SCHEDULE 14A INFORMATION
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BioDelivery Sciences International, Inc.
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BIODELIVERY SCIENCES INTERNATIONAL, INC.
UMDNJ - New Jersey Medical School
Administrative Building 4
185 South Orange Avenue
Newark, New Jersey 07103
June 27, 2003
To the Stockholders of BioDelivery Sciences International, Inc.:
BioDelivery Sciences International, Inc. (the "Company") is pleased to
send you the enclosed notice of the 2003 Annual Meeting of Stockholders of the
Company (the "Meeting") to be held at 10:00 a.m. on Thursday, August 14, 2003 at
the offices of the Company, Administrative Building 4, 185 South Orange Avenue,
Newark, New Jersey 07103.
The items of business for the Meeting are listed in the following
Notice of Annual Meeting and are more fully addressed in the attached Proxy
Statement. The Proxy Statement is first being mailed to stockholders of the
Company on or about June 27, 2003.
Please date, sign and return your proxy card in the enclosed envelope
as soon as possible to ensure that your shares will be represented and voted at
the Meeting even if you cannot attend. If you attend the Meeting, you may vote
your shares in person even though you have previously signed and returned your
proxy.
If you have any questions regarding this material, please do not
hesitate to call me at (314) 579-9725.
Sincerely yours,
-----------------------------------------------
Francis E. O'Donnell, Jr.
Chairman, President and Chief Executive Officer
BioDelivery Sciences International, Inc.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING PLEASE COMPLETE THE ENCLOSED
PROXY AND PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING.
3
BIODELIVERY SCIENCES INTERNATIONAL, INC
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
UMDNJ - New Jersey Medical School
Administrative Building 4
185 South Orange Avenue
Newark, New Jersey 07103
To be held on Thursday August 14, 2003
The Annual Meeting of Stockholders (the "Meeting") of BioDelivery Sciences
International, Inc. (the "Company") will be held on Thursday, August 14, 2003 at
10:00 a.m. at the offices of the Company, Administrative Building 4, 185 South
Orange Avenue, Newark, New Jersey 07103 for the following purposes:
1. To elect all eight (8) members of the Company's board of directors to
serve until the 2004 Annual Meeting of Stockholders or until their
successors are duly elected and qualified;
2. To approve the Company's Amended and Restated 2001 Incentive Plan to
increase the number of shares of common stock reserved for issuance under
the plan from 572,082 to 2,100,000;
3. To ratify the issuance by the Company's board of directors of 746,854
qualified and non-qualified options;
4. To ratify the appointment by the Company's board of directors of Grant
Thornton LLP as the Company's independent auditors for the fiscal year
ended December 31, 2002;
5. To ratify the appointment by the Company's board of directors of Aidman,
Piser & Company, P.A. as the Company's independent auditors for the fiscal
year ending December 31, 2003 and
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, please complete and sign
the enclosed proxy card and return it promptly. Even if you have previously
submitted a proxy card you may choose to vote in person at the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
James A. McNulty
Secretary, Treasurer and Chief Financial Officer
Newark, New Jersey
June 27, 2003
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TABLE OF CONTENTS
Page No.
Introduction.................................................................................1
Proposal 1 - Election of Directors...........................................................3
Proposal 2 - Approval of Amended and Restated 2001 Incentive Plan............................16
Proposal 3 - Ratification of Stock Option Grants.............................................19
Proposal 4 - Ratification of Grant Thornton LLP as Auditor for Fiscal 2002...................20
Proposal 5 - Ratification of Aidman, Piser & Company, P.A. as Auditor for Fiscal 2003........22
Other Information............................................................................23
Annex A - Amended and Restated 2001 Incentive Plan...........................................
Annex B - Audit Committee Charter............................................................
BIODELIVERY SCIENCES INTERNATIONAL, INC.
UMDNJ - New Jersey Medical School
Administrative Building 4
185 South Orange Avenue
Newark, New Jersey 07103
(813) 902-8980
--------------------
PROXY STATEMENT
--------------------
ANNUAL MEETING OF STOCKHOLDERS
to be held on Thursday August 14, 2003
INTRODUCTION
2003 Annual Meeting of Stockholders
This Proxy Statement is being furnished to holders of shares of Common
Stock, $.001 par value (the "Common Stock") of BioDelivery Sciences
International, Inc., a Delaware corporation ("BioDelivery" or the "Company"), in
connection with the solicitation of proxies by the board of directors of the
Company for use at the Annual Meeting of Stockholders (the "Meeting") to be held
at the offices of the Company, Administrative Building 4, 185 South Orange
Avenue, Newark, New Jersey 07103, on Thursday August 14, 2003 at 10:00 a.m., and
at any adjournment or adjournments thereof.
Record Date; Mailing Date
The board of directors has fixed the close of business on June 27, 2003
as the record date for the determination of stockholders entitled to notice of,
and to vote and act at, the Meeting. Only stockholders of record at the close of
business on that date are entitled to notice of, and to vote and act at, the
Meeting. The Proxy Statement is first being mailed to stockholders of the
Company on or about June 27, 2003.
Proposals to be Submitted at the Meeting
At the Meeting, Stockholders will be acting upon the following
proposals:
1. To elect all eight (8) members of the Company's board of directors
to serve until the 2004 Annual Meeting of Stockholders or until their
successors are duly elected and qualified;
2. To approve the Company's Amended and Restated 2001 Incentive Plan to
increase the number of shares of common stock reserved for issuance
under the plan from 572,082 to 2,100,000;
3. To ratify the issuance by the Company's board of directors of
746,854 qualified and non-qualified options;
4. To ratify the appointment by the Company's board of directors of
Grant Thornton LLP as the Company's independent auditors for the fiscal
year ended December 31, 2002;
1
5. To ratify the appointment by the Company's board of directors of
Aidman, Piser & Company, P.A. as the Company's independent auditors for
the fiscal year ending December 31, 2003 and
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF EACH OF
THE PROPOSALS TO BE SUBMITTED AT THE MEETING.
2
PROPOSAL 1
ELECTION OF DIRECTORS
Introduction
The Company's board of directors consists of one class of directors
having eight (8) members. The board of directors may determine the total number
of directors and the number of directors to be elected at any annual meeting or
special meeting in lieu thereof. The board of directors has fixed at eight (8)
the number of directors to be elected at the 2003 Annual Meeting. At the
Meeting, the stockholders will be asked to elect Francis E. O'Donnell, Jr.,
Raphael J. Mannino, William B. Stone, James R. Butler, John J. Shea, L.M.
Stephenson, Robert G.L. Shorr and Alan Pearce (the "Nominees") to serve in such
capacity until the 2004 Annual Meeting, or until their successors are duly
elected and qualified.
It is the intention of the persons named in the enclosed proxy to vote
to elect the Nominees named above, each of whom is an incumbent director, and
each of whom has consented to serve if elected. If some unexpected occurrence
should make necessary, in the discretion of the board of directors, the
substitution of some other person for any of the Nominees, it is the intention
of the persons named in the proxy to vote for the election of such other persons
as may be designated by the board of directors.
Directors and Executive Officers
Listed below are the names of the directors, executive officers and significant
employees of the Company, their ages as of May 31, 2003 and positions held:
---------------------------------------- ------------------ ------------------------------------------
Name Age Position(s) Held
---------------------------------------- ------------------ ------------------------------------------
Francis E. O'Donnell, Jr., M.D. 53 President, Chief Executive Officer,
Chairman and Director
---------------------------------------- ------------------ ------------------------------------------
Raphael J. Mannino, Ph.D. 56 Executive Vice President,
Chief Scientific Officer and Director
---------------------------------------- ------------------ ------------------------------------------
James A. McNulty 52 Secretary, Treasurer and Chief Financial
Officer
---------------------------------------- ------------------ ------------------------------------------
Donald L. Ferguson 54 Senior Executive Vice President
---------------------------------------- ------------------ ------------------------------------------
Susan Gould-Fogerite, Ph.D. 50 Vice President and Director of
Innovation and Discovery
---------------------------------------- ------------------ ------------------------------------------
L.M. Stephenson, Ph.D. 60 Director
---------------------------------------- ------------------ ------------------------------------------
William B. Stone 60 Director
---------------------------------------- ------------------ ------------------------------------------
James R. Butler... 62 Director
---------------------------------------- ------------------ ------------------------------------------
John J. Shea 76 Director
---------------------------------------- ------------------ ------------------------------------------
Robert G.L. Shorr 49 Director
---------------------------------------- ------------------ ------------------------------------------
Alan Pearce 54 Director
---------------------------------------- ------------------ ------------------------------------------
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There are no family relationships between any director, executive officer or
significant employee.
None of our directors or executive officers have been involved in the
past five years, in a fashion material to an evaluation of such director's or
officer's ability or integrity to serve as a director or executive officer, in
any those "Certain Legal Proceedings," more fully detailed in Item 401(d) of
Regulation S-B, which include but are not limited to, bankruptcies, criminal
convictions and an adjudication finding that an individual violated federal or
state securities laws.
Francis E. O'Donnell, Jr., M.D., age 53, has been our Chief Executive
Officer, President, Chairman and Director on a full time basis since March 29,
2002 when Dr. O'Donnell executed an employment agreement to become our full-time
interim President and Chief Executive Officer. At this time the Company has not
identified a replacement for Dr. O'Donnell. For more than the last five years,
Dr. O'Donnell has served as managing director of The Hopkins Capital Group, an
affiliation of limited liability companies which engage in business development
and venture activities. Many of these portfolio companies have business
relationships with the Company. He has been Chairman of Laser Sight Inc. (LASE),
a publicly-traded manufacturer of advanced refractive laser systems, since 1993.
He is a co-founder and chairman of RetinaPharma Technologies, Inc. which now
includes Tatton Technologies, LLC, and a co-founder of Biotech Specialty
Partners, LLC, an alliance of specialty pharmacy and biotechnology companies.
Dr. O'Donnell is a graduate of The Johns Hopkins School of Medicine and received
his residency training at the Wilmer Ophthalmological Institute. Dr. O'Donnell
is a former professor and Chairman of the Department of Ophthalmology, St. Louis
University School of Medicine. Dr. O'Donnell holds 25 U.S. Patents. Dr.
O'Donnell is the 2000 Recipient of the Jules Stein Vision Award sponsored by
Retinitis Pigmentosa International. Dr. O'Donnell's address is 709 The Hamptons
Lane, Chesterfield, MO 63017.
James A. McNulty, age 52, has served as our Secretary, Treasurer and
Chief Financial Officer on a part time basis (estimated to constitute
approximately 80% of his time) since October 2000. Mr. McNulty has, since May
2000, also served as Chief Financial Officer of Hopkins Capital Group, an
affiliation of limited liability companies which engage in venture activities.
Hopkins Capital Group is owned and controlled by Dr. Francis E. O'Donnell, Jr.,
and many of the Hopkins Capital Group portfolio companies have relationships
with the Company. Mr. McNulty has performed accounting and consulting services
as a Certified Public Accountant since 1975. He co-founded Pender McNulty &
Newkirk, which became one of Florida's largest regional CPA firms, and was a
founder/principal in two other CPA firms, McNulty & Company, and McNulty Garcia
& Ortiz. He served as CFO of Star Scientific, Inc. from October 1998 to May
2000. From June 2000 through January 2002 he served as CFO/COO of American
Prescription Providers, Inc. He is a principal in Pinnacle Group Holdings, a
real estate development company developing a major downtown Tampa destination
entertainment complex. He is a published co-author (with Pat Summerall) of
Business Golf, the Art of Building Relationships on the Links. Mr. McNulty is a
graduate of University of South Florida, a licensed Certified Public Accountant,
and is a member of the American and Florida Institutes of CPA's. Mr. McNulty's
address is 4419 W. Sevilla Street, Tampa, FL 33629.
