shares of Common Stock
outstanding. Each share of Common Stock outstanding as of the Record Date will
be entitled to one vote.
Stockholders
may vote at the Annual Meeting in person or by proxy. Execution of a proxy will
not in any way affect a stockholder’s right to attend the Annual Meeting and
vote in person. Any stockholder giving a proxy has the right to revoke it by
written notice to the Secretary of the Company at any time before it is
exercised, by executing a proxy with a later date, or by attending and voting at
the Annual Meeting. All properly executed proxies that are returned in time to
be counted at the Annual Meeting will be voted as stated herewith in “Voting
Procedures.” Any stockholder giving a proxy has the right to withhold authority
to vote for any individual nominee to the Board of Directors by striking through
that nominee’s name on the proxy. In addition to the election of directors, the
stockholders will consider and vote upon proposals approving the selection of
the Company’s independent auditors, amending the Company’s Amended and Restated
1998 Stock Incentive Plan, as amended (the “1998 Plan”), to increase the number
of shares of Common Stock available for issuance under the 1998 Plan by 3
million shares, amending the Company’s Restated Certificate of Incorporation, as
amended, to increase the number of authorized shares of Common Stock available
for issuance by the Company from 80 million to 180 million, and to transact such
other business as may properly come before the meeting and any adjournments or
postponements thereof. Where a choice has been specified on the proxy with
respect to the foregoing matters, the shares represented by the proxy will be
voted in accordance with the specifications. If no specification is indicated,
the shares represented by the proxy will be voted FOR a respective
matter.
The Board
of Directors knows of no other matters to be presented at the Annual Meeting. If
any other matter should be presented at the Annual Meeting upon which a vote
properly may be taken, shares represented by all proxies received by the Board
of Directors will be voted with respect thereto in accordance with the judgment
of the persons named as proxies in the form of proxy.
PROPOSAL
I
ELECTION
OF DIRECTORS
At the
Annual Meeting, six directors will be elected by the stockholders to hold office
until the next annual meeting of stockholders and until their successors have
been elected and qualified. Management recommends that the persons named below
be elected as directors of the Company and it is intended that the accompanying
proxy will be voted for their election as directors, unless the proxy contains
contrary instructions. Shares of Common Stock represented by all proxies
received by the Board of Directors and not so marked as to withhold authority to
vote for any individual nominee or for all nominees will be voted (unless one or
more nominees are unable to serve) for the election of the nominees named below.
The Board of Directors knows of no reason why any such nominee should be unable
or unwilling to serve, but if such should be the case, proxies will be voted for
the election of some other person or the size of the Board of Directors will be
fixed at a lower number. The persons nominated for election to the Company’s
Board of Directors are: W. Thomas Amick; Robert J. Capetola, Ph.D.; Antonio
Esteve, Ph.D.; Max E. Link, Ph.D.; Herbert H. McDade, Jr.; and Marvin E.
Rosenthale, Ph.D. Each of the nominees currently serves as a director of the
Company. A plurality of the votes cast by the stockholders present or
represented by proxy and entitled to vote at the Annual Meeting is required for
the election of directors. See “Voting Procedures.”
General
Information Concerning the Board of Directors and its
Committees
The
operation of the Board of Directors is a dynamic process and the Board of
Directors regularly reviews changing legal and regulatory requirements for the
purpose of evolving best practices. Presently, a majority of the members of the
Board of Directors are independent. The Board of Directors appoints all members
of the Board committees. The Board of Directors has an Audit Committee, a
Compensation Committee and a Nominating Committee. The Board has affirmatively
determined that each director who serves on these committees is independent, as
the term is defined by applicable listing standards of the National Association
of Securities Dealers, Inc. (“NASD”) and Securities and Exchange Commission
(“SEC”) rules.
The Board
of Directors met five times in person and six times telephonically during the
fiscal year ended December 31, 2004. Except for W. Thomas Amick, who has
attended, either in person or by telephone, every meeting of the Board of
Directors since he became a member of the Board in September 2004, each
incumbent director attended, in person or by telephone, at least 90% of the
meetings of the Board of Directors and committees of the Board of Directors on
which he served during such fiscal year. The Company does not have a formal
policy regarding director attendance at the 2005 Annual Meeting, however, it is
expected, absent good reason, that all directors will be in
attendance.
Audit
Committee. The
Audit Committee of the Board of Directors currently consists of Herbert H.
McDade, Jr., Max E. Link, Ph.D., and Marvin E. Rosenthale, Ph.D. Primary
functions include:
| · |
overseeing
the Company’s financial statements, system of internal controls, auditing,
accounting and financial reporting
processes |
| · |
appointing,
compensating, evaluating and, when appropriate, replacing independent
auditors |
| · |
overseeing
the Company’s tax compliance |
| · |
reviewing
with management and the Company’s independent auditors the annual audit
plan |
| · |
reviewing
the Audit Committee charter |
| · |
reviewing
and pre-approving audit and permissible non-audit
services |
| · |
reviewing
and approving all related-party
transactions |
The Audit
Committee is also responsible for addressing matters of accounting policy with
the Company’s independent accountants. In discharging its role, the Audit
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities and personnel of the Company. The
Audit Committee also has the power to retain legal, accounting and other
advisors, as it deems necessary to carry out its duties.
The Board
of Directors has adopted a written Audit Committee charter. The composition of
the Audit Committee, the attributes of its members and its responsibilities, as
reflected in its charter, are intended to be in accordance with applicable
requirements of the NASD and the SEC for corporate audit committees. The Audit
Committee reviews and assesses the adequacy of its charter on an annual basis. A
copy of the Audit Committee's charter is attached as Appendix I to these proxy
materials. All members of the Company’s Audit Committee are “independent,” as
independence is currently defined in Rule 4200(a)(15) of the listing standards
of the NASD and meet the NASD’s current financial sophistication requirements.
The Audit Committee met five times during 2004. See the “Report of the Audit
Committee,” below.
2
On July
15, 2003, the Board of Directors determined that in addition to being
“independent”, Max Link, Ph.D. is an “audit committee financial expert” and is
“financially sophisticated,” as such terms are defined under applicable SEC and
NASD rules.
Compensation
Committee. The
Compensation Committee currently consists of Herbert H. McDade, Jr., Max E.
Link, Ph.D., and Marvin E. Rosenthale, Ph.D. All members of the Compensation
Committee are “independent” as defined in the listing standards of the NASD.
Primary functions include:
| · |
evaluating
and overseeing primary strategies for employee and executive
development |
| · |
determining
compensation policies applicable to the Company’s executive
officers |
| · |
determining
the compensation of the Chief Executive
Officer |
| · |
overseeing
significant employee benefits programs, policies and plans relating to the
Company’s employees and executives |
| · |
overseeing
human resources programs, compensation, benefits and equity plan
matters |
The
Compensation Committee met formally one time during 2004, and otherwise its
respective responsibilities were assumed by the full Board of
Directors.
Nominating
Committee. The
Nominating Committee currently consists of Herbert H. McDade, Jr., Max E. Link,
Ph.D., and Marvin E. Rosenthale, Ph.D. Primary functions include:
| · |
overseeing
the composition, structure and evaluation of the Board and its
committees |
| · |
identifying
qualified candidates for election to the
Board |
| · |
establishing
procedures for director candidate nomination and
evaluation |
| · |
monitoring
and safeguarding the independence of the
Board |
The
Nominating Committee considers candidates for director nominees proposed by
directors, the Chief Executive Officer and stockholders. The Nominating
Committee may retain recruiting professionals to identify and evaluate
candidates for director nominees. The Nominating Committee has the authority to
designate the nominees for director at each annual meeting of the stockholders
of the Company, to fill vacancies on the Board of Directors occurring between
such annual meetings and to evaluate the performance of the executive officers.
All members of the Nominating Committee are “independent” as defined in the
listing standards of the NASD.
The
Nominating Committee strives to identify candidates who possess a mix of skills
and diverse perspectives (functional, cultural and geographic). Effort is made
to complement and supplement skills within the existing Board of Directors. In
selecting the nominees, the Nominating Committee assesses the independence,
character, relevant expertise and experience of candidates and endeavors to
collectively establish a number of areas of core competencies, including
business judgment, management, accounting and finance, industry knowledge,
leadership, strategic vision, knowledge of international markets and marketing.
The Board of Directors shall also seek some individuals who are widely
recognized as leaders in the fields of medicine or the biological sciences,
including those who have received prestigious awards and honors in their fields.
Additional criteria include a candidate’s personal and professional ethics,
integrity and values, as well as the willingness to devote sufficient time to
prepare for and attend meetings and participate effectively on the Board of
Directors.
On
September 10, 2004, at the Chief Executive Officer’s recommendation, the
Nominating Committee submitted for the Board of Directors’ approval the
nomination of Mr. Amick to the Company’s Board of Directors, and the Board
unanimously resolved that effective as of that date, Mr. Amick is appointed to
serve as a director until his successor is duly elected and qualified or as
otherwise provided in the Bylaws of the Company.
3
The
Nominating Committee met formally one time during 2004 and several times
informally to discuss possible candidates as nominees. The Company does not keep
records of the informal Nominating Committee meetings. The Nominating Committee
will consider any candidate submitted by stockholders in compliance with
applicable SEC rules and the By-Laws of the Company. The Nominating Committee
shall determine, in its sole discretion, whether such candidates meet the
Company’s qualifications for candidacy described above and in the charter of the
Nominating Committee. Stockholders should send suggestions for candidates,
accompanied by the candidate’s name, contact information, biographical material,
class or series and number of shares of capital stock of the Company owned
beneficially or of record by the person, and qualifications, to the Nominating
Committee, c/o the Secretary of the Company at its corporate headquarters
located at 2600 Kelly Road, Suite 100, Warrington, PA 18976. From time to time,
the Board may change the process through which stockholders may recommend
candidates to the Nominating Committee. Please refer to the Company’s website at
http://www.discoverylabs.com (this is not a hyperlink; you must visit this
website through an internet browser) for changes in this process.
The
charter of the Nominating Committee is attached to this proxy statement as
Appendix II and is also on our website at http://www.discoverylabs.com (this is
not a hyperlink; you must visit this website through an internet browser). Our
website and the information contained therein or connected thereto are not
incorporated into this Proxy Statement.
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics (the “Code”), designed
to guide directors and employees in recognizing and dealing with ethical issues
in support of the Company’s commitment to conducting its business in compliance
with all applicable laws and the highest ethical standards. Articles I-III and
VIII-XIII of the Code constitute the Company’s Code of Ethics for Senior
Financial Officers in accordance with Section 406 of the Sarbanes-Oxley Act of
2002. The Code applies to all directors, officers and employees of the Company.
The Code covers topics including, but not limited to, conflicts of interest,
confidentiality of information, fair dealing with customers, suppliers and
competitors and compliance with all applicable laws, rules and regulations
including, but not limited to, the rules and regulations of applicable
self-regulating organizations such as the NASD. In order to help foster an
environment of honesty and accountability, the Code provides mechanisms for
reporting good faith concerns or complaints on a confidential basis to the
Company.
A copy of
the Code is posted on the Company’s website at http://www.discoverylabs.com
(this is not a hyperlink; you must visit this website through an internet
browser) and can also be obtained, without charge, by request from the Secretary
of the Company at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania 18976.
Any amendments to, or waivers from, a provision of the Code that applies to the
Company’s directors and executive officers must be approved by the Board of
Directors. The Company will publicly disclose any such waivers or amendments
pursuant to the requirements of the SEC and the NASD. The Company’s website and
the information contained therein or connected thereto are not incorporated into
this Proxy Statement.
Report
of the Audit Committee(1)
In
fulfilling its oversight responsibilities, the Audit Committee reviewed the
audited financial statements in the Annual Report with the management of the
Company. This review included a discussion of the acceptability and quality of
the accounting principles, the reasonableness of significant judgments and the
clarity of disclosures in the financial statements.
The Audit
Committee reviewed and discussed the Company’s audited financial statements with
management and the independent auditors, who are responsible for expressing an
opinion on the conformity of such statements with generally accepted accounting
principles in the United States. The independent auditors denoted that their
representations addressed the matters required to be discussed with the
independent auditors by Statement on Auditing Standards No. 61, as amended,
“Communication with Audit Committees.” The review and discussion with management
included a dialogue of management’s assessment as to the effectiveness, not just
the acceptability, of the Company’s accounting principles, internal control over
financial reporting and such other matters as are required to be discussed with
the Audit Committee under generally accepted auditing standards. Pursuant to
such dialogue, management shall issue a statement reporting management’s
assessment of the Company’s internal control over financial reporting,
identifying the framework used by management in assessing the effectiveness of
such internal control. In addition, the Audit Committee has discussed with the
independent auditors the auditors’ independence in relation to management and
the Company, including matters outlined in the written disclosures and the
letter required by Independence Standards Board Standard No. 1, “Independence
Discussions with Audit Committees” and considered the compatibility of non-audit
services with the auditors’ independence.
