SCHEDULE
14A
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
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by
a Party other than the Registrant [ ]
Check
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appropriate box:
[
] Preliminary Proxy Statement
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] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X]
Definitive Proxy Statement
[
] Definitive Additional Materials
[
] Soliciting Material Pursuant to § 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.
[
] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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of each class of securities to which transaction applies: not
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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
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Proposed
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[
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[
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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.
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Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976-3622
(215)
488-9300
___________________________________________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
be
held on June 8, 2006
___________________________________________________
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 June 8, 2006, at 9:00 a.m. Eastern
Daylight Time at the New York Athletic Club at 180 Central Park South, New
York,
NY 10019 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;
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II.
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To
act upon the selection of Ernst & Young LLP as the Company’s
independent auditors for the fiscal year ending December 31,
2006;
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III.
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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 1,200,000 shares;
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IV.
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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 April
17,
2006, 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 18976-3622 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
21,
2006
[THIS
PAGE INTENTIONALLY LEFT BLANK]
DISCOVERY
LABORATORIES, INC.
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
June
8, 2006
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 18976-3622, for use at the Annual Meeting of
Stockholders and any adjournment or postponement thereof (the “Annual Meeting”)
to be held on Wednesday, June 8, 2006, at 9:00 a.m. Eastern Daylight Time at
the
New York Athletic Club at 180 Central Park South, New York, NY 10019. It is
expected that this Proxy Statement and the form of proxy will be mailed to
stockholders on or about April 24, 2006.
Only
holders of record, as of April 17, 2006 (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 61,223,973 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 and not properly revoked 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, to increase the number of shares of Common Stock available for issuance
under the plan by 1,200,000 shares, 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 any of
foregoing matters, the shares represented by the proxy will be voted in
accordance with such 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, our stockholders will be asked to elect six directors for a
one-year term expiring at the next annual meeting of stockholders. Each director
will hold office until his or her successor has been elected and qualified
or
until the director’s earlier resignation or removal.
The
Board
of Directors 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. The directors are
elected by a plurality of the votes cast by the stockholders present or
represented by proxy and entitled to vote at the Annual Meeting. See “Voting
Procedures” on page 28 below.
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” within the meaning of the rules of the
Securities and Exchange Commission (“SEC”) and the qualitative listing
requirements of The Nasdaq Stock Market (“Nasdaq”).
The
Board
of Directors appoints all members of the Board committees. The Board of
Directors has an Audit Committee, a Compensation Committee, a Nominating
Committee, and a Compliance and Quality Committee. The Board has affirmatively
determined that each director who serves on these committees is “independent”
within the meaning of the SEC rules and the qualitative listing requirements
of
Nasdaq.
The
Board
of Directors met four times in person and seven times telephonically during
the
fiscal year ended December 31, 2005. Except for Antonio Esteve, Ph.D., who
has
attended, either in person or by telephone, three meetings of the Board of
Directors during the fiscal year ended December 31, 2005, each incumbent
director attended, in person or by telephone, at least 80% 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
2006
Annual Meeting, however, it is expected, absent good reason, that all directors
will be in attendance. Five directors attended the Company’s 2005 Annual
Meeting.
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:
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·
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overseeing
the Company’s financial statements, system of internal controls, auditing,
accounting and financial reporting
processes;
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·
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appointing,
compensating, evaluating and, when appropriate, replacing independent
auditors;
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·
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overseeing
the Company’s tax compliance;
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2
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·
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reviewing
with management and the Company’s independent auditors the annual audit
plan;
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·
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reviewing
the Audit Committee charter;
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·
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reviewing
and pre-approving audit and permissible non-audit services;
and
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·
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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
qualitative listing requirements of Nasdaq 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 defined in Rule 4200(a)(15) of the Nasdaq
Marketplace Rules and meet Nasdaq’s current financial sophistication
requirements. The Audit Committee met formally four times during 2005. See
the
Report of the Audit Committee, below.
The
Board
of Directors has determined that Max E. Link, Ph.D. is an “audit committee
financial expert” as defined under SEC rules.
Compensation
Committee
The
Compensation Committee currently consists of Herbert H. McDade, Jr., Max E.
Link, Ph.D., and Marvin E. Rosenthale, Ph.D. There are no “interlocks” as
defined by the SEC, with respect to any member of the Compensation Committee.