Donald L. Ferguson, age 54, has been our Senior Executive Vice
President on a part-time basis since October 2000. Mr. Ferguson has been Chief
Executive Officer and principal owner of Land Dynamics, Inc., a developer of
real estate projects since its founding in 1979 and currently owns in excess of
20 real estate properties. Mr. Ferguson is an investor in early-stage technology
and biotechnology companies, including Nanovision Technologies, Inc., Star
Scientific, Inc., BioKeys Pharmaceuticals, Inc. and PhotoVision Pharmaceuticals,
Inc. Mr. Ferguson holds an M.B.A. Degree from the University of Kansas and a
B.S. Degree in industrial engineering from Oklahoma State University.
4
Raphael J. Mannino, Ph.D., age 56, has been our Executive Vice
President and Chief Scientific Officer since October 2000, and a Director since
October 2001. Dr. Mannino served as President, CEO, Chief Scientific Officer and
member of the board of directors of BioDelivery Sciences, Inc., our predecessor
entity, from its incorporation in 1995 until its merger with and into the
Company in January of 2002. Dr. Mannino's previous experience includes positions
as Associate Professor, at the University of Medicine and Dentistry of New
Jersey (1990 to present), Assistant, then Associate Professor, Albany Medical
College (1980 to 1990), and Instructor then Assistant Professor, Rutgers Medical
School (1977 to 1980). His postdoctoral training was from 1973 to 1977 at the
Biocenter in Basel, Switzerland. Dr. Mannino received his Ph.D. in Biological
Chemistry in 1973 from the Johns Hopkins University, School of Medicine.
Susan Gould-Fogerite, Ph.D., age 50, has been our Vice President and
Director of Innovation and Discovery since July 2002. She was previously
Executive Vice President of Business Development--Vaccines and Gene Therapy from
October 2000. Dr. Gould-Fogerite served as Vice President, Secretary and member
of the board of directors of BioDelivery Sciences, Inc., our predecessor entity,
from its incorporation in 1995 until its merger with and into the Company in
January of 2002. Dr. Gould-Fogerite's previous experience includes her positions
as Assistant Professor, at University Of Medicine And Dentistry Of New Jersey ,
New Jersey Medical School (1991 to present), and Research Instructor (1985 to
1988), then Research Assistant Professor (1988-1990), at Albany Medical College.
Dr. Gould-Fogerite received her Ph.D. in Microbiology and Immunology from the
Albany Medical College in 1985.
L.M. Stephenson, Ph.D., age 60, is a member of our board of directors.
In May of 2003, Dr. Stephenson was appointed President of the Drexel Research
Foundation, a 501 (c) (3) that will manage the research programs of Drexel
University and the Drexel College of Medicine (formerly the Medical College of
Pennsylvania and Hahnemann Medical School). Within Drexel, he is also the Vice
Provost for Research, Dean for Graduate Policy, and Professor of Chemistry.
Prior to this appointment, Dr. Stephenson was at UMDNJ, most recently as the
Vice President for Research. Dr. Stephenson is a graduate of the University of
North Carolina where he earned a BS in chemistry and was awarded the Venable
Medal as the outstanding senior in chemistry. Dr. Stephenson earned his Ph.D. in
chemistry from the California Institute of Technology where he earned the Kodak
Prize for outstanding chemistry graduate student and was an NSF Predoctoral
Fellow. Additionally, Dr. Stephenson was a Research Fellow at Harvard
University. Dr. Stephenson also serves on the board of directors of the
following institutions: Kessler Medical Rehabilitation & Research Corporation,
and the Henry H. Kessler Foundation (both non-profits), and three for-profit
start up ventures: PTC Therapeutics, a company seeking small molecule drugs that
target RNA processing; HMGene, a company seeking to exploit the discovery of a
novel gene and protein affecting abnormal cellular proliferation, and MedTower,
an internet based medical knowledge management company.
William B. Stone, age 60, is a member of our board of directors. For
thirty years, until his retirement in October 2000, Mr. Stone was continuously
employed by Mallinckrodt Inc. For the last twenty years of his career, he held
positions of Vice President and Corporate Controller and Vice President and CIO
for 16 years and 4 years, respectively. Mr. Stone is a graduate of the
University of Missouri-Columbia where he earned BS and MA degrees in accounting,
and is a Certified Public Accountant.
James R. Butler, age 62, is a member of our board of directors. He is
currently a director of Durect Corporation and has served in this capacity since
July 1999. Mr. Butler is retired from ALZA Corporation where the last position
he held was President of Alza International and from which he retired in June
2001. Mr. Butler was employed at Alza from August 1993 to June 2001. Prior to
that, Mr. Butler worked at Glaxo Inc. for 23 years where the last position he
held was Vice President--General Manager of Corporate Division. He is currently
on the board of directors of Hematrope Pharmaceuticals and is the Chairman of
the board of
5
directors of Respirics, Inc. In addition, he is also a Senior Advisor/Principal
to Apothogen, Inc., which is a start-up company funded by J.P. Morgan Partners,
as well as Pharmaceutical Products Development, Inc. Mr. Butler is on the
Pharmacy School Board at the University of Florida and is on the Board of
Advisors at Campbell University, North Carolina. Mr. Butler is also a principal
in a start-up pharmaceutical company called Apothogen Pharmaceuticals. Mr.
Butler earned a B.S. in marketing at the University of Florida.
John J. Shea, age 76, is a member of our board of directors. He is
currently the head of his own firm of John J. Shea & Associates and a Quality
Systems Adviser with Quintiles Transnational Corp, a publicly traded consulting
firm. Mr. Shea has been employed at John J. Shea Associates since 1989. Mr. Shea
has also served in the capacity of Director of Quality Assurance, which is
responsible for the implementation of quality assurance procedures in a number
of public and private companies. From 1987-1989, he served as Director of
Quality Assurance at NeoRx Corporation. Mr. Shea was also the Director of
Corporate Quality Assurance at Hexcel Corporation from 1980-1987. Mr. Shea has
also served as the quality assurance person for other companies including,
Teledyne Relays, Ortho Diagnostics, Inc. and Bio Reagents & Diagnostics, Inc.
Mr. Shea earned a B.S. in Chemistry at Bethany College and was enrolled in the
Ph.D. Program at Kensington University in California.
Robert G.L. Shorr, Ph.D., age 49, is a member of our board of
directors. He is currently President and CEO of Cornerstone Pharmaceuticals, a
company focused on novel tumor targeting drug delivery and novel anticancer
agent technologies. He is also on the faculty of State University of New York
(SUNY) Stony Brook Department of Biomedical Engineering where he serves as the
Director of Business Development for the Center for Advanced Technology State
University of New York at Stony Brook. He has served in that position since
October 1998. As Director of Business Development for the State University of
New York at Stony Brook Center for Biotechnology, Dr. Shorr has been responsible
for working with faculty and the university technology transfer office to
establish grant funded entrepreneurial programs for promising commercializable
technology. From 1991 to 1998, Dr. Shorr served as Vice President Science and
Technology and as Vice President for Research and Development at Enzon Inc., a
public company. Among his many accomplishments, Dr. Shorr was responsible for
management of the co-development with Schering Plough of the product PEG INTRON
A, which is now approved in the US and Europe. Dr. Shorr also served as chief
scientist for another public company, United Therapeutics, Inc. since 1998 and
continues to be a consultant. Dr. Shorr was also Associate Director for
Molecular Pharmacology at SmithKline and French Upper Marion, PA; working under
the direction of Stanley T. Crooke, M.D., Ph.D. and President of World Wide
Research and Development. Dr. Shorr received his B.S. in Biology from the State
University of New York (Buffalo) in 1975, his D.I.C. from Imperial College of
Science & Technology in London, England in 1982, and his Ph.D., in Biochemistry
from the University of London in 1981.
Alan Pearce, age 54, is a member of our board of directors. He is
currently Senior Vice President, Financial Services of McKesson Corporation.
McKesson Corporation, a Fortune 50 company, is the leading provider of supply,
information and care management products and services designed to reduce costs
and improve quality across healthcare. Mr. Pearce has held his current position
since April 1999. Prior to this date he was treasurer of McKesson Corporation.
Mr. Pearce is a graduate of Georgia Institute of Technology , where he earned a
BS in Industrial Management and University of Texas, where he earned his MBA in
finance.
Certain Relationships and Related Transactions
The above-named directors and executive officers have indicated that
neither they nor any of their respective affiliates has any relationship with
the Company that is required to be disclosed pursuant to Item 404 of Regulation
S-B promulgated under the Securities Exchange Act of 1934, as amended, except
for the transactions set forth below.
6
Dr. Francis O'Donnell and Donald Ferguson had personally guaranteed a
line of credit up to $1,050,000 with a bank and other liabilities for our
benefit at a rate of prime plus 2% of which $850,000 matured in May 2002 but was
deferred pending the completion of our public offering. The line of credit was
paid off with proceeds from the offering.
During 2001, the Company entered into agreements with RetinaPharma,
Inc. and Tatton Technology LLC, biotechnology companies which are developing
nutriceutical neuroprotective therapies for treating neurodegenerative disease
such as macular degeneration and Parkinson's disease. To the extent that such
products utilize Bioral Cochleate Technology encapsulation, we will support
product development and will share in thirty percent (30%) of any profits from
such sales of Bioral encapsulated products. One of our stockholders, Hopkins
Capital Group II, LLC, a member of our management and a Nominee, Dr. Francis E.
O'Donnell, Jr., are affiliated as stockholders or member of the management of
both RetinaPharma, Inc and Tatton Technology, LLC.
During 2001, the Company entered into an agreement with Biotech
Specialty Partners, LLC, an early stage alliance of biotechnology and specialty
pharmaceutical companies. Under this agreement, Biotech Specialty Partners, LLC
will serve as a nonexclusive distributor of our Bioral products in consideration
of a ten (10%) discount to the wholesale price, which we believe, is
commercially reasonable. One of the Company's stockholders, Hopkins Capital
Group II, LLC, a member of the Company's management and a Nominee, Dr. Francis
E. O'Donnell, Jr., is affiliated as stockholder or member of the management of
Biotech Specialty Partners, LLC.
We have also entered into a letter agreement with BioKeys
Pharmaceutical, Inc, a biotechnology company, which is developing several
potential products which are vaccine based. To the extent that BioKeys
Pharmaceutical, Inc. utilizes our BioralTM drug delivery technology, we will
earn a flat royalty which we will negotiate and be approved by our independent
audit committee. Regent Court Technologies LLC, which is affiliated with one of
our stockholders, and Dr. Francis E. O'Donnell, our CEO and a director, and
Donald L. Ferguson, our senior executive vice-president, are affiliated as
stockholders, and Dr. O'Donnell is a member of the board of directors, of
BioKeys Pharmaceutical, Inc. We had also received a $35,000 loan from BioKeys
Pharmaceutical, Inc. to begin research on their products using our technology.
The loan was in the form of a demand note with an interest rate of 1% plus
prime. The loan has been repaid.
Mr. James McNulty, our current Secretary, Treasurer and part-time Chief
Financial Officer, is also the Chief Financial Officer of The Hopkins Capital
Group II, LLC, which is affiliated with Dr. Francis E. O'Donnell, our president
and CEO.
