SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A
Information Required In Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Exchange Act Rule 14a-11 or 14a-12
PACIFICHEALTH LABORATORIES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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PACIFICHEALTH LABORATORIES, INC.
1480 Route 9 North, Suite 204
Woodbridge, NJ 07095
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 18, 2002
TO THE STOCKHOLDERS OF PACIFICHEALTH LABORATORIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
PACIFICHEALTH LABORATORIES, INC. (the "Company") will be held at the Woodbridge
Hilton, 120 Wood Avenue South, Iselin, New Jersey 08830 on June 18, 2002 at
10:00 a.m., local time, for the following purposes:
1. To elect seven (7) directors;
2. To ratify the appointment of Richard A. Eisner & Company, LLP as
independent auditors for the Company for the fiscal year ending December
31, 2002; and
3. To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
The Board of Directors has established the close of business on May 10,
2002 as the record date for the determination of stockholders entitled to notice
of and to vote at the meeting or any adjournments thereof. In order that the
meeting can be held and a maximum number of shares can be voted, whether or not
you plan to be present at the meeting in person, please fill in, date and sign,
and promptly return the enclosed Proxy in the return envelope provided for your
use. No postage is required if mailed in the United States.
By order of the Board of Directors,
David Portman, Secretary
May 14, 2002
PACIFICHEALTH LABORATORIES, INC.
1480 Route 9 North, Suite 204
Woodbridge, NJ 07095
(732) 636-6141
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
June 18, 2002
The enclosed Proxy is solicited on behalf of the Board of Directors of
PACIFICHEALTH LABORATORIES, INC. (the "Company") for use at the Annual Meeting
of Stockholders on June 18, 2002 (such meeting and any adjournment or
adjournments thereof are referred to as the "Annual Meeting") for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders and in
this Proxy Statement. This Proxy Statement and the enclosed Proxy are being
mailed to stockholders on or about May 24, 2002.
Proxies properly executed and timely returned will be voted at the
Annual Meeting in accordance with the directions on the Proxy. If no direction
is indicated on the Proxy, the shares will be voted for the election of the
nominees named as directors of the Company, for the appointment of Richard A.
Eisner & Company, LLP as independent auditors for the Company for the year
ending December 31, 2002, and on other matters presented for a vote, if any, in
accordance with the judgment of the persons acting as proxy.
Voting Securities and Votes Required
Only the holders of shares of common stock, par value $.0025 per share
(the "Common Stock"), of the Company of record at the close of business on May
10, 2002 (the "Record Date") are entitled to receive notice of, and to vote at,
the Annual Meeting. On that date, there were 6,064,203 shares of Common Stock
outstanding and entitled to be voted at the Annual Meeting. Each share of Common
Stock is entitled to cast one vote for the election of up to seven nominees for
the Board of Directors, on the appointment of Richard A. Eisner & Company, LLP
as independent auditors for the Company for the year ending December 31, 2002
and on each other matter to be considered. The seven (7) nominees for the Board
of Directors receiving the highest number of affirmative votes of the shares
present or represented and entitled to be voted shall be elected as directors.
The other proposals presented in this Proxy Statement require the affirmative
vote of the majority of the shares present at the Annual Meeting in person or by
proxy.
The presence, in person or by proxy, of the holders of a majority of
outstanding shares will constitute a quorum for the transaction of business at
the Annual Meeting. Votes withheld from any director, abstentions and broker
non-votes will be counted for purposes of determining the presence of a quorum
for the transaction of business at the Annual 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 instructions from the beneficial
owner. On any matters other than the election of directors presented to
stockholders, abstentions will be counted, and broker non-votes will not be
counted for purposes of determining whether a proposal has been approved.
Abstentions will have the same effect as negative votes.
Stockholders do not have cumulative voting rights.
Revocability of Proxy
Execution of the enclosed Proxy will not affect a stockholder's right
to attend the Annual Meeting and vote in person. A stockholder, in exercising
his right to vote in person at the Annual Meeting, effectively revokes all
previously executed Proxies. In addition, the Proxy is revocable at any time
prior to the effective exercise thereof by filing notice of revocation with the
Secretary of the Company or by filing a duly executed Proxy bearing a later
date.