4
The Audit
Committee discussed with the Company’s independent auditors the overall scope
and plans for their respective audits. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the Company’s internal
controls, and the overall quality and efficacy of the Company’s financial
reporting.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors (and the Board of Directors has approved)
that the audited consolidated financial statements be included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2004 for filing with
the SEC. The Audit Committee and the Board of Directors have also recommended
the selection of Ernst & Young, LLP as the Company’s independent auditors
for the fiscal year 2005.
Submitted
by the Audit Committee
Herbert
H. McDade, Jr.
Max E.
Link, Ph.D.
Marvin E.
Rosenthale, Ph.D.
| (1) |
The
material in this report of the Audit Committee is not “soliciting
material,” is not deemed “filed” with the SEC and is not to be
incorporated by reference in any filing of the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, whether
made before or after the date hereof and irrespective of any general
incorporation language in any such filing. |
Nominees
for Election to the Board of Directors
The names
of the nominees and certain information about such nominees are set forth below.
For information concerning the number of shares of Common Stock beneficially
owned by each nominee, see “Security Ownership of Directors, Officers and
Certain Beneficial Owners.”
|
Name |
Age |
Position
with the Company | ||
|
W.
Thomas Amick |
63 |
Director | ||
|
Robert
J. Capetola, Ph.D. |
55 |
Director,
Chief Executive Officer | ||
|
Antonio
Esteve, Ph.D. |
47 |
Director | ||
|
Max
E. Link, Ph.D. |
64 |
Director | ||
|
Herbert
H. McDade, Jr. |
77 |
Director,
Chairman of the Board of Directors | ||
|
Marvin
E. Rosenthale, Ph.D. |
71 |
Director |
W.
Thomas Amick has
served as a Director of the Company since September 2004. Before joining the
Company’s Board of Directors, Mr. Amick served as Vice President, Business
Development at Johnson & Johnson Development Corporation. In May 2000, he
was appointed President of Ortho Biotech Europe, a subsidiary of Johnson &
Johnson, and managed operations in Germany, France, Italy and the United
Kingdom. From 1999 until 2000, Mr. Amick advanced to the position of President
of Janssen-Ortho, Inc., a subsidiary of Johnson & Johnson. In this position,
he managed the entire Johnson & Johnson pharmaceutical and biotechnology
portfolio for Canada. Previously, he served as the Vice President of the
Oncology Franchise of Ortho Biotech, a subsidiary of Johnson & Johnson. Mr.
Amick fulfilled various other sales and executive positions throughout his
career. He holds a Bachelor of Arts degree in business administration from Elon
College and has attended graduate courses on executive management at the Kellogg
School of Management and Harvard Business School.
5
Robert
J. Capetola, Ph.D. has
served as President, Chief Executive Officer and a Director of the Company since
1998. From October 1996 to 1998, Dr. Capetola served as Chairman and Chief
Executive Officer of Acute Therapeutics, Inc. (“ATI”), which was a
majority-owned subsidiary of the Company. From February 1994 to May 1996, Dr.
Capetola was the President and served on the board of directors of Delta
Biotechnology, a subsidiary of Ohmeda Pharmaceutical Products Division, a
division of The BOC Group (“Ohmeda”). From December 1992 to September 1996, Dr.
Capetola served as Vice President of Research and Development at Ohmeda. He
served on Ohmeda’s operating board and was responsible for all aspects of
Ohmeda’s research and development, including preclinical research and
development, clinical development, biometrics and regulatory affairs. From 1977
to 1992, Dr. Capetola held a variety of positions at Johnson & Johnson
Pharmaceutical Research Institute, including Senior Worldwide Director of
Experimental Therapeutics. Dr. Capetola received his B.S. from the Philadelphia
College of Pharmacy & Science and his Ph.D. in pharmacology from Hahnemann
Medical College.
Antonio
Esteve, Ph.D. has
served as a Director of the Company since May 2002. Dr. Esteve has been with
Laboratorios del Dr. Esteve, S.A. (“Laboratorios Esteve”) since 1984 and is
currently a member of the Executive Committee of Laboratorios Esteve and
Director of Scientific and Commercial Operations. He currently serves as an
elected member of the Advisory Board for research and development of the Spanish
Ministry of Science and Technology. From 1998 to 2001 he served as Chairman of
the Advisory Committee on Trade and Economics of the International Federation of
Pharmaceutical Manufacturers Association (IFPMA). Since 1986, Dr. Esteve has
served as Professor at the Autonomous University of Barcelona, School of
Pharmacy. In 1982, Dr. Esteve was employed by McNeil Pharmaceutical where he
specialized in pharmaceutical marketing. Dr. Esteve holds a Ph.D. in
Pharmaceutical Science and a degree in Pharmacy from the University of
Barcelona, Faculty of Pharmacy.
Max
E. Link, Ph.D. has
served as a Director of the Company since October 1996. He also served as a
Director of ATI from October 1996 to 1998. Dr. Link has held a number of
executive positions with pharmaceutical and health care companies. He currently
serves on the board of directors of six other publicly-traded life science
companies: Alexion Pharmaceuticals, Inc., Celsion Corporation, Protein Design
Labs, Inc., Human Genome Sciences, Inc., Cell Therapeutics, Inc. and Access
Pharmaceuticals, Inc. From March 2001 until August 2003, Dr. Link served as
Chairman and Chief Executive Officer of Centerpulse, Ltd. From May 1993 until
June 1994, Dr. Link was Chief Executive Officer of Corange Limited, the parent
company of Boehringer Mannheim, now F. Hoffmann La Roche & CIE AG, and
DePuy, Inc. Prior to that time, he served in a number of positions within Sandoz
Pharma, Ltd., now Novartis Pharma, Ltd., including Chief Executive Officer from
1987 until April 1992, and Chairman from April 1992 until May 1993.
Herbert
H. McDade, Jr. has
served as a Director of the Company since June 1996 and as its Chairman since
June 2000. Mr. McDade is the Chairman of Access Pharmaceuticals, Inc., and until
January 5, 2003, was a member of the board of directors of one other
publicly-held company, CytRx Corporation. Mr. McDade was employed by the Upjohn
Company for 20 years, served for 14 years as President of Revlon Health Care
Pharmaceuticals and Revlon Health Care International, and served as Chairman and
President of Armour Pharmaceutical Company from 1986 to 1990.
Marvin
E. Rosenthale, Ph.D. has
served as a Director of the Company since 1998 and was a Director of ATI from
October 1996 to 1998. Dr. Rosenthale currently serves on the boards of directors
of a publicly-held company, AMDL, Inc., and several privately-held companies. He
was the President and Chief Executive Officer of Allergan Ligand Retinoid
Therapeutics, Inc., from 1994 until 1997 and served as Vice President in 1993.
From 1990 to 1993, Dr. Rosenthale served as Vice President, Drug Discovery
Worldwide, at R.W. Johnson Pharmaceutical Research Institute. From 1977 to 1990,
Dr. Rosenthale served in a variety of positions in drug discovery research for
Ortho Pharmaceutical, including director of the divisions of pharmacology and
biological research and executive director of drug discovery research. From 1960
to 1977, he served in various positions with Wyeth Laboratories. Dr. Rosenthale
received a Ph.D. in pharmacology from Hahnemann Medical College, an M.Sc. in
pharmacology from Philadelphia College of Pharmacy & Science and a B.Sc. in
pharmacy from the Philadelphia College of Pharmacy & Science.
The
Board of Directors recommends a vote “FOR” the nominees to the Board of
Directors set forth above.
6
PROPOSAL
II
ACTION
REGARDING THE SELECTION OF INDEPENDENT AUDITORS
The Board
of Directors, acting upon the recommendation of the Audit Committee, has
reappointed the firm of Ernst & Young LLP as the Company’s independent
auditors for the fiscal year ending December 31, 2005.
Although
action by the stockholders in this matter is not required under the General
Corporation Law of the State of Delaware, the Board of Directors believes that
it is appropriate to seek stockholder action regarding this appointment in light
of the critical role played by independent auditors in maintaining the integrity
of the Company’s financial controls and reporting. If the stockholders fail to
ratify the appointment, the Audit Committee and the Board of Directors will
reconsider whether or not to retain that firm. Even if the appointment is
ratified, the Audit Committee may engage different independent auditors at any
time during the year if it determines that such a change would be in the best
interests of the Company and its stockholders.
Audit
and Non-Audit Fees
The
following table presents fees for professional audit services rendered by Ernst
and Young LLP for the audit of the Company’s annual consolidated financial
statements for the fiscal years ended December 31, 2004 and December 31, 2003,
and fees for other services rendered by Ernst and Young, LLP during those
periods:
|
Fee
Category: |
Fiscal
2004 |
%
of Total |
Fiscal
2003 |
%
of Total |
|||||||||
|
Audit
Fees |
$ |
246,000 |
90% |
|
$ |
135,000 |
82% |
| |||||
|
Audit-Related
Fees |
— |
0% |
|
— |
0% |
| |||||||
|
Tax
Fees: |
|||||||||||||
|
Tax
compliance/preparation |
19,000
|
7% |
|
17,000
|
10% |
| |||||||
|
Other
tax services |
7,000
|
3% |
|
12,000
|
7% |
| |||||||
|
Total
Tax Fees |
26,000
|
10% |
|
29,000
|
18% |
| |||||||
|
All
Other Fees |
— |
0% |
|
— |
0% |
| |||||||
|
Total
Fees |
$ |
274,000 |
100% |
|
$ |
164,000 |
100% |
| |||||
Audit
fees related to services rendered in connection with the annual audit of the
Company’s consolidated financial statements, the quarterly reviews of the
consolidated financial statements included in the Company’s quarterly reports on
Form 10-Q and the reviews of the other services related to registration
statements and other offering memoranda. All of the work was performed by
full-time, permanent employees of Ernst and Young, LLP.
Audit-related
fees consisted primarily of fees for audits of the financial statements of one
of the Company’s employee benefit plans and consultations on proposed
transactions.
Tax fees
consisted of tax compliance/preparation and other tax services. No portion of
these fees related to financial information or operational system design or
implementation services.
All of
the 2004 services described above were approved by the Audit Committee pursuant
to the SEC rule that requires audit committee pre-approval of audit and
non-audit services provided by the Company’s independent auditors, to the extent
that rule was applicable during fiscal year 2004.
On an
ongoing basis, management communicates specific projects and categories of
services for which advance approval of the Audit Committee is required. The
Audit Committee reviews these requests and advises management and the
independent auditors if the Audit Committee pre-approves the engagement of the
independent auditors for such projects and services. On a periodic basis,
management reports to the Audit Committee the actual spending for such projects
and services compared to the approved amounts. The Audit Committee may delegate
the ability to pre-approve audit and permitted non-audit services to a
sub-committee of the Audit Committee, provided that any such pre-approvals are
reported at the next Audit Committee meeting.
7
The Audit
Committee has considered whether the provision of all other services by Ernst
and Young, LLP is compatible with maintaining the independence of Ernst and
Young, LLP and has concluded that Ernst and Young, LLP is
independent.
Representatives
of Ernst and Young, LLP are expected to be available at the meeting to respond
to appropriate questions and will be given the opportunity to make a statement
if they desire to do so.
Pre-Approval
Policies
The Audit
Committee pre-approves all audit and non-audit services provided by our
independent auditors prior to the engagement of the independent auditors with
respect to such services. A designated member of the Audit Committee has the
authority to approve any additional audit services and permissible non-audit
services, provided the Chairman informs the Audit Committee of such approval at
its next regularly scheduled meeting. If specific pre-approval for any services
to be provided by our independent auditors is not required, the Company’s Chief
Financial Officer has the authority to determine whether such services are
included within the list of services that have received the general pre-approval
of the Audit Committee. The Audit Committee must be informed on a timely basis
of any such services provided by our independent auditors.
The
Board of Directors recommends a vote “FOR” this proposal.
