UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrantx Filed by a Party other than the Registrant¨
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| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to §240.14a-11(c) or §240.14a-12 |
Unigene Laboratories, Inc.
(Name of Registrant as Specified In Its Charter)
^^ ^^
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Unigene Laboratories, Inc.
110 Little Falls Road
Fairfield, New Jersey 07004
(973) 882-0860
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on June 3, 2004
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Unigene Laboratories, Inc., a Delaware corporation (the “Company”), will be held at The Days Inn of Parsippany, 3159 U.S. Highway 46 East, Parsippany, New Jersey 07054 on June 3, 2004, at 11:00 A.M., Eastern Daylight Time, for the following purposes:
| 1. | To elect directors of the Company; |
| 2. | To ratify the appointment of Grant Thornton LLP as independent auditors of the Company; and |
| 3. | To transact such other business as may properly come before the meeting and any adjournment thereof. |
The Board of Directors has fixed the close of business on April 15, 2004, as the record date for the determination of stockholders who are entitled to notice of and to vote at the meeting.
A copy of the Company’s Annual Report for the year ended December 31, 2003 is sent to you along with the Proxy Statement.
To assure your representation at the meeting, please sign, date and return your proxy before June 3, 2004 in the enclosed envelope, which requires no postage if mailed in the United States.
By Order of the Board of Directors
RONALD S. LEVY
Secretary
April 29, 2004
Unigene Laboratories, Inc.
110 Little Falls Road
Fairfield, New Jersey 07004
(973) 882-0860
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Unigene Laboratories, Inc., a Delaware corporation (the “Company”), for the Annual Meeting of Stockholders of the Company to be held at The Days Inn of Parsippany, 3159 U.S. Highway 46 East, Parsippany, New Jersey 07054 on June 3, 2004, at 11:00 A.M., Eastern Daylight Time.
You are requested to complete, date and sign the accompanying form of proxy and return it to the Company in the enclosed envelope. The proxy may be revoked at any time before it is exercised by written notice to the Company bearing a later date than the date on the proxy, provided such notice is received by the Company prior to the start of the meeting. Any stockholder attending the meeting may vote in person whether or not he or she has previously submitted a proxy. Where instructions are indicated, a duly executed proxy will be voted in accordance with such instructions. Where no instructions are indicated, a duly executed proxy will be voted for each of the director nominees named herein and in favor of each of the proposals set forth in the attached Notice of Annual Meeting of Stockholders.
The Board of Directors has fixed the close of business on April 15, 2004, as the record date (the “Record Date”) for the determination of stockholders who are entitled to notice of and to vote at the meeting. As of the Record Date, the outstanding shares of the Company entitled to vote were 75,231,809 shares of common stock, par value $.01 per share (“Common Stock”), the holders of which are entitled to one vote per share.
The holders of a majority of the outstanding shares of Common Stock, present in person or represented by proxy, will constitute a quorum for the conduct of business at the Annual Meeting. Directors will be elected by a plurality of the votes cast. For adoption of matters that require the affirmative vote of a majority of the shares of Common Stock present and entitled to vote, abstentions are considered as shares present and entitled to vote and, therefore, have the effect of a “no” vote, whereas broker non-votes will be treated as shares that are not present and entitled to vote.
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 3, 2004. A copy of the Company’s Annual Report for the year ended December 31, 2003 is also enclosed.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 15, 2004, concerning the persons who are known by the Company to own beneficially more than 5 percent of the outstanding shares of Common Stock, other than persons who are identified under the heading “Security Ownership of Management.”