Persons Making the Solicitation
The solicitation of Proxies is being made by the Company. The cost of
such solicitation, including the actual expenses incurred by brokerage houses,
nominees and fiduciaries in forwarding proxy materials to beneficial owners,
will be borne by the Company. In addition to solicitation by mail, certain
officers and other employees of the Company may solicit Proxies in person, by
mail, or by telephone, but such persons will not be separately compensated for
these services.
Security Ownership of Certain Beneficial Owners and Management
As of May 10, 2002, the Company had 6,064,203 shares of Common Stock
outstanding. The following table sets forth information concerning the present
ownership of the Company's Common Stock by each person known to the Company to
be the beneficial owner of more than five percent of the Common Stock, by each
of the Company's directors and executive officers, and by the Company's
directors and executive officers, as a group.
Common Stock (2) Common Stock (2)
Name and Address (1) Amount Beneficially Owned Percentage of Class
-------------------- ------------------------- -------------------
5% Beneficial Owners
GlaxoSmithKline PLC 541,711 8.9%
Glaxo Wellcome House
Berkeley Avenue
Greenford, Middlesex
England UB6 0NN
Jemison Investment Co. 320,922 5.3%
2001 Park Place, Suite 320
Birmingham, AL 35203
2
Common Stock (2) Common Stock (2)
Name and Address (1) Amount Beneficially Owned Percentage of Class
-------------------- ------------------------- --------------------
Officers and Directors
Robert Portman (3) 2,249,767 31.7%
President, Chief Executive Officer,
and a Director
Stephen P. Kuchen (4) 60,000 1.0%
Vice President, Chief Financial Officer,
and a Director
David I. Portman (5) 303,500 4.9%
Secretary and a Director
T. Colin Campbell (6) 180,954 3.0%
Director
Irving Tabachnick (7) 25,000 *
Director
Michael Cahr (8) 10,000 *
Director
Joseph Harris (9) 11,000 *
Director
Executive Officers and 2,840,221 38.8%
Directors, as a group (5 person)
* Less than one percent
(1) Except as otherwise indicated, the address of each person named in the
above table is c/o PacificHealth Laboratories, Inc., 1480 Route 9 North,
Suite 204, Woodbridge, NJ 07095.
(2) Common Stock which is issuable upon the exercise of a stock option or
warrant which is presently exercisable or which becomes exercisable within
sixty days is considered outstanding for the purpose of computing the
percentage ownership of persons holding such options or warrants, and of
officers and directors as a group with respect to all options and warrants
held by officers and directors.
3
(3) Includes 1,030,000 shares that may be acquired by exercise of options
exercisable within 60 days of the date hereof. Does not include 200,000
shares of Common Stock owned by Jennifer Portman, Dr. Portman's wife,
individually and as Trustee for his and her minor children, as to which Dr.
Portman disclaims beneficial ownership.
(4) Includes 60,000 shares that may be acquired by exercise of options
exercisable within 60 days of the date hereof.
(5) Includes 115,000 shares that may be acquired by exercise of options and
warrants exercisable within 60 days of the date hereof.
(6) Includes 20,000 shares that may be acquired by exercise of options
exercisable within 60 days of the date hereof. Does not include 38,900
shares of Common Stock owned by Dr. Campbell's wife and 160,521 shares of
Common Stock owned by Dr. Campbell's adult children, as to which he
disclaims beneficial ownership.
(7) Includes 15,000 shares that may be acquired by exercise of options
exercisable within 60 days of the date hereof.
(8) Includes 10,000 shares that may be acquired by exercise of options
exercisable within 60 days of the date hereof.
(9) Includes 10,000 shares that may be acquired by exercise of options
exercisable within 60 days of the date hereof.
Change of Control
There are no arrangements known to the Company the operation of which
may result in a change in control of the Company.
1. ELECTION OF DIRECTORS
Seven directors are to be elected at the Annual Meeting. The persons
named as Proxies for this Annual Meeting intend to vote in favor of the election
of the following nominees as directors of the Company. If you do not wish your
shares to be voted for any of the nominees, you may so indicate on the Proxy.
All directors will be elected to hold office until the next annual meeting of
stockholders in 2003 and until their successors are duly elected and qualified.