Primary functions include:
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·
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reviewing
and making recommendations concerning executive and general compensation
matters;
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·
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administering
the 1998 Plan together with the Board of
Directors;
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·
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evaluating
and overseeing primary strategies for employee and executive
development;
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·
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determining
compensation policies applicable to the Company’s executive
officers;
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·
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determining
the compensation of the Chief Executive
Officer;
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·
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overseeing
significant employee benefits programs, policies and plans relating
to the
Company’s employees and executives;
and
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·
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overseeing
human resources programs, compensation, benefits and equity plan
matters.
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The
Compensation Committee met formally one time during 2005.
Compliance
and Quality Committee
The
Compliance and Quality Committee was established by the Board of Directors
in
December 2005. The Compliance and Quality Committee currently consists of W.
Thomas Amick and Max E. Link, Ph.D. Primary functions include:
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·
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providing
oversight for the development, implementation performance and enforcement
of legal and regulatory compliance
programs;
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·
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verifying
the adequacy of such compliance and quality
programs;
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·
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investigating
and reporting non-compliance matters to the Board of Directors and
applicable legal and regulatory
authorities;
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·
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providing
an independent, direct communication between the Board of Directors
and
internal auditors; and
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|
·
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establishing
procedures for the receipt, retention and treatment of complaints
regarding legal and regulatory compliance
matters.
|
3
The
Compliance and Quality Committee formally met one time during 2005.
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:
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·
|
overseeing
the composition, structure and evaluation of the Board and its
committees;
|
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·
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identifying
qualified candidates for election to the Board;
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·
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establishing
procedures for director candidate nomination and evaluation;
and
|
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·
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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 and to fill vacancies on the Board of Directors occurring between
such annual meetings. All members of the Nominating Committee are “independent”
as defined in the listing standards of the Nasdaq.
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 may 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.
The
Nominating Committee met formally one time during 2005. 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 18976-3622. 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 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. 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 Nasdaq. 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’s Compliance Office.
4
A
copy of
the Code is posted on the Company’s website at http://www.discoverylabs.com and
can also be obtained, without charge, by request from the Secretary of the
Company at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania 18976-3622.
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 rules and regulations of the SEC and Nasdaq. The Company’s
website and the information contained therein or connected thereto are not
incorporated into this Proxy Statement.
5
Report
of the Audit Committee(1)
In
fulfilling its oversight responsibilities, the Audit Committee reviewed and
discussed the Company’s audited consolidated 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. 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 independent auditors noted 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 addressed 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.
The
Audit
Committee discussed with the Company’s independent auditors the overall scope
and plans for their audit. 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, 2005 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 2006.
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.
|
6
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” below.
|
Name
|
Age
|
Position
with the Company
|
|
W.
Thomas Amick
|
63
|
Director
|
|
Robert
J. Capetola, Ph.D.
|
56
|
Director,
Chief Executive Officer
|
|
Antonio
Esteve, Ph.D.
|
48
|
Director
|
|
Max
E. Link, Ph.D.
|
65
|
Director
|
|
Herbert
H. McDade, Jr.
|
79
|
Director,
Chairman of the Board of Directors
|
|
Marvin
E. Rosenthale, Ph.D.
|
72
|
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, Harvard Business School and Darden School of
Business.
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 the President of Laboratorios Esteve. 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 four other publicly-traded life science
companies: Alexion Pharmaceuticals, Inc., Celsion Corporation, PDL BioPharma,
Inc. and Human Genome Sciences, 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.
7
Herbert
H. McDade, Jr.
has
served as a Director of the Company since June 1996 and as its Chairman since
June 2000. 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. Mr. McDade is a member of the board
of
directors 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.
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. 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 currently serves on the boards of directors of
a
publicly-held company, AMDL, Inc., and several privately-held companies. 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” each of the nominees to the Board of
Directors set forth above.
8
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, 2006.