Name and Address of Beneficial Owner | Amount of Beneficial Ownership | Percentage of Outstanding Shares | ||
Fusion Capital Fund II, LLC(1) 222 Merchandise Mart Plaza Suite 9-112 Chicago, IL 60654 | 5,450,000 | 7.1% |
| (1) | Consists of 4,200,000 shares of Common Stock and warrants to purchase 1,250,000 shares of Common Stock, which are exercisable immediately. In addition, we have the right to sell to Fusion, subject to certain conditions, $30,000 of Common Stock per trading day, up to an aggregate of $15,000,000, over a period of approximately twenty-five months beginning November 2003, subject to a minimum purchase price and the Company’s right to reduce or suspend such purchases. |
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of April 15, 2004, concerning the beneficial ownership of Common Stock by each 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 | Percent of Class | |||
| Warren P. Levy | 2,080,545 | (2) (3) | 2.8% | ||
| Ronald S. Levy | 2,095,545 | (2) (4) | 2.8% | ||
| Jay Levy | 893,095 | (5) | 1.2% | ||
| James P. Gilligan | 559,660 | (6) | * | ||
| Allen Bloom | 231,000 | (7) | * | ||
| J. Thomas August | 173,552 | (8) | * | ||
| Thomas Picone | 7,000 | (9) | * | ||
| Officers and Directors as a Group (7 persons) | 5,840,397 | (2) (10) | 7.6% |
| * | 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) | Includes 200,000 shares of Common Stock held in a family trust over on which Warren P. Levy and Ronald S. Levy in their capacity as trustees share voting and dispositive power. |
| (3) | Includes 100,000 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 100,000 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. |
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| (5) | Includes 370,000 shares of Common Stock that Jay Levy has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. |
| (6) | Includes 540,000 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. |
| (7) | Includes 230,000 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 161,000 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 7,000 shares of Common Stock that Thomas Picone has the right to acquire pursuant to stock options that are exercisable either immediately or within 60 days. |
| (10) | Includes an aggregate of 1,508,000 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. |
PROPOSAL 1
ELECTION OF DIRECTORS
Six directors of the Company are to be elected at the Annual Meeting. The directors will be elected to serve until the Annual Meeting of Stockholders to be held in 2005, and until their respective successors shall have been elected and qualified.
All of the nominees are currently directors of the Company and were elected as directors at the Company’s Annual Meeting of Stockholders in 2003. The Board of Directors has no reason to believe that any of the nominees are or will become unavailable for election as a director. However, should any of them become unwilling or unable to serve as a director, the individuals named in the enclosed proxy will vote for the election of a substitute nominee selected by the Board of Directors or, if no such person is nominated, the Board of Directors will reduce the number of directors to be elected.
The Board of Directors believes that candidates for director should have certain minimum qualifications, including being over the age of 21, being able to read and understand basic financial statements, having relevant business experience and having high moral character. However, the Board retains the right to modify these minimum qualifications from time to time. The process for identifying and evaluating nominees is as follows: in the case of incumbent directors whose terms of office are set to expire, we review such directors’ overall service to the Company, including the number of meetings attended, level of participation and quality of performance. In the case of new candidates, the Board uses its network of contacts to create a list of potential candidates, meets to discuss such candidates, interviews candidates, considers his or her qualifications and chooses a candidate by majority vote. The Board will consider recommendations by stockholders. Such recommendations should be submitted to the Board of Directors and should contain a detailed justification for the submission as well as a complete resume for the recommended director. At this time, the Board does not feel it is necessary to have a formal policy regarding director recommendations by stockholders, however, the Board reserves the right to institute such a policy if it determines such a policy to be in the best interests of the Company. The Board does not intend to alter the method of evaluation based on whether the candidate is recommended by a stockholder.
The Board of Directors recommends a voteFORthe election of the nominees as Director.
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INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
Name | Age | Year Joined Unigene | Position | |||
Warren P. Levy (1) | 52 | 1980 | President, CEO and Director | |||
Ronald S. Levy (1) | 55 | 1980 | Executive Vice President and Director | |||
Jay Levy (1) | 80 | 1980 | Treasurer and Chairman of the Board | |||
James P. Gilligan | 51 | 1981 | Vice President of Product Development | |||
Allen Bloom | 60 | 1998 | Director | |||
J. Thomas August | 76 | 1990 | Director of Research and Director | |||
Thomas A. Picone | 49 | 2003 | Director |
| (1) | Warren P. Levy and Ronald S. Levy are brothers and are the sons of Jay Levy. |
Dr. Warren P. Levy, a founder of the Company, has served as President, Chief Executive Officer and Director of the Company since its formation in November 1980. Dr. Levy holds a Ph.D. in biochemistry and molecular biology from Northwestern University and a bachelor’s degree in chemistry from the Massachusetts Institute of Technology.