All of the nominees are presently serving as directors of the Company. Each of
the nominees has consented to serve if elected. However, if any of the nominees
should become unavailable prior to the election, the holder of the Proxies may
vote the Proxies for the election of such other persons as the Board of
Directors may recommend, unless the Board of Directors reduces the number of
directors to be elected. At this time, the Board of Directors knows of no reason
why any nominee may be unavailable to serve.
The Board of Directors unanimously recommends that stockholders vote
FOR the election of the slate of nominees set forth in this Proposal. Proxies
received by the Board will be so voted unless stockholders specify otherwise on
their Proxy cards. The seven nominees receiving the highest number of
affirmative votes of the shares present or represented and entitled to be voted
shall be elected as directors.
4
The nominees of the Board of Directors are as follows:
Dr. Robert Portman, age 58, was appointed to the Board of Directors in
April 1995. Dr. Portman has also served as President, Treasurer and Chairman of
the Board of Directors of the Company since its inception. Dr. Portman has a PhD
in Biochemistry and worked as a senior scientist at Schering Laboratories before
co-founding M.E.D. Communications in 1974 with his brother, David Portman. In
1987, Dr. Portman started a consumer agency and, in 1993, he merged both
agencies to form C&M Advertising. C&M Advertising, with billings in excess of
$100 million, handled national advertising for such diverse accounts as Berlex
Laboratories, Ortho-McNeil Laboratories, Tetley Tea, Radisson Hotels and HIP of
New Jersey. Effective June 1, 1995, Dr. Portman relinquished his
responsibilities as Chairman of C&M Advertising (which since has been renamed
"The Sawtooth Group") to assume his present positions with the Company on a full
time basis, and, in September 1996, Dr. Portman sold his interest in that
company.
Stephen P. Kuchen, age 41, joined the Company in February 2000 as
Controller, and was appointed a director in June 2000 to fill a vacancy. At that
time, he also was appointed Vice President - Finance and Chief Financial Officer
of the Company. Prior to joining the Company, from 1996 to 1999, Mr. Kuchen was
employed as the Controller of Able Laboratories, a publicly-traded manufacturer
of generic pharmaceuticals. Prior to his employment by Able Laboratories, Mr.
Kuchen was the Controller of Jerhel Plastics, a privately-owned manufacturer of
women's compact cases from 1993 to 1996. Mr. Kuchen is a graduate of Seton Hall
University in South Orange, NJ, and is a Certified Management Accountant.
David I. Portman, age 61, has served as Secretary and a director of
the Company from its inception. Mr. Portman has a BS in Pharmacy and an MBA. He
worked as a sales representative and marketing manager for Eli Lilly,
Beecham-Massengill, Winthrop Laboratories and Sandoz Pharmaceuticals before
co-founding M.E.D. Communications in 1974. In 1988, Mr. Portman sold his
interest in M.E.D. Communications to Robert Portman, and became President of
TRIAD Development, a real estate company that has numerous commercial and rental
properties in New Jersey, a position that he still holds. Mr. Portman also has
served as a director of First Montauk Securities Corp. since 1993.
Dr. Robert Portman and David Portman are brothers.
Dr. T. Colin Campbell, age 68, has served as a director of the Company
since its inception. Dr. Campbell also serves as Chairman of the Company's U.S.
Scientific Advisory Board. Dr. Campbell has been Jacob Gould Schurman Professor
of Nutritional Biochemistry of Cornell University since 1985. Over the past
three decades, Dr. Campbell has been directing research correlating diet,
lifestyle and disease. In 1979, Dr. Campbell, with the encouragement of the
Chinese government, initiated the largest epidemiological study ever undertaken
focusing on the relationship between nutrition and disease. The China-Cornell
Research Project is expected to continue well into the 21st Century. Dr.
Campbell is an honorary professor at the Chinese Academy of Preventive Medicine.
5
Dr. Irving I.A. Tabachnick, age 76, was elected a director of the
Company in December 1997. Dr. Tabachnick has served as a consultant to Schering
Plough Corporation, a New York Stock Exchange listed company, since 1989. Prior
to 1989, he was employed by Schering Plough Corporation in a number of
positions, including Vice President -- Drug Safety and Metabolism, Senior
Director -- Biological Research and Development, and Director -- Biological
Sciences and Director -- Physiology and Biochemistry.
