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DUSA PHARMACEUTICALS, INC.
TO THE SHAREHOLDERS OF
YOU ARE HEREBY NOTIFIED that the Annual Meeting of Shareholders of DUSA Pharmaceuticals, Inc. will be held on Thursday, June 15, 2006, at 11:00 a.m. at the Companys offices located at 25 Upton Drive, Wilmington, Massachusetts to consider and act upon the following matters:
(1) | Election of eight (8) directors; |
(2) | Adoption of the Companys 2006 Equity Compensation Plan; |
(3) | Ratification of Deloitte & Touche LLP as the Companys independent registered public accounting firm for the fiscal year 2006; and |
(4) | Transaction of any other business that may properly come before the meeting or any adjournments thereof. |
Only shareholders of record at the close of business on April 19, 2006 are entitled to notice of, and to vote at the meeting, or any adjournment or adjournments thereof.
Whether or not you plan to attend the meeting, please fill in, date and sign the enclosed proxy and return it promptly in the enclosed envelope. The prompt return of your proxy will assist us in preparing for the Annual Meeting. The proxy does not require any postage if it is mailed in the United States or Canada.
By Order of the Board of Directors, | |
Nanette W. Mantell, Esq. | |
Secretary |
Dated: April 24, 2006
DUSA PHARMACEUTICALS, INC.
The accompanying proxy is solicited on behalf of the Board of Directors of DUSA Pharmaceuticals, Inc. (DUSA or the Company) for use at the Companys 2006 Annual Meeting of Shareholders and at any adjournments or postponements thereof. The Annual Meeting will be held on Thursday, June 15, 2006, at 11:00 a.m., at the Companys principal executive offices at the address set forth below. If properly signed and returned, and not revoked, the proxy will be voted in accordance with the instructions it contains. The persons named in the accompanying proxy will vote the proxy for the Board of Directors slate of directors and for the other matters listed on the proxy as recommended by the Board of Directors unless contrary instructions are given.
The Company, a New Jersey corporation, maintains principal executive offices at 25 Upton Drive, Wilmington, Massachusetts 01887. This proxy statement and the accompanying form of proxy are being mailed to shareholders on or about April 26, 2006. DUSAs Annual Report for 2005, including financial statements for the year ended December 31, 2005, is being mailed to shareholders at the same time.
Shareholders Entitled To Vote.
Holders of record of shares of DUSA common stock at the close of business on April 19, 2006 are entitled to notice of and to vote at the Annual Meeting and at any and all adjournments or postponements of the meeting. On the record date there were 19,025,300 shares of common stock without par value (Common Stock) outstanding and entitled to vote. These shares were the only shares outstanding of the Company. Each share entitles its owner to one vote. The holders of one-third of the shares that are outstanding and entitled to vote at the Annual Meeting must be present, in person or represented by proxy, in order to constitute a quorum for all matters to come before the meeting.
Other than the vote for the election of directors, which requires a plurality of the votes cast, each matter to be submitted to the shareholders requires the affirmative vote of a majority of the votes cast at the meeting for such matter. For purposes of determining the number of votes cast with respect to a particular matter, only those votes cast FOR or AGAINST are included. Abstentions and broker non-votes are counted only for purposes of determining whether a quorum is present at the meeting. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner. The nominees may vote the shares only on matters deemed routine, such as the election of directors and ratification of the selection of the independent registered public accounting firm. As of the record date, the Companys management currently owns approximately one percent (1%) of the Companys outstanding Common Stock.
How To Vote.
If you are a shareholder of record (that is, a shareholder who holds shares in his/her own name), you can vote by attending the Annual Meeting in person, or by signing, dating and returning your proxy card in the enclosed postage-paid envelope. If you sign and return your proxy card but do not give voting instructions, the shares represented by that proxy will be voted FOR Proposals 1, 2 and 3 and will be voted in the proxy holders discretion as to other matters that may come before the Annual Meeting.
If your shares are held in street name (that is, in the name of a bank, broker or other holder of record), you will receive instructions from the holder of record that you must follow in order for your shares to be voted.
Changing Your Vote.
You may change your vote at any time before the proxy is exercised, by executing and delivering a timely and valid later-dated proxy, by voting by ballot at the Annual Meeting or by giving written notice to the Secretary of the Company. Attendance at the Annual Meeting will not have the effect of revoking a proxy unless you give proper written notice of revocation to the Secretary before the proxy is exercised or you vote by written ballot at the Annual Meeting.
Reduce Duplicate Mailings.
The Company is required to provide an Annual Report and proxy statement to all shareholders. If you are a shareholder of record and have more than one account in your name or at the same address as other shareholders of record, you may authorize the Company to discontinue mailings of multiple proxy statements, Annual Reports and other information statements. To do so, please mark the designated box on each proxy card for which you wish to discontinue to receive duplicate documents. Your consent to
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Eight (8) directors will be elected to hold office until the next Annual Meeting of Shareholders and/or until their successors have been duly elected and qualified. The persons named on the accompanying proxy will vote all shares for which they have received proxies FOR the election of the nominees named below unless contrary instructions are given. In the event that any nominee should become unavailable, shares will be voted for a substitute nominee unless the number of directors constituting a full board is reduced. Directors are elected by plurality vote.
NOMINEES
Set forth below is certain information about the nominees for election to the DUSA Board of Directors. The name, age and current position with the Company, if any, of each director is listed below, followed by summaries of their backgrounds and principal occupations. All of the nominees, except Mr. Doman and Dr. Penneys, were elected to the Board of Directors at the 2005 Annual Meeting of Shareholders. All of the nominees, except Mr. Doman, are currently serving as directors of the Company.
Date First | ||||||||||||
Name | Age | Position | Elected | |||||||||
D. Geoffrey Shulman, MD, FRCPC
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51 | Chairman of the Board, Chief Executive Officer and Director | 9/05/1991 | |||||||||
John H. Abeles, MD(1)(3)
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61 | Director | 8/02/1994 | |||||||||
David M. Bartash(1)(2)(3)
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63 | Director | 11/16/2001 | |||||||||
Robert F. Doman
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56 | President and Chief Operating Officer | | |||||||||
Jay M. Haft, Esq.(1)(2)
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70 | Vice Chairman of the Board and Lead Director | 9/16/1996 | |||||||||
Richard C. Lufkin(1)(3)
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59 | Director | 1/27/1992 | |||||||||
Magnus Moliteus(2)(3)
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67 | Director | 7/25/2003 | |||||||||
Neal S. Penneys, MD, Ph.D.
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64 | Director | 3/10/2006 |
(1) | Member of the Audit Committee. |
(2) | Member of the Compensation Committee. |
(3) | Member of the Nominating and Corporate Governance Committee. |
Dr. Penneys was elected to our Board of Directors on March 10, 2006, upon consummation of our merger with Sirius Laboratories, Inc., pursuant to the terms of a merger agreement dated as of December 30, 2005, as amended, by and among DUSA, Sirius Laboratories, Inc. and certain shareholders of Sirius. Under such merger agreement, DUSA was required to increase the size of its Board of Directors by one (1) director and cause Dr. Penneys to be appointed to fill such vacant board position until the date of the next applicable meeting of DUSA Shareholders. In addition, DUSA was required to recommend that its Nominating and Corporate Governance Committee select Dr. Penneys to be included as a nominee to serve as a member of the Board of Directors on the slate of nominees to be voted upon at the 2006 Annual Meeting of Shareholders. DUSAs obligation to nominate Dr. Penneys, or a substitute, continues through the expiration of the period of time any milestone payment may be paid pursuant to the terms of the merger agreement, provided that during such period, Dr. Penneys (or such substitute board nominee as may be recommended by the representatives of the Sirius shareholders and selected by DUSAs Nominating and Corporate Governance Committee should Dr. Penneys become unable or unwilling to serve) qualifies to serve on DUSAs Board of Directors pursuant to its governance documents and applicable law.
D. Geoffrey Shulman, MD, FRCPC, is the Companys founder and has been our CEO since the Companys inception in 1991. He served as our Chairman from 1991 through 2003 and was reappointed to that position in January 2005. He served as our President from 1991 to 2004. Dr. Shulman also participates, on a limited basis, in a private dermatology practice.
John H. Abeles, MD, who serves as the Chairman of our Nominating and Corporate Governance Committee, is the President and founder of MedVest, Inc. which, since 1980, has provided consulting services to health care and high technology companies. Dr. Abeles is a member of the Boards of Directors of I-Flow Corporation, Oryx Technology Corp. and Molecular Diagnostics Inc.
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David M. Bartash is the President and founder of Bartash and Company, a consulting company which, since 1990, has been providing consulting services to the healthcare industry, including research for the healthcare investment community and support services for venture start-ups.
Robert F. Doman has been employed by the Company as President and Chief Operating Officer since January 2005. From 2000 until 2004, Mr. Doman served as President of Leach Technology Group, the medical device division of Leach Holding Corporation. From 1999 to 2000, he was President, Device Product Development, of West Pharmaceutical Services, a manufacturer of systems and device components for parentally administered medicines and drugs. Prior to joining West Pharmaceutical Services, he worked for the Convatec division of Bristol-Myers Squibb from 1991 to 1999 in positions that included: Vice President, Worldwide Marketing and Business Development; Vice President and General Manager, U.S. Wound and Skin Care; and Vice President, U.S. Operations.
Jay M. Haft, Esq., who serves as the Vice Chairman of the Board, Lead Director and Chairman of our Compensation Committee, is a strategic and financial consultant for growth-stage companies. Since 2005, Mr. Haft has been a partner and a member of the Investment Committee of Columbus Nova, a private investment firm. He was a senior corporate partner of the law firm of Parker, Duryee, Rosoff & Haft from 1989 to 1994 and was of counsel to Parker, Duryee, Rosoff & Haft from 1994 until 2002. Mr. Haft is a member of the Boards of Directors of DCAP Group Inc., Oryx Technology Corp. and Moscow CableCorp.
Richard C. Lufkin, who serves as the Chairman of our Audit Committee, has been the principal of Enterprise Development Associates, a proprietorship formed in 1985 which provides consulting and venture support services to early stage technology-based companies, principally in the life sciences sector. He is also a co-founder and former Chief Financial Officer of Linguagen Corp., a development-stage, privately-held, biotechnology firm.
Magnus Moliteus has been a consultant to the healthcare industry and Chairman of COM Consulting Inc., a privately held firm, which enhances Swedish-American relations particularly between health care companies, since 2001. From 1995 to 2001, Mr. Moliteus served as Executive Director of Invest in Sweden Agency, U.S., a Swedish government agency. From 1977 to 1990, he was Chief Executive Officer of Pharmacia, Inc. (now owned by Pfizer, Inc.).
Neal S. Penneys, MD, PhD has served on the Companys Board of Directors since March 2006. Dr. Penneys is currently a dermatopathologist at AmeriPath, Inc., a provider of anatomic pathology, cancer diagnostic and related healthcare information services, and has served in such capacity since February 2001. Prior to joining Ameripath, from 1991 to 2001, Dr. Penneys was Chairman of Dermatology at the Saint Louis University Health Sciences Center and, during part of such time, also held the positions of Associate Dean and Chief Operating Officer of the University Medical Group.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE.
DIRECTOR COMPENSATION
Currently, the only employee-director is Dr. Shulman. Mr. Doman, if elected by shareholders at the Annual Meeting, will also be an employee-director. Employee-directors receive no cash compensation for service as a director or as member of any committee. The Board has determined that all of the outside directors are independent, as independence is defined under the rules of the NASDAQ Stock Market. Outside directors receive $25,000 per year, as annual compensation, regardless of the number of Board or Committee meetings they attend. Directors serving on the Audit Committee receive an additional $5,000 per year. Beginning in 2005, the Chairman of the Audit Committee and the Lead Director receive an additional $5,000 per year. Directors are also paid out-of-pocket expenses related to their attendance at meetings of the Board and Committees. Under the Companys current 1996 Omnibus Plan, as amended, which expires on June 6, 2006, all directors are awarded options to purchase up to 15,000 shares of Common Stock on June 30th of their first year of service or as of the close of business thirty (30) days following their election, whichever shall first occur, and options to purchase up to 10,000 shares of Common Stock on June 30th of each year following their re-election. All options granted to directors vest immediately. Under the proposed new 2006 Plan, only non-employee directors will be eligible to receive the automatic grants set forth above. If elected, Dr. Shulman and Mr. Doman will not receive these grants.
MEETINGS AND COMMITTEES OF THE BOARD
During the year ended December 31, 2005 there were fifteen (15) meetings of the Board of Directors. Each incumbent director attended at least 75% of the aggregate of the meetings of the Board of Directors and of all of the committees on which he serves. The Board of Directors has established an
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The members of the Audit Committee currently are Mr. Lufkin, who serves as its Chairman, Messrs. Haft, Bartash and Dr. Abeles. All of the members are independent directors in accordance with the rules of the NASDAQ Stock Market and applicable federal securities laws and regulations. In addition, the Board of Directors has determined that Mr. Lufkin qualifies as an audit committee financial expert and has designated him to that position. The Audit Committee provides oversight of the Companys accounting functions and acts as liaison between the Board of Directors and the Companys independent registered public accounting firm. The Committee reviews with the independent auditors of the firm the Companys unaudited quarterly financial statements, the planning and scope of the audits of the Companys financial statements, the results of those audits and the adequacy of internal accounting controls, and monitors other corporate and financial policies. In performing these functions, the Audit Committee meets periodically with the independent auditors (including in private sessions), and with management. In addition, the Audit Committee selects the independent registered public accounting firm for appointment by the Board of Directors. The Audit Committee operates under a written charter adopted and approved by the Board of Directors, a copy of which is located on the Companys website at www.dusapharma.com, and met four (4) times during 2005.