On July 19, 2002, we issued Ellenoff Grossman & Schole LLP, our outside
legal counsel, 25,000 options to purchase shares of our common stock at $7.00
per share. Ellenoff Grossman & Schole LLP is also counsel to our subsidiary,
Bioral Nutrient Delivery, LLC.
Samuel S. Duffey, Esq., through Friday Harbour, LLC, a Florida limited
liability company owned with his spouse, owns 74,371 shares of our common stock.
An aggregate of 51,487 additional shares are owned by trusts for the benefit of
Mr. Duffey's adult children. Mr. Duffey is a partner in Duffey & Dolan, P.A.,
which provides legal services to us, and Friday Harbour, LLC, which provides
consulting services to us and Hopkins Capital Group, LLC.
In 2001, we settled litigation commenced against BioDelivery Sciences,
Inc., our predecessor company, by Irving A. Berstein and certain of his family
members and affiliates. Mr. Berstein was a stockholder, and former officer and
director of BioDelivery Sciences, Inc. The settlement required that we pay
7
$150,000 in cash and $125,000 by promissory note, which was satisfied in full
out of the proceeds of our public offering. At the same time, we purchased the
shares of BioDelivery Sciences, Inc. owned by these stockholders for $500,000
which was paid $200,000 in cash and $300,000 by promissory note which was
satisfied in full out of the proceeds of our public offering.
In December 2001, we exchanged 447,391 shares of our stock for
1,470,000 shares of BioDelivery Sciences, Inc. redeemable common stock. Drs.
Raphael J. Mannino and Susan Gould-Fogerite, officers of the company, and Leila
Zarif, a former officer of the company, principally owned those BioDelivery
Sciences Inc. shares. In connection with this exchange, we removed certain
restrictions, put rights with respect to those shares and forgave loans of
approximately $320,000 that were secured by the BioDelivery Sciences Inc.
shares. In connection with forgiveness of the notes, we provided Drs. Raphael J.
Mannino and Susan Gould-Fogerite with approximately $200,000 for compensation
for their tax liability. Due to the variable nature of the underlying stock
award, we recognized compensation expense totaling $2,140,000 in 2001. This
compensation expense does not include any amount with respect to the forgiveness
of loans.
During 2002, we also issued an additional 75,000 options to purchase
our common stock to each of the University of Medicine and Dentistry of New
Jersey and Albany Medical College in connection with the amendment of our
license agreement with such institutions. As a matter of corporate governance
policy, we have not and will not make loans to officers or loan guarantees
available to "promoters" as that term is commonly understood by the SEC and
state securities authorities.
We believe that the terms of the above transactions with affiliates
were as favorable to us or our affiliates as those generally available from
unaffiliated third parities. At the time of the above referenced transactions,
we did not have sufficient disinterested directors to ratify or approve the
transactions; however, the present board of directors includes four independent
directors. These independent directors are William Stone, James Butler, John
Shea, Robert Shorr and Alan Pearce.
All future transactions between us and our officers, directors or five
percent stockholders, and respective affiliates will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of our independent directors who do not have an interest
in the transactions and who had access, at our expense, to our legal counsel or
independent legal counsel. We intend to maintain at least two independent
members on our board of directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that our directors and executive officers and persons who beneficially
own more than 10% of our common stock (referred to herein as the "reporting
persons") file with the Securities and Exchange Commission various reports as to
their ownership of and activities relating to our common stock. Such reporting
persons are required by Securities and Exchange Commission regulations to
furnish us with copies of all Section 16(a) reports they file. Based solely upon
a review of copies of Section 16(a) reports and representations received by us
from reporting persons, and without conducting any independent investigation of
our own, in 2002, all Forms 3, 4 and 5 were timely filed with the Securities and
Exchange Commission by such reporting persons, except for John J. Shea, a
director, who was granted 25,000 options to purchase our common stock in March
2002 upon his appointment to our board of directors.
Meetings of the Board of Directors
The Company's board of directors met three times last year. All
directors participated in the meetings and each director was present at 75%
8
or more of the board of directors meetings held during such directors tenure
during the past year.
Committees of the Board of Directors
The board of directors has an audit committee, comprised of William B.
Stone, James R. Butler and Alan Pearce, all of whom are independent directors as
defined by the rules of the National Association of Securities Dealers ("NASD").
Mr. Stone serves as chairman of the committee. The board of directors also has a
compensation committee, which, either alone or in conjunction with the full
board, as the case may be, reviews and recommends the compensation arrangements
for our management. The members of the compensation committee are Dr. Francis E
O'Donnell, Jr., L.M. Stephenson, and William B. Stone. There are no other board
of directors committees at this time.
The audit committee met ten times last year. Each member of the audit
committee was present at 75% or more of the audit committee meetings held
during such directors tenure as a member of the audit committee. The audit
committee oversees the Company's corporate accounting, financial reporting
practices and the audits of financial statements. For this purpose, the audit
committee performs several functions. The audit committee evaluates the
performance of and assesses the qualifications of the Company's independent
auditors, and determines on behalf of the board of directors whether to retain
or terminate the existing independent auditors or to appoint and engage new
independent auditors. The audit committee reviews and approves the engagement of
the independent auditors, prior to commencement of such engagement, to perform
any proposed permissible services. The audit committee monitors the rotation of
partners of the independent auditors on the Company engagement team as required
by law. The audit committee reviews the financial statements to be included in
the Company's Annual Report on Form 10-KSB and discusses with management and the
independent auditors the results of the annual audit and the Company's quarterly
financial statements. In addition, the audit committee oversees all aspects of
the Company's corporate governance functions on behalf of the board. The audit
committee provides oversight assistance in connection with legal and ethical
compliance programs established by management and the board, and makes
recommendations to the board of directors regarding corporate governance issues
and policy decisions.
9
Audit Committee Report *
The audit committee of the board of directors is composed of three
directors, William B. Stone, James R. Butler and Alan Pearce; each of whom is
independent as defined by the rules of the National Association of Securities
Dealers. Mr. Stone serves as chairman of the committee. The board of directors
has adopted a written Audit Committee Charter, a copy of which is attached
hereto as Appendix A.
Management is responsible for the Company's financial reporting process
and internal controls. The independent auditors are responsible for performing
an independent audit of the Company's financial statements in accordance with
auditing standards generally accepted in the United States and for issuing a
report thereon. The audit committee's responsibility is to oversee these
processes. The responsibilities of the audit committee include recommending to
the board of directors an accounting firm to be engaged as the Company's
independent auditors. In fulfilling its responsibilities, the audit committee
has reviewed and discussed the audited financial statements contained in the
Company's 2002 Annual Report with management and the independent auditors.
The audit committee discussed with the independent auditors all matters
required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees." The audit committee has discussed with
the independent auditors the auditors' independence from the Company and its
management, including the written disclosures and the letter submitted to the
audit committee by the independent auditors as required by the Independent
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees."
Based upon discussions with management and the independent auditors,
review of the representations of management and review of the report of the
independent auditors to the audit committee, the audit committee has recommended
that the board of directors include the audited financial statements in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2002.
Audit Committee of the Board of Directors
/s/ William B. Stone
/s/ James R. Butler
/s/ Alan Pearce
Compensation of Directors and Executive Officers
Directors receive options to purchase 20,000 shares of common stock, at
the then current market price, for every year of service to the Company. The
following table provides the information required under Item 402 of Regulation
S-B with respect to executive compensation.
_____________________________
* The information contained in this Audit Committee Report shall not be deemed
to be "soliciting material" or "filed" or incorporated by reference in future
filings with the Securities and Exchange Commission, or subject to the
liabilities of Section 18 of the Securities Exchange Act, except to the extent
that the Company specifically requests that the information be treated as
soliciting material or specifically incorporates it by reference into a document
filed under the Securities Act or the Securities Exchange Act.
10
SUMMARY COMPENSATION TABLE*
Long Term Compensation
Annual Compensation(1) Awards Payouts
--------------------------- ---------------------- -------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted Securities
Compen Stock Underlying LTIP All Other
Name and Principal Position Year Salary Bonus sation Award(s) Options/SARs Payouts Compensation(2)
----------------------------------- ---- --------- ------- ------ ---------- ------------ ------ ---------------
($) ($) ($) ($) (#) ($) ($)
Francis E. O'Donnell, Jr., M.D 2002 $112,500 -- -- -- 61,991 -- --
CEO, President and Chairman 2001 -- -- -- -- 8,009 -- --
709 The Hampton Lane 2000 -- -- -- -- -- -- --
Chesterfield, MO 63017
James A. McNulty, CFO, Secretary and 2002 $170,922 $ 35,000 -- -- -- -- --
Treasurer 2001 40,000 -- -- -- -- -- --
4419 W. Sevilla Street 2000 -- -- -- -- -- -- --
Tampa, Florida 33629
Donald L. Ferguson,
Senior Executive Vice President 2002 -- -- -- -- -- -- --
Land Dynamics, Inc. 2001 -- -- -- -- 274,600 -- --
11719 Old Ballas Road, Suite 110 2000 -- -- -- -- -- -- --
St. Louis, MO 63141
Raphael J. Mannino, Ph.D.(3), 2002 $ 91,500 -- -- -- 35,423 -- $ --
Executive Vice President, 2001 83,650 -- -- -- 96,110 -- 726,957
Chief Scientific Officer 2000 64,800 -- -- -- -- -- --
UMDNJ New Jersey Medical School
185 South Orange Avenue, Building 4
Newark, NJ 07103
Susan Gould-Fogerite, Ph.D.(4), 2002 $ 46,660 -- -- -- -- -- $ --
Vice President and Director of 2001 $ 40,800 -- -- -- 34,324 -- 581,564
Innovation 2000 $ 40,800 -- -- -- -- -- --
and Discovery
UMDNJ New Jersey Medical School
185 South Orange Avenue, Building 4
Newark, NJ 07103
-------------------------
* Salary reflects total compensation paid to these executives (pre-merger and post-merger with BioDelivery
Sciences, Inc. during these periods).
(1) The annual amount of perquisites and other personal benefits, if any, did not exceed the lesser of $50,000 or
10% of the total annual salary reported for each named executive officer and has therefore been omitted.
(2) Reflects the increase in value of the permanent discount stock (a variable award) and the compensation expense
recorded by us as a result of the agreement to remove the permanent discount and put rights. The compensation
amounts listed in column (i) are non-cash items and reflect accounting adjustments.
(3) Excludes $30,930, which funds were reimbursed by us to the University of Medicine and Dentistry of New Jersey
during 2002 (pursuant to a contractual arrangement) for services rendered by Dr. Mannino to such university.
(4) Excludes $31,797, which funds were reimbursed by us during 2002 to the University of Medicine and Dentistry of
New Jersey during 2002 (pursuant to a contractual arrangement) for services rendered by Dr. Gould-Fogerite to
such university.
11
Option Grants During Year Ended December 31, 2002
Potential Realizable Value at Assumed Annual Rates
Individual Grants of Stock Price Appreciation for Option Term
----------------- -------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Percent of
Number of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARsEmployees in Price
Name Granted(#) Fiscal Year ($/Sh) Expiration Date 5%($) 10%($)
---- ---------- ----------- ------ --------------- ----- ------
Francis E. O'Donnell, Jr. M.D. 26,991 27.71% $ 5.50 March 5, 2007 $ 41,014 $ 90,631
35,000 35.93% $ 1.70 September 25, 2007 $ 16,439 $ 36,325
Raphael J. Mannino, Ph.D. 15,423 15.83% $ 5.50 March 5, 2007 $ 23,436 $ 51,787
20,000 20.53% $ 1.70 September 25, 2007 $ 9,394 $ 20,757
James A. McNulty ---- ---- ---- ---- ---- ----
Donald L. Ferguson ---- ---- ---- ---- ---- ----
Susan Gould-Fogerite, Ph.D. ---- ---- ---- ---- ---- ----
Aggregated Option Exercises in Last Fiscal year and Fiscal Year-End Option Values
No options were exercised during the fiscal year-end December 31, 2002.