Dr. Ronald S. Levy, a founder of the Company, has served as Director of the Company since its formation in November 1980, as Executive Vice President since April 1999 and as Secretary since May 1986. From November 1980 through March 1999, he served as Vice President of the Company. Dr. Levy holds a Ph.D. in bioinorganic chemistry from Pennsylvania State University and a bachelor’s degree in chemistry from Rutgers University.
Mr. Jay Levy, a founder of the Company, has served as Chairman of the Board of Directors and Treasurer of the Company since its formation in November 1980. He holds a B.B.A. degree from City College of New York and has more than 25 years of progressively responsible experience leading to senior accounting and financial management positions with several internationally known manufacturing corporations. For 17 years he was the principal financial advisor for the late Nathan Cummings, a noted industrialist and philanthropist. From 1985 through 1991 he served in similar capacity to the estate of Nathan Cummings and to the Nathan Cummings Foundation, a large charitable foundation. Mr. Levy is a part-time employee and devotes approximately 15% of his time to the Company.
Dr. Allen Bloom, a patent attorney, retired on December 31, 2003 from Dechert LLP, a law firm. He was a partner at Dechert from 1994 through December 31, 2003, where he was Co-Chair of the Intellectual Property Group and headed a patent practice group which focused on biotechnology, pharmaceuticals and medical devices. For the nine years prior thereto, he was Vice President, General Counsel and Secretary of The Liposome Company, Inc., a biotechnology company. His responsibilities there included patent, regulatory and licensing activities. Dr. Bloom serves on the Board of Directors of Cytogen Corporation. Dr. Bloom holds a Ph.D. in Organic Chemistry from Iowa State University, a J.D. degree from New York Law School and a B.S. in Chemistry from Brooklyn College.
Dr. J. Thomas August is a Distinguished Service Professor of the Departments of Oncology, Pharmacology and Molecular Sciences at the Johns Hopkins University School of Medicine, where he has been employed since 1976. He is also Director, Johns Hopkins Singapore Biomedical Centre. Dr. August has served as Unigene’s Director of Research since 1990. He serves on the Board of Directors of Bioqual, Inc. and is also a consultant for various biotechnology and medical companies. Dr. August received his medical degree from Stanford University School of Medicine.
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Dr. Thomas A. Picone has been Vice President of Strategic Alliances at Schering Plough, a worldwide pharmaceutical company, since March 2004. From July 2003 through March 2004 he was Entrepreneur in Residence at Oxford Bioscience, a venture capital firm. Previously, he was Vice President, Global Licensing at Pharmacia Corporation, a pharmaceutical company, from 1999 through 2003. For the 18 years prior thereto, he was employed in increasing capacities at Abbott Laboratories culminating in his position as Director, Business Development. Dr. Picone holds a Doctor of Biochemistry degree from the University of Connecticut and a Master of Science, Neuroscience degree from the University of Hartford.
Dr. James P. Gilligan has been employed by Unigene since 1981 and has served as Vice President of Product Development since April 1999. From February 1995 to March 1999, he served as Director of Product Development. Dr. Gilligan holds a Ph.D. in pharmacology from the University of Connecticut and a Masters of International Business from Seton Hall University.
BOARD OF DIRECTORS AND COMMITTEES
During 2003, there were five meetings of the Board of Directors. Except for unusual circumstances, all directors are expected to attend the Company’s Annual Meeting. All six directors attended the Company’s 2003 Annual Meeting.