8
PROPOSAL
III
PROPOSAL
TO AMEND THE 1998 STOCK INCENTIVE PLAN
TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
Stockholders
are being asked to approve an amendment (the “Amendment”) to the 1998 Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
by 3,000,000 shares, from 9,570,000 shares to 12,570,000 shares. In order to
permit the Company to continue to provide long-term, equity-based incentives to
present and future officers, employees, consultants and non-employee directors,
the Board approved the Amendment on March 11, 2005, to be effective upon
stockholder approval. If the Amendment is not approved, the Company will have
only 541,334 shares (plus any shares that might in the future be returned to the
1998 Plan as a result of the reacquisition of unvested shares, or as a result of
cancellations or expiration of options) available for grant under the 1998 Plan
and thereafter will not be able to grant additional options under the 1998 Plan.
This
Amendment is intended to ensure that the Company can continue to grant stock
options at levels deemed appropriate by the Compensation Committee and the Board
of Directors. The 1998 Plan is intended to attract individuals of experience and
ability, to provide incentive to employees, consultants, and non-employee
directors of the Company, to encourage employee and director proprietary
interests in the Company, and to encourage employees to remain in the employ of
the Company. The affirmative vote of a majority of the shares present in person
or represented by proxy and entitled to vote at the meeting will be required to
approve this Amendment to the 1998 Plan.
1998
Plan History
The 1998
Plan was adopted by the Board on March 24, 1998, was approved by the
Stockholders on June 16, 1998, and expires on March 24, 2008.
In
successive annual stockholder meetings occurring from 1999 through 2004, the
Company’s stockholders approved amendments to the 1998 Plan to increase the
number of shares of Common Stock available thereunder by 794,935, 799,041,
1,150,000, 1,000,000, 1,420,000 and 3,000,000 shares, respectively. Currently,
the number of shares of Common Stock authorized for issuance under the 1998 Plan
is 9,570,000 shares.
The
Board of Directors has approved and recommends to the stockholders that they
vote “FOR” this proposal to amend the 1998 Plan to increase the number of shares
of Common Stock issuable pursuant to the 1998 Plan by 3,000,000
shares.
Description
of the 1998 Plan
The
principal features of the 1998 Plan are summarized below, but the summary is
qualified in its entirety by reference to the 1998 Plan, as amended, itself.
Copies of the 1998 Plan can be obtained by writing to the Company’s Secretary
and Senior Vice President, General Counsel, David L. Lopez, Esq., CPA, at 2600
Kelly Road, Suite 100, Warrington, Pennsylvania 18976.
Structure
The 1998
Plan includes three separate equity incentive programs: (i) the Discretionary
Option Grant Program; (ii) the Stock Issuance Program; and (iii) the Automatic
Option Grant Program. The principal features of each program are described
below.
Administration
The
Compensation Committee of the Board of Directors of the Company serves as the
Plan Administrator with respect to the Discretionary Option Grant and Stock
Issuance Programs. However, the Board of Directors may also administer those
programs or one or more additional Board of Directors committees may be
appointed to administer those programs with respect to certain designated
classes of individuals in the Company’s service. The term “Plan Administrator”
as used in this summary will mean the Compensation Committee, the Board of
Directors and any other appointed committee acting within the scope of its
administrative authority under the 1998 Stock Incentive Plan. Administration of
the Automatic Option Grant Program is self-executing in accordance with the
express provisions of such program.
9
Number of
Shares
Currently,
the maximum number of shares available for issuance under the 1998 Plan is
9,570,000. As it is proposed to be amended, the 1998 Plan would provide for the
issuance of up to 12,570,000 shares of Common Stock, subject to adjustment in
the event 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.
Shares of
Common Stock subject to any outstanding options under the 1998 Plan (including
options incorporated from predecessor plans) which expire or otherwise terminate
prior to exercise are available for subsequent issuance. Unvested shares issued
under the 1998 Plan and subsequently repurchased by the Company pursuant to its
repurchase rights under the 1998 Plan will also be available for subsequent
issuance.
Eligibility
Officers
and employees, non-employee directors and independent consultants and advisors
in the service of the Company or its parent and subsidiaries are eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. Only
non-employee directors are eligible to participate in the Automatic Option Grant
Program. As of the date of this Proxy Statement, 7 executive officers, 87 other
employees and 5 non-employee directors are eligible to participate in the 1998
Plan.
Valuation
The fair
market value per share of the Common Stock on any relevant date under the 1998
Plan will be the closing selling price per share on that date on The Nasdaq
Stock Market. On March 16, 2005, the closing selling price per share of Common
Stock was $5.22.
Discretionary
Option Grant Program
The
options granted under the Discretionary Option Grant Program may be either
incentive stock options (“ISOs”) under the federal tax laws or non-statutory
options. Each granted option has an exercise price per share not less than 100%
of the fair market value per share of the Common Stock on the option grant date,
and a term not in excess of 10 years. The shares of Common Stock subject to each
option generally vest over a specified period of service measured from the grant
date.
Upon
cessation of service, the optionee has a limited period of time in which to
exercise any outstanding option for vested shares. The Plan Administrator has
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.
Incentive
stock options granted under the Discretionary Option Grant Program may not be
assigned or transferred, except by will or the laws of inheritance following the
optionee’s death. Non-statutory options may be assigned or transferred pursuant
to the optionee’s will or the laws of inheritance and may also be assigned
during the optionee’s lifetime, in connection with the optionee’s estate plan,
to members of his or her immediate family or to a trust established exclusively
for the benefit of such individuals.
Stock
Issuance Program
Shares of
Common Stock may be issued under this program for valid consideration as the
Plan Administrator deems appropriate, provided that the value of such
consideration is not less than the fair market value of the Common Stock on the
date of issuance. Shares may also be issued as a bonus for past services. Shares
of Common Stock issued as a bonus for past services will be fully vested upon
issuance. All other shares of Common Stock issued under the program will be
subject to a vesting schedule tied to the performance of service or the
attainment of designated financial or key project milestones. The Plan
Administrator has 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 Plan
Administrator determines that such vesting provides an appropriate severance
benefit.
10
Automatic
Option Grant Program
Non-employee
directors are eligible to receive option grants under the Automatic Option Grant
Program of the 1998 Plan. Each individual who first becomes a non-employee
director of the Company or any of its subsidiaries, whether through election by
the stockholders or appointment by the Board of Directors, receives, at the time
of such initial election or appointment, an automatic option grant for 30,000
shares of Common Stock. In addition, on the date of each annual stockholders
meeting, each individual who is re-elected as a non-employee director and who
has served as such for at least six months is automatically granted a stock
option to purchase additional shares of Common Stock.
The
shares subject to each outstanding automatic option grant will immediately vest
should any of the following events occur while the optionee continues to serve
on the Board of Directors: (i) the optionee’s death or permanent disability;
(ii) an acquisition of the Company by merger or asset sale; or (iii) the
successful completion of a hostile tender offer for more than 50% of the
outstanding voting securities or a change in the majority of the Board of
Directors occasioned by one or more contested elections for membership on the
Board of Directors. Each automatic option grant held by a director upon
termination of service will remain exercisable, for any or all vested option
shares at the time of such termination, for up to 12 months following such
termination.
Automatic
option grants may be assigned by the provisions of the optionee’s will or the
laws of inheritance following his or her death and may also be assigned during
the optionee’s lifetime, in connection with the optionee’s estate plan, to
members of his or her immediate family or to a trust established exclusively for
the benefit of such individuals.
General
Provisions
Acceleration
If the
Company is acquired by merger or asset sale, options outstanding under the
Discretionary Option Grant Program which are not assumed or replaced by the
successor company will automatically accelerate in full, and all unvested shares
granted pursuant to the Stock Issuance Program will immediately vest, except to
the extent the Company’s repurchase rights with respect to those shares are
assigned to the successor corporation. The Plan Administrator will have complete
discretion to grant options under the Discretionary Option Grant Program which
will become fully exercisable in the event those options are assumed in the
acquisition and the optionee’s service with the Company or the acquiring entity
is involuntarily terminated or the optionee resigns for good cause within a
designated period following such acquisition. The Plan Administrator will have
similar discretion to grant options which will become fully exercisable should
the optionee’s service terminate, whether involuntarily or through a resignation
for good reason, within a designated period following a hostile change in
control of the Company. The Plan Administrator may also provide for the
automatic vesting of any outstanding shares under the Stock Issuance Program
upon similar terms and conditions.
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.
Financial
Assistance
The Plan
Administrator may institute a loan program to assist one or more participants in
financing the exercise of outstanding options under the Discretionary Option
Grant Program or the purchase of shares under the Stock Issuance Program. The
Plan Administrator will determine the terms of any such assistance. However, the
maximum amount of financing provided any participant may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares underlying the options. The
Sarbanes-Oxley Act of 2002 prohibits loan arrangements between the Company and
its Executive Officers. Because this prohibition also applies to the exercise of
stock options with deferred payments, the amended Plan limits the payment
methods to cash or, with the approval of the Plan Administrator, the pledge of
shares and a loan through a broker, actual or constructive delivery of stock, or
other consideration acceptable to the Plan Administrator.
Special
Tax Election
The Plan
Administrator may provide one or more holders of 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 Plan Administrator may allow such
individuals to deliver previously acquired shares of the Common Stock in payment
of such tax liability.
11
Amendment
and Termination
The Board
of Directors may amend or modify the 1998 Plan in any or all respects
whatsoever, subject to any required stockholder approval. The Board of Directors
may terminate the 1998 Plan at any time, and the 1998 Plan will in all events
terminate upon the expiration of its 10 year term measured from the date of its
adoption, March 24, 1998, by the Board of Directors.
Tax
Aspects
The
Federal income tax aspects of ISOs and non-ISOs (collectively “Options”) are
generally described below. An employee will generally not be taxed at the time
of grant or exercise of an ISO, although the excess of the fair market value of
the stock over the exercise price on exercise of an ISO will be taken into
account for alternative minimum tax purposes. If the employee holds the shares
acquired upon exercise of an ISO until at least one year after issuance and two
years after grant of the Option, the employee will have long term capital gain
(or loss) on disposition of the shares of Common Stock underlying the Options
based on the difference between the amount realized on the sale or disposition
and the exercise price of the Option. If these holding periods are not
satisfied, then upon disposition of the shares of Common Stock, the employee
will recognize ordinary income equal, in general, to the excess of the fair
market value of the shares at the time of exercise over the exercise price of
the Option, and will recognize a capital gain in respect of any additional
appreciation. With respect to a non-ISO, an optionee will not be taxed at the
time of grant; however, upon exercise, the optionee will generally recognize
compensation income to the extent that the fair market value of the shares of
Common Stock exceeds the exercise price of the Option. The Company generally
will have a compensation deduction to the extent that, and at the time that, an
optionee realizes compensation income with respect to an Option. In the case of
an ISO, the Company ordinarily is not entitled to a compensation
deduction.
Voting
Options
granted under the 1998 Plan do not confer any voting or any other rights of a
stockholder of the Company until the shares underlying the options are purchased
by the optionholder. The shares of Common Stock issuable upon exercise of the
options will be fully paid and nonassessable.
Equity
Compensation Plan Information
The
Company has three equity compensation plans that have been approved by the
stockholders of the Company: the 1998 Plan; the 1996 Stock Option/Stock Issuance
Plan; and the ATI 1996 Stock Option/Stock Issuance Plan. The following table
sets forth the number and weighted-average of exercise price of shares of Common
Stock to be issued upon exercise of outstanding options and the number of shares
of Common Stock remaining available for future issuance under the Company’s
equity compensation plans, at March 11, 2005:
|
Plan
Category |
Number
of securities to be issued upon exercise of outstanding
options |
Weighted-average
exercise price of outstanding options |
Number
of securities remaining available for future issuance under equity
compensation plans |
|||||||
|
Equity
compensation plans approved by security holders (1) |
6,779,302
|
$ |
5.70 |
541,334
|
||||||
|
Equity
compensation plans not approved by security holders |
— |
— |
— |
|||||||
|
Total |
6,779,302 |
$ |
5.70 |
541,334 |
||||||
| (1) | Does not include 3,000,000 shares of Common Stock to be added to the 1998 Plan pursuant to this Proposal III, should such proposal receive the requisite approval of the stockholders. |
12
SECURITY
OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL
OWNERS
The
following table sets forth, as of March 11, 2005, certain information regarding
the beneficial ownership of the Common Stock (i) by each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
shares of the Common Stock, (ii) by each director, (iii) by each of the
executive officers listed in the table below and (iv) by all such executive
officers and directors of the Company as a group. The address of all individuals
is c/o Discovery Laboratories, Inc., 2600 Kelly Road, Suite100, Warrington,
Pennsylvania 18976, unless otherwise noted.
|
Name
of Beneficial Owner (1) |
Shares |
Stock
Options |
Total
Beneficial
Ownership |
Percentage
of Class
Beneficially
Owned (1) |
|||||||||
|
W.