12
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Value of
Securities Unexercised
Underlying Unexercisable
Unexercised In-The-Money
Options/SARs At Options/SARs At
Shares Fiscal Year-End(#)Fiscal Year-End($)
Acquired On Value Exercisable Exercisable
Name and Principal Position Exercise(#) Realized($) Unexercisable Unexercisable
--------------------------- ----------- ----------- ------------- -------------
(a) (b) (c) (d) (e)
Francis E. O'Donnell, Jr., M.D.......... -- -- -- --
CEO, President and Chairman
709 The Hampton Lane
Chesterfield, MO 63017
James A. McNulty, CFO................... -- -- -- --
Secretary and Treasurer
4419 W. Sevilla Street
Tampa, Florida 33629
Donald L. Ferguson...................... -- -- -- --
Senior Executive Vice President
Land Dynamics, Inc.
11719 Old Ballas Road, Suite 110
St. Louis, MO 63141
Raphael J. Mannino, Ph.D................ -- -- -- --
Executive Vice President,
Chief Scientific Officer
UMDNJ New Jersey Medical School
185 South Orange Avenue, Building 4
Newark, NJ 07103
Susan Gould-Fogerite, Ph.D.............. -- -- -- --
Vice President and Director of
Innovation and Discovery
UMDNJ New Jersey Medical School
185 South Orange Avenue, Building 4
Newark, NJ 07103
Employment Agreements
Except for Dr. Francis E. O'Donnell, Mr. James McNulty, Dr. Susan
Gould-Fogerite and Dr. Rafael Mannino, we currently have no written employment
agreements with any of our officers, directors, or key employees. We may elect
to pursue obtaining employment agreements with certain of these individuals at
some point in the future. All directors and officers have executed
confidentiality and non-compete agreements with us.
Under our employment arrangements, our officers received the following
annualized salaries and other benefits in 2002:
13
(i) Dr. O'Donnell, President, CEO and Chairman -- On March 29, 2002, Dr.
O'Donnell executed an employment agreement to be our full-time
President and CEO at an annual salary of $150,000. Dr. O'Donnell's term
of employment shall be no longer than three years or until another CEO
candidate is appointed.
(ii) James A. McNulty, CFO, Secretary and Treasurer -- Although he is a
part-time CFO, he has an employment agreement with us (which was
amended on August 31, 2002) for a base salary of $185,000, which
terminates on August 31, 2005. Under the terms of this agreement, he is
also entitled to the following benefits: medical, dental and disability
and 401(k).
(iii) Donald Ferguson, Senior Executive Vice President -- Receives no salary
and no benefits.
(iv) Dr. Raphael Mannino, Ph.D., Executive Vice President, and Chief
Scientific Officer -- On September 1, 2002, Dr. Mannino executed an
employment agreement with us at an annual salary of $210,000. Such
agreement terminates on September 1, 2005. Under the terms of this
agreement, he is also entitled to the following benefits: medical,
dental and disability and 401(k).
(v) Dr. Susan Gould-Fogerite, Vice President and Director of Innovation and
Discovery -- On August 31, 2002, Dr. Gould-Fogerite executed an
employment agreement with us at an annual salary of $146,030. Such
agreement terminates on August 31, 2005. Under the terms of this
agreement, she is also entitled to the following benefits: medical,
dental and disability and 401(k).
Drs. Raphael Maninno and Susan Gould-Fogerite had outstanding debt
payable to us, which was incurred with their purchase of stock of BioDelivery
Sciences, Inc. in 1999. Simultaneously with the closing of our public offering
in June, 2002, we forgave those notes and provided these same individuals with a
total of approximately $200,000 as compensation for their tax liability.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF;
FRANCIS E. O'DONNELL, JR., M.D.; RAPHAEL J. MANNINO, PH.D.; L.M. STEPHENSON,
PH.D.; WILLIAM B. STONE; JAMES R. BUTLER; JOHN J. SHEA; ROBERT G.L. SHORR AND
ALAN PEARCE TO SERVE ON THE COMPANY'S BOARD OF DIRECTORS UNTIL THE 2004 ANNUAL
MEETING OR UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED
14
PROPOSAL 2
APPROVAL OF AMENDED AND RESTATED
2001 INCENTIVE PLAN
Introduction
At a special meeting, held on January 31, 2003, the board of directors of
the Company unanimously approved the amendment and restatement of the Company's
2001 Incentive Plan (the "2001 Plan"), subject to stockholder approval. The
amendment and restatement of the plan is intended to increase the amount of
shares authorized under the plan to 2,100,000. The Amended and Restated 2001
Incentive Plan is attached hereto as Annex A.
Purpose of the 2001 Plan
The purposes of the 2001 Plan are: (i) to align the interests of the
Company's stockholder and recipients of grants under the 2001 Plan by increasing
the proprietary interest of such recipients in the Company's growth and success,
and (ii) to advance the interests of the Company by providing additional
incentives to officers, key employees and well-qualified non-employee directors
and consultants who provide services to the Company, who are responsible for
management and growth of the Company, or otherwise contribute to the conduct and
direction of its business, operations and affairs.
Description of the 2001 Plan
The 2001 Plan, as amended, covers a total of 2,100,000 shares of common
stock. Options may be awarded during the ten-year term of the 2001 Plan to
employees of the Company (including employees who are directors), consultants
who are not employees and other affiliates of the Company as defined below. The
2001 Plan provides for the grant of options intended to qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") ("Incentive Stock Options"), options which are not Incentive Stock
Options ("Non-Statutory Stock Options") and restricted shares of common stock.
Only qualified employees of the Company or its subsidiaries (currently
approximately 16 persons) may be granted Incentive Stock Options. Affiliates of
the Company, defined as employees of the Company, members of the Company's board
of directors, or persons associated with the Company in such other capacity or
relationship such as consultants or others as may be permitted by the board of
directors, may be granted Non-Statutory Stock Options or restricted shares.
The board of directors will administer the 2001 Plan, select the
persons to whom options or restricted stock are granted and fix the terms of any
options granted under the plan.
The exercise date of an option granted under the 2001 Plan will be
fixed by the board of directors, but may not be later than ten years from the
date of grant. Options may be exercised in such installments as are fixed by the
board of directors.
Options issued under the 2001 Plan will not be transferable other than
by will or the laws of descent and distribution, although they may be exercised
during the grantee's lifetime by his/her legal representative if he/she becomes
incapacitated. All options must be exercised within three months (3) after
termination of the grantee's affiliation with the Company, except that options
shall remain outstanding for their entire term following termination due to
death or for one year following termination due to permanent disability.
15
The exercise price of Incentive Stock Options granted under the 2001
Plan must be at least equal to the fair market value of the Common Stock, as
determined by the board of directors, on the date of grant. Non-Statutory Stock
Options may be granted at exercise prices not less than 100% of the fair market
value of the Common Stock on the date of the grant. In the case of options
granted to an employee who at the time of grant possessed more than 10% of the
total combined voting power of all classes of stock of the Company, in the case
of Incentive Stock Options and Non-Statutory Stock Options the exercise price
must be at least 110% of the fair market value of the common stock on the date
of the grant. The board of directors is authorized to determine, in its
discretion, the exercise price of other options, including any options that may
be regranted to employees after their original grant has lapsed unexercised.
The 2001 Plan provides for automatic adjustment to the number of shares
of Common Stock issuable upon exercise of options granted under the 2001 Plan to
reflect stock dividends, stock splits, reorganizations, mergers and various
other transactions occurring after the date of grant. Payment for shares
purchased upon exercise of an option must be made in cash or, at the board of
directors' discretion, by delivery of shares of Common Stock of the Company, or
by a combination of such methods.
The Company's board of directors may at any time amend or revise the
terms of the 2001 Plan, except that no such amendment or revision may be made
without the approval of the holders of a majority of the Company's outstanding
capital stock, voting together as a single class, if such amendment or revision
would (a) increase the number of shares which may be issued under the 2001 Plan
(other than changes in capitalization), (b) increase the maximum term of
options, (c) decrease the minimum option price, (d) permit the granting of
options to anyone not included within the 2001 Plan's eligible categories, (e)
extend the term of the 2001 Plan or (f) materially increase the benefits
accruing to eligible individuals under the 2001 Plan.
The 2001 Plan contains the following terms and conditions required in
order to permit treatment of the options granted thereunder as incentive stock
options: (i) all incentive stock options must be expressly designated as such at
the time of grant and (ii) if any person to whom an incentive stock option is
granted owns, at the time of the grant of such option, Common Stock possessing
more than 10% of the combined voting power of all classes of the Company, then
(a) the purchase price per share of the Common Stock subject to such option
shall not be less than 110% of the fair market value of one share of Common
Stock at the time of grant and (b) the exercise period shall not exceed five
years from the date of grant.
Directors are eligible to participate in the 2001 Plan. The 2001 Plan
provides for an initial grant of an option to purchase 20,000 shares of Common
Stock to each director upon first joining the board of directors and subsequent
grants of options to purchase 20,000 shares upon each anniversary of such
director's appointment. Directors are granted 5,000 options for each committee
membership and an additional 10,000 options for each committee chairmanship, per
year of service on such committee. Such options are granted at an exercise price
equal to the fair market value of the Common Stock on the grant date and fully
vest following one year of service after the date of grant.
Federal Income Tax Consequences
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an Incentive Stock Option. Instead,
a participant will recognize taxable income with respect to an Incentive Stock
Option only upon the sale of Common Stock acquired through the exercise of the
option ("ISO Stock"). The exercise of an Incentive Stock Option, however, may
subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
16
length of time that the participant has owned the ISO Stock at the time it is
sold. If the Participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price
prior to having owned it for at least two years from the Grant Date and one year
from the Exercise Date (a "Disqualifying Disposition"), then any gain will be
treated as ordinary compensation income to the extent that it does not exceed
the gain that the participant would have realized had he sold the shares
immediately upon exercise of the option and the remaining gain, if any, will be
a capital gain. This capital gain will be a long-term capital gain if the
participant has held the ISO Stock for more than one year prior to the date of
sale.
If a participant sells ISO Stock for less than the exercise price, then
the participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
Nonqualified Stock Options. A participant will not recognize taxable
income upon the grant of a Non-Statutory Stock Options. A participant who
exercises a Non-Statutory Stock Options, generally, will recognize ordinary
compensation income in an amount equal to the excess of the fair market value of
the Common Stock acquired through the exercise of the option ("NSO Stock") on
the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have taxable income
recognized upon the exercise of the option. Upon selling NSO Stock, a
participant generally will recognize capital gain or loss in an amount equal to
the excess of the sale price of the NSO Stock over the participant's tax basis
in the NSO Stock. This capital gain or loss will be a long-term gain or loss if
the participant has held the NSO Stock for more than one year prior to the date
of the sale.
Tax Consequences to the Company. The Company will be entitled to a
deduction in connection with a grant of a stock option only in the event and to
the extent ordinary income is recognized by the participant. Any such deduction
will be allowed to the Company for its taxable year within which ends the
taxable year in which the participant's recognition of ordinary income occurs.
Any such deduction will be subject to the limitations of Section 162(m) of the
Internal Revenue Code.
