x | Preliminary Proxy Statement |
¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
¨ | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to Sec. 240.14a-12 |
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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: |
2) | Aggregate number of securities to which transaction applies: |
3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): |
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¨ | Fee paid previously with preliminary materials. |
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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3) | Filing Party: | |
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Explanatory Note:
This preliminary proxy statement replaces in its entirety the definitive proxy statement filed by the Registrant on April 24, 2006, which was filed as a definitive statement in error.
110 Little Falls Road
Fairfield,
07005
265-1100
[_______], 2010
3.
4. To ratifyPlan, as amended, to increase by 5,000,000 shares the appointment by the Audit Committeenumber of the Company’s Boardshares of Directors of Grant Thornton LLP as independent auditors of the CompanyCommon Stock, par value $.01 per share, available for the Company’s 2006 fiscal year;issuance thereunder; and
To assure your representation
By Order of the Board of Directors |
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WARREN P. LEVY |
| Secretary |
May 8, 2006
110 Little Falls Road
Fairfield,
07005
265-1100
Thisthe Annual Report for the year ended December 31, 2009, is not part of the proxy soliciting materials. In addition, this Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders and form of proxy are being mailed to the stockholders on or about May 10, 2006.[_______], 2010. A copy of the Company’s Annual Report for the year ended December 31, 20052009 is also enclosed.
The following table sets forth information”), dated as of April 3, 2006, concerningMarch 16, 2010, by and among the personsCompany, Victory Park Management, LLC, as administrative agent and collateral agent, and Victory Park Credit Opportunities Master Fund, Ltd. (together with its affiliates, “VPC” or “Victory Park”), in March 2010 Richard Levy became a member of the Board, Chairman of the Board and a member of the Company’s Nominating and Corporate Governance Committee. We maintain separate roles between the Chief Executive Officer and Chairman of the Board in recognition of the differences between the two responsibilities. Our Chief Executive Officer is responsible for the Company’s performance while setting our strategic direction and providing day-to-day leadership. The Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for Board meetings, and presides over meetings of the full Board of Directors. As set forth in the Restated Financing Agreement, as Chairman of the Board, Richard Levy's powers and authorities include the following: (i) presiding as Chairman at all meetings of the Board and at all meetings of Company stockholders; (ii) developing, in consultation with the Chief Executive Officer and the Lead Director, and approving the agenda for each Board meeting; (iii) reviewing in advance all information sent to the Board as a whole; (iv) calling meetings of the Board; (v) attending meetings of each committee of the Board of which he is not a member; (vi) serving as the Board’s liaison with the Chief Executive Officer; (vii) serving as a designated contact for stockholder communication to non-management directors, including for consultation and direct communication with major stockholders; (viii) leading and coordinating the annual evaluation of the Chief Executive Officer with the applicable committees of the Board; and (ix) leading and reviewing the Board’s self-assessment and evaluation process. In addition, our Board of Directors has appointed Dr. Allen Bloom as Lead Director. As Lead Director, Dr. Bloom's responsibilities include the following: (i) enhancing communication between the independent directors and the Chief Executive Officer; (ii) serving as a Board representative in communications with stockholders; (iii) providing input to the Chairman of the Board and the Chief Executive Officer on the agenda for Board meetings; and (iv) serving as an advisor to the Chief Executive Officer.
| Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2) | Option Awards ($) (3) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| J. Thomas August* | 22,500 | 17,000 (4) (5) | 4,963 | -- | -- | 73,500 (6) | 117,963 |
| Allen Bloom * | 41,500 | 26,000 (4) (7) | 4,963 | -- | -- | -- | 72,463 |
| Zvi Eiref* | 31,750 | 10,500 (8) | 10,674 | -- | -- | -- | 52,924 |
| Robert F. Hendrickson (9)* | 13,000 | 14,000 (4) (9) | 9,718 | -- | -- | -- | 36,718 |
| Jay Levy | -- | -- | -- | -- | -- | 75,000 (10) | 75,000 |
| Ronald S. Levy (11) | -- | -- | -- | -- | -- | -- | -- |
| Warren P. Levy (11) | -- | -- | -- | -- | -- | -- | -- |
| Marvin L. Miller * | 37,000 | 20,000 (4) (12) | 4,963 | -- | -- | -- | 61,963 |
| Bruce Morra * | 24,500 | 17,000 (4) (5) | 4,963 | -- | -- | -- | 46,463 |
| Peter Slusser * | 31,500 | 17,000 (4) (5) | 4,963 | -- | -- | -- | 53,463 |
* Non-employee director. | |||||||
(1) Reflects annual retainers, Board of Director and committee meeting fees and committee chairman fees paid in cash for fiscal year 2009 described above under “Director Compensation.” | |||||||
(2) The amounts in this column include the grant date fair value of restricted stock in accordance with Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation. Fair value is calculated using the closing price of our Common Stock on the date of grant. See Note 16 of the financial statements in the Company’s Annual Report for the year ended December 31, 2009 regarding assumptions underlying valuation of equity awards. The amounts also include annual retainers and Lead Director and committee chairman fees paid in stock for fiscal year 2009 described above under “Director Compensation.” These shares, which were granted under the 2006 Plan, vested immediately and are not restricted. | |||||||
(3) Amounts are calculated in accordance with the provisions of ASC 718. See Note 16 in the financial statements of the Company’s Annual Report for the year ended December 31, 2009 regarding assumptions underlying valuation of equity awards. These figures represent the grant date fair value of stock options to purchase shares of our Common Stock, which were awarded to all non-employee directors in May 2009. | |||||||
At December 31, 2009, the aggregate number of shares of Common Stock held by each director was as follows: J. Thomas August 194,525; Allen Bloom 42,946; Zvi Eiref 62,045; Jay Levy 293,246; Ronald Levy 1,823,775; Warren Levy 1,840,110; Marvin Miller 25,631; Bruce Morra 121,973; and Peter Slusser 22,973. | |||||||
| At December 31, 2009, the aggregate number of stock options outstanding for each director was as follows: J. Thomas August 80,000; Allen Bloom 260,000; Zvi Eiref 30,000; Jay Levy 350,000; Ronald Levy 370,000; Warren Levy 510,000; Marvin L. Miller 81,000; Bruce Morra 71,000; and Peter Slusser 71,000. | |||||||||||||
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| (5) Includes 7,759 shares of Common Stock | |||||||
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of April 3, 2006, concerning the beneficial ownership of Common Stock by each director and nominee for director of the Company, each executive officer of the Company listed in the Summary Compensation Table, and all directors and executive officers of the Company as a group.
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership (1) | Percent of Class | ||||
Warren P. Levy | 2,593,800 | (2)(3)(4) | 3.0 | % | ||
Ronald S. Levy | 2,408,800 | (3)(5) | 2.7 | % | ||
Jay Levy | 430,160 | (6) | * | |||
James P. Gilligan | 429,760 | (7) | * | |||
Nozer M. Mehta | 226,826 | (8) | * | |||
Paul P. Shields | 122,910 | (9) | * | |||
J. Thomas August | 193,552 | (10) | * | |||
Allen Bloom | 251,000 | (11) | * | |||
Robert F. Hendrickson | 67,000 | (12) | * | |||
Marvin L. Miller | 7,000 | (13) | * | |||
Bruce Morra | 101,000 | * | ||||
Peter Slusser | 500 | * | ||||
Officers and Directors | 6,439,039 | (2)(3)(14) | 7.2 | % |
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(6) J. Thomas August, an outside consultant, serves as our Director of Research, receiving annual compensation of $73,500 in | |||||||
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| (9) Robert F. Hendrickson served on our Board of Directors until our 2009 Annual Meeting held on June 25, 2009. Includes | |||||||
(10) Jay Levy received annual compensation of $75,000 in his capacities as Treasurer and Assistant Secretary through March 17, 2010. | ||||||||
(11) See Summary Compensation Table for disclosure related to Drs. Ronald S. Levy and Warren P. Levy, each of whom served as executive officers of the | ||||||||
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All nine
The
publicly-traded biopharmaceutical company.
DIRECTORS.
Name | Age | Year Joined Unigene | Position | |||
Warren P. Levy (1) | 54 | 1980 | President, CEO and Director | |||
Ronald S. Levy (1) | 57 | 1980 | Executive Vice President, Secretary and Director | |||
Jay Levy (1) | 82 | 1980 | Treasurer, Chairman of the Board and Director | |||
James P. Gilligan | 53 | 1981 | Vice President of Product Development | |||
Nozer M. Mehta | 58 | 1982 | Vice President, Biological R & D | |||
Paul P. Shields | 45 | 1989 | Vice President, Mfg. Operations | |||
William J. Steinhauer | 51 | 1987 | Vice President of Finance | |||
J. Thomas August | 78 | 1990 | Director of Research and Director | |||
Allen Bloom | 62 | 1998 | Director | |||
Robert F. Hendrickson | 73 | 2004 | Director | |||
Marvin L. Miller | 69 | 2005 | Director | |||
Bruce Morra | 52 | 2006 | Director | |||
Peter Slusser | 76 | 2006 | Director |
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| Name | Age | Year Joined Unigene | Position | |||||
| Richard Levy (1) | 38 | 2010 | Chairman of the Board and Director | |||||
| Warren P. Levy (1) | 58 | 1980 | President, CEO, Secretary, Treasurer and Director | |||||
| Ronald S. Levy (1) | 61 | 1980 | Executive Vice President | |||||
| James P. Gilligan | 58 | 1981 | Vice President of Product Development | |||||
| Nozer M. Mehta | 62 | 1982 | Vice President, Biological R & D | |||||
| Paul P. Shields | 49 | 1989 | Vice President, Mfg. Operations | |||||
| William Steinhauer | 55 | 1987 | Vice President of Finance | |||||
| Allen Bloom | 66 | 1998 | Director | |||||
| Zvi Eiref | 71 | 2009 | Director | |||||
| Marvin L. Miller | 73 | 2005 | Director | |||||
| Bruce Morra | 56 | 2006 | Director | |||||
| Peter Slusser | 80 | 2006 | Director | |||||
| (1) | Warren P. Levy and Ronald S. Levy are brothers and neither of them is related to Richard Levy. | |||||||
He brings to the Board in-depth experience in corporate operations and biotechnology research.
Mr. Jay Levy, a founder of the Company,
University of Connecticut and a Masters of International Business from Seton Hall University.
Brooklyn College.
Dr. James P. Gilligan He brings to the Board diverse expertise in financial and legal matters.
Mr. Robert F. Hendrickson was Senior Vice President, Manufacturing and Technology, for Merck & Co., Inc., an international pharmaceutical company, from 1985 to 1990. Since 1990, Mr. Hendrickson has been a management consultant with a number of biotechnology and pharmaceutical companies among his clients. He previously served as a director for various public and private companies since 2006. From 1995 through 2006, and 1979 to 1988, he was Chief Financial Officer of UnigeneChurch & Dwight Co., Inc. a consumer packaged goods manufacturer. From 1988 to 1995 he was Chief Financial Officer of Chanel Inc. Earlier in his career, he worked for Unilever and Arthur Andersen in Europe. He currently also serves on the board of Physicians Formula Holdings, Inc. and previously also served on the board of FGX International Holdings Ltd. Mr. Eiref graduated from 1997 through 2001Oxford University, and is currently a director of Cytogen Corporation. an English Chartered Accountant. He brings to the Board financial and corporate operations expertise.
Dr. Bruce S. Morra was elected a director of Unigene in February 2006. Dr. MorraMarvin L. Miller has been an independent consultant since 2006. From 2002 through February 2000. He was the President of West Drug Delivery Systems, a division of West Pharmaceutical Services, Inc. from April 2003 through December 2004. He served as the
5
President, COO, CFO, and board member of Biopore Corporation and Polygenetics, Inc., two related companies developing technology for drug delivery and medical devices for biomedical and industrial applications from 1998 through 2002, then served as Executive Vice President, Chief Business Officer and board member from 2002 to 2004. From 1993 through 2000, he served as President and COO of Flamel Technologies, Inc., a company developing, manufacturing and licensing drug and agrochemical delivery technologies and products. Dr. Morra previously served as director of Unigene from 2001 to 2003. He currently serves as a director for Medisys Technologies, Inc. and InforMedix Holdings, Inc. Dr. Morra holds a Ph.D. in polymer science and engineering and an M.B.A. from the University of Massachusetts, Amherst and a B.S.E. in chemical engineering from Princeton University.
Mr. Peter Slusser was elected a director of Unigene in February 2006. Since July 1988, Mr. Slusser has been the President and Chief Executive Officer of Slusser Associates, Inc., a private investment banking company. From December 1975 to March 1988,2006, he was Managing Director and head of Mergers and Acquisitions for Paine Webber Incorporated. Mr. Slusser currently serves as a director of Sparton Corporation, an undersea defense products and electronics contract manufacturer, and as a director of Ampex Corporation, a manufacturer of high speed digital recording equipment with a significant portfolio of digital video technology patents. Mr. Slusser received a B.A. degree from Stanford University and an M.B.A. degree from Harvard University.
Mr. Marvin L. Miller has been the Executive Chairman of Onconova Therapeutics, Inc., a biotechnology company, since 2002.company. From 1994 through 2002, he served as President of Nextran Inc., a biotechnology company affiliated with Baxter Healthcare Corporation. Prior to joining Nextran, Mr. Miller served as Vice President, Biotechnology Licensing for American Cyanamid Company. Previously, Mr. Miller was Vice President, Johnson & Johnson International as well as Corporate Vice President at Hoffman-LaRoche. Mr. Miller is currentlypreviously was a director of GTC Biotherapeutics, Inc., Onconova Therapeutics, Inc. and Tepnel Life Sciences PLC. Mr. Miller received a B.S. degree in pharmacy from the Philadelphia College of Pharmacy & Science and an M.B.A. degree from the University of Wisconsin.
He brings to the Board extensive experience in the biotechnology and pharmaceutical industries, as well as strategic planning.
Dr. Paul P. Shields hasMorra previously served as our Vice President, Manufacturing Operations since March 1, 2005. Dr. Shields served as Directordirector of Plant OperationsUnigene from 2001 through February 2005,to 2003. He currently serves as Plant Manager from 1995 through 2001,a director for SCOLR Pharma, Inc. and in various other capacities from 1989 through 1995.InforMedix Holdings, Inc. Dr. ShieldsMorra holds a Ph.D. in biochemistrypolymer science and engineering and an M.B.A. from the University of PennsylvaniaMassachusetts, Amherst and a B.S.B.S.E. in chemical engineering from Princeton University. He provides to the UniversityBoard a broad knowledge of Michigan.
corporate operations and corporate strategy.
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BOARD OF DIRECTORS AND COMMITTEES
During 2005, there were eight meetings ofStanford University and an M.B.A. degree from Harvard University. He brings to the Board of Directors. Except for unusual circumstances, all directors are expected to attend the Company’s Annual Meeting. All incumbent directors who were directors at that time attended the Company’s 2005 Annual Meeting. Each memberfinancial and corporate development experience.
