SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule
14a-6(e)Rule14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
IGI, INC.
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x][X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date Filed:
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IGI, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 200115, 2002
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
IGI, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, May 16, 200115, 2002 at 10:00 a.m. at the offices of IGI, Inc., Wheat
Road and Lincoln Avenue, Buena, New JerseyRenaissance Philadelphia
Airport Hotel, 500 Stevens Drive, Philadelphia, PA 17113 (the "Meeting"),
for the purpose of considering and voting upon the following matters:
1. To elect eightseven (7) directors to serve until the next Annual
Meeting of Stockholders.
2. To ratify the appointment of KPMG LLP as independent auditors
of the Company for the current fiscal year.
3. To approve the adoption of and the increase in the number of
shares authorized under the Company's 1999 Director Stock OptionIncentive
Plan.
4.
To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on Monday,
March 19, 2001April 1, 2002 as the record date for the determination of stockholders
entitled to notice of and to vote at the Meeting and at any adjournments
thereof.
A copy of the Company's Annual Report to Stockholders for the year
ended December 31, 2000,2001, which contains financial statements and other
information of interest to stockholders, accompanies this Notice and the
enclosed Proxy Statement.
By orderOrder of the Board of Directors,
Robert E. McDaniel,/s/ John F. Ambrose
John F. Ambrose,
President & CEO
& Secretary
April 20, 200116, 2002
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE NEEDS TO BE AFFIXED IF THE PROXY IS MAILED IN THE
UNITED STATES.
IGI, INC.
Wheat Road and105 Lincoln Avenue
Buena, New Jersey 08310
________________________________________________________
PROXY STATEMENT
For Annual Meeting of Stockholders
To Be Held May 16, 2001
_________________________15, 2002
_______________________________
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of IGI, Inc. (the "Company") for use
at the Annual Meeting of Stockholders to be held on Wednesday, May 16, 200115, 2002
at 10:00 a.m. at the offices of IGI, Inc., Wheat Road and Lincoln Avenue,
Buena, New Jersey,Renaissance Philadelphia Airport Hotel, 500 Stevens
Drive, Philadelphia, PA 17113, and at any adjournments thereof (the
"Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor
of the proposals set forth in the accompanying Notice of Meeting. Any
proxy may be revoked by a stockholder at any time before its exercise by
delivery of a written revocation to the Secretary of the Company.Company at 105
Lincoln Avenue, Buena, New Jersey 08310. Attendance at the Meeting will not
itself be deemed to revoke a Proxy unless the stockholder gives affirmative
notice at the Meeting that the stockholder intends to revoke the Proxy and
vote in person.
Only the record holders of shares of common stock, $.01 par value per
share, of the Company (the "Common Stock") at the close of business on
March 19, 2001April 1, 2002 may vote at the Meeting. Each share entitles the record
holder to one vote on each of the matters to be voted upon at the Meeting.
On March 19, 2001April 1, 2002, there were 10,577,73111,293,028 shares of Common Stock outstanding.
The Notice of Meeting, Proxy Statement, the enclosed Proxy and the
Company's Annual Report for the year ended December 31, 20002001 are being
mailed to stockholders on or about April 20, 2001.16, 2002.
Beneficial Ownership of Common Stock
The following table sets forth information as of March 19, 2001April 1, 2002 with
respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) the directors of
the Company, (iii) the Chief Executive Officer and the executive officers
of the Company listed in the "Summary Compensation Table" below
(collectively, the "Named Executive Officers"), and (iv) the directors and
executive officers of the Company as a group. Unless otherwise noted, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Number of Percent of
Name of Beneficial Owner Number of Shares Percent of Class (1)
- ---------------------------------------------------------------------------------------------- ---------------- --------------------
5% Stockholders
Stephen J. Morris 2,539,9012,584,682 (2) 23.9%22.7%
66 Navesink Avenue
Rumson, New Jersey 07760
Frank Gerardi 901,000 (3) 7.9%
c/o Univest. Mgt. Inc. EPSP
149 West Village Way
Jupiter, Florida 33458
American Capital Strategies, Ltd. 1,907,543 (3) 15.3%
3 Bethesda Metro Center,1,914,680 (4) 14.5%
One Tower Bride - Suite 860
Bethesda, Maryland 20814250
100 Front Street
West Conshohocken, PA 19428
Edward B. Hager, M.D. 1,496,007 (4)1,596,632 (5) 13.7%
Pinnacle Mountain Farms
Lyndeboro, NH 030803082
Jane E. Hager 1,235,825 (5) 11.5%1,330,829 (6) 11.6%
Pinnacle Mountain Farms
Lyndeboro, NH 03082
Other Directors and Executive Officers
Terrence D. Daniels 131,878 (6) 1.2%
Constantine L. Hampers, M.D. 176,096220,596 (7) 1.6%
Rajiv Mathur 88,500 (8) *
Robert E. McDaniel 236,492 (9) 2.2%1.9%
Terrence O'Donnell 193,667 (10) 1.8%244,162 (8) 2.1%
John F. Ambrose 100,000 (11)(9) *
Domenic N. Golato 60,000 (12)100,000 (10) *
Donald W. Joseph 18,741 (13)53,318 (11) *
Earl K.R. Lewis 43,924 (14)92,005 (12) *
Paul Woitach 230,112 (15) 2.1%
All executive officers and directors,
as a group (13(9 Persons) 5,911,328 (16) 47.9%6,640,272 (13) 47.3%
2
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* Less than 1% of the Common Stock outstanding.
Percentage of beneficial ownership for each person listed is based on
10,577,73111,293,028 shares of Common Stock outstanding as of March 19, 2001,April 1, 2002,
and includes the shares of Common Stock underlying options, or other
rights, held by such persons that are exercisable within 60 days
after March 19, 2001.April 1, 2002.
Includes 816,300 shares which Mr. Morris owns jointly with his wife
and 200 shares owned directly by his wife. Also includes 154,460
shares, which are held in an account on behalf of Mr. Morris'
children, over which Mr. Morris has voting and investment control,
and 42,000 shares held in a building fund on behalf of St. George
Greek Orthodox Church of Asbury Park, New Jersey, over which Mr.
Morris has voting and investment control. Includes 65,00080,000 shares
which Mr. Morris may acquire pursuant to stock options exercisable
within 60 days after March 19, 2001.April 1, 2002.
Includes 50,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after April 1, 2002.
On February 14, 2001, American Capital Strategies, Ltd. ("ACS") filed
a Schedule 13G with the Securities and Exchange Commission reporting
beneficial ownership of a total of 1,907,543 shares, all of which are
issuable upon the exercise of warrants held by ACS. ACS reported that
it has sole voting and dispositive power over all 1,907,543 shares.
Includes 375,000350,000 shares which Dr. Hager may acquire pursuant to stock
options exercisable within 60 days after March 19, 2001,April 1, 2002, and 639,815
shares beneficially owned by Dr. and Mrs. Hager as co-trustees of the
Hager Family Trust, who share voting and investment power.
Includes 639,815 shares beneficially owned by Dr. and Mrs. Hager, as
co-trustees of the Hager Family Trust, who share voting and
investment power. Includes 145,000150,000 shares which Mrs. Hager may
acquire pursuant to stock options exercisable within 60 days after
March 19, 2001.
April 1, 2002.
Includes 115,000170,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.
April 1, 2002.
Includes 145,000190,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.
Includes 88,500 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.April 1, 2002.
Includes 232,500 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.
Includes 160,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.
Includes 100,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.
April 1, 2002.
Includes 60,000100,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.
Includes 15,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.
April 1, 2002.
3
Includes 30,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001.
April 1, 2002.
Includes 225,000 shares which may be acquired pursuant to stock
options exercised within 60 days after March 19, 2001.
Includes 1,756,00030,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after March 19, 2001April 1, 2002.
Includes 850,000 shares which may be acquired pursuant to stock
options exercisable within 60 days after April 1, 2002 included in
Notes (2) and (4)(6) - (15)(12) above, and 1,907,543 shares which may be
acquired pursuant to warrants held by American Capital Strategies,
Ltd. included in Note (4) above.
Unrelated Beneficial Ownership Under Stockholder Voting Agreements
On February 6, 2002, the Company entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement") with Vetoquinol U.S.A, Inc.
("Vetoquinol") providing for the purchase by Vetoquinol of substantially
all of the assets of the Company's companion pet products division. The
Asset Purchase Agreement transaction requires approval by the Company's
stockholders in accordance with Section 271 of the Delaware General
Corporation Law. On February 7, 2002, the Company filed with the
Securities and Exchange Commission ("SEC") a Schedule 14A Statement of
Soliciting Materials pursuant to Rule 14a-12 of the Securities Exchange Act
of 1934, relating to the proposed Asset Purchase Agreement transaction.
Upon completion of the SEC's review of the Asset Purchase Agreement
transaction (assuming SEC approval is granted), the Company plans to file
with the SEC and mail to its stockholders a Proxy Statement in connection
with the Asset Purchase Agreement transaction.
In order to facilitate consummation of the transactions contemplated
under the Asset Purchase Agreement, Vetoquinol simultaneous with the
execution of the Asset Purchase Agreement on February 6, 2002, entered into
Stockholder Voting Agreements (each a "Stockholder Voting Agreement") and
Irrevocable Proxies (each an "Irrevocable Proxy") with the following
stockholders of the Company: Constantine L. Hampers, M.D., Donald W.
Joseph, Earl R. Lewis, Stephen J. Morris, Terrence O'Donnell, Kenneth E.
Jones (American Capital Strategies, Ltd.), Jane E. Hager and Edward B.
Hager, M.D. (each a "Voting Agreement Stockholder"). Each Voting Agreement
Stockholder is the record or beneficial owner of such number of shares of
the Company's Common Stock as reflected above in the Table of Beneficial
Ownership (the "Subject Shares").
Pursuant to the Irrevocable Proxies, the Voting Agreement
Stockholders have irrevocably empowered Vetoquinol, at any time prior to
the termination of the Stockholder Voting Agreements in accordance with
their terms (the "Proxy Expiration Date"), to exercise all voting rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Subject Shares) of each Voting Agreement
Stockholder, solely to the extent set forth as follows: at every annual,
special or adjourned or postponed meeting of stockholders of the Company,
and in every written consent in lieu of such a meeting, or otherwise, in
favor of the sale of assets contemplated by the Asset Purchase Agreement,
and any matter that could
4
reasonably be expected to facilitate the transactions contemplated by the
Asset Purchase Agreement.