Once income associated with such a grant is recognizable to a
participant for Federal income tax purposes, the participant must either pay to
the Company an amount sufficient to satisfy any federal, state and local taxes
required to be withheld or make alternative arrangements acceptable to the
Company.
The foregoing summary is not a complete description of all tax aspects
of the 2001 Plan. The foregoing relates only to Federal income taxes; there may
be other Federal tax consequences associated with the 2001 Plan, as well as
foreign, state and local tax consequences.
17
Plan Benefits Table
The following table provides the benefits or amounts that will be
received by each of the following under the plan being acted upon.
-------------------------------------------------------------------------------------------------------------------------
BioDelivery Sciences International, Inc. Amended and Restated 2001 Incentive Plan
-------------------------------------------------------------------------------------------------------------------------
Name and Position Fair Value of Options Number of Shares of Common
(Black Scholes valuation) Stock Underlying Options
-------------------------------------------------- ------------------------------------- --------------------------------
Francis E. O'Donnell, Jr., M.D., President, $121,957.71 70,000
Chief Executive Officer, Chairman and Director.
-------------------------------------------------- ------------------------------------- --------------------------------
Raphael J. Mannino, Ph.D., Executive Vice $240,954.94 131,533
President, Chief Scientific Officer and Director
-------------------------------------------------- ------------------------------------- --------------------------------
Susan Gould-Fogerite, Ph.D., Vice President and $35,364.88 34,324
Director of Innovation and Discovery
-------------------------------------------------- ------------------------------------- --------------------------------
Donald L. Ferguson, Senior Executive Vice $282,927.25 274,600
President
-------------------------------------------------- ------------------------------------- --------------------------------
Executive Group $681,204.78 510,457
-------------------------------------------------- ------------------------------------- --------------------------------
Non-Executive Director Group $333,812.73 230,000
-------------------------------------------------- ------------------------------------- --------------------------------
Non-Executive Employee Group $0.00 0
-------------------------------------------------- ------------------------------------- --------------------------------
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDED AND
RESTATED 2001 INCENTIVE PLAN
18
PROPOSAL 3
RATIFICATION OF THE ISSUANCE OF
QUALIFIED AND NON-QUALIFIED
STOCK OPTIONS
Since January of 2000, options to purchase a total of 1,318,936 shares of
our common stock have been granted to board members, officers, members of our
Scientific Advisory Board, consultants and outside parties.
In 2001 options to purchase 572,082 shares (post split) of our common stock
were granted, subject to stockholder approval. These issuances were ratified at
our 2001 annual meeting. Of that quantity, 27,460 options were granted to four
members of our Board of Directors: Francis E. O'Donnell, Raphael J. Mannino,
L.M. Stephenson and William B. Stone, in partial fulfillment of their intial
grants for service on our board of directors. Another 89,928 options were
granted to four consultants: James Oleske, Tom Denny, Catherine Gidlow, and Gary
Wesolowski for their services to the Company. A total of 386,044 options were
granted to three of our officers: Raphael J. Mannino, Susan Gould-Fogerite, and
Donald L. Ferguson in connection with their employment services. Of the original
number of options ratified, 68,650 options had been granted to Chris Chapman,
who subsequently forfeited his options upon his resignation in February of 2003.
Subsequent to our 2001 annual meeting, options to purchase 746,854 share of
our common stock were granted, subject to stockholder approval. Of that
quantity, a total of 212,540 options have been granted to four members of our
Board of Directors: Francis E. O'Donnell, Raphael J. Mannino, L.M. Stephenson
and William B. Stone for participation on the board of directors. Another
100,000 options were granted to James R. Butler, Robert G. L. Shorr, Alan Pearce
and John Shea upon their appointment to our board of directors. An additional
14,412 options were granted to Raphael J. Mannino in partial fulfillment of his
initial grant for serving on the board of directors, and, 60,000 options were
granted to Raphael J. Mannino as a bonus.
David Perlin, Floyd Chilton, Gerald Mandell, James Oleske, Leo Whiteside,
Ralph Arlinghaus, Susan Bonitz, Mauro Bove and Claudio DeSimmons have each been
granted 10,000 options upon their appointment to our Scientific Advisory Board.
Albany Medical College and the University of Medicine and Dentistry of New
Jersey have each been granted 84,951 options, for a combined total of 169,902
options in consideration in consideration of royalties owed on revenue from
licensed patents and/or technologies. Our counsel, Ellenoff, Grossman, & Schole
LLP, was granted 25,000 warrants to purchase common stock as part an agreement
for legal representation that we entered into in July of 2002. Leonardo Zangani
was granted 30,000 options as part of our consulting agreement with L.G.
Zangani, LLC. We awarded David Filer 45,000 stock options in consideration of
his consulting services to the Company.
Recommendation of the Board of
Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE ISSUANCE OF
746,854 QUALIFED AND NON-QUALIFIED STOCK OPTIONS
19
PROPOSAL 4
RATIFICATION OF THE APPOINTMENT
OF GRANT THORNTON LLP
AS THE COMPANY'S INDEPENDENT
AUDITORS FOR FISCAL 2002
For the 2002 fiscal year, Grant Thornton LLP ("GT") provided audit
services which included examination of the Company's annual consolidated
financial statements.
On April 18, 2003, we, with the approval of our audit committee of the
board of directors and our full board of directors, dismissed GT as our
independent auditors. During the years ended December 31, 2002 and 2001, and the
subsequent interim period through April 18, 2003 (the date of GT's dismissal as
the Company's independent auditors), GT acted as the independent auditors for
the Company and its subsidiary, Bioral Nutrient Delivery, LLC, and, during such
period there were no disagreements with GT on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of GT, would
have caused GT to make a reference to the subject matter of the disagreements in
connection with its reports in the financial statements for such years. A
representative of GT is not expected to attend the Meeting.
The independent accountant's report of GT on the Company's consolidated
financial statements for the years ended December 31, 2002 and 2001 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
GT has advised the audit committee and management that it noted a lack
of segregation of accounting and financial reporting duties as a result of the
Company's small size, which condition GT considered to be reportable under
standards established by the American Institute of Certified Public Accountants.
The Company believes this matter is not reportable under Regulation S-B since,
among other factors, the noted issue did not preclude the Company from
developing reliable financial statements as contemplated by Item
304(a)(1)(iv)(B)(1) of Regulation S-B. The Company voluntarily made the
foregoing disclosure, however, in its Current Report on Form 8-K, dated April
18, 2003 and filed on April 25, 2003, as an accommodation to its former
independent auditors. The Company has taken GT's notation under advisement but
believes its internal accounting controls are in compliance with applicable
accounting standards, rules and regulations. The Company will continue to
monitor and assess the costs and benefits of additional staffing in the
accounting area in conjunction with its newly appointed independent auditors,
Aidman, Piser & Company, P.A. (see PROPOSAL 5 below).
The following fees were incurred by the Company for the services of
Grant Thornton LLP in fiscal 2002 and 2001.
2001 2002
--------------------------------------------
Audit Fees $122,995.77 $ 89,243.00
Audit-Related Fees $ 9,915.00 $107,117.00
Tax Fees $ 27,693.80 $ 12,174.00
All Other Fees $ 0.00 $ 7,842.00
Audit Fees consisted of fees for services rendered to the Company for
the audit of the Company's annual financial statements, reviews of the Company's
quarterly financial statements and services in connection with statutory or
regulatory filings.
Audit-Related Fees consisted of fees incurred for an audit of the
Company's restricted stock plan in fiscal 2001, and fees incurred in connection
with the Company's Initial Public Offering in fiscal 2002.
20
Tax Fees consisted of services in connection with the preparation of
federal and state tax returns and advice regarding proposed business
combinations.
All Other Fees consisted of advice regarding the formation of an LLC.
The audit committee has adopted the following pre-approval policies and
procedures pursuant to 17 CFR 210.2-01(c)(7)(i):
Management requests a budget from the audit firm for the review and
audit services to be rendered. After approval by management of the proposed fees
schedule, the Audit Committee approves the budgeted fees. From time to time,
budgeted fees have been exceeded, but we receive approval after the fact.
100% of the auditing services, described above, rendered by GT to
the Company during fiscal 2001 and 2002 were approved by the audit committee
pursuant to 17 CFR 210.2-01(c)(7)(i)(C).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2002
21
PROPOSAL 5
RATIFICATION OF THE APPOINTMENT OF AIDMAN, PISER & COMPANY AS THE COMPANY'S
INDEPENDENT AUDITORS FOR FISCAL 2003
On April 18, 2003, with the approval of the audit committee and the
full board of directors of the Company, the firm of Aidman, Piser & Company,
P.A. was appointed as the Company's independent auditors.
A representative of Aidman, Piser & Company, P.A. is expected to attend
the Annual Meeting. The representative will be offered the opportunity to make
any statements he or she may desire and to respond to appropriate stockholder
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE APPOINTMENT OF
AIDMAN, PISER & COMPANY, P.A. AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2003
22
OTHER INFORMATION
Proxy Solicitation
All costs of solicitation of proxies will be borne by us. In addition
to solicitation by mail, our officers and regular employees may solicit proxies
personally or by telephone. We do not intend to utilize a paid solicitation
agent.
Proxies
A stockholder may revoke his, her or its proxy at any time prior to its
use by giving written notice to our Secretary, by executing a revised proxy at a
later date or by attending the Meeting and voting in person. Proxies in the form
enclosed, unless previously revoked, will be voted at the Meeting in accordance
with the specifications made thereon or, in the absence of such specifications
in accordance with the recommendations of the board of directors.
Securities Outstanding; Votes Required
As of the close of business on June 27, 2003 the record date for the
Meeting, there were outstanding ___________ shares of common stock (the "Capital
Stock") and no shares of preferred stock. Stockholders are entitled to one vote
for each share of Capital Stock owned. The affirmative vote of a majority of the
shares of the Company's Capital Stock present at the Meeting, in person or by
proxy, is required for approval of the proposals. Shares of the Company's
Capital Stock represented by executed proxies received by the Company will be
counted for purposes of establishing a quorum at the Meeting, regardless of how
or whether such shares are voted on any specific proposal.
Other Business
The board of directors knows of no other matter to be presented at the
Meeting. If any additional matter should properly come before the meeting, it is
the intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their judgment on any such matters.
Beneficial Ownership of our Principal Stockholders, Officers and Directors
The following table sets forth, as of May 1, 2003, certain information
as to the stock ownership of each person known by us to own beneficially 5% or
more of our outstanding common stock, of each of our named officers and
directors who owns any shares and of all officers and directors as a group. In
computing the outstanding shares of common stock, we have excluded all shares of
common stock subject to options or warrants since they are not currently
exercisable or exercisable within 60 days and are therefore not deemed to be
outstanding and beneficially owned by the person holding the options or warrants
for the purpose of computing the number of shares beneficially owned and the
percentage ownership of that person. Unless otherwise indicated, the address for
each person listed below is in care of the Company at UMDNJ Medical School 185
South Orange Avenue, Bldg. #4, Newark, New Jersey 07103.