Thomas Amick |
— |
25,000 |
25,000 |
* |
|||||||||
|
Robert
J. Capetola, Ph.D. (2) |
914,316
|
925,416
|
1,839,732
|
3.38 |
% | ||||||||
|
John
G. Cooper (3) |
12,098
|
522,916
|
535,014
|
* |
|||||||||
|
Antonio
Esteve, Ph.D. (4) |
2,556,164
|
91,174
|
2,647,338
|
4.94 |
% | ||||||||
|
Max
E. Link, Ph.D. |
126,821
|
20,000
|
146,821
|
* |
|||||||||
|
David
L. Lopez, Esq., CPA (5) |
4,344
|
459,333
|
463,677
|
* |
|||||||||
|
Herbert
H. McDade, Jr. |
- |
60,000
|
60,000
|
* |
|||||||||
|
Marvin
E. Rosenthale, Ph.D. |
122,100
|
20,000
|
142,100
|
* |
|||||||||
|
Christopher
J. Schaber, Ph.D. (6) |
207,918
|
563,260
|
771,178
|
1.43 |
% | ||||||||
|
Robert
Segal, M.D., F.A.C.P. (7) |
4,098 |
377,249 |
381,347 |
* |
|||||||||
|
Heartland
Advisors Inc. (8)
789
N. Water Street
Milwaukee,
WI 53202 |
3,477,356
|
— |
3,477,356 |
6.50 |
% | ||||||||
|
All
Discovery directors and officers as a
group
(10 persons) |
3,955,396 |
3,490,762 |
7,446,158 |
13.06 |
% | ||||||||
* Less
than 1%
| (1) |
Beneficial
ownership is determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934 and includes voting and investment power with respect
to shares of Common Stock. Shares of Common Stock and shares of Common
Stock subject to options or warrants currently exercisable or exercisable
within 60 days of March 11, 2005, are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage
ownership of any other person. |
| (2) |
Includes
322,500 stock options that are currently exercisable, but unvested. These
unvested shares of Common Stock are subject to the Company’s right to
repurchase at the exercise price paid per
share. |
| (3) |
Includes
126,250 stock options that are currently exercisable, but unvested. These
unvested shares of Common Stock are subject to the Company’s right to
repurchase at the exercise price paid per
share. |
| (4) |
Beneficial
ownership of Common Stock includes 2,234,410 shares and 51,174 shares of
Common Stock issuable on the exercise of outstanding warrants owned by
Laboratorios Esteve and 317,164 shares owned by Laboratorios P.E.N., S.A.
(“Laboratorios P.E.N.”), an affiliate of Laboratorios Esteve. As a
consequence of Dr. Esteve’s relationship with Laboratorios Esteve,
including, serving as a Member of the Executive Committee of Laboratorios
Esteve, he may be deemed to have beneficial ownership of the shares owned
by Laboratorios Esteve and Laboratorios P.E.N. Also includes 40,000 shares
of Common Stock issuable on the exercise of outstanding options.
|
13
| (5) |
Includes
99,375 stock options that are currently exercisable, but unvested. These
unvested shares of Common Stock are subject to the Company’s right to
repurchase at the exercise price paid per
share. |
| (6) |
Includes
124,375 stock options that are currently exercisable, but unvested. These
unvested shares of Common Stock are subject to the Company’s right to
repurchase at the exercise price paid per
share. |
| (7) |
Includes
90,469 stock options that are currently exercisable, but unvested. These
unvested shares of Common Stock are subject to the Company’s right to
repurchase at the exercise price paid per
share. |
| (8) |
Includes
shares managed by Heartland Advisors. Heartland Advisors manages the
Heartland family of mutual funds and separate institutional and individual
portfolios. |
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the
Company’s directors, executive officers (including a person performing a
principal policy-making function) and persons who own more than 10% of a
registered class of the Company’s equity securities (collectively, “Reporting
Persons”) to file with the SEC initial reports of ownership and reports of
changes in ownership of the Common Stock and other equity securities of the
Company. Reporting Persons are required by SEC regulations to furnish the
Company with copies of all of the Section 16(a) reports they file. Specific due
dates for these reports have been established and the Company is required to
identify in this proxy statement those Reporting Persons who failed to timely
file these reports. To the Company’s knowledge, based solely upon a review of
the copies of such filings received by it with respect to the fiscal year ended
December 31, 2004, and representations made by the Reporting Persons, the
Company believes that during fiscal year 2004 its Reporting Persons complied
with all substantive filing requirements under Section 16(a) of the Exchange Act
except for the following: each of Robert J. Capetola, John Cooper, Cynthia L.
Davis, Antonio Esteve, Max Link, David L. Lopez, Herbert McDade, Ralph Niven,
Marvin E. Rosenthale, Christopher J. Schaber, Robert Segal and Deni M. Zodda
inadvertently failed to file Form 4 by its due date.
14
COMPENSATION
AND OTHER INFORMATION
CONCERNING
DIRECTORS AND OFFICERS
Director
Compensation
Pursuant
to the 1998 Plan, non-employee directors of the Company are entitled to receive
an award of options for the purchase of 30,000 shares of Common Stock upon their
initial election to the Board of Directors of the Company and an annual award of
options for the purchase of 25,000 shares of Common Stock following each annual
meeting of stockholders at which they are reelected provided they have served
for at least six months prior to such meeting. The exercise price of each such
option shall be equal to the fair market value of Common Stock on the date of
grant. Each such option shall have a maximum term of 10 years, subject to
earlier termination should the optionee cease to serve as a director of the
Company. Each option is immediately exercisable for all of the option shares.
However, the option shares are subject to repurchase by the Company, at the
exercise price paid per share, in the event of the optionee’s termination of
service prior to vesting in the shares. Such options vest on the first
anniversary of the date of grant. In addition, each of the Company’s
non-employee directors receives cash compensation for their services in the
amount of $4,500 per quarter, as well as the following additional amounts as
applicable: (i) $2,000 per quarter if a director serves as the Chairman of the
Board of Directors; (ii) $1,000 per quarter if the director serves on one or
more of the following committees: the Audit Committee; the Compensation
Committee; or the Nominating Committee; and (iii) $500 per quarter for any
member who serves as Chairman of any of the foregoing committees.
Executive
Officers
The
following table sets forth the names and positions of the executive officers of
the Company:
|
Name |
Age |
Position
with the Company | ||
|
Robert
J. Capetola, Ph.D. |
55 |
President,
Chief Executive Officer and Director | ||
|
John
G. Cooper |
46 |
Executive
Vice President, Chief Financial Officer | ||
|
David
L. Lopez, Esq., CPA |
47 |
Senior
Vice President, General Counsel | ||
|
Kathleen
A. McGowan |
44 |
Controller | ||
|
Mark
G. Osterman |
40 |
Senior
Vice President, Sales and Marketing | ||
|
Christopher
J. Schaber, Ph.D. |
38 |
Executive
Vice President, Chief Operating Officer | ||
|
Robert
Segal, M.D., F.A.C.P. |
48 |
Senior
Vice President, Chief Medical Officer |
Robert
J. Capetola, Ph.D. - Please
refer to the Director’s section of Proposal I for a biographical discussion of
Dr. Capetola.
John
G. Cooper has been
with the Company since December 2001 and currently serves as Executive Vice
President and Chief Financial Officer. Previously, he was Chief Financial
Officer at Mobility Technologies, Inc., a wireless technology company,
commencing November 2000. Prior to that, Mr. Cooper was employed as Chief
Financial Officer at Taratec Development Corporation, a provider of information
technology solutions to the life sciences industry, commencing May 1999. From
1995 to 1999, Mr. Cooper served as Senior Vice President & Chief Financial
Officer of Chrysalis International Corporation, a public company (ultimately
acquired by MDS Pharmaceuticals Inc.) providing drug development services to the
life sciences industry. From 1989 to 1995, Mr. Cooper was employed by DNX
Corporation, a public biotechnology company, where he served as Senior Vice
President and Chief Financial Officer and managed its initial public offering in
1991. From 1985 to 1989, he was employed by ENI Diagnostics (a public life
sciences company acquired by Pharmacia in 1989), his last position being
Director, Finance and Controller. Mr. Cooper’s responsibilities above included
finance and accounting, M&A, investor relations, management information
systems, human resources, and corporate administration/governance and he has
served as General Manager and member of the board of directors for operating
subsidiaries. Earlier in his career he held financial management positions at
C.R. Bard and Warner Communications. Mr. Cooper is a Certified Public Accountant
and received his B.S. in Commerce from Rider University.
15
David
L. Lopez, Esq., CPA, has been
with the Company since April 2000 and serves as Senior Vice President and
General Counsel. Previously, he held the position of Senior Corporate Attorney
at the Manhattan law firm of Roberts, Sheridan & Kotel, P.C. In 1996, Mr.
Lopez also served as a Legal Research Specialist with the Securities and
Exchange Commission. Prior to that time, he held increasingly senior corporate
finance, tax and accounting related positions with Drexel Burnham Lambert, Price
Waterhouse and Deloitte, Haskins & Sells. Mr. Lopez holds a B.S. in
Economics and Accounting from Fairleigh Dickinson University and a J.D. from St.
John’s University School of Law.
Kathleen
A. McGowan has been
with the Company since June 2004 and serves as Controller. Previously, she was
Director of Financial Analysis at Claneil Enterprises, Inc., a private equity
investment firm. From 1996 to 2000, Ms. McGowan was Financial Controller at The
Liposome Company, Inc., a publicly-held biotech company acquired by Elan
Corporation, plc, where she managed the internal and external financial
reporting and analysis, internal controls and accounting functions, and provided
financial oversight to the sales and marketing organization. Prior to that time,
Ms. McGowan served as Controller at Nelson Communications, which was acquired by
Publicis Healthcare Group, a leading U.S. healthcare communications company.
From 1983 to 1995, she had management positions with Johnson & Johnson,
primarily at Ortho-McNeil Pharmaceutical and Johnson & Johnson Corporate,
with diverse responsibilities, including financial reporting, forecasting and
analysis, sales and marketing, manufacturing and operations. Ms. McGowan
received her B.S. in Finance and Accounting from Drexel University and an M.B.A.
in Finance from Fairleigh Dickinson University.
Mark
G. Osterman was
appointed as Senior Vice President, Sales and Marketing of the Company in June
2004. Mr. Osterman is responsible for developing, executing and managing the
Company’s commercialization operations including the potential launch of the
Company’s lead product, Surfaxin. Mr. Osterman’s career in the industry spans
throughout 16 years. Most recently, he served as Vice President at Johnson &
Johnson Development Corporation and Executive Director at Centocor, Inc., where
he oversaw and built marketing functions for the cardio-pulmonary, metabolism
and infectious disease therapeutic areas. Previously, Mr. Osterman held the
position of Director, Pulmonary Portfolio at GlaxoSmithKline, where he was
involved with the successful launch of several respiratory products. Earlier in
his career, he was a product manager, respiratory medical liaison and sales
representative. Mr. Osterman holds a dual B.A. degree in Economics and Business
Management from North Carolina State University.
Christopher
J. Schaber, Ph.D. has been
with the Company since November 1996 and serves as Executive Vice President and
Chief Operating Officer with the responsibility for clinical development,
regulatory affairs, quality control and assurance and manufacturing and
distribution. Previously, he held the positions of Executive Vice President of
Drug Development and Regulatory Compliance commencing April 1999 and Chief
Development Officer and Vice President of Regulatory Affairs and Quality
Assurance/Quality Control commencing June 1998. He served as Vice President of
Regulatory Affairs and Quality Assurance with ATI from 1996 to 1998. Dr. Schaber
was employed from 1994 to 1996 by Ohmeda as Director of Worldwide Regulatory
Affairs. At Ohmeda, Dr. Schaber was responsible for all regulatory strategies
with the FDA and other health authority bodies. From 1989 to 1994, Dr. Schaber
held a variety of regulatory and operations positions of increasing importance
with The Liposome Company, Inc., and Elkins-Sinn Inc., a division of
Wyeth-Ayerst Laboratories. Dr. Schaber received his B.A. from Western Maryland
College, an M.S. in Pharmaceutics from Temple University and a Ph.D. in
Pharmaceutical Sciences from The Union Graduate School. Dr. Schaber also holds a
Regulatory Affairs Certification (RAC) from the Regulatory Affairs Professional
Society.