None of the matters to be considered and voted on at the Meeting
concern the approval or ratification of the sale contemplated by the Asset
Purchase Agreement and/or could reasonably be expected in any way to
facilitate the transaction contemplated by the Asset Purchase Agreement.
As such, the Irrevocable Proxies do not empower Vetoquinol to exercise any
and/or all of the voting rights of each Voting Agreement Stockholder with
respect to any matter and/or proposal to be considered and voted on at the
Meeting.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock ("Reporting
Persons") to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities
of the Company. Based solely on its review of copies of reports filed by
Reporting Persons furnished to the Company, the Company believes that,
except as set forth below, during 20002001 its officers, directors and holders
of more than 10% of the Company's Common Stock complied with all Section
16(a) filing requirements.
Number of
Transactions Not
Name Number of Late Reports Timely Reported
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John Ambrose 1 1
Domenic N. Golato 1 1
Donald W. Joseph 2 13
Earl K.R. Lewis 1 2 3
Stephen J. Morris 2 3
Terrence O'Donnell 2 3
Constantine L. Hampers, M.D. 2 3
American Capital Strategies, Ltd. 1 292
Jane E. Hager 2 3
Votes Required
The holders of a majority of the shares of Common Stock outstanding
shall constitute a quorum for the transaction of business at the Meeting.
Shares of Common Stock present in person or represented by proxy (including
shares which abstain or do not vote with respect to one or more of the
matters presented for stockholder approval) will be counted for purposes of
determining whether a quorum exists at the Meeting.
The affirmative vote of the holders of a plurality of the shares of
Common Stock voted at the Meeting is required for the election of directors
(Proposal 1). The affirmative vote of the holders of a majority of the
shares of Common Stock voted at the Meeting is required to ratify
5
the appointment of KPMG LLP as independent auditors of the Company
(Proposal 2). The affirmative vote of the holders of a majority of the
shares of Common Stock voted at the Meeting is required to approve the
adoption of and the increase in the number of authorized shares authorized under the
Company's 1999 Director Stock OptionIncentive Plan (Proposal 3).
Shares which abstain from voting as to a particular matter, and
shares held in "street name" by brokers or nominees who indicate on their
proxies that they do not have discretionary authority to vote such shares
as to a particular matter, will not be counted as votes cast in favor of
such matter, and also will not be counted as shares voting on such matter.
Accordingly, abstentions and "broker non-votes" will have no effect on the
voting on a matter that requires the affirmative vote of the holders of a
certain percentage of the shares of Common Stock voting on a matter.
PROPOSAL 1 - ELECTION OF DIRECTORS
Nominees for Election as Directors
The persons named as proxies in the accompanying Proxy intend (unless
authority to vote therefortherefore is specifically withheld) to vote for the
election of the persons named below as directors to hold office until the
next Annual Meeting of Stockholders and until their respective successors
are elected and qualified. Each nominee has consented to being named in
this Proxy Statement and to serve if elected. If any of the nominees
becomes unavailable to serve as a director, the persons named as proxies in
the accompanying Proxy may vote the Proxy for substitute nominees. The
Board of Directors has no reason to believe that any of the nominees will
be unable to serve if elected. The table below sets forth certain
information with respect to the nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED BELOW.
Principal Occupation,
Other Business
Experience During
Director Past Five Years and
Name Age Since Other Directorships
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Jane E. Hager 55 1977 President of Prescott Investment Corp.,
a real estate development company,
Lyndeboro, NH since 1991; former
Treasurer of IGI, Inc.; Director of Fleet
Bank-NH, Nashua, NH from 1986 to 1998;
Trustee and Treasurer of the University
System of New Hampshire; Overseer of
Dartmouth Mary Hitchcock Hospital;
Incorporator of New Hampshire Charitable
Fund, Concord, NH; Trustee of the
Derryfield School in Manchester, NH;
Director of Novavax, Inc. from February
1997 to March 1998; Director of Centrix
Bank and Trust; Mrs. Hager is the wife of
Edward B. Hager, M.D.
Terrence O'Donnell 5758 1993 Executive Vice President and General Counsel,
Textron Inc., a producer of aircraft, automotive
products and industrial products, since March 2000;
Member of law
firmthe Law Firm of Williams & Connolly,
Washington, D.C. since April 1992 and from March 1977
to October 1989; General Counsel of Department of
Defense from October 1989 to March 1992; Special
Assistant to President Ford
6
from August 1974 to January 1977; Deputy Special
Assistant to President Nixon from May 1972 to August
1974; Director of ePlus, Inc. (formerly MLC Holdings).
Constantine L.
Hampers, M.D. 6869 1994 Chief Executive Officer of MDL Consulting
Associates, LLC, a medical consulting firm,
since 1996; Chairman of the Board of Directors
and Chief Executive Officer of National Medical
Care, Inc., a provider of in-center and home
kidney dialysis services and products, from 1968
to 1996; Executive Vice President and Director
of W.R. Grace & Co., a supplier of specialty
chemical, construction and container products,
from 1986 to 1996; Director of Artificial Kidney
Services at Peter Bent Brigham Hospital and
Assistant Professor of Medicine at Harvard
University School of Medicine prior to 1968 and
for several years thereafter.
Terrence D. Daniels 58 1996 President of Quad-C, a structured investment
firm, since November 1989; Vice Chairman of W.R.
Grace & Co. from 1986 to 1989; Director of
Collins & Aikman Floorcoverings and numerous
private companies.
Stephen J. Morris 68 1999 Co-founder and General Manager of John Morris &
Sons, Inc., a hotel and restaurant enterprise,
which Mr. Morris owned and managed from July
1958 to December 1998; Co-founder and Advisor of
International Scientific Communications, a
scientific publishing company.
Donald W. Joseph 6364 2000 Group Vice President of Baxter International Inc.,
a medical products and services company, from
November 1993 to July 2000; President, Renal
Business of Baxter International Inc. from October
1981 to November 1993; Director of Sales and
Marketing for the renal division of Baxter
International Inc. from December 1972 to October
1981; Joined Baxter International Inc. as Sales
Representative in July 1966, where Mr. Joseph held
various sales management positions from July 1966
to December 1972.
Stephen J. Morris 69 1999 Co-founder and General Manager of John Morris &
Sons, Inc., a hotel and restaurant enterprise,
which Mr. Morris owned and managed from July
1958 to December 1998; Co-founder and Advisor of
International Scientific Communications, a
scientific publishing company.
Earl K.R. Lewis 5758 2000 Chairman of the Board, President and Chief
Executive Officer of FLIR Systems, an infrared
imaging technology company, from November 1,
2000 to the present; Chief Executive Officer of
Thermo Instrument Systems, Inc., which produces
tools for measurement and analysis, from January 7
1998 to July 2000; Chief Operating Officer of
Thermo Instrument Systems, Inc. from January
1996 to January 1998; President of Thermo
Instrument Systems, Inc. from March 1997 to July
2000; Director of FLIR Systems; Director of
Spectra-Physics Laser Inc., a commercial laser
company; Director of SpectRx, Inc., which
produces optical systems for medical applications;
Director of Harvard Bioscience, Inc., a medical
instrument and supply company.
Robert E. McDaniel 50 DirectorJohn F. Ambrose 62 Nominee President and Chief Executive Officer of IGI, Inc. since
Nominee September 2000. Executive Vice,
April 2001 to present; President and General CounselChief
Operating Officer of IGI, Inc. September 2000 to
April 2001; Vice President of Sales and Marketing
at Digitrace Care Services of Boston from
April 1999November 1997 to September 2000; Senior Vice President
of Field Operations at NMC Homecare from July
1990 to November 1996.
Kenneth E. Jones 49 Jan. 2002 Principal of American Capital Strategies,
Ltd. since November 2000; Prior to November
2000, General Partner at Meridian Venture Partners
and General Counsel of IGI, Inc. from May 1998 to
April 1999; General Counsel of Presstek, Inc.
(laser graphic arts company) from April 1997 to
May 1998; and Commercial Litigation Partner, law
firm of Devine, Millimet and Branch from April
1991 to March 1997.Director at Berwind Financial, a Philadelphia,
Pennsylvania based middle market investment bank.
For information relating to shares of the Company owned by each of
the directors, see "Beneficial Ownership of Common Stock."
Board and Committee Meetings
The Board of Directors met seven (7)six (6) times during 2000. Except for
Mr. Daniels, each2001. Each of the
current directors attended at least 75% of the meetings of the Board of
Directors and the committees on which he or she served. The Board of
Directors has an Executive Committee, an Audit Committee, an Independent
Committee of Outside Directors, and a Compensation and Stock Option Committee, a Nominating Committee and a Governance
Committee. The present composition of the committees of the Board of
Directors are set forth below. Membership of the committees may change at
the time of the Meeting due to the election of new directors.
The Executive Committee, whose members are Dr. Hager (Chairman of the
Committee from January 1 to February 1, 2000),Mr. Lewis (Chairman) and
Dr. Hampers, and Mr. Daniels, has the authority to exercise the powers of the Board of
Directors between Board meetings. The
8
Audit Committee, whose members are Mrs. Hager and Messrs. O'Donnell
(Chairman), Morris and Daniels,Lewis, reviews the audit of the Company's accounts,
monitors the effectiveness of the audit and evaluates the scope of the
audit. The Independent Committee of Outside Directors, whose members are
Dr. Hampers (Chairman) and Messrs.Mr. O'Donnell and Daniels, reviews and approves transactions
between management and the Company. The Compensation and Stock Option
Committee, whose members are Dr. Hampers (Chairman) and Messrs. Daniels,Lewis,
Joseph and Morris, reviews and recommends salaries and other compensatory
benefits for the principal officers of the Company and grants stock options
to key employees of the Company and its subsidiaries.
The Governance Committee, whose members are Dr. Hampers (Chairman), Mr.
Joseph and Ms. Hager, ensures that principles of appropriate corporate
governance are developed and maintained. The Governance and Nominating
Committee also serves as the nominating body for the Board of Directors and
Executive Officers. The Governance and Nominating Committee will consider
nominees recommended by security holders. Security holders should submit
such nominations in writing to a member of the Governance and Nominating
Committee.
During 2000,2001, the Audit Committee met three (3) times and the
Compensation and Stock Option Committee met two (2) times, and the
Governance and Nominating Committee met once. The Executive Committee
and the Independent Committee of Outside Directors did not meet during
2000.2001.