23
--------------------------------- --------------------------------------------- ------------------------------
Name of Beneficial Owner Number of Shares Percentage of Class as of
of Common Stock Owned(1) March 20, 2003
--------------------------------- --------------------------------------------- ------------------------------
Hopkins Capital Group II, LLC (2) 3,111,579 43.97%
Francis E. O'Donnell, Jr., M.D. (3) 3,161,922 44.62%
Pharmaceutical Product Development, Inc. (4) 690,000 9.74%
Jonnie R. Williams, Sr. (5) 3,203,112 45.20%
Dennis Ryll, M.D. (6) 3,157,346 44.56%
Raphael J. Mannino, Ph.D. (7) 182,609 2.58%
James A. McNulty (8) 76,659 1.08%
Donald L. Ferguson (9) 91,533 1.30%
Susan Gould-Fogerite, Ph.D. (10) 152,174 2.15%
L.M. Stephenson, Ph.D (11) --- *
William B. Stone (12) --- *
James R. Butler (13) --- *
John J. Shea (14) --- *
Robert G.L. Shorr (15) --- *
Alan Pearce (16) --- *
All Directors and Officers as a group
(12 persons) 3,664,897 51.72%
---------------------------------
* Less than 1%
(1) Based on 7,085,863 shares of common stock outstanding.
(2) Hopkins Capital Group II, LLC is owned one third by each of: (i)
various trusts of the Dr. O'Donnell family; (ii) John R. Williams, Sr.
and his family trusts; and (iii) MOAB L.L.C., which is beneficially
owned by Dennis Ryll and members of his family.
(3) Per Form 4 filed with the SEC on October 7, 2002. Dr. O'Donnell is our
President, Chief Executive Officer, Chairman and a Director. Includes
the shares owned by Hopkins Capital Group II, LLC (see Note 2) and
45,767 shares of common stock, owned by his wife, as to which he
disclaims beneficial interest of. Does not include options to purchase
8,009 shares of common stock at an exercise price of $3.06 per share,
options to purchase 26,991 shares of common stock at an exercise price
of $5.50 per share, in each case exercisable in July, 2003 and options
24
to purchase 35,000 shares of common stock at $1.70 per share which are
exercisable on September 26, 2004. The remaining 4,576 shares of common
stock are owned by Dr. O'Donnell's sister. Dr. O'Donnell's address is
709 The Hampton Lane, Chesterfield MO 63017.
(4) PPDI's address is 3151 South Seventeenth Street, Wilmington, NC 28412.
(5) Includes the shares owned by Hopkins Capital Group II, LLC (see Note 2)
and 45,767 shares of common stock owned by his wife, as to which he
disclaims beneficial interest of. The remaining 45,766 shares of common
stock are personally owned by Mr. Williams. Mr. William's address is 1
Starwood Lane, Manakin-Sabot, VA 23103.
(6) Includes the shares owned by Hopkins Capital Group II, LLC (see Note
1). The remaining 45,767 shares of common stock are personally owned by
Mr. Ryll. Dr. Ryll's address is 1029 Speckledwood, Manor Court,
Chesterfield, MO 63017.
(7) Per Form 4 filed with the SEC on October 7, 2002. Dr. Mannino is our
Executive Vice President, Chief Scientific Officer and a Director. Does
not include options to purchase 45,767 shares of common stock at an
exercise price of $3.06 per share vesting in July, 2003, options to
purchase 22,883 shares of common stock at an exercise price of $11.80
per share vesting in July, 2003, options to purchase 22,883 shares of
common stock at an exercise price of $17.48 per share vesting in July,
2003, options to purchase 20,000 shares of common stock at $1.70 per
share which are exercisable on September 26, 2004 or options to
purchase 60,000 shares of common stock at $1.63 per share which were
granted in January 2003.
(8) Mr. McNulty is our Secretary, Treasurer and Chief Financial Officer.
Includes 2,288 shares owned by his wife, as to which he disclaims
beneficial interest of. His address is 4419 W. Sevilla Street, Tampa,
FL 33629.
(9) Mr. Ferguson is our Senior Executive Vice President. Does not include
options to purchase 137,300 shares of common stock at an exercise price
of $3.06 per share vesting in July, 2003, options to purchase 68,650
shares of common stock at an exercise price of $11.80 per share vesting
in July, 2003 and options to purchase 68,650 shares of common stock at
an exercise price of $17.48 per share vesting in July, 2003. Mr.
Ferguson's address is 11719 Old Ballas Road, Suite 110, St. Louis, MO
63141.
(10) Dr. Gould-Fogerite is our Vice President and Director of Innovation and
Discovery. Does not include options to purchase 17,162 shares of common
stock at an exercise price of $3.06 per share vesting in July, 2003,
options to purchase 8,581 shares of common stock at an exercise price
of $11.80 per share vesting in June 2003, and options to purchase 8,581
shares of common stock at an exercise price of $17.48 per share vesting
in July, 2003.
(11) Per Form 4 filed with the SEC on October 11, 2002. Does not include
options to purchase 6,865 shares of common stock at an exercise price
of $3.06 per share and 23,135 shares of common stock at an exercise
price of $5.50 per share exercisable in July, 2003 or options to
purchase 20,000 shares of common stock at $1.70 per share which are
exercisable on September 26, 2004. Dr. Stephenson's address is c/o
University of Medicine and Dentistry New Jersey Medical School, 65
Bergen Street, MB 1414, Newark, NJ 07103.
25
(12) Per Form 4 filed with the SEC on October 11, 2002. Does not includes
options to purchase 8,009 shares of common stock at an exercise price
of $3.06 per share and 26,991 shares of common stock at an exercise
price of $5.50 per share exercisable in July, 2003 or options to
purchase 35,000 shares of common stock at $1.70 per share which are
exercisable on September 26, 2004. Mr. Stone's address is 11120 Geyers
Down Lane, Frontenac MO 63131.
(13) Per Form 4 filed with the SEC on October 7, 2002. Does not include
options to purchase 30,000 shares of common stock at an exercise price
of $5.50 per share exercisable in July, 2003 or options to purchase
25,000 shares of common stock at $1.70 per share which are exercisable
on September 26, 2004. Mr. Butler's address is 109 Cutter Court, Ponte
Vedra Beach, FL 32082.
(14) Does not include options to purchase 25,000 shares of common stock at
an exercise price of $5.50 per share exercisable in July, 2003. Mr.
Shea's address is 90 Poteskeet Trail, Kitty Hawk, NC 27949.
(15) Per Form 4 filed with the SEC on October 11, 2002. Does not includes
options to purchase 30,000 shares of common stock at an exercise price
of $5.50 per share exercisable in July, 2003 or options to purchase
25,000 shares of common stock at $1.70 per share which are exercisable
on September 26, 2004. Mr. Shore's address is 28 Brookfall Road,
Edison, NJ 08817.
(16) Per Form 3 filed with the SEC on October 11, 2002. Does not include
options to purchase 25,000 shares of common stock at $1.70 per share
which are exercisable on September 26, 2004. Mr. Pearce's address is
c/o McKesson Corporation, One Post Street, San Francisco CA 94104.
Deadline For Submission of Stockholder Proposals for 2004 Annual Meeting of
Stockholders
Stockholders may present proposals for inclusion in the 2004 Proxy
Statement provided that such proposals are received by the Secretary of the
Company no later than February 29, 2004 and are otherwise in compliance with
applicable SEC regulations. Proposals submitted after March 30, 2004 will be
deemed untimely, however, the Company will have discretionary authority to
include such proposals in the 2004 Proxy Statement.
Additional Information
Accompanying this Proxy Statement is a copy of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2002. The Annual Report on
Form 10-KSB constitutes the Company's Annual Report to its Stockholders for
purposes of Rule 14a-3 under the Securities Exchange Act of 1934. The annual
report includes our audited financial statements for the 2002 fiscal year and
certain other financial information, which is incorporated by reference herein.
Additionally, attached is a copy of the Company's quarterly report on Form
10-QSB for the period ended March 31, 2003, which is incorporated herein by
reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information are
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549, and on the Commission's website at www.sec.gov.
Copies of such materials may be obtained upon payment of the Commission's
customary charges by writing to the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549.
Stockholders who have questions in regard to any aspect of the matters
discussed in this Proxy Statement should contact James McNulty, Chief Financial
Officer of the Company, at (813) 902-8980.
26
Annex A
BIODELIVERY SCIENCES INTERNATIONAL, INC.
AMENDED AND RESTATED 2001 INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The BioDelivery Sciences International, Inc. 2001
Incentive Plan (the "PLAN") is hereby established effective as of July 20, 2001,
by adoption of the Board, provided it is approved within 12 months of this date
by stockholders of the Company. Awards may be granted subject to stockholder
approval, but may not be exercised or otherwise settled in the event stockholder
approval is not obtained.
1.2 PURPOSE. The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by encouraging and facilitating
the ownership of BioDelivery Sciences International, Inc.'s ("COMPANY") common
stock by persons performing services for the Participating Company Group in
order to enhance the ability of BioDelivery Sciences International, Inc. to
attract, retain and reward such persons and motivate them to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall be effective from the date that the
Plan is adopted by the Board of Directors of the Company and shall continue in
effect thereafter until the earlier of (a) its termination by the Board, or (b)
the date on which all of the shares of Stock available for issuance under the
Plan have been issued and all restrictions on such shares under the terms of the
Plan and the agreements evidencing Options granted under the Plan have lapsed,
or (c) ten (10) years from its effective date. All Options shall be granted, if
at all, within ten (10) years from the earlier of the date the Plan is adopted
by the Board or the date the Plan is duly approved by the stockholders of the
Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "AWARD" means any award or grant of Restricted Shares or Options
under the Plan.
27
(b) "BENEFICIARY" means the person, persons, trust, or trusts entitled
by will or by the laws of descent, to exercise a Participant's Option or other
rights under the Plan after the Participant's death.
(c) "BOARD" means the Board of Directors of the Company. If one or more
Committees have been appointed by the Board to administer the Plan,"BOARD" also
means such Committee(s).
(d) "CHANGE IN CONTROL" shall mean an Ownership Change Event or a
series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the stockholders of the Company, immediately before the Transaction, do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the Company or, in the case of a Transaction
involving the sale, exchange or transfer of all or substantially all of the
Company's assets, the corporation or other business entity to which the assets
of the Company were transferred (the "TRANSFEREE"), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting
securities of one or more corporations or other business entities which own the
Company or the Transferee, as the case may be, either directly or through one or
more subsidiary corporations or other business entities. The Board shall have
the right to determine whether multiple sales or exchanges of the voting
securities of the Company or multiple Ownership Change Events are related, and
its determination shall be final, binding and conclusive.
(e) "CODE" means the Internal Revenue Code of 1986, as amended, and any
applicable regulations promulgated thereunder.
(f) "COMMITTEE" means the Compensation Committee or other committee of
the Board duly appointed to administer the Plan and having such powers as shall
be specified by the Board. Unless the powers of the Committee have been
specifically limited, the Committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to amend or terminate
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.
(g) "COMPANY" means BioDelivery Sciences International, Inc., a
Delaware corporation, or any successor corporation thereto.
(h) "CONSULTANT" means a person engaged to provide consulting or
advisory services (other than as an employee or a director) to a Participating
Company.
(i) "DIRECTOR" means a member of the Board or of the board of directors
of any other Participating Company.
28
(j) "DISABILITY" means the inability of the Participant to perform the
major duties of the Participant's position with the Participating Company Group
because of the sickness or injury of the Participant. The Determination of
whether or not a Participant is disabled for purposes of this Plan shall be made
by, and at the sole discretion of, the Committee.
(k) "EMPLOYEE" means any person treated as an employee (including an
officer or a director who is also treated as an employee) in the records of a
Participating Company and, with respect to any Incentive Stock Option granted to
such person, who is an employee for purposes of Section 422 of the Code;
provided, however, that neither service as a director nor payment of a
director's fee shall alone be sufficient to constitute employment for purposes
of the Plan. The Company shall determine in good faith and in the sole exercise
of its discretion, whether an individual has become, or has ceased to be, an
Employee and the effective date of such individual's employment or termination
of employment, as the case may be. For purposes of an individual's rights, if
any, under the Plan as of the time of the Company's determination, all such
determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any court of law or governmental agency
subsequently makes a contrary determination.