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
& Young LLP for the audit of the Company’s annual consolidated financial
statements for the fiscal years ended December 31, 2005 and December 31,
2004,
and fees for other services rendered by Ernst & Young LLP during those
periods:
| Fee Category: |
Fiscal
2005
|
|
|
%
of Total
|
Fiscal
2004
|
%
of Total
|
|||||||
|
Audit
Fees
|
$
|
327,000
|
92
|
%
|
$
|
246,000
|
90
|
%
|
|||||
|
Audit-Related
Fees
|
-
|
0
|
%
|
-
|
0
|
%
|
|||||||
|
Tax
Fees:
|
|||||||||||||
|
Tax
compliance/preparation
|
23,000
|
6
|
%
|
19,000
|
7
|
%
|
|||||||
|
Other
tax services
|
2,000
|
1
|
%
|
7,000
|
3
|
%
|
|||||||
|
Total
Tax Fees
|
25,000
|
7
|
%
|
26,000
|
10
|
%
|
|||||||
|
All
Other Fees
|
2,000
|
1
|
%
|
2,000
|
1
|
%
|
|||||||
|
Total
Fees
|
$
|
354,000
|
100
|
%
|
$
|
274,000
|
100
|
%
|
“Audit
fees” are fees that the Company paid to Ernst & Young LLP for: the audit of
the Company’s annual consolidated financial statements; the review of the
consolidated financial statements included in the Company’s quarterly reports on
Form 10-Q; the audit of the Company’s internal control over financial reporting
with the objective of obtaining reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects; the attestation of management’s report on the effectiveness of
internal control over financial reporting; and services related to registration
statements and other offering memoranda. “Tax fees” consisted of tax
compliance/preparation and other tax services. No portion of these tax fees
related to financial information or operational system design or implementation
services. “All other fees” are fees for any services not included in the first
three categories.
The
Audit
Committee, or a designated member thereof, pre-approved all audit and non-audit
services rendered by Ernst & Young LLP to the Company in 2005.
The
Audit
Committee has considered whether the provision of all other services by Ernst
& Young LLP is compatible with maintaining the independence of Ernst &
Young LLP and has concluded that Ernst & Young LLP is
independent.
Representatives
of Ernst & 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.
9
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 of the Audit Committee 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.
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.
The
Board of Directors recommends a vote “FOR” this proposal.
10
PROPOSAL
III
PROPOSAL
TO AMEND THE AMENDED AND RESTATED 1998 STOCK INCENTIVE PLAN
TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
Stockholders
are being asked to approve an amendment (the “Amendment”) to the Company’s
Amended and Restated 1998 Stock Incentive Plan, as amended (the “1998 Plan”), to
increase the number of shares of Common Stock reserved for issuance thereunder
by 1,200,000 shares, from 12,570,000 shares to 13,770,000 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 9, 2006, to be effective upon
stockholder approval. If the Amendment is not approved, the Company will
have
only 802,004 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.
The
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 of Directors 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 2005, 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, 3,000,000 and 3,000,000 shares, respectively. Currently,
the number of shares of Common Stock authorized for issuance under the 1998
Plan
is 12,570,000 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.
The
1998 Plan is accessible without charge by referring to Exhibit 4.1 to the
Company’s registration statement on Form S-8 filed with the SEC on August 23,
2005 at www.sec.gov. A copy of the 1998 Plan can be obtained by writing to
the
Secretary of the Company at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania
18976-3622.
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 Program
and
the Stock Issuance Program. 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.
11
Number
of
Shares
Currently,
the maximum number of shares available for issuance under the 1998 Plan is
12,570,000. As it is proposed to be amended, the 1998 Plan would provide
for the
issuance of up to 13,770,000 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,
employees, non-employee directors, independent consultants and advisors in
the
service of the Company or its subsidiary are eligible to participate in the
Discretionary Option Grant Program and the Stock Issuance Program. Only
non-employee directors are eligible to participate in the Automatic Option
Grant
Program. As of the date of this Proxy Statement, ten executive officers,
139
other employees and five 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 Nasdaq.
On
April 17, 2006, the closing selling price per share of Common Stock was
$4.36.
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, in connection with the
optionee’s estate plan, may also be assigned during the optionee’s lifetime 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 to determine option vesting
and exercisability, including upon the event of a participant’s termination of
service, whether 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.
12
Automatic
Option Grant Program
Non-employee
directors are eligible to receive option grants under the Automatic Option
Grant
Program. 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 an option to purchase
25,000 shares of Common Stock.
The
shares subject to each outstanding automatic option grant will vest immediately
if 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 pursuant to the optionee’s will or the laws of
inheritance and, in connection with the optionee’s estate plan, may also be
assigned during the optionee’s lifetime 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 1998 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.
13
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.
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 March 24,
1998,
the date of its adoption 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.
14
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 of shares of Common Stock to be issued upon exercise
of
outstanding options, the weighted-average exercise price of such outstanding
options and the number of shares of Common Stock remaining available for
future
issuance under the Company’s equity compensation plans, at April 17,
2006:
| Plan Category |
Number
of securities to be issued upon exercise of outstanding options
and
rights
|
|
|
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 |
9,294,689
|
(1)
|
$
|
6.35
|
802,004 | |||||
| Equity compensation plans not approved by security holders |
-
|
-
|
- | |||||||
|
Total
|
9,294,689
|
$
|
6.35
|
802,004
|
|
(1)
|
This
amount includes 9,196,091 shares issuable upon the exercise of
outstanding
stock options and 98,598 shares of restricted
stock.
|
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 thereunder by 1,200,000 shares.