Director Compensation and Stock Options
Director Options. In September 1999, the Board of Directors adopted
the 1999 Director Stock Option Plan (the "1999 Plan"). Under the 1999
Plan, on January 2 of each year, beginning with January 2000 (i) each non-employeenon-
employee director is granted a stock option for 15,000 shares, and (ii)
each of the Chairmen of the Audit Committee and the Stock Option and
Compensation Committee is granted additional stock options for 15,000 and
10,000 shares, respectively. Additionally, under the 1999 Plan, each newly
elected director will receive a stock option grant of 15,000 shares at the
time of his/her election. All of such options will be granted at an
exercise price equal to the closing price of the Common Stock on the
American Stock Exchange on the date of grant. All options granted under the
1999 Plan become 100% vested twelve months after the date of grant.
Pursuant to the 1999 Plan, Ms. Hager, Dr. Hampers and Messrs.
Daniels, O'Donnell, Morris, Joseph and Lewis each received options to
purchaseDuring 2001, the following number of shares of Common Stockoptions were granted under the
1999 Plan on the dated indicated to each of the Company:
15,000, 25,000,following directors listed
below:
Name of Director Option Grant Date Number of Options Granted
- ---------------------------------------------------------------------------------------
American Capital Strategies, Ltd. 5/16/01 15,000
Terrence D. Daniels (resigned 07/05/01) 1/2/01 15,000
Jane E. Hager 1/2/01 15,000
Constantine L. Hampers, M.D. 1/2/01 25,000
Donald W. Joseph 1/2/01 15,000
Earl R. Lewis 1/2/01 15,000
Earl R. Lewis 5/16/01 200,000
Stephen J. Morris 1/2/01 15,000
Terrence O'Donnell 1/2/01 30,000
15,000, 15,000 and 15,000, respectively.
The options were received on January 3, 2000, with the exception of Messrs.
Joseph and Lewis who received their options on May 17 and September 12,
2000, respectively.
Director Fees. The Board of Directors adopted the 1998 Directors
Stock Plan (the "1998 Plan") in October 1998 to provide each outside
director with the right to receive shares of the Company's Common Stock as
director compensation in lieu of cash payments of director fees, thereby
encouraging ownership in the Company by the directors. Each non-employee
director receives $2,000 in value of Common Stock for each meeting of the
Board he or she 9
attends in person, $1,000 in value of Common Stock for each telephonic
meeting of the Board attended, $500 in value of Common Stock for each
Committee meeting attended which is held on the same day as a Board
meeting, $1,000 in value of Common Stock for each Committee meeting
attended which is not held on the same day as the Board meeting, and up to
$5,000 in value of Common Stock annually for the Chairman of certain of the
Board Committees. The fees are payable quarterly and the number of shares
of Common Stock issued to each director is determined by dividing the fees
payable for the quarter by the closing price of the Company's Common Stock
on the American Stock Exchange on the last business day of the applicable
quarter.
Pursuant toFrom the 1998 Plan, Ms. Hager, Dr. Hampers and Messrs.
Daniels, O'Donnell, Morris, Joseph and Lewis each receivedFourth Quarter 2000 through the Third Quarter 2001, the
following number of shares respectively, of the Company's Common Stock were received by
each of the Company, as
compensation for 2000: 5,502, 9,910, 3,778, 8,083, 5,502, 4,740 and 1,524,
respectively.directors listed below under the 1998 Plan:
Name of Director Number of Shares Received
- ---------------------------------------------------------------------------
American Capital Strategies, Ltd. 5,470
Terrence D. Daniels (resigned 07/05/01) 5,886
Jane E. Hager 20,671
Constantine L. Hampers, M.D. 17,833
Donald W. Joseph 17,910
Earl R. Lewis 20,748
Robert E. McDaniel (resigned 4/29/01) 1,961
Stephen J. Morris 22,348
Terrence O'Donnell 17,162
These shares represented a total value at the time of issuance of $81,000.$79,000.
Legal Proceedings
While no judgment or findings have been entered, Dr. Hampers is
currently a party in an SEC administrative cease and desist proceeding
styled, In the Matter of Jean-Paul Bolduc, et al, File No. 3-9793 (December
22, 1998). The complaint arises out of accounting practices followed at
W.R. Grace & Company ("Grace") from 1991 to 1996 in connection with the
booking of reserves at National Medical Care, Inc. ("NMC"), then a wholly-
owned subsidiary of Grace. The case is currently stayed by order of the
SEC. Dr. Hampers has denied any wrongdoing because the accounting
treatment of the reserves at issue was separately approved by the financial
staffs of Grace and NMC and by the Audit Committee of the Grace'sBoardGrace's Board of
Directors. In addition, Grace's independent auditors, Price Waterhouse
LLP, annually reviewed the practices, and in each of the subject fiscal
years approved Grace's financial statements with an unqualified opinion.
Certain Relationships and Related Transactions
During 2000, Company personnel and advisors traveled at various times
on Company business on an airplane owned by a company which is wholly-owned
by Jane E. Hager, a director of the Company and spouse of Edward B. Hager,
M.D. Total charges to the Company for its use of the airplane in 2000 were
$39,993. The Company granted 63,989 shares of Common Stock, with a fair
market value on the date of grant of $39,993, to Ms. Hager's company as
payment for the use of the airplane. The Board of Directors authorized the
use of the aircraft for business travel only, provided that (i) the air
travel rate billed to the Company for use of the airplane be at least as
favorable as the rate charged by private aircraft owners unaffiliated with
the Company, and (ii) use of the airplane be limited to 100 hours at $1,350
per hour. Notwithstanding these criteria, the Company was billed for such
use of the aircraft at rates not exceeding those for first class commercial
airfare.
American Capital Strategies, Ltd. ("ACS") owns warrants (the
"Warrants") to purchase 1,907,543 shares of the Company's Common Stock,
representing 15.3%16.9% of the outstanding 10
capital stock of the Company. The Warrants were issued on October 29, 1999,
in connection with a financing arrangement, pursuant to which the Company
entered into a $7 million subordinated debt agreement ("Subordinated Debt
Agreement") with ACS. Borrowings under the Subordinated Debt Agreement bear
interest at the rate of 12.5% per annum plus an additional interest
component at the rate of 2.25% through March
2001, and 2% thereafter,, which is payable at the Company's election
in cash or Company Common Stock. The Subordinated Debt Agreement matures in
October 2006.
In connection with the Subordinated Debt Agreement, the Company
issued to ACS the Warrants to purchase 1,907,543 shares of Common Stock at
an exercise price of $.01 per share. The Warrants are fully vested and can
be exercised by ACS at any time up to October 29, 2009. On April 12, 2000,
the Subordinated Debt Agreement was amended whereby a "put" provision, in
which ACS had the right to require the Company to repurchase the Warrants
under certain circumstances, was replaced with a "make-whole" feature. This
feature requires the Company to compensate ACS, in either Common Stock or
cash, at the option of the Company, in the event that ACS ultimately
realizes proceeds from the sale of its Common Stock obtained upon exercise
of the Warrants that are less than the fair value, as defined, of the
Common Stock multiplied by the number of shares obtained upon exercise.
ACS must exercise reasonable effort to sell or place its shares in the
marketplace over a 180-day period before it can invoke the make-whole
provision.
The Subordinated Debt Agreement also contains financial and other
covenants and restrictions, which, if breached by the Company, would allow
ACS to demand prompt repayment of all outstanding indebtedness. In
addition, to secure all of its obligations under the Subordinated Debt
Agreement, the Company has granted ACS a subordinate security interest in
all of the assets and properties of the Company and its subsidiaries.
Pursuant to the Subordinated Debt Agreement, ACS has the right to designate
for election to the Company's Board of Directors that number of directors
that bears the same ratio to the total number of directors as the number of
shares of Common Stock owned by ACS plus the number of shares issuable upon
exercise of the Warrants bear to the total number of outstanding shares of
Common Stock on a fully-diluted basis,basis; provided that so long as it ownsall or any
of the loan principal amount and/or interest thereon remains outstanding or
for as long as ACS holds Common Stock and Underlying Common Stock (the
shares which may be acquired pursuant to the Warrant) that in the aggregate
constitute at least 5% of the outstanding Common Stock or anyshares of its loans are
outstanding,the common stock of the
Company, ACS shall have the right to designate for election at least one
director. In May 2001, ACS exercised its director designation rights under
the Subordinated Debt Agreement appointing ACS Vice President John Freal to
the ACS director seat. In January 2002, Mr. Freal resigned from his
position with ACS, and ACS Principal Kenneth E. Jones was appointed to fill
the ACS director seat. As reflected above under the heading "Nominees for
Election as Directors", ACS has not nominated are-appointed Kenneth E. Jones as its
representative nominee for election to the ACS director for the election of
directors to be held at the Meeting; however, a representative of ACS
attends meetings of the Company's Board of Directors as an observer on a
regular basis.seat.
11
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and noncashnon-cash compensation for
each of the last three fiscal years awarded to or earned by the Chief
Executive Officer of the Company, the most highly compensated executive
officers of the Company who received compensation in excess of $100,000
during 20002001 and who were serving as executive officers at the end of 20002001
and twothe only one other existing highly compensated officersofficer of the Company
who received compensation in excess of $100,000 during 20002001 but who were
not serving as executive officers at the end of 2000.2001.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------------------------- ------------
Securities
Name/Principal Other Annual Underlying
All Other
Name and PrincipalCompensation Salary Bonus Compensation Options CompensationAll Other
Position (1) Year ($) ($) ($)(2) (#)(3) ($)(4)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Edward B. Hager(5) (6)Hager, M.D. (5) 2000 $ 80,17380,183 (6) $ --0 $ -- --0 0 $11,035
Chief Executive Officer 1999 460,000 -- --0 0 100,000 8,046
1998 380,000 -- -- 225,000 11,775
Paul Woitach (6)(7) 2000 191,752 40,000 7,704 --0 12,209
Chief Executive Officer 1999 200,000 40,000 7,200 200,000 9,296
1998 151,442 -- 4,200 100,000 2,8489,269
Robert E. McDaniel (6)(8) 2001 157,418 0 2,400 0 9,634
Chief Executive Officer 2000 185,000 --0 7,200 100,000 9,949
1999 185,000 0 7,200 140,000 8,002
John Ambrose 2001 185,769 0 8,250 250,000 13,265
Chief Executive Officer
1999 185,000 -- 7,200 140,000 8,002
and Secretary 1998 106,920 -- 3,000 60,000 2,963
Rajiv Mathur& President/
Chief Operating Officer 2000 166,771 19,950 7,20053,856 0 2,400 100,000 12,2973,130
& President of Consumer 1999 149,220 -- 6,000 40,000 9,978
Products Division 1998 -- -- -- -- --
David K. O'Hara(9)
Domenic Golato 2001 178,975 0 8,250 200,000 15,459
Chief Financial Officer 2000 101,224 -- 4,350 -- 3,11982,973 0 3,600 100,000 5,073
& Sr. Vice President
1999 137,472 18,182 5,288 70,000 2,478
1998 -- -- -- -- --
John D'Antonio 2000 166,239 15,706 6,000 -- 9,939
Vice President 1999 140,963 9,230 5,400 70,000 4,539
1998 -- -- -- -- --Richard J. Claxton 2001 107,013 0 0 5,000 11,249
EVSCO Area Sales Manager
- -----------------------------------------
Lists the principal position with the Company as of December 31,
2000,2001, with the exception of Edward B. Hager, M.D., whose term as
Chief Executive Officer ended on February 1, 2000,
and 12
Paul Woitach, whose term as Chief Executive Officer ended on
September 15, 2000.1, 2000, and Robert McDaniel, whose term as Chief Executive
Officer ended on April 29, 2001.