The members of the Nominating and Corporate Governance Committee currently are Dr. Abeles, who serves as its Chairman, and Messrs. Lufkin, Bartash and Moliteus. All of the members of our Nominating and Corporate Governance Committee are independent directors in accordance with the rules of the NASDAQ Stock Market. The Nominating and Corporate Governance Committees purpose is to identify and evaluate the qualifications of individuals to become members of the Board of Directors, to select the director nominees, to develop and recommend corporate governance principles to the Board of Directors and to provide oversight and guidance to the Board of Directors to assure compliance with its corporate governance policies and principles. There were four (4) meetings of this Committee in 2005. Shareholders who wish to suggest qualified candidates to the Nominating and Corporate Governance Committee for director should write to: Administrator, Nominating and Corporate Governance Committee, DUSA Pharmaceuticals, Inc., 25 Upton Drive, Wilmington, Massachusetts 01887 stating, in detail, the qualifications of such persons for consideration by the Nominating and Corporate Governance Committee. A copy of the Nominating and Corporate Governance Committee Charter is located on the Companys website at www.dusapharma.com.
Among the central purposes of the Nominating and Corporate Governance Committee are identifying individuals qualified to become members of the Board of Directors and reviewing the qualifications of candidates and selecting the director nominees to be voted on at each annual meeting of shareholders. In effectuating those purposes, the Nominating and Corporate Governance Committee is charged with ensuring that the nominees for membership on the Board of Directors are of the highest possible caliber and are able to provide insightful, intelligent and effective guidance to the management of the Company. The following criteria have been identified by the Nominating and Corporate Governance Committee, and adopted by the Board of Directors, to guide the Nominating and Corporate Governance Committee in selecting nominees:
1. | Directors should be of the highest ethical character and share the values of DUSA; | |
2. | Directors should have personal and professional reputations that compliment and enhance the image and standing of DUSA; | |
3. | Directors should be leaders in their field of endeavor, with exemplary qualifications; | |
4. | The Committee should generally seek current and/or former officers and/or directors of companies and organizations, including scientific, government, educational and other non-profit institutions; | |
5. | The Committee should seek directors so the Board is comprised of directors who collectively are knowledgeable in the fields of pharmaceuticals and device development, particularly those areas of research, development and commercialization undertaken by the Company; | |
6. | Directors should have varied educational and professional experiences and backgrounds who, collectively, provide meaningful counsel to management; | |
7. | Directors should generally not serve on more than six (6) boards; | |
8. | At least two-thirds of the directors on the Board should be independent as defined by The NASDAQ Stock Market, Inc. and should not have any real or apparent conflicts of interest in serving as a director; and | |
9. | Each director should have the ability to exercise sound, independent business judgment. |
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The Committee applies the same criteria to all nominees for the Board irrespective of the source of such nominee.
Absent extenuating circumstances, each member of the Board of Directors is expected to attend the 2006 Annual Meeting of Shareholders. Five (5) of the directors, who were directors at such time, attended the 2005 Annual Meeting of Shareholders.
The members of the Compensation Committee currently are Mr. Haft, who serves as its Chairman, and Messrs. Bartash and Moliteus. The Compensation Committee considers executive compensation of the Companys key officers and compensation of directors. The Committee also considers employee benefits which may be appropriate as the Company grows, and develops policies and procedures. The Compensation Committee met three (3) times in 2005. It also met twice in February 2006 to establish cash compensation for 2006 and bonuses for 2005.
Interest of Certain Persons in Matters to be Acted Upon
As set forth under the section entitled Adoption of 2006 Equity Compensation Plan, the Company is seeking shareholder approval of its 2006 Equity Compensation Plan (the 2006 Plan). Pursuant to the terms of the 2006 Plan, each non-employee director who re-elected to the Board at an annual meeting, shall automatically receive, on June 30th following such re-election, an option to purchase 10,000 shares of Common Stock, the same amount as was provided under the Companys 1996 Omnibus Plan, as amended. As such, if approved by the Companys shareholders at the 2006 Annual Meeting, options to purchase an aggregate of 60,000 shares of Common Stock, comprised of 10,000 options to each of the Companys six (6) non-employee directors, will be granted.
PROPOSAL NO. 2 - ADOPTION OF 2006 EQUITY COMPENSATION PLAN
General:
The 2006 Equity Compensation Plan (the 2006 Plan) provides for the grant of incentive stock options, nonqualified stock options, stock awards, and stock appreciation rights to (i) our employees, consultants, and advisors; (ii) the employees, consultants, and advisors of the Companys parents, subsidiaries, and affiliates; and (iii) and the Companys non-employee directors.
The Board of Directors (referred to as the Board) has approved the 2006 Plan and is submitting the 2006 Plan for shareholder approval. Shareholder approval is being sought: (i) so that the compensation attributable to grants under the 2006 Plan may qualify for an exemption from the $1,000,000 deduction limit under Section 162(m) of the Internal Revenue Code (referred to as the Code) (see Section 162(m) under U.S. Federal Income Tax Consequences below); (ii) in order for incentive stock options to meet the requirements of the Code; and (iii) in order to meet NASDAQ requirements.
The following is a summary of the material terms of the 2006 Plan, which is qualified in its entirety by reference to the 2006 Plan. A copy of the 2006 Plan is attached as Appendix A to this proxy statement.
Purpose of the 2006 Plan:
The 2006 Plan is intended to provide a means by which the Companys employees, consultants, advisors, and directors can acquire and maintain stock ownership, thereby strengthening their commitment to the Companys success. The 2006 Plan will provide an incentive for employees, consultants, advisors, and directors to focus their attention on managing the Company as equity owners and will align their interests with the shareholders.
Description of the 2006 Plan:
Administration: The 2006 Plan will be administered by the Compensation Committee of the Board of Directors (referred to as the committee). However, the Board may ratify or approve any grants as it deems appropriate. The committee has the authority to: (i) determine the individuals to whom grants will be made under the 2006 Plan; (ii) determine the type, size, and terms of each grant; (iii) determine the time when grants will be made and the duration of any applicable exercise or restriction period; (iv) amend the terms of any previously issued grant; and (v) deal with any other matters arising under the 2006 Plan.
Shares: The maximum aggregate number of shares of the Companys Common Stock that may be issued under the 2006 Plan under any form of award may not exceed the lesser of: (i) 20% of the total number of shares of our common stock issued and outstanding at any given time less the number of shares issued and outstanding under any other equity compensation plan of the Company at such time; or (ii) 3,888,488 shares less the number of shares issued and outstanding under any other equity
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Eligibility: The following persons are eligible to participate in the 2006 Plan:
| The Companys employees and employees of our parents, subsidiaries. and affiliates. | |
| The Companys non-employee directors. | |
| Consultants and advisors who perform services for us or our parents, subsidiaries, or affiliates (referred to as Key Advisors). |
The Committee will select the employees, non-employee directors and Key Advisors who are eligible for grants under the 2006 Plan. As of April 11, 2006, approximately 82 employees and six (6) non-employee directors were eligible to participate in the 2006 Plan. The Company also utilizes the services of a number of Key Advisors who are also eligible to participate in the 2006 Plan.
Options: The Committee will select the employees, non-employee directors, and Key Advisors who will receive stock options and will determine the number of shares of stock that will be subject to each grant of stock options. The Committee may grant nonqualified stock options (NSOs) or incentive stock options (ISOs). ISOs may be granted only to employees or the employees of our parent or subsidiary corporation as defined in the Code. NSOs may be granted to employees, non-employee directors, or Key Advisors.
The Committee will establish the exercise price of each option on the date of grant. The exercise price of an NSO or ISO may be equal to or greater than the fair market value of the underlying shares of stock on the date of grant. However, if the grantee of an ISO is a person who holds more than 10% of the combined voting power of all classes of the Companys outstanding stock or the outstanding stock of a parent or subsidiary, the exercise price per share of the ISO must be at least 110% of the fair market value of a share of stock on the date of grant. If the aggregate fair market value of shares of stock, determined on the date of grant, with respect to which ISOs become exercisable for the first time by a grantee during any calendar year exceeds $100,000, the options in excess of this limit will be treated as NSOs.
Options granted to non-exempt employees under the Fair Labor Standards Act may not be exercisable for at least six (6) months after the date of grant, except as determined by the Committee upon death, disability, retirement, or change in control.
The Committee determines the term of each stock option, which will not exceed seven (7) years (five (5) years in the case of an ISO granted to a 10% owner). The Committee may establish such vesting and other conditions with respect to options as it deems appropriate. The Committee may accelerate the exercisability of any or all outstanding options at any time for any reason. The Committee may provide in a grant instrument that the grantee may elect to exercise part or all of an option before it otherwise has become exercisable, and receive restricted stock.
Options may be exercised while the grantee is an employee, director, or Key Advisor of the Company, or any parent, subsidiary or affiliate of the Company. Unless the Committee determines otherwise, but in any event no later than the date of expiration of the option term, an option may be exercised after the termination of employment or service as follows:
| For any reason other than disability, death, or termination for misconduct, any vested option may be exercised within 90 days after the date on which the grantee ceases to be employed by or provide services to the Company. | |
| Due to being disabled, any vested option may be exercised within one (1) year after the date on which the grantee ceases to be employed by or provide services to the Company. | |
| Due to death, all of the unexercised outstanding options will become exercisable and may be exercised within one (1) year from the grantees date of death. |
In the event a grantee ceases to be employed by the Company on account of a termination for misconduct, any option held by the grantee will terminate at the time that the date on which the grantee ceases to be employed by or provide services to the Company or the date on which such option would otherwise expire, if earlier.
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To the extent that any of the Companys sponsored plans or arrangements, or any agreement to which the Company is a party expressly provides for a longer exercise period for an option under applicable circumstances than the exercise period that is provided for under this 2006 Plan under those circumstances, the exercise period set forth in such plan, arrangement, or agreement applicable to such circumstances will apply in lieu of the exercise period provided for this 2006 Plan.
A grantee may pay the exercise price of an option: (i) in cash; (ii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board; or (iii) by such other method as the Committee may approve. If a grantee uses shares of the Companys Common Stock to exercise an option, the shares must have been held by the grantee for the requisite period of time to avoid adverse accounting consequences to the Company.
Each individual who agrees to become a non-employee director will receive, on June 30th of the first year of such service or as of the close of business 30 days following his/her election, whichever occurs first, and without the exercise of the discretion of any person, an NSO to purchase 15,000 shares of the Companys Common Stock at an exercise price equal to the fair market value on the date the NSO is granted. Thereafter, on June 30th of each year, each individual who is a continuing non-employee director will receive automatically an NSO to purchase 10,000 shares of the Companys Common Stock. Each NSO will vest in full on the date of the grant and have a term not to exceed seven (7) years from the date of grant, or, if later, the date the individual becomes a non-employee director. Notwithstanding the exercise period of any such NSO, all such NSOs will immediately become exercisable upon: (i) the death of non-employee director while serving as such; or (ii) upon a change of control (as defined in Consequences of a Change in Control below).
Stock Awards: The Committee may grant stock awards to employees, Key Advisors, or non-employee directors, subject to restrictions or no restrictions, as determined by the Committee. The Committee may establish conditions under which restrictions on stock awards will lapse over a period of time or according to such other criteria as the Committee deems appropriate, including restrictions based upon the achievement of specific performance goals. During the restriction period, the grantee will not have the right to vote shares of stock awards or to receive any dividends or other distributions paid on such shares. If the grantees employment or service terminates during the restriction period or if any other conditions are not met, unless the Committee determines otherwise, the stock award will terminate with respect to all of the shares of stock covered by the stock award as to which the restrictions have not lapsed, and those shares of stock will be forfeited and immediately returned to the Company. The Committee may hold stock awards in escrow until all restrictions on shares have lapsed.
Stock Appreciation Rights: The Committee may grant stock appreciation rights (SARs) to employees, non-employee directors, or Key Advisors separately or in tandem with any option. The Committee will establish the base amount of each SAR at the time the SAR is granted. Unless the Committee determines otherwise, the base amount of an SAR will be the exercise price of the related option, or if there is no related option, an amount at least equal to the fair market value of a share of stock on the date of grant of the SAR. An SAR will be exercisable during the period specified by the Committee in the grant instrument and will be subject to vesting and other restrictions as specified in the grant instrument. The Committee may accelerate the exercisability of any outstanding SARs. A tandem SAR is exercisable only during the period when the option to which it is related is also exercisable.
When a grantee exercises an SAR, the grantee will receive an amount equal to the value of the stock appreciation for the number of SARs exercised. The Company will pay the stock appreciation in shares of the Companys Common Stock. The stock appreciation for an SAR is the amount by which the fair market value of the underlying stock on the date of exercise exceeds the base amount of the SAR.
Performance-Based Compensation: The Committee may grant employees stock awards that are intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Code (see Section 162(m) under Federal Income Tax Consequences below). In that event, at the beginning of the performance period, the Committee will establish in writing (i) the objective performance goals that must be met; (ii) the threshold, target, and maximum amounts that may be paid if the performance goals are met; and (iii) any other conditions that the Committee deems appropriate. The Committee must establish the performance goals either before the performance period or during a period ending no later than the earlier of ninety (90) days after the beginning of the performance period, the date on which 25% of the performance period has been completed, or such other date as may be permitted under the Code.