Shareholders may contact 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 four standing committees: an Audit Committee, a Compensation Committee, a Stock Option Committee for the employee stock option plans and a Stock Option Committee for the directors’ stock option plan. The Board of Directors does not have a standing nominating committee and, therefore, no nominating committee charter. The Board of Directors believes that all members of the Board should participate in the consideration and nomination of new Board members.
The responsibilities of the Audit Committee are to (i) annually recommend a firm of independent public accountants to the Board of Directors to act as auditors of the Company; (ii) review the scope of the annual audit with the auditors in advance of the audit, (iii) review the results of the audit and the adequacy of the Company’s accounting, financial and operating controls; (iv) review the Company’s accounting and reporting principles, policies and practices; and (v) approve fees paid to the auditors for audit and non-audit services. The current members of the Audit Committee are Allen Bloom (Chairman), J. Thomas August and Thomas Picone. The Audit Committee held nine meetings during 2003.
The responsibilities of the Compensation Committee are to (i) review and approve compensation (including salaries and bonuses) of the Company’s officers; (ii) oversee the administration of the Company’s 401(k) Plan; (iii) review and approve general benefits and compensation strategies; and (iv) approve the Compensation Committee report included in the Company’s proxy statement. The current members of the Compensation Committee are Jay Levy, Allen Bloom, J. Thomas August and Thomas Picone. The Compensation Committee held one meeting during 2003.
Subject to the limitations set forth in the plans, the Stock Option Committee for the employee stock option plans (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. The current members of the Committee are Allen Bloom, J. Thomas August and Thomas Picone.
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The Committee did not meet during 2003 but approved, by written consent, stock option grants to fifty-four employees.
Subject to the limitations set forth in the plan, the Stock Option Committee for the directors stock option plan interprets the plan and makes all determinations necessary for the plan’s administration. The current members of the Committee are Jay Levy, Warren P. Levy and Ronald S. Levy. There were no meetings held by this committee during 2003.
Directors who are not employees receive an annual retainer of $8,000 as well as a fee of $1,000 for each Board of Directors meeting attended. Allen Bloom, J. Thomas August and Thomas Picone were the directors who received such fees in 2003. Board members earn additional compensation for service on the Audit Committee as follows: $500 per Audit Committee conference call, $1000 per meeting of the Audit Committee if such meeting is convened solely to transact Audit 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 Audit Committee business. The Chairman of the Audit Committee receives 115% of the aforementioned fees.
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 option 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 50,000 shares of Common Stock, J. Thomas August has received options to purchase 41,000 shares of Common Stock, and Thomas Picone has received options to purchase 21,000 shares of Common Stock.
Under the 1994 Plan, each person who was an outside director at the time 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.
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On December 5, 2001, the Board of Directors granted stock options to the entire Board of Directors as follows:
Jay Levy | 300,000 | |
Allen Bloom | 150,000 | |
J. Thomas August | 120,000 | |
Warren P. Levy | 100,000 | |
Ronald S. Levy | 100,000 |
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:
Tenure as Director | Time period after Termination to Exercise | |
Up to 1 year | 90 days | |
Greater than 1 and up to 3 years | 180 days | |
Greater than 3 and up to 5 years | 1 year | |
Greater than 5 years | 2 years |
For the stock options granted to Jay Levy, Warren P. Levy and Ronald S. Levy, in the event of termination, the option holder has three months to exercise their options.
AUDIT COMMITTEE REPORT FOR 2003
The Audit Committee has reviewed and discussed the Company’s audited financial statements with management. The Audit Committee has discussed with the Company’s independent auditors the matters required to be discussed by SAS 61, which pertains to significant accounting issues involving the preparation of the Company’s financial statements. The Audit Committee has received the written disclosures and letter from the Company’s independent accountant required by Independence Standards Board Standard No. 1 and has discussed with the independent accountant the accountant’s independence. Based on the review and discussions with management and the independent auditors as described above, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Allen Bloom
Thomas Picone
J. Thomas August
The Board of Directors has not adopted a written Audit Committee charter, but does assign responsibilities to the Audit Committee. One member of the Audit Committee, Thomas Picone, is considered to be an “independent director” as that term is defined by Nasdaq.