The amounts shown in this column represent automobile allowances.
The Company has never granted any stock appreciation rights.
The amounts shown in this column represent premiums for group life
insurance and medical insurance paid by the Company and the Company's
contributions under its 401(k) plan.Plan. In 2000, the Company paid (i)
$604, $736, $560, $603, $307$378 and $550$252 in group life insurance premiums for
Dr. Hager and Messrs. Woitach, McDaniel, Mathur, O'HaraGolato and D'Antonio;Ambrose,
respectively; (ii) $9,389, $9389, $9389, $4,696 and $3,130 in medical
insurance premiums for each of Dr. Hager and Messrs. Woitach,
McDaniel, MathurGolato and D'Antonio,Ambrose, respectively; and $2,812 for
Mr. O'Hara;(iii) $1,042 and
$1,042, $2,084 and $2,305, respectively, in 401(k) plan contributions for Dr. Hager and Mr. Woitach,
respectively. In 2001, the Company paid (i) $252, $756, $756 and
$647, in group life insurance premiums for Messrs. WoitachMcDaniel, Ambrose,
Golato and Mathur.Claxton, respectively; (ii) $9,382, $12,509, $12,509 and
$9,278 in medical insurance premiums for each of Messrs. McDaniel,
Ambrose, Golato and Claxton, respectively; and (iii) $2,194 and
$1,324 in 401(k) Plan contributions for Messrs. Golato and Claxton,
respectively.
Dr. Hager elected to defer payment of his salary in 1998 and for part
of 1999. Dr. Hager's salary for 1998, which amounted to $380,000, was
accrued to expense in 1998. In lieu of cash compensation, Dr. Hager
was granted 417,744 shares of Common Stock on November 29, 1999,
representing accrued and unpaid salary of $725,000 earned from
January 1998 through September 1999 and 63,448 shares of Common Stock
on January 12, 2000 representing accrued and unpaid salary of
$115,000 earned from October 1, 1999 through December 31, 1999.
During 2000, Dr. Hager served as Chief Executive Officer from January 1, 2000 to
February 1, 2000.
In 2000, Dr. Hager, the Company's former Chief Executive Officer,
chose to defer payment of 2000 and 1999 travel reimbursement expenses
amounting to $129,000 until the Company's cash flow stabilized. On
February 14, 2001, the Company agreed to pay the Company's obligation
to Dr. Hager using shares of Company Common Stock. Total payments
through December 31, 2001 resulted in the issuance to Dr. Hager of
125,625 shares of common stock valued at $129,000.
Mr. Woitach served as the Company's Chief Executive Officer from
February 1, 2000 to September 15,1, 2000. Following his resignation,
the Company and Mr. Woitach entered into a Separation Agreement dated
September 1, 2000, under which he was to receive certain payments and
benefits from the Company over a twelve month period. In 2001, Mr.
Woitach received the following compensation from the Company under
the terms of the Separation Agreement: (i) salary in the amount of
$97,534; (ii) auto allowance in the amount of $6,048; and (iii)
medical insurance premiums in the amount of $9,382.
Mr. McDaniel served as Chief Executive Officer from September 15,
2000 to December
31,April 29, 2001.
John F. Ambrose was appointed by the Board of Directors as the
Company's Chief Executive Officer as of April 30, 2001. Prior to his
appointment, Mr. Ambrose had been the Company's President and Chief
Operating Officer since September 2000. All compensation paid to Mr.
Ambrose by the Company during 2000 was for his employment as the
Company's President and Chief Operating Officer.
13
Stock Options
The following tables set forth certain information concerning option
grants during the fiscal year ended December 31, 20002001 to the Named
Executive Officers and the number and the value of the options held by such
persons on December 31, 2000.2001. No options were exercised by Named Executive
Officers during 2000.2001.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Individual Grants Value At Assumed
---------------------------------------------------------------------------------------- Annual Rates
Number of Percent of of Stock Price
Securities Total Options Appreciation
Underlying Granted to Exercise orExercis for Option Term (1)
Options Employees in Base Price Per Expiration --------------------
Name Granted (#) Fiscal Year Share ($/sh) Date 5% 10%
- ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------
Edward B. Hager 0 --- --- --- --- ---
Paul Woitach 0 --- --- --- --- ---
Robert E. McDanielJohn F. Ambrose 100,000 (2) 15.9 $1.06 9/01/10 0 51,000
Rajiv Mathur 20,00016.4% $.80 May 16, 2111 $50,000 $127,000
CEO/Pres. 150,000 (3) 24.6% $.52 Dec. 27, 2111 $49,000 $124,000
Domenic Golato 100,000 (2) 3.2 1.56 05/17/10 0 0
80,000 (2) 12.7 0.50 12/06/10 40,800 88,80016.4% $.80 May 16, 2111 $50,000 $127,000
CFO/Sr. V.P. 100,000 (3) 16.4% $.52 Dec. 27, 2111 $33,000 $ 83,000
- -----------------------------------------
Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock price appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. Actual gains, if any, on stock
option exercises will depend on the future performance of the Common
Stock and the date on which the options are exercised. No gain to the
optionees is possible without an appreciation in stock price, which
will benefit all stockholders commensurately.
50% of the shares covered by the options vest six monthsone year after the date
of grant and the remaining 50% of the shares vest two years after the
date of grant.
33.3% of the shares covered by the options vest one year after the
date of grant, 33.3% of the shares covered by the options vest two
years after the date of grant and the remaining 33.3% of the shares
covered by the options vest three years after the date of grant.
Fiscal Year-End Option Values 14
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2001 AND YEAR END
2001 OPTION VALUE
NumberNo. of SecuritiesShares Underlying Value of Unexercised
Underlying Unexercised In-the-Money Options In-The-Money Options
Shares Acquired Value at Fiscal Year-End at Fiscal Year-End
NameYear End 2001 At Year End 2001
On Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)Unexercisable
Name (2) (2)(3)
- ------------------ -------------------------- --------------------------------------------------------------------------------------------------------------------------------------
Edward B. Hager 375,000/
John F. Ambrose
CEO & President $ -- (1) $ -- (1) 100,000/250,000 $ 0
$0/Domenic Golato $ -- (1) $ -- (1) 100,000/200,000 $ 0
Paul Woitach 225,000/ 75,000 0/0
Robert E. McDaniel 182,500/117,500 0/0
Rajiv Mathur 58,500/135,000 0/10,000
David K. O'Hara 0/0 0/0
John D'Antonio 0/0 0/0CFO & Sr. V.P.
- -----------------------------------------
No options exercised during fiscal year 2001.
Exercisable shares represent number of shares under fully vested
options as of December 31, 2001. Unexercisable shares represent
number of shares under unvested options as of December 31, 2001.
Value based on market value of the Company's Common Stock at the end
of fiscal 20002001 ($0.6250.60 per share) minus the exercise price.
Employment Agreements
Pursuant to his Employment Agreement, Dr. Hager was entitled to an
annual increase of 10% of his prior year's salary each year through
December 31, 1999, the expiration date of the Employment Agreement. Dr.
Hager waived the 10% increase for 1998, and chose to defer the payment of
his entire annual salary as of January 1, 1998, to preserve funds for the
Company's cash needs. Therefore, the Company accrued, but did not pay, Dr.
Hager's 1998 salary of $380,000. The Company also accrued, but did not pay,
Dr. Hager's 1999 salary of $460,000. On November 29, 1999, the Company
issued 348,571 shares of Common Stock, valued at $1.75 per share, in
payment of accrued but unpaid salary of $610,000 earned by Dr. Hager from
January 1, 1998 to June 30, 1999, and 69,173 shares of Common Stock, valued
at $1.66 per share, in payment of his accrued and unpaid salary of $115,000
earned by Dr. Hager from July 1, 1999 through September 30, 1999. On
January 12, 2000, the Company issued 63,448 shares of Common Stock, valued
at $1.81 per share, in payment of accrued but unpaid salary of $115,000
earned by Dr. Hager from October 1, 1999 through December 31, 1999.
Dr. Hager resigned as the Company's Chief Executive Officer on
February 1, 2000. The Company paid Dr. Hager a salary of $80,173 for
services he performed in an advisory role, as Chairman of the Board of
Directors and as Chairman of the Executive Committee, from January 1 to
April 30, 2000.
Dr. Hager is bound by certain non-compete and non-solicitation
obligations for five years after termination of employment or such longer
period during which he receives severance payments under the Employment
Agreement.
Effective September 1, 1999, the Company entered into an employment
agreement with Robert E. McDaniel, former Chief Executive, Officer and former Executive Vice
President and General Counsel of the Company. The initial term of the
agreement was one year, commencing September 1, 1999 and ending on August
31, 2000. The agreement providesprovided for an automatic extension of the term of
the agreement until April 30, 2001, unless either party gave notice to the
other on or before August 31, 2000 that the term will not be extended. No
such notice was given. Under the terms of the agreement, Mr. McDaniel
receivesreceived a base salary of $185,000, which is reviewed forsubject to annual merit increases not less than annually.increase
review. All equity-based awards received by Mr. McDaniel willwere to vest fully
upon a change of control. Mr. McDaniel's employment agreement statesstated that
his position with the Company iswas that of Vice President and General
Counsel; however,Counsel. Mr. McDaniel became Chief Executive Officer of the Company onin
September 15, 2000, and is no longerat which time he ceased to hold the position of Vice
President and General Counsel of the Company.Company, but no amendment was made to
his employment agreement to reflect the change in his position.