The Committee will establish objective performance goals for each grantee related to the grantees business unit or the Companys performance and the performance of its parents, subsidiaries and affiliates as a whole, or any combination of the foregoing. The objectively determinable performance goals will be based on one or more of the following criteria: stock price, earnings per share, net earnings, operating earnings, return on assets, shareholder return, return on equity, growth in assets, unit volume, sales,
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At the end of each performance period, the Committee will certify the results of the performance goals and the extent to which the performance goals have been met. If stock awards are granted as qualified performance based compensation, the total amount that may be paid or delivered to a grantee with respect to stock awards for any year in the performance period will not exceed 100,000 shares of stock. The Committee may provide for payment of grants in the event of the death or disability of a participant, or under other circumstances.
Employees Subject to Taxation Outside the United States: The Committee may make grants on terms different from those specified in the 2006 Plan, including granting options with a term longer than seven (7) years if appropriate to assure favorable treatment, with respect to persons who are subject to taxation outside the United States as necessary to achieve the purposes of the 2006 Plan.
Transferability of Grants: Grants are not transferable by the grantee except by will or the laws of descent or, in the case of a grant other than an ISO, pursuant to a domestic relations order, subject to Committee consent. The Committee may allow a grantee to transfer an NSO to family members or a trust or other entity for the benefit of family members.
Consequences of a Change in Control: If a change in control occurs, unless the Committee determines otherwise:
| The Company will provide each grantee with outstanding awards written notice of such change in control. | |
| All outstanding options and SARs will automatically accelerate and become fully exercisable. | |
| Any restrictions on outstanding stock awards will immediately lapse. |
Upon a change in control, unless the Committee determines otherwise, the Committee may also:
| Determine that outstanding options and SARs that are not exercised will be assumed by, or replaced with comparable options or rights by the surviving corporation, and other outstanding grants will be converted to similar grants of the surviving corporation. | |
| Require that grantees surrender their outstanding options and SARs in exchange for payment, in cash or shares of the Companys Common Stock (as the Committee determines) in an amount by which the then fair market value of the stock exceeds the exercise price. |
A change in control means the consummation of a transaction that is the subject of a determination (which may be made effective as of a particular date specified by the Board) by the Board, made by a majority vote that a change in control has occurred, or is about to occur. A change in control will be deemed to have occurred as of the first day either of the following occurs:
| The acquisition by any individual, entity, or group of 35% or more of the combined voting power of the Companys outstanding stock subject to exceptions described in the 2006 Plan. | |
| Approval by the shareholders of: (i) a plan of liquidation or dissolution; (ii) an agreement for the sale or disposition of all or substantially all of the Companys assets; or (iii) a merger, consolidation, or reorganization involving the Company, other than a merger, consolidation, or reorganization that would result in the Companys voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the Companys voting securities outstanding immediately after such merger, consolidation, or reorganization. |
A change in control will not occur when a restructuring, reorganization, merger, or other change in capitalization in which persons or entities who own an interest in the Company on the date hereof maintain more than a 50% interest in the resultant entity. Additionally, a change in control will not occur, with respect to a grantee, if the grantee is part of a purchasing group that consummates the change in control transaction.
Amendment and Termination of the Plan: The 2006 Plan will terminate on April 10, 2016. The Board may terminate or amend the 2006 Plan earlier at any time. However, the Board will not amend the 2006 Plan without shareholder approval if shareholder approval is required to comply with the Code or applicable laws, or to comply with applicable stock exchange requirements.
8
U.S. Federal Income Tax Consequences:
The following description of the federal income tax consequences of grants under the 2006 Plan is a general summary. State, local, and other taxes may also be imposed in connection with grants.
Incentive Stock Options: In general, a grantee will not recognize taxable income upon the grant or exercise of an ISO, and the Company will not be entitled to any business expense deduction with respect to the grant or exercise of an ISO. Upon the exercise of an ISO, however, the excess of the fair market value of the shares received on the date of exercise over the exercise price of the option will be included as an adjustment for purposes of the alternative minimum tax.
If a grantee holds the shares acquired upon exercise of an ISO for at least two (2) years after the date of grant and for at least one (1) year after the date of exercise, when the grantee disposes of the shares, the difference, if any, between the sale price of the shares and the exercise price of the option will be treated as long-term capital gain or loss. If a grantee disposes of the shares before satisfying these holding period requirements (referred to as a disqualifying disposition), the grantee will recognize ordinary income at the time of the disqualifying disposition, in an amount equal to the excess of the fair market value of the shares at the time the option was exercised over the exercise price of the option, or an amount equal to the gain on the disposition, if less. The balance of the gain realized, if any, will be short-term or long-term capital gain, depending upon the length of the time that the shares have been held after the date of exercise. In general, the Company will be allowed a business expense deduction to the extent a grantee recognizes ordinary income.
Nonqualified Stock Options: In general, a grantee who receives an NSO will recognize no income at the time of the grant of the option. Upon exercise of an NSO, a grantee will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price of the option. The basis in shares acquired upon exercise of an NSO will equal the fair market value of such shares at the time of exercise, and the holding period of the shares (for capital gain purposes) will begin on the date of exercise. In general, the Company will be entitled to a business expense deduction in the same amount and at the same time as the grantee recognizes ordinary income.
Stock Awards: A grantee who receives a stock award generally will not recognize taxable income until the stock is transferable by the grantee or no longer subject to a substantial risk of forfeiture for federal tax purposes, whichever occurs first. When the stock is either transferable or is no longer subject to a substantial risk of forfeiture, the grantee will recognize ordinary income in an amount equal to the fair market value of the shares, less any amounts paid for the shares, at that time. The Company generally will be entitled to a business expense deduction in the same amount.
A grantee may elect to recognize ordinary income when a restricted stock award is granted in an amount equal to the fair market value of the shares, less any amount paid for the shares, at the date of grant, determined without regard to the restrictions. The Company generally will be entitled to a corresponding business expense deduction in the same year.
Stock Appreciation Rights: There are generally no federal income tax consequences to a grantee upon the grant of an SAR. Instead, when payments are made to the grantee, the grantee will recognize ordinary income in an amount equal to the cash received and the fair market value of any shares received. The Company generally will be entitled to a corresponding business expense deduction when the grantees recognize ordinary income.
Excise Taxes: Under certain circumstances, the accelerated vesting of grants in connection with a change in control could be deemed an excess parachute payment for purposes of the parachute tax provisions of Section 280G of the Code. In that event, a grantee could be subject to a 20% excise tax and the Company could be denied a tax deduction with respect to a portion of the grants under the 2006 Plan.
Section 162(m): Section 162(m) of the Code generally disallows a federal income tax deduction for compensation paid in excess of $1,000,000 in any taxable year to the chief executive officer or any of the four (4) other most highly compensated executive officers. The Code has an exception to the deduction limit for qualified performance based compensation, if, among other requirements, the material terms of the plan are disclosed to and approved by the shareholders. The Company has structured the 2006 Plan so that compensation resulting from the grant of stock awards, stock options, and SARs may qualify as qualified performance-based compensation and be deductible.
Canadian Income Tax Consequences:
Employees
Options: A Canadian resident is subject to tax on income, computed in Canadian dollars, from all worldwide sources. A participant who receives an option to acquire Common Stock issued as a result of his or her employment will not realize any income when the stock option is granted. At the time the stock
9
A Canadian resident individual may be able to defer the realization of income that would otherwise be included in the year the Company stock option is exercised. This deferral is available, in certain circumstances, when the employee exercises a stock option in respect of prescribed shares that are listed on NASDAQ or another approved stock exchange and the employee elects to defer the income inclusion. If such an election is made, the employee stock option benefit that the individual would otherwise be required to include in the individuals income for the year in which the option is exercised may be deferred. In order to claim a deferral, an election must be timely filed in the proper form and manner and is subject to certain limitations. If available, the deferral applies only to the first CDN$100,000 worth of options that vest in any year. The value of an option for this purpose is considered to be equal to the value of the optioned share at the time the option was granted.
Restricted Stock and Restricted Stock Units: In general, where the Company has agreed to sell or issue shares or restricted stock units to an employee, the Canadian tax consequences described alone with respect to stock option plans are generally applicable. A Canadian resident employee who receives grants of stock pursuant to the 2006 Plan which are subject to restrictions on transfer for a restriction period either based on a specified period of time or the attainment of performance goals, will generally be subject to the stock option rules. The stock option rules will also generally apply where restricted stock units are issued to a Canadian employee. The employee would be required to include in income from employment an amount equal to the fair market value of the shares at the time the shares are acquired as a taxable employment benefit assuming the employee did not pay any amount to acquire the shares. The employee would not be entitled to claim either the 50% deduction or the deferral described above. If the shares are forfeited, the employee will be entitled to a deduction from income in the year of forfeiture only where the shares were held in trust by a trustee for the employee. Otherwise, if the shares are forfeited, the employee can claim a capital loss equal to the difference between the fair market value of the shares on the date of the award less any proceeds received on the forfeiture. Capital losses can only be applied against capital gains. When the shares are sold, the employee will realize either a capital gain or a capital loss.
Stock Appreciation Rights (SARs): If a Canadian resident employee receives SARs, the tax consequences described above with respect to stock option plans will be generally applicable if shares are issued in payment of the appreciation in the SAR or if the employee has the right to elect to receive shares or cash in payment. In these circumstances, an employee would include in income from employment an amount equal to the fair market value of the shares on the date of exercise less the base amount of the SAR. The employee might be entitled to the 50% deduction or deferral described above provided that the base amount of the SAR is at least equal to the fair market value of the shares on the date the SAR is granted. If the employee received a cash payment on the exercise of the SAR and did not have the right to elect to receive shares, the employee would be required to include the cash payment in income for the year of exercise and would not be entitled to a 50% deduction. Provided the base amount of each SAR is at least equal to the fair market value of a share on the grant date, the SAR should not be considered a salary deferral arrangement for Canadian tax purposes. If a SAR is considered to be a salary deferral arrangement, a Canadian resident employee would be required to recognize employment income in the year the SAR is granted.
Directors
For Canadian tax purposes, a member of the Board of Directors is taxed as an employee with respect to benefits which are received in his or her capacity as a director. Directors, including those who are not otherwise employed by the Company, will be taxed in the same manner as employees as described above.
Independent Contractors
Options: In general, consultants and advisors (referred to as Key Advisors) who are independent contractors are required to report business income on an accrual basis whether or not such income is received. Accordingly, Canadian resident Key Advisors may be subject to Canadian income tax on such business profits whether or not an amount has been received based on general principles of computation of business income.
10
If a Key Advisor receives a grant of stock options in consideration for services performed by the Key Advisor, for tax purposes the grant of options will be considered to be a payment in kind in respect of those services and will be included in the computation of business income. As a payment in kind, the Key Advisor will generally be required to include the fair market value of the options received in computing the Key Advisors business income for the year in which the options are granted. The cost to the Key Advisor of each option received will equal to the fair market value of the option at the time it is received.
The subsequent tax consequences to a Key Advisor who holds options to acquire shares of DUSA will normally depend on whether the Key Advisor holds the options as capital property or as part of the inventory of a business. How any DUSA stock options are held by a particular Key Advisor will be a question of fact that will depend on the particular circumstances of the Key Advisor.
Restricted Stock: A Canadian resident Key Advisor who receives a grant of restricted stock pursuant to the 2006 Plan will generally be required to include the fair market value of the stock received or receivable in the computation of business income for tax purposes, assuming the Key Advisor did not pay any amount to acquire the shares. A Key Advisor who receives restricted stock units will include in income in the year the units are granted an amount equal to the difference between fair market value of the units and any amount paid to acquire the units. The general tax consequences applicable to a Key Advisor who holds shares will also generally depend on whether the Key Advisor holds the shares as capital property or otherwise. On the assumption that the Key Advisor holds the shares as capital property, the Key Advisor will realize either a capital gain or a capital loss on a subsequent disposition of the shares. For purposes of computing the capital gain or capital loss, the adjusted cost base of the shares to the Key Advisor will generally be equal to the fair market value of the shares at the time they were acquired by the Key Advisor averaged with the adjusted cost basis of all the Company shares of the same class or series then held by the Key Advisor as capital property.
SARS: A Canadian resident Key Advisor who received a grant of SARs pursuant to the 2006 Plan, will be generally required to include an amount equal to the fair market value of the SAR in the computation of business income for the year the SARs are granted. When the SAR is exercised by the Key Advisor, an amount equal to appreciation in the SAR (generally the excess of the fair market value of the underlying shares less the base price and the value included in income at the grant date) will be included in the Key Advisors income. If the Key Advisor receives shares in payment of the SAR, the consequences discussed above relating to the acquisition of shares under a stock option by a Key Advisor will apply.
Market Price of Shares:
The closing price of the Companys Common Stock on April 11, 2006 was $6.65.
The 2006 Plan requires approval by the affirmative vote of a majority of the votes cast at the Annual Meeting of Shareholders.
The 2006 Plan is intended to replace the Companys 1996 Omnibus Plan (the 1996 Plan), which will expire on June 6, 2006. As of March 31, 2006: (i) options to purchase 2,779,875 shares of Common Stock were outstanding under the 1996 Plan; and (ii) 29,722 shares in other awards have been granted under the 1996 Plan. An additional 402,277 shares are available for future awards under the 1996 Plan.
New Plan Benefits
Pursuant to the terms of the 2006 Plan, each non-employee director who re-elected to the Board at an annual meeting, shall automatically receive, on June 30th following such re-election, an option to purchase 10,000 shares of Common Stock, the same amount as was set forth in the Companys 1996 Omnibus Plan, as amended. As such, if approved by the Companys shareholders at the 2006 Annual Meeting, options to purchase an aggregate of 60,000 shares of Common Stock, comprised of 10,000 options to each of the Companys six (6) non-employee directors, will be granted.
