UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
|X| Amendment No. 1 to Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002
|_| Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-26422
DISCOVERY LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3171943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 SOUTH MAIN STREET, SUITE 307, DOYLESTOWN, PENNSYLVANIA 18901
(Address of principal executive offices) (Zip Code)
(215) 340-4699
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). |_|
The aggregate market value of shares of voting and non-voting common equity held
by non-affiliates of the registrant computed using the closing price of common
equity as reported on NASDAQ SmallCap Market under the symbol DSCO on June 28,
2002, the last business day of the registrant's most recently completed second
fiscal quarter, was approximately $69 million. For the purposes of determining
this amount only, the registrant has defined affiliates to include: (a) the
executive officers named in Part III of this Amendment No. 1 to the Annual
Report on Form 10-K; (b) all directors of the registrant; and (c) each
shareholder that has informed the registrant by February 26, 2003 that it is the
beneficial owner of 10% or more of the outstanding shares of Common Stock of the
registrant.
As of April 28, 2003, 32,856,526 shares of the registrant's Common Stock were
outstanding.
Explanatory Note to Amendment No. 1
The registrant hereby amends its Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, previously filed with the Securities and Exchange
Commission (the "Annual Report"), solely for the purpose of including Items
10-13 of Part III. Other than the addition of Items 10-13 in the Form 10-K, the
Annual Report on Form 10-K (the "Original 10-K") filed on March 30, 2003, is not
being amended or updated in any respect.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Risks Related to Our Business" in the Original 10-K and elsewhere
in, or incorporated by reference into, this report. Other risks and
uncertainties include, but are not limited to the risk that financial conditions
may change, risks relating to the progress of the Company's research and
development, the risk that the Company will not be able to raise additional
capital or enter into additional collaboration agreements (including strategic
alliances for our aerosol and Surfactant Replacement Therapies), risks relating
to the lack of sufficient drug product for completion of any of the Company's
clinical studies, risks relating to the development of competing therapies
and/or technologies by other companies, the adequacy of the Company's financial
resources to execute its business plan, and other risk factors detailed in the
Company's other filings with the Securities and Exchange Commission. The
forward-looking statements in this report are based upon management's current
expectations and beliefs, which management believes are reasonable. Except to
the extent required by applicable laws or rules, the Company does not undertake
any obligation or duty to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Investors are cautioned not to place undue reliance on any forward-looking
statement.
ii
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors of the Company
Name Age Position with the Company
- ---- --- -------------------------
Robert J. Capetola, Ph.D. 53 Director, Chief Executive Officer
Antonio Esteve, Ph.D. 45 Director
Max E. Link, Ph.D. 62 Director
Herbert H. McDade, Jr. 76 Director, Chairman of the Board of Directors
Marvin E. Rosenthale, Ph.D. 69 Director
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. ("Esteve") since 1984
and is currently a member of the Executive Committee of Esteve and Director of
Scientific and Commercial Operations. He currently serves as an elected member
of the Advisory Board for research and development of the Spanish Ministry of
Science and Technology. From 1998 to 2001 he served as Chairman of the Advisory
Committee on Trade and Economics of the International Federation of
Pharmaceutical Manufacturers Association (IFPMA). Since 1986, Dr. Esteve has
served as Professor at the Autonomous University of Barcelona, School of
Pharmacy. In 1982 Dr. Esteve was employed by McNeil Pharmaceutical where he
specialized in pharmaceutical marketing. Dr. Esteve holds a Ph.D. in
Pharmaceutical Science and a degree in Pharmacy from the University of
Barcelona, Faculty of Pharmacy.
Max E. Link, Ph.D. has served as a Director of the Company since October 1996.
He also served as a Director of ATI from October 1996 to 1998. Dr. Link has held
a number of executive positions with pharmaceutical and health care companies.
He currently serves on the
1
boards of directors of eight other publicly-traded life science companies:
Alexion Pharmaceuticals, Inc., Celsion Corporation, Protein Design Labs, Inc.,
Human Genome Sciences, Inc., Cell Therapeutics, Inc., Columbia Laboratories,
Inc., CytRx Corporation and Access Pharmaceuticals, Inc. From May 1993 until
June 1994, Dr. Link was Chief Executive Officer of Corange Limited, the parent
company of Boehringer Mannheim and DePuy Acromed, Inc. Prior to that time, he
served in a number of positions within Sandoz Pharma, Ltd., including Chief
Executive Officer from 1987 until April 1992, and Chairman from April 1992 until
May 1993. Since March 2002, Dr. Link has been serving as Chairman of
Centerpulse, Ltd.