Mr. McDaniel served as the Company's Chief Executive Officer from
September 2000 until his resignation from the Company on April 29, 2001.
On May 16, 2001, the Board of Director's Compensation and Stock Option
Committee approved a severance package for Mr. McDaniel in the total
amount of $93,317, paid in bi-weekly installments of $7,178.23 for the
15
period of May 1 to October 31, 2001. In addition, Mr. McDaniel continued
to receive Company paid heath benefits until September 30, 2001.
Immediately following Mr. McDaniel's resignation, John F. Ambrose was
appointed by the Board of Directors as the Company's new Chief Executive
Officer. Prior thereto, Mr. Ambrose had been the Company's President and
Chief Operating Officer since September 2000. The Company hasdoes not entered intohave a new
employment agreement with Mr. McDaniel since he became
its Chief Executive Officer, nor has his employment agreement been amended
to reflect his new position with the Company.
In the event that Mr. McDaniel's employment is terminated by the
Company with cause or Mr. McDaniel resigns, Mr. McDaniel will receive his
base salary, bonus and all other benefits which have accrued as of the date
of termination. In the event Mr. McDaniel's employment is terminated by the
Company without cause, Mr. McDaniel is entitled to continuation of his
annual salary and benefits for twelve months, and all of his unvested
options will fully vest and become exercisable for a period of at least two
years after the date of termination.
EffectiveAmbrose.
On July 1, 2000, the Company entered into an employment agreement
with Domenic Golato, Senior Vice President and Chief Financial Officer of
the Company. The agreement provides for employment through June 30, 2001.
Each year beginning June 30, 2001, the term of the agreement shall
automatically be extended for an additional year unless either party gives
written notice to the other party by April 30 of that year that it does not
wish to extend the term of the agreement. No such notice was given by April
30, 2001, and Mr. Golato's term was therefore automatically extended to
June 30, 2002. Under the terms of the agreement, Mr. Golato receives aGolato's base salary
of $168,600, which is reviewed
for merit increases not less than annually.
Pursuant to the agreement, Mr. Golato received an option to purchase
60,000 shares of Common Stockfirst year of the Company, which vested fully on
September 1, 2000. He received an additional optionterm thereof was $168,000, subject to purchase 40,000
shares of Common Stock of the Company on December 6, 2000, half of which
will vest on June 6,annual
merit increase reviews. In April 2001, and the remainder of which will vest on December
6, 2001.Mr. Golato's base salary was
increased to $185,000. All equity-based awards received by Mr. Golato will
vest fully upon a change of control of the Company or a change in more than
half of the members of the Board of Directors over a two yeartwo-year period.
In the event that Mr. Golato's employment is terminated by the
Company with cause or Mr. Golato resigns, Mr. Golato will receive his base
salary, bonus and all other benefits which have accrued as of the date of
termination. In the event that Mr. Golato's employment is terminated by the
Company without cause, Mr. Golato is entitled to continuation of his annual
salary and benefits for twelve months, and all of his unvested options will
fully vest and become exercisable for a period of at least two years after
the date of his termination.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
Overview and Philosophy
The Compensation and Stock Option Committee of the Board of Directors
(the "Committee") consistsis comprised of at least three non-employee directors and
is responsible for the development and administration of the Company's
executive compensation policies and programs, subject to the review and
approval by the full Board. The Committee reviews and recommends to the
Board for its approval the salaries and incentive compensation for the
executive officers of the Company and grants stock options to executives
and other key employees of the Company and its subsidiaries.
The objectives of the Company's executive compensation program are
to:
* Support the achievement of strategic goals and objectives of
the Company.
* Attract and retain key executives critical to the long-term
success of the Company.
* Align the executive officers' interests with the success of the
Company.
16
Compensation Program
The Company's executive compensation program consists of three
principal elements --- base salary, annual cash incentive compensation and
long-term incentive compensation in the form of stock options.
The base salaries of Dr. Hager andreceived in 2001 by Messrs. Golato and McDaniel
(until his resignation on April 29, 2001) were established pursuant to the
terms of their respective employment agreementagreements with the Company. See
discussion set forth above under heading "Employment Agreements." The base salary of Mr.
Woitach was also established pursuant to the terms of his employment
agreement with the Company, which provided that Mr. Woitach would receive a
base salary of $200,000 per year, to be reviewed for merit increases no
less than annually. Base
salary levels for the Company's executive officers are generally based on a
review of compensation for competitive positions in the market, the
executives' job skills and experience and judgments as to past and future
contributions of the executives to the Company's success. The Committee
seeks to set the annual base salaries of its executives at levels
competitive with those paid to executives in those businesses in which the
Company is engaged; namely, consumer products and petcare products. It
seeks, however, to provide its executives with opportunities for
substantially higher compensation through annual incentive awards and stock
options.
The Company made cash incentive payments in 2000 to Mr. Woitach, Mr.
Mathur and Mr. D'Antonio in the aggregate amount of $75,656. The annual
cash incentive compensation program was designed to tie annual awards to
Company and individual executive performance. The Committee considers a
number of factors in determining whether annual incentive awards should be
paid, including (i) achievement by the Company and/or specific business
units of approved budgets, new product introductions, progress in
development of new products and operating income and cash flow goals and
(ii) achievement by the executives of their assigned objectives. In
considering individual performance, as contrasted to Company performance,
the Committee relies more on subjective evaluations of executive
performance than on quantitative data or objective criteria. Further, the Company has implemented a variable compensation plan for its top
executives. The purpose of the plan is to directly link management
compensation to Company performance. Present plans include expanding the
application of the variable compensation plan to more upper level managers.
Long-term incentives for executive officers and key managers are provided
through stock options. The objectives of this program are to align
executive and stockholder long-term interests by creating a strong and
direct link between executive compensation and stockholder return, and to
enable executives to develop and maintain a significant, long-term stock
ownership position in the Company's Common Stock. Stock options are
granted at an option price equal to the fair market value of the Company's
Common Stock on the date of grant and will only have value if the Company's
stock price increases. In selecting executives eligible to receive option
grants and determining the amount of such grants, the Committee evaluates a
variety of factors including (i) the job level of the executive, (ii)
option grants awarded by competitors to executives at a comparable job
level, and (iii) past, current and prospective service to the Company
rendered, or to be rendered, by the executive. It has been the Company's
practice to fix the exercise price of option grants at 100% of the fair
market value per share on the date of grant.
Chief Executive Officer's 2000Officers' 2001 Compensation
Dr. HagerMr. McDaniel was the Chief Executive Officer of the Company from
January 1 to February 1, 2000 andApril 29, 2001. Mr. Woitach wasAmbrose became the Chief Executive
Officer of the Company from February 1 to September 15, 2000. Mr. McDaniel became Chief
Executive Officeras of the Company on September 15, 2000April 30, 2001 and currently holds that
position. Dr. Edward B. Hager, Chairman ofMr. Golato became the BoardChief Financial Officer and former Chief Executive
OfficerSenior Vice
President of the Company was eligiblein June 2000 and currently holds such positions
with the Company pursuant to participate in the same executive
compensation plans available to the other Company executives. In addition
to his duties as Chief Executive Officer and Chairman of the Board, Dr.
Hager served as Chief Scientific Officer of the Company. The Committee set
Dr. Hager's total annual compensation, including annual incentive awards
and potential additional compensation derived from the Company's stock
option program, at a level it believed was competitive with other
comparable companies.
Dr. Hager's annual compensation was governed by the terms of his employment agreement with the
Company.
Pursuant to his employment
agreement, Dr. Hager was entitled to an annual increase of 10% of his prior
year's salary each year through December 31, 1999, the expiration date of
the employment agreement. However, Dr. Hager waived the 10% increase for
1998 and chose to defer the payment of his annual salary from 1998 and 1999
to preserve funds for the Company's cash needs. On NovemberUntil April, 29, 1999, the
Company issued 348,571 shares of Common Stock, valued at $1.75 per share,
in payment of his accrued and unpaid salary of $610,000 earned by Dr. Hager
from January 1998 through June 1999, and 69,173 shares of Common Stock,
valued at $1.66 per share, in payment of his accrued and unpaid salary of
$115,000 earned by Dr. Hager from July 1999 through September 1999. On
January 12, 2000, the Company issued 63,448 shares of Common Stock to Dr.
Hager, representing accrued and unpaid salary of $115,000 earned from
October 1, 1999 through December 31, 1999.
In 2000,2001, the Company paid Dr. Hager a salary of $80,173 for services
he performed in an advisory role, as Chairman of the Board of Directors and
as Chairman of the Executive Committee, from January 1 to April 30, 2000.
Mr. Woitach'sMcDaniel annual
compensation was also governed by the terms of
his employment agreement with the Company. Pursuantpursuant to his employment
agreement, Mr. Woitach was entitled to receive a base salary of $200,000,
which was to be reviewed for merit increases no less than annually.
Finally, Mr. McDaniel's annual compensation was governed by the terms of his employment agreement with the
Company. Pursuant to his employment agreement, Mr. McDaniel iswas entitled
to a base annual salary of $185,000, each year
which issubject to annual
17
merit reviews. Mr. McDaniel was also awarded additional performance-based
compensation in the form of options. Mr. Ambrose does not have an
employment agreement with the Company, but receives a base salary
compensation of $192,500 in his position as the Company's Chief Executive
Officer to be reviewed annual for merit increases no less than annually. Theincreases. In 2001, the Committee
awarded Mr. McDaniel an option on September 1, 2000Ambrose options to purchase 100,000250,000 shares of the Company's
Common Stock half of which vested on March 1,as additional merit-based compensation. In 2001, and the remainder of which will vest on September 1, 2001.
The Committee set bothCompany
paid Mr. Woitach's and Mr. McDaniel's totalGolato's annual compensation includingpursuant to the terms of his
employment agreement with the Company under which he receives a base annual
incentive awards and potential additional
compensation derived fromsalary of $185,000, subject to annual merit reviews. In 2001, the
Committee awarded Mr. Golato options to purchase 200,000 shares of the
Company's stock option program, at a level it
believed was competitive with comparable companies.Common Stock as additional merit-based compensation.