Under the 2006 Plan, all awards to grantees other than non-employee directors are granted at the discretion of the Board of Directors, the Compensation Committee or such other persons to whom authority may be delegated by the Board of Directors or Compensation Committee, and such awards are based upon criteria established by such persons. As such, at this time, the amount of any future awards to any grantees, other than the non-employee directors, under the 2006 Plan cannot be determined. Annual grants of options to officers and employees of the Company were made in March 2006 under the Companys 1996 Plan.
ACCORDINGLY, THE BOARD OF DIRECTORS BELIEVES ADOPTION OF THE 2006 PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2006 PLAN.
11
PROPOSAL NO. 3 - RATIFICATION OF SELECTION OF
The Audit Committee of the Board of Directors has selected Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the fiscal year 2006. Shareholder ratification of the appointment is not required under the laws of the State of New Jersey, but the Audit Committee has decided to ascertain the position of the shareholders on the appointment. The Board of Directors will reconsider the appointment if it is not ratified. A majority of the votes cast, in person or by proxy, at the Annual Meeting of Shareholders is required for ratification. A representative of Deloitte & Touche LLP will be present at the meeting to answer questions from shareholders and will have the opportunity to make a statement on behalf of the firm, if he or she so desires.
Audit Fees
The aggregate fees billed by Deloitte & Touche LLP for professional services rendered for the audit of the Companys annual financial statements for the fiscal years ended December 31, 2005 and 2004, and for the reviews of the financial statements included in the Companys Quarterly Reports on Form 10-Q for fiscal years 2005 and 2004 were $334,170 and $308,000, respectively.
Audit Related Fees
The aggregate fees billed by Deloitte & Touche LLP during fiscal year 2005 for the review of documents filed with the SEC related to the Companys filing of a Registration Statement on Form S-8, an amendment to another previously-filed Registration Statement on Form S-8, and fees related to services provided in connection with our merger with Sirius Laboratories, Inc, were $45,000. The aggregate fees billed by Deloitte & Touche LLP during fiscal year 2004 for the review of documents filed with the SEC related to the private placement that occurred in February 2004, were $9,000.
Tax Fees
The aggregate fees billed by Deloitte & Touche LLP for services rendered to the Company, for tax services for the fiscal years ended December 31, 2005 and 2004, were $56,150 and $51,000, respectively.
All Other Fees
There were no other fees billed by Deloitte & Touche LLP for professional services rendered for the fiscal year ended December 31, 2005 and 2004.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
In considering the nature of the services provided by the independent registered public accounting firm, all of which were pre-approved in accordance with procedures required by the Audit Committee Charter, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent auditor and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
12
BOARD AUDIT COMMITTEE REPORT1
The Audit Committee of the Board of Directors (the Audit Committee) assists the Board of Directors by providing oversight of the Companys financial reporting process and its independent auditors. Management is responsible for preparing the Companys financial statements and the Companys independent auditors are responsible for auditing those financial statements. The Audit Committee is responsible for overseeing the conduct of these activities by the Companys management and selecting the independent auditors. The Audit Committee operates under a written charter adopted and approved by the Board of Directors. A brief description of the responsibilities of the Audit Committee is set forth above under the caption Meetings and Committees of the Board.
The Audit Committee reviewed and discussed the audited consolidated financial statements for the fiscal year ended December 31, 2005 with management. The Audit Committee also discussed with Deloitte & Touche LLP, the independent auditors, the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees. In addition, the Audit Committee received from Deloitte & Touche LLP the written disclosures and the letter required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and the Audit Committee discussed with the independent auditors their independence from the Company and its management. Additionally, the Audit Committee considered whether their provision of services to the Company beyond those rendered in connection with their audit and review of the Companys consolidated financial statements was compatible with maintaining their independence and the fees and costs billed and to be billed for those services as shown on page 14 of this proxy statement. The Audit Committee concluded that Deloitte & Touche LLPs provision of such services is compatible with Deloitte & Touche LLPs independence.
Based on its review, and the discussions with the Companys management and its independent auditors, the Audit Committee recommended to the Board of Directors that the Companys audited consolidated financial statements for the fiscal year ended December 31, 2005 be included in the Companys Annual Report on Form 10-K. The Audit Committee has also selected Deloitte & Touche LLP as the Companys independent registered public accounting firm for the fiscal year ended December 31, 2006.
John H. Abeles, MD | |
David M. Bartash | |
Jay M. Haft, Esq. | |
Richard C. Lufkin (Chairman) |
(1) | The material in the Audit Committee Report, Compensation Committee Report, and under the caption Performance Graph are not soliciting material, are not deemed filed with the SEC and are not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report and irrespective of any general incorporation language therein. |
13
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION1
The Compensation Committee of the Board of Directors (the Compensation Committee) is composed of three (3) independent non-employee directors whose names appear at the end of this report. The Compensation Committee is responsible for setting and administering the policies which govern annual executive salaries and cash bonus awards, and recommends participants and amounts of stock option awards to the Companys Board of Directors. The Compensation Committee evaluates, on a yearly basis, the performance, and determines the compensation of, the executive officers of DUSA. DUSAs Chairman and Chief Executive Officer, Dr. D. Geoffrey Shulman and its President and Chief Operating Officer, Robert F. Doman, are not members of the Compensation Committee, however, the Compensation Committee seeks input from Dr. Shulman and Mr. Doman regarding the performance of DUSAs other executive officers, as well as recommendations for their compensation. Dr. Shulman and Mr. Doman are present, at the invitation of the Compensation Committee, at its meetings, other than during consideration of their compensation.
DUSAs executive compensation programs consist of base salary, cash bonus incentives, stock option and stock grant awards. The goals of the Companys executive officer compensation policies are to attract, retain, and reward executive officers who contribute to DUSAs success, to align executive officer compensation with DUSAs performance and to motivate executive officers to achieve the Companys business objectives. The executive officers were evaluated by the Compensation Committee against established goals for 2005, including corporate goals and individual goals within each executive officers area of responsibility.
With regard to base salary, the Compensation Committee believes that DUSAs officers should be compensated at levels comparable to the base salary of executive officers at similar public biotechnology or pharmaceutical companies. During 2005, the Compensation Committee received an analysis with survey data reporting the salaries and bonuses, as well as equity incentives, for executives of companies in these groups which was prepared by an independent consultant.
Generally, DUSAs Vice Presidents are eligible to receive up to 30% of their base salary as a cash bonus award. The Compensation Committee recognized that for 2005 these individuals largely achieved their personal goals and corporate goals. Therefore, the Compensation Committee concluded that DUSAs overall operational performance, particularly with regard to marketing and sales functions, attainment of increased sales targets, ramping up of manufacturing operations, timely completion of research and development activities, the completion of a major acquisition, the establishment of a foreign distribution agreement and enhanced medical information functions, justified favorable consideration of bonuses for its Vice Presidents. Accordingly, DUSAs Vice Presidents received cash bonus awards ranging from approximately 18% to 22% of their base salaries. These cash awards were paid in February 2006. DUSAs President and Chief Operating Officer, Robert F. Doman, is eligible to receive up to 40% of his base salary as a cash bonus. For 2005, Mr. Doman received 28% of his base salary as a cash bonus. DUSAs Executive Vice President of Sales and Marketing, who was hired in April 2006, will be eligible to receive up to 35% of his base salary as a cash bonus, however, consistent with the other officers, such percentage may be increased by the Companys Board of Directors.
The Compensation Committee also is using the survey data to monitor and evaluate the long-term incentive compensation levels of its officers and directors. The Compensation Committee believes that a strong stock ownership program is essential to the long-term growth of the Company. In 2005, the Compensation Committee granted to DUSAs key executive officers awards of stock options to emphasize the long-term focus required for success in the pharmaceutical industry.
Compensation of the Chief Executive Officer
The Compensation Committee exercised its subjective judgment and discretion in determining the amounts of Dr. Shulmans base salary, bonus award, and stock option awards for 2005. Dr. Shulmans base salary and cash bonus award for 2005 were determined with reference to the same measures used for all DUSAs executive officers, but with particular emphasis on completion of the merger with Sirius Laboratories, Inc. Dr. Shulmans base salary for 2005 was $400,000. With regard to a cash bonus award, Dr. Shulman is eligible to receive up to 50% of base salary plus additional amounts for outstanding performance. For 2005, Dr. Shulmans bonus award was 35.5% of his base salary, and was paid to him in 2006. For 2006, the Compensation Committee increased Dr. Shulmans salary to $416,000.
David M. Bartash | |
Jay M. Haft, Esq. (Chairman) | |
Magnus Moliteus |
14
PERFORMANCE GRAPH1
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
ASSUMES $100 INVESTED ON JAN. 1, 2001
12/29/2000 | 12/31/2001 | 12/31/2002 | 12/31/2003 | 12/31/2004 | 12/31/2005 | |||||||||||||||||||
DUSA Pharmaceuticals, Inc.
|
$ | 100.00 | $ | 47.88 | $ | 9.70 | $ | 30.04 | $ | 85.05 | $ | 64.06 | ||||||||||||
Hemscott Group Index Drug
Manufacturers/ Other
|
100.00 | 89.00 | 63.23 | 87.88 | 93.19 | 103.41 | ||||||||||||||||||
NASDAQ Market Index
|
100.00 | 79.71 | 55.60 | 83.60 | 90.63 | 92.62 |
The graph provided above compares cumulative total shareholder return on the Companys Common Stock for the five-year period ended December 31, 2005, with the cumulative total return on the NASDAQ Market Index and the Hemscott Industry Group 511 Drug Manufacturers/ Other Index (the Index) (formerly known as the Media General Drug Manufacturer Index) over the same period. The identity of the corporations included in the Index may be obtained by contacting Ms. Shari Lovell, Director of Shareholder Services, DUSA Pharmaceuticals, Inc., 555 Richmond Street West, Suite 300, Toronto, Ontario M5V 3B1 Canada.
The graph assumes $100 was invested in DUSAs common stock on January 1, 2001, and in each of the indices, and that dividends were reinvested. The comparisons in the graph are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of DUSAs common stock.
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EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS OR NOMINEES
The name, age, current position and date first elected as an executive officer of the Company of each executive officer who is not a director, or a nominee, of the Company is listed below, followed by summaries of their backgrounds and principal occupations. Executive officers are elected annually, and serve at the discretion of the Board of Directors.
Date First | ||||||||||
Elected as | ||||||||||
Name | Age | Current Title | Officer | |||||||
Mark C. Carota
|
50 | Vice President, Operations | 2/18/2000 | |||||||
Richard C. Christopher
|
36 | Vice President, Finance and Chief Financial Officer | 1/01/2004 | |||||||
Scott L. Lundahl
|
47 | Vice President, Intellectual Property and Regulatory Affairs | 6/23/1999 | |||||||
Stuart L. Marcus, MD, Ph.D.
|
59 | Vice President, Scientific Affairs and Chief Medical Officer | 10/11/1993 | |||||||
William F. ODell
|
59 | Executive Vice President, Sales and Marketing | 4/17/2006 | |||||||
Paul A. Sowyrda
|
44 | Vice President, Marketing | 8/01/2000 |
Mark C. Carota has been employed by the Company since October 1999 and has served as our Vice President, Operations since February 2000. Prior to joining the Company, Mr. Carota was Director of Operations from November 1998 to October 1999 for Lavelle, Inc., a privately held manufacturer of orthopedic instrumentation. From July 1998 to November 1998, Mr. Carota was employed as Director of Quality Assurance by CGI Inc. Prior to joining CGI Inc., Mr. Carota was employed by Allergan Inc., from February 1997 to July 1998 where he had responsibility for quality assurance, engineering and facilities.
Richard C. Christopher has been employed by the Company since December 2000 and has served as our Vice President, Finance and CFO since January 2005. Prior to his promotion to his current position in January 2005, he held the positions of Vice President, Financial Planning and Analysis from January 2004 to January 2005 and Director, Financial Analysis from December 2000 to January 2004. Prior to joining the Company, he was the North American Cost Accounting Manager for Grace Construction Products, a unit of W.R. Grace & Co. from April 1999 to December 2000. Prior to joining Grace Construction Products, Mr. Christopher was employed by the Boston Edison Company from March 1996 to April 1999.
Scott L. Lundahl has been employed by the Company since May 1998 and, in addition to his current position, has held the positions of Vice President, Technology and Director of Technology Development. In 1994, Mr. Lundahl co-founded and became Vice President of Lumenetics, Inc., a privately-owned medical device development company, which, prior to May 1998, provided the Company with consulting services in the light device technology area.
Stuart L. Marcus, MD, Ph.D. has been employed by the Company since October 1993. Prior to joining the Company, he was Director of the Hematology/ Oncology Department of Daiichi Pharmaceuticals Inc., and prior thereto he held positions in the Medical Research Division of the American Cyanamid Company, directing photodynamic therapy clinical development, among other assignments.
William F. ODell has been employed with the Company as our Executive Vice President, Sales and Marketing since April 2006. Prior to joining the Company, Mr. ODell was Vice President of Marketing and Strategic Business Development at West Pharmaceuticals, Inc. from October 2005 to April 2006. Mr. ODell also served as Vice President of Sales and Marketing for the Americas Region from January 2002 to October 2005 and Vice President of Global Marketing from December 1999 to December 2001, at West Pharmaceuticals.
Paul A. Sowyrda, has been employed by the Company since April 2000 and, in addition to his current position, has also held the positions of Vice President, Marketing and Sales and Vice President, Product Development and Marketing. From April 1998 to April 2000, Mr. Sowyrda was employed by Aurora Tech, a Division of Carlo Gavazzi, where at the time of his departure he was serving as President and Chief Executive Officer. From October 1997 to February 1998, Mr. Sowyrda was Vice President, Operations of UroMed Corp, Urovation Division.