Herbert H. McDade, Jr. has served as a Director of the Company since June 1996
and as its Chairman since June 2000. Mr. McDade is the Chairman of Access
Pharmaceuticals, Inc., and a member of the board of directors of one other
publicly-held company, CytRx Corporation. Mr. McDade was employed by the Upjohn
Company for 20 years, served for 14 years as President of Revlon Health Care
Pharmaceuticals and Revlon Health Care International, and served as Chairman and
President of Armour Pharmaceutical Company from 1986 to 1990.
Marvin E. Rosenthale, Ph.D. has served as a Director of the Company since 1998
and was a Director of ATI from October 1996 to 1998. Dr. Rosenthale currently
serves on the boards of directors of the publicly-held company, AMDL, Inc., and
several privately-held companies. He was the President and Chief Executive
Officer of Allergan Ligand Retinoid Therapeutics, Inc., from 1994 until 1997 and
served as Vice President in 1993. From 1990 to 1993, Dr. Rosenthale served as
Vice President, Drug Discovery Worldwide, at R.W. Johnson Pharmaceutical
Research Institute. From 1977 to 1990, Dr. Rosenthale served in a variety of
positions in drug discovery research for Ortho Pharmaceutical, including
director of the divisions of pharmacology and biological research and executive
director of drug discovery research. From 1960 to 1977, he served in various
positions with Wyeth Laboratories. Dr. Rosenthale received a Ph.D. in
pharmacology from Hahnemann Medical College, an M.Sc. in pharmacology from
Philadelphia College of Pharmacy and Science and a B.Sc. in pharmacy from the
Philadelphia College of Pharmacy.
Executive Officers of the Company
Name Age Position with the Company
- ---- --- -------------------------
Robert J. Capetola, Ph.D. 53 President, Chief Executive Officer and Director
John G. Cooper 44 Senior Vice President, Chief Financial Officer
Cynthia Davis 34 Vice President, Administrative Operations and
Controller
Ralph Niven, Ph.D., M.R. Pharm.S. 43 Senior Vice President, Preclinical Development
Christopher J. Schaber 36 Chief Operating Officer and Executive Vice President,
Drug Development and Regulatory Compliance
Deni M. Zodda, Ph.D. 49 Senior Vice President, Business Development
Robert J. Capetola, Ph.D. For a biographical discussion of Dr. Capetola, please
refer to the Directors section above.
2
John G. Cooper has served as Senior Vice President and Chief Financial Officer
of the Company since December 2001. Previously, he was Chief Financial Officer
at Mobility Technologies, Inc., a wireless technology company, commencing
November 2000. Prior to that, Mr. Cooper was employed as Chief Financial Officer
at Taratec Development Corporation, a provider of information technology
solutions to the life sciences industry, commencing May 1999. From 1995 to 1999,
Mr. Cooper served as Senior Vice President & Chief Financial Officer of
Chrysalis International Corporation, a public company (ultimately acquired by
MDS Pharmaceuticals Inc.) providing drug development services to the life
sciences industry. From 1989 to 1995, Mr. Cooper was employed by DNX
Corporation, a public biotechnology company, where he served as Senior Vice
President and Chief Financial Officer and managed its initial public offering in
1991. From 1985 to 1989, he was employed by ENI Diagnostics (a public life
sciences company acquired by Pharmacia in 1989), his last position being
Director, Finance and Controller. Mr. Coopers' responsibilities above included
finance & accounting, M&A, investor relations, management information systems,
human resources, and corporate administration/governance and he has served as
General Manager and member of the board of directors for operating subsidiaries.
Earlier in his career he held financial management positions at C.R. Bard and
Warner Communications. Mr. Cooper is a Certified Public Accountant and received
his B.S. in Commerce from Rider University.