Tax Considerations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation in excess of one million dollars paid to its chief executive
officer and its other four highest compensated officers. Qualified
performance-based compensation will not be subject to the deduction limit
if certain requirements are met. While the Committee does not currently
intend to qualify its annual cash incentive compensation as qualified
performance-based compensation, it will continue to monitor the impact of
Section 162(m) on the Company. Based on the compensation received by
Dr.
Hager, Mr.Messrs. McDaniel, Mr. WoitachAmbrose and the other Named Executive Officers,Golato as summarized above, it does not
appear that the Section 162(m) limitation will have a significant impact on
the Company in the near term.
Compensation and Stock Option Committee
Constantine L. Hampers, M.D., Chairman
Terrence D. Daniels (Chairman)
Earl R. Lewis
Donald W. Joseph
Stephen J. Morris
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors (the "Committee""Audit Committee")
consists of at least three non-employee directors and is responsible for
reviewing the audit of the Company's accounts, monitoring the effectiveness
of the audit and evaluating the scope of the audit. TheIn accordance with the
Company's Audit Committee's written
charter is attached heretoCommittee Charter, as Appendix A. The Company's securities are
listed onwell as the listing standards
(Section 121(A)) of the American Stock Exchange, ("AMEX") and, therefore, the members of the
Company's Audit Committee are "independent", as such term is defined in Section
121(A) of the AMEX listing standards..
The Audit Committee has reviewed the financial statements prepared by
the Company and audited by KPMG LLP for the fiscal year ended December 31,
20002001 and has discussed these financial statements with the Company's
management. The Audit Committee has discussed with KPMG LLP the matters
required to be discussed by SAS 61 (Codification of Statements on Auditing
Standards, AU [SECTION]380), as may be modified or supplemented. The Audit
Committee has 18
received the written disclosures and the letter from KPMG LLP required by
Independence Standards Board Standard No. 1 (Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees), as
modified or supplemented, and has discussed with KPMG LLP their
independence. Based on their review and discussions set forth above, the
Audit Committee recommended to the Board of Directors that the audited
financial statements for the fiscal year ended December 31, 20002001 be
included in the Company's Annual Report on Form 10-K.
Audit Committee
Terrence O'Donnell (Chairman)
Stephen J. Morris
Terrence D. DanielsEarl R. Lewis
Jane E. Hager
Compensation Committee Interlocks and Insider Participation
No member of the Compensation and Stock Option Committee was, during
fiscal year 2000,2001, an officer or employee of the Company or any of its
subsidiaries, or was formerly an officer of the Company or any of its
subsidiaries. During fiscal year 2000,2001, no executive officer of the Company
served as a director or member of the compensation committee (or other
board committee performing equivalent functions, or in the absence of such
committee, the entire board of directors) of another entity, one of whose
executive officers served as a member of the Compensation and Stock Option
Committee, or as a director of the Company.
Comparative Stock Performance
The graph below compares the cumulative total stockholder return on
the Common Stock of the Company for the last five fiscal years with the
cumulative total return on the AMEX Composite Index and a peer group over
the same period (assuming the investment of $100 in the Company's Common
Stock, the AMEX Composite Index and the peer group on December 31, 1995,1996,
and reinvestment of all dividends). The peer group consists of the Company
The Liposome Company,and AP Pharma Inc., Sequus Pharmaceuticals (formerly Liposome
Technology, Inc.), Nexstar Pharmaceuticals (formerly Vestar, Inc.) and Advanced Polymer Systems, Inc.). The Company's
Common Stock was suspended from trading on the American Stock Exchange from
March 31, 1998 to September 7, 1998 due to delays in filing periodic
reports under the Securities Exchange Act of 1934, as amended, and resumed
trading on September 8, 1998.
19
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*RETURN *
AMONG IGI, INC,.INC., THE AMEX MARKET VALUE INDEX
AND A PEER GROUP
Cumulative Total Return
-------------------------------------------------------
12/95--------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
--------------------------------------------------------
IGI, INC. 100.00 81.82 48.48 23.48 23.49 7.5859.26 28.70 28.71 9.26 8.89
AMEX MARKET VALUE 100.00 101.59 127.06 136.38 174.22 179.02125.06 134.24 171.49 176.21 167.92
PEER GROUP 100.00 112.82 88.30 65.00 44.99 27.5678.27 57.61 39.88 24.43 28.17
- ---------------------------------------
* $100 INVESTED ONinvested on 12/31/95 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER96 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
PROPOSAL 2 - RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has selected KPMG LLP as auditors of the
Company for the fiscal year ending December 31, 2001,2002, subject to
ratification by stockholders at the Meeting. If this proposal is not
approved at the Meeting, the Board of Directors will reconsider this
selection. A representative of KPMG LLP is expected to be present at the
Meeting to respond to appropriate questions, and to make a statement if he
or she so desires.
On and effective as of November 28, 2000, the Company terminated its
relationship with PricewaterhouseCoopers LLP, who were the Company's
independent accountants for the years ended December 31, 1997 through
December 31, 1999, effective
as of November 28, 2000.1999. PricewaterhouseCoopers LLP's reports on the Company's
1997 through 1999 financial statements contained no adverse opinion or
disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principle, with the exception of its
opinion on the Company's 1999 financial statements, which was modified to
add an explanatory paragraph expressing substantial doubt as to the
Company's ability to continue as a going concern. The decision to
terminate the client-auditor relationship between the Company and
PricewaterhouseCoopers LLP was made by the Company's Board of Directors.
For the fiscal years ended December 31, 1997 through December 31, 1999, the
Company is unaware of any disagreementsdisagreement with PricewaterhouseCoopers LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements would have
caused PricewaterhouseCoopers LLP to make reference thereto in their report
on the financial statements for such periods.
On November 29, 2000, the Company engaged KPMG LLP to act as its
independent accountants. The Company did not consult with KPMG LLP during
the fiscal years ended December 31, 1997 through December 31, 1999
regarding matters that were or should have been subject to Statement on
Auditing Standard No. 50 or any subject matter of a disagreement or
reportable event with its former accountant.
20
Audit Fees
The aggregate amount the Company was billed by KPMG LLP for
professional services rendered for the 2001 quarterly reviews and audit of
the Company's annual financial statements for 20002001 was $150,000$170,000 plus
expenses.
Financial Information Systems Design and Implementation Fees
KPMG LLP did not render any professional services to the Company in
connection with financial information systems design and implementation
during 2000,2001, therefore the Company was not billed for any services of that
type.
All Other Fees
In addition to the services described above under the caption "Audit
Fees", KPMG LLP did not render anyrendered professional services to the Company during 2000 other than2001
in conjunction with the Company's filing of a Form S-3 Registration
Statement for 500,000 shares of the Company's Common Stock with the
Securities and Exchange Commission on May 25, 2001, and the aggregate
amount the Company was billed by KMPG LLP for such professional services
was $3,000.
With the exception of the immediately foregoing described services
for the Company's SEC Form S-3 filing on May 25, 2001, and those services
described under the captions of "Audit Fees" and "Financial Information Systems Design and Implementation Fees",
thereforeabove, the Company was not
billed for any services of thatany other type.
Audit Committee Consideration of These Fees
The Company's Audit Committee has considered whether the provision of
the services covered under the categories of "Financial Information Systems
Design and Implementation Fees" and "All Other Fees" is compatible with
maintaining the independence of KPMG LLP.
Board Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITOR OF THE COMPANY FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2001.2002.
PROPOSAL 3 - APPROVAL OF AND PROPOSED INCREASE IN THE NUMBER
OF SHARES AUTHORIZED UNDER THE 1999 STOCK OPTIONINCENTIVE PLAN
On September 15,March 16, 1999, the Company's Board of Directors of the Company adopted,
subject to stockholder approval, the Company's 1999 Director Stock OptionIncentive Plan (the "1999
Incentive Plan") and authorized 675,0001,200,000 shares of Common Stock for
issuance under the 1999 Incentive Plan. The Board of Directors believes
that stock options havethe 1999 Incentive Plan has been and will continue to be, an important element in attracting and maintaining directors who are
not employeesadvance the
21
interests of the Company's stockholders by enhancing the Company's ability
to attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company or any subsidiaryby providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company. The Company
does not believe that the current number of shares authorized under the
1999 Plan is adequate for the Company's
needs.stockholders. As of March 19, 2001,
100,000April 1, 2002, 117,000 shares of Common Stock remainedremain
available for future grants of stock optionsawards under the 1999 Incentive Plan. The
Company wishes to increase the number of authorized options under the 1999
Incentive Plan from 675,0001,200,000 to 1,475,000.
Administration and Eligibility2,000,000.
Summary of the 1999 Incentive Plan
The 1999 Incentive Plan andprovides for the grant of incentive stock
options thereunderintended to qualify under Section 422 of the Internal Revenue Code
("the Code"), non-statutory stock options and restricted stock awards
(collectively "Awards"). The 1999 Incentive Plan authorizes the Board to
determine the number of shares of Common Stock to be covered by each
option, the exercise price of each option and the conditions and
limitations applicable to the exercise of each option grant, including
conditions relating to applicable federal or state securities laws, as it
considers necessary or advisable.
No option will be granted for a term in excess of ten years. The 1999
Incentive Plan permits the Board to determine the manner of payment of the
exercise price of options, including through payment by cash, check or in
connection with a "cashless exercise" through a broker, by surrender to the
Company of shares of Common Stock, by delivery to the Company of a
promissory note or by any other lawful means.
The Board may grant Awards entitling recipients to acquire shares of
Common Stock, subject to the right of the Company to repurchase all or part
of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient
in the event that conditions specified by the Board in the applicable Award
are not satisfied prior to the end of the applicable restriction period or
periods established by the Board for such Award.
If any Award expires or is terminated, surrendered or canceled
without having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock
covered by such Award shall again be available for the grant of Awards
under the 1999 Incentive Plan, subject, however, in the case of incentive
stock options, to any limitation required under the Code. Shares issued
under the 1999 Incentive Plan may consist in whole or in part of authorized
but unissued shares or treasury shares.
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment)
are eligible to be granted Awards under the 1999 Incentive Plan. Subject to
adjustment, the maximum number of shares of Common Stock with respect to
which Awards may be granted to any participant under the 1999 Incentive
Plan shall be 300,000 per calendar year. This per-participant limit
described shall be construed and applied consistently with Section 162(m)
of the Code. The granting of Awards under the 1999 Incentive Plan is
discretionary.