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REPORT OF THE BOARD OF DIRECTORS ON 2003 EXECUTIVE COMPENSATION
The entire Board of Directors was responsible for determining the 2003 compensation of the three executive officers of the Company. This Report describes the policies and other considerations used by the Board of Directors in establishing such compensation.
The members of the Board of Directors are familiar with various forms and types of remuneration from reports of other public corporations and their own business experience.
The Board of Directors has determined that, because the Company was still in a research and preproduction phase in 2003, compensation for 2003 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 Board of Directors 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 2003 was based on the same policies and considerations set forth above for executive officers generally.
| Warren P. Levy | ||||
| Ronald S. Levy | ||||
| Jay Levy | ||||
| Allen Bloom | ||||
| J. Thomas August | ||||
| Thomas Picone |
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the Securities and Exchange Commission require the Company to disclose late filings of stock transaction reports by its executive officers and Directors. Based solely on a review of reports filed by the Company on these individuals’ behalf and written representations from them that no other reports were required, all Section 16(a) filing requirements have been made on a timely basis during 2003.
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.
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Employment Agreements
The Company has 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 at 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 2003 and February 2004 to $180,000 and $195,000, respectively.
The Company has 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 at 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 2003 and February 2004 to $175,000 and $190,000, respectively.
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 2003 was determined by the Board of Directors of the Company consisting of Warren P. Levy, Ronald S. Levy, Jay Levy, J. Thomas August, Thomas Picone, and Allen Bloom.
Three of the six 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, the Chairman of the Board and an officer of Unigene, and Warren Levy and Ronald Levy, directors and officers of Unigene, and another Levy family member from time to time have made loans to us. We repaid $100,000 in loans to Jay Levy in January 2003. 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 $653,000, and total interest expense on all Levy loans was approximately $1,294,000 for 2003. As of December 31, 2003, total accrued interest on all Levy loans was approximately $4,542,000 and the outstanding loans by these individuals to us, classified as short-term debt, totaled $11,273,323 and consist of:
| • | Loans from Jay Levy in the aggregate principal amount of $3,185,000, which are evidenced by demand notes bearing a floating interest rate equal to the Merrill Lynch Margin Loan Rate plus 5.25% (10.5% at December 31, 2003 and 10.75% at December 31, 2002) that are classified as short-term debt. These loans were originally at the Merrill Lynch Margin Loan Rate plus .25%. These loans are secured by a security interest in our equipment and real property. Accrued interest on these loans at December 31, 2003 was approximately $2,189,000. |
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| • | Loans from Jay Levy in the aggregate principal amount of $1,870,000 evidenced by term notes maturing January 2002, and bearing interest at the fixed rate of 11% per year. These loans were originally at 6%. These loans are secured by a security interest in all of our equipment and a mortgage on our real property. The terms of the notes required us to make installment payments of principal and interest beginning in October 1999 and ending in January 2002 in an aggregate amount of $72,426 per month. No installment payments have been made to date. Accrued interest on these loans at December 31, 2003 was approximately $954,000. |