16
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended December 31, 2005, 2004 and 2003, certain compensation paid by DUSA to its five (5) most highly compensated executive officers. All amounts are stated in United States dollars unless otherwise indicated.
Summary Compensation Table
Long-Term Compensation | ||||||||||||||||||||||||||||||||
Awards | Payouts | |||||||||||||||||||||||||||||||
Actual Compensation | ||||||||||||||||||||||||||||||||
Restricted | ||||||||||||||||||||||||||||||||
Other Annual | Stock | LTIP | All Other | |||||||||||||||||||||||||||||
Salary | Bonus | Compensation,(1) | Award(s) | Options | Payouts | Compensation | ||||||||||||||||||||||||||
Name and Principal Position(1) | Year | ($) | ($) | ($) | ($) | (#) | ($) | ($) | ||||||||||||||||||||||||
D. Geoffrey Shulman, MD,
|
2005 | 400,000 | 141,920 | | | 90,000 | | | ||||||||||||||||||||||||
FRCPC, Chairman and Chief
|
2004 | 340,000 | 170,000 | | | 110,000 | | | ||||||||||||||||||||||||
Executive Officer
|
2003 | 340,000 | 170,000 | | | 110,000 | | | ||||||||||||||||||||||||
Robert F. Doman, President and
|
2005 | 300,000 | 85,150 | 52,852 | (3) | | 100,000 | | | |||||||||||||||||||||||
Chief Operating Officer(2)
|
||||||||||||||||||||||||||||||||
Scott Lundahl, Vice President,
|
2005 | 190,000 | 38,550 | | | 20,000 | | | ||||||||||||||||||||||||
Intellectual Property and
|
2004 | 182,000 | 51,960 | | | 22,500 | | | ||||||||||||||||||||||||
Regulatory Affairs
|
2003 | 182,000 | 40,400 | | | 17,500 | | | ||||||||||||||||||||||||
Stuart L. Marcus, MD, Ph.D.,
|
2005 | 260,000 | 52,750 | | | 20,000 | | | ||||||||||||||||||||||||
Vice President, Scientific Affairs
|
2004 | 250,000 | 74,500 | | | 22,500 | | | ||||||||||||||||||||||||
and Chief Medical Officer
|
2003 | 250,000 | 55,500 | | | 17,500 | | | ||||||||||||||||||||||||
Paul A. Sowyrda, Vice President,
|
2005 | 200,000 | 36,580 | | | 30,000 | | | ||||||||||||||||||||||||
Marketing
|
2004 | 180,000 | 79,140 | | | 40,000 | | | ||||||||||||||||||||||||
2003 | 180,000 | 43,200 | | | 17,500 | | |
Notes:
(1) | Except for Mr. Doman, no officer had perquisites in excess of $50,000 or 10% of salary and bonus reported for 2005, 2004 or 2003. |
(2) | Mr. Doman joined DUSA on January 3, 2005. |
(3) | Includes compensation related to Mr. Domans housing arrangement of $43,252 and a car allowance of $9,600. |
17
Option Grants in 2005
The following grants of stock options were made to the named executive officers during fiscal year 2005.
Individual Grants | Potential Realizable | |||||||||||||||||||||||
Value of Assumed | ||||||||||||||||||||||||
Number of | Percent of Total | Annual Rates of Stock | ||||||||||||||||||||||
Securities | Options/SARs | Price Appreciation | ||||||||||||||||||||||
Underlying | Granted to | Exercise of | for Option Term(2) | |||||||||||||||||||||
Options/SARs | Employees in | Base Price | Expiration | |||||||||||||||||||||
Name | Granted(1) | Fiscal Year | ($/Share) | Date | 5% | 10% | ||||||||||||||||||
D. Geoffrey Shulman, MD, FRCPC
|
80,000 | 14.6 | % | $ | 10.00 | 3/16/2015 | $ | 503,116 | $ | 1,274,994 | ||||||||||||||
10,000 | 1.8 | % | $ | 9.30 | 6/29/2015 | $ | 58,487 | $ | 148,218 | |||||||||||||||
Robert F. Doman
|
50,000 | 9.1 | % | $ | 14.26 | 1/2/2015 | $ | 448,402 | $ | 1,136,338 | ||||||||||||||
50,000 | 9.1 | % | $ | 15.90 | 1/2/2015 | $ | 366,402 | $ | 1,054,338 | |||||||||||||||
Scott Lundahl
|
20,000 | 3.6 | % | $ | 10.00 | 3/16/2015 | $ | 125,779 | $ | 318,748 | ||||||||||||||
Stuart L. Marcus, MD, Ph.D.
|
20,000 | 3.6 | % | $ | 10.00 | 3/16/2015 | $ | 125,779 | $ | 318,748 | ||||||||||||||
Paul A. Sowyrda
|
30,000 | 5.5 | % | $ | 10.00 | 3/16/2015 | $ | 188,668 | $ | 478,123 |
Notes:
(1) | All options in this table have been granted pursuant to the 1996 Omnibus Plan, as amended. All options have exercise prices equal to the fair market value on the date of the grant. |
(2) | The potential realizable value is calculated based on the fair market value of DUSAs Common Stock on the date of the grant. These amounts only represent certain assumed rates of appreciation established by the SEC. There can be no assurance that the amounts reflected in this table or the associated rates of appreciation will be achieved. |
Equity Compensation Plan Information
The following table provides information as of December 31, 2005 with respect to shares of DUSAs Common Stock that may be issued under our outstanding options, warrants and other rights.
(a) | (b) | (c) | |||||||||||
Number of Securities | |||||||||||||
Number of Securities | Remaining Available for | ||||||||||||
to be Issued Upon | Weighted-Average | Future Issuance Under | |||||||||||
Exercise of | Exercise Price of | Equity Compensation Plans | |||||||||||
Outstanding Options, | Outstanding Options, | (Excluding Securities | |||||||||||
Plan Category(1) | Warrants and Rights | Warrants and Rights | Reflected in Column (a)) | ||||||||||
Equity compensation plans approved by security
holders
|
2,725,250 | $ | 11.99 | 342,652 | (2) | ||||||||
Equity compensation plans not approved by
security holders
|
425,000 | (3) | $ | 6.74 | | ||||||||
Total
|
3,150,250 | $ | 11.28 | 342,652 | (1) |
Notes:
(1) | This table does not include the shares that would be available if the proposal set forth herein under the heading Adoption of the 2006 Equity Compensation Plan is approved at the Annual Meeting of Shareholders. |
(2) | The 1996 Omnibus Plan, as amended, provides that the maximum number of shares with respect to which awards may be granted shall not exceed 20% of the Companys Common Stock outstanding or a maximum of 3,343,874 shares. |
(3) | This number includes shares that may be issued upon the exercise of the following: (i) A Class B warrant granted to Dr. Shulman, our Chairman and CEO, for the issuance of 300,000 shares of Common Stock. The exercise price of the warrants is CDN $6.79 (U.S. $4.84 at December 31, 2005). This warrant is exercisable and has an expiration date of January 29, 2007; (ii) options to purchase a total of 85,000 shares of Common Stock with an exercise price of $10.875 per share. These options were granted on October 21, 1997 to PARTEQ Research and Development Innovations, the technology licensing arm of Queens University, Kingston, Ontario, the owner of certain patents underlying our Levulan® PDT/ PD technology platform. PARTEQ has subsequently assigned the right to acquire 26,911 shares under these options to certain individuals. These options have ten (10) year terms and vested at the rate of 25% per year beginning on the first anniversary of the date of the original grant; (iii) options to purchase 15,000 shares of our Common Stock issued to Therapeutics, Inc., a consultant to the Company, which were granted on March 13, 1997. These options have an exercise price of $6.125 per share, a ten (10) year term and vested 20% per year. These options have been assigned by Therapeutics, Inc. to its principal; and (iv) options to purchase 25,000 shares of our Common Stock with an exercise price of $6.125 per share. These options were granted to Lumenetics, Inc., our former light device consultant, on March 13, 1997. They have been assigned by Lumenetics, Inc. to its principals. These options have ten (10) year terms and vested at the rate of 25% per year beginning on the date of the original grant. |
Aggregated Stock Option Exercises in Last Fiscal Year
The following table provides certain information as to certain stock options exercised and exercisable by the named executive officers for the fiscal year 2005, and the value of such options held by them at
18
Value of | ||||||||||||||||
Number of | Unexercised | |||||||||||||||
Unexercised | In-the-Money | |||||||||||||||
Options at | Options at | |||||||||||||||
December 31, 2005 | December 31, 2005 | |||||||||||||||
Shares Acquired | Value | Exercisable/ | Exercisable/ | |||||||||||||
Name | on Exercise (#) | Realized($) | Unexercisable | Unexercisable | ||||||||||||
D. Geoffrey Shulman, MD, FRCPC
|
| | 812,500 | / | $2,110,745 | / | ||||||||||
217,500 | $600,100 |
|||||||||||||||
Robert F. Doman
|
| | | / | | / | ||||||||||
100,000 | | |||||||||||||||
Scott L. Lundahl
|
| | 130,000 | / | $325,606 | / | ||||||||||
50,000 | $140,169 | |||||||||||||||
Stuart L. Marcus, MD, Ph.D.
|
50,000 | $ | 129,444 | 120,625 | / | $235,963 | / | |||||||||
48,750 | $131,544 | |||||||||||||||
Paul A. Sowyrda
|
| | 69,375 | / | $179,300 | / | ||||||||||
73,125 | $159,025 |
401(k) PROFIT SHARING PLAN
The Company adopted a tax-qualified employee savings and retirement 401(k) Profit Sharing Plan (the 401(k) Plan), effective January 1, 1996, covering all qualified employees. Participants may elect a salary reduction of at least 1% as a contribution to the 401(k) Plan, up to the statutorily prescribed annual limit for tax-deferred contributions ($14,000 in 2005). Modification of salary reductions can be made monthly (for 2005). Effective February 1, 2003, the Company began to match a participants contribution up to 1.25% of a participants salary (the Company Match), subject to certain limitations of the 401(k) Plan. Participants vest in the Company Match at a rate of 25% for each year of service to the Company (based on the anniversary of their date of hire). Employees who were already employed as of the effective date of the Company match received credit for their past service to the Company.
OTHER COMPENSATION
The Company has employment agreements with each of its executive officers named in the Summary Compensation Table. Pursuant to these agreements, the named executive officers are entitled to receive compensation as determined by the Board of Directors and are eligible to receive the benefits generally made available to employees of the Company. DUSA may terminate any of these agreements at any time, with or without cause on sixty (60) days prior written notice. If employment is terminated without cause, DUSA has agreed to pay a severance allowance equivalent to six (6) months to one (1) year of the named executive officers then-current base salary payable in either: (i) a lump sum, within sixty (60) days following the date of termination; or (ii) equal monthly installments, depending on the terms of the named executive officers employment agreement. In addition to the foregoing, Dr. Shulmans employment agreement also provides that he shall have the right to exercise, for a period of one (1) year from the date of termination, all stock options granted to him prior to his termination as to all or any part of the shares covered by such options, including shares with respect to which such options would not otherwise be exercisable, subject to restrictions under U.S. or Canadian law.
In the event a named executive officer should die while employed by DUSA, his heirs or beneficiaries will be entitled to any Company paid death benefits in force at the time of such death and will also be entitled to exercise any vested but unexercised stock options which were held by him at the time of his death, within a period of one (1) year from the date of death.
These employment agreements also provide for certain severance benefits following a change in control of the Company and termination of employment. Upon any change of control, as defined in the agreements, DUSA shall pay to the named executive officer a lump sum payment equal to three (3) times his base salary for the last fiscal year within five (5) days after such termination.
Under the Companys 1996 Omnibus Plan, as amended, any and all outstanding options not fully vested shall automatically vest in full and shall be immediately exercisable upon a change of control, as defined in the grant agreements. The date on which such accelerated vesting and immediate exercisability shall occur, shall be the date of the occurrence of the change of control.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 11, 2006, with respect to holdings of our common stock by: (i) each of our directors; (ii) our named executive officers; (iii) all beneficial owners of greater than 5% of our outstanding Common Stock, based upon currently available Schedules
19
Number of Shares | Percentage of | |||||||
Beneficially | Outstanding | |||||||
Name(1) | Owned(2) | Shares(3) | ||||||
John H. Abeles, MD
|
99,500 | (4) | * | |||||
David M. Bartash
|
70,500 | (5) | * | |||||
Robert F. Doman
|
27,000 | (6) | * | |||||
Jay M. Haft, Esq.
|
123,250 | (7) | * | |||||
Richard C. Lufkin
|
117,100 | (8) | * | |||||
Scott L. Lundahl
|
154,582 | (9) | * | |||||
Stuart L. Marcus, MD, Ph.D.
|
138,750 | (10) | * | |||||
Magnus Moliteus
|
35,000 | (11) | * | |||||
Neal S. Penneys, MD, Ph.D.
|
37,445 | (12) | * | |||||
D. Geoffrey Shulman, MD, FRCPC
|
1,032,668 | (13) | 5.2 | % | ||||
Paul A. Sowyrda
|
95,625 | (14) | * | |||||
All directors and executive officers as a group
(consisting of 15 persons)
|
2,055,295 | (15) | 9.9 | % | ||||
Cooper Hill Partners, LLC
|
||||||||
Jeffrey Casdin (deceased) and affiliated
entities
|
2,783,400 | (16) | 14.6 | % | ||||
FMR Corp. Edward C. Johnson, III
|
1,593,562 | (17) | 8.4 | % |
* Less than 1%.