Cynthia Davis has served as Vice President, Administrative Operations of the
Company since 2002 and as Controller of the Company since 1998. Prior to that
time, Ms. Davis served as Controller of ATI from 1996 until 1998. Ms. Davis held
administrative management positions with ERD Environmental Group from September
1991 until September 1996. Ms. Davis received her A.A. degree from the Lansdale
School of Business in May 1989.
Ralph Niven, Ph.D., M.R.Pharm.S., has served as Senior Vice President,
Preclinical Development of the Company since December 2001 and is responsible
for the Company's preclinical development and aerosol activities in Redwood
City, California. Prior to joining the Company, Dr. Niven was the founder of
SciMax, a consulting practice focused on aerosol technologies and pulmonary drug
delivery. From 1998 to 1999, Dr. Niven served as Vice President of Development
with Advanced Inhalation Research (acquired by Alkermes, Inc., in 1999),
developing dry-powder pulmonary drug delivery systems for use in the treatment
of respiratory diseases and for the systemic delivery of complex macromolecules
via the lungs. From 1996 to 1998, Dr. Niven was employed by Valentis, Inc.
(formerly Megabios Corp.), a leader in the field of gene delivery systems, most
recently as Director of Pharmaceutical Sciences. From 1991 to 1995, Dr. Niven
was employed by Amgen Inc., where he served in senior scientific capacities
predominantly focused on pulmonary drug delivery and aerosol programs. Dr. Niven
has authored over 40 publications on respiratory drug delivery, and has been
issued four United States patents in the areas of pulmonary absorption of
modified proteins, protein nebulization, and the formulation and delivery of
gene therapeutics. Dr. Niven received his undergraduate degree in Pharmacy from
the University of Strathcylde in Scotland, his Ph.D. in Pharmaceutical Sciences
from the University of Kentucky in 1988 and completed his Post Doctoral work at
the University of Florida and Harvard School of Public Health.
3
Christopher J. Schaber has served as Executive Vice President & Chief Operating
Officer of the Company since May 2000 with the responsibility for clinical
development, regulatory affairs, quality control and assurance, and
manufacturing and distribution. Previously, he held the positions of Executive
Vice President of Drug Development and Regulatory Compliance commencing April
1999 and Chief Development Officer and Vice President of Regulatory Affairs and
Quality Assurance\Quality Control commencing June 1998. He served as Vice
President of Regulatory Affairs and Quality Assurance with ATI from 1996 to
1998. Mr. Schaber was employed from 1994 to 1996 by Ohmeda as Director of
Worldwide Regulatory Affairs. At Ohmeda, Mr. Schaber was responsible for all
regulatory strategies with the FDA and other health authority bodies. From 1989
to 1994, Mr. Schaber held a variety of regulatory positions of increasing
importance with The Liposome Company, Inc., and Elkins-Sinn Inc., a division of
Wyeth-Ayerst Laboratories. Mr. Schaber received his B.A. from Western Maryland
College and his M.S. in Pharmaceutics from Temple University. Mr. Schaber is
currently pursuing his Ph.D. in Pharmaceutical Sciences with The Union Graduate
School. Mr. Schaber holds a Regulatory Affairs Certification (RAC) from the
Regulatory Affairs Professional Society.
Deni M. Zodda, Ph.D. has served as Senior Vice President, Business Development
of the Company since September 2000. Dr. Zodda is responsible for the commercial
operations of the Company, including strategic alliances, sales and marketing of
the Company's lead product Surfaxin(R). Dr. Zodda is the head of the Joint
Commercialization Committee, the governing body of the collaboration between the
Company and Quintiles. The Committee is responsible for directing the
commercialization of Surfaxin in the United States. Previously, he held the
position of Managing Director of the Corporate Finance-Life Sciences Group at
KPMG, LLC, commencing March 1998. At KPMG he was responsible for managing
mergers and acquisitions, business development, and strategic advisory services
to the biopharmaceutical industry. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 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 Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of the Company's Common Stock and other equity
securities of the Company. Reporting Persons are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all of the
Section 16(a)
4
reports they file. Specific due dates for these reports have been established
and the Company is required to identify in this financial 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, 2002, and representations
made by the Reporting Persons, the Company believes that during fiscal year 2002
its Reporting Persons complied with all substantive filing requirements under
Section 16(a) of the Securities Exchange Act of 1934 except for the following:
each of Ralph Niven, Ph.D., Deni M. Zodda, Ph.D., Christopher J. Schaber, Robert
J. Capetola, Ph.D., John G. Cooper, and Cynthia Davis, inadvertently failed to
file a timely Form 4 for an employee stock option grant that was granted on
November 5, 2002 but not filed until November 12, 2002 and Marvin Rosenthale,
Ph.D. inadvertently failed to file a timely Form 5.