Robert
Segal, M.D., F.A.C.P. has been
with the Company since 2000 and serves as Senior Vice President and Chief
Medical Officer. Previously, he held the position of Vice President, Clinical
Research. Prior to joining the Company, he held the position of Director,
Cardiovascular Clinical Research at Merck Research Laboratories, having joined
Merck & Co, Inc. in 1992 as Associate Director. Dr. Segal received his
medical degree from the University of Pretoria Medical School, South Africa. Dr.
Segal is a diplomat of the American Board of Internal Medicine with
sub-specialty certification in nephrology and is a Fellow of the American
College of Physicians. He completed his internship and residency in medicine at
Sinai Hospital, Baltimore, and clinical postdoctoral fellowships in general
medicine at The Johns Hopkins Hospital and nephrology at UCLA, as well as a
research fellowship in molecular biology at UCLA. Prior to joining Merck, he was
an Assistant Professor of Medicine in the Division of Nephrology at UCLA School
of Medicine and served as an intern advisor to the Biotechnology Program at
Northwestern University.
16
Family
Relationships
There are
no family relationships among directors or executive officers of the
Company.
Executive
Compensation
The
following Summary Compensation Table sets forth the compensation earned for each
of the last three completed fiscal years by (i) the person who served as the
Company’s chief executive officer during the last completed fiscal year, (ii)
the four most highly compensated officers of the Company other than the chief
executive officer who were serving as executive officers at the end of the last
completed fiscal year and whose total annual salary and bonus equaled or
exceeded $100,000 and (iii) certain executive officers who were not serving as
an executive officer at the end of the last fiscal year and whose total annual
salary and bonus equaled or exceeded $100,000, but would have been included
under (ii) above if such officer was an executive officer at the end of such
fiscal year (collectively the “Named Officers”), for services rendered in all
capacities to the Company.
|
Annual
Compensation |
Long
Term Compensation |
||||||||||||||||||||||||||
|
Name
and Principal Position |
Year |
Salary |
Bonus |
Other
Annual Compensation |
Restricted
Stock
Award(s) |
Securities
Underlying
Options
(#) |
All
Other
Compensation | ||||||||||||||||||||
|
Robert
J. Capetola, Ph.D. |
2004 |
$ |
390,000 |
$ |
325,000 |
(1) |
|
$ |
10,000 |
$ |
— |
538,000 |
$ |
6,500 |
(5) | ||||||||||||
|
President,
Chief Executive Officer |
2003 |
314,000
|
275,000
|
(2) |
|
10,000
|
—
|
365,000
|
6,000
|
(5) | |||||||||||||||||
|
and
Director |
2002 |
304,000
|
125,000
|
(3) |
|
10,000
|
—
|
250,000
|
— |
| |||||||||||||||||
|
| |||||||||||||||||||||||||||
|
John
G. Cooper |
2004 |
240,000 |
100,000 |
(1) |
|
275,000 |
6,500 |
(5) | |||||||||||||||||||
|
Exec.
Vice President, Chief |
2003 |
203,000
|
85,000
|
(2
) |
|
— |
—
|
80,000
|
6,000
|
(5) | |||||||||||||||||
|
Financial
Officer |
2002 |
191,972
|
60,000
|
(3),
(4) |
|
— |
—
|
215,000
|
— |
| |||||||||||||||||
|
| |||||||||||||||||||||||||||
|
David
L. Lopez, Esq., CPA |
2004 |
230,000 |
100,000 |
(1) |
|
200,000 |
6,500 |
(5) | |||||||||||||||||||
|
Senior
Vice President, General |
2003 |
198,000
|
50,000
|
(2) |
|
— |
—
|
100,000
|
6,000
|
(5) | |||||||||||||||||
|
Counsel |
2002 |
191,664
|
25,000
|
(3) |
|
— |
—
|
125,000
|
— |
| |||||||||||||||||
|
| |||||||||||||||||||||||||||
|
Christopher
J. Schaber, Ph.D. |
2004 |
250,000 |
150,000 |
(1) |
|
275,000 |
6,500
|
(5) | |||||||||||||||||||
|
Exec.
Vice President, Chief |
2003 |
230,000
|
125,000
|
(2) |
|
— |
—
|
60,000
|
15,816
|
(5) | |||||||||||||||||
|
Operating
Officer |
2002 |
225,008
|
35,000
|
(3) |
|
— |
—
|
160,000
|
9,603
|
||||||||||||||||||
|
| |||||||||||||||||||||||||||
|
Robert
Segal, M.D., F.A.C.P. |
2004 |
237,000 |
75,000 |
(1) |
|
145,000 |
6,500 |
(5) | |||||||||||||||||||
|
Senior
Vice President, |
2003 |
228,000
|
60,000
|
(2) |
|
— |
35,000
|
6,000
|
(5) | ||||||||||||||||||
|
Chief
Medical Officer |
2002 |
222,568
|
20,000
|
(3) |
|
— |
100,000
|
— |
|||||||||||||||||||
|
Notes
to Summary Compensation Table: |
|||||||||
|
(1)
Includes 2004 bonus paid in 2005. |
|||||||||
|
(2)
Includes 2003 bonus paid in 2004. |
|||||||||
|
(3)
Includes 2002 bonus paid in 2003. |
|||||||||
|
(4)
Includes bonus paid in connection with executive's employment
agreement. |
|||||||||
|
(5)
Includes the Company's contributions to the 401(k) savings plan in newly
issued shares of Common Stock. |
|||||||||
17
Option
Grants During Last Fiscal Year
The
following table contains information concerning the stock option grants
(including grants of Contingent Milestone Options) made to the Named Officers
for the fiscal year ended December 31, 2004. No stock appreciation rights were
granted to these individuals during such year.
|
|
|
|
|
Potential Realized Value at Assumed
Annual Rates
of Stock Price Appreciation for Option Term (2) |
|||||||||||||||
|
Number of Securities
Underlying |
% of Total
Options Granted to
Employees |
Exercise or Base
Price |
Expiration |
||||||||||||||||
| Name |
Options Granted |
in Fiscal Year | ($/share) (1) |
Date |
5% |
10% |
|||||||||||||
|
Robert
J. Capetola, Ph.D. |
450,000
|
16.8% |
|
$ |
9.17 |
12/15/13 |
$ |
2,595,134 |
$ |
6,576,578 |
|||||||||
|
88,000
|
3.3% |
|
6.47 |
8/12/14 |
358,067 |
907,413 |
|||||||||||||
|
John
G. Cooper |
200,000
|
7.5% |
|
9.17 |
12/15/13 |
1,153,393 |
2,922,924 |
||||||||||||
|
75,000 |
2.8% |
|
6.47 |
8/12/14 |
305,171 |
773,364 |
|||||||||||||
|
David
L. Lopez, Esq., CPA |
150,000
|
5.6% |
|
9.17 |
12/15/13 |
865,045 |
2,192,193 |
||||||||||||
|
50,000 |
1.9% |
|
6.47 |
8/12/14 |
203,447 |
515,576 |
|||||||||||||
|
Christopher
J. Schaber, Ph.D. |
200,000
|
7.5% |
|
9.17 |
12/15/13 |
1,153,393 |
2,922,924 |
||||||||||||
|
75,000 |
2.8% |
|
6.47 |
8/12/14 |
305,171 |
773,364 |
|||||||||||||
|
Robert
Segal, M.D., F.A.C.P. |
125,000
|
4.7% |
|
9.17 |
12/15/13 |
720,870 |
1,826,827 |
||||||||||||
|
20,000 |
0.7% |
|
6.47 |
8/12/14 |
81,379 |
206,230 |
|||||||||||||
| (1) |
The
exercise price of options issued by the Company may be paid in cash or in
shares of Common Stock valued at the fair market value on the exercise
date. |
| (2) |
The
5% and 10% assumed rates of appreciated are specified under the rules of
the SEC and do not represent the Company’s estimate of the future price of
its Common Stock. The actual value, if any, which a Named Executive
Officer may realize upon the exercise of stock options will be based upon
the difference between the market price of the Common Stock underlying
such stock options on the date of exercise and the exercise price. No gain
to the optionee is realized from any option unless the stock price of the
Common Stock underlying such stock option increases over the option term
of such option. |
18
Aggregate
Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The
following table sets forth information concerning option exercises and option
holdings (including contingent milestone options) for the fiscal year ended
December 31, 2004, with respect to the Named Officers. No stock appreciation
rights were exercised during such year or were outstanding at the end of that
year.
|
Number
of Securities Underlying Unexercised Options at FY-End (#) |
Value
of Unexercised In-the-
Money
Options at FY-End ($) (1) |
||||||||||||||||||
|
Shares
Acquired on |
Value |
||||||||||||||||||
|
Name |
Exercise
(#) |
Realized
($) |
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
|||||||||||||
|
Robert
J. Capetola, Ph.D. |
313,090
|
$ |
2,533,439 |
880,583
|
283,667
|
$ |
3,612,773 |
$ |
465,229 |
||||||||||
|
John
G. Cooper |
20,000
|
157,200
|
500,000
|
150,000
|
2,537,600
|
396,500
|
|||||||||||||
|
David
L. Lopez, Esq., CPA |
35,000
|
306,025
|
442,666
|
108,334
|
2,122,591
|
264,339
|
|||||||||||||
|
Christopher
J. Schaber, Ph.D. |
125,000
|
1,286,525
|
540,344
|
150,000
|
3,016,128
|
396,500
|
|||||||||||||
|
Robert
Segal, M.D., F.A.C.P. |
— |
— |
365,166
|
75,834
|
2,122,591
|
105,739
|
|||||||||||||
(1) Based on
the fair market value of the Common Stock on December 31, 2004, $7.93 per share,
less the exercise price payable for such shares.
Employment
Agreements
Employment
Agreement with Robert J. Capetola, Ph.D.
The
Company entered into an employment agreement, dated as of January 1, 2004, with
Dr. Capetola for a two-year period ending on December 31, 2005. On each January
1st thereafter, the agreement will automatically renew for an additional
one-year term, unless either party gives 90-day prior termination notice. Dr.
Capetola is currently entitled to an annual base salary of $390,000 and is also
eligible for incentive bonus compensation, in cash or equity, as determined by
the Compensation Committee. Dr. Capetola is also entitled to reimbursement for
leased automobile costs.
In the
event that Dr. Capetola’s employment is terminated without Cause or he
terminates for Good Reason, as defined in his employment agreement, he will be
entitled to severance benefits including: a pro-rata bonus for the year of
termination; a severance payment equal to twice his salary and bonus; benefits
continuation for two years; and all stock options held by Dr. Capetola shall
accelerate and become fully vested and shall remain exercisable for the
remainder of their stated terms. If Dr. Capetola’s employment is terminated
without Cause or if Dr. Capetola resigns for Good Reason within 36 months after
a change in control, or if Dr. Capetola resigns for any reason in the 30-day
period commencing six months after a change in control, he will be entitled to
the benefits described above except that his severance payment will be three
times his salary and bonus and his benefits will continue for three
years.
In the
event of a change in control, for each fiscal year ending within the following
36-month period, Dr. Capetola will be entitled to a bonus equal to his highest
annual bonus during the three years preceding such change in control. In
addition, upon any change of control, all outstanding stock options held by him
shall accelerate and become fully vested.
In the
event that any compensation payable to Dr. Capetola is subject to an excise tax
under Section 4999 of the Internal Revenue Code, the Company will make an
additional payment to Dr. Capetola equal to the amount of such excise tax, as
well as the income tax and excise tax applicable to such payment.
The
agreement prohibits Dr. Capetola from competing with the Company throughout his
employment term and for a period of 15 months following any
termination.
19
Employment
Agreement with John G. Cooper
The
Company entered into an employment agreement, dated as of January 1, 2004, with
John G. Cooper as the Company’s Executive Vice President and Chief Financial
Officer for a term of two years ending on December 31, 2005. On each January 1st
thereafter, the agreement will automatically renew for an additional one-year
term, unless either party gives 90-day prior termination notice. Mr. Cooper is
entitled to an annual base salary of at least $240,000 and is also eligible for
incentive bonus compensation, in cash or equity, as determined by the
Compensation Committee.