Notes:
(1) | Unless indicated otherwise, the individuals listed herein have a business mailing address of c/o DUSA Pharmaceuticals, Inc., 25 Upton Drive, Wilmington, Massachusetts, 01887. |
(2) | Unless indicated otherwise: (i) the individuals and entities listed herein have the sole power to both vote and dispose of all securities that they beneficially own; and (ii) beneficial ownership listed includes all options and warrants which are exercisable within 60 days of April 11, 2006. |
(3) | The percentage of ownership as calculated above includes in the number of shares outstanding for each individual listed those shares that are beneficially, yet not necessarily directly, owned. Applicable percentage of ownership is based on 19,022,175 shares of Common Stock outstanding on April 11, 2006 unless noted as otherwise. |
(4) | 65,000 of the shares indicated represent shares with respect to which Dr. Abeles has the right to acquire through the exercise of options. Of the shares indicated, Dr. Abeles shares investment and voting power with regard to 24,500 shares. |
(5) | 55,000 of the shares indicated represent shares with respect to which Mr. Bartash has the right to acquire through the exercise of options. |
(6) | 25,000 of the shares indicated represent shares with respect to which Mr. Doman has the right to acquire through the exercise of options. |
(7) | 88,750 of the shares indicated represent shares with respect to which Mr. Haft has the right to acquire through the exercise of options. Under Rule 13d-3 of the Securities and Exchange Act of 1934, as amended, Mr. Haft disclaims, but may be deemed to be the beneficial owner of, 34,500 shares that are held by his spouse. |
(8) | 105,000 of the shares indicated represent shares with respect to which Mr. Lufkin has the right to acquire through the exercise of options. Of the shares indicated, Mr. Lufkin shares investment and voting power with regard to 12,100 shares. |
(9) | 149,375 of the shares indicated represent shares with respect to which Mr. Lundahl has the right to acquire through the exercise of options. |
(10) | All of the shares indicated represent shares with respect to which Dr. Marcus has the right to acquire through the exercise of options. |
(11) | All of the shares indicated represent shares with respect to which Mr. Moliteus has the right to acquire through the exercise of options. |
(12) | 15,000 of the shares indicated represent shares with respect to which Dr. Penneys has the right to acquire through the exercise of options. Of the shares indicated, Dr. Penneys shares investment and voting power with regard to 10,663 shares. |
20
(13) | 300,000 of the shares indicated represent shares with respect to which Dr. Shulman has the right to acquire through the exercise of his Class B Warrants which have an exercise price of CDN $6.79 per Warrant, and 645,000 of such shares represent shares with respect to which Dr. Shulman has the right to acquire through the exercise of options. |
(14) | All of the shares indicated represent shares with respect to which Mr. Sowyrda has the right to acquire through the exercise of options. |
(15) | Includes all of the shares indicated in footnotes (4) through (14), including the shares underlying the Class B Warrants and options, as well as an additional 123,875 shares underlying stock options beneficially owned by our unnamed executive officers. |
(16) | The number of shares beneficially owned is based upon information disclosed by Cooper Hill Partners LLC on a Schedule 13G/ A filed with the Securities and Exchange Commission on February 14, 2005, as modified by a Form 4 filed with the Securities and Exchange Commission on April 5, 2006. Such Form 4 discloses that CLSP, L.P. (CLSP), CLSP II, L.P. (CLSP II), CLSP/ SBS I, L.P. (CLSP/ SBS I), and CLSP/ SBS II, L.P. (CLSP/ SBS II) are each private investment partnerships, the sole general partner of which is Cooper Hill Partners, LLC. As the sole general partner of CLSP, CLSP II, CLSP/ SBS I, and CLSP/ SBS II, Cooper Hill Partners, LLC has the power to vote and dispose of the securities owned by each of CLSP, CLSP II, CLSP/ SBS I, and CLSP/ SBS II and, accordingly, may be deemed the beneficial owner of such securities. The managing member of Cooper Hill Partners, LLC is Casdin Capital, LLC. Purusant to an investment advisory contract, Cooper Hill Partners, L.P. currently has the power to vote and dispose of the securities held for the account of CLSP Overseas, Ltd. and, accordingly, may be deemed the beneficial owner of such securities. The address of Cooper Hill Partners, LLC is 767 Third Avenue, New York, New York 10017. The Company makes no representation as to the accuracy or completeness of the information reported. |
(17) | The number of shares beneficially owned is based on a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2006 by FMR Corp. Such Schedule 13G discloses that the reporting persons have sole dispositive power, and beneficially own, 1,593,562 shares of the Companys Common Stock. As set forth in such Schedule 13G, Fidelity Management & Research Company (Fidelity), 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 1,593,562 shares of the Common Stock outstanding of DUSA as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. The ownership of one investment company, Select Med Equipment and Systems, amounted to 932,800 shares of the Common Stock outstanding. Select Med Equip And Systems has its principal business office at 82 Devonshire Street, Boston, Massachusetts 02109. Edward C. Johnson III and FMR Corp., through its control of Fidelity, and the funds each has sole power to dispose of the 1,593,562 shares owned by the Funds. Members of the family of Edward C. Johnson 3d, Chairman of FMR Corp., are the predominant owners, directly or through trusts, of Series B shares of common stock of FMR Corp., representing 49% of the voting power of FMR Corp. The Johnson family group and all other Series B shareholders have entered into a shareholders voting agreement under which all Series B shares will be voted in accordance with the majority vote of Series B shares. Accordingly, through their ownership of voting common stock and the execution of the shareholders voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR Corp. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds, which power resides with the Funds Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds Boards of Trustees. The address of FMR Corp. and Edward C. Johnson, III is 82 Devonshire Street, Boston, Massachusetts 02109. The Company makes no representation as to the accuracy or completeness of the information reported. |
CODE OF ETHICS APPLICABLE TO SENIOR OFFICERS
We have adopted a written Code of Ethics Applicable to Senior Officers that applies to our senior officers, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted the Code of Ethics on our website, which is located at www.dusapharma.com. In addition, we intend to disclose on our website any amendments to, or waivers from, any provision of the Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
SHAREHOLDER PROPOSALS AND
In order to be included in the Board of Directors proxy statement and proxy card for the 2007 Annual Meeting of Shareholders, a shareholder proposal must be received by the Company on or before
21
In addition, if a shareholder wishes to present a proposal at the Companys 2007 Annual Meeting which is not intended to be included in the Companys proxy statement for that meeting, the Company must receive written notice of the shareholder proposal by March 12, 2007. If DUSA does not receive notice of such a shareholder proposal by this date, the Company will retain its discretionary authority to vote proxies on such proposals even if it is not specifically reflected on the proxy card, and shareholders have not had an opportunity to vote on the proposal by proxy.
The Board of Directors believes that the most efficient method for shareholders and other interested parties to raise issues and ask questions and to get a response is to direct such communications to DUSA through its Shareholder Services department at the address provided in the Contact DUSA section of our public website, www.dusapharma.com. If, notwithstanding these methods, a shareholder or other interested party wishes to direct a communication specifically to the Board of Directors, then the following method is available. To ensure that the communication is properly directed in a timely manner, it should be clearly identified as intended for the Board of Directors:
DUSA Pharmaceuticals, Inc. | |
Board of Directors | |
Attention: Chairman of the Board | |
c/o DUSA Pharmaceuticals, Inc. | |
25 Upton Drive | |
Wilmington, MA 01887 |
The address stated above is supervised by DUSA which will promptly forward to the Board any communication intended for them. The Board believes that DUSA should speak with one voice and has empowered management to speak on the Companys behalf subject to the Boards oversight and guidance on specific issues. Therefore, in most circumstances the Board will not respond directly to inquiries received in this manner but may take into consideration ideas, concerns and positions that are presented in a concise, clear, supported and constructive manner.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Companys directors, officers and any person holding more than ten percent (10%) of our Common Stock are required to report their ownership of securities and any changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 and 5. Based on our review of the copies of such forms we have received, we believe that all of our officers, directors and shareholders holding ten percent (10%) or more of our Common Stock complied with all filing requirements applicable to them with respect to their reporting obligations. In making these statements, we have relied on the written representations of our directors and officers and copies of the reports that they and any person holding more than ten percent (10%) of our Common Stock have filed with the Securities and Exchange Commission.
OTHER MATTERS
Management knows of no matters other than those described above that are to be brought before the meeting. However, if any other matter properly comes before the meeting, the persons named in the enclosed proxy will vote the proxy in accordance with their best judgment on the matter.
The cost of preparing and mailing the enclosed material will be borne by the Company. The Company may use the services of its officers and employees (who will receive no additional compensation) to solicit proxies. The Company intends to request that banks and brokers holding shares of DUSA Pharmaceuticals, Inc. Common Stock forward copies of the proxy materials to those persons for whom they hold shares and to request authority for the execution of proxies. The Company will reimburse banks and brokers for their out-of-pocket expenses. The Company has retained its transfer agent, American Stock Transfer & Trust Company, to aid in the solicitation, at an estimated cost of under $10,000.
Certain information contained in this proxy statement relating to the occupations and security holdings of our directors and officers is based upon information received from the individual directors and officers.
22
APPENDIX A
DUSA PHARMACEUTICALS, INC.
2006 EQUITY COMPENSATION PLAN
The purpose of the DUSA Pharmaceuticals, Inc. 2006 Equity Compensation Plan (the Plan) is to provide (i) designated employees of DUSA Pharmaceuticals, Inc. (the Company) and its parents and subsidiaries, (ii) certain consultants and advisors who perform services for the Company or its parents or subsidiaries, and (iii) non-employee members of the Board of Directors of the Company (the Board) with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock awards, and stock appreciation rights. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefiting the Companys shareholders, and will align the economic interests of the participants with those of the shareholders.
1. | Administration |
(a) Committee. The Plan shall be administered and interpreted by the members of the Compensation Committee of the Board (the Committee), which consists of outside directors as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), and related Treasury regulations, and non-employee directors as defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act). However, the Board may ratify or approve any grants as it deems appropriate, and the Board shall approve and administer all grants made to non-employee directors. The Committee may delegate authority to one (1) or more delegates as it deems appropriate.
(b) Committee Authority. The Committee or its delegate shall have the sole authority to (i) determine the individuals to whom grants shall be made under the Plan; (ii) determine the type, size, and terms of the grants to be made to each such individual; (iii) determine the time when the grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability; (iv) amend the terms of any previously issued grant; and (v) deal with any other matters arising under the Plan. Notwithstanding anything in this Plan to the contrary, in no event may the Board, the Committee or its or their delegate (i) amend or modify an Option in a manner that would reduce the exercise price of such Option; (ii) substitute an Option for another Option with a lower exercise price; (iii) cancel an Option and issue a new Option with a lower exercise price to the holder of the cancelled Option within six (6) months following the date of the cancellation of the cancelled Option; or (iv) cancel an outstanding Option that is under water (i.e., for which the Fair Market Value, as defined below, of the underlying Shares are less than the Options Exercise Price, as defined below) for the purpose of granting a replacement Grant (as defined below) of a different type.
(c) Committee Determinations. The Committee shall have full power and authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements, and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Committees interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals.
(d) Other Equity Awards. The terms of this Plan shall not impact or govern the administration by the Company or the rights of any holders of an option or stock award granted pursuant to the DUSA Pharmaceuticals, Inc., 1996 Omnibus Plan, as amended (the Prior Plan). Unless otherwise provided by the Company and agreed to by the recipient of an award under the Prior Plan, all awards granted pursuant to the Prior Plan shall continue to be governed by the terms of such plan.
2. | Grants |
(a) Awards under the Plan may consist of grants of incentive stock options as described in Section 5 (Incentive Stock Options), nonqualified stock options as described in Section 5 (Nonqualified Stock Options) (Incentive Stock Options and Nonqualified Stock Options are collectively referred to as Options), stock awards as described in Section 6 (Stock Awards) and Stock Appreciation Rights described in Section 7 (SARs) (hereinafter collectively referred to as Grants). All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with this Plan and as specified in the individual grant instrument or an amendment to the grant instrument (the Grant Instrument). All Grants shall be made conditional upon the Grantees acknowledgement, in writing or by acceptance of the Grant, that all decisions and determinations of the Company shall be
A-1
3. | Shares Subject to the Plan |
(a) Shares Authorized. Subject to adjustment as described below, (i) the maximum aggregate number of shares of common stock of the Company (Company Stock) that may be issued or transferred under any forms of grants under the Plan is the lesser of (i) 20% of the total number of shares of common stock of the Company issued and outstanding at any given time less the number of shares issued and outstanding under any other equity compensation plan of the Company at such time; or (ii) 3,888,488 shares less the number of shares issued and outstanding under any other equity compensation plan of the Company from time to time, all of which may be issued as Incentive Stock Options. The maximum aggregate number of shares of Company Stock that shall be subject to Grants made under the Plan to any individual during any calendar year shall be 300,000 shares, subject to adjustment as described below. The shares may be authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on the open market for purposes of the Plan. If and to the extent Options granted under the Plan terminate, expire, or are canceled, forfeited, exchanged, or surrendered without having been exercised or if any Stock Awards (including restricted Stock Awards received upon the exercise of Options) are forfeited, the shares subject to such Grants shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock split, or combination or exchange of shares; (ii) by reason of a merger, reorganization, or consolidation; (iii) by reason of a reclassification or change in par value; or (iv) by reason of any other extraordinary or unusual event affecting the outstanding Company Stock as a class without the Companys receipt of consideration, or if the value of outstanding shares of Company Stock is substantially reduced as a result of a spinoff or the Companys payment of an extraordinary dividend or distribution, the maximum number of shares of Company Stock available for Grants, the maximum number of shares of Company Stock that any individual participating in the Plan may be granted in any year, the number of shares covered by outstanding Grants, the kind of shares issued under the Plan, and the price per share of such Grants may be appropriately adjusted by the Company to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Company Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional shares resulting from such adjustment shall be rounded down to the nearest whole share. Any adjustments determined by the Company shall be final, binding, and conclusive.