Stockholders may contactIncorporation or By-Laws, the Board of Directors by writing to Jay Levy, Chairman of the Board, Unigene Laboratories, Inc., 110 Little Falls Road, Fairfield, NJ 07004.
Several important functions of the Board of Directors may be performed by committees that are comprised of members of the Board of Directors. The Company’s By-laws authorize the formation of these committees and grant the Board of Directors the authority to prescribe the functions of each committee and the standards for membership of each committee. The Board of Directors has two standing committees: an Audit Committee and a Compensation Committee. The Board of Directors does not have a standing nominating committee and, therefore, no nominating committee charter. The Board of Directors believes that all membersit is in the best interests of the Board should participate instockholders to ratify the consideration and nominationappointment of new Board members.
The responsibilitiesGrant Thornton. If stockholders vote against the ratification of Grant Thornton, the Audit Committee are to (i) annually select a firm ofwill consider other alternatives. Grant Thornton served as the independent public accountants to act as auditors for the Company for the year ended December 31, 2009. A representative of the Company; (ii) reviewfirm is expected to be present at the scope ofmeeting to respond to appropriate questions and he or she will have the annual audit withopportunity to make a statement, if such representative desires to do so.
The responsibilities of the Compensation Committee are to (i) review and recommend to the Board for approval, compensation (including incentive-compensation plans and equity-based compensation plans) of the Company’s CEO, executive officers and other key officers; (ii) review and approve general benefits and compensation strategies; (iii) develop and approve all stock ownership, stock option and other equity-based compensation plans of the Company; (iv) grant any shares, stock options, or other equity-based awards under all equity-based compensation plans; and (v) approve the Compensation Committee report included in the Company’s proxy statement. The current members of the Compensation Committee are Robert F. Hendrickson (Chairman), Allen Bloom, Marvin L. Miller and Bruce Morra. The Compensation Committee held three meetings during 2005. The Board of Directors adopted a written Compensation Committee charter in 2005. All members of the Compensation Committee are considered to be “independent” as that term is defined under the listing standards of the National Association of Securities Dealers.
In addition, subject to the limitations set forth in the plans, the Compensation Committee oversees the employee stock option plans and (i) selects the employees to be granted options; (ii) fixes the number of shares to be covered by the options granted; and (iii) determines the exercise price and other terms and conditions of each option.
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Directors who are not employees received an annual retainer in 2005 of $8,000 as well as a fee of $1,500 for each Board of Directors meeting attended. Non-employee Directors receive a fee of $750 for any Board of Directors meeting conducted via conference call. Allen Bloom, J. Thomas August and Robert F. Hendrickson are the current directors who received such fees in 2005. The annual retainer increased to $12,000 in 2006. Board members earn additional compensation for service on the Audit and Compensation Committees as follows: $500 per committee conference call, $1,000 per meeting of the committee if such meeting is convened solely to transact committee business, or $500 per meeting if such meeting is convened on a date or in conjunction with other activities of the Company or its Board of Directors or other committees for purposes in addition to committee business. The Chairmen of the Audit and Compensation Committees received 115% of the aforementioned fees in 2005. Beginning in 2006, the Chairmen of the Audit and Compensation Committees will receive annual retainers of $10,000 and $6,000, respectively, in addition to the annual Board retainer. Jay Levy receives annual compensation of $75,000 in his capacities as Chairman of the Board, Treasurer, and Assistant Secretary.
At the 1999 Annual Meeting, the stockholders approved a new Directors Stock Option Plan (the “1999 Plan”) to replace the 1994 Outside Directors Stock Option Plan (the “1994 Plan”). Under the 1999 Plan, each person elected to the Board of Directors who is not an employee receives, on the date of his initial election, an option to purchase 21,000 shares of Common Stock (an “Initial Option”). On May 1st of each year, each non-employee director receives an optionpresent, in person or by proxy, and entitled to purchase 10,000 shares of Common Stock if he has served as a non-employee director for at least six months prior to the May 1st grant date (an “Additional Option”). Each option granted under the 1999 Plan has a ten-year term and an exercise price equal to the market price of the Common Stock on the date of the grant. Each Initial Option vests in equal installments of 1/3 over a period of three years, commencing on the date of the grant and each Additional Option vests in its entirety on the first anniversary of the grant.
All options become exercisable upon the vesting thereof, and remain exercisable for the remaining term of the option, unless the director’s service as a non-employee director terminates prior to the expiration of the term. If the grantee’s service as a director terminates prior to the expiration of the option, the option will remain exercisable for a 90-day period following termination of service, except (i) if a non-employee director resigns due to disability, the option will remain exercisable for 180 days following termination, and (ii) if a non-employee director dies while serving as a director, or within 90 days following termination of service (180 days in the case of disability), the option will remain exercisable for 180 days following the person’s death. After such period, the option will terminate and cease to be exercisable. Under the 1999 Plan, Allen Bloom has received options to purchase 70,000 shares of Common Stock (60,000 of which are currently exercisable), J. Thomas August has received options to purchase 61,000 shares of Common Stock (51,000 shares of which are currently exercisable), Robert F. Hendrickson has received options to purchase 31,000 shares of Common Stock (7,000 of which are currently exercisable), Marvin L. Miller has received options to purchase 21,000 shares of Common Stock (7,000 of which are currently exercisable) and Bruce Morra and Peter Slusser have each received options to purchase 21,000 shares of Common Stock (none of which are currently exercisable).
Under the 1994 Plan, each person who was an outside directorvote at the timeAnnual Meeting. A broker’s discretionary authority to vote to ratify the Company’s independent auditors is not limited so there cannot be any broker non-votes regarding this proposal and abstentions will have the effect of the adoption of the 1994 Plan was granted, and each person who subsequently is elected as an outside director is granted, a ten-year option to purchase 30,000 shares of Common Stock at an exercise price equal to the market price of the Common Stock on the date of the grant. The options vest in equal increments over the three-year period following the grant. If the recipient’s service as a director terminates, the option will expire three months after the date of such termination. Under the 1994 Plan, Allen Bloom has received a grant of options to purchase 30,000 shares (all of which are currently exercisable).
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On December 5, 2001, the Board of Directors granted stock options to the entire Board of Directors as follows:
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The exercise price of these options is $.47 per share, the closing stock price on December 5, 2001. These ten-year options vested 10% on December 5, 2001 and 30% on each of June 5, 2002, December 5, 2002 and June 5, 2003. For the stock options granted to Allen Bloom and J. Thomas August, upon termination of their status as director, their time to exercise after termination will be based upon tenure as follows:
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For the stock options granted to Jay Levy, Warren P. Levy and Ronald S. Levy, in the event of termination, each option holder has three months to exercise his options.
“no” vote.
2009
the Securities Act or the Exchange Act.
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SUBMITTED BY THE AUDIT COMMITTEE OF THE COMPANY’S BOARD OF DIRECTORS |
Allen Bloom, Chairman
Zvi Eiref Marvin L. Miller Peter Slusser April 1, 2010 |
April
10
REPORT OF THE COMPENSATION COMMITTEE ON 2005 EXECUTIVE COMPENSATION
The information contained in this report shall not be deemed to be “soliciting material” or “filed” or “incorporated by reference” in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Exchange Act.
The Compensation Committee was responsible for determining the 2005 compensation of the executive officers of the Company. This Report describes the policies and other considerations used by the Compensation Committee in establishing such compensation.
The members of the Compensation Committee are familiar with various forms and types of remuneration from reports of other public corporations and from their own business experience.
The Compensation Committee determined that, because the Company was still in a research and preproduction phase at the start of 2005, compensation for 2005 for executive officers could not be related primarily to the performance of the Company’s stock or to the annual profit performance of the Company. A primary consideration for the compensation of an executive officer of the Company is his leadership effort in the development of proprietary products and processes, and in planning for future growth and profitability. Of particular importance is the signing of revenue-generating licensing and distribution agreements as well as the achievement of milestones in these agreements. Other significant factors considered by the Compensation Committee in determining executive officers’ compensation were salaries paid by other public companies in the health-care related biotechnology field to comparable officers, the duties and responsibilities of the executive officers in the past and as projected, their past performance and commitment to the Company, and incentives for future performance, although no specific weighting was allocated to any of these considerations. The executive officers were also consulted with respect to their compensation and their plans for compensation for other personnel in order to coordinate all compensation policies of the Company. These factors were used to determine compensation for the executives under their employment agreements. See “Employment Agreements.”
The compensation for the Chief Executive Officer for 2005 was based on the same policies and considerations set forth above for executive officers generally.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE COMPANY’S BOARD OF DIRECTORS
Robert F. Hendrickson, Chairman
Allen Bloom
Marvin L. Miller
April 3, 2006
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Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on the reports received by the Company and on written representations from reporting persons, the Company believes that the directors, executive officers and greater than ten percent beneficial owners complied with all section 16(a) filing requirements during 2005, except that: (i) Mr. Gilligan failed to file Form 4 for stock option transactions on December 7 and December 8, 2005 for 160,000 shares since he was out of the country and, upon discovery of the oversight, Mr. Gilligan filed a Form 4 on December 23, 2005, and (ii) Mr. Gilligan, through inadvertence, failed to file a Form 4 for one transaction on December 21, 2005 relating to a pre-arranged sale of 20,000 shares of Company common stock and, upon discovery of the oversight, Mr. Gilligan filed a Form 4 on January 26, 2006.
Code of Ethics
The Company has adopted a code of ethics. It describes specific policies concerning the ethical conduct of the Company’s business and applies to all officers, directors and employees. The Company’s code of ethics is posted on its internet website which can be found at http://www.unigene.com. Upon written request to Unigene Laboratories, Inc., 110 Little Falls Road, Fairfield, NJ 07004, we will provide without charge a copy of our code of ethics.
Employment Agreements
The Company entered into an employment agreement, effective January 1, 2000, with Warren P. Levy for an initial term of two years. Dr. Levy serves as President and Chief Executive Officer of the Company and received an annual salary of $160,000 for the initial year of the agreement. Salary increases beyond the first year are at the discretion of the Compensation Committee. Dr. Levy’s annual salary increased in February 2006 to $250,000 from $220,000 in 2005.
The Company entered into an employment agreement, effective January 1, 2000, with Dr. Ronald S. Levy for an initial term of two years. Dr. Levy serves as Executive Vice President of the Company and received an annual salary of $155,000 for the initial year of the agreement. Salary increases beyond the first year are at the discretion of the Compensation Committee. Dr. Levy’s annual salary increased in February 2006 to $231,000 from $210,000 in 2005.
Each agreement provides that, after the initial two-year term, the agreement will be renewed on a year-to-year basis unless either party notifies the other of the desire not to renew the agreement no later than three months prior to the scheduled termination date. Each agreement also provides that, upon (a) termination of the employment of the executive by the Company without cause or (b) resignation of the executive for good reason (which is defined to mean a change of control of the Company or a material diminution of the executive’s responsibilities without his consent), the Company will make a lump-sum severance payment to the executive equal to (i) the salary that the executive would have earned for the remaining term of this agreement, if the remaining term (either the initial term or as extended) is more than one year or (ii) the executive’s then-current annual salary, if the remaining term of the agreement (either the initial term or as extended) is one year or less.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation for 2005 was determined by the Compensation Committee of the Company, at the time consisting of Robert F. Hendrickson, Marvin Miller and Allen Bloom. None of Mr. Hendrickson, Mr. Miller or Mr. Bloom currently serves as an officer of the Company. There are no compensation committee interlocks between the Company and any other entity involving the Company’s or such entity’s executive officers or board members.
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No member of the Compensation Committee had a relationship that requires disclosure under Item 402(j)(3) of Regulation S-K.
Related Party Transactions
One of our directors, J. Thomas August, serves as our Research Director, receiving $73,500 in annual compensation. One of our officers, James Gilligan, exercised a stock option in December 2005 with payment of $55,000 paid to us in January 2006. This amount is included in Accounts and Other Receivable at December 31, 2005. One of our directors, Allen Bloom, was a partner in Dechert LLP, a law firm that we engaged for legal services in 2005 and that we continue to engage in 2006. Dr. Bloom retired from such firm effective December 31, 2003 and he continues as Of Counsel to the firm.
Three of the current nine-member Board of Directors, Warren P. Levy, Ronald S. Levy and Jay Levy, are executive officers of the Company. Jay Levy is the father of Warren and Ronald Levy.
To satisfy our short-term liquidity needs, Jay Levy, our Chairman of the Board and an officer, Warren Levy and Ronald Levy, each a director and executive officer of Unigene, and another Levy family member, from time to time have made loans to us. We have not made principal and interest payments on certain loans when due. However, the Levys waived all default provisions including additional interest penalties due under these loans through December 31, 2000. Beginning January 1, 2001, interest on loans originated through March 4, 2001 increased an additional 5% per year and is calculated on both past due principal and interest. This additional interest was approximately $853,000, and total interest expense on all Levy loans was approximately $1,516,000 for the year ended December 31, 2005. As of December 31, 2005, total accrued interest on all Levy loans was approximately $6,549,000 and the outstanding loans by these individuals to us, classified as short-term debt, totaled $10,105,000. In October 2005, we repaid an aggregate of $448,000 in principal on certain of these default loans. We also repaid an aggregate of $2,000,000 in principal on certain of these default loans on March 31, 2006.
Outstanding stockholder loans consist of the following at December 31, 2005 and 2004 (in thousands):
| 2005 | 2004 | |||||
Jay Levy term loans(1) | $ | 1,870 | $ | 1,870 | ||
Jay Levy demand loans(2) | 8,225 | 8,225 | ||||
Warren Levy demand loans(3) | 5 | 235 | ||||
Ronald Levy demand loans(4) | 5 | 223 | ||||
| 10,105 | 10,553 | |||||
Accrued interest | 6,549 | 5,850 | ||||
Total loans and interest due to stockholders | $ | 16,654 | $ | 16,403 | ||
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EXECUTIVE COMPENSATION
The following table sets forth, for the years 2005, 2004 and 2003, compensation paid to the Chief Executive Officer of the Company and the four other most highly compensated officers of the Company, for services rendered by such executive officers in all capacities in which they served:
SUMMARY COMPENSATION TABLE
| Annual Compensation | Long Term Compensation | ||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Other Annual Compensation | Securities Underlying Options | All Other Compensation(1) | |||||||||||
Warren P. Levy, President, Chief Executive Officer and | 2005 | $ | 218,270 | $ | 22,000 | $ | -0- | -0- | $ | 8,169 | |||||||
| 2004 | 194,689 | 2,450 | -0- | -0- | 14,004 | ||||||||||||
| 2003 | 179,453 | 1,600 | -0- | -0- | 13,989 | ||||||||||||
Ronald S. Levy, Executive Vice President and Director | 2005 | 209,033 | 21,000 | -0- | -0- | 9,968 | |||||||||||
| 2004 | 190,438 | 2,375 | -0- | -0- | 17,004 | ||||||||||||
| 2003 | 175,103 | 1,550 | -0- | -0- | 16,914 | ||||||||||||
James P. Gilligan, Vice President | 2005 | 193,424 | 19,500 | 7 269 | (2) | 120,000 | -0- | ||||||||||
| 2004 | 174,741 | 2,250 | 7,385 | (2) | -0- | -0- | |||||||||||
| 2003 | 158,713 | 1,450 | 8,365 | (2) | 90,000 | -0- | |||||||||||
Nozer M. Mehta, Vice President | 2005 | 183,597 | 18,500 | 11,252 | (2) | 65,000 | -0- | ||||||||||
| 2004 | 166,916 | 2,125 | 5,862 | (3) | -0- | -0- | |||||||||||
| 2003 | 155,118 | 1,450 | 23,586 | (4) | 75,000 | -0- | |||||||||||
Paul P. Shields, Vice President | 2005 | 166,746 | 17,000 | 3,701 | (2) | 40,000 | -0- | ||||||||||
| 2004 | 142,923 | 1,850 | 11,740 | (5) | -0- | -0- | |||||||||||
| 2003 | 137,755 | 1,300 | 5,625 | (6) | 75,000 | -0- | |||||||||||
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For information regarding directors’ compensation, please see the above section entitled “Board of Directors and Committees.”