22
Administration
The 1999 Incentive Plan is administered by the Compensation and Stock
Option Committee, who then recommends Awards to the Board of Directors for
approval. The Board has authority to grant Awards and to adopt, amend and
repeal such administrative rules, guidelines and practices relating to the
1999 Incentive Plan as it shall deem advisable. Pursuant to the terms of
the Company's1999 Incentive Plan, the Board of Directors. All non-employee directors of the Corporation are eligible to
receive optionsDirectors may delegate authority
under the 1999 Plan. As of March 19, 2001, the Company had
seven non-employee directors. AllIncentive Plan to one or more committees of the options granted underBoard, and
subject to certain limitations, to one or more executive officers of the
Company. Subject to any applicable limitations contained in the 1999
Incentive Plan, are nonstatutory stock options (NSOs)the Board of Directors, or any committee or executive
officer to whom the Board delegates authority, as the case may be, selects
the recipients of Awards and become fully vested twelve
months afterdetermines (i) the date of grant.
Under the 1999 Plan, on January 2 of each year, beginning with
January 2000 (i) each non-employee director is granted a stock option for
15,000 shares and (ii) each of the Chairmen of the Audit Committee and the
Stock Option and Compensation Committee is granted additional stock options
for 15,000 and 10,000 shares, respectively. Additionally, under the 1999
Plan, each newly-elected director will receive a stock option grant of
15,000 shares at the time of his or her election. All of such options will
be granted at an exercise price equal to the closing price of the Common
Stock on the American Stock Exchange on the date of grant.
Pursuant to the 1999 Plan, Ms. Hager, Dr. Hampers and Messrs.
Daniels, O'Donnell, Morris and Paganucci each received options to purchase
50,000 shares of Common Stock of the Company on September 15, 1999. In
addition, Ms. Hager, Dr. Hampers and Messrs. Daniels, O'Donnell, Morris,
Paganucci, Joseph and Lewis each received options to purchase the following number of shares of Common
Stock covered by options and the dates upon which such options become
exercisable, (ii) the exercise price of options, (iii) the Company: 15,000, 25,000, 15,000,
30,000, 15,000, 15,000, 15,000duration of
options, and 15,000, respectively. The options were
received on January 3, 2000, with(iv) the exception of Messrs. Joseph and Lewis
who received their options on May 17 and September 12, 2000, respectively.
On January 2, 2001, Ms. Hager, Dr. Hampers and Messrs. Daniels, O'Donnell,
Morris, Joseph and Lewis each received options to purchase the following number of shares of the Company: 15,000, 25,000, 15,000, 30,000, 15,000,
15,000 and 15,000, respectively.
Purchase Price and Option Terms
The price at which shares of Common Stock subject to any
restricted stock or other stock-based Awards and the terms and conditions
of such Awards, including conditions for repurchase, issue price and
repurchase price. The Board of Directors may be purchased upon the
exercise of options granted undermake appropriate adjustments
in connection with the 1999 Incentive Plan is equaland any outstanding Awards to
the fair market
value per share on the date of grant, which is deemed to be the closing
price of the Common Stock on the American Stock Exchange on the date of
grant. The last sale price ofreflect stock dividends, stock splits and other certain events that affect
the Company's Common Stock reported by the
American Stock Exchange on April 6, 2001 was $0.60 per share.
Except as the Compensation and Stock Option Committee may otherwise
determine or provide in an option grant, options granted under the 1999
Plan cannot be assigned, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and shall be exercised
during the lifetime of the optionee and only by the optionee. Such options
cease to be exercisable at the earlier of ten years from the date of grant
or three years after a director ceases to be a director for any reason. In
the event that a director ceases to be a director on account of his or her
death, the outstanding options (whether exercisable or not on the date of
death) may be exercised within three years after such date (subject to the
condition that no such option may be exercised after the expiration of ten
years from its date of grant).
Optionees who exercise options to purchase securities under the 1999
Plan may pay cash in the amount of the option exercise price and/or deliver
other shares of Common Stock owned by the optionee with a fair market value
equal to the exercise price of the option shares to be purchased.capitalization.
In the event of a dissolution,merger, liquidation merger, consolidation or reorganizationother Acquisition Event (as
defined in the 1999 Incentive Plan), the Board of Directors is authorized
to provide for outstanding options or other stock-based Awards to be
assumed or substituted for, to accelerate the Awards to make them fully
exercisable prior to consummation of the Acquisition Event, or to provide
for a cash-out of the value of any outstanding options. Upon the occurrence
of an Acquisition Event in the case of restricted stock, the rights of the
Company (an "Event"),shall inure to the benefit of the Company's successor. If any Award
expires or is terminated, surrendered, canceled or forfeited, the unused
shares of Common Stock covered by such Award will again be available for
grant under the 1999 Incentive Plan.
Amendment or Termination
No Award may be made under the 1999 Incentive Plan after March 16,
2009, but Awards previously granted may extend beyond that date. The Board
may amend, modify or terminate any outstanding Award, including but not
limited to, substituting therefor another Award of the same or a different
type, changing the date of exercise or realization, and converting an
incentive stock option to a non-statutory stock option. The Board may also
amend, suspend or terminate the 1999 Incentive Plan or any portion thereof
at any time, provided that, to the extent required by Section 162(m) of the
Code, no Award granted to a participant designated as subject to Section
162(m) by the Board may decide to
terminate each outstanding option. Ifafter the Board so decides, such option
shall terminate as of the effective date of such amendment shall become
exercisable, realizable or vested, as applicable to such Award (to the
Event, butextent that such amendment to the Board1999 Incentive Plan was required to grant
such Award to a particular participant), unless and until such amendment
shall provide optionees a reasonable notice period during which options which are
then exercisable may be exercised.have been approved by the Company's stockholders as required by
Section 162(m) (including the vote required under Section 162(m)).
23
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to optionsAwards granted under
the 1999 Incentive Plan and with respect to the sale of Common Stock
acquired under the 1999 Incentive Plan.
AIncentive 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 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 all or a portion of the gain recognized by the
participant will be ordinary compensation income and the remaining gain, if
any, will be a capital gain. This capital gain will be 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 in an
amount equal to the excess of the exercise price over the sale price of the
ISO Stock. This capital loss will be long-term capital loss if the
participant has held the ISO Stock for more than one year prior to the date
of sale.
Non-statutory Stock Options. As in the case of an incentive stock
option, a participant will not recognize taxable income upon the grant of a
nonstatutorynon-statutory stock option. Unlike the case of an incentive stock option,
("NSO"). However,however, a participant who exercises a nonstatutorynon-statutory stock option 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 Dateexercise date over the exercise
price. With respect to any NSO Stock, a participant will have a tax basis
equal to the exercise price plus any 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 ofdifference between the sale
price of the NSO Stock overand the participant's tax basis in the NSO Stock.
This capital gain or loss will be a long-term capital gain or loss if the
participant has held the NSO Stock for more than one year prior to the date
of the sale.
Restricted Stock Awards. A participant will not recognize taxable
income upon the grant of a restricted stock Award, unless the participant
makes an election under Section 83(b) of the Code (a "Section 83(b)
Election"). If the participant makes a Section 83(b) Election within 30
days of the date of the grant, then the participant will recognize ordinary
compensation income, for the year in which the Award is granted, in an
amount equal to the difference between the fair market value of the Common
Stock at the time the Award is granted and the purchase price paid for the
Common Stock. If a Section 83(b) Election is not made, the participant will
recognize
24
ordinary compensation income at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference
between the fair market value of the Common Stock at the time of such lapse
and the original purchase price paid for the Common Stock. The participant
will have a basis in the Common Stock acquired equal to the sum
of the price paid and the amount of ordinary compensation income
recognized. Upon the disposition of the Common Stock acquired pursuant to
a restricted stock Award, the participant will recognize a capital gain or
loss in an amount equal to the difference between the sale price of the
Common Stock and the participant's basis in the Common Stock. This capital
gain or loss will be a long-term capital gain or loss if the shares are
held for more than one year. For this purpose, the holding period shall
begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made or just after
the Award is granted if a Section 83(b) Election is made.
Tax Consequences to the Company
The grant of an optionAward under the 1999 Incentive Plan will have no tax
consequences to the Company. Moreover, in general, neither the exercise of
an incentive stock option nor the sale of any Common Stock acquired under
the 1999 Incentive Plan will not have any tax consequences to the Company. The
Company generally will be entitled to a business-expense deduction,
however, with respect to any ordinary compensation income recognized by a
participant under the 1999 Incentive Plan, including in connection with a
restricted stock Award or as a result of the exercise of an NSO.a non-statutory
stock option or a Disqualifying Disposition. Any such deduction will be
subject to the limitations of Section 162(m) of the Code.
The Company will have a
withholding obligation with respect to ordinary compensation income
recognized by participants with respect to NSOs under the 1999 Plan who are
subject to withholding.Board Recommendation
THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE ADOPTIONADPOTION OF AND
INCREASE IN THE NUMBER OF SHARES AUTHORIZED UNDER THE 1999 PLAN AND THE AMENDMENT TO THE 1999STOCK INCENTIVE
PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF AND INCREASE IN THE
ADOPTIONNUMBER OF AND THE AMENDMENT TOAUTHORIZED SHARES UNDER THE 1999 STOCK INCENTIVE PLAN.
STOCKHOLDER PROPOSALS FOR 20022003 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 20022003 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company
at its offices, Wheat Road and105 Lincoln Avenue, Buena, New Jersey 08310, no later than
December 21, 2001,23, 2002, in order to be considered for inclusion in the Proxy
Statement relating to that meeting.
If a stockholder of the Company wishes to present a proposal before
the 20022003 Annual Meeting and the Company has not received notice of such
matter prior to March 6, 2002,7, 2003, the Company shall have discretionary
authority to vote on such matter, if the Company includes a specific
statement in the proxy statement or form of proxy to the effect that it has
not received such notice in a timely fashion. 25
OTHER MATTERS
The Board of Directors knows of no other business which will be
presented for consideration at the Meeting other than that described above.