(l) "FAIR MARKET VALUE" means, as of any date, the value of a share of
Stock or other property as determined by the Board, in its discretion, in good
faith without regard to any restriction other than a restriction which, by its
terms, will never lapse. If the Stock is not trading over a public exchange, the
"fair market value" shall take into account the latest private transaction in
which the Company sold stock to an informed and willing buyer, if any such
transaction exists. If the Stock is listed for trading over a public market,
"fair market value" of the Stock on a given day shall be the mean between the
highest and lowest quoted selling prices, regular way, of the Stock on the
NASDAQ or the exchange on which the Stock is listed, and if no trading occurs on
such date, the mean between the highest and lowest prices on the nearest trading
day before such date.
(m) "INCENTIVE STOCK OPTION" means an Option intended to be (as set
forth in the Option Agreement), and which qualifies as, an incentive stock
option within the meaning of Section 422(b) of the Code.
(n) "NONQUALIFIED STOCK OPTION" means an Option not intended to be (as
set forth in the Option Agreement) or which does not qualify as an Incentive
Stock Option.
(o) "OFFICER" means any person designated by the Board as an officer of
the Company.
(p) "OPTION" means a right to purchase Stock pursuant to the terms and
conditions of the Plan. An Option may be either an Incentive Stock Option or a
Nonqualified Stock Option.
29
(q) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee setting forth the terms, conditions and restrictions pertaining
to the Option granted to the Optionee and to any shares of Stock acquired upon
the exercise thereof.
(r) "OPTIONEE" means a Participant who has been awarded one or more
Options.
(s) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any
of the following occurs with respect to the Company: (i) the direct or indirect
sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting stock
of the Company; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.
(t) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(u) "PARTICIPANT" means any employee, consultant or director to whom an
Award has been made under the Plan.
(v) "PARTICIPATING COMPANY" means the Company or any Parent Corporation
or Subsidiary Corporation.
(w) "PARTICIPATING COMPANY GROUP" means, at any point in time, all
corporations collectively which are then Participating Companies.
(x) "RESTRICTED SHARES" means shares awarded pursuant to a "RESTRICTED
SHARE AGREEMENT" between the Company and Participant setting forth the terms,
conditions or restrictions applicable to an Award of shares of Stock under the
Plan.
(y) "SERVICE" means a Participant's employment or service with the
Participating Company Group, whether in the capacity of an employee, a director
or a consultant. A Participant's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Participant renders
Service to the Participating Company Group or a change in the Participating
Company for which the Participant renders such Service, provided that there is
no interruption or termination of the Participant's Service. Furthermore, a
Participant's Service with the Participating Company Group shall not be deemed
to have terminated if the Participant takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
30
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Participant's Service shall be deemed to have terminated
unless the Participant's right to return to Service with the Participating
Company Group is guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company or required by law, a
leave of absence shall not be treated as service for purposes of determining
vesting under the Participant's Option or Restricted Shares Agreement. The
Participant's Service shall be deemed to have terminated either upon an actual
termination of service or upon the corporation for which the Participant
performs services ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its discretion, shall determine whether the
Participant's Service has terminated and the effective date of such termination.
(z) "STOCK" means the common stock of the Company, as adjusted from
time to time in accordance with Section 4.2. Such Stock may be unrestricted or,
at the sole discretion of the Board, be made subject to restrictions relating to
employment and transferability.
(aa) "SUBSIDIARY CORPORATION" means any present or future "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code.
(bb) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an
Option is granted to the Optionee, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
(cc) "VEST" or "VESTING", with respect to Options, means the date,
event, or act prior to which an Award is not, in whole or in part, exercisable
except at the sole discretion of the Board. With respect to Restricted Shares,
"Vest" or "Vesting" shall mean the date, event, or act prior to which an Award
is, in whole or in part, forfeitable.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the
Board. All questions of interpretation of the Plan or of any Option, Restricted
Share, or other right awarded hereunder shall be determined by the Board, and
such determinations shall be final and binding upon all persons having an
interest in the Plan or in such Option or right.
31
3.2 AUTHORITY OF OFFICERS. Any Officer shall have the authority to act
on behalf of the Company with respect to any matter, right, obligation,
determination or election which is the responsibility of, or which is allocated
to, the Company herein, provided the Officer has apparent authority with respect
to such matter, right, obligation, determination or election.
3.3 POWERS OF THE BOARD. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its discretion to:
(a) determine the persons to whom, and the time or times at which
Awards shall be granted, the types of Awards to be granted, and the number of
shares of Stock to be subject to each Award;
(b) determine the terms, conditions and restrictions applicable to
Awards; approve one or more forms of Option, or Restricted Share Agreements;
(c) amend, modify, extend, cancel or renew any Option or waive any
restrictions or conditions applicable to any Option or applicable to any shares
of Stock awarded or acquired upon the exercise thereof;
(d) correct any defect, supply any omission, or reconcile any
inconsistency in the and take such other actions with respect to the Plan as the
Board may deem advisable to the extent not inconsistent with the provisions of
the Plan or applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be two million one hundred thousand
(2,100,000) and shall consist of authorized but unissued or reacquired shares of
Stock, treasury shares, or any combination thereof. If an outstanding Option for
any reason expires or is terminated or canceled or if shares of Stock are
acquired upon the exercise or Award of an Option or Restricted Share Agreement
subject to a Company repurchase option and are repurchased by the Company, the
shares of Stock allocable to the unexercised portion of such Option or such
repurchased shares of Stock shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
32
appropriate adjustments shall be made in the number and class of shares subject
to the Plan and to any outstanding Options, in the Share Issuance Limit set
forth in Section 4.1, in the exercise price per share of any outstanding
Options.
5. ELIGIBILITY AND LIMITATIONS.
5.1 PERSONS ELIGIBLE. Awards may be granted only to Employees,
Consultants, and Directors. For purposes of the foregoing sentence, "Employees,"
"Consultants", and "Directors" shall include prospective Employees, prospective
Consultants, and prospective Directors to whom Options and Restricted Shares may
be awarded in connection with written offers of an employment or other service
relationship with the Participating Company Group.
5.2 OPTION AWARD RESTRICTIONS. Any person who is not an Employee on the
effective date of the Award of an Option to such person may be awarded only a
Nonqualified Stock Option. An Incentive Stock Option awarded to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences Service with a Participating
Company.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that Options designated
as Incentive Stock Options (granted under all stock option plans of the
Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for Stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portions
of such Options which exceed such amount shall be treated as Nonqualified Stock
Options. For purposes of this Section 5.3, Options designated as Incentive Stock
Options shall be taken into account in the order in which they were awarded, and
the Fair Market Value of Stock shall be determined as of the time the Option
with respect to such Stock was awarded. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonqualified Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED SHARES.
6.1 AWARD AGREEMENTS. Options shall be evidenced by Option Agreements
specifying the nature and number of shares of Stock covered thereby, and shall
exist in such form as the Board shall from time to time establish. An Award of
Restricted Shares shall be evidenced by a Restricted Share Agreement specifying
the number of shares issued and the restrictions thereon, and shall exist in
such form as the Board shall, from time to time, approve. Such Agreements may
33
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the terms and conditions herein.
6.2 OPTION VESTING AND EXERCISE PRICE. Each Option Agreement shall
include a vesting schedule describing the date, event, or act upon which an
Option shall vest, in whole or in part, with respect to all or a specified
portion of the shares covered by such Option. Each Option Agreement shall also
convey the exercise price for each Option or the means by which such price shall
be established, with such exercise price or method of establishment being
established in the discretion of the Board; provided, however, that: (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, and (b) no Option granted to a Ten Percent Owner Optionee shall have an
exercise price per share less than one hundred ten percent (110%) of the Fair
Market Value of a share of Stock on the effective date of grant of the Option.
6.3 EXERCISABILITY AND TERM OF OPTIONS. Options shall be exercisable as
shall be determined by the Board and set forth in the Option Agreement
evidencing such Option; provided, however, that: (a) no Incentive Stock Option
shall be exercisable after the expiration of ten (10) years after the effective
date of grant of such Option, (b) no Incentive Stock Option awarded to a Ten
Percent Owner Optionee shall be exercisable after the expiration of five (5)
years after the effective date of grant of such Option, or (c) no Option awarded
to a prospective Employee, prospective Consultant or prospective Director may
become exercisable prior to the date on which such person commences Service with
a Participating Company.
6.4 PAYMENT OF OPTION EXERCISE PRICE
(a) FORMS OF CONSIDERATION AUTHORIZED.
(i) Payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made in cash, by check or cash
equivalent or by such other consideration as may be approved by the Board from
time to time to the extent permitted by applicable law.
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) CASHLESS EXERCISE. The Company reserves, at any and all times, the
right, in the Company's sole and absolute discretion, to establish, decline to
approve or terminate any program or procedures for the exercise of Options by
means of a cashless exercise.
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(ii) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted
if the exercise of an Option using a promissory note would be a violation of any
law. Any permitted promissory note shall be on such terms as the Board shall
determine. The Board shall have the authority to permit or require the Optionee
to secure any promissory note used to exercise an Option with the shares of
Stock acquired upon the exercise of the Option or with other collateral
acceptable to the Company.
6.5 TAX WITHHOLDING. Upon the exercise of an Option or upon the vesting
of Restricted Shares, the Company shall have the right, but not the obligation,
to deduct from the shares of Stock issuable, or to accept from the Participant
the tender of, a number of whole shares of Stock having a Fair Market Value, as
determined by the Company, equal to all or any part of the federal, state, local
and foreign taxes, if any, required by law to be withheld by the Participating
Company Group with respect to such Restricted Stock, Option, or the Stock
acquired upon the exercise thereof. Alternatively or in addition, in its
discretion, the Company shall have the right to require the Participant, through
payroll withholding, cash payment or otherwise, including by means of a Cashless
Exercise, to make adequate provision for any such tax withholding obligations of
the Participating Company Group arising in connection with the Restricted Stock,
Option, or the shares acquired upon the exercise thereof. The Fair Market Value
of any shares of Stock withheld or tendered to satisfy any such tax withholding
obligations shall not exceed the amount determined by the applicable minimum
statutory withholding rates. The Company shall have no obligation to deliver
shares of Stock or to release shares of Stock from an escrow established
pursuant to any Agreement entered hereunder until the Participating Company
Group's tax withholding obligations have been satisfied by the Participant.
6.6 STOCK RESTRICTIONS. Shares issued under the Plan shall be subject
such conditions and restrictions as determined by the Board in its discretion at
the time an Option or Restricted Share Award is made.
(a) [Intentionally Left Blank]
(b) SERVICE VESTING AND TRANSFERABILITY. The Company shall have the
right, at the time of the Award, to place restrictions on Awards including upon
shares issued upon the exercise of an Option.