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STOCK OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 2005
The following table sets forth certain information relating to stock options grants to each of the executive officers named in the Summary Compensation Table during the year ended December 31, 2005:
Name | Number of Shares Underlying Options Granted | Percent of Total Options shares Granted to Employees(1) | Exercise Price per Share(2) | Expiration Date | Grant Date Value | |||||||||
Warren P. Levy | -0- | — | $ | — | — | $ | — | |||||||
Ronald S. Levy | -0- | — | $ | — | — | $ | — | |||||||
James P Gilligan | 45,000 | 8 | % | $ | 2.30 | 2/28/15 | $ | 93,047 | (3) | |||||
James P. Gilligan | 75,000 | 13.3 | % | $ | 1.58 | 4/05/15 | $ | 106,373 | (4) | |||||
Nozer M. Mehta | 40,000 | 7.1 | % | $ | 2.30 | 2/28/15 | $ | 82,708 | (3) | |||||
Nozer M. Mehta | 25,000 | 4.4 | % | $ | 1.58 | 4/05/15 | $ | 35,458 | (4) | |||||
Paul P. Shields | 40,000 | 7.1 | % | $ | 2.30 | 2/28/15 | $ | 82,708 | (3) | |||||
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AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information as to the exercises of options during the year ended December 31, 2005, and the number and value of unexercised options held as of December 31, 2005, by each of the executive officers named in the Summary Compensation Table:
| Exercises During The Fiscal Year | Number of Shares Underlying Unexercised Options | Value of Unexercised In-the-Money Options(1) | |||||||||||||
| Number of Shares Acquired | Value Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||
Warren P. Levy | 0 | $ | 0 | 100,000 | 0 | $ | 394,000 | $ | 0 | ||||||
Ronald S. Levy | 0 | $ | 0 | 100,000 | 0 | $ | 394,000 | $ | 0 | ||||||
James P. Gilligan | 200,000 | $ | 453,119 | 295,000 | 110,000 | $ | 1,004,775 | $ | 327,950 | ||||||
Nozer M. Mehta | 100,000 | $ | 204,134 | 178,333 | 71,667 | $ | 676,782 | $ | 213,093 | ||||||
Paul P. Shields | 170,000 | $ | 438,461 | 132,750 | 55,000 | $ | 462,120 | $ | 165,925 | ||||||
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EQUITY COMPENSATION PLAN INFORMATION
The table below summarizes the status of our equity compensation plans at December 31, 2005:
Plan category | Number of securities (a) | Weighted-average (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | ||||
Equity compensation plans | 3,377,315 | $ | 1.05 | 817,610 | |||
Equity compensation plans | 1,601,571 | $ | 1.42 | — | |||
Total | 4,978,886 | $ | 1.17 | 817,610 | |||
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STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the Company’s Common Stock to the cumulative total return of the NASDAQ Market Index, and the RDG Microcap Biotechnology Index.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
FISCAL YEAR ENDING
COMPANY/INDEX/MARKET | 12/31/2000 | 12/31/2001 | 12/31/2002 | 12/31/2003 | 12/31/2004 | 12/31/2005 | ||||||
Unigene Laboratories, Inc. | 100.00 | 42.45 | 25.47 | 41.79 | 146.93 | 287.99 | ||||||
NASDAQ Market Index | 100.00 | 79.57 | 56.48 | 84.08 | 91.61 | 93.72 | ||||||
RDG Microcap Biotechnology Index | 100.00 | 81.00 | 31.96 | 48.43 | 40.58 | 26.40 |
Assumes $100 Invested on January 1, 2001
Assumes Dividends Reinvested
Fiscal Years Ending December 31.
The industry index chosen was the RDG Microcap Biotechnology Index.
The Broad Market index chosen was the NASDAQ Market Index.
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PROPOSAL 2
Theshares of Common Stock, par value $0.01 per share. On April 14, 2010, the Board of Directors unanimously has adopted resolutions approving and recommending that the stockholders approve an amendment to Article FOURTH of the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock,Common Stock, par value $.01 per share, from 100,000,000135,000,000 shares to 135,000,000 shares.
275,000,000 shares (the “Amendment”).
stockholders, and directed that the Amendment proposed be considered by stockholders at the Annual Meeting:
other similar agreement or partnership.
The additional
The issuance of any additional shares of Common Stock by the Company would dilute existing stockholders by reducing their percentage ownership of Common Stock. The existence
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To accomplish In that case, VPC would control the increaseoutcome of matters brought before the stockholders of the authorizedCompany.
“RESOLVED, thatNotes are converted, the Certificate of Incorporation of this Corporation be amended by changing Article FOURTH thereof so that, as amended, said Article shall be and read as follows:
FOURTH: The total number of shares of stock thatoutstanding Common Stock will increase significantly and the Corporation shall have authority to issue is one hundred thirty-five million (135,000,000), having a par value of $.01 per share. All such shares are of one classownership interests and are common stock.”
Approvalproportionate voting power of the resolution authorizingexisting stockholders (other than VPC) will be significantly diluted. However, upon conversion of the amendment toNotes, the Certificatesenior indebtedness of Incorporation tothe Company would become significantly reduced, and VPC’s interest in the Company would become that of a common stockholder, such as in the event of a liquidation of the Company.
Restated Financing Agreement, from and after the Conversion Date, if for any reason the holders have not received all of the Conversion Shares prior to the tenth (10th) business day after the Company has received a notice for conversion of the Notes, such failure will result in an “Event of Default” under the Restated Financing Agreement. Upon such an Event of Default, the holders may require the Company to redeem all or any portion of the Notes and pay VPC the price described above under “Interests of Certain Persons.” Such a mandatory redemption would likely leave the Company with insufficient working capital to operate its business and would likely force the Company to seek additional financing to fund that redemption and its operations on terms that could be unfavorable and that could materially and adversely affect the interests of the stockholders. There can be no assurance given that the Company would have sufficient cash or that it would be able to obtain such additional financing (on any terms) to fund the mandatory redemption.
ADOPTION4
PLANTO INCREASE BY 5,000,000 SHARES THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER
In 1999, the Company’s Boardnumber of Directors adopted and the stockholders approved the Unigene Laboratories, Inc. Directors Stock Option Plan (the “Directors’ Plan”). Under the terms of the Directors’ Plan, the Company was authorized to grant options for the purchase of up to 350,000 shares of its common stock, par value $.01 per share (“Common Stock”), to eligible non-employee directors. As of April 21, 2006, options for the purchase of for an aggregate of 317,000 shares of Common Stock have been granted under the Directors’ Plan. After taking into account the cancellation of options for 104,000 shares, 137,000 shares remain available for option grants under the Directors’ Plan.
In 2000,issuance thereunder. The 2006 Plan was previously filed as an exhibit to the Company’s Board of Directors adopted andQuarterly Report on Form 10-Q for the stockholders approved the Unigene Laboratories, Inc. 2000 Stock Option Plan (the “2000 Plan”). Under the terms of the 2000 Plan, the Company was authorized to issue up to 4,000,000 shares of Common Stock pursuant to the exercise of stock options granted to eligible employees and consultants. As of April 21, 2006, options for an aggregate of 3,888,265 shares of Common Stock had been granted. After taking into account the cancellation of options for 219,875 shares, 331,610 shares remain available for option grants under the 2000 Plan.
quarter ended June 30, 2009.
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returns to the Company’s stockholders. In the current environment of evolving practice in the area of equity-based compensation, the 2006 Plan will alsostockholders and give the Company the flexibility to offer a variety of types of equity compensation to remain competitive in recruiting and retaining qualified key personnel.
The 2006 Plan is being presented
A.
AS AMENDED
The general purpose of the 2006 Plan is to assist the Company and its subsidiaries in attracting and retaining valued employees, consultants and non-employee directors by offering them a greater stake in the Company’s success and a closer identity with it, and to encourage ownership of the Company’s stock by such employees, consultants and non-employee directors.
Summary of In addition, it gives the Company flexibility to reward employees with an alternative to cash awards.
. The following general description of certain features of the 2006 Plan is qualified in its entirety by reference to the 2006 Plan which is attached hereto as Appendix B. Capitalized terms not otherwise defined in this summary have the meanings given to them in the 2006 Plan.
General.The 2006 Plan will authorizeauthorizes the grant of Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Phantom Stock, and other stock-based awards (collectively, “Awards”“Awards”). Options granted under the 2006 Plan may be either “incentive stock options” as defined in section 422 of the Internal Revenue Code (the “Code”“Code”), or nonqualified stock options, as determined by the Committee.
select the employees, consultants and non-employee directors who will receive Awards pursuant to the 2006 Plan;
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determine the type or types of Awards to be granted to each participant;
| · | select the employees, consultants and non-employee directors who will receive Awards pursuant to the 2006 Plan; |
determine the number of shares of Common Stock to which an Award will relate, the terms and conditions of any Award granted under the 2006 Plan (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award and waivers or accelerations thereof, and waivers of or modifications to performance goals relating to an Award, based in each case on such considerations as the Committee shall determine) and all other matters to be determined in connection with an Award;
| · | determine the type or types of Awards to be granted to each participant; |
determine whether, to what extent, and under what circumstances an Award may be canceled, forfeited, or surrendered;
| · | determine the number of shares of Common Stock to which an Award will relate, the terms and conditions of any Award granted under the 2006 Plan (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award and waivers or accelerations thereof, and waivers of or modifications to performance goals relating to an Award, based in each case on such considerations as the Committee shall determine) and all other matters to be determined in connection with an Award; |
determine whether, and to certify that, performance goals to which the settlement of an Award is subject are satisfied;
| · | determine whether, to what extent, and under what circumstances an Award may be canceled, forfeited, or surrendered; |
correct any defect or supply any omission or reconcile any inconsistency in the 2006 Plan, and adopt, amend and rescind such rules, regulations, guidelines, forms of agreements and instruments relating to the 2006 Plan as it may deem necessary or advisable; and
| · | determine whether, and to certify that, performance goals to which the settlement of an Award is subject are satisfied; |
make all other determinations as it may deem necessary or advisable for the administration of the 2006 Plan.
| · | correct any defect or supply any omission or reconcile any inconsistency in the 2006 Plan, and adopt, amend and rescind such rules, regulations, guidelines, forms of agreements and instruments relating to the 2006 Plan as it may deem necessary or advisable; and make all other determinations as it may deem necessary or advisable for the administration of the 2006 Plan. |
specified levels of or increases in the Company’s, a division’s or a Subsidiary’s return on capital, equity or assets;
| · | specified levels of or increases in the Company’s, a division’s or a Subsidiary’s return on capital, equity or assets; |
earnings measures/ratios (on a gross, net, pre-tax or post-tax basis), including diluted earnings per share, total earnings, operating earnings, earnings growth, earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA);
| · | earnings measures/ratios (on a gross, net, pre−tax or post−tax basis), including diluted earnings per share, total earnings, operating earnings, earnings growth, earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA); |
net economic profit (which is operating earnings minus a charge to capital);
| · | net economic profit (which is operating earnings minus a charge to capital); |
net income;
| · | net income; |
operating income;
| · | operating income; |
sales;
| · | sales; |
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sales growth;
| · | sales growth; |
gross margin;
| · | gross margin; |
direct margin;
| · | direct margin; |
share price (including but not limited to growth measures and total shareholder return);
| · | share price (including but not limited to growth measures and total shareholder return); |
operating profit;
| · | operating profit; |
per period or cumulative cash flow (including but not limited to operating cash flow and free cash flow) or cash flow return on investment (which equals net cash flow divided by total capital);
| · | per period or cumulative cash flow (including but not limited to operating cash flow and free cash flow) or cash flow return on investment (which equals net cash flow divided by total capital); |
inventory turns;
| · | inventory turns; |
financial return ratios;
| · | financial return ratios; |
market share;
| · | market share; |
balance sheet measurements such as receivable turnover;
| · | balance sheet measurements such as receivable turnover; |
improvement in or attainment of expense levels;
| · | improvement in or attainment of expense levels; |
improvement in or attainment of working capital levels;
| · | improvement in or attainment of working capital levels; |
debt reduction;
| · | debt reduction; |
strategic innovation;
| · | strategic innovation; |
customer or employee satisfaction;
| · | customer or employee satisfaction; |
individual objectives;
| · | individual objectives; |
any other financial or other measurement deemed appropriate by the Committee as it relates to the results of operations or other measurable progress of the Company and Subsidiaries (or any business unit thereof); and
| · | any other financial or other measurement deemed appropriate by the Committee as it relates to the results of operations or other measurable progress of the Company and Subsidiaries (or any business unit thereof); and |
any combination of any of the foregoing criteria.