5
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following Summary Compensation Table sets forth the compensation earned for
each of the last three completed fiscal years by (i) the person who served as
the Company's chief executive officer during the last completed fiscal year,
(ii) the four most highly compensated officers of the Company other than the
chief executive officer who were serving as executive officers at the end of the
last completed fiscal year and whose total annual salary and bonus equaled or
exceeded $100,000, and (iii) certain executive officers who were not serving as
an executive officer at the end of the last fiscal year and whose total annual
salary and bonus equaled or exceeded $100,000, but would have been included
under (ii) above if such officer was an executive officer at the end of such
fiscal year (collectively the "Named Officers"), for services rendered in all
capacities to the Company.
Annual Compensation Long Term Compensation
Restricted Securities
Name and Principal Other Annual Stock Underlying All Other
Position Year Salary Bonus Compensation Award(s) Options Compensation
-------- ---- ------ ----- ------------ -------- ------------ ------------
($) ($) ($) ($) ($) (#) ($)
Robert J. Capetola, Ph.D. 2002 304,000 125,000(1) 10,000 -- 165,000 --
President, Chief Executive 2001 275,000 120,000(2) 10,000 -- 125,000 --
Officer and Director 2000 258,500 67,000(3),(4),(5) -- -- 125,000 --
John G. Cooper 2002 191,972 60,000(1),(6) -- -- 135,000 --
Sr. Vice President, Chief 2001 11,571 -- -- -- 100,000 --
Financial Officer 2000 -- -- -- -- -- --
Ralph Niven, Ph.D. 2002 190,684 50,000(1),(6) -- -- 110,000 --
Sr. Vice President, 2001 15,833 -- -- -- 70,000 --
Preclinical Development 2000 -- -- -- -- -- --
Christopher J. Schaber 2002 225,008 35,000(1) -- -- 60,000 9,603
Exec. Vice President, Chief 2001 210,000 60,000 -- -- 70,000 --
Operating Officer 2000 195,336 74,500(4) -- -- 74,500 --
Deni M. Zodda, Ph.D. 2002 178,122 30,000(1) -- -- 60,000 --
Sr. Vice President, 2001 182,000 56,000 -- -- 80,000 --
Business Development 2000 51,000 36,000 -- -- 70,000 --
Notes to Summary Compensation Table:
(1) Includes 2002 bonus paid in 2003.
(2) Includes 2001 bonus paid in 2002
(3) Includes a $30,000 bonus that was payable upon the attainment of
certain corporate milestones which was approved by the Compensation
Committee. In March 2000, the board of directors, upon the
recommendation of the Compensation Committee, accelerated the
payment of such bonus.
(4) Includes bonuses paid in connection with the Company's completion of
a Phase II clinical trial in accordance with the management letter
entered into in March 1998 among the Company and certain of its
executive officers in connection with the 1998 Merger.
(5) Includes 2000 bonus paid in 2001.
(6) Includes a $20,000 bonus paid in connection with executive's
employement agreement.
6
Option Grants In Last Fiscal Year
The following table contains information concerning the stock option grants
(including grants of Contingent Milestone Options) made to the Named Officers
for the fiscal year ended December 31, 2002. No stock appreciation rights were
granted to these individuals during such year.