However, if any other business should come before the Meeting, it is the
intention of the persons named in the enclosed Proxy to vote, or otherwise
act, in accordance with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular
employees may, without additional remuneration, solicit proxies by
telephone, telegraph, facsimile and personal interviews. The Company will
also request brokerage houses, custodians, nominees and fiduciaries to
forward copies of the proxy material to those persons for whom they hold
shares and request instructions for voting the Proxies. The Company will
reimburse such brokerage houses and other persons for their reasonable
expenses in connection with this distribution.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND
YOUR COOPERATION IS APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY
VOTE THEIR STOCK PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
By Order of the Board of Directors,
Robert E. McDaniel,John F. Ambrose,
President & CEO
& Secretary
April 20, 2001
Appendix A
----------16, 2002
26
IGI, INC. AUDIT COMMITTEE CHARTER
I. Membership
A. Composition: The Audit Committee shall consist of at least
three independent, financially literate members of the board of
directors meeting the requirements set forth in Sections I.B
and I.C below.
B. Independence: A director is independent if he or she is not an
officer or employee of the Company or its subsidiaries, if he
or she has no relationship which, in the opinion of the
Company's board of directors, would interfere with his or her
exercise of independent judgement in carrying out the
responsibilities of a director, and if he or she:
1. Has not been an employee of the Company or an affiliate
of the Company in the current year or in any of the past
three years;
2. Has no immediate family member who has been employed by
the Company or an affiliate of the Company in any of the
past three years (an immediate family member 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 a
person's home);
3. Is not employed as an executive of an entity other than
the Company having a compensation committee which
includes any of the Company's executives;
4. Did not within the last fiscal year receive from the
Company or its affiliates compensation - other than
benefits under a tax qualified retirement plan,
compensation for director service or nondiscretionary
compensation - greater than $60,000; and
5. Has not in any of the past three years been a partner in,
or controlling shareholder or executive of, a for-profit
business organization to which the Company made or from
which the Company received payment (other than payment
arising solely from investments in the Company's
securities) that exceeds the greater of: (i) $200,000 or
(ii) more than 5% of the Company's or business
organization's consolidated gross revenues.
Under exceptional and limited circumstances, one director who
has a relationship making him or her not independent, and who
is not a Company employee or an immediate family member of a
Company employee, may serve on the Audit Committee if the board
of directors determines that the director's membership on the
Audit Committee is required by the best interests of the
Company and its shareholders, and discloses in the next annual
proxy statement after such determination the nature of the
relationship and the reasons for the determination.
C. Financial Literacy: Each member of the Audit Committee must be
able to read and understand fundamental financial statements,
including the Company's balance sheet, income statement and
cash flow statement, or must become able to do so within a
reasonable time after his or her appointment to the Audit
Committee. At least one member of the Audit Committee must
have past employment experience in finance or accounting,
professional certification in accounting or other comparable
experience or background which results in the member having
financial sophistication (such as being or having been a chief
executive officer, chief financial officer or other senior
officer with financial oversight responsibilities).
D. Chairman: Unless a Chairman is elected by the board of
directors, the Audit Committee shall elect a Chairman by
majority vote.
II. Responsibilities of the Audit Committee
The Audit Committee shall assist the board of directors in fulfilling
its responsibilities to shareholders concerning the Company's
accounting and reporting practices, and shall facilitate open
communication between the Audit Committee, board of directors,
outside auditor and management. The Audit Committee shall discharge
its responsibilities, and shall assess the information provided by
the Company's management and the outside auditor, in accordance with
its business judgement. The responsibilities set forth herein do not
reflect or create any duty or obligation of the Audit Committee to
plan, conduct, oversee or determine the appropriate scope of any
audit, or to determine that the Company's financial statements are
complete, accurate, fairly presented or in accordance with Generally
Accepted Accounting Principles or applicable law. In exercising its
business judgement, the Audit Committee shall rely on the information
and advice provided by the Company's management and/or its outside
auditor.
A. The Audit Committee shall review and reassess the adequacy of
this charter at least annually.
B. The outside auditor shall be accountable to the Audit Committee
and the board of directors, which together shall have the
ultimate authority and responsibility to nominate the outside
auditor to be proposed for shareholder approval in any proxy
statement, and to select, evaluate and (where appropriate)
replace the outside auditor.
C. The Audit Committee shall ensure that it receives from the
outside auditor the written disclosures and letter from the
outside auditor required by Independence Standards Board
Standard No. 1, as modified or amended.
D. The Audit Committee shall discuss with the outside auditor its
independence, and shall actively engage in a dialogue with the
outside auditor regarding any disclosed relationships or
services that might impact the objectivity and independence of
the auditor. The Audit Committee shall take, or recommend that
the full board of directors take, appropriate action to oversee
the independence of the outside auditor.
E. The Audit Committee shall review and discuss with the Company's
management the Company's audited financial statements.
F. The Audit Committee shall direct and request that the outside
auditor represent to the Audit Committee that the auditor has
brought to the attention of the Audit Committee the matters
about which Statement on Auditing Standards NO. 61 (as amended)
requires discussion, and shall discuss such matters with the
outside auditor.
G. Based upon its discharge of its responsibilities pursuant to
Sections II.C through II.F and any other information,
discussion or communication that the Audit Committee in its
business judgement deems relevant, the Audit Committee shall
consider whether it will recommend to the board of directors
that the Company's audited financial statements be included in
the Company's annual reports on Form 10-K.
H. The Audit Committee shall prepare for inclusion in any proxy or
information statement of the Company relating to an annual
meeting of security holders at which directors are to be
elected (or special meeting or written consents in lieu of such
meeting), beginning with the 2001 annual meeting of
shareholders, the report described in Item 306 of Regulation S-K.
I. The Audit Committee shall annually inform the outside auditor,
the Chief Financial Officer, the Controller and the most senior
other person, if any, responsible for the internal audit
activities that they should promptly contact the Audit
Committee or its Chairman about any significant issue or
disagreement concerning the Company's accounting practices or
financial statements that is not resolved to their
satisfaction. Where such communications are made to the
Chairman, the Chairman shall confer with the outside auditor
concerning any such communications, and shall notify the other
members of the Audit Committee of any communications which the
outside auditor or the Chairman in the exercise of his or her
business judgement believes should be considered by the Audit
Committee prior to its next scheduled meeting.
J. The Audit Committee shall direct the outside auditor to use its
best efforts to perform all reviews of interim financial
information prior to disclosure by the Company of such
information, and to discuss promptly with the Chairman of the
Audit Committee and the Chief Financial Officer any matters
identified in connection with the auditor's review of interim
financial information which are required to be discussed by
Statement on Auditing Standards No. 61. The Chairman of the
Audit Committee shall discuss any such matters with the outside
auditor, and shall notify the other members of the Audit
Committee of any discussions which the outside auditor or the
Chairman in the exercise of his or her business judgement
believes should be considered by the Audit Committee prior to
disclosure or filing of the interim financial information, or
the Audit Committee's next scheduled meeting.
K. The Audit Committee shall direct management to advise the Audit
Committee in the event that the Company proposes to disclose or
file interim financial information prior to completion of
review by the outside auditor.
L. The Audit Committee shall prepare minutes of its meetings that
shall be presented to the board of directors for review. The
Audit Committee may determine that some or all of its minutes
shall not be made available to members of management who are
directors of the Company.
M. The Audit Committee shall regularly report to the board of
directors concerning any action the Audit Committee in the
exercise of its business judgement believes the board of
directors should consider.
N. The Audit Committee shall meet privately at least once per year
with: (i) the outside auditor, (ii) the Chief Financial
Officer, (iii) the Controller, and (iv) the most senior person
(if any) responsible for the internal audit activities of the
Company.
IGI, INC,
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 200115, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, having received notice of the meeting and
management's proxy statement therefor, and revoking all prior proxies,
hereby appoint(s) John F. Ambrose Robert E. McDaniel and Domenic N. Golato, and each of them, singly,
attorneys or attorney of the undersigned (with full power of substitution
in them and each of them) for and in the name(s) of the undersigned to
attend the Annual Meeting of Stockholders of IGI, Inc. (the "Company") to
be held on Wednesday, May 16, 200115, 2002 at 10:00 a.m. at the offices of IGI, Inc., Wheat Road and Lincoln Avenue, Buena, New Jersey,Renaissance
Philadelphia Airport Hotel, 500 Stevens Drive, Philadelphia, PA 17113, and
at any adjourned sessions thereof, and there to vote and act upon the
following matters in respect of all shares of stock of the Company which
the undersigned will be entitled to vote or act upon, with all the powers
the undersigned would possess if personally present.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL, THIS
PROXY WILL BE VOTED FOR SUCH PROPOSAL.
PLEASE VOTE, DATE, AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.
Please sign this proxy exactly as your name appears on the books of
the Company. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more
than one name appears, a majority must sign. If a corporation, thisthe
signature shouldmust be that of an authorized officer who should state his or her
title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_____________________________ _______________________________
_____________________________ _______________________________
_____________________________ _______________________________
_____________________________ _______________________________
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
(1) Election of DirectorsPROPOSAL 1 - ELECTION OF DIRECTORS
[ ] For All Nominees [ ] Withhold Authority
Robert E. McDaniel, Jane E. Hager, Terrence O'Donnell, Constantine L. Hampers, M.D., Terrence D. Daniels, Stephen J. Morris, Earl K. Lewis and
Donald
W. Joseph.Joseph, Earl R. Lewis, John F. Ambrose and Kenneth E. Jones (American
Capital Strategies, Ltd. designee).
NOTE: If you do not wish your shares voted "For" a particular nominee,
mark the "For All Nominees" box and strike a line through the name(s) of
the nominee(s) that you do not wish to vote for. Your shares voted will be voted
for the remaining nominee(s).
(2) To ratify the appointment ofPROPOSAL 2 - TO RATIFY THE APPOINTMENT OF KPMG LLP as the Company's independent
auditors for the current fiscal year.AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2002.
For [ ] Against [ ] Abstain [ ]
(3) To approve the adoption of and the increase in the number of shares
authorized under the Company'sPROPOSAL 3 - TO APPROVE THE ADOPTION OF AND INCREASE IN THE NUMBER OF
SHARES AUTHORIZED UNDER THE COMPANY'S 1999 Director Stock Option Plan.STOCK INCENTIVE PLAN.
For [ ] Against [ ] Abstain [ ]
(4)
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES LISTED IN
PROPOSAL 1 AND A VOTE "FOR" PROPOSALS 2 AND 3.
Please be sure to sign and date this ProxyPLEASE BE SURE TO SIGN AND DATE THIS PROXY BELOW
- --------------------------------
Date:
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Stockholder sign here Co-owner sign hereSign Here Co-Owner Sign Here
- -------------------------------- --------------------------------
Stockholder Print Name Here Co-Owner Print Name Here
Mark box at right if an
address change or comment
has been noted on the
reverse side of this card. [ ]