Employment
Agreement with David L. Lopez, Esq., CPA
The
Company entered into an employment agreement, dated as of January 1, 2004, with
David L. Lopez, Esq., CPA, as General Counsel and Senior Vice President for a
term of two years ending on December 31, 2005. On each January 1st thereafter,
the agreement will automatically renew for an additional one-year term, unless
either party gives 90-day prior termination notice. Mr. Lopez is entitled to an
annual base salary of at least $230,000 and is also eligible for incentive bonus
compensation, in cash or equity, as determined by the Compensation Committee. He
is also entitled to $7,000 per annum to cover the cost of tuition, fees, books
and other materials related to professional courses, and $1,500 per annum to
cover fees and costs relating to professional legal and accounting continuing
education.
Employment
Agreement with Mark G. Osterman
The
Company entered into an employment agreement, dated as of May 24, 2004, with
Mark G. Osterman as Senior Vice President, Sales and Marketing for a term ending
December 31, 2005. On each January 1st thereafter, the agreement will
automatically renew for an additional one-year term, unless either party gives
90-day prior termination notice. Mr. Osterman is entitled to an annual base
salary of at least $230,000 as is also eligible for incentive bonus
compensation, in cash or equity, as determined by the Compensation
Committee.
Employment
Agreement with Christopher J. Schaber, Ph.D.
The
Company entered into an employment agreement, dated as of January 1, 2004, with
Christopher J. Schaber, Ph.D., as Chief Operating Officer and Executive Vice
President of Drug Development and Regulatory Compliance for a term of two years
ending on December 31, 2005. On each January 1st thereafter, the agreement will
automatically renew for an additional one-year term, unless either party gives
90-day prior termination notice. Dr. Schaber is entitled to an annual base
salary of at least $250,000 and is also eligible for incentive bonus
compensation, in cash or equity, as determined by the Compensation Committee.
Employment
Agreement with Robert Segal, M.D., F.A.C.P.
The
Company entered into an employment agreement, dated as of January 1, 2004, with
Robert Segal, M.D., F.A.C.P., as Chief Medical Officer and Senior Vice President
of Clinical Research for a term of two years ending on December 31, 2005. On
each January 1st thereafter, the agreement will automatically renew for an
additional one-year term, unless either party gives 90-day prior termination
notice. Dr. Segal is entitled to an annual base salary of at least $237,000 and
is also eligible for incentive bonus compensation, in cash or equity, as
determined by the Compensation Committee.
Employment
Agreement with Deni M. Zodda, Ph.D.
The
Company entered into an employment agreement, dated as of January 1, 2004, with
Deni M. Zodda, Ph.D., as Senior Vice President of Business Development for a
term of two years ending December 31, 2005. On each January 1st thereafter, the
agreement will automatically renew for an additional one-year term, unless
either party gives 90-day prior termination notice. Dr. Zodda is entitled to an
annual base salary of at least $220,000 and is also eligible for incentive bonus
compensation, in cash or equity, as determined by the Compensation Committee.
General
Employment Arrangements.
In the
event that the employment of Mr. Cooper, Mr. Lopez, Mr. Osterman, Dr. Schaber or
Dr. Zodda is terminated without Cause or any of them should terminate for Good
Reason, as defined in their respective agreements, such officer will be entitled
to severance benefits including: a severance payment equal to such officer’s
then current base salary and bonus; a pro-rata bonus for the year of
termination; and benefits continuation for a year.
20
However,
if the employment of Mr. Cooper, Mr. Lopez, Dr. Schaber or Dr. Zodda is
terminated by the Company without Cause or if such officer resigns for Good
Reason within 24 months after a change in control, in addition to a pro-rata
bonus for the year of termination, each such officer will be entitled to: a
severance payment equal to two times such officer’s then current base salary and
bonus; severance benefits continuation for two years; and the acceleration and
full vesting of all outstanding stock options granted to him and the continued
exercisability of such options for the remainder of their stated
terms.
In the
event that the employment of Dr. Segal is terminated without Cause or he should
resign for Good Reason, as defined in his employment agreement, he will be
entitled to severance benefits including: a severance payment equal to fifty
percent (50%) of his then current base salary and bonus; a pro-rata bonus for
the year of termination; and benefits continuation for six months.
However,
in the event that the employment of Dr. Segal is terminated by the Company
without Cause or if he resigns for Good Reason within 12 months after a change
in control, in addition to a pro-rata bonus for the year of termination, he will
be entitled to: a severance payment equal to his then current base salary and
bonus; severance benefits continuation for one year; and the acceleration and
full vesting of all outstanding stock options granted to him and the continued
exercisability of such options for the remainder of their stated
terms.
In the
event of a change in control, for each fiscal year ending within the 24-month
period following such change in control, each of the foregoing officers is
entitled to a bonus equal to his or her highest annual bonus during the three
years preceding such change in control.
All such
officers have agreed not to engage in activities competitive with the business
of the Company for a period of 12 months (24 months in the case of a termination
in connection with a change in control) following termination of employment,
except for Dr. Segal whose respective non-compete provisions are 6 months and 12
months.
The
employment agreements of Mr. Cooper, Mr. Lopez, Mr. Osterman, Dr. Segal, Dr.
Schaber and Dr. Zodda provide that if any compensation payable to each such
officer is subject to an excise tax under Section 4999 of the Internal Revenue
Code, the Company will make an additional payment to such officer equal to the
amount of such excise tax, as well as the income tax and excise tax applicable
to such payment.
COMPENSATION
COMMITTEE REPORT(1)
The
Compensation Committee is comprised entirely of outside directors and currently
consists of Herbert H. McDade, Jr., Max E. Link, Ph.D., and Marvin E.
Rosenthale, Ph.D., each of whom is an independent director, as independence is
defined in Rule 4200(a)(15) of the NASD listing standards. There are no
“interlocks” as defined by the SEC, with respect to any member of the
Compensation Committee. The Compensation Committee reviews and makes
recommendations concerning executive and general compensation matters and
administers the 1998 Plan together with the Board of Directors, and performs
such other functions regarding compensation as the Board of Directors may
delegate.
General
Policies
The
Compensation Committee is responsible for establishing and monitoring the
general compensation policies and compensation plans of the Company, as well as
the specific compensation levels for executive officers. The Committee also
serves as the Plan Administrator with respect to the Discretionary Option Grant
and Stock Issuance Programs of the 1998 Plan, and, from time to time, grants
options under such plan.
Under the
supervision of the Compensation Committee, the Company has developed and
implemented compensation policies, plans and programs, including those applied
to its Chief Executive Officer, which provide a total compensation package that
is intended to be competitive within the industry so as to enable the Company to
attract and retain high-caliber executive personnel. Such compensation practices
are designed to motivate executives over the long term, to align the interests
of management and stockholders and to ensure that executives are appropriately
rewarded for benefits achieved for the Company’s stockholders.
The
primary components of management compensation include competitive salary and two
other components: (i) annual incentives; and (ii) long term incentives. Annual
incentive compensation may consist of cash incentive bonuses or equity
components, each based on accomplishing corporate goals and meeting individual
performance objectives. In addition, the Company often relies on long-term
incentive compensation (i.e., stock options) to motivate the executive officers
and other employees. This allows the Company to retain cash for research and
development and other corporate projects. The Compensation Committee considers a
number of factors to determine the size of stock option grants to individual
executives including the degree of an executive's job responsibilities and the
executive's past performance; the size and frequency of grants by comparable
biopharmaceutical and life sciences companies; the executive's salary level; the
achievement of designated milestones by the executive; and the size of any prior
grants.
21
Chief
Executive Officer Compensation
Dr.
Capetola’s initial base salary, bonus paid and certain long-term incentive
awards are determined by the terms of the Capetola Employment Agreement entered
into as of January 1, 2004. Additional cash or equity incentive bonuses are
determined solely at the discretion of the Compensation Committee on at least an
annual basis. The Compensation Committee’s determination of the compensation
package for Dr. Capetola is consistent with the overall compensation philosophy
for other executive officers of the Company and the Compensation Committee
believes that such arrangements reflect the compensation package necessary to
retain his services for the Company in light of the Company's current condition
and prospects and is commensurate with his expertise and experience as well as
with compensation offered by comparable biopharmaceutical
companies.
Deductibility
of Compensation
The
Internal Revenue Code of 1986, as amended, Section 162(m), provides that
compensation in excess of $1 million paid to an executive officer is not
deductible by the Company unless it is performance based. Base salary does not
qualify as performance-based compensation under Section 162(m). The Company’s
policy is to qualify future compensation arrangements to ensure deductibility,
except in those limited cases where stockholder value may be maximized by an
alternative approach.
Submitted
by the Compensation Committee
Herbert
H. McDade, Jr.
Max E.
Link, Ph.D.
Marvin E.
Rosenthale, Ph.D.
| (1) |
The
material in this report of the Compensation Committee is not “soliciting
material,” is not deemed “filed” with the SEC and is not to be
incorporated by reference in any filing of the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, whether
made before or after the date hereof and irrespective of any general
incorporation language in any such filing. |
22
PERFORMANCE
GRAPH(1)
The graph
below compares the cumulative total stockholder return from the Common Stock
with the cumulative total return of the Nasdaq Composite Index and the Nasdaq
Biotech Index. The period shown commences on December 31, 1999, and ends on
December 31, 2004. The cumulative total stockholder return assumes that $100 was
invested on December 31, 1999 in the Common Stock.
(1) The
material contained in this Performance Graph shall not be deemed to be
“soliciting material,” or “filed” with the SEC and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or after the date hereof
and irrespective of any general incorporation language in any such
filing.
23
PROPOSAL
IV
PROPOSAL
TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION, AS
AMENDED,
TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
The Board
of Directors of the Company has approved and recommended adoption of an
amendment to the Company’s Restated Certificate of Incorporation, as amended, to
increase the number of authorized shares of Common Stock available for issuance
by the Company from 80 million to 180 million as follows:
“RESOLVED,
that in the judgment of the Board of the Corporation, it is deemed advisable and
in the best interests of the Corporation to amend (the “Charter Amendment”) its
Restated Certificate of Incorporation, as amended, to increase the number of
shares of Common Stock, par value $.001 per share, of the Corporation (“Common
Stock”) which the Corporation shall have the authority to issue from 80 million
to 180 million.
“RESOLVED
that the Chief Executive Officer and each Vice President of the Corporation (the
“Authorized Officers”) be, and each of them hereby is, authorized, empowered and
directed, in the name and on behalf of the Corporation, to take all such action
and to execute the Charter Amendment and any further instruments and documents
as shall be necessary or desirable in connection therewith, in the name and on
behalf of the Corporation, with such changes therein as the Authorized Officer
executing the same shall approve as necessary or desirable, such approval to be
conclusively established by the execution thereof; and that the Corporation be,
and it hereby is, authorized and empowered to perform its obligations
thereunder.
“RESOLVED
that it is recommended that the stockholders of the Corporation approve the
Charter Amendment in its entirety at the Annual Stockholders Meeting of the
Corporation to be held on May 13, 2005.”
The
proposed Charter Amendment to the Restated Certificate of Incorporation, as
amended, will be effected by amending paragraph A. of Article FOURTH thereof to
read in full as follows:
A.
Authorization.
The total
number of shares of all classes of stock which the Corporation shall have
authority to issue is 185,000,000 consisting of 180,000,000 shares of common
stock, par value $.001 per share (the “Common Stock”), and 5,000,000 shares of
preferred stock, par value $.001 per share (the “Preferred Stock”).
The Board
may divide the Preferred Stock into any number of series, fix the designation
and number of shares of each such series, and determine or change the
designation, relative rights, preferences, and limitations of any series of
Preferred Stock. The Board (within the limits and restrictions of any
resolutions adopted by it originally fixing the number of any shares of any
series of Preferred Stock) may increase or decrease the number of shares
initially fixed for any series, but no such decrease shall reduce the number
below the number of shares then outstanding and shares duly reserved for
issuance.”
Purpose
of the Charter Amendment
Of the 80
million shares of Common Stock that are presently authorized, as of March 16,
2005, the Company has a total of approximately 63.2 million shares of Common
Stock either outstanding or reserved for issuance upon exercise of outstanding
warrants and options. The Company believes its current working capital is
sufficient to meet its planned research and development activities into 2006.