Potential Realized Value at
% of Total Assumed Annual Rates of Stock
Number of Options Price Appreciation for Option
Securities Granted to Exercise or Term (2)
Underlying Employees Base Price Expiration -----------------------------
Name Options Granted in Fiscal Year ($/share)(1) Date 5%($) 10%($)
- ------------------------- --------------- -------------- ------------ ---------- ------- -------
Robert J. Capetola, Ph.D. 125,000 12.6% 1.72 6/26/2012 135,212 342,655
40,000 4.0% 1.89 11/4/2012 47,544 120,487
John G. Cooper 105,000 10.6% 1.72 6/26/2012 113,578 287,830
30,000 3.0% 1.89 11/4/2012 35,653 90,365
Ralph Niven, Ph.D. 25,000 2.5% 2.35 5/20/2012 36,948 93,632
55,000 5.5% 1.89 6/26/2012 35,658 90,365
30,000 3.0% 1.72 11/4/2012 59,493 150,768
Christopher J. Schaber 25,000 2.5% 1.72 6/26/2012 27,042 68,531
35,000 3.5% 1.89 11/4/2012 41,601 105,426
Deni M. Zodda, Ph.D. 30,000 3.0% 1.72 6/26/2012 32,451 82,237
30,000 3.0% 1.89 11/4/2012 35,658 90,365
(1) The exercise price of options issued by the Company may be paid in cash,
in shares of Common Stock valued at the fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of
the purchased shares. The Company may also finance the exercise of options
issued by the Company by loaning the optionee sufficient funds to pay the
exercise price for the purchased shares.
(2) The 5% and 10% assumed rates of appreciated are specified under the rules
of the Securities and Exchange Commission 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 on the date of exercise and the exercise
price.
7
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, 2002, with respect to the Named Officers. No stock
appreciation rights were exercised during such year or were outstanding at the
end of that year.
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at FY-End Money Options at FY-End (1)
----------------------------- ---------------------------
Shares (#) ($)
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
(#) ($)
Robert J. Capetola, Ph.D. -- -- 958,863 -- $401,214 --
John G. Cooper -- -- 235,000 -- 142,050 --
Ralph Niven, Ph.D. -- -- 180,000 99,050
Christopher J. Schaber -- -- 380,344 -- 169,925 --
Deni M. Zodda, Ph.D. -- -- 210,000 -- 106,450 --
(1) Based on the fair market value of the Common Stock at year-end, $2.81 per
share, less the exercise price payable for such shares.
Deductibility of Compensation
Section 162 (m) of the Internal Revenue Code of 1986, as amended, provides that
compensation in excess of $1 million paid to an executive officer is not
deductible 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 shareholder value may be maximized by an alternative
approach.
Employment Contracts, Severance, and Change of Control Arrangements
Pursuant to an employment agreement entered into on January 1, 2001, Dr.
Capetola has been retained as President and Chief Executive Officer of the
Company for a four-year period ending on December 31, 2005. Dr. Capetola is
currently entitled to a base salary of $314,000 per annum and a minimum increase
in such base salary of 5% per annum. Dr. Capetola is entitled to a minimum
annual bonus equal to 20% of his base salary. Dr. Capetola is also entitled to a
discretionary bonus, to be paid in either cash or equity as determined by the
Compensation Committee, upon the completion of any Phase 2 or 3 clinical trials
or the receipt of marketing approval with respect to any portfolio compound of
the Company. Such bonuses, if any, will be paid only once for the attainment of
each of the foregoing milestones. Dr. Capetola is also entitled to long-term
disability insurance and $2 million in life insurance, subject to a combined
premium cap of $15,000 for the first year, which cap shall be increased by 5%
for each successive full year throughout the term of the agreement. In the event
the Capetola employment agreement is terminated prior to such date without cause
or is constructively terminated, Dr. Capetola will be entitled to a lump-sum
severance payment equal to 15 months
8
of his then current base salary. Dr. Capetola has agreed not to engage in
certain activities competitive with the business of the Company throughout his
employment term and for a period of 15 months following any termination of his
employment with the Company.
Pursuant to an employment agreement dated as of December 10, 2001, John G.
Cooper was retained as the Company's Senior Vice President, Chief Financial
Officer for a term of three years ending on December 9, 2004. Mr. Cooper's base
salary is $203,000 and he is entitled to a discretionary year-end bonus to be
paid in either cash or equity, solely at the discretion of the Compensation
Committee.
Pursuant to an employment agreement dated as of December 1, 2001, Ralph Niven,
Ph.D., was retained as the Company's Senior Vice President, Preclinical
Development for a term of three years ending on November 30, 2004. Prior to such
date, Dr. Niven was engaged as a consultant to the Company. Dr. Niven's base
salary is $193,000 and he is entitled to a discretionary year-end bonus to be
paid in either cash or equity, solely at the discretion of the Compensation
Committee. Dr. Niven is also entitled to a cash bonus equal to 2% of the
aggregate gross proceeds raised by the Company in connection with drug delivery
activities if such capital raising occurred during his employment with the
Company and was completed substantially pursuant to his efforts.