15
SECURITY
OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL
OWNERS
The
following table sets forth, as of April 17, 2006, 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, Suite 100, Warrington,
Pennsylvania 18976-3622, unless otherwise noted.
|
Name
of Beneficial Owner (1)
|
Shares
|
Stock
Options
|
Total
Beneficial
Ownership
|
Percentage
of Class Beneficially
Owned(1)
|
|||
|
W.
Thomas Amick
|
-
|
80,000
|
80,000
|
*
|
|||
|
Robert
J. Capetola, Ph.D. (2)
|
491,947
|
1,686,083
|
2,178,030
|
3.46%
|
|||
|
John
G. Cooper (3)
|
28,469
|
715,624
|
744,093
|
1.20%
|
|||
|
Antonio
Esteve, Ph.D. (4)
|
3,206,689
|
136,174
|
3,342,863
|
5.46%
|
|||
|
Max
E. Link, Ph.D.
|
126,821
|
65,000
|
191,821
|
*
|
|||
|
David
L. Lopez, Esq., CPA (5)
|
20,709
|
618,916
|
639,625
|
1.03%
|
|||
|
Herbert
H. McDade, Jr.
|
-
|
105,000
|
105,000
|
*
|
|||
|
Mark
Osterman (6)
|
7,497
|
346,250
|
353,747
|
*
|
|||
|
Marvin
E. Rosenthale, Ph.D.
|
122,100
|
65,000
|
187,100
|
*
|
|||
|
Christopher
J. Schaber, Ph.D. (7)
|
233,289
|
762,218
|
995,507
|
1.61%
|
|||
|
Laboratorios
del Dr. Esteve, S.A. (8)
Av.
Mare de Deu de Montserrat, 221
08041
Barcelona (Spain)
|
3,201,574
|
51,174
|
3,252,748
|
5.31%
|
|||
|
Heartland
Advisors Inc. (9)
789
North Water Street
Milwaukee,
WI 53202
|
3,734,500
|
-
|
3,734,500
|
6.10%
|
|||
| All
Discovery directors and officers as a
group
(15 persons)
|
4,263,546
|
5,598,721
|
9,862,267
|
14.76%
|
*
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 April
17, 2006 held by each person or group named above,
are deemed outstanding for computing the percentage ownership of
the
person or group holding such options or warrants, but are not deemed
outstanding for purposes of computing the percentage ownership
of any
other person or group.
|
|
(2)
|
Includes
250,000 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. Also includes
15,000
shares of restricted stock awarded that shall fully vest on the
date that
Surfaxin for RDS first becomes widely commercially available, as
such date
is determined by the Company.
|
16
|
(3)
|
Includes
80,000 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. Also includes
9,000
shares of restricted stock awarded that shall fully vest on the
date that
Surfaxin for RDS first becomes widely commercially available, as
such date
is determined by the Company.
|
| (4) |
Beneficial
ownership of Common Stock includes 2,884,410 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 President 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 85,000 shares of Common Stock
issuable upon the exercise of outstanding options held by Dr.
Esteve.
|
|
(5)
|
Includes
70,000 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. Also
includes 9,000 shares of restricted stock awarded that shall fully
vest on
the date that Surfaxin for RDS first becomes widely commercially
available, as such date is determined by the
Company.
|
|
(6)
|
Includes
6,000 shares of restricted stock awarded that shall fully vest
on the date
that Surfaxin for RDS first becomes widely commercially available,
as such
date is determined by the Company.
|
|
(7)
|
Includes
100,000 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. Also includes
9,000
shares of restricted stock awarded that shall fully vest on the
date that
Surfaxin for RDS first becomes widely commercially available, as
such date
is determined by the Company.
|
|
(8)
|
Beneficial
ownership of Common Stock includes 317,164 shares owned by Laboratorios
P.E.N., an affiliate of Laboratorios
Esteve.
|
|
(9)
|
Includes
shares managed by Heartland Advisors. Heartland Advisors manages
the
Heartland family of mutual funds and separate institutional and
individual
portfolios. Information in the table and this footnote is as of
April 17,
2006 and based on information that the Company directly obtained
from
Heartland Advisors.
|
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended (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, 2005, and representations made by the Reporting Persons, the
Company believes that during fiscal year 2005 its Reporting Persons complied
with all substantive filing requirements under Section 16(a) of the Exchange
Act.