The Company will need additional financing from investors or collaborators to
complete research and development and commercialization of its product
candidates currently under development. Presently, the Company has not entered
into any arrangements with respect to any such financings or new collaborations
and has no present intention to engage in any merger, acquisition or similar
transactions. However, the Board of Directors believes it is necessary to have
the ability to issue additional shares of Common Stock from time to time to
address the financing needs of the Company or in connection with strategic
alliances and joint ventures, acquisitions of additional businesses, stock
dividends or distributions, the issuance of options pursuant to the Company’s
stock option plans, and for general and other strategic corporate
purposes.
24
The
proposed increase in the authorized shares of Common Stock is intended to
provide the Board of Directors with authority, without further action of the
stockholders, to issue the additional shares of Common Stock from time to time
and in amounts as the Board of Directors deems necessary, including as described
herein. Without limitation of the foregoing, the additional shares may be issued
in connection with (i) private financings that the Company may seek to effect
pursuant to exemptions from the registration requirements of the Securities Act
and (ii) strategic partnering transactions involving the issuance of securities
pursuant to exemptions from the registration requirements of the Securities
Act.
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
(including projected future earnings per share) and book value per share of all
outstanding shares of the Common Stock. If such factors were reflected in the
price per share of the Common Stock, the potential realizable value of a
stockholder’s investment could be adversely affected. An issuance of additional
shares by the Company, could therefore have an effect on the potential
realizable value of a stockholder’s investment. The Common Stock has no
preemptive rights to purchase additional shares.
The
proposed increase in the authorized number of shares of Common Stock could have
other 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 deter takeovers, 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.
The
Board of Directors recommends that the stockholders vote “FOR” the approval of
the Charter Amendment.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Antonio
Esteve, a member of the Board of Directors since May 21, 2002, is also an
executive officer of the Company’s collaborative partner, Laboratorios Esteve.
On December 3, 2004, the Company and Laboratorios Esteve restructured their
strategic alliance for the development, marketing and sales of the Company’s
products in Europe and Latin America. In the restructuring, the Company regained
full commercialization rights for its surfactant replacement therapy (“SRT”)
products including Surfaxin, for Respiratory Distress Syndrome (“RDS”) and Acute
Respiratory Distress Syndrome (“ARDS”) in Central America, South America and
most countries in Europe. Laboratorios Esteve retained the commercialization
rights of Surfaxin for such indications in Andorra, Greece, Italy, Portugal and
Spain. In consideration for regaining such commercial rights in such markets,
the Company issued to Laboratorios Esteve 500,000 shares of Common Stock for no
cash consideration and the Company agreed to pay to Laboratorios Esteve 10% of
cash up-front and milestone fees (not exceeding $20 million in aggregate) that
the Company may receive in connection with any future strategic collaborations
for the development and commercialization of Surfaxin for RDS, ARDS or certain
of the Company’s SRT products in the territory for which the Company had
previously granted a license to Laboratorios Esteve. The Company also granted to
Laboratorios Esteve rights to additional SRT products in the Company’s
pipeline.
25
The
Company has agreed pursuant to its charter documents to indemnify its directors
to the maximum extent permissible under the General Corporation Law of the State
of Delaware. In addition, the Company has entered into indemnity agreements with
certain of its executive officers which provide, among other things, that the
Company will indemnify such officer, under the circumstances and to the extent
provided for therein, for expenses, damages, judgments, fines and settlements he
or she may be required to pay in actions or proceedings to which he or she is or
may be made a party by reason of his or her position as an officer or other
agent of the Company, and otherwise to the fullest extent permitted under the
General Corporation Law of the State of Delaware and the Company’s
Bylaws.
VOTING
PROCEDURES
The
presence, in person or by proxy, of at least a majority of the holders of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to establish a quorum for the transaction of business. Shares
represented by proxies pursuant to which votes have been withheld from any
nominee for director, or which contain one or more abstentions or broker
“non-votes,” are counted as present for purposes of determining the presence or
absence of a quorum for the Annual Meeting. A “non-vote” occurs when a broker or
other nominee holding shares for a beneficial owner votes on one proposal, but
does not vote on another proposal because the broker does not have discretionary
voting power and has not received instructions from the beneficial
owner.
On each
matter properly brought before the Annual Meeting, holders of shares of Common
Stock will be entitled to one vote for each share of Common Stock held by such
holder as of the Record Date.
Proposal
I.
Directors are elected by a plurality of the votes cast, in person or by proxy,
at the Annual Meeting. The five nominees receiving the highest number of
affirmative votes of the shares present, in person or represented by proxy, and
voting on the election of directors at the Annual Meeting will be elected as
directors. Shares represented by all proxies received by the Board of Directors
and not so marked as to withhold authority to vote for any individual nominee or
for all nominees will be voted (unless one or more nominees are unable to serve)
for the election of the nominees. Where the stockholder properly withheld
authority to vote for a particular nominee or nominees, such stockholder’s
shares will not be counted toward such nominee’s achievement of a
plurality.
Proposal
II. The
proposal to act on the reappointment of the firm of Ernst & Young, LLP as
the Company’s independent auditors for the fiscal year ending December 31, 2005,
must be approved by the vote of a majority of the votes cast, whether in person
or by proxy.
Proposal
III. The
proposal to approve the Amendment to the 1998 Plan must be approved by the vote
of a majority of the votes cast, whether in person or by proxy.
Proposal
IV. The
proposal to approve the Amendment to the Company’s Restated Certificate of
Incorporation, as amended, must be approved by a majority of the votes
represented by all outstanding shares of Common Stock, whether in person or by
proxy. Thus, abstentions, broker non-votes and other non-votes, as well as the
failure of a holder to vote at all, will have the same effect as a vote against
the proposal.
Other
Matters. For all
other proposals described in this Proxy Statement and submitted to stockholders
at the Annual Meeting, the affirmative vote of the majority of holders of the
shares of Common Stock present, in person or represented by proxy, and voting on
that matter is required for approval.
Abstentions
are included in the number of shares present or represented and voting on each
matter and, therefore, with respect to votes on a specific proposal, will have
the effect of negative votes.
Shares
subject to broker “non-votes” are not considered to have been voted for the
particular matter and are not counted as present in determining whether a
majority of the shares present and entitled to vote on a matter have approved
the matter.
If any
other matter not discussed in this Proxy Statement should be presented at the
Annual Meeting upon which a vote may be properly taken, shares represented by
all proxies received by the Board of Directors will be voted with respect
thereto in accordance with the judgment of the persons named in the
proxies.
26
INDEPENDENT
AUDITORS
The
Company expects that a representative of Ernst & Young LLP, the Company’s
independent auditors, will attend the Annual Meeting. Such representative will
have the opportunity to make a statement, if he or she desires, and will be
available to respond to appropriate questions from stockholders.
OTHER
MATTERS
The Board
of Directors is not aware of any matters which will be brought before the Annual
Meeting other than those specifically set forth herein. If any other matter
properly comes before the Annual Meeting, it is intended that the persons named
in and acting under the enclosed proxy or their substitutes will vote thereon in
accordance with their best judgment.
STOCKHOLDER
PROPOSALS
Proposals
of stockholders intended for inclusion in the Proxy Statement to be furnished to
all stockholders entitled to vote at the next annual meeting of stockholders of
the Company must be received at the Company’s principal executive offices not
later than February 15, 2006. In order to curtail controversy as to the date on
which a proposal was received by the Company, it is suggested that proponents
submit their proposals by Certified Mail, Return Receipt Requested.
HOUSEHOLDING
OF PROXY MATERIALS
The SEC
has adopted rules that permit companies and intermediaries (e.g., brokers) to
satisfy the delivery requirements for proxy statements and annual reports with
respect to two or more stockholders sharing the same address by delivering a
single proxy statement addressed to those stockholders. This process, which is
commonly referred to as “householding”, potentially means extra convenience for
stockholders and cost savings for companies.
This
year, a number of brokers with account holders who are stockholders of the
Company will be “householding” the Company’s proxy materials. A single proxy
statement may be delivered to multiple stockholders sharing an address unless
contrary instructions have been received from the affected stockholders. Once a
stockholder has received notice from its broker that it will be “householding”
communications to such stockholder’s address, “householding” will continue until
such stockholder is notified otherwise or until such stockholder notifies its
broker or the Company that it no longer wishes to participate in “householding”.
If, at any time, a stockholder no longer wishes to participate in “householding”
and would prefer to receive a separate proxy statement and annual report in the
future such stockholder may (1) notify its broker, (2) direct its written
request to: Investor Relations, Discovery Laboratories, Inc., 2600 Kelly Road,
Suite 100, Warrington, PA 18976 or (3) contact the Company’s General Counsel,
David L. Lopez, Esq., CPA, at (215) 488-9300. Stockholders who currently receive
multiple copies of the proxy statement at their address and would like to
request “householding” of their communications should contact their broker. In
addition, the Company will promptly deliver, upon written or oral request to the
address or telephone number above, a separate copy of the annual report and
proxy statement to such stockholders at a shared address to which a single copy
of the documents was delivered.
EXPENSES
AND SOLICITATION
The cost
of solicitation of proxies will be borne by the Company. Proxies will be
solicited principally through the mail. Further solicitation of proxies from
some stockholders may be made by directors, officers and regular employees of
the Company personally, by telephone, telegraph or special letter. No additional
compensation, except for reimbursement of reasonable out-of-pocket expenses will
be paid for any such further solicitation. In addition, the Company may request
banks, brokers and other custodians, nominees and fiduciaries to solicit their
customers who have stock of the Company registered in the name of a nominee. The
Company will reimburse such persons for their reasonable out-of-pocket
costs.
27
ANNUAL
REPORT ON FORM 10-K
COPIES OF
THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2004, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, ARE AVAILABLE TO
STOCKHOLDERS WITHOUT CHARGE AT WWW.SEC.GOV,
WWW.DISCOVERYLABS.COM, OR UPON
WRITTEN REQUEST ADDRESSED TO DISCOVERY LABORATORIES, INC., ATTN.: LEGAL
DEPARTMENT, 2600 KELLY ROAD, SUITE 100, WARRINGTON, PENNSYLVANIA
18976.
Your
cooperation in giving this matter your immediate attention and returning your
proxy is appreciated.
| By Order of the Board of Directors, | ||
| |
||
| David L. Lopez, Esq., CPA | ||
| Corporate Secretary | ||
| Warrington, Pennsylvania | ||
| April 12, 2005 |
28
APPENDIX
I
CHARTER
AND POWERS OF THE AUDIT COMMITTEE
RESOLVED,
that the membership of the audit committee shall consist of at least three
independent members of the Board of Directors (as defined under the rules of the
National Association of Securities Dealers), who shall serve at the pleasure of
the Board of Directors.