| • | Loans from Jay Levy in 2001 and 2002 in the aggregate principal amount of $5,700,000 which are evidenced by demand notes bearing a floating interest rate equal to the Merrill Lynch Margin Loan Rate plus .25%, (5.5% at December 31, 2003 and 5.75% at December 31, 2002) and are classified as short-term debt and which are secured by a security interest in certain of our patents. Accrued interest on these loans at December 31, 2003 was approximately $816,000. |
| • | Loans from Warren Levy in the aggregate principal amount of $260,000 which are evidenced by demand notes bearing a floating interest rate equal to the Merrill Lynch Margin Loan Rate plus 5.25% (10.5% at December 31, 2003 and 10.75% at December 31, 2002) that are classified as short-term debt. These loans were originally at the Merrill Lynch Margin Loan Rate plus .25%. An additional loan in the amount of $5,000 bears interest at the Merrill Lynch Loan Rate plus .25% (5.5% at December 31, 2003 and 5.75% at December 31, 2002) and is classified as short-term debt. These loans are secured by a secondary security interest in our equipment and real property. Accrued interest on these loans at December 31, 2003 was approximately $294,000. |
| • | Loans from Ronald Levy in the aggregate principal amount of $248,323 which are evidenced by demand notes bearing a floating interest rate equal to the Merrill Lynch Margin Loan Rate plus 5.25% (10.5% at December 31, 2003 and 10.75% at December 31, 2002) that are classified as short-term debt. These loans were originally at the Merrill Lynch Margin Loan Rate plus .25%. An additional loan in the amount of $5,000 bears interest at the Merrill Lynch Margin Loan Rate plus .25% (5.5% at December 31, 2003 and 5.75% at December 31, 2002) and is classified as short-term debt. These loans are secured by a secondary security interest in our equipment and real property. Accrued interest on these loans at December 31, 2003 was approximately $289,000. |
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, Allen Bloom, is of counsel in a law firm that we have engaged for legal services. In 2003, we incurred an aggregate of $547,000 in legal fees with this firm. In addition, one of our directors, J. Thomas August, serves as our Research Director, receiving $73,500 in annual compensation.
Disclosures of Related Party Transactions as required by Item 404 of Regulation S-K are discussed in the prior section “Compensation Committee Interlocks and Insider Participation.”
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EXECUTIVE COMPENSATION
The following table sets forth, for the years 2003, 2002 and 2001, compensation paid to the Chief Executive Officer of the Company and to each other executive officer whose compensation in 2003 exceeded $100,000, for services rendered by such executive officers in all capacities in which they served:
SUMMARY COMPENSATION TABLE
| Annual Compensation | Long Term Compensation | |||||||||||||||||||||
| Awards | Payouts | |||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Other Annual Compensation (2) | Restricted Award | Securities Underlying | LTIP Payouts | All Other Compensation(1) | ||||||||||||||
Warren P. Levy, | 2003 | $ | 179,453 | $ | 1,600 | $ | -0- | $ | -0- | -0- | $ | -0- | $ | 13,989 | ||||||||
President, Chief | 2002 | 161,446 | 1,600 | -0- | -0- | -0- | -0- | $ | 13,932 | |||||||||||||
Executive Officer | 2001 | 161,280 | -0- | -0- | -0- | 100,000 | -0- | $ | 13,932 | |||||||||||||
and Director | ||||||||||||||||||||||
Ronald S. Levy, | 2003 | 175,103 | 1,550 | -0- | -0- | -0- | -0- | $ | 16,914 | |||||||||||||
Executive Vice | 2002 | 156,716 | 1,550 | -0- | -0- | -0- | -0- | $ | 16,872 | |||||||||||||
President and | 2001 | 156,626 | -0- | -0- | -0- | 100,000 | -0- | $ | 16,872 | |||||||||||||
Director | ||||||||||||||||||||||
James P. Gilligan, | 2003 | 158,713 | 1,450 | 8,365 | -0- | 90,000 | -0- | -0- | ||||||||||||||
Vice President | 2002 | 153,179 | 1,450 | 4,183 | -0- | -0- | -0- | -0- | ||||||||||||||
| 2001 | 141,832 | -0- | 6,692 | -0- | 120,000 | -0- | -0- | |||||||||||||||
| (1) | Represents premium paid by the Company on executive split-dollar life insurance. |
| (2) | Represents reimbursement for unused vacation days. |
For information regarding directors’ compensation, please see the above section entitled “Board of Directors and Committees.”