Christopher J. Schaber, the Company's Chief Operating Officer and Executive Vice
President of Drug Development and Regulatory Compliance; and Cynthia Davis, the
Company's Vice President, Administrative Operations and Controller have been
retained for a term of three years beginning June 15, 2001, at the following
respective base salaries currently in effect: $230,000 and $135,000. Each such
officer is entitled to a year-end bonus that is subject to the discretion of the
Compensation Committee and may be paid in either cash or equity.
Pursuant to an employment agreement commencing August 15, 2000, Deni M. Zodda,
Ph.D., the Company's Senior Vice President of Business Development, has been
retained for a term of three years ending September 10, 2003, at a base salary
currently in effect of $201,000. In addition, Dr. Zodda is entitled to a
year-end cash bonus that is subject to the discretion of the Compensation
Committee and may be paid in either cash or equity.
In the event that any of the foregoing officer's employment is terminated by the
Company without good cause, each such officer, except for Dr. Capetola, will be
entitled to severance pay equal to six months of his base salary, payable on the
Company's normal payroll dates, which will be subject to setoff for any
compensation received from subsequent employment during the severance period. In
addition, if either of such officer's employment with the Company is terminated
in certain circumstances in connection with a change of control, such officers
will be entitled to severance pay equal to 12 months of his base salary, payable
on normal payroll dates, subject to setoff for certain compensation received
during the severance period. Mr. Cooper, Ms. Davis, Mr. Schaber, and Dr. Zodda
have each agreed not to engage in activities competitive with the business of
the Company for periods of either 6, 12 or 18 months, depending upon the
circumstances, following any termination of their employment with the Company
and Dr. Niven has agreed not to engage in activities competitive with the
business of the Company for a period of either six months
9
or 12 months, depending on the circumstances, following any termination of his
employment with the Company.
Compensation of Directors
Pursuant to the 1998 Plan, non-employee directors of the Company are entitled to
receive an award of options for the purchase of 20,000 shares of Common Stock
upon their election to the board of directors of the Company and an annual award
of options for the purchase of 20,000 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. Effective September 13,
2002, the exercise price of each such option shall be equal to the fair market
value of Common Stock on the date of grant. Each such option shall have a
maximum term of 10 years, subject to earlier termination should the optionee
cease to serve as a director of the Company. Each option is immediately
exercisable for all of the option shares. However, the option shares are subject
to repurchase by the Company, at the exercise price paid per share, in the event
of the optionee's termination of service prior to vesting in the shares. Such
options vest on the first anniversary of the date of grant. In addition, each of
the Company's non-employee directors receives cash compensation for their
services in the amount of $3,000 per quarter, as well as an additional $1,000
per quarter if the director serves on one or more of the following: the Audit
Committee, the Compensation Committee or the Nominating Committee. In addition,
any member who serves as Chairman of any of the foregoing committees shall
receive an additional $500 per quarter.
Stock Option and Compensation Committee Interlocks and Insider Participation
The Compensation Committee is composed of Herbert H. McDade, Jr., Marvin E.
Rosenthale, Ph.D, and Max E. Link Ph.D, none of whom is an executive officer of
the Company. There are no "interlocks," as defined by the Securities and
Exchange Commission, with respect to any member of the Compensation Committee.
10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan Information
- ------------------------------------------------------------------------------------------------------------------
Plan category Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding options, for future issuance
outstanding options, warrants and rights under equity
warrants and rights compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
- ------------------------------------------------------------------------------------------------------------------
Equity compensation 4,907,684 $2.86 242,316
plans approved by
security holders
- ------------------------------------------------------------------------------------------------------------------
Equity compensation -- -- --
plans not approved by
security holders
- ------------------------------------------------------------------------------------------------------------------
Total 4,907,684 242,316
- ------------------------------------------------------------------------------------------------------------------
Principal Stockholders
The following table sets forth, as of April 14, 2003, 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., 350 South Main Street, Suite 307,
Doylestown, Pennsylvania 18901, unless otherwise noted.