17
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
a one-time 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 be immediately
exercisable and shall have a maximum term of 10 years, subject to earlier
termination should the optionee cease to serve as a director of the Company.
However, such 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; the Compliance and Quality 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.
|
56
|
President,
Chief Executive Officer and Director
|
|
Kathryn
A. Cole
|
40
|
Senior
Vice President, Human Resources
|
|
John
G. Cooper
|
47
|
Executive
Vice President, Chief Financial Officer
|
|
Charles
F. Katzer
|
56
|
Senior
Vice President, Manufacturing Operations
|
|
David
L. Lopez, Esq., CPA
|
48
|
Executive
Vice President, General Counsel and Chief Compliance
Officer
|
|
Kathleen
A. McGowan
|
45
|
Director
of Finance & Controller
|
|
Mark
G. Osterman
|
41
|
Senior
Vice President, Sales and Marketing
|
|
Christopher
J. Schaber, Ph.D.
|
39
|
Executive
Vice President, Chief Operating Officer
|
|
Robert
Segal, M.D., F.A.C.P.
|
49
|
Senior
Vice President, Medical/Scientific Affairs & Chief Medical
Officer
|
|
Deni
M. Zodda, Ph.D.
|
52
|
Senior
Vice President, Business
Development
|
Robert
J. Capetola, Ph.D.
- Please
refer to the Director’s section of Proposal I for a biographical discussion of
Dr. Capetola.
Kathryn
A. Cole has
been
with the Company since January 2006 and currently serves as Senior
Vice President, Human Resources. From 2001 through 2005, Ms. Cole served
as Vice
President, Human Resources for Savient Pharmaceuticals Inc., a publicly-traded
specialty pharmaceutical company, where she was responsible for creating
and
implementing the human resources strategy for the corporate office, commercial
operations, and its subsidiary, Rosemont Pharmaceuticals, LTD. of Leeds,
United
Kingdom. Ms. Cole has also held various human resources management positions
with companies such as Cytogen Corporation, EpiGenesis Pharmaceuticals, and
the
Prudential Insurance Company of America. Ms. Cole received her undergraduate
degree in Communication from Douglass College and her Master of Science degree
in Industrial Relations and Human Resources from the Rutgers University School
of Management and Labor Relations.
18
John
G. Cooper
has been
with the Company since December 2001 and currently serves as Executive Vice
President and Chief Financial Officer. Mr. Cooper has over 25 years of business
experience primarily in the life sciences industry with responsibilities
including finance, accounting, mergers & acquisitions, investor relations,
corporate development, management information systems, and general manager
and
board of directors for operating subsidiaries. Previously, he was Chief
Financial Officer at Traffic.com, Inc., formerly Mobility Technologies, Inc.,
commencing November 2000 and Chief Financial Officer at Taratec Development
Corporation, commencing May 1999. From 1995 to 1999, Mr. Cooper served as
Senior
Vice President & Chief Financial Officer of Chrysalis International
Corporation, a public company acquired by MDS Pharmaceuticals Inc., providing
pharmaceutical development services. From 1989 to 1995, Mr. Cooper was with
DNX
Corporation, a 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. Earlier he held financial 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.
Charles
F. Katzer
has been
with the Company since January 2006 and serves as Senior Vice President,
Manufacturing Operations. From 2000 through 2005, he held the position of
Vice
President, Vaccine Manufacturing at MedImmune Vaccines, Inc. Prior to that
time
and during his over 30 years experience in the pharmaceutical industry, he
has
held positions of increasing responsibility in Manufacturing, Quality Assurance,
Supply Chain, Engineering and Research with MedImmune, U.S. Bioscience, Rhone
Poulenc Rorer, Baxter Travenol, McGaw Laboratories and Biological Specialties.
Mr. Katzer holds a B.S. degree in Zoology from the University of
Wisconsin.
David
L. Lopez, Esq., CPA has
been
with the Company since April 2000 and serves as Executive Vice President,
General Counsel and Chief Compliance Officer. 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 Director of Finance and
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 held
management positions with Johnson & Johnson, primarily at Ortho-McNeil
Pharmaceutical and Johnson & Johnson Corporate, with diverse
responsibilities, including financial reporting, planning 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
May
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.