STOCK OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 2003
The following table sets forth certain information relating to stock option grants to each of the executive officers named in the Summary Compensation Table during the year ended December 31, 2003:
Name | Number of Shares | Percent of Total | Exercise Price per Share(2) | Expiration Date | Grant Date Value(3) | ||||||||
Dr. Warren P. Levy | -0- | — | — | — | — | ||||||||
Dr. Ronald S. Levy | -0- | — | — | — | — | ||||||||
Dr. James P. Gilligan | 90,000 | 11.4 | % | $ | 0.305 | 4/13/13 | $ | 25,857 | |||||
| (1) | Options exercisable for an aggregate of 789,900 shares of Common Stock were granted to employees in 2003 under the 2000 Stock Option Plan. |
| (2) | Fair market value on the date of grant. |
| (3) | The fair value of the stock option granted in 2003 is estimated at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%; expected volatility of 116%; a risk-free interest rate of 3.0%; and expected life of 5 years. |
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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, 2003, and the number and value of unexercised options held as of December 31, 2003, by each of the executive officers named in the Summary Compensation Table:
Exercises During The Fiscal Year | Number of Shares Underlying | 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 | $ | 17,000 | $ | 0 | ||||||
Ronald S. Levy | 0 | 0 | 100,000 | 0 | 17,000 | 0 | |||||||||
James P. Gilligan | 0 | 0 | 510,000 | 90,000 | 30,550 | 30,150 | |||||||||
| (1) | Based upon a closing price of $0.64 on December 31, 2003. |
EQUITY COMPENSATION PLAN INFORMATION
The table below summarizes the status of our equity compensation plans.
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining (c) | ||||
Equity compensation plans approved by security holders | 4,222,390 | $ | 0.97 | 1,520,600 | |||
Equity compensation plans not approved by security holders | 2,243,002 | $ | 0.80 | — | |||
Total | 6,465,392 | $ | 0.91 | 1,520,600 | |||
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SHAREHOLDER 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 of a peer group index determined by Standard Industrial Classification (SIC) code.
[GRAPHIC – GRAPH PLOTTED TO POINTS IN CHART BELOW]
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
| FISCAL YEAR ENDING | ||||||||||||
COMPANY/INDEX/MARKET | 12/31/1998 | 12/31/1999 | 12/31/2000 | 12/31/2001 | 12/31/2002 | 12/31/2003 | ||||||
Unigene Laboratories, Inc. | 100.00 | 48.00 | 128.94 | 54.74 | 32.84 | 53.89 | ||||||
Commercial Physical Research | 100.00 | 135.23 | 170.01 | 145.59 | 86.20 | 120.84 | ||||||
NASDAQ Market Index | 100.00 | 176.37 | 110.86 | 88.37 | 61.64 | 92.68 | ||||||
Assumes $100 Invested on January 1, 1999
Assumes Dividends Reinvested
Fiscal Years Ending December 31.
The industry index chosen was:
SIC Code 8731—Commercial Physical & Biological Research
The Broad Market index chosen was:
NASDAQ Market Index
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PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Grant Thornton LLP, independent public accountants, to serve as the Company’s independent auditors for the fiscal year commencing January 1, 2004. Although not required by the Company’s Certificate of Incorporation or By-Laws, the 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 the year ended December 31, 2003. A representative of the firm will be present at the meeting to respond to appropriate questions and will have the opportunity to make a statement, if such representative desires to do so.
On August 30, 2002, Unigene decided to terminate the appointment of KPMG LLP as its independent accountants. The Company’s Audit Committee and Board of Directors participated in and approved the decision to change independent accountants. The audit reports of KPMG on the financial statements of the Company as of and for the fiscal year ended December 31, 2001 did not contain any adverse opinion or disclaimer of opinion, nor was the audit report qualified or modified as to uncertainty, audit scope, or accounting principles, except as follows: KPMG’s independent auditor’s report covering Unigene’s 2001 financial statements includes an explanatory paragraph which states “Unigene has suffered recurring losses from operations and has a working capital deficiency which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.” During the Company’s two most recent fiscal years ended December 31, 2001 and 2000 and through the date hereof, there were no disagreements with KPMG on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to KPMG’s satisfaction, would have caused KPMG to make reference to the subject matter of such disagreement in connection with their reports on the Company’s financial statements for such years. None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the Company’s two most recent fiscal years and the subsequent interim period through the date of this Form 8-K.