| · | any combination of any of the foregoing criteria. |
Abstentions are considered as shares present and entitled to vote and, therefore, have the effect of a “no” vote on this proposal. Broker non-votes are not considered as shares entitled to vote, and will not be counted as voted on this proposal, and, therefore, will not have any effect on the outcome of the vote on this proposal. STOCK BASED-INCENTIVE COMPENSATION PLAN. prime rate plus 7%, subject to a floor of 14% per annum and a cap of 18% per annum. . . AND DIRECTOR NOMINATIONS WARREN P. LEVY ” 5. In their discretion, in the transaction of any other business that may properly come before such meeting. Please sign exactly as your name appears on this card. If stock is registered in the names of two or more joint owners or trustees, each joint owner or trustee should sign this proxy. When signing as an executor, administrator, trustee, guardian, agent or attorney, please give your full title as such.Price.Price. The Committee will determine the exercise price of an Option at the time the Option is granted. The exercise price under an incentive stock option or non-qualified stock option will not be less than 100% of the fair market value of Common Stock on the date the Option is granted. However, any participant who owns more than 10% of the combined voting power of all classes of the Company’s outstanding Common Stock (a “10% Stockholder”“10% Stockholder”) will not be eligible for the grant of an incentive stock option unless the exercise price of the incentive stock option is at least 110% of the fair market value of the Common Stock on the date of grant.23Consideration.Consideration. The means of payment for shares issued upon exercise of an Option will be specified in each Option agreement and generally may be made by the participant in cash, in a cash payment through a broker or bank from the proceeds of the sale of the shares purchased through the exercise of the Option (a “cashless exercise”“cashless exercise”), with the Committee’s consent, in whole or in part with shares of Common Stock, or a combination of the foregoing methods. The Committee may also permit Options to be exercised with such other consideration as it deems appropriate, as reflected in the applicable Award agreement.Option.Option. The term of an Option granted under the 2006 Plan will be no longer than ten years from the date of grant. In the case of an Option granted to a 10% Stockholder, the term of an incentive stock option will be for no more than five years from the date of grant.SAR”SAR”) entitles the recipient to receive, upon exercise of the SAR, the increase in the fair market value of a specified number of shares of Common Stock from the date of the grant of the SAR to the date of exercise, payable in cash, shares of Common Stock, or any combination thereof. The Committee shall set the exercise price of an SAR which shall not be less than the Fair Market Value of the underlying Common Stock on the date of the grant. Each grant of SARs shall specify the length of service and/or any applicable performance goals that must be achieved before it becomes exercisable and may specify permissible dates or periods on or during which the SAR shall be exercisable. No SAR may be exercised more than ten years after the grant date.whichthat are subject to forfeiture upon specified events during the restriction period. Each grant of Restricted Stock shall specify the duration of the restriction period and any other conditions under which the Restricted Stock would be forfeitable to the Company, including any applicable performance goals, and will include restrictions on transfer to third parties during the restriction period.Vesting.. Any Award may provide for full vesting, early exercise rights or termination of a restriction or deferral period in the event of a Change in Control or similar transaction or event.24Awards.Awards. In general, during a participant’s lifetime, his or her Awards shall be exercisable only by the participant and shall not be transferable other than by will or laws of descent and distribution. However, the Committee may provide for limited lifetime transfers of Awards, other than incentive stock options, to certain family members, trusts for the benefit of family members, or partnerships in which such family members are the only partners. In addition, the Committee may provide in any Award agreement terms and conditions under which the participant must sell or offer to sell any Awards, whether or not vested, and any Common Stock acquired pursuant to an Award to the Company.Services.Services. Each Option or SAR agreement shall provide rules for the exercise of such Award following termination of employment for any reason, which may include, but not be limited to, death, disability, termination for Cause or retirement. The Committee may take actions and provide in Award agreements for such post-termination rights whichthat it believes equitable under the circumstances or in the best interests of the Company with respect to Awards that are not fully vested in the event of termination of employment or service by reason of death, disability, normal retirement, early retirement with the consent of the Committee, other termination or a leave of absence that is approved by the Committee, or in the event of hardship or other special circumstances that are approved by the Committee.other-equity awardsother equity Awards that are outstanding or take such other actions as it deems appropriate, including immediately distributing amounts with respect to unvested Awards that would not otherwise be payable as of the date of the Change in Control.13d-313d−3 under the 1934 Act) of thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities (the “Voting Securities”“Voting Securities”);“Incumbent Board”“Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that if the election, or nomination for election by the Company’s Stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board, and provided further that any reductions in the size of the Board that are instituted voluntarily by the Incumbent Board shall not constitute a Change in Control, and after any such reduction the “Incumbent Board” shall mean the Board as so reduced;25 not own, directly or indirectly, immediately following such merger or consolidation, more than seventy percent (70%) of the combined voting power of the outstanding Voting Securities of the corporation resulting from such merger or consolidation;Plan.Plan. The 2006 Plan became effective on June 15, 2006, when it was approved by Company stockholders. The amendment to the 2006 Plan to increase by 2,000,000 shares the number of shares available for award under the 2006 Plan became effective June 25, 2009, when it was approved by Company stockholders. The amendment to the 2006 Plan to increase by 5,000,000 shares the number of shares available for award under the 2006 Plan will bebecome effective upon its approval by Company stockholders. However, these shares will not be available for issuance under the 2006 Plan unless and until the Company stockholders approve an increase in the number of authorized shares of Common Stock, as described in Proposal 3 above, since the Company does not have sufficient authorized, unissued and unreserved shares for that purpose. The Board of Directors has the authority to amend or terminate the 2006 Plan at any time; provided, however, that stockholder approval is required for any amendment which (i) increases the number of shares available for Awards under the 2006 Plan (other than to reflect a change in the Company’s capital structure), (ii) decreases the price at which Awards may be granted, or (iii) as otherwise required by applicable law, regulation, or rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted. The 2006 Plan will terminate automatically on June 15, 2016, which is ten years after it iswas approved by stockholders.2627Non-Qualified“disqualifying disposition”“disqualifying disposition”), the participant will realize ordinary income at that time equal to the excess of the fair market value of the shares on the exercise date over the exercise price of the incentive stock option. Any amount realized upon a disqualifying disposition in excess of the fair market value of the shares on the exercise date of the incentive stock option will be treated as capital gain and will be treated as long-term capital gain if the shares have been held for more than one year. If the sales price is less than the sum of the exercise price of the incentive stock option and the amount included in ordinary income due to the disqualifying disposition, this amount will be treated as a short-term or long-term capital loss, depending upon whether the shares have been held for more than one year. Notwithstanding the above, individuals who are subject to Alternative Minimum Tax may recognize ordinary income upon exercise of an incentive stock option.28aan SAR is granted. Upon exercising aan SAR, a participant will realize ordinary income in an amount equal to the cash or the fair market value of the shares received minus any amount paid for the shares, and, subject to Section 162(m) of the Code, the Company will be entitled to a corresponding deduction. A participant’s tax basis in the shares of Common Stock received upon exercise of aan SAR will be equal to the fair market value of such shares on the exercise date, and the participant’s holding period for such shares will begin at that time. Upon sale of the shares of Common Stock received upon exercise of aan SAR, the participant will realize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year. The amount of such gain or loss will be equal to the difference between the amount realized in connection with the sale of the shares, and the participant’s tax basis in such shares.New Plan BenefitsThere have been no grants made under the 2006 Plan. Because benefits under the 2006 Plan will depend on the actions of the Committee and the value of the Company’s Common Stock, it is not possible to determine the benefits that will be received if the 2006 Plan is approved by stockholders.adoption ofamendment to the Company’s 2006 Stock-Based Incentive Compensation Plan requires the affirmative vote of the holders of a majority of the shares of Common Stock present, in person or by proxy, and entitled to vote at the Annual Meeting.29 2006 Stock-Based Incentive Compensation Plan Name and Principal Position Number of Options Warren P. Levy, President, Chief Executive Officer, Secretary, Treasurer and Director — — $58,880 160,000 Ronald S. Levy, Executive Vice President — — $44,160 120,000 — — $22,080 60,000 James P. Gilligan, Vice President of Product Development — — $25,760 70,000 Paul P. Shields, Vice President, Manufacturing — — $22,080 60,000 Nozer M. Mehta, Vice President, Biological R&D — — $23,920 65,000 Executive Group — — $196,880 535,000 Non-Executive Director Group (2) $121,500 151,886 $36,271 90,000 Non-Executive Officer Employee Group — — $19,460 46,000 ADOPTION OF AMENDMENT TOPROPOSAL 4RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORSAudittable below summarizes the status of our equity compensation plans at December 31, 2009:Plan category 4,512,915 $ 1.42 3,156,063 330,000 $ 0.77 — Total 4,842,915 $ 1.38 3,156,063 a. Provide compensation that is as competitive as possible, given the financial constraints of the Company, measured against companies of similar size in our industry. b. Reward individual performance in achieving Company goals and objectives. c. Assure that executive interests are aligned with stockholder interests by providing long-term equity incentives. d. Provide sufficient flexibility to ensure that the Company can respond promptly to changing needs through a variety of cash and equity compensation incentives. e. Reward both group and individual performance in the Company’s achievement of both short-term and long-term successes. · Base salary and benefits are intended to attract and retain executives and to reward skills, experience and performance in the roles they play within the Company. These components of compensation are designed to reflect the practices in the biotechnology and pharmaceutical industries where we compete for talent. · Annual cash bonuses, when awarded, are designed to help keep employees focused on meeting or exceeding short-term business objectives and individual performance goals. Such bonuses have not been a significant part of total compensation. · · The benefits provided by change-in-control severance agreements encourage certain key employees to continue managing the Company’s business in the face of rumored or actual fundamental corporate changes without being unduly distracted by the uncertainties of their personal affairs. · Compensation is reviewed at least annually in comparison to peers within the Company and similarly sized peers within the biotechnology and pharmaceutical industries to ensure that Company compensation levels serve both incentive and retention purposes. In 2008, the Compensation Committee engaged the services of Frederick Cook & Sons, a compensation consulting firm, to review the Company’s overall compensation program and to develop a group of peer companies to be used for comparison purposes. The peer group consisted of companies engaged in the biopharmaceutical industry and, to the extent possible, those generally similar in revenue and market cap. The Compensation Committee considered, as part of its evaluation and recommendation of base salary, annual cash incentive compensation and long-term equity incentive compensation, levels of such compensation in the peer group. Acusphere, Inc. Nastech Pharmaceutical Company BioCryst Pharmaceuticals, Inc. NeurogesX, Inc. Cell Therapeutics Inc. Penwest Pharmaceuticals Co. DepoMed, Inc. Peregrine Pharmaceuticals Inc. Durect Corporation Pharmacopeia Inc. Dyax Corporation SCOLR Pharma, Inc. Emisphere Technologies, Inc. SciClone Pharmaceuticals, Inc. Encysive Pharmaceuticals, Inc. SuperGen, Inc. Immunomedics Inc. Targacept Inc. Inspire Pharmaceuticals, Inc. Telik, Inc. Introgen Therapeutics Inc. · Compensation is also reviewed in comparison to the practices of companies with 50-149 employees as shown in the latest Radford Biotechnology Executive Compensation Survey, published by Aon Consulting which is a resource of competitive intelligence for positions in the biotechnology and pharmaceutical industries (the “Radford Data”). · Competitiveness of the compensation program is also evaluated based on the personal knowledge of Committee members having familiarity with various forms and types of compensation both from public reports issued by other companies and from their own business experience in other companies. · Additional weighting is applied to individual compensation levels based on the personal contributions made by the individual executive and the recommendations of the CEO. · In addition to the above, actual cash compensation changes reflect the current cash position of the Company and its historical practice of emphasizing equity compensation. · The Company historically and currently provides long-term incentive compensation through the granting of stock options and, beginning in 2008, grants of restricted stock in lieu of a portion of additional cash compensation. The 2006 Plan permits the Committee to grant a variety of equity for both incentive and retention purposes. Equity compensation has historically been an important element of compensation due to the Company’s need to conserve cash. · base salary; · annual discretionary cash bonuses; · long-term incentives, consisting of restricted stock and stock option awards; and · non-qualified deferred compensation. appointed Grant Thornton LLP, independent public accountants,reviewed and discussed the foregoing Compensation Discussion and Analysis, which is required by Item 402(b) of Regulation S-K, with management. Based on our review and discussions with management, we recommended to serve asthe Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Company’s independent auditorsAnnual Report on Form 10-K for our fiscal year ended December 31, 2009.commenced January 1, 2006. Although notended December 31, 2009. While we are only required byto report on the Company’s Certificate of Incorporation or By-Laws,next three highest paid executive officers, we have included four individuals as this more appropriately reflects our leadership structure.Name and Principal Position Year Salary ($) Bonus ($) Ronald S. Levy, Executive Vice President, Secretary and Director James P. Gilligan, Vice President of Product Development Paul P. Shields, Vice President, Manufacturing (1) The amounts in this column represent the grant date fair value of restricted stock in accordance with ASC 718. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For restricted stock, fair value is calculated using the closing price of our Common Stock on April 17, 2008, the date of grant. See Note 16 of the financial statements of the Company’s Annual Report for the year ended December 31, 2009 regarding assumptions underlying valuation of equity awards. (2) Amounts are calculated in accordance with ASC 718. See Note 16 of the financial statements of the Company’s Annual Report for the year ended December 31, 2009 regarding assumptions underlying valuation of equity awards. These figures represent the grant date fair value of stock options to purchase shares of our Common Stock under the 2006 Plan. (3) All Other Compensation includes: Name Year Nonqualified Deferred Compensation Reimbursement for Unused Vacation Days ($) Matching Contribution to 401(k) Plan ($) Health/Life Insurance Premiums ($) Other ($) Total ($) (1) In 2008, the Board of Directors adopted a policy prohibiting the carryover of vacation days for periods beyond one year and began a program of phasing our existing obligations to pay for days beyond that period over five equal annual payments. However, no payments were made during 2009. Board of Directors believes that it is in the best interests of the stockholders to ratify the appointment of Grant Thornton. If stockholders vote against the ratification of Grant Thornton, the Company will consider other alternatives. Grant Thornton served as the independent auditors for the Company for thefiscal year ended December 31, 2005.2009 to each of our executive officers listed in the Summary Compensation Table above.Name Warren P. Levy April 6, 2009 160,000 -- $0.60 Ronald S. Levy April 6, 2009 120,000 $0.60 William Steinhauer April 6, 2009 60,000 $0.60 James P. Gilligan April 6, 2009 70,000 $0.60 Paul P. Shields April 6, 2009 60,000 $0.60 Nozer M. Mehta April 6, 2009 65,000 $0.60 (1) Options vest in four equal installments on each of April 6, 2010, April 6, 2011, April 6, 2012 and April 6, 2013. OPTION AWARDS STOCK AWARDS Name Exercisable Unexercisable Warren P. Levy 100,000 -- $0.47 12/4/11 -- -- 62,500 $1.43 4/16/18 -- $0.60 4/5/19 Ronald S. Levy 100,000 -- $0.47 12/4/11 -- -- 37,500 $1.43 4/16/18 -- $0.60 4/5/19 William Steinhauer 5,000 -- $1.88 5/25/10 -- -- 14,000 -- $0.31 4/13/13 30,000 -- $2.30 2/28/15 10,000 -- $1.58 4/5/15 65,000 -- $4.02 4/19/16 22,500 $1.43 4/16/18 -- 4/5/19 James P. Gilligan 80,000 -- $0.40 7/17/11 -- -- 30,000 -- $0.31 4/13/13 45,000 -- $2.30 2/28/15 75,000 -- $1.58 4/5/15 125,000 -- $4.02 4/19/16 23,750 $1.43 4/16/18 -- $0.60 4/5/19 Paul Shields 10,000 -- $1.88 5/25/10 -- -- 40,000 -- $2.30 2/28/15 55,000 -- $4.02 4/19/16 20,000 $1.43 4/16/18 -- $0.60 4/5/19 Nozer M. Mehta 10,000 -- $1.88 5/25/10 -- -- 75,000 -- $0.31 4/13/13 40,000 -- $2.30 2/28/15 25,000 -- $1.58 4/5/15 55,000 -- $4.02 4/19/16 21,250 $1.43 4/16/18 -- $0.60 4/5/19 (1) These unexercisable option shares at December 31, 2009 were granted in April 2008 and vest 25% per year from April 2009 through April 2012. (2) These unexercisable option shares at December 31, 2009 were granted in April 2009 and vest 25% per year from April 2010 through April 2013. Warren P. Levy (1) -- 25,000 4,339 -- 109,879 Ronald S. Levy (1) -- 25,000 39,972 -- 126,792 William Steinhauer -- -- -- -- -- James P. Gilligan -- -- -- -- -- Paul P. Shields -- -- -- -- -- Nozer M. Mehta -- -- -- -- -- (1) representativeCHANGE IN CONTROLfirmCompany.presentrenewed on a year-to-year basis unless either party notifies the other of the desire not to renew the agreement no later than three months prior to the scheduled termination date. The Second Amendment establishes the annual salaries of Warren Levy and Ronald Levy (the “Executives”) at the meeting$327,750 and $280,250, respectively. It also grants each executive an option to respond to appropriate questions and will have the opportunity to make a statement, if such representative desires to do so.Audit Fees. During the fiscal years ended December 31, 2005 and December 31, 2004, the fees billed by the principal accountant for the auditpurchase 100,000 shares of the Company’s financial statements for such fiscal years and forCommon Stock, exercisable at $1.20 per share. The option will vest upon the reviewsthree-month anniversary of the hiring and appointment of a new CEO of the Company and will be exercisable (to the extent vested) until the earlier of three and one-half years following the vesting date or ten years following the grant date.interim financial statements were approximately $487,000hiring of a new CEO the executive agrees that he will not resign for good reason due to material diminution for three months thereafter), the Company will make a lump-sum severance payment to the executive payable six months following termination equal to the executive’s then-current annual salary plus the cash value of all accrued vacation days. In addition, the Company will make a payment equal to six months of Executive’s then-current annual salary, which will be paid over the six month period immediately following the twelve month anniversary of the termination date. In addition, upon termination or resignation as described above, all of the executive’s outstanding and $126,000, respectively.Tax Fees. Duringunvested stock options will vest in full immediately and any of the fiscalexecutive’s options will remain exercisable until the earlier of three and one-half years ended December 31, 2005following such termination date or until the termination date of the option. If permitted pursuant to the Unigene healthcare plan, Executive will continue to receive healthcare benefits under Unigene’s healthcare plan, with Unigene paying the portion of the premium associated with the coverage that it would pay if Executive was then a current eligible employee and December 31, 2004, Grant Thornton provided tax serviceswith family coverage at least as favorable to Executive as the most extensive healthcare benefit offered by Unigene to any employee, for a period of 18 months following the date of termination. The agreements further provide that, upon the executive’s termination of employment due to disability, the Company will make a lump-sum severance payment to the executive equal to the executive’s then-current annual salary. Under the deferred compensation plan described above, upon a change in control, any remaining contributions would be made to the accounts of Warren Levy and Ronald Levy.amounts of $-0- and $13,000, respectively. The 2004 tax services were related to determiningagreement), or (ii) the tax impact in connectionexecutive’s employment with the potentialCompany is terminated (x) within twelve months following a change in control, by the Company without cause or by the executive for good reason (which is defined to mean a material diminution, without the executive’s consent, in the executive’s base salary or the executive’s authority, duties or responsibilities, or a relocation, without the executive’s consent, of the executive’s primary site of employment to a location greater than fifty (50) miles from the executive’s primary site of employment immediately preceding such relocation), (y) within twelve months following the Victory Park debt restructuring transaction, by the Company without cause, or (z) within six months following the Company’s hiring of Unigene’sa new CEO (provided that such new CEO is hired within the twelve months following the Victory Park debt restructuring transaction), by the Company without cause, the Company will provide severance to corporate officers.All Other Fees. During the executive equal to the executive’s then-current annual salary. The severance payments will be paid in the form of base salary continuation, commencing with the first regular pay cycle following sixty days after the executive’s termination of employment.years ended December 31, 2005year that requires disclosure under Item 404 of Regulation S-K.December 31, 2004, Grant Thornton did not provide any professional services other than auditnominee for director of the Company, each Named Executive Officer and tax services for the Company.Before Grant Thornton is engagedpersons who are known by the Company to render audit or non-audit services,own beneficially more than 5 percent of the engagementoutstanding shares of Common Stock. In each table, the number of shares beneficially owned by each stockholder is approveddetermined under rules issued by the Company’s Audit Committee.Securities and Exchange Commission (Rule 13d-3(d)(1) under the Exchange Act) and includes voting or investment power with respect to securities. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and includes any shares to which an individual or entity has the right to acquire beneficial ownership within 60 days of April 1, 2010, through the exercise of any warrant, stock option or other right. The Audit Committee approved 100%inclusion in this calculation of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares. Each of the tax fees incurred in 2005.Ratificationstockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable. As of April 1, 2010, there were 92,136,551 outstanding shares of Common Stock.appointmentoutstanding shares of Grant Thornton requiresCommon Stock.Name and Address of Beneficial Owner 9.4% 5.1% (2) Based on information contained in a Questionnaire for Directors, Executive Officers and 5% Stockholders dated March 30, 2010 completed by the Wynnefield Reporting Persons, each of whom has shared voting and dispositive power for the reported shares. The “Wynnefield Reporting Persons” are Wynnefield Partners Small Cap Value, L.P., Wynnefield Small Cap Value Offshore Fund, Ltd., Wynnefield Partners Small Cap Value, L.P. I, Nelson Obus and Joshua Landes. Messrs. Obus and Landes each disclaim any beneficial ownership of these shares. The Wynnefield Reporting Persons are each separate and distinct entities with different beneficial owners (whether designated as limited partners or stockholders). affirmative vote ofbeneficial ownership amounts in the holders of a majority ofpreceding table do not include the shares of Common Stock present,issuable upon conversion of the Notes described above in Proposal 3. The conversion of such Notes at a subsequent date, pursuant to the terms and conditions therein, would result in a change in control of the Company.Name of Beneficial Owner Richard Levy 8,645,814 (2) 9.4 % Warren P. Levy 2,105,110 (3) 2.3 % Ronald S. Levy 2,043,575 (4) 2.2 % James P. Gilligan 541,895 (5) * Nozer M. Mehta 390,245 (6) * Allen Bloom 327,946 (7) * J. Thomas August 287,025 (8) * William Steinhauer 264,695 (9) * Bruce Morra 205,473 (10) * Paul P. Shields 171,100 (11) * Marvin L. Miller 123,298 (12) * Peter Slusser 106,473 (13) * Zvi Eiref 88,712 (14) * 15,301,361 (15) 16.2 % * Less than one percent. (1) Unless otherwise noted, each person or group member has reported sole voting and sole dispositive power with respect to securities shown as beneficially owned by him. (2) (3) Includes 265,000 shares of Common Stock that Warren P. Levy has the right to acquire upon the exercise of stock options that are exercisable either immediately or within 60 days. (4) Includes 205,000 shares of Common Stock that Ronald S. Levy has the right to acquire upon the exercise of stock options that are exercisable either immediately or within 60 days. (5) Includes 420,000 shares of Common Stock that James P. Gilligan has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (6) Includes 263,750 shares of Common Stock that Nozer M. Mehta has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (7) Includes 260,000 shares of Common Stock that Allen Bloom has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (8) Includes 80,000 shares of Common Stock that J. Thomas August has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (9) Includes 184,000 shares of Common Stock that William Steinhauer has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (10) Includes 71,000 shares of Common Stock that Bruce Morra has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (11) Includes 160,000 shares of Common Stock that Paul P. Shields has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (12) Includes 81,000 shares of Common Stock that Marvin L. Miller has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (13) Includes 71,000 shares of Common Stock that Peter Slusser has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (14) Includes 10,000 shares of Common Stock that Zvi Eiref has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. (15) Includes an aggregate of 2,070,750 shares of Common Stock that such persons have the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. proxy,these persons to us totaled $15,737,517, for an aggregate owed to them of $19,224,588. These loans are collateralized by secondary security interests in our equipment, real property and entitledcertain of our patents. 2009 2008 Long-term loans, current portion (1) $ 2,361 $ -- Long-term loans (1) 13,377 15,738 15,738 15,738 Accrued interest, short-term 1,298 -- Accrued interest, long-term 2,189 2,084 Total loans and interest $ 19,225 $ 17,822 votethe deferred payment schedule contained in the notes. These loans were subordinated to the Victory Park notes as of September 30, 2008.Annual Meeting.THE BOARD OF DIRECTORS RECOMMENDSIn addition, pursuant to the Restated Financing Agreement, in March 2010, Richard Levy became a member of the Board, Chairman of the Board and a member of the Company’s Nominating and Corporate Governance Committee and Victory Park has the right, subject to certain conditions, to designate an individual to fill the current vacant seat on the Board. That individual (the “VPC Designee”) will become a member of the Board’s Compensation Committee and Audit Committee. Moreover, we agreed that until such time as (i) the aggregate principal amount outstanding under the senior secured convertible notes issued to Victory Park is less than $5 million and (ii) Victory Park beneficially owns less than twenty percent of the issued and outstanding shares of our Common Stock, our Nominating and Corporate Governance Committee shall take all actions reasonably necessary to recommend the nomination of, and the Board shall nominate for reelection to the Board, Richard Levy and the VPC Designee (or substitutes or replacements designated by Victory Park).VOTEFOR THE RATIFICATION OF GRANTrelated party transaction shall be approved or ratified by the Audit Committee if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party. This obligation is set forth in writing in our Audit Committee Charter, a copy of which is available on our website, http://www.unigene.comTHORNTON.To identify related party transactions, each year we require our directors and officers to complete Director and Officer Questionnaires identifying any transactions with us in which the officer or director or their family members have an interest. We review related party transactions due to the potential for a conflict of interest. A conflict of interest occurs when an individual's private interest interferes, or appears to interfere, in any way with our interests. We expect our directors, officers and employees to act and make decisions that are in our best interests and our code of ethics encourages them to avoid situations that present a conflict between our interests and their own personal or professional interests. A copy of our code of ethics is available on our website, http://www.unigene.com30BY STOCKHOLDERS20072011 Annual Meeting must be received by the Company on or before January 8, 2007[_______], 2011 in order to be considered for inclusion in the Company’s proxy statement and form of proxy for the Annual Meeting, and must also meet the other requirements set forth in the rules of the Securities and Exchange Commission relating to such stockholder proposals. If the proposal is received by the Company less than 45 days prior to the anniversary of the mailing date ofwhen this proxy statement was sent, the persons named as proxies in the Company’s proxy material for the 20072011 Annual Meeting will have the discretionary authority to vote on the matter in accordance with their best judgment without disclosure in the proxy statement of such matter or of how the proxy holders intend to exercise their discretionary voting authority.therefortherefore in addition to their regular salaries) to solicit proxies personally and by telephone, email and telefax. The Company has retained Regan & Associates, Inc.The Altman Group to aid in the solicitation of proxies, for which such firm will be paid a fee of $17,500.$5,500 plus expenses.· Financial Statements and Supplementary Data (Part II, Item 8); · Management’s Discussion and Analysis of Financial Condition and Results of Operations (Part II, Item 7); and · Qualitative and Quantitative Disclosures About Market Risk (Part II, Item 7A). By Order of the Board of Directors RONALD S. LEVYSecretary Fairfield,May 8, 200631UNIGENE LABORATORIES, INC.CHARTER OFTHE AUDIT COMMITTEEJUNE 16, 2005ORGANIZATION. This Charter governs operations of the Audit Committee (the “Committee”) of Unigene Laboratories, Inc. (the “Company”). Committee shall review and reassess the adequacy of this Charter at least annually, recommend any desired changes to the Charter to theCompany’s Board of Directors (the “Board”)has approved, and recommended for approval and have the Charter published at least every three years in accordance with applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The Committee shall be appointed by the Board and shall be comprised of at least three directors, each of whom is independent of management and the Company. Members of the Committee shall be considered independent as long as they do not accept any consulting, advisory, or other compensatory fee from the Company disallowed under all applicable rules and regulations, are not an affiliated person of the Company or its subsidiaries, meet the independence and financial literacy requirements of The NASDAQ Stock Market, Inc. Marketplace Rules and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), if applicable, and have no relationship that,stockholders, a 5,000,000 share increase in the opinionnumber of the Board, may interfere with the exercise of their independence from the management and the Company. However, one director who does not meet the NASDAQ definition of independence, if applicable, but who meets the criteria set forth in Section 10A(m)(3)shares available for award under the Exchange Act and the rules thereunder, and who is not a current officer or employee or a family member of such person, may serve for no more than two years on the audit committee if the Board, under exceptional and limited circumstances, determines that such individual’s membership is required by the best interests of the Company and its stockholders. No member shall have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the prior three years. All Committee members shall be financially literate and at least one member shall be a “financial expert,” as defined by the rules and regulations of the SEC.STATEMENT OF POLICY. The Committee shall provide assistance to the Board in fulfilling its oversight responsibility to the stockholders, potential stockholders, the investment community, and others relating to the integrity of the Company’s financial statements and the financial reporting process, the systems of internal accounting and financial controls, performance of the Company’s internal audit function and outside auditors, the outside auditor’s qualifications and independence, the annual independent audit of the Company’s consolidated financial statements, the legal compliance and ethics programs as established by management and the Board, and the Company’s compliance with ethics policies and legal policies and financial regulatory requirements. In so doing, it is the responsibility of the Committee to maintain free and open communication among the Committee, the outside auditors, the internal auditors, and management of the Company. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and the power to retain independent outside counsel, or other experts or advisers as it determines necessary to carry out its duties.RESPONSIBILITIES AND PROCESSES. The primary responsibility of the Committee is to oversee the Company’s financial reporting process on behalf of the Board and report the results of its activities to the Board. Management is responsible for the preparation,A-1presentation, and integrity of the Company’s financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company therein. For their part, the outside auditors are responsible for auditing the Company’s annual financial statements and for reviewing the Company’s unaudited interim financial statements. The Committee in carrying out its responsibilities believes its policies and procedures should remain flexible, in order to best react to the changing conditions and circumstances. The Committee should take the appropriate actions to set the overall corporate “tone” for quality financial reporting, sound business risk practices, and ethical behavior.The following responsibilities and duties shall be the common recurring activities of the Committee in carrying out its oversight function. These responsibilities and duties are set forth as a guide with the understanding that the Committee may diverge from this guide as appropriate given the circumstances.1.The Committee shall have the sole authority to select and replace the Company’s outside auditors, and shall be directly responsible for the compensation and oversight of the work of the outside auditors, including resolution of disagreements between the Company’s management and the outside auditors regarding financial reporting, for the purpose of preparing its audit report or related work. The outside auditors shall report directly to the Committee.2.The Committee shall review and determine the scope of independent auditing services in advance of each annual audit.3.The Committee shall review in advance, and grant any appropriate pre-approvals on (i) all auditing services to be provided by the outside auditors and (ii) all non-audit services to be provided by the outside auditors as permitted by Section 10A of the Exchange Act, or other applicable law and (iii) in connection with services approved under clauses (i) and (ii), above, all fees and other terms of engagement, including the terms of any engagement letter or similar agreement with the outside auditors. The foregoing pre-approval requirement shall be subject to thede minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the Committee prior to completion of the audit. The Committee may delegate to one or more members of the Committee who are independent the authority to grant preapprovals required by this Section 3, provided that any preapproval by such member or members shall be presented to the full Committee at its next scheduled meeting.4.The Committee shall review and approve disclosures required to be included in the Company’s periodic reports filed under Section 13 of the Exchange Act with respect to approval of non-audit services.5.The Committee shall review, based upon the recommendation of the outside auditors and Company management, the scope and plan of work to be done by the outside auditor each fiscal year, including, staffing, locations, reliance upon management, and internal audit and general audit approach.6.The Committee shall review and evaluate the performance of the Company’s outside auditors on at least an annual basis.A-27.The Committee shall, at least annually, obtain and review a report from the outside auditors describing: (1) the outside auditors’ internal quality control procedures and (2) any material issues raised by the most recent internal quality-control review, or peer review, of the outside auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the outside auditors, and any steps taken to deal with any such issues.8.The Committee shall review with the auditors their independence from Company management, including (1) requesting from the outside auditors annually, a formal written statement delineating all relationships between the auditor and the Company consistent with Independence Standards Board Standard Number 1 and rules of The NASDAQ Stock Market, and (2) discussing with the outside auditors any such disclosed relationships and their impact on the outside auditor’s independence. The Committee shall also review the resumes of key partners and managers of the outside auditors in order to evaluate the experience and qualifications of those who perform services for the Company.9.The Committee shall confirm that the lead audit partner, or the lead audit partner responsible for reviewing the audit, for the Company’s outside auditors complies with applicable partner rotation requirements.10.The Committee shall review all reports required to be submitted by the outside auditors to the Committee under Section 10A of the Exchange Act.11.The Committee shall review with management and the outside auditors the audited financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” and recommend to the Board whether the audited financial statements should be included in the Company’s Annual Report on Form 10-K (or the Annual Report to Stockholders if distributed prior to the filing of the Form 10-K filed with the SEC).12.The Committee shall review and consider with the outside auditors the matters required to be discussed by Statement of Auditing Standards No. 61, including their judgment about the quality, not just acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements.13.The Committee shall review with management and the outside auditors the Company’s interim financial results to be included in the Company’s quarterly reports on Form 10-Q to be filed with the SEC, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Conditions and Results of Operation,” prior to submission to stockholders, the SEC or any other governmental body, any stock exchange or the public.14.The Committee shall prepare the report required by the SEC to be included in the Company’s annual proxy statement and any other SEC reports required by applicable securities laws or the rules of The NASDAQ Stock Market or any other stock exchangeA-3or trading market on which the Company’s securities may be listed or approved for quotation.15.The Committee shall review and discuss all reports required by law or regulation to be provided to the Committee by the outside auditor of (1) all critical accounting policies and practices used by the Company; (2) all alternative treatments of financial information within generally accepted accounting principles that have been discussed by the outside auditor with Company management, the ramifications of the use of such alternative treatments, and the treatment preferred by the outside auditors; and (3) other material written communications between the outside auditors and Company management, such as any management letter or schedule of unadjusted differences.16.The Committee shall review and discuss with Company management and the outside auditor such accounting policies (and changes therein) of the Company, including any financial reporting issues, which could have a material impact on the Company’s financial statements (including but not limited to the use of alternative GAAP methods and off-balance sheet structures), as are deemed appropriate for review by the Committee prior to any interim or year-end filing with the SEC or other regulators.17.The Committee shall review and discuss with Company management the effect of accounting and regulatory initiatives on the financial statements of the Company.18.The Committee shall discuss with Company management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.19.The Committee shall review disclosures made by the Company’s CEO (or principal executive officer) or CFO (or principal financial or accounting officer) during their certification process for the applicable Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of disclosure controls or internal financial controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s disclosure or internal controls.20.The Committee shall periodically consult with the outside auditor, without the presence of management, about internal controls and the completeness and accuracy of the Company’s financial statements.21.The Committee shall review and discuss with management and the outside auditor: (1) the management recommendation letter on accounting procedures and internal control and any other reports prepared by the outside auditor, and management’s responses concerning such reports; (2) any material accounting issues identified by management, or the outside auditor; and (3) other matters required to be communicated by the outside auditor to the Committee under generally accepted auditing standards.22.Prior to releasing the year-end earnings, the Committee shall discuss the results of the audit with the outside auditors. The Committee shall meet with the outside auditors, with and without management present, to discuss the results of their examination.A-423.The Committee shall review and discuss with Company management earnings press releases, including the use of “pro-forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.24.The Committee shall review and approve in advance all of the Company’s related-party transactions. For the purposes of this Charter, “related-party transactions” shall refer to transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404.25.The Committee shall discuss with management and the outside auditors the quality and adequacy of the Company’s internal controls.26.The Committee shall establish procedures for: (1) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal audit controls or auditing matters, and (2) confidential, anonymous submissions by employees of the Company of concerns regarding questionable accounting or auditing matters.27.The Committee shall assure that procedures are established to deter, prevent and detect any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting and to help set the proper tone to create and maintain a culture of high ethical standards throughout the Company.28.The Committee shall as appropriate meet with the Company’s General Counsel, if applicable, and, if necessary, outside counsel, to review legal and regulatory matters, if any, that could have a material impact on the Company’s financial statements.29.The Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal counsel, accountants or other advisors to assist it in carrying out its duties.30.The Committee shall perform such other activities as it deems necessary, consistent with the terms of this Charter, the Company’s Bylaws and applicable law, rules and regulations, including rules of The NASDAQ Stock Market or any other stock exchange or trading market on which the Company’s securities may be listed or approved for quotation.The Company shall provide for appropriate funding, as determined by the Committee, to cover the costs of all of the services and activities set forth in this Charter as well as for any other ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.A-5Appendix BUNIGENE LABORATORIES, INC.2006 STOCK-BASED INCENTIVE COMPENSATION PLANSection 1.Purpose of the Plan. The purpose of the Unigene Laboratories, Inc. 2006 Stock-Based Incentive Compensation Plan is(the “2006 Plan”). In order to assist the Company and its Subsidiaries in attracting and retaining valued Employees, Consultants and Non-Employee Directors by offering them a greater stake in the Company’s success and a closer identity with it, and to encourage ownershipreflect this change, Section 5.1 of the Company’s stock by such Employees, Consultants and Non-Employee Directors.This Unigene Laboratories, Inc. 2006 Stock-Based Incentive Compensation Plan (the “Plan”) restates, renames, amends and merges the Unigene Laboratories, Inc. 2000 Stock Option Plan and the Unigene Laboratories, Inc. Directors Stock Option Plan (the “Predecessor Plans”) effective June 15, 2006. Any awards outstanding under the Predecessor Plans shall continue to be governed by the terms of such Predecessor Plans as in effect prior to the effective date of this Plan.Section 2.Definitions. As used herein, the following definitions shall apply:2.1. “Award” means an award of Deferred Stock, Restricted Stock, Options, SARs, Phantom Stock or other stock-based award under the Plan.2.2. “Award Agreement” means the written agreement, instrument or document evidencing an Award.2.3. “Board” means the Board of Directors of the Company.2.4. “Cause” means,(a) if the applicable Participant is party to an effective employment, consulting, severance or similar agreement with the Company or a Subsidiary, “Cause” shall have the same meaning as such term is defined therein;(b) if the applicable Participant is not a party to an effective employment, consulting, severance or similar agreement or if no definition of “Cause” is set forth in the applicable employment, consulting, severance or similar agreement, “Cause” shall have the same meaning as such term is defined in the applicable Award Agreement;(c) if neither (a) nor (b) applies, then “Cause” shall mean (i) the Participant’s willful misconduct or gross negligence in connection with the performance of the Participant’s duties for the Company or its Subsidiaries; (ii) the Participant’s conviction of, or a plea ofnolo contendere to, a felony or a crime involving fraud or moral turpitude; (iii) the Participant’s engaging in any business that directly or indirectly competes with the Company or its Subsidiaries; (iv) disclosure of trade secrets, customer lists or confidential information of the Company, its Subsidiaries or Affiliates to a competitor or unauthorized person; as determined by the Committeewas amended in its sole discretion.B-12.5. “Change in Control” means, unless otherwise determined by the Committee or provided in an Award Agreement,(a) the acquisition in one or more transactions by any “Person” (as such term is used for purposes of section 13(d) or section 14(d) of the 1934 Act) but excluding, for this purpose, the Company or its Subsidiaries, any Stockholder of the Company or any employee benefit plan of the Company or its Subsidiaries, of “Beneficial Ownership” (within the meaning of Rule 13d-3 under the 1934 Act) of thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities (the “Voting Securities”);(b) the individuals who, as of the effective date of the Plan, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that if the election, or nomination for election by the Company’s Stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board, and provided further that any reductions in the size of the Board that are instituted voluntarily by the Incumbent Board shall not constitute a Change in Control, and after any such reduction the “Incumbent Board” shall mean the Board as so reduced;(c) a merger or consolidation involving the Company if the Stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly, immediately following such merger or consolidation, more than seventy percent (70%) of the combined voting power of the outstanding Voting Securities of the corporation resulting from such merger or consolidation;(d) a complete liquidation or dissolution of the Company or a sale or other disposition of all or substantially all of the assets of the Company; or(e) acceptance by Stockholders of the Company of shares in a share exchange if the Stockholders of the Company immediately before such share exchange, do not own, directly or indirectly, immediately following such share exchange, more than seventy percent (70%) of the combined voting power of the outstanding Voting Securities of the corporation resulting from such share exchange.2.6. “Code” means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.2.7. “Common Stock” means the common stock of the Company, par value $.01 per share.2.8. “Company” means Unigene Laboratories, Inc., a Delaware corporation, or any successor corporation.2.9. “Committee” means the committee of two or more directors appointed by the Board to administer the Plan under Section 4, each of whom shall be a “non-employee director” as defined in Rule 16b-3 under the Exchange Act and an “outside director” as defined in Section 162(m) of the Code and the regulations issued thereunder. In the absence of the appointment of any such Committee, any action permitted or required to be taken hereunder by the Committee shall be deemed to refer to the Board.B-22.10. “Consultant” means a natural person who provides bona fide services to the Company other than in connection with the offer or sale of securities in a capital-raising transaction and is not engaged in activities that directly or indirectly promote or maintain a market for the Company’s securities.2.11. “Deferred Stock” means an Award made under Section 6.4 of the Plan to receive Common Stock at the end of a specified Deferral Period.2.12. “Deferral Period” means the period during which the receipt of Common Stock pursuant to a Deferred Stock Award under Section 6.4 of the Plan will be deferred.2.13. “Disability” means a “disability” within the meaning of Section 409A of the Code and the regulations and guidance thereunder.2.14. “Employee” means an officer or other employee of the Company or a Subsidiary, including a director who is such an employee.2.15. “Exchange Act” means the Securities Exchange Act of 1934, as amended. A reference to any provision of the Exchange Act or rule promulgated under the Exchange Act shall include reference to any successor provision or rule.2.16. “Fair Market Value” means, on any given date (i) if Common Stock is then listed on a national stock exchange, the closing price per share of Common Stock on the exchange for such date, or if no sale was made on such date on the exchange, on the last preceding day on which a sale occurred; (ii) if Common Stock is not then listed on a national exchange, but is then quoted on NASDAQ or a similar quotation system, the closing price per share of Common Stock as quoted on NASDAQ or a similar quotation system on such date, or if no sale was made on such date on the exchange, on the last preceding day on which a sale was made; or (iii) if (i) and (ii) do not apply, such value as the Committee in its discretion may in good faith determine in accordance with Section 409A of the Code (and, with respect to Incentive Stock Options, Section 422 of the Code) and the applicable guidance thereunder.2.17. “Incentive Stock Option” means an Option or portion thereof intended to meet the requirements of an incentive stock option as defined in Section 422 of the Code and designated as an Incentive Stock Option.2.18. “Non-Employee Director” means a member of the Board who is not an Employee.2.19. “Non-Qualified Option” means an Option or portion thereof not intended to be an Incentive Stock Option, and designated as a Non-Qualified Option.2.20. “Option” means a right granted under Section 6.1 of the Plan to purchase a specified number of shares of Common Stock at a specified price. An Option may be an Incentive Option or a Non-Qualified Option.2.21. “Participant” means any Employee, Non-Employee Director or Consultant who receives an Award.2.22. “Performance Cycle” means the period selected by the Committee during which the performance of the Company, any Subsidiary, or any department thereof, orB-3any individual is measured for the purpose of determining the extent to which a Performance Goal has been achieved.2.23. “Performance Goals” means goals established by the Committee in its sole discretion the attainment of which is substantially uncertain at the time such goals are established. Performance Goals may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or the Subsidiary, division, department or function within the Company or Subsidiary in which the Participant is employed. Performance Goals may be measured on an absolute or relative basis. Relative performance may be measured by a group of peer companies or by a financial market index. Performance Goals may be based upon: specified levels of or increases in the Company’s, a division’s or a Subsidiary’s return on capital, equity or assets; earnings measures/ratios (on a gross, net, pre-tax or post-tax basis), including diluted earnings per share, total earnings, operating earnings, earnings growth, earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA); net economic profit (which is operating earnings minus a charge to capital); net income; operating income; sales; sales growth; gross margin; direct margin; share price (including but not limited to growth measures and total shareholder return), operating profit; per period or cumulative cash flow (including but not limited to operating cash flow and free cash flow) or cash flow return on investment (which equals net cash flow divided by total capital); inventory turns; financial return ratios; market share; balance sheet measurements such as receivable turnover; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; debt reduction; strategic innovation, including but not limited to entering into, substantially completing, or receiving payments under, relating to, or deriving from a joint development agreement, licensing agreement, or similar agreement; customer or employee satisfaction; individual objectives; any other financial or other measurement deemed appropriate by the Committee as it relates to the results of operations or other measurable progress of the Company and Subsidiaries (or any business unit thereof); and any combination of any of the foregoing criteria. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Performance Goals unsuitable, the Committee may modify such Performance Goals or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable.2.24. “Phantom Stock” means a book-entry unit with a value equal to one share of Common Stock awarded under Section 6.5 of the Plan.2.25. “Plan” means the Unigene Laboratories, Inc. 2006 Stock-Based Incentive Compensation Plan herein set forth, as amended from time to time.2.26. “Qualified Performance-Based Award” means an Award or portion of an Award that is intended to satisfy the requirements for “qualified performance-based compensation” under Section 162(m) of the Code and the regulations issued thereunder.2.27. “Restricted Stock” means Common Stock awarded by the Committee under Section 6.3 of the Plan.2.28. “Restriction Period” means the period during which Restricted Stock awarded under Section 6.3 of the Plan isentirety, subject to forfeiture.B-42.29. “SAR” means a stock appreciation right awarded by the Committee under Section 6.2 of the Plan.2.30. “Subsidiary” means any corporation, partnership, joint venture or other business entity of which 50% or more of the outstanding voting power is beneficially owned, directly or indirectly, by the Company.2.31. “Ten Percent Shareholder” means a person who on any given date owns, either directly or indirectly (taking into account the attribution rules contained in Section 424(d) of the Code), stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or a Subsidiary.Section 3.Eligibility. Any Employee, Non-Employee Director or Consultant shall be eligible to receive an Award; provided, however, that only persons who are employees of the Company or any subsidiary corporation (within the meaning of Section 424(f) of the Code) may be granted Options which are intended to qualifystockholder approval, as Incentive Stock Options.follows:Section 4.Administration and Implementation of Plan.4.1. The Plan shall be administered by the Committee; provided, however, that the Board shall administer and otherwise exercise all powers of the Committee under the Plan with respect to Awards granted to Non-Employee Directors. Notwithstanding the foregoing, the Committee may make recommendations to the full Board regarding Awards to Non-Employee Directors. Any action of the Committee in administering the Plan shall be final, conclusive and binding on all persons, including the Company, its Subsidiaries, their employees, Participants, persons claiming rights from or through Participants and stockholders of the Company.4.2. Notwithstanding Section 4.1, the Board shall serve as a Secondary Committee” with the full authority to grant Awards to eligible individuals who are not subject to the requirements of Rule 16b-3 of the Exchange Act or Section 162(m) of the Code and administer the Plan with respect to such Awards. In all cases requiring an interpretation of the Plan related to an Award made by the Secondary Committee, the use of the term “Committee” herein shall refer to the Secondary Committee. Notwithstanding the foregoing, the Board may delegate to one or more officers or Board members the authority to act as a Secondary Committee with the same authority with respect to selecting the individuals to whom Awards are granted and establishing the terms and conditions of such Awards as the Secondary Committee has under the terms of the Plan.4.3. Subject to the provisions of the Plan, the Committee (or, as applicable, the Board) shall have full and final authority in its discretion to (i) select the Employees, Non-Employee Directors and Consultants who will receive Awards pursuant to the Plan; (ii) determine the type or types of Awards to be granted to each Participant; (iii) determine the number of shares of Common Stock to which an Award will relate, the terms and conditions of any Award granted under the Plan (including, but not limited to, restrictions as to vesting, transferability or forfeiture, exercisability or settlement of an Award and waivers or accelerations thereof, and waivers of or modifications to Performance Goals relating to an Award, based in each case on such considerations as the Committee shall determine) and all other matters to be determined in connection with an Award; (iv) determine whether, to what extent, and under what circumstances an Award may be canceled, forfeited, or surrendered; (v) determine whether, and to certify that, Performance Goals to which the settlement of anB-5Award is subject are satisfied; (vi) correct any defect or supply any omission or reconcile any inconsistency in the Plan, and adopt, amend and rescind such rules, regulations, guidelines, forms of agreements and instruments relating to the Plan as it may deem necessary or advisable; and (vii) make all other determinations as it may deem necessary or advisable for the administration of the Plan.Section 5.Shares of Common Stock Subject to the Plan.5.1. Subject to adjustment as provided in Section 10, the total number of shares of Common Stock available for Awards under the Plan shall be 3,000,00010,000,000 shares increased by any shares of Common stockStock that were reserved under the Predecessor Plans but which, as of the effective date of this Plan, (i) are not subject to grants under such Predecessor Plans, or (ii) are subsequently forfeited, cancelled or expire unexercised under the terms of such Predecessor Plans.5.2. All shares of Common Stock may be issued pursuant to Incentive Stock Options, and no more than 200,000 shares may be awarded to any Employee as a Qualified Performance-Based Award in any one calendar year. Common Stock awarded under the Plan may be reserved or made available from the Company’s authorized and unissued Common Stock or from Common Stock reacquired and held in the Company’s treasury.5.3. Any shares of Common Stock issued by the Company through the assumption or substitution of outstanding grants from an acquired company shall not reduce the shares of Common Stock available for Awards under the Plan.5.4. If any shares subject to an Award under this Plan are forfeited or such Award otherwise terminates or is settled for any reason whatsoever without an actual distribution of shares to the Participant, any shares counted against the number of shares available for issuance pursuant to the Plan with respect to such Award shall, to the extent of any such forfeiture, settlement, or termination, again be available for Awards under the Plan; provided, however, that the Committee may adopt procedures for the counting of shares relating to any Award to ensure appropriate counting, avoid double counting, provide for adjustments in any case in which the number of shares actually distributed differs from the number of shares previously counted in connection with such Award, and if necessary, to comply with applicable law or regulations.Section 6.Awards. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including without limitation terms requiring forfeiture of Awards in the event of the termination of employment or other relationship with the Company or any Subsidiary by the Participant; provided, however, that the Committee shall retain full power to accelerate or waive any such additional term or condition as it may have previously imposed. The right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such Performance Goals as may be determined by the Committee. All Awards, and the terms and conditions applicable thereto, shall be evidenced by an Award Agreement. REVOCABLE PROXY6.1.Options. Options give a Participant the right to purchase a specified number of shares of Common Stock from the Company for a specified time period at a fixed exercise price. Options may be either Incentive Stock Options or Non-Qualified Stockx B-6Options; provided that Incentive Stock Options may not be granted to Non-Employee Directors or Consultants. The grant of Options shall be subject to the following terms and conditions:(a)Exercise Price. The price per share at which Common Stock may be purchased upon exercise of an Option shall be determined by the Committee, but shall be not less than the Fair Market Value of a share of Common Stock on the date of grant (110% of Fair Market Value in the case of an Incentive Stock Option granted to a Ten Percent Shareholder).PLEASE MARK VOTES(b)Term of Options. The term of an Option shall in no event be greater than ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Shareholder).(c)Exercise of Option. Each Option grant shall specify the time or times at which an Option may be exercised in whole or in part and the terms and conditions applicable thereto, including (i) a vesting schedule which may be based upon the passage of time, attainment of Performance Goals or a combination thereof, (ii) whether the exercise price for an Option shall be paid in cash, with shares of Common Stock, with any combination of cash and shares of Common Stock, or with other legal consideration that the Committee may deem appropriate, (iii) the methods of payment, which may include payment by attestation of shares and through cashless exercise arrangements, to the extent permitted by applicable law, and (iv) the methods by which, or the time or times at which, Common Stock will be delivered or deemed to be delivered to Participants upon the exercise of such Option. Payment of the exercise price shall in all events be made within three days after the date of exercise of an Option. Unless otherwise determined by the Committee, each Option shall be exercisable for a period of 90 days following termination of employment other than for Cause and 180 days following the Participant’s death or Disability, to the extent the Option was otherwise exercisable at the time of such termination, death or Disability. Unless otherwise determined by the Committee, for any other termination of employment, the Option shall not be exercisable following termination of employment.(d)Incentive Stock Options. Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date he or she makes a disqualifying disposition (as defined in Section 421(b) of the Code) of any shares of Common Stock acquired pursuant to the exercise of such Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by it, retain possession of any shares acquired pursuant to the exercise of an Incentive Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence, subject to complying with any instructions from such Participant as to the sale of such shares.6.2.Stock Appreciation Rights. A SAR shall confer on the Participant a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of Common Stock on the date of exercise over (B) the grant price of the SAR as determined by the Committee, but which may never be less than the Fair Market Value of a share of Common Stock on the date of grant. The grant of SARs shall be subject to the following terms and conditions:(a) Each SAR grant shall specify the time or times at which a SAR may be exercised in whole or in part (including vesting upon the passage of time, the attainment of Performance Goals, or a combination thereof), the method of exercise, methodB-7of settlement (in cash, Common Stock or a combination thereof), form of consideration payable in settlement, method by which Common Stock will be delivered or deemed to be delivered to Participants, and any other terms and conditions of any SAR. Unless otherwise determined by the Committee, each SAR shall be exercisable for a period of 90 days following termination of employment other than for Cause and 180 days following the Participant’s death or Disability, to the extent the SAR was otherwise exercisable at the time of such termination, death or Disability. Unless otherwise determined by the Committee, for any other termination of employment, the SAR shall not be exercisable following termination of employment.(b) The term of a SAR shall in no event be greater than ten years.6.3.Restricted Stock. An Award of Restricted Stock is a grant by the Company of a specified number of shares of Common Stock to the Participant, which shares are subject to forfeiture upon the happening of specified events during the Restriction Period. Such an Award shall be subject to the following terms and conditions:(a) Each Restricted Stock grant shall specify the duration of the Restriction Period and/or each installment thereof and the conditions under which the Restricted Stock may be forfeited to the Company. Such restrictions may include a vesting schedule based upon the passage of time, the attainment of Performance Goals or a combination thereof.(b) During the Restriction Period, the transferability of Restricted Stock shall be prohibited or restricted in the manner and to the extent prescribed in the applicable Award Agreement. Such restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the hands of any transferee.(c) Upon determination of the number of shares of Restricted Stock to be granted to the Participant, the Committee shall direct that a certificate or certificates representing the number of shares of Common Stock be issued to the Participant with the Participant designated as the registered owner. The certificate(s) representing such shares shall be legended as to sale, transfer, assignment, pledge or other encumbrances during the Restriction Period and deposited by the Participant, together with a stock power endorsed in blank, with the Company, to be held in escrow during the Restriction Period. At the end of the Restriction Period the restrictions imposed hereunder shall lapse with respect to the number of shares of Restricted Stock as provided in the Award Agreement, and the legend shall be removed and such number of shares delivered to the Participant (or, where appropriate, the Participant’s legal representative).(d) Unless otherwise provided in the applicable Award Agreement, during the Restriction Period the Participant shall have all the rights of a stockholder with respect to Restricted Stock, including, without limitation, the right to receive dividends thereon (whether in cash or shares of Common Stock) and to vote such shares of Restricted Stock. Dividends shall be subject to the same restrictions as the underlying Restricted Stock unless otherwise provided by the Committee.(e) In the sole discretion of the Committee, an Award Agreement regarding Restricted Stock may provide for a tax reimbursement cash payment to be made by the Company to any Participant in connection with the tax consequences resulting from an Award of Restricted Stock, the lapse of restrictions on any Restricted Stock or the payment byB-8a Participant of any taxes related thereto, subject to such conditions as the Committee may specify.6.4.Deferred Stock. An Award of Deferred Stock is an agreement by the Company to deliver to the Participant a specified number of shares of Common Stock at the end of a specified Deferral Period. Such an Award shall be subject to the following terms and conditions:(a) Upon determination of the number of shares of Deferred Stock to be awarded to a Participant, the Committee shall direct that the same be credited to the Participant’s account on the books of the Company but that issuance and delivery of the same shall be deferred until the date or dates specified in the applicable Award Agreement or until the achievement of any Performance Goals.(b) Unless otherwise provided in the applicable Award Agreement, prior to issuance and delivery of the Deferred Stock, the Participant shall have no rights as a stockholder with respect to any shares of Deferred Stock credited to the Participant’s account.(c) Amounts equal to any dividends declared during the Deferral Period with respect to the number of shares covered by a Deferred Stock Award will be paid to the Participant currently, or deferred and deemed to be reinvested in additional Deferred Stock, or otherwise reinvested on such terms as are determined at the time of the Award by the Committee, in its sole discretion, and specified in the Award Agreement.(d) The Deferral Period may provide for distribution in one or more installments. At the end of the Deferral Period or any installment thereof the shares of Deferred Stock applicable to such installment credited to the account of a Participant shall be issued and delivered to the Participant (or, where appropriate, the Participant’s legal representative) in accordance with the terms of the Award Agreement.6.5.Phantom Stock. A Phantom Stock award shall confer on the Participant the right to receive the Fair Market Value of the Phantom Stock upon the attainment of Performance Goals or the passage of time as specified by the Committee in an Award Agreement or otherwise. The grant of Phantom Stock shall be subject to the following terms and conditions:(a) At the discretion of the Committee, the Participant may receive dividend equivalents in connection with Phantom Stock which dividend equivalents may be payable in cash or in shares, upon such terms as the Committee, in its sole discretion, deems appropriate.(b) Participants will not have any voting rights with respect to Phantom Stock.(c) Payment of Phantom Stock shall be made upon the date of attainment of Performance Goals or passage of time as specified in the Award Agreement. Payment may be in the form of cash or Common Stock (or a combination thereof) which has an aggregate Fair Market Value equal to the Fair Market Value of the Phantom Stock on the payment date. Any Common Stock issued in payment of the applicable Phantom Stock may be subject to such additional restrictions as the Committee deems appropriate.B-96.6.Other Stock-Based Awards. The Committee is authorized, subject to limitations under applicable law, to grant to Participants any type of Award other than an Award provided in Section 6.1, 6.2, 6.3, 6.4 or 6.5 hereof that is payable in, or valued in whole or in part by reference to, shares of Common Stock, and that is deemed by the Committee to be consistent with the purposes of the Plan. Such stock-based Awards may include Awards granted in substitution for any other right of a Participant to receive payment of compensation from the Corporation or a Subsidiary.6.7.Rules Applicable to Qualified Performance-Based Awards. To the extent the Committee determines, in its sole discretion, necessary or advisable in order to comply with the deductibility limitations of Section 162(m) of the Code applicable to Qualified Performance-Based Awards, the following rules shall apply:(a) Only an Employee who is a “covered employee” within the meaning of Section 162(m) of the Code shall be eligible to receive Qualified Performance-Based Awards. The Committee shall designate in its sole discretion which covered employees will be Participants for a Performance Cycle within the earlier of the (x) first 90 days of a Performance Cycle and (y) the lapse of 25% of the Performance Cycle.(b) The Committee shall establish in writing within the earlier of the (x) first 90 days of a Performance Cycle and (y) the lapse of 25% of the Performance Cycle, and in any event, while the outcome is substantially uncertain, (A) Performance Goals for the Performance Cycle, and (B) in respect of such Performance Goals, a minimum acceptable level of achievement below which no payment will be made or no Award shall vest or become exercisable, and an objective formula or other method for determining the amount of any payment to be made or the extent to which an Award hereunder shall vest or become exercisable if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Goals.(c) Following the completion of a Performance Cycle, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Qualified Performance-Based Awards earned for the period based upon the Performance Goals and the related formulas or methods as determined pursuant to Section 6.7(b). The Committee shall then determine the actual amount payable or the extent to which an Award is vested or exercisable as a result of attainment of such Performance Goals under each Participant’s Award for the Performance Cycle, and, in doing so, may reduce or eliminate, except as otherwise provided in the Award Agreement, the amount of the Award. In no event shall the Committee have the authority to increase Award amounts to any Covered Employee.