19
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,
medical affairs, regulatory affairs, quality 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 Worldwide Director of Regulatory
Affairs and Operations. 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, development 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 School of Pharmacy 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 has over 25 years of medical and pharmaceutical
experience in the field. Dr. Segal serves as Senior Vice President, Medical
and
Scientific Affairs 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.
Deni
M. Zodda, Ph.D.
has
served as Senior Vice President, Business Development of the Company since
September 2000. Dr. Zodda has 25 years experience in business development,
marketing, operations management and finance in the pharmaceutical,
biotechnology and medical device industries. Dr. Zodda is responsible for
business development activities of the Company including the establishment
and
management of strategic alliances, product/technology acquisition, strategy
development and co-chairs the Company’s launch operations committee. Previously,
he held the position of Managing Director and Head of the Corporate Finance-Life
Sciences Group at KPMG, LLC, commencing March 1998. Prior to joining KPMG,
Dr.
Zodda was employed as Senior Director of Business Development at Cephalon,
Inc., from
1995
through 1997. Earlier in his career, he held increasingly senior marketing
and
business development positions with Wyeth-Ayerst Laboratories, Inc.; Premier
Hospitals Alliance, Inc.; Baxter Healthcare Corporation, Inc.; and SmithKline
Diagnostics, Inc. Dr. Zodda holds a B.S. in Biology from Villanova University,
an M.B.A. in Marketing and Finance from the University of Santa Clara, and
a
Ph.D. from the University of Notre Dame.
Family
Relationships
There
are
no family relationships among directors or executive officers of the
Company.
20
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, if applicable.
|
Annual
Compensation
|
Long
Term Compensation
|
||||||||||||||||||
|
Name
and Principal Position
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Other
Annual Compensation
|
|
|
Securities
Underlying
Options
(#)
|
|
|
All
Other
Compensation
|
|||
|
Robert
J. Capetola, Ph.D.
|
2005
|
$
|
440,000
|
$
|
300,000
|
(1)
|
$
|
10,000
|
500,000
|
$
|
7,000
|
(4)
|
|||||||
|
President,
Chief Executive Officer
|
2004
|
390,000
|
325,000
|
(2)
|
10,000
|
538,000
|
6,500
|
(4)
|
|||||||||||
|
and
Director
|
2003
|
314,000
|
275,000
|
(3)
|
10,000
|
365,000
|
6,000
|
(4)
|
|||||||||||
|
John
G. Cooper
|
2005
|
275,000
|
90,000
|
(1)
|
-
|
75,000
|
7,000
|
(4)
|
|||||||||||
|
Exec.
Vice President, Chief
|
2004
|
240,000
|
100,000
|
(2)
|
-
|
275,000
|
6,500
|
(4)
|
|||||||||||
|
Financial
Officer
|
2003
|
203,000
|
85,000
|
(3)
|
-
|
80,000
|
6,000
|
(4)
|
|||||||||||
|
David
L. Lopez, Esq., CPA
|
2005
|
260,000
|
90,000
|
(1)
|
-
|
70,000
|
7,000
|
(4)
|
|||||||||||
|
Exec.
Vice President, General
|
2004
|
230,000
|
100,000
|
(2)
|
-
|
200,000
|
6,500
|
(4)
|
|||||||||||
|
Counsel
|
2003
|
198,000
|
50,000
|
(3)
|
-
|
100,000
|
6,000
|
(4)
|
|||||||||||
|
Mark
G. Osterman
|
2005
|
250,000
|
65,000
|
(1)
|
-
|
70,000
|
7,000
|
(4)
|
|||||||||||
|
Senior
Vice President, Sales &
|
2004
|
139,474
|
70,000
|
(2),(5)
|
-
|
290,000
|
1,622
|
(4)
|
|||||||||||
|
Marketing
|
2003
|
-
|
-
|
(6)
|
-
|
-
|
-
|
||||||||||||
|
Christopher
J. Schaber, Ph.D.
|
2005
|
290,000
|
100,000
|
(1)
|
-
|
80,000
|
7,000
|
(4)
|
|||||||||||
|
Exec.
Vice President, Chief
|
2004
|
250,000
|
150,000
|
(2)
|
-
|
275,000
|
6,500
|
(4)
|
|||||||||||
|
Operating
Officer
|
2003
|
230,000
|
125,000
|
(3)
|
-
|
60,000
|
15,816
|
(4)
|
|||||||||||
Notes
to Summary Compensation Table:
| (1) |
Includes
2005 bonus paid in 2006.
|
| (2) |
Includes
2004 bonus paid in 2005.
|
| (3) |
Includes
2003 bonus paid in 2004.
|
| (4) |
Includes
the Company's contributions to the 401(k) savings plan in newly
issued
shares of Common Stock.
|
| (5) |
Includes
$25,000 bonus paid in connection with employee’s sign-on
agreement.
|
| (6) |
Mr.
