SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
PSYCHEMEDICS CORPORATION
(Name of Registrant as Specified In Its Charter)
NAME OF COMPANY
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
[PSYCHEMEDICS CORP. LOGO]
April 1, 2003
Dear Stockholders:
We cordially invite you to attend the Annual Meeting of Stockholders,
which will be held at The Charles Hotel in Harvard Square, 1 Bennett Street,
Cambridge, Massachusetts, on Wednesday, May 14, 2003, at 2:30 P.M.
The notice of the meeting and the proxy statement on the following pages
cover the formal business of the meeting. The meeting will consider the election
of directors for 2003. I will report on current operations and discuss our plans
for growth. We will also have plenty of time for your questions and comments.
I believe that the Annual Meeting provides an excellent opportunity for
stockholders to become better acquainted with Psychemedics and its directors and
officers. I hope that you will be able to attend.
Sincerely,
/s/ Raymond C. Kubacki, Jr.
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
PSYCHEMEDICS CORPORATION
1280 Massachusetts Avenue
Cambridge, Massachusetts 02138
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 1, 2003
The Annual Meeting of Stockholders will be held on May 14, 2003 at 2:30
p.m. at The Charles Hotel in Harvard Square, 1 Bennett Street, Cambridge,
Massachusetts 02138, for the following purposes:
1. To elect directors of the Company for the ensuing year and until
their respective successors are chosen and qualified; and
2. To consider and act upon matters incidental to the foregoing and to
transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 17, 2003
as the record date for the determination of stockholders entitled to receive
notice of, and to vote at, the Annual Meeting of Stockholders.
By order of the Board of Directors,
Edward S. Brewer, Jr.,
Secretary
The Company's Annual Report for 2002 containing a copy of the Company's
Form 10-K (excluding exhibits) for the year ended December 31, 2002 is enclosed
herewith.
PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ACCOMPANYING PROXY IN THE
RETURN ENVELOPE FURNISHED FOR THAT PURPOSE, WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING.
PSYCHEMEDICS CORPORATION
1280 Massachusetts Avenue
Cambridge, Massachusetts 02138
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 2003
This statement is furnished to the stockholders of PSYCHEMEDICS
CORPORATION (hereinafter, the "Company") in connection with management's
solicitation of proxies to be used at the Annual Meeting of Stockholders on May
14, 2003 and at any adjournment of that meeting. The approximate date on which
this proxy statement and accompanying proxy are being sent to stockholders of
the Company is April 1, 2003. Each proxy delivered pursuant to this solicitation
is revocable at the option of the person executing the same by written notice
delivered to the Secretary of the Company at any time before the proxy is voted.
A stockholder who attends the Annual Meeting in person may revoke his or her
proxy at that time and vote his or her shares if such stockholder so desires.
The presence in person or by proxy of stockholders entitled to cast a majority
of the outstanding shares, or 2,606,863 shares, shall constitute a quorum. With
respect to the election of Directors, the Company will treat votes withheld as
shares that are present for purposes of determining a quorum. A plurality is
required to elect Directors, so the five persons receiving the greatest number
of votes will be elected. Withheld votes will not affect the outcome of the
election. If a broker indicates on a proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
be considered as present for quorum purposes but not as shares entitled to vote
with respect to that matter. Accordingly, broker non-votes will have no effect
on such a matter.
All shares represented by a properly executed proxy will be voted unless
it is revoked and, if a choice is specified, will be voted in accordance with
such specification. If no choice is specified, the proxies will be voted FOR the
election of the five nominees named under "Election of Directors", unless
authority to do so is withheld with respect to one or more of the nominees. In
addition, the proxy will be voted in the discretion of the proxy holders with
respect to such other business as may properly come before the meeting. The
officers and directors of the Company as a group own beneficially (excluding
options to acquire stock) approximately 14% of the outstanding shares of Common
Stock of the Company (see "Principal Stockholders and Stockholdings of
Management"). The Company expects that its officers and directors will vote the
shares owned by them FOR the election of such five nominees.