4. | Eligibility for Participation |
(a) Eligible Persons. All employees of the Company and its parents or subsidiaries (Employees), including Employees who are officers or members of the Board, and members of the Board who are not Employees (Non-Employee Directors) shall be eligible to participate in the Plan. Consultants and advisors who perform services for the Company or any of its parents or subsidiaries (Key Advisors) shall be eligible to participate in the Plan if the Key Advisors render bona fide services to the Company or its parents or subsidiaries, the services are not in connection with the offer and sale of securities in a capital-raising transaction, and the Key Advisors do not directly or indirectly promote or maintain a market for the Companys securities.
(b) Selection of Grantees. The Company shall select the Employees, Non-Employee Directors, and Key Advisors to receive Grants and shall determine the number of shares of Company Stock subject to a particular Grant. Employees, Key Advisors, and Non-Employee Directors who receive Grants under this Plan shall hereinafter be referred to as Grantees.
5. | Granting of Options |
The Company may grant an Option to an Employee, Non-Employee Director, or Key Advisor. The following provisions are applicable to Options.
(a) Number of Shares. The Company shall determine the number of shares of Company Stock that will be subject to each Grant of Options to Employees, Non-Employee Directors, and Key Advisors.
(b) Type of Option and Price.
(i) Incentive Stock Options are intended to satisfy the requirements of Section 422 of the Code. Nonqualified Stock Options are not intended to so qualify. Incentive Stock Options may be granted only to employees of the Company or its parents or subsidiaries, as defined in Section 424 of |
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the Code. Nonqualified Stock Options may be granted to Employees, Non-Employee Directors, and Key Advisors. | |
(ii) The purchase price (the Exercise Price) of Company Stock subject to an Option may be equal to or greater than the Fair Market Value (as defined below) of a share of Company Stock on the date the Option is granted; provided, however, that (x) the Exercise Price of an Incentive Stock Option shall be equal to, or greater than, the Fair Market Value of a share of Company Stock on the date the Incentive Stock Option is granted and (y) an Incentive Stock Option may not be granted to an Employee who, at the time of grant, owns or beneficially owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, unless the Exercise Price per share is not less than one hundred ten percent (110%) of the Fair Market Value of Company Stock on the date of grant. | |
(iii) So long as the Company Stock is publicly traded, the Fair Market Value per share shall be determined as follows: (x) if the principal trading market for the Company Stock is a national securities exchange or the NASDAQ National Market, the last reported sale price thereof on the relevant date or (if there were no trades on that date) the latest preceding date upon which a sale was reported, or (y) if the Company Stock is not principally traded on such exchange or market, the mean between the last reported bid and asked prices of Company Stock on the relevant date, as reported on NASDAQ or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable and as the Company determines. If the Company Stock is not publicly traded or, if publicly traded, is not subject to reported transactions or bid or asked quotations as set forth above, the Fair Market Value per share shall be as determined by the Company. |
(c) Option Term. The term of any Option shall not exceed seven (7) years from the date of grant. However, an Incentive Stock Option that is granted to an Employee who, at the time of grant, owns or beneficially owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary of the Company, may not have a term that exceeds five (5) years from the date of grant.
(d) Exercisability of Options.
(i) Options shall become exercisable in accordance with such terms and conditions of the Plan and specified in the Grant Instrument. The Company may accelerate the exercisability of any or all outstanding Options at any time for any reason. | |
(ii) The Company may provide in a Grant Instrument that the Grantee may elect to exercise part or all of an Option before it otherwise has become exercisable. Any shares so purchased shall be restricted shares and shall be subject to a repurchase right in favor of the Company during a specified restriction period, with the repurchase price equal to the lesser of (i) the Exercise Price or (ii) the Fair Market Value of such shares at the time of repurchase, and (iii) any other restrictions determined by the Company. |
(e) Grants to Non-Exempt Employees. Options granted to persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, shall have an Exercise Price not less than one hundred percent (100%) of the Fair Market Value of the Company Stock on the date of grant, and may not be exercisable for at least six (6) months after the date of grant (except that such Options may become exercisable upon the Grantees death, Disability or retirement, or upon a Change in Control or other circumstances permitted by applicable regulations).
(f) Termination of Employment, Disability, or Death.
(i) Except as provided below, an Option may only be exercised while the Grantee is employed by, or providing service to, the Employer (as defined below) as an Employee, Key Advisor or member of the Board. In the event that a Grantee ceases to be employed by, or provide service to, the Employer for any reason other than Disability, death, termination for Misconduct, or as set forth in subsection 5(f)(v) of this Plan, any Option which is otherwise exercisable by the Grantee shall terminate unless exercised within ninety (90) days after the date on which the Grantee ceases to be employed by, or provide service to, the Employer (or within such other period of time as may be specified by the Company), but in any event no later than the date of expiration of the Option term. Except as otherwise provided, any of the Grantees Options that are not otherwise exercisable as of the date on which the Grantee ceases to be employed by, or provide service to, the Employer shall terminate as of such date. | |
(ii) In the event the Grantee ceases to be employed by, or provide service to, the Employer on account of a termination by the Employer for Misconduct, any Option held by the Grantee shall terminate at the time that the Grantee ceases to be employed by, or provide service to, the Employer or the date on which such Option would otherwise expire, if earlier. In addition, notwithstanding any |
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other provisions of this Section 5, if the Company determines that the Grantee has engaged in conduct that constitutes Misconduct at any time while the Grantee is employed by, or providing service to, the Employer or after the Grantees termination of employment or service, any Option held by the Grantee shall terminate as of the thirtieth (30th) day after the date on which such Misconduct first occurred, or the date on which such Option would otherwise expire, if earlier. Upon any exercise of an Option, the Company may withhold delivery of share certificates pending resolution of an inquiry that could lead to a finding resulting in a forfeiture. | |
(iii) In the event the Grantee ceases to be employed by, or provide service to, the Employer because the Grantee is Disabled, any Option which is otherwise exercisable by the Grantee shall terminate unless exercised within one (1) year after the date on which the Grantee ceases to be employed by, or provide service to, the Employer (or within such other period of time as may be specified by the Company), but in any event no later than the date of expiration of the Option term. Except as otherwise provided, any of the Grantees Options that are not otherwise exercisable as of the date on which the Grantee ceases to be employed by, or provide service to, the Employer shall terminate as of such date. | |
(iv) If the Grantee dies while employed by, or providing service to, the Employer, all of the unexercised outstanding Options of Grantee shall become immediately exercisable and remain exercisable for a period of one (1) year from his or her date of death, but in no event later than the date of expiration of the Option term. If the Grantee dies within ninety (90) days after the date on which the Grantee ceases to be employed or provide service on account of a termination specified in Section 5(f)(i) above (or within such other period of time as may be specified by the Company), any Option that is otherwise exercisable by the Grantee shall terminate unless exercised within one (1) year after the date on which the Grantee ceases to be employed by, or provide service to, the Employer (or within such other period of time as may be specified), but in any event no later than the date of expiration of the Option term. Except as otherwise provided, any of the Grantees Options that are not otherwise exercisable as of the date on which the Grantee ceases to be employed by, or provide service to, the Employer shall terminate as of such date. | |
(v) Notwithstanding anything herein to the contrary, to the extent that any Company-sponsored plan or arrangement, or any agreement to which the Company is a party expressly provides for a longer exercise period for a Grantees Options under applicable circumstances than the exercise period that is provided for in this Section 5(f) under those circumstances, then the exercise period set forth in such plan, arrangement or agreement applicable to such circumstances shall apply in lieu of the exercise period provided for in this Section 5(f). | |
(vi) For purposes of this Section 5(f) and Section 6: |
(A) The term Employer shall mean the Company and its parent and subsidiary corporations or other entities, as determined by the Board. | |
(B) Employed by, or provide service to, the Employer shall mean employment or service as an Employee, Key Advisor or member of the Board (so that, for purposes of exercising Options or SARs and satisfying conditions with respect to Stock Awards, a Grantee shall not be considered to have terminated employment or service until the Grantee ceases to be an Employee, Key Advisor or member of the Board). | |
(C) Disability shall mean a Grantees becoming disabled within the meaning of the Employers long-term disability plan applicable to the Grantee, as determined in the sole discretion of the Committee or its delegate. | |
(D) Misconduct means (i) any activity that constitutes a material violation of a provision of the Companys handbook or a breach of any conduct clause in an employment agreement between the Company and Grantee; (ii) indictment for, or conviction of, a crime that constitutes a felony or for which imprisonment for more than one year is a possible penalty; or (iii) habitual or regular intoxication. |
(g) Exercise of Options. A Grantee may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company. The Grantee shall pay the Exercise Price for an Option as specified by the Company (i) in cash, (ii) payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, or (iii) by such other method as the Company may approve. Shares of Company Stock used to exercise an Option shall have been held by the Grantee for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option. The Grantee shall pay the Exercise Price and the amount of any withholding tax due (pursuant to Section 8).
(h) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide that, if the aggregate Fair Market Value of the Company Stock on the date of the grant with respect to which
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(i) Formula Grants. Non-Employee Directors shall be eligible to receive a nonqualified stock option the Plan. Each individual who agrees to become a Non-Employee Director shall receive, on June 30th of the first year of such service or as of the close of business thirty (30) days following his/her election, whichever shall first occur, and without the exercise of the discretion of any person, an Option relating to the purchase of 15,000 shares of Company Stock at an exercise price equal to the Fair Market Value on the date the Option is granted. Thereafter, on June 30th of each year, each individual who is a continuing Non-Employee Director shall receive, without the exercise of the discretion of any person, an Option under the Plan relating to the purchase of 10,000 shares of Company Stock. Each Option granted under this paragraph shall vest in full on the date of the grant and have a term not to exceed ten (10) years from the date of grant, or, if later, the date the Grantee becomes a Non-Employee Director. Notwithstanding the exercise period of any such Option, all such Options shall immediately become exercisable upon (i) the death of Non-Employee Director while serving as such, or (ii) upon a Change of Control.
6. | Stock Awards |
The Company may transfer shares of Company Stock or cash to an Employee, Non-Employee Director, or Key Advisor under a Stock Award. The following provisions are applicable to Stock Awards:
(a) General Requirements. Shares of Company Stock issued or transferred pursuant to Stock Awards may be issued or transferred for consideration or for no consideration, and subject to restrictions or no restrictions. Restrictions on Stock Awards shall lapse over a period of time or according to such other criteria as set forth in the Grant Instrument. The period of time during which the Stock Award will remain subject to restrictions will be designated in the Grant Instrument as the Restriction Period. | |
(b) Number of Shares. The Grant Instrument shall set forth the number of shares of Company Stock to be issued or transferred pursuant to a Stock Award and the restrictions applicable to such shares. | |
(c) Requirement of Employment or Service. If the Grantee ceases to be employed by, or provide service to, the Employer (as defined in Section 5(f)) during a period designated in the Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Stock Award shall terminate as to all shares covered by the award as to which the restrictions have not lapsed, and those shares of Company Stock must be immediately returned to the Company. The Company may, however, provide for complete or partial exceptions to this requirement as it deems appropriate. | |
(d) Restrictions on Transfer and Legend on Stock Certificate. During the Restriction Period, a Grantee may not sell, assign, transfer, pledge, or otherwise dispose of the shares of the Stock Award except to a successor under Section 9(a). Each certificate for Stock Awards shall contain a legend giving appropriate notice of the restrictions in the Grant. The Grantee shall be entitled to have the legend removed from the stock certificate covering the shares subject to restrictions when all restrictions on such shares have lapsed. The Company may determine that it will not issue certificates for Stock Awards until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for Stock Awards until all restrictions on such shares have lapsed. | |
(e) Right to Vote and to Receive Dividends. During the Restriction Period, the Grantee shall not have the right to vote shares subject to Stock Awards or to receive any dividends or other distributions paid on such shares. | |
(f) Lapse of Restrictions. All restrictions imposed on Stock Awards shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of all conditions. The Company may determine, as to any or all Stock Awards, that the restrictions shall lapse without regard to any Restriction Period. | |
(g) Designation as Qualified Performance-Based Compensation. The Committee may determine that Stock Awards granted to an Employee shall be considered qualified performance-based compensation under Section 162(m) of the Code. The provisions of this paragraph (g) shall apply to Stock Awards that are to be considered qualified performance-based compensation under Section 162(m) of the Code. |
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(i) Performance Goals. When Stock Awards that are to be considered qualified performance-based compensation are granted, the Committee shall establish in writing (A) the objective performance goals that must be met, (B) the performance period during which the performance goals must be met (the Performance Period), (C) the threshold, target and maximum amounts that may be paid if the performance goals are met, and (D) any other conditions that the Committee deems appropriate and consistent with the Plan and Section 162(m) of the Code. The performance goals may relate to the Employees business unit or the performance of the Company and its parents and subsidiaries as a whole, or any combination of the foregoing. The Committee shall use objectively determinable performance goals based on one or more of the following criteria: stock price, earnings per share, net earnings, operating earnings, return on assets, shareholder return, return on equity, growth in assets, unit volume, sales, market share, or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals, cost targets or goals relating to acquisitions or divestitures. | |
(ii) Establishment of Goals. The Committee shall establish the performance goals in writing either before the beginning of the Performance Period or during a period ending no later than the earlier of (i) ninety (90) days after the beginning of the Performance Period or (ii) the date on which twenty-five percent (25%) of the Performance Period has been completed, or such other date as may be required or permitted under applicable regulations under Section 162(m) of the Code. The performance goals shall satisfy the requirements for qualified performance-based compensation, including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goals have been met. The Committee shall not have discretion to increase the amount of compensation that is payable upon achievement of the designated performance goals. | |
(iii) Maximum Payment. If Stock Awards, measured with respect to the Fair Market Value of Company Stock, are granted, not more than one hundred thousand (100,000) shares of Company Stock may be granted to an Employee under the Stock Award for any Performance Period. | |
(iv) Announcement of Grants. The Committee shall certify and announce the results for each Performance Period to all Grantees immediately following the announcement of the Companys financial results for the Performance Period. If and to the extent that the Committee does not certify that the performance goals have been met, the grants of Stock Awards for the Performance Period shall be forfeited or shall not be made, as applicable. | |
(v) Death, Disability or Other Circumstances. The Committee may provide that Stock Awards shall be payable or restrictions on Stock Awards shall lapse, in whole or in part, in the event of the Grantees death or Disability during the Performance Period, or under other circumstances consistent with the Treasury regulations and rulings under Section 162(m) of the Code. |
(h) Restricted Stock Units. The Committee or its delegate may grant restricted stock units (Restricted Units) to an Employee or Key Advisor. Each Restricted Unit shall represent the right of the Grantee to receive an amount in cash or Common Stock (as determined by the Committee or its delegate) based on the value of the Restricted Unit, if performance goals established by the Committee are met or upon the lapse of a specified vesting period. A Restricted Unit shall be based on the Fair Market Value of a share of Company Stock or on such other measurement base as the Committee or its delegate deems appropriate. The Committee or its delegate shall determine the number of Restricted Units to be granted and the requirements applicable to such Restricted Units. |
7. | Stock Appreciation Rights |
The Company may grant SARs to an Employee, Non-Employee Director, or Key Advisor. The following provisions are applicable to SARs.