Osterman was not an executive officer of the Company during
2003.
|
21
Option
Grants During Last Fiscal Year
The
following table contains information concerning the stock option grants
(including grants of Contingent Milestone Options) made to the Named Officers
for the fiscal year ended December 31, 2005. No stock appreciation rights
were
granted to these individuals during such year.
|
Number
of
|
%
of Total Options
|
Potential
Realized Value at Assumed Annual Rates
of Stock Price Appreciation for Option Term (2)
|
|||||||||||||||||
| Name |
Securities
Underlying
Options
Granted
|
|
|
Granted
to Employees
in
Fiscal Year
|
|
|
Exercise
or Base Price
($/share)
(1)
|
|
|
Expiration
Date
|
|
|
5%
|
10%
|
|||||
|
Robert
J. Capetola, Ph.D.
|
500,000
|
24.1
|
%
|
$
|
9.02
|
12/17/14
|
$
|
2,836,315
|
$
|
7,187,779
|
|||||||||
|
John
G. Cooper
|
75,000
|
3.6
|
%
|
9.02
|
12/17/14
|
425,447
|
1,078,167
|
||||||||||||
|
David
L. Lopez, Esq., CPA
|
70,000
|
3.4
|
%
|
9.02
|
12/17/14
|
397,084
|
1,006,289
|
||||||||||||
|
Mark
G. Osterman
|
70,000
|
3.4
|
%
|
9.02
|
12/17/14
|
397,084
|
1,006,289
|
||||||||||||
|
Christopher
J. Schaber, Ph.D.
|
80,000
|
3.8
|
%
|
9.02
|
12/17/14
|
453,810
|
1,150,045
|
||||||||||||
|
(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 appreciation 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.
|
22
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, 2005, with respect to the Named Officers. No stock appreciation
rights were exercised during such year or were outstanding at the end of
that
year.
|
|
|
|
Shares
Acquired on
|
|
|
Value
|
Number
of Securities Underlying Unexercised Options at FY-End (#)
|
Value
of Unexercised In-the-Money
Options at FY-End ($) (1)
|
|||||||||||
|
Name
|
Exercise
(#)
|
|
|
Realized
($)
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|||
|
Robert
J. Capetola, Ph.D.
|
-
|
-
|
1,627,583
|
36,667
|
$
|
1,446,580
|
$
|
7,700
|
|||||||||||
|
John
G. Cooper
|
-
|
-
|
693,749
|
31,251
|
1,284,887
|
6,563
|
|||||||||||||
|
David
L. Lopez, Esq., CPA
|
-
|
-
|
600,166
|
20,834
|
938,195
|
4,375
|
|||||||||||||
|
Mark
G. Osterman
|
-
|
-
|
322,500
|
37,500
|
11,025
|
7,875
|
|||||||||||||
|
Christopher
J. Schaber, Ph.D.
|
-
|
-
|
739,093
|
31,251
|
1,113,247
|
6,563
|
|||||||||||||
(1) Based
on
the fair market value of the Common Stock on December 31, 2005, $6.68 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, which term
has
been automatically renewed for one additional year. On each January 1st,
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 $470,000 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.
If
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.
If
there
is 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.
If
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.
23
The
agreement prohibits Dr. Capetola from competing with the Company throughout
his
employment term and for a period of 15 months following any
termination.
Employment
Agreement with Kathryn A. Cole
The
Company entered into an employment agreement, dated as of January 24, 2006,
with
Kathryn A. Cole as the Company’s Senior Vice President of Human Resources for a
term of one year ending on December 31, 2006. 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. Ms. Cole received a one-time
sign-on bonus of $25,000, is entitled to an annual base salary of at least
$180,000 and is also eligible for incentive bonus compensation, in cash or
equity, as determined by the Compensation Committee.