(d) An Award granted, vesting or becoming exercisable with respect to a Performance Cycle shall be paid (unless such Award is subject to the Participant’s exercise, which exercise such Participant has not effectuated) as soon as practicable following completion of the certification described in Section 6.7(c) but in no event later than December 31 of the year following the end of the Performance Cycle.6.8.Additional Provisions Applicable to Awards. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for, any other Award granted under the Plan or any award granted under any other plan of the Company or any Subsidiary or any business entityB-10acquired by the Company or any Subsidiary, or any other right of a Participant to receive payment from the Company or any Subsidiary.Section 7.Claims Procedure. With respect to Awards of Phantom Stock or Deferred Stock, but only to the extent the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) is applicable to such an Award or to a Participant, the Company shall administer a claims procedure as follows:7.1.Initial Claim. A Participant or his or her beneficiary who believes that he or she is entitled to benefits under the Plan (the “Claimant”), or the Claimant’s authorized representative acting on behalf of such Claimant, must make a claim for those benefits by submitting a written notification of his or her claim of right to such benefits. Such notification must be on the form and in accordance with the procedures established by the Committee.7.2.Procedure for Review. The Committee shall establish administrative processes and safeguards to ensure that all claims for benefits are reviewed in accordance with the Plan and that, where appropriate, the Plan provisions have been applied consistently to similarly situated Claimants. Any notification to a Claimant required hereunder may be provided in writing or by electronic media, provided that any electronic notification shall comply with the applicable standards imposed under section 2520.104b-1(c) of Title 29 of the Code of Federal Regulations.7.3.Claim Denial Procedure. If a claim is wholly or partially denied, the Committee shall notify the Claimant within a reasonable period of time, but not later than 90 days after receipt of the claim, unless the Committee determines that special circumstances require an extension of time for processing the claim. If the Committee determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90-day period. In no event shall such extension exceed a period of 180 days from receipt of the claim. The extension notice shall indicate: (i) the special circumstances necessitating the extension and (ii) the date by which the Committee expects to render a benefit determination. A benefit denial notice shall be written in a manner calculated to be understood by the Claimant and shall set forth: (i) the specific reason or reasons for the denial, (ii) the specific reference to the Plan provisions on which the denial is based, (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, with reasons therefor, and (iv) the procedure for reviewing the denial of the claim and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a legal action under section 502(a) of ERISA following an adverse benefit determination on review.7.4.Appeal Procedure. In the case of an adverse benefit determination, the Claimant or his or her representative shall have the opportunity to appeal to the Committee for review thereof by requesting such review in writing to the Committee within 60 days of receipt of notification of the denial. Failure to submit a proper application for appeal within such 60 day period will cause such claim to be permanently denied. The Claimant or his or her representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim. A document, record or other information shall be deemed “relevant” to a claim in accordance with section 2560.503-1(m)(8) of Title 29 of the Code of Federal Regulations. The Claimant or his or her representative shall also be provided the opportunity to submit written comments, documents, records and other information relating to the claim for benefits. The Committee shall review the appeal taking into account all comments, documents, records and other informationB-11submitted by the Claimant or his or her representative relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.7.5.Decision on Appeal. The Committee shall notify a Claimant of its decision on appeal within a reasonable period of time, but not later than 60 days after receipt of the Claimant’s request for review, unless the Committee determines that special circumstances require an extension of time for processing the appeal. If the Committee determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 60-day period. In no event shall such extension exceed a period of 60 days from the end of the initial period. The extension notice shall indicate: (i) the special circumstances necessitating the extension and (ii) the date by which the Committee expects to render a benefit determination. An adverse benefit decision on appeal shall be written in a manner calculated to be understood by the Claimant and shall set forth: (i) the specific reason or reasons for the adverse determination, (ii) the specific reference to the Plan provisions on which the denial is based, (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the Claimant’s claim (the relevance of a document, record or other information will be determined in accordance with section 2560-1(m)(8)) of Title 29 of the Code of Federal Regulations and (iv) a statement of the Claimant’s right to bring a legal action under section 502(a) of ERISA.Section 8.Exchange and Buy Out Provisions. The Committee may at any time exchange or buy out any previously granted Award, or may provide in any Award Agreement terms and conditions under which the Participant must sell, or offer to sell, to the Company any unexercised Award, whether or not vested, or any Common Stock acquired pursuant to such Award for a payment in cash, Common Stock or other property based on such terms and conditions as the Committee shall determine and communicate to the Participant at the time that such offer is made or as may be set forth in the Award Agreement.Section 9.Change in Control. Notwithstanding any provision in this Plan to the contrary and unless otherwise provided in the applicable Participant’s Award Agreement, upon the occurrence of a Change in Control, the following provisions shall apply:9.1.Options and SARs. Upon a Change in Control, unless otherwise provided by the Committee or in an Award Agreement, the Committee, in its discretion, may take one or more of the following actions with respect to all Options that are outstanding and unexercised as of such Change in Control: (i) accelerate the vesting and exercisability of all such Options or SARs to the extent unvested and unexercisable, such that all outstanding Options or SARs are fully vested and exercisable, (ii) cancel all outstanding vested Options or SARs in exchange for a cash payment in an amount equal to the excess, if any, of the Fair Market Value of the Common Stock underlying the unexercised portion of the Option or SAR as of the date of the Change in Control over the exercise price of such portion, (iii) terminate all Options or SARs immediately prior to the Change in Control, provided that the Company provide the Optionee an opportunity to exercise the Option within a specified period following the Optionee’s receipt of a written notice of such Change in Control and of the Company’s intention to terminate the Option prior to such Change in Control, or (iv) require the successor corporation, following a Change in Control if the Company does not survive such Change in Control, to assume all outstanding Options or SARs and to substitute such Options or SARs with awards involving the common stock of such successor corporation on terms and conditions necessary to preserve the rights of Optionees or SAR Grantees with respect to such Options or SARs.B-129.2.Other Awards. Upon a Change in Control, all Awards of Restricted Stock, Phantom Stock, Deferred Stock or other awards granted under Section 6.6., that are outstanding may, at the discretion of the Committee, become immediately and fully vested. In addition, upon a Change in Control, the Committee may take such other actions as it deems appropriate with respect to the Awards described in the preceding sentence, including the immediate distribution of amounts that would not otherwise be payable as of the date of the Change in Control.9.3.Committee Authority. The judgment of the Committee with respect to any matter referred to in this Section 9 shall be conclusive and binding upon each Participant without the need for any amendment to the Plan.Section 10.Adjustments upon Changes in Capitalization.10.1. In the event that the Committee shall determine that any stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution or other similar corporate transaction or event, affects the Common Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Common Stock which may thereafter be issued in connection with Awards, (ii) the number and kind of shares of Common Stock issuable in respect of outstanding Awards, (iii) the aggregate number and kind of shares of Common Stock available under the Plan, (iv) the limits described in Section 5.2 of the Plan, and (v) the exercise or grant price relating to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award; provided, however, in each case, that no adjustment shall be made that would adversely affect the status of any Award that is intended to be a Qualified Performance-Based Award, unless the Committee expressly determines otherwise.10.2. In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards, including any Performance Goals, in recognition of unusual or nonrecurring events (including, without limitation, events described in Section 16.1) affecting the Company or any Subsidiary, or in response to changes in applicable laws, regulations, or accounting principles. Notwithstanding the foregoing, no adjustment shall be made in any outstanding Awards to the extent that such adjustment would adversely affect the status of an Award intended to be a Qualified Performance-Based Award.Section 11.Termination and Amendment.11.1.Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinue, or terminate the Plan without the consent of the Company’s stockholders or Participants, except that any such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Company’s stockholders if (i) such action would increase the number of shares subject to the Plan, (ii) decrease the price at which Awards may be granted, or (iii) such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit other such changes to the Plan to the stockholders for approval; provided, however, that without the consent of an affectedB-13Participant, no amendment, alteration, suspension, discontinuation, or termination of the Plan may materially and adversely affect the rights of such Participant under any outstanding Award unless such modification is necessary to ensure a deduction under Section 162(m) of the Code or to avoid the additional tax described in Section 409A(a)(1)(B) of the Code.11.2. Notwithstanding anything in Section 11.1 to the contrary, any Performance Goal applicable to an Award shall not be deemed a fixed contractual term, but shall remain subject to adjustment by the Committee, in its discretion at any time in view of the Committee’s assessment of the Company’s strategy, performance of comparable companies, and other circumstances, except to the extent that any such adjustment to a performance condition would adversely affect the status of an Award intended to be a Qualified Performance-Based Award.Section 12.No Right to Award, Employment or Service. No Participant shall have any claim to be granted any award under the Plan, and there is no obligation that the terms of Awards be uniform or consistent among Participants. Neither the Plan nor any action taken hereunder shall be construed as giving any Employee any right to be retained in the employ of the Company or any Subsidiary. For purposes of this Plan, transfer of employment between the Company and its Subsidiaries and affiliates shall not be deemed a termination of employment.Section 13.Taxes. Each Participant must make appropriate arrangement for the payment of any taxes relating to an Award granted hereunder. The Company or any Subsidiary is authorized to withhold from any payment relating to an Award under the Plan, including from a distribution of Common Stock or any payroll or other payment to a Participant amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include the ability to withhold or receive Common Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations. Withholding of taxes in the form of shares of Common Stock from the profit attributable to the Award shall not occur at a rate that exceeds the minimum required statutory federal and state withholding rates.Section 14.Limits on Transferability; Beneficiaries. No Award or other right or interest of a Participant under the Plan shall be pledged, encumbered, or hypothecated to, or in favor of, or subject to any lien, obligation, or liability of such Participant to, any party, other than the Company, any Subsidiary or affiliate, or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution, and such Awards and rights shall be exercisable during the lifetime of the Participant only by the Participant or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may, in its discretion, provide that Awards (other than Incentive Stock Options) or other rights or interests of a Participant granted pursuant to the Plan be transferable, without consideration, to immediate family members (i.e., children, grandchildren or spouse), to trusts for the benefit of such immediate family members and to partnerships in which such family members are the only partners. The Committee may attach to such transferability feature such terms and conditions as it deems advisable. In addition, a Participant may, in the manner established by the Committee, designate a beneficiary (which may be a person or a trust) to exercise the rights of the Participant, and to receive any distribution, with respect to any Award upon the death of the Participant. A beneficiary, guardian, legal representative or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms andB-14conditions of the Plan and any Award Agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional restrictions deemed necessary or appropriate by the Committee.Section 15.Foreign Nationals. Without amending the Plan, Awards may be granted to Employees or Consultants who are foreign nationals or render services outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purpose of the Plan.Section 16.Securities Law Requirements.16.1. No shares of Common Stock may be issued hereunder if the Company shall at any time determine that (i) the listing upon any securities exchange, registration or qualification under any state or federal law of any Common Stock otherwise issuable pursuant an Award granted hereunder, or (ii) the consent or approval of any regulatory body or the satisfaction of withholding tax or other withholding liabilities, is necessary or appropriate in connection with such issuance. In any of the events referred to in clause (i) or clause (ii) above, the issuance of such shares shall be suspended and shall not be effective unless and until such withholding, listing, registration, qualifications or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its sole discretion, notwithstanding any termination of any Award or any portion of any Award during the period when issuance has been suspended.16.2. The Committee may require, as a condition to the issuance of shares hereunder, representations, warranties and agreements to the effect that such shares are being purchased or acquired by the Participant for investment only and without any present intention to sell or otherwise distribute such shares and that the Participant will not dispose of such shares in transactions which, in the opinion of counsel to the Company, would violate the registration provisions of the Securities Act of 1933, as then amended, and the rules and regulations thereunder. The certificates issued to evidence such shares shall bear appropriate legends summarizing such restrictions on the disposition thereof.Section 17.Termination. Unless earlier terminated, the Plan shall terminate on the 10-year anniversary of the effective date, and no Awards under the Plan shall thereafter be granted.Section 18.Fractional Shares. The Company will not be required to issue any fractional shares of Common Stock pursuant to the Plan. The Committee may provide for the elimination of fractions and settlement of such fractional shares of Common Stock in cash.Section 19.Discretion. In exercising, or declining to exercise, any grant of authority or discretion hereunder, the Committee may consider or ignore such factors or circumstances and may accord such weight to such factors and circumstances as the Committee alone and in its sole judgment deems appropriate and without regard to the effect such exercise, or declining to exercise such grant of authority or discretion, would have upon the affected Participant, any other Participant, any employee, the Company, any Subsidiary, any affiliate, any stockholder or any other person.Section 20.Governing Law. The validity and construction of the Plan and any Award Agreements entered into thereunder shall be construed and enforced in accordanceB-15with the laws of the State of Delaware, but without giving effect to the choice of law principles thereof.Section 21.Adoption of the Plan and Effective Date. The Plan shall become effective upon its approval by the stockholders of the Company in accordance with applicable laws, resolutions or rules governing the applicable securities exchange, and no Award shall become exercisable, realizable or vested prior to such approval.B-16 REVOCABLE PROXYUNIGENE LABORATORIES, INC.xPLEASE MARK VOTESAS IN THIS EXAMPLEForWith-holdFor AllExcept20062010 For 1. Election of directors ¨ ¨ ¨ The undersigned stockholder of Unigene Laboratories, Inc. hereby appoints Richard Levy and Warren P. Levy Ronald S. Levy and Jay Levy, and each of them, as the undersigned’s proxies (with(each of them with the power of substitution), to vote all the shares of Common Stock of Unigene Laboratories, Inc. which the undersigned would be entitled to vote at the Annual Meeting of Stockholders of Unigene Laboratories, Inc. to be held on June 15, 20062010 at 11:00 A.M., Eastern Daylight time, and any adjournments thereof, on the following matters;matters: J. Thomas August, Robert F. Hendrickson, Jay Levy, Ronald S.Zvi Eiref, Richard Levy, Warren P. Levy, Marvin L. Miller, Bruce Morra and Peter Slusser- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - For Against Abstain 2. Ratification of the appointment of Grant Thornton LLP as independent auditors of the Company for the Company’s 2010 fiscal year. ¨ ¨ ¨ For Against Abstain 3. To approve an amendment to the Certificate of Incorporation of the Company to increase the number of authorized shares of Common Stock, par value $.01 per share, from 100,000,000135,000,000 shares to 135,000,000 shares;275,000,000 shares.¨ ¨ ¨ For Against Abstain ¨¨¨3.4. To approve the adoption ofan amendment to the Company’s 2006 Stock-Based Incentive Compensation Plan. For¨ Against¨ Abstain¨ ¨¨¨4. Ratification of the appointment of Grant Thornton LLP as independent auditors of the Company.ForAgainstAbstain ¨ ¨ ¨ The undersigned hereby revokes any proxy heretofore given. Date Date Stockholder sign above Stockholder sign above Co-holder (if any) sign above FOR“FOR” items 1, 2, 3 and 4 noted above.