Michael Cahr, age 62, was appointed to the Board of Directors in April
2002. Mr. Cahr is currently President of Saxony Consultants, a company that
provides financial and marketing expertise to organizations in the United States
and abroad. For the two-year period, February 2000 to March 2002, Mr. Cahr
served as President and Chief Executive Officer of Ikadega, Inc., a Northbrook,
Illinois server technology company developing products and services for the
healthcare, data storage and hospitality fields. Mr. Cahr was Chairman of
Allscripts, Inc., the leading developer of hand-held devices that provide
physicians with real-time access to health, drug and other critical information
from September 1997 through March 1999 and President, CEO and Chairman from June
1994 to September 1997. Prior to Allscripts, Mr. Cahr was Venture Group Manager
for Allstate Venture Capital where he oversaw investments in technology,
healthcare services, biotech and medical services from October, 1987 to June
1994. Mr. Cahr serves as a director of Lifecell Corporation, a Branchburg, New
Jersey-based, publicly traded tissue engineering company where he has been a
board member since 1991. He is also a director of Metropolitan Health Networks,
a West Palm Beach, Florida-based public healthcare network management and
pharmacy organization as well as a director of Truswal Systems, an Arlington,
Texas-based software engineering firm.
Joseph Harris, age 55, was appointed to the Board of Directors in April
2002. Mr. Harris is currently Senior Vice-President - Corporate Development of
Cantel Medical Corporation, a Nasdaq-listed medical device company. He was a
Senior Vice-President and Director - Corporate Strategy and Development for
SmithKline Beecham plc, a major pharmaceutical and healthcare company listed on
both the New York Stock Exchange and London Stock Exchange, from 1996 to 2000.
From 1988 to 1996, Mr. Harris served as Managing Director - Business Development
and Director-Licensing and Technology Development for Eastman Kodak Company. He
served as General Counsel, Secretary and Treasurer for Acme Electric
Corporation, a New York Stock Exchange company that manufactures electrical and
electronic equipment. Mr. Harris is licensed to practice law and is a certified
public accountant in New York. In these capacities, he has worked as an attorney
for Mackenzie Lewis Michelle & Hughes, a Syracuse, New York law firm and as an
accountant on the tax and audit staff for Coopers & Lybrand, an International
Public Accounting Firm based in Syracuse, New York.
Dr. Robert Portman and Mr. Kuchen are the only executive officers of the
Company.
Committees and Meetings of the Board of Directors
In 2001, the Board of Directors acted by unanimous consent in lieu of
meeting six times, met via telephonic conference call twice with all members
participating, and met once in person during the year with all members except
Mr. Campbell in attendance. In 2001, the Company's Audit Committee, the members
of which were T. Colin Campbell, Irving I.A. Tabachnick, and Stephen P. Kuchen,
met twice via telephonic conference call with all members except Mr. Tabachnick
participating, and met once in person with all members except Mr. Campbell in
attendance. The Audit Committee has adopted an Audit Committee charter that
specifies the duties of the Audit Committee.
6
Audit Committee
The Board of Directors has established one committee, the Audit
Committee. The Audit Committee in 2001 consisted of Dr. Tabachnick, Dr. Campbell
and Mr. Kuchen. For 2002, the Audit Committee will consist of Dr. Campbell, Mr.
Cahr, and Mr. Harris. Dr. Tabachnick, Dr. Campbell, Mr. Cahr, and Mr. Harris
meet the definition of "Independent Director" found in Rule 4200(a)(15) of the
National Association of Securities Dealers listing standards. Mr. Kuchen is not
considered independent under these standards because he is an employee and
executive officer of the Company.
Audit Committee Report
To the Board of Directors of
PacificHealth Laboratories, Inc.:
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the year ended December 31, 2001 with management. The
Audit Committee has discussed with Larson, Allen, Weishair & Co., LLP, the
Company's independent auditors for 2001, the matters required to be discussed by
Statement on Auditing Standards No. 61, as modified or supplemented. The Audit
Committee has received the written disclosures and the letter from Larson,
Allen, Weishair & Co., LLP required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees), as modified or supplemented,
and has discussed with Larson, Allen, Weishair & Co., LLP that firm's
independence. The Audit Committee has also discussed with the Company's
management and with the auditing firm such other matters and received such
assurances from them as we deemed appropriate.