RESOLVED,
that the charter and powers of the Audit Committee of the Board of Directors
(the "Audit Committee") shall be:
| · |
Assisting
the Board of Directors in the oversight of the maintenance by management
of the reliability and integrity of the accounting policies and financial
reporting and disclosure practices of the
Company; |
| · |
Assisting
the Board of Directors in the oversight of the establishment and
maintenance by management of processes to assure that an adequate system
of internal control is functioning within the
Company; |
| · |
Assisting
the Board of Directors in the oversight of the establishment and
maintenance by management of processes to assure compliance by the Company
with all applicable laws, regulations and Company
policy; |
RESOLVED,
that the Audit Committee shall have the following specific powers and
duties:
| 1. |
Holding
such regular meetings as may be necessary and such special meetings as may
be called by the Chairman of the Audit Committee or at the request of the
independent accountants; |
| 2. |
Reviewing
the performance of the independent accountants and making recommendations
of the Board of Directors regarding the appointment or termination of the
independent accountants; |
| 3. |
Ensuring
its receipt from the independent accountants of a formal written statement
delineating all relationships between the independent accountants and the
Company, consistent with Independence Standards Board
Standard; |
| 4. |
Actively
engaging in a dialogue with the independent accountants with respect to
any disclosed relationships or services that may impact the objectivity
and independence of the independent accountants and for taking or
recommending that the Board of Directors take, appropriate action to
oversee the independence of the outside
auditor; |
| 5. |
Selecting,
evaluating and, where appropriate, replacing the independent auditors (or
nominating independent auditors) to be proposed for shareholder approval
in any proxy statement, which independent auditors shall ultimately be
accountable to the Board of Directors and the Audit
Committee; |
| 6. |
Conferring
with the independent accountants and the internal auditors concerning the
scope of their examinations of the books and records of the Company and
its subsidiaries; reviewing and approving the independent accountants'
annual engagement letter; reviewing and approving the Company's internal
annual audit plans and procedures; and authorizing the auditors to perform
such supplemental reviews or audits as the Committee may deem
desirable; |
| 7. |
Reviewing
with management, the independent accountants' and internal auditors'
significant risks and exposures, audit activities and significant audit
findings; |
A-I-1
| 8. |
Reviewing
the range and cost of audit and non-audit services performed by the
independent accountants; |
| 9. |
Reviewing
the Company's audited annual financial statements and the independent
accountants’ opinion rendered with respect to such financial statements,
including reviewing the nature and extent of any significant changes in
accounting principles or the application
thereof; |
| 10. |
Reviewing
the adequacy of the Company's systems of internal
control; |
| 11. |
Obtaining
from the independent accountants and internal auditors their
recommendations regarding internal controls and other matters relating to
the accounting procedures and the books and records of the Company and its
subsidiaries and reviewing the correction of controls deemed to be
deficient; |
| 12. |
Providing
an independent, direct communication between the Board of Directors,
internal auditors and independent
accountants; |
| 13. |
Reviewing
the adequacy of internal controls and procedures related to executive
travel and entertainment; |
| 14. |
Reviewing
the programs and policies of the Company designed to ensure compliance
with applicable laws and regulations and monitoring the results of these
compliance efforts; |
| 15. |
Reporting
through its Chairman of the Board of Directors following the meetings of
the Audit Committee; |
| 16. |
Reviewing
the powers of the Audit Committee annually and reporting and making
recommendations to the Board of Directors on these
responsibilities; |
| 17. |
Conducting
or authorizing investigations into any matters within the Audit
Committee's scope of responsibilities; |
| 18. |
Establishing
procedures for the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls or
auditing matters and the confidential, anonymous submission by employees
of concerns regarding questionable accounting or auditing matters;
|
| 19. |
Obtaining
regular updates from management and Company counsel regarding compliance
matters and legal matters that may have a significant impact on the
financial statements and related disclosures or the Company's compliance
policies; and |
| 20. |
Considering
such other matters in relation to the financial affairs of the Company and
its accounts, and in relation to the internal and external audit of the
Company as the Audit Committee may, in its discretion, determine to be
advisable. |
A-I-2
APPENDIX
II
CHARTER
AND POWERS OF THE NOMINATING COMMITTEE
WHEREAS,
the Board of Directors (the “Board of Directors”) of Discovery Laboratories,
Inc. (the “Company”), deems it advisable and in the best interests of the
Company to approve and adopt this Nomination Committee Charter (the “Charter”)
to insure that the Board of Directors performs due investigation, oversight and
diligence over the selection of the directors chosen to serve as members of the
Board of Directors by the Board of Directors, management, the shareholders of
the Company or other sources;
WHEREAS,
recent proposed rules by the National Association of Securities Dealers, Inc.
(the “NASD”), seek to require that an issuer whose securities are listed on The
Nasdaq Stock Market (“NASDAQ”) be required to have a charter for its nomination
committee or other body which performs the nomination functions;
WHEREAS,
the Nomination Committee of the Board of Directors (the "Nomination Committee")
does not presently have a charter;
RESOLVED,
that the form, terms, conditions and provisions of this Charter are hereby
approved and adopted by the Board of Directors and the Nomination
Committee;
RESOLVED,
that the membership of the Nomination Committee shall consist of at least three
independent members of the Board of Directors (as defined under the rules of the
NASDAQ), who shall serve at the pleasure of the Board of Directors, subject to
the terms and provisions of this Charter and the By-Laws of the
Company;
RESOLVED,
that the charter and powers of the Nomination Committee shall be:
| · |
Assisting
the Board of Directors in the oversight of the establishment and
maintenance by the Board of Directors of processes to assure that a
procedure is in place to nominate persons to serve on the Board of
Directors and to monitor the continued candidacy of the
directors; |
| · |
Assisting
the Board of Directors in the oversight of the establishment and
maintenance by management of processes to assure compliance by the Company
with all applicable laws, regulations and Company policy with respect to
the membership of the Board of Directors; |
| · |
Assisting
the Board of Directors in identifying individuals qualified to become
directors and to recommend to the Board of Directors nominees to fill
vacancies in membership of the Board of Directors as they occur and, prior
to each Annual Meeting of Stockholders, recommend a slate of nominees for
election as directors at such meeting; |
| · |
Recommending
to the Board of Directors guidelines on Corporate Governance applicable to
the Company; |
| · |
Assisting
the Board of Directors in any self review of the performance of the Board
of Directors; and |
| · |
To
recommend to the Board of Directors the director nominees for each
committee of the Board of Directors; |
RESOLVED,
that the Nomination Committee shall have the following specific powers and
duties:
1. Holding
such regular meetings as may be necessary and such special meetings as may be
called in accordance with the By-Laws of the Company;
2. Evaluating
the composition and organization of the Board of Directors and its committees in
light of requirements established by the NASD or any other applicable statute,
rule or regulation which the Nomination Committee deems relevant, and making
recommendations regarding the foregoing to the Board of Directors for
approval;
3. Reviewing
the composition and size of the Board of Directors in order to ensure that the
Board of Directors is comprised of directors with a reasonable balance of the
proper professional, business and financial expertise, skills, attributes and
personal and professional backgrounds appropriate for the Company, as determined
by the Nomination Committee;
A-II-1
4. Determining
the criteria for selection by the Board of Directors of the Chairman of the
Board, the individual directors and the members of the committees of the Board
of Directors;
5. Evaluating
and recommending to the Board of Directors the appointment of the Chairman of
the Board and of directors to committees of the Board of Directors including the
chairpersons of each such committee;
6. Reviewing
and evaluating the performance of current directors proposed for reelection and
making recommendations to the Board of Directors regarding the appropriateness
of directors standing for reelection;
7. Identifying,
evaluating and approving a slate of nominees for election to the Board at the
Annual Meeting of Stockholders or any other meetings of stockholders and
reviewing the qualifications, experience and fitness for service on the Board of
Directors of any potential directors;
8. Identifying,
evaluating and approving new directors upon the resignation or removal of
directors or any other vacancies of the Board of Directors, or any planned
expansion of the Board of Directors, and reviewing the qualifications,
experience and fitness for service on the Board of Directors of all such
potential directors;
9. Reviewing,
evaluating and approving all nominees for election to the Board of Directors
submitted by Stockholders in compliance with the Securities Exchange Act of 1934
and the By-Laws of the Company, and, if such candidates meet the qualifications
for candidacy as determined by the Nomination Committee in its sole discretion,
approving such nominees as candidates for election at the Company’s next
election of directors;
10. Reviewing,
evaluating and approving all stockholder proposals submitted to the Company
(including any proposal relating to the nomination of a candidate for election
to the Board of Directors) and the timeliness of the submission thereof and
recommending to the Board of Directors appropriate action on each such
proposal;
11. Evaluating
and, if deemed necessary, recommending, the termination of membership of any
director in accordance with the applicable code of conduct or ethics of the
Company, if any, or any corporate governance principles adopted by the Company
or the Board of Directors, for cause or for any other appropriate
reason;
12. Reviewing
annually the performance of the Board of Directors and each committee of the
Board of Directors;
13. Reporting
to the Board of Directors following each meeting of the Nomination
Committee;
14. Reviewing
this Charter and the powers of the Nomination Committee annually and reporting
and making recommendations to the Board of Directors with respect to these
responsibilities;
15. Approving
the compensation of the Company’s chief executive officer and of other executive
officers of the Company;
16. Conducting
or authorizing investigations into any matters within the Nomination Committee’s
scope of responsibilities; and
17. Considering
such other matters in relation to the management of the Board of Directors as
the Nomination Committee may, in its discretion, determine to be
advisable;
A-II-2
RESOLVED,
that the Nomination Committee shall apply the following criteria in its decision
in its approval of nominees for election to the Board of Directors:
1. Directors
should be of the highest ethical character and share the values of the Company;
2. Directors
should have reputations, both personal and professional, consistent with the
image and reputation of the Company;
3. Directors
should be highly accomplished in their respective fields, with superior
credentials and recognition;
4. In
selecting directors, the Board of Directors should generally seek active and
former members of the management of public and private companies and other
organizations, including scientific, government, educational and other
non-profit institutions;
5. As the
foundation of the Company is in biotechnology, the Board of Directors should
also seek some directors who are widely recognized as leaders in the fields of
medicine or the biological sciences, including those who have received the most
prestigious awards and honors in their fields;
6. Each
director should have relevant expertise and experience, and be able to offer
advice and guidance to the Board of Directors and the executive officers based
on such expertise and experience;
7. The
majority of directors should be “independent,” not only as that term may be
legally defined, but also without the appearance of any conflict in serving as a
Director. In addition, Directors should be independent of any particular
constituency and be able to represent all shareowners of the Company;
and
8. Each
Director should have the ability to exercise sound business
judgment.
A-II-3
| PROXY |
Discovery Laboratories,
Inc. |
|
|
THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS | ||
The
undersigned, revoking all prior proxies, hereby appoints Robert J. Capetola,
Ph.D., with full power of substitution, as proxy to represent and vote all
shares of Common Stock, par value $.001 per share, of Discovery Laboratories,
Inc. (the “Company”), which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the Company to be
held on May 13, 2005, at 9:00 a.m. Eastern Daylight Time at the James A.
Michener Art Museum, 138 South Pine Street, Doylestown, PA 18901, and at all
adjournments or postponements thereof, upon matters set forth in the Notice of
Annual Meeting of Stockholders and Proxy Statement dated April 12, 2005, a copy
of which has been received by the undersigned. Each share of Common Stock is
entitled to one vote. The proxies are further authorized to vote, in their
discretion, upon such other business as may properly come before the meeting or
any adjournments or postponements thereof. Each of Items 1, 2, 3 and 4 is
proposed by the Company.
Proposal
Number 1 -
Election
of Directors to serve until the next Annual Meeting of Stockholders and until
their respective successors have been duly elected and qualified, or until their
earlier resignation or removal.
| FOR ALL NOMINEES listed below | WITHHOLD AUTHORITY | |
| (except as marked to the contrary below): o | to vote for all nominees listed below: o | |
| (INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a line through the nominee’s name in the list below.) | ||
|
Nominees:
W.
Thomas Amick; Robert J. Capetola, Ph.D.; Antonio Esteve, Ph.D.; Max Link,
Ph.D.; Herbert H. McDade, Jr.; Marvin E. Rosenthale,
Ph.D. | ||
Proposal
Number 2 -
Approval of Ernst & Young LLP as the Company’s independent auditors for the
fiscal year ending December 31, 2005
| FOR o | AGAINST o | ABSTAIN o |
Proposal
Number 3
- - Consideration
and approval of an amendment to the Company's Amended and Restated 1998 Stock
Incentive Plan (the "1998 Plan") that increases the number of shares of Common
Stock available for issuance under the 1998 Plan by 3,000,000
shares.
| FOR o | AGAINST o | ABSTAIN o |
Proposal
Number 4
- - Consideration
and approval of an amendment to the Company’s Restated Certificate of
Incorporation that increases the number of shares of authorized Common Stock
from 80 million to 180 million.
| FOR o | AGAINST o | ABSTAIN o |
(continued)
THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE NOMINEES SET FORTH ABOVE AS DIRECTORS, FOR THE APPROVAL
OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT AUDITORS, FOR THE APPROVAL
OF THE AMENDMENT TO THE 1998 PLAN, AND FOR THE APPROVAL OF THE AMENDMENT TO THE
COMPANY’S RESTATED CERTIFICATE OF INCORPORATION.
| The undersigned hereby acknowledges receipt of the | ||
| Notice of Annual Meeting, Proxy Statement and Annual | ||
| Report of Discovery Laboratories, Inc. | ||
| Signature of Stockholder Date | ||
| Signature of Stockholder Date | ||
| PLEASE SIGN THIS PROXY EXACTLY AS YOUR | ||
| NAME OR NAMES APPEAR ON THE BOOKS OF THE | ||
| COMPANY. JOINT OWNERS SHOULD EACH SIGN | ||
| PERSONALLY. ATTORNEY, EXECUTOR, | ||
| ADMINISTRATOR, TRUSTEE OR GUARDIAN MUST | ||
| GIVE FULL TITLE AS SUCH. IF A CORPORATION OR | ||
| PARTNERSHIP, THE SIGNATURE SHOULD BE THAT | ||
| OF AN AUTHORIZED PERSON WHO SHOULD | ||
| Please Date, Sign and Mail in the Enclosed Reply Envelope. | STATE HIS OR HER TITLE. |