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, which term has
been
automatically renewed for one additional year. On each January 1st, the
agreement will automatically renew for an additional one-year term, unless
either party gives 90-day prior termination notice. Mr. Cooper is currently
entitled to an annual base salary of at least $292,000 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 Executive Vice President
for a
term of two years ending on December 31, 2005, which term has been automatically
renewed for one additional year. On each January 1st, the agreement will
automatically renew for an additional one-year term, unless either party
gives
90-day prior termination notice. Mr. Lopez is currently entitled to an annual
base salary of at least $290,000 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
on December 31, 2005, which term has been automatically renewed for one
additional year. On each January 1st, the agreement will automatically renew
for
an additional one-year term, unless either party gives 90-day prior termination
notice. Mr. Osterman is currently entitled to an annual base salary of at
least
$265,000 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, which term has been automatically renewed for
one
additional year. On each January 1st, the agreement will automatically renew
for
an additional one-year term, unless either party gives 90-day prior termination
notice. Dr. Schaber is currently entitled to an annual base salary of at
least
$295,000 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,
which
term has been automatically renewed for one additional year. On each January
1st, the agreement will automatically renew for an additional one-year term,
unless either party gives 90-day prior termination notice. Dr. Segal is
currently entitled to an annual base salary of at least $265,000 and is also
eligible for incentive bonus compensation, in cash or equity, as determined
by
the Compensation Committee.
24
If
Dr.
Segal’s employment is terminated without Cause or if 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, if Dr. Segal’s employment 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.
If
there
is a change in control, then for each fiscal year ending within the 24-month
period following such change in control, Dr. Segal is entitled to a bonus
equal
to his or her highest annual bonus during the three years preceding such
change
in control.
Dr.
Segal
has agreed not to engage in activities competitive with the Company’s business
for 6 months (12 months in the case of a termination in connection with a
change
in control) following termination of employment.
If
any
compensation payable to Dr. Segal 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.
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, the agreement
will automatically renew for an additional one-year term, unless either party
gives 90-day prior termination notice. Dr. Zodda is currently 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.
General
Employment Arrangements
If
the
employment of Ms. Cole, Mr. Cooper, Mr. Lopez, Mr. Osterman, Dr. Schaber
or Dr.
Zodda is terminated without Cause or if any of them should terminate their
employment 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. However, if
the
employment of any of such executive officers 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, the acceleration and full vesting of all outstanding
stock options granted to such officer and the continued exercisability of
such
options for the remainder of their stated terms.
If
there
is a change in control, then for each fiscal year ending within the 24-month
period following such change in control, each of the foregoing executive
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 Company’s
business for 12 months (24 months in the case of a termination in connection
with a change in control) following termination of employment.
If
any
compensation payable to any of these officers 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.
25
COMPENSATION COMMITTEE
REPORT(1)
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 Program and the Stock Issuance Program
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.
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
Employment
Agreement entered into with Dr. Capetola 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.
26
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 Biotechnology Index. The period
shown commences on December 31, 2000, and ends on December 31, 2005. The
cumulative total stockholder return assumes that $100 was invested on
December
31, 2000 in the Common Stock.
Note:
The performance shown in the graph and table
represent past performance and should not be considered an indication
of future
performance.
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
||||
|
Discovery
Labs, Inc.
|
$
|
100.00
|
$
|
87.68
|
$
|
66.59
|
$
|
248.58
|
$
|
187.91
|
$
|
158.29
|
|||||||
|
NASDAQ
Biotechnology Index
|
$
|
100.00
|
$
|
83.80
|
$
|
45.81
|
$
|
66.77
|
$
|
70.86
|
$
|
72.87
|
|||||||
|
NASDAQ
Composite Index
|
$
|
100.00
|
$
|
78.95
|
$
|
54.06
|
$
|
81.09
|
$
|
88.06
|
$
|
89.27
|
| (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.
|
27
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Dr.
Antonio Esteve, a member of the Board of Directors
since May 21, 2002, is also the President of one of the Company’s collaborative
partners, Laboratorios del Dr. Esteve, S.A. (“Laboratorios Esteve”).
In October 2005, the Company sold 650,000 shares of Common Stock to
Laboratorios
Esteve at a price per share of $6.88, for an aggregate purchase price
of
$4,472,000.
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 six 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. Approval of 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, 2006, requires the affirmative 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.
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.
28
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 December 24, 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 18976-3622 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.
29
ANNUAL
REPORT ON FORM 10-K
The
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2005, as filed with the SEC, is 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 18976-3622.
*
* *
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
21,
2006
30
Schedule
of Appendices
| Appendix |
Document
|
| Appendix I |
Charter
and Powers of the Audit Committee
|
| Appendix II |
Charter
and Powers of the Nominating
Committee
|
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;
|
| 8. |
Reviewing
the range and cost of audit and non-audit services performed
by the
independent accountants;
|
A-I-1
| 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;
|
A-II-1
|
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;
|
| 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;
|
A-II-2
| 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;
|
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