11
Name and Address of Number of Percentage of Class
Beneficial Owner (1) Shares Beneficially Owned (1)
- ---------------------------------------------- --------- ----------------------
Robert J. Capetola, Ph.D (2) 1,457,109 4.31%
John G. Cooper (3) 255,000 *
Cynthia Davis (4) 272,206 *
Ralph Niven, Ph.D., M.R.Pharm.S (5) 182,000 *
Christopher J. Schaber (6) 479,661 1.44%
Deni M. Zodda, Ph.D (7) 215,000 *
Antonio Esteve, Ph.D (8) 1,818,902 5.51%
Max E. Link, Ph.D (9) 126,820 *
Herbert H. McDade, Jr. (10) 94,619 *
Marvin E. Rosenthale, Ph.D (11) 98,600 *
Heartland Advisors Inc. (12) 2,786,256 8.28%
789 N. Water Street
Milwaukee, WI 53202
Orbimed Advisors, LLC (13) 2,901,792 8.83%
767 Third Avenue, 6th Floor
New York, NY 10017
SAFECO Asset Management Company (14) 2,068,966 6.23%
4333 Brooklyn Avenue
Northeast Safeco Plaza
Seattle, WA 98185
All Discovery directors and officers as a 4,999,917 14.08%
group (10 persons)
- --------------------------------------------------------------------------------
* 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 14, 2003, are deemed outstanding for
computing the percentage ownership of the person holding such options or
warrants, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
(2) Includes 958,863 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
12
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(3) Includes 235,000 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(4) Includes 262,156 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(5) Includes 180,000 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(6) Includes 380,344 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(7) Includes 210,000 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(8) Beneficial ownership of Common Stock includes 1,325,320 shares and 153,218
shares of Common Stock issuable on the exercise of outstanding warrants
owned by Laboratorios del Dr. Esteve, S.A. ("Laboratorios Esteve") and
317,164 shares owned by Laboratorios P.E.N., S.A. ("Laboratorios P.E.N."),
an affiliate of Laboratorios Esteve. As a consequence of Dr. Esteve's
relationship with Laboratorios Esteve, including, serving as a Member of
the Executive Committee of Laboratorios Esteve, he may be deemed to have
beneficial ownership of the shares owned by Laboratorios Esteve and
Laboratorios P.E.N. Also includes 20,000 shares of Common Stock issuable
on the exercise of outstanding options granted on May 21, 2002, which were
granted under the Automatic Option Grant Program. Shares of Common Stock
subject to options granted under the Automatic Option Grant Program of the
1998 Plan on June 16, 1998, and thereafter, vest on the first anniversary
of the date of grant. Unvested shares of Common Stock subject to all of
the foregoing options remain subject to the Company's right to repurchase
at the exercise price paid per share.
(9) Includes 73,399 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(10) Includes 93,619 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
(11) Includes 80,000 shares of Common Stock issuable on the exercise of
outstanding options. All such options are immediately exercisable for any
and all of the option shares, however, unvested shares of Common Stock
subject to all of the foregoing options remain subject to the Company's
right to repurchase at the exercise price paid per share.
13
(12) Includes 784,256 shares of Common Stock issuable upon the exercise of
outstanding Class I Warrants owned by Heartland Value Fund. The Class I
Warrants were issued on November 5, 2002 and are exercisable for a term of
five years.
(13) OrbiMed Advisors, LLC, is the general partner of and investment manager of
Finsbury Worldwide Pharmaceutical Trust, Caduceus Capital II, L.P., and
Winchester Global Trust Company. As a consequence of these relationships,
OrbiMed Advisors, LLC, may be deemed to share beneficial ownership of
1,465,692, 315,700, and 1,120,400 shares, respectively, of Common Stock
owned by the above parties.
(14) Beneficial ownership includes 1,149,425 shares of Common Stock and 229,885
shares of Common Stock issuable upon the exercise of outstanding Class F
Warrants owned by Coralbasin & Co. ("Coralbasin") and 574,713 shares of
Common Stock and 114,943 shares of Common Stock issuable upon the exercise
of outstanding Class F Warrants owned by Coralrock & Co. ("Coralrock") for
which Safeco Corp. has the right to exercise voting power or investment
power, or both, and as a consequence thereof may be deemed to beneficially
own such shares. The Class F Warrants were issued to Coralbasin and
Coralrock on October 1, 2001, are immediately exercisable and have a term
of five years.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A Consulting Agreement between the Company and Clinical Data Management, Inc.