(a) General Requirements. The Company may grant SARs to an Employee, Non-Employee Director or Key Advisor separately or in tandem with any Option (for all or a portion of the applicable Option). Tandem SARs may be granted either at the time the Option is granted or at any time thereafter while the Option remains outstanding; provided, however, that, in the case of an Incentive Stock Option, SARs may be granted only at the time of the grant of the Incentive Stock Option. Unless otherwise specified in the Grant Instrument, the base amount of each SAR shall be equal to the per share Exercise Price of the related Option or, if there is no related Option, the Fair Market Value of a share of Company Stock as of the date of grant of the SAR.
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(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted to a Grantee that shall be exercisable during a specified period shall not exceed the number of shares of Company Stock that the Grantee may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Company Stock covered by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of shares of Company Stock.
(c) Exercisability. A SAR shall be exercisable during the period specified in the Grant Instrument and shall be subject to such vesting and other restrictions as may be specified. The Company may accelerate the exercisability of any or all outstanding SARs at any time for any reason. SARs may only be exercised while the Grantee is employed by, or providing service to, the Employer or during the applicable period after termination of employment or service as described in Section 5(f). A tandem SAR shall be exercisable only during the period when the Option to which it is related is also exercisable.
(d) Grants to Non-Exempt Employees. Notwithstanding the foregoing, SARs granted to persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, shall have a base amount not less than one hundred percent (100%) of the Fair Market Value of the Company Stock on the date of grant, and may not be exercisable for at least six (6) months after the date of grant (except that such SARs may become exercisable, as determined by the Committee, upon the Grantees death, Disability or retirement, or upon a Change of Control or other circumstances permitted by applicable regulations).
(e) Value of SARs. When a Grantee exercises SARs, the Grantee shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised, payable in Company Stock. The stock appreciation for a SAR is the amount by which the Fair Market Value of the underlying Company Stock on the date of exercise of the SAR exceeds the base amount of the SAR as described in subsection (a). For purposes of calculating the number of shares of Company Stock to be received, shares of Company Stock shall be valued at their Fair Market Value on the date of exercise of the SAR. Notwithstanding anything to the contrary, the Company may pay the appreciation of a SAR in the form of cash, shares of Company Stock, or a combination of the two, so long as the ability to pay such amount in cash does not result in the Grantee incurring taxable income related to the SAR prior to the Grantees exercise of the SAR.
(f) Number of SARs Authorized for Issuance. For purposes of 3(a) of the Plan, stock appreciation rights to be settled in shares of Company Stock shall be counted in full against the number of shares available for award under the Plan, regardless of the number of exercise gain shares issued upon the settlement of the stock appreciation right.
8. | Withholding of Taxes |
(a) Required Withholding. All Grants under the Plan shall be subject to applicable federal (including FICA), state, and local tax withholding requirements. The Employer may require that the Grantee or other person receiving or exercising Grants pay to the Employer the amount of any federal, state, or local taxes that the Employer is required to withhold with respect to such Grants, or the Employer may deduct from other wages paid by the Employer the amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Company so permits, a Grantee may elect to satisfy the Employers income tax withholding obligation with respect to a Grant by having shares withheld up to an amount that does not exceed the Grantees minimum applicable withholding tax rate for federal (including FICA), state, and local tax liabilities. The election must be in a form and manner prescribed by the Company.
9. | Transferability of Grants |
(a) Nontransferability of Grants. Except as provided below, only the Grantee may exercise rights under a Grant during the Grantees lifetime. A Grantee may not transfer those rights except (i) by will or by the laws of descent and distribution or (ii) with respect to SARs and Option grants other than Incentive Stock Options, pursuant to a domestic relations order or otherwise as permitted by the Company. When a Grantee dies, the personal representative or other person entitled to succeed to the rights of the Grantee may exercise such rights. Any such successor must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Grantees will or under the applicable laws of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing, the Grant Instrument may provide that a Grantee may transfer Nonqualified Stock Options to family members, or one or more trusts or other entities for the benefit of or owned by family members, consistent with applicable securities laws, provided that the Grantee receives no consideration for the transfer of an Option and the transferred
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10. | Change in Control of the Company |
(a) Change in Control means the consummation of a transaction that is the subject of a determination (which may be made effective as of a particular date specified by the Board) by the Board, made by a majority vote that a change in control has occurred, or is about to occur. Such a change shall not include, however, a restructuring, reorganization, merger or other change in capitalization in which the Persons who own an interest in the Company on the date hereof (the Current Owners) (or any individual or entity which receives from a Current Owner an interest in the Company through will or the laws of descent and distribution) maintain more than a fifty percent (50%) interest in the resultant entity. Regardless of the vote of the Board or whether or not the Board votes, a Change in Control will be deemed to have occurred as of the first day any one (1) or more of the following subsections shall have been satisfied:
(b) Any Person (other than the Person in control of the Company as of the date of this Plan, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than thirty-five percent (35%) of the combined voting power of the Companys then outstanding securities; or
(c) The shareholders of the Company approve:
(i) A plan of complete liquidation of the Company; | |
(ii) An agreement for the sale or disposition of all or substantially all of the Companys assets; or | |
(iii) A merger, consolidation or reorganization of the Company with or involving any other company, other than a merger, consolidation or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation or reorganization. |
(d) However, in no event shall a Change in Control be deemed to have occurred, with respect to a Grantee, if the Employee is part of a purchasing group which consummates the Change in Control transaction. A Grantee shall be deemed part of the purchasing group for purposes of the preceding sentence if the Grantee is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (i) passive ownership of less than five percent (5%) of the voting securities of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise deemed not to be significant, as determined prior to the Change in Control by a majority of the non-employee continuing Directors of the Board).
11. | Consequences of a Change in Control |
(a) Notice and Acceleration. Upon a Change in Control, unless the Company determines otherwise, (i) the Company shall provide each Grantee with outstanding Grants written notice of such Change in Control, (ii) all outstanding Options and SARs shall automatically accelerate and become fully exercisable, and (iii) the restrictions and conditions on all outstanding Stock Awards shall immediately lapse.
(b) Assumption of Grants. Upon a Change in Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Board determines otherwise, all outstanding Options and SARs that are not exercised shall be assumed by, or replaced with comparable options or stock appreciation rights by, the surviving corporation (or a parent or subsidiary of the surviving corporation), and outstanding Stock Awards shall be converted to Stock Awards of the surviving corporation (or a parent or subsidiary of the surviving corporation). However, the Board may require each Grantee to surrender his or her outstanding Options, SARs, or Stock Awards in exchange for a payment by the Company, in cash or Company Stock (as the Board may determine) in an amount equal to the amount by which the then Fair Market Value of the shares of Company Stock underlying the Option or SAR exceeds the Exercise Price of the Grantees unexercised Options or the based amount of the Grantees unexercised SARs or for the then Fair Market Value of shares of Company Stock underlying the Grantees Stock Awards.
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12. | Requirements for Issuance or Transfer of Shares |
(a) Limitations on Issuance or Transfer of Shares. No Company Stock shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance or transfer of such Company Stock have been complied with. Any Grant made shall be conditioned on the Grantees undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Company Stock, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Company Stock issued or transferred under the Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.
(b) Lock-Up Period. If so requested by the Company or any representative of the underwriters (the Managing Underwriter) in connection with any underwritten offering of securities of the Company under the Securities Act of 1933, as amended (the Securities Act), a Grantee (including any successor or assigns) shall not sell or otherwise transfer any shares or other securities of the Company during the thirty (30) day period preceding and the one hundred eighty (180)-day period following the effective date of a registration statement of the Company filed under the Securities Act for such underwriting (or such shorter period as may be requested by the Managing Underwriter and agreed to by the Company) (the Market Standoff Period). The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period.
13. | Amendment and Termination of the Plan |
(a) Amendment. The Board or its delegate may amend or terminate the Plan at any time; provided, however, that neither the Board nor its delegate shall have the authority to amend the Plan without shareholder approval if such approval is required in order to comply with the Code or other applicable laws, or to comply with applicable stock exchange requirements.
(b) Termination of Plan. The Plan shall terminate on the day immediately preceding the tenth (10th) anniversary of its effective date, unless the Plan is terminated earlier by the Company or is extended by the Company with the approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or amendment of the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless the Grantee consents or unless the Company acts under Section 19(b). The termination of the Plan shall not impair the power and authority of the Company with respect to an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under Section 19(b) or may be amended by agreement of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns.
14. | Funding of the Plan |
This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under this Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants.
15. | Rights of Participants |
Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee Director, or other person to any claim or right to be granted a Grant under this Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employ of the Employer or any other employment rights.
16. | No Fractional Shares |
No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Grant. The Company shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
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17. | Headings |
Section headings are for reference only. In the event of a conflict between a title and the content of a Section, the content of the Section shall control.
18. | Effective Date of the Plan |
The Plan shall be effective on April 11, 2006.
19. | Miscellaneous |
(a) Grants in Connection with Corporate Transactions and Otherwise. Nothing contained in this Plan shall be construed to (i) limit the right of the Company to make Grants under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees, or for other proper corporate purposes, or (ii) limit the right of the Company to grant stock options or make other awards outside of this Plan. Without limiting the foregoing, the Company may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company, the parent or any of their subsidiaries in substitution for a stock option or Stock Awards grant made by such corporation. The terms and conditions of the substitute grants may vary from the terms and conditions required by the Plan and from those of the substituted stock incentives. The Company shall prescribe the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs, and the obligations of the Company to issue or transfer shares of Company Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to persons subject to Section 16 of the Exchange Act it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the Company that the Plan and applicable Grants under the Plan comply with the applicable provisions of Section 162(m) of the Code and Section 422 of the Code. To the extent that any legal requirement of Section 16 of the Exchange Act or Section 162(m) or 422 of the Code as set forth in the Plan ceases to be required under Section 16 of the Exchange Act or Section 162(m) or 422 of the Code, that Plan provision shall cease to apply. The Company may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Company may also adopt rules regarding the withholding of taxes on payments to Grantees. The Company may, in its sole discretion, agree to limit its authority under this Section.
(c) Employees Subject to Taxation Outside the United States. With respect to Grantees who are subject to taxation in countries other than the United States, Grants may be made on such terms and conditions as the Company deems appropriate to comply with the laws of the applicable countries, and the Company may create such procedures, addenda and subplans and make such modifications as may be necessary or advisable to comply with such laws.
(d) Governing Law. The validity, construction, interpretation, and effect of the Plan and Grant Instruments issued under the Plan shall be governed and construed by and determined in accordance with the laws of the State of New Jersey, without giving effect to the conflict of laws provisions thereof.
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1.
|
Election of Directors |
Nominees: | John H. Abeles, MD; David M. Bartash; Robert F. Doman; Jay M. Haft, Esq.; Richard C. Lufkin; Magnus Moliteus; Neal S. Penneys, MD, PhD; and D. Geoffrey Shulman, MD, FRCPC |
q | FOR all nominees listed above |
|||
q | WITHHOLD authority to vote for all nominees listed above |
2.
|
Adoption of the Companys 2006 Equity Compensation Plan. | |
q FOR q AGAINST q ABSTAIN |
3.
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Ratification of the selection of Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2006. | |
q FOR q AGAINST q ABSTAIN |
4.
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In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. |
q
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I hereby CONSENT to discontinue delivery of the proxy statement and Annual Report for the shares represented hereby. |
Date | ||||
Signature of Shareholder | ||||
Signature if held jointly |