(c) RESTRICTED SHARE AWARDS. Subject to and consistent with the
provisions of this Plan, each Restricted Share shall be evidenced by a written
Agreement setting forth the terms and conditions pertaining to such Award,
including the number of shares awarded. Unless otherwise required by statute,
Restricted Shares may be awarded with or without payment of consideration by the
Participant. Each Restricted Share Agreement shall include a vesting schedule
describing the date, event, or act upon which Restricted Shares shall vest, in
whole or in part, with respect to all or a specified portion of the Shares
covered by the Award. No Restricted Share not yet vested is assignable or
transferable and any attempt at transfer or assignment of such Share, and any
attempt by a creditor to attach such Share, shall be null and void. Until the
date a Stock certificate is issued to a Participant, a Participant will have no
rights as a stockholder of the Company. No adjustments shall be made for
dividends of any kind or nature, distributions, or other rights for which the
35
record date is prior to the date such stock certificate is issued. Consistent
with the provisions of this Plan, the Board may in its discretion modify,
extend, or renew any Restricted Share Agreement, or accept cancellation of same
in exchange for the granting of a new Award. The preceding not withstanding, no
modification of a Restricted Share Agreement which is not vested shall, absent
the consent of the Participant, alter or impair any rights or obligations with
respect to such Agreement.
6.7 EFFECT OF TERMINATION OF SERVICE.
(a) RESTRICTED SHARES. If a Participant's Service terminates for any
reason other than as a result of a Change in Control, such Participant's
Restricted Shares which are not vested at the time of Service termination shall
be forfeited. If a Participant's service terminates because of a Change of
Control and if an amount to be received by a Participant from this Plan would
otherwise constitute a "parachute payment" as defined in section 280G(b)(2) of
the Code, then any accelerated vesting due to a Change of Control or subsequent
termination of the Participant's Service shall be limited to the amount of
vesting that permits the Participant to receive, after application of the excise
tax imposed by section 4999 of the Code, the greater of: (1) A total parachute
payment that equals 2.99 times the Participant's base amount, as determined
under section 280G of the Code; or (2) full vesting of all unvested Restricted
Shares as of the date of the Participant's termination of employment.
(b) OPTIONS. Subject to earlier termination of the Option as otherwise
provided herein, and unless otherwise provided by the Board in an Award and set
forth in the Agreement related thereto, an Option shall be exercisable after a
Participant's termination of Service only during the applicable time period
determined in accordance with the following provisions of this Section 6.10(b)
and thereafter shall terminate:
(i) DISABILITY. If the Participant's Service terminates because of the
Disability of the Participant, an Option, to the extent unexercised and
exercisable on the date on which the Participant's Service terminated, may be
exercised by the Participant (or the Participant's guardian or legal
representative) at any time prior to the expiration of twelve (12) months after
the date on which the Participant's Service terminated, but in any event no
later than the date of expiration of the Option's term as set forth in the
Agreement evidencing such Option (the "EXPIRATION DATE").
(ii) DEATH. If the Participant's Service terminates because of the
death of the Participant, an Option, to the extent unexercised and exercisable
on the date on which the Participant's Service terminated, may be exercised by
the Participant's legal representative or other person who acquired the right to
exercise the Option or Right by reason of the Participant's death at any time
prior to the expiration of twelve (12) months after the date on which the
Participant's Service terminated, but in any event no later than the Expiration
Date. The Participant's Service shall be deemed to have terminated on account of
death if the Participant dies within three (3) months after the Participant's
termination of Service.
36
(iii) OTHER TERMINATION OF SERVICE. If the Participant's Service
terminates for any reason, except Disability or death, an Option, to the extent
unexercised and exercisable by the Participant on the date on which the
Participant's Service terminated, may be exercised by the Participant at any
time prior to the expiration of three (3) months after the date on which the
Participant's Service terminated, but in no event any later than the Expiration
Date.
(c) RESERVATION OF RIGHTS. The grant of Awards under the Plan shall in
no way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
6.8 TRANSFERABILITY OF OPTIONS. During the lifetime of the Participant,
an Option shall be exercisable only by the Participant or by the Participant's
guardian or legal representative. No Option shall be assignable or transferable
by the Participant, except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by the Board, in its sole
discretion, and as set forth in the Option Agreement evidencing such Option, a
Nonqualified Stock Option shall be assignable or transferable.
7. CHANGE IN CONTROL.
7.1 EFFECT OF CHANGE IN CONTROL ON OPTIONS AND STOCK APPRECIATION
RIGHTS. In the event of a Change in Control, the surviving, continuing,
successor, or purchasing corporation or other business entity or parent thereof,
as the case may be (the "ACQUIRING CORPORATION"), may, without the consent of
any Participant, either assume the Company's rights and obligations under
outstanding Options and Stock Appreciation Rights or substitute for such
outstanding Options and Rights substantially equivalent options or rights for,
or in relation to, the Acquiring Corporation's stock.
7.2 EFFECT OF CHANGE OF CONTROL ON RESTRICTED SHARE RIGHTS.
(a) Restricted Shares outstanding under the Plan at the time of a
Change in Control shall automatically Vest in full immediately prior to the
effective date of such Change in Control and will no longer be subject to
forfeiture risk or to any repurchase right. However, Restricted Shares shall not
vest on an accelerated basis as a result of a Change in Control if and to the
extent:
(i) such Restricted Share Award, having been assumed by the successor
corporation (or parent thereof), is replaced with shares of the capital stock of
the successor corporation subject to substantially equivalent restrictions or is
otherwise continued in full force and effect pursuant to the terms of the Change
in Control transaction, and any repurchase rights of the Company with respect to
any unvested Restricted Shares are concurrently assigned to such successor
corporation (or parent thereof) or otherwise continued in effect; or
37
(ii) such Restricted Shares are to be replaced with a cash incentive
program of the Company or any successor corporation which preserves the value
existing on the unvested Restricted Shares at the time of the Change in Control
and provides for subsequent payout in accordance with the same Vesting schedule
applicable to those unvested Restricted Shares; or
(iii) the acceleration of such Restricted Share is subject to other
limitations imposed by the Plan Administrator at the time of the Restricted
Share grant.
(b) Should, in the course of a Change in Control, the actual holders of
the Company's outstanding Stock receive cash consideration in exchange for such
Stock, the successor corporation may, in connection with the replacement of the
outstanding Restricted Shares under this Plan, substitute one or more shares of
its own common stock with a fair market value equivalent to the cash
consideration paid per share of Stock in such Change in Control and subject to
substantially equivalent restrictions as were in effect for the Restricted
Shares immediately before the Change in Control.
(c) The foregoing notwithstanding, the Board shall have the discretion,
exercisable either at the time the Restricted Shares are granted or at any time
while the Restricted Shares remain unvested, to structure one or more Restricted
Shares so that those Restricted Shares shall automatically accelerate and Vest
in full upon the occurrence of a Change in Control. The Board shall also have
full power and authority, exercisable either at the time The Restricted Shares
are granted or at any time while the Restricted Shares remain unvested, to
structure such Restricted Share so that the shares will automatically Vest on an
accelerated basis should the Participant's employment or service terminate by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of any Change in Control in
which the Restricted Shares do not otherwise Vest. In addition, the Plan
Administrator may provide that one or more of the Company's outstanding
repurchase rights with respect to Restricted Shares held by the Participant at
the time of such Involuntary Termination shall immediately terminate on an
accelerated basis, and the Restricted Shares subject to those terminated rights
shall accordingly Vest at that time.
(i) For purposes of this Section 8.2(c), an "INVOLUNTARY TERMINATION"
shall mean the termination of the Participant's service which occurs by reason
of: (1) such individual's involuntary dismissal or discharge by the Company for
reasons other than Misconduct, or (2) such individual's voluntary resignation
following (A) a change in his or her position with the Company which materially
reduces his or her duties and responsibilities or the level of management to
which he or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than fifteen
38
percent (15%) or (3) a relocation of such individual's place of employment by
more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected without the individual's consent.
(ii) "MISCONDUCT" shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets of the
Company or any other intentional misconduct by such person adversely affecting
the business or affairs of the Company in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Company may consider as grounds for the dismissal or discharge of any
Participant or other person in the Company's service.
8. PROVISION OF INFORMATION.
At least annually, copies of the Company's balance sheet and income
statement for the just completed fiscal year shall be made available to each
Participant.
9. TERMINATION OR AMENDMENT OF PLAN.
The Plan shall terminate ten (10) years from its effective date. The
Board may terminate or amend the Plan at any time. No termination or amendment
of the Plan shall affect any then outstanding Award unless expressly provided by
the Board.
10. [Section 10 Intentionally Left Blank]
11. MISCELLANEOUS PROVISIONS.
11.1 NO RIGHTS OF STOCKHOLDER. Prior to the date on which an Option is
exercised, neither the Participant, nor a Beneficiary or any other successor in
interest will be, or will have any of the rights and privileges of, a
stockholder with respect to any Stock issuable upon the exercise of such Option.
11.2 NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained herein shall
be deemed to give any person any right to employment by the Company or by a
Participating Company, or to interfere with the right of the Company or a
Participating Company to discharge any person at any time without regard to the
effect that such discharge will have upon such person's rights or potential
rights, if any, under the Plan. The provisions of the Plan are in addition to,
and not a limitation on, any rights a Participant may have against the Company
or a Participating Company by reason of any employment or other agreement with
the Company or a Participating Company.
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11.3 SEVERABILITY. If any provision of this Plan is held to be illegal
or invalid for any reason, the remaining provisions are to remain in full force
and effect and are to be construed and enforced in accordance with the purposes
of the Plan as if the illegal or invalid provision or provisions did not exist.
IN WITNESS WHEREOF, the undersigned Secretary and Chairman of the
Company certifies that the foregoing sets forth the BioDelivery Sciences
International, Inc. Amended and Restated 2001 Incentive Plan as duly adopted by
the Board on January 31, 2003.
/s/ Francis E. O'Donnell, MD
Francis E. O'Donnell, MD, Chairman
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Annex B
CHARTER AND POWERS OF THE AUDIT COMMITTEE
RESOLVED, that the membership of the Audit Committee shall consist of at least
two members of the board of directors, a majority of whom (i.e.: two
independent, if Committee consists of two or three members) shall be independent
directors (subject to the Company's remaining a small business filer under SEC
rules), who shall serve at the pleasure of the Board of Directors.
An "independent director" means a person other than an officer or employee of
the Company or its subsidiaries or any other individual having a relationship
which, in the opinion of the Company's board of directors, would interfere with
the exercise of independent judgment in carrying out the responsibilities of a
director. The following persons shall not be considered independent:
(1) a director who is employed by the Company or any of its affiliates for the
current year or any of the past three years;
(2) a director who accepts any compensation from the Company or any of its
affiliates in excess of $60,000 during the previous fiscal year, other than
compensation for board service, benefits under a tax-qualified retirement plan,
or non-discretionary compensation;
(3) a director who is a member of the immediate family of an individual who is,
or has been in any of the past three years, employed by the Company or any of
its affiliates as an executive officer. Immediate family includes a person's
spouse, parents, children, siblings, mother-in-law, father-in-law,
brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who
resides in such person's home;
(4) a director who is a partner in, or a controlling stockholder or an executive
officer of, any for-profit business organization to which the company made, or
from which the Company received, payments (other than those arising solely from
investments in the Company's securities) that exceed 5% of the Company's or
business organization's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years;
(5) a director who is employed as an executive of another entity where any of
the company's executives serve on that entity's compensation committee.
RESOLVED, that the charter and powers of the Audit Committee of the Board of
Directors (the "Audit Committee") shall be:
(1) 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.
(2) 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.
(3) Assisting the Board of Directors in the oversight of the establishment and
maintenance by management of process 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:
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(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 to 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 stockholder
approval in any proxy statement), which independent auditors shall ultimately be
accountable to the Board of Directors and the Audit Committee, as
representatives of the stockholders;
(6) Conferring with the independent accountants 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 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;
(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 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, 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 to the Board of Directors following the
meetings of the Audit Committee;
42
(16) Reviewing the powers of the 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; and
(18) 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.
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