Based on the review and discussions described above, among other
things, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-KSB for fiscal 2001 for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee:
Irving I.A. Tabachnick
T. Colin Campbell
Stephen P. Kuchen
The foregoing report of the Audit Committee shall not be deemed to be
soliciting material, to be filed with the Securities and Exchange Commission
("SEC") or to be incorporated by reference into any of the Company's future
filings with the SEC, except as may be explicitly specified by the Company in
any future filing.
7
Directors' Compensation
The Company has no standard arrangements for the compensation of its
directors for their service as directors. Directors are eligible to receive
options under the Company's option plans. In January 2001, each outside director
was granted options to purchase 10,000 shares of the Company's stock at a price
of $0.313 per share, the prevailing market price at the time of grant. No other
compensation was paid to directors in 2001. Mr. Kuchen and Dr. Robert Portman
receive compensation in their capacities as officers, which is discussed below.
EXECUTIVE COMPENSATION
Employment Agreements
Robert Portman is the only executive officer of the Company with a
fixed-term employment agreement. Under a new 2001 Employment Agreement, Dr.
Portman is employed for a two-year term commencing January 1, 2001. The
employment agreement originally provided for an annual salary of $200,000. At
the time the original employment agreement was approved, the Company and Dr.
Portman recognized that $200,000 was a below market salary for an officer who
fulfills all of the functions that Dr. Portman fulfills for the Company, and
that Dr. Portman was accepting this salary due to the financial condition of the
Company at that time. The original employment agreement gave Dr. Portman the
right to request a renegotiation of his salary if the Company's financial
situation improved. In June of 2001, the Board of Directors, with both
independent directors concurring, determined that the Company's financial
situation had improved and increased Dr. Portman's salary to $275,000 annually,
retroactive to January 1, 2001.
Dr. Portman's 2001 Employment Agreement provided for a re-pricing of
the grant of options issued under the original employment agreement. See "Report
on Repricing of Options/SARs" on Page 11 of this Proxy Statement for more
details. These options are fully vested and were exercised on April 9, 2001. Dr.
Portman's 2001 Employment Agreement also provides for a grant of options under
the Company's 2000 Incentive Stock Option Plan to purchase up to an additional
460,000 shares of Common Stock priced at $0.313 per share, the market price of
stock at December 31, 2000. This option vests as to one-half of the shares
issuable upon full exercise of the option as of the first and second
anniversaries of the effective date of the 2001 Employment Agreement, provided
that Dr. Portman is employed by the Company at such dates. To the extent not
previously vested, the option also will vest if Dr. Portman's employment is
terminated by the Company without cause or by Dr. Portman with cause. In
addition, if Dr. Portman's employment is terminated by the Company without
cause, or by Dr. Portman with cause, Dr. Portman will be entitled to receive a
lump sum payment of an amount equal to the lesser of full salary for one year or
for the remaining term of the agreement.
8
Summary Compensation of Executive Officers
The following table sets forth information concerning compensation paid
to Dr. Robert Portman, President, Stephen P. Kuchen, Vice President - Finance
and CFO, and Jonathan Rahn, former Executive Vice President of the Company, in
2001, 2000, and 1999. No executive officers of the Company other than Dr.
Portman and Mr. Rahn received compensation of $100,000 or more in fiscal 2001,
2000, and 1999:
Summary Compensation Table
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Annual Compensation Long Term Compensation
Awards Payouts
---------------------------- -------
Securities
Other Under-
Annual Restricted lying All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
-------------------- -------- ------------- ------------- ------------- ------------ --------------- -------- ---------------
Robert Portman, 2001 275,000 111,120 217,075(1) -0- 1,160,000 (2) -0- -0-
President 2000 200,000 -0- (3) -0- 275,000 -0- -0-
1999 150,000 -0- (3) -0- 300,000 -0- -0-
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Stephen Kuchen, 2001 92,500 3,000 (3) -0- 25,000 -0- -0-
Vice President 2000 72,452 (4) -0- (3) -0- 35,000 -0- -0-
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Jonathan Rahn, 2000 35,417 (5) -0- 27,500 (6) -0- -0- -0- -0-
Executive Vice 1999 103,333 -0- (3) -0- 50,000 -0- -0-
President
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(1) Value of re-priced options on date of exercise by Dr. Portman.