Audit Fees. During the fiscal years ended December 31, 2003 and December 31, 2002, the fees billed by the principal accountant for the audit of the Company’s financial statements for such fiscal years and for the reviews of the Company’s interim financial statements were approximately $92,000 and $99,000, respectively.
Financial Information Systems Design and Implementation Fees. During the fiscal year ended December 31, 2003, Grant Thornton did not provide any information technology consulting services for the Company.
All Other Fees. During the fiscal year ended December 31, 2003, Grant Thornton did not provide any professional services other than audit services for the Company.
The Audit Committee did not have to consider whether or not the provision of non-audit related services was compatible with maintaining Grant Thornton’s independence, due to the lack of non-audit related services.
Ratification of the appointment of Grant Thornton 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.
The Board of Directors recommends a voteFOR the ratification of Grant Thornton.
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OTHER MATTERS
The Board of Directors of the Company does not know of any other matters that are likely to be brought before the meeting. However, in the event that any other matters properly come before the meeting, the persons named in the enclosed form of proxy will vote all proxies received in accordance with their judgment on such matters.
PROPOSALS BY STOCKHOLDERS
Stockholder proposals intended to be presented at the 2005 Annual Meeting must be received by the Company on or before December 31, 2004 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 of this proxy statement, the persons named as proxies in the Company’s proxy material for the 2005 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 proxyholders intend to exercise their discretionary voting authority.
SOLICITATION OF PROXIES
The cost of preparing, assembling and mailing this Proxy Statement, the Notice of Meeting and the enclosed form of proxy will be borne by the Company. In addition to the solicitation of proxies by use of the mails, the Company may utilize the services of some of its officers and regular employees (who will receive no compensation therefor in addition to their regular salaries) to solicit proxies personally and by telephone and telefax.
By Order of the Board of Directors
RONALD S. LEVY
Secretary
Fairfield, New Jersey
April 29, 2004
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x |
PLEASE MARK VOTES AS IN THIS EXAMPLE | REVOCABLE PROXY UNIGENE LABORATORIES, INC.
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PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING JUNE 3, 2004 | For | With- hold | For All Except | |||||||
| 1. | Election of directors | ¨ | ¨ | ¨ | ||||||
Jay Levy, Ronald S. Levy, | ||||||||||
| Warren P. Levy, Allen Bloom, | ||||||||||
| The undersigned stockholder of Unigene Laboratories, Inc. hereby appoints Warren P. Levy, Ronald S. Levy and Jay Levy, and each of them, as the undersigned’s proxies (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 3, 2004 at 11:00 A.M., Eastern Daylight time, and any adjournments thereof, on the following matters: | J. Thomas August and Thomas A. Picone | |||||||||
INSTRUCTION: To withhold authority to vote for any individual nominee, mark “For all Except” and write that nominee’s name in the space provided below.
| ||||||||||
| For | Against | Abstain | ||||||||
| 2. Ratification of the appointment of Grant Thornton LLP as independent auditors of the Company. | ¨ | ¨ | ¨ | |||||||
| 3. In their discretion in the transaction of any other business that may properly come before such meeting. | ||||||||||
| The undersigned hereby revokes any proxy heretofore given. | ||||||||||
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. | ||||||||||
Please be sure to sign and date this Proxy in the box below |
| Date | ||||
Stockholder sign above |
| Co-holder (if any) sign above | ||||
é Detach above card, sign, date and mail in postage paid envelope provided é
UNIGENE LABORATORIES, INC.
This proxy will be voted in accordance with instructions specified above, but in the absence of any instructions will be voted “FOR” Items 1 and 2. If any other business is presented at the meeting, the proxies are authorized to vote thereon in their discretion. The Board of Directors recommends a voteFORitems 1 and 2 noted above. PLEASE ACT PROMPTLY SIGN, DATE & MAIL YOUR PROXY CARD TODAY
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IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.