(CDM), dated November 15, 2001, to perform duties associated with processing
data for the Company's ongoing clinical trials, expired November 14, 2002,
pursuant to its terms and no further consulting or other arrangements were
entered into. CDM is wholly-owned by the spouse of the Company's President and
Chief Executive Officer. Payments made to CDM and its owner, for the year ended
December 31, 2002, were approximately $289,000.
Dr. Antonio Esteve, a member of the Company's board of directors effective March
19, 2002, is also an executive officer of Esteve, one of the Company's
collaborative partners. The Company expanded its relationship with Esteve on
March 6, 2002, by entering into a new Collaboration Agreement to expand the
territory covered by the original Sublicense and Supply Agreements. Pursuant to
this Collaboration Agreement, Esteve purchased 821,862 shares of the Company's
Common Stock at $4.867 per share for $4.0 million in cash in gross proceeds and
paid a non-refundable licensing fee of $500,000 in cash.
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.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DISCOVERY LABORATORIES, INC.
Date: April 30, 2003 By: /s/ Robert J. Capetola
------------------------------------
Robert J. Capetola, Ph.D.
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Name & Title Date
--------- ------------ ----
/s/ Robert J. Capetola Robert J. Capetola, Ph.D. April 30, 2003
- ---------------------------- President and Chief Executive Officer
/s/ John G. Cooper John G. Cooper April 30, 2003
- ---------------------------- Senior Vice President and Chief
Financial Officer
/s/ Cynthia Davis Cynthia Davis April 30, 2003
- ---------------------------- Vice President, Administrative
Operations and Controller
(Principal Accounting Officer)
/s/ Herbert H. McDade, Jr. Herbert H. McDade, Jr. April 30, 2003
- ---------------------------- Chairman of the Board of Directors
/s/ Marvin E. Rosenthale Marvin E. Rosenthale, Ph.D. April 30, 2003
- ---------------------------- Director
/s/ Max E. Link Max E. Link, Ph.D. April 30, 2003
- ---------------------------- Director
/s/ Antonio Esteve Antonio Esteve, Ph.D. April 30, 2003
- ---------------------------- Director
15
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with this Amendment No. 1 on Form 10-K/A to the annual
report on Form 10-K of Discovery Laboratories, Inc. (the "Company"), for the
period ended December 31, 2002, as filed with the Securities and Exchange
Commission (the "Commission") on the date hereof (the "Report"), I, Robert J.
Capetola, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
A signed original of this written statement required by Section 906
of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be
retained by the Company and furnished to the Commission or its staff upon
request.
Date: April 30, 2003 /s/ Robert J. Capetola
----------------------------------------
Name: Robert J. Capetola, Ph.D.
Title: President and Chief Executive
Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with this Amendment No. 1 on Form 10-K/A to the annual
report on Form 10-K of Discovery Laboratories, Inc. (the "Company"), for the
period ended December 31, 2002, as filed with the Securities and Exchange
Commission (the "Commission") on the date hereof (the "Report"), I, Robert J.
Capetola, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
A signed original of this written statement required by Section 906
of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be
retained by the Company and furnished to the Commission or its staff upon
request.
Date: April 30, 2003 /s/ John G. Cooper
----------------------------------------
Name: John G. Cooper
Title: Senior Vice President and
Chief Financial Officer
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Capetola, certify that:
1. I have reviewed this Amendment No. 1 on Form 10-K/A (the "Report") to
the annual report on Form 10-K of Discovery Laboratories, Inc.;
2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this Report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this Report (the "Evaluation Date"); and
c) presented in this Report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
Report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 30, 2003 /s/ Robert J. Capetola
----------------------------------------
Robert J. Capetola, Ph.D.
President and Chief Executive Officer
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John G. Cooper, certify that:
1. I have reviewed this Amendment No. 1 on Form 10-K/A (the "Report") to
the annual report on Form 10-K of Discovery Laboratories, Inc.;
2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this Report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this Report (the "Evaluation Date"); and
c) presented in this Report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
Report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 30, 2003 /s/ John G. Cooper
----------------------------------------
John G. Cooper
Senior Vice President and Chief
Financial Officer