(2) 475,000 of these options were options that were issued to Dr. Portman
before 1999 but were re-priced under Dr. Portman's 2001 Employment
Agreement and 225,000 of these options were replacements for options that
expired in 2001.
(3) Perquisites and other personal benefits, securities or other property
received by each executive officer did not exceed the lesser of $50,000 or
10% of such executive officer's annual salary and bonus.
(4) Mr. Kuchen joined the Company in February 2000. As a result, Mr. Kuchen's
salary for 2000 only includes the period from February 2000 to December
2000.
(5) Mr. Rahn resigned from the Company effective May 31, 2000. As a result, Mr.
Rahn's salary for 2000 only includes the period from January 2000 to May
2000.
(6) Mr. Rahn was engaged as a consultant to the Company from June 1, 2000
through October 31, 2000. As a result, this amount represents consulting
fees paid to Mr. Rahn from June 2000 through October 2000.
9
Stock Options
The following table sets forth certain information regarding options
granted in fiscal 2001:
Option/SAR Grants in Fiscal Year 2001
(Individual Grants)
--------------------------------------- -------------------- -------------------- ----------------- ------------------
Number of Percent Of Total
Securities Options/SARs
Underlying Granted to Exercise Or
Options/SARs Employees In Base Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
--------------------------------------- -------------------- -------------------- ----------------- ------------------
Robert Portman 475,000 32.8% $0.313 12/18/02
--------------------------------------- -------------------- -------------------- ----------------- ------------------
Robert Portman 460,000 31.8% $0.313 12/31/06
--------------------------------------- -------------------- -------------------- ----------------- ------------------
Robert Portman 225,000 15.6% $1.00 03/31/06
--------------------------------------- -------------------- -------------------- ----------------- ------------------
Stephen P. Kuchen 10,000 0.7% $0.313 01/03/06
--------------------------------------- -------------------- -------------------- ----------------- ------------------
Stephen P. Kuchen 15,000 1.0% $1.00 04/01/06
--------------------------------------- -------------------- -------------------- ----------------- ------------------
475,000 of Dr. Portman's options were a re-pricing of options issued
prior to 1999, as discussed above, and were fully exercised during the second
quarter of 2001; 460,000 options vest over a period of two years as discussed
above, pursuant to Dr. Portman's 2001 Employment Agreement; and 225,000 of these
options vested immediately as these options were replacements for options that
expired in 2001. Mr. Kuchen's options vest over a period of one year.
The following table sets forth information with respect to the number
of unexercised options and the value of unexercised "in-the-money" options held
by Robert Portman and Stephen Kuchen at December 31, 2001.
Aggregated Option/SAR Exercises in Fiscal Year 2001 and
Option/SAR Values at 12/31/01
------------------------------ ------------ ----------- ------------------------------- ------------------------------
Number of Securities $ Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Shares Options/SARs At 12/31/01 At 12/31/01
Acquired Value Exercisable/ Exercisable/
On Exercise Realized Unexercisable Unexercisable
Name (#) ($) (#) ($)
(a) (b) (c) (d) (e)
------------------------------ ------------ ----------- ------------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------------------ ------------ ----------- -------------- ---------------- -------------- ---------------
Robert Portman 475,000 217,075 800,000 460,000 1,478,500 1,590,220
------------------------------ ------------ ----------- -------------- ---------------- -------------- ---------------
Stephen Kuchen -0- -0- 35,000 25,000 40,075 76,120
------------------------------ ------------ ----------- -------------- ---------------- -------------- ---------------
10
For the purpose of computing the value of "in-the-money" options at
December 31, 2001, in the above table, the fair market value of the Common Stock
at such date is deemed to be $3.77 per share, the closing sale price of the
Common Stock on such date as reported by Nasdaq.
Report on Repricing of Options/SARs
In connection with Dr. Portman's 2001 Employment Agreement, options
exercisable for 475,000 shares of Common Stock were re-priced from $6.00 per
share to $0.313 per share effective January 1, 2001. These options were
originally issued in connection with Dr. Portman's 1998 employment agreement,
and the $6.00 exercise price represented the fair market value of the Company's
Common Stock at that time. The reduced exercise price reflects the fair market
value of the Common Stock on December 31, 2000. The Board determined that, in
light of the large discrepancy between the fair market value of the shares and
the exercise price of the options, repricing was necessary to provide Dr.
Portman with appropriate incentives and bring his aggregate compensation in line
with appropriate levels.
Certain Relationships and Related Transactions
During the last two fiscal years, the Company has not entered into any
material transactions or series of transactions which, in the aggregate, would
be considered material in which any officer, director or beneficial owner of 5%
or more of any class of capital stock of the Company had a direct or indirect
material interest, nor are any such transactions presently proposed, except as
follows:
(a) In April 2001, the Company issued an aggregate of $100,000 in principal
amount of its 10% Promissory Notes due in 2002, together with warrants
exercisable for 100,000 shares of the Company's common stock at $0.875
per share, to David Portman. The warrants expire three years from
issuance. This issuance was part of a private placement of an aggregate
of $300,000 in principal amount of such notes and warrants for 300,000
shares of the Company's Common Stock. The principal of this Note was
repaid in June 2001 with the proceeds from the Company's transaction
with GlaxoSmithKline PLC.
(b) In June 2001, the Company signed an exclusive worldwide Licensing
Agreement with GlaxoSmithKline ("GSK") for its SATIETROL technology.
The agreement provides GSK with worldwide rights to the trademarks,
technology, patents, and know how for SATIETROL. Under the agreement,
the Company received an initial payment of $1,000,000, will receive
additional achievement payments over the next two years provided GSK
meets certain development goals, and will receive ongoing product
royalties upon launch of the product by GSK. GSK also purchased
approximately 9% of the Company's Common Stock for $1.5 million. At the
time the Company entered into the license agreement, GSK was not the
beneficial owner of 5% or more of any class of the Company's capital
stock, but became the holder of approximately 9% at the time the
licensing agreement was executed.
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Compliance With Section 16(a) of the Securities Exchange Act Of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities ("10%
Stockholders") to file reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company with the SEC on Forms 3, 4 and
5. Officers, directors and 10% Stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Each of David Portman and Irving Tabachnick had one transaction in the
Company's shares in 2001 that should have been reported on Form 4 and was not,
but was subsequently reported on Form 5. Mr. Portman's transaction involved the
sale of 4,500 shares and Mr. Tabachnick's transaction involved the exercise of
an option for 10,000 shares. Colin Campbell engaged in two transactions in the
Company's shares, sales of 1,500 shares and 5,500 shares, which should have been
reported on Form 4 and were not, but were subsequently reported on Form 5.
2. RATIFICATION OF APPOINTMENT OF AUDITORS
Larson, Allen, Weishair & Co., LLP served as the Company's independent
auditors for the audit of the Company's financial statements for 2000 and 2001.
Larson, Allen has served as the Company's auditors since the Company's
incorporation and has no relationship with the Company other than that arising
from its employment as independent auditors. The Board of Directors has
appointed Richard A. Eisner & Company, LLP as independent auditors for the
Company for the fiscal year ending December 31, 2002. A proposal to ratify that
appointment will be presented at the Annual Meeting. Representatives of Larson,
Allen and Eisner are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions from the stockholders.
The decision to appoint Eisner as independent public accountants
replacing Larson, Allen was approved by the Board of Directors. Larson, Allen
did not decline to stand for re-election and Larson, Allen's reports on
financial statements for the last two fiscal years did not contain an adverse
opinion, disclaimer of opinion or qualification as to uncertainty, audit scope
or accounting principles. There have been no disagreements with Larson, Allen in
the last two fiscal years on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
During the last two fiscal years, Larson, Allen did NOT advise the
Company that:
o The internal controls necessary for us to develop reliable financial
statements did not exist;
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o Information had come to their attention that led them to believe
that they could no longer rely on management's representations or
that made them unwilling to be associated with the financial
statements prepared by management;
o They needed to expand the scope of their audit or that information
existed, that had come to their attention during the last two fiscal
years, that if further investigated may (i) materially impact the
fairness or reliability of either a previously issued audit report
or the underlying financial statements, or the financial statements
issued or to be issued covering the fiscal period(s) subsequent to
the date of the most recent financial statements covered by an audit
report (including information that may prevent them from rendering
any unqualified audit report on those financial statements) or (ii)
cause them to be unwilling to rely on management's representations
or be associated with our financial statements; and that due to
their replacement or for any other reason, they did not so expand
the scope of their audit or conduct further investigation; or
o Information has come to their attention that they have concluded
materially impacts the fairness or reliability of either (i) a
previously issued audit report or the underlying financial
statements, or (ii) the financial statements issued or to be issued
covering the fiscal period(s) subsequent to the date of the most
recent financial statements covered by an audit report (including
information that, unless resolved to their satisfaction, would
prevent them from rendering an unqualified audit report on those
financial statements); and due to their replacement, or for any
other reason, the issue has not been resolved to their satisfaction
prior to their replacement.
During the past two fiscal years and the interim period through April
1, 2002, we have had no consultations with Eisner concerning: (a) the
application of accounting principles to a specific transaction or the type of
opinion that might be rendered on our financial statements as to which a written
report was provided to us or as to which we received oral advice that was an
important factor in reaching a decision on any accounting, auditing or financial
reporting issue; or (b) any disagreements, on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to their satisfaction, would have caused them
to make reference to the subject matter of the disagreement in connection with
their report.
If the appointment of Eisner is not ratified by the stockholders, the
Board of Directors is not obligated to appoint other auditors, but the Board of
Directors will give consideration to such unfavorable vote.
Fees Paid to Auditors
The following table presents the aggregate fees billed by Larson,
Allen, the Company's independent auditors for the 2001 calendar year, to the
Company for services rendered in connection with the audit of the Company's
Fiscal Year 2001 financial statements and review of financial statements
included in the Company's Forms 10-QSB for 2001, and for other services rendered
in 2001.
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Audit Fees $ 10,500
Financial Information Systems Design and Implementation Fees 0
All other fees 21,500
---------
Total $ 32,000
=========
The Audit Committee has reviewed the above information and determined
that Larson, Allen's provision of services billed under "all other fees" is
compatible with maintaining Larson, Allen's independence.
The Board of Directors and Management recommend that you vote FOR
ratification of the appointment of Richard A. Eisner & Company, LLP as the
Company's independent auditors.
Annual Report
The Company delivered copies of its Annual Report for the year ended
December 31, 2001 with this Proxy Statement. Stockholders may obtain a copy of
the full Annual Report to Stockholders and/or the Company's annual report to the
SEC on Form 10-KSB, without charge, by writing to the Secretary at the Company's
address listed in the Notice of Annual Meeting.
Other Matters
The Company is not aware of any other business to be presented at the
Annual Meeting. If any other matters should properly come before the Annual
Meeting, however, the enclosed Proxy confers discretionary authority with
respect thereto.
Stockholder Proposals for 2003 Annual Meeting
Any proposal by a stockholder intended to be presented at the 2003
Annual Meeting of stockholders must be received by the Company at the Company's
principal executive offices, 1480 Route 9 North, Suite 204, Woodbridge, NJ
07095, no later than January 24, 2003 in order to be included in the proxy
materials and form of proxy relating to the 2003 Annual Meeting. If the
Company's 2003 Annual Meeting is held on or before May 24, 2003, such proposal
must be received a reasonable time before the Company begins to print and mail
its proxy materials. Such proposals must meet the requirements set forth in the
rules and regulations of the SEC in order to be eligible for inclusion in the
proxy materials.
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For business to be properly brought before the 2003 Annual Meeting by a
stockholder in a form other than a stockholder proposal, any stockholder who
wishes to bring such business before the 2003 Annual Meeting of stockholders
must give notice of such business in writing to the Company not less than 60 nor
more than 90 days prior to the 2003 Annual Meeting. In the event that less than
70 days notice or prior disclosure of the date of the meeting is given or made
to stockholders, notice of such business to be timely must be received by the
Company not later than the close of business on the 10th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. The stockholder's notice of such business must provide
information about the stockholder proposing such business and the nature the
business, as required by the Company's Amended and Restated Bylaws. A copy of
these Bylaw requirements will be provided upon request in writing to the
principal offices of Company.
BY ORDER OF THE BOARD OF DIRECTORS
David Portman, Secretary
Dated: May 14, 2002