As of March 17, 2003, the Company had outstanding 5,213,725 shares of
Common Stock. The Common Stock is the only type of security entitled to vote at
the Annual Meeting. Each share of Common Stock entitles the holder of record
thereof at the close of business on March 17, 2003 to one vote on each of the
matters to be voted upon at the Annual Meeting.
NOTE: All share and per share amounts of the Common Stock of the Company,
and the exercise prices of stock options referred to in this Proxy Statement,
have been adjusted to give effect to the Company's 1 for 4 reverse stock split
effected on August 1, 2002.
ELECTION OF DIRECTORS
At the Annual Meeting, directors are to be elected to hold office for the
ensuing year and until their respective successors are chosen and qualified. The
Board of Directors has fixed the size of the Board at five and has nominated
five persons, all of whom are now directors of the Company, to serve until the
next Annual Meeting of Stockholders and until their successors are elected and
qualified. If the enclosed proxy is duly executed and received in time for the
Meeting, and unless authority to do so is withheld, it will be voted to elect as
directors the following nominees: Raymond C. Kubacki, Jr., A. Clinton
Allen, Donald F. Flynn, Walter S. Tomenson, Jr. and Fred J. Weinert. (For a
description of the business experience of such nominees, see "Business
Experience of Nominees and Executive Officers" below.) In the event that any of
the nominees become unavailable, then the proxy holders shall have the right:
(i) to vote for such substitute, if any, as the present Board of Directors may
designate; or (ii) to leave a vacancy on the Board.
The Audit Committee, whose members are Messrs. Flynn, Tomenson and
Weinert, held two meetings and acted by unanimous written consent two times
during 2002. All of the members of the Audit Committee are independent from the
Company and its management, as independence is defined in the American Stock
Exchange current and proposed listing standards. The Committee operates under a
written charter last updated in 2000, a copy of which was attached to the
Company's Proxy Statement for our May, 2000 annual meeting. The Committee
reviews the appropriateness, quality and acceptability of the Company's
accounting policies and the integrity of financial statements report to the
public, and compliance with legal and regulatory requirements. The Committee
also reviews the independence and performance and approves the audit,
audit-related and nonaudit fees of, and recommends for Board approval the
engagement and termination of, the Company's independent auditors.
This year the Audit Committee was actively involved in the process to
select the replacement of Arthur Andersen LLP as the independent auditors for
the Company, and recommended the Board approve the appointment of Ernst & Young
LLP; reassessed the adequacy of its charter, recognizing that changes to the
charter will be appropriate when the regulatory requirements of the
Sarbanes-Oxley Act of 2002 and American Stock Exchange listing standards are
finalized; and approved its annual report for inclusion in this Proxy Statement.
The Report of the Audit Committee is set forth on page 5 of this proxy
statement.
The Compensation Committee, whose members are Messrs. Flynn, Tomenson and
Weinert, held one meeting during 2002. The Company does not have a nominating
committee of the Board of Directors.
During the year ended December 31, 2002, there were five meetings of the
Board of Directors. During 2002, except as provided below, each incumbent
director attended at least 75% of the total number of meetings of the Board and
the Board committees on which he served. Mr. Flynn attended three meetings of
the Board. Mr. Tomenson did not attend the Compensation Committee meeting. The
directors acted by unanimous written consent in lieu of meetings on seven
occasions during 2002. The directors regularly consult with management and are
kept informed of business developments and financial results as they occur.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of reports filed pursuant to Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or written representations from persons required to file such reports
("Reporting Persons"), the Company believes that, except as set forth below, all
such filings required to be made by such Reporting Persons were timely made in
accordance with the requirements of the Exchange Act. Richard T. Christoph,
Beneficial holder of 11.6% of the Company's shares, failed to file a Form 3
within the required time period after becoming a 10% owner on May 18, 2001, and
failed to timely file 11 Form 4's for the months of May, 2001 through March,
2002 to report an aggregate of 89 transactions during such period. On April 20,
2002 Mr. Christoph filed a Form 5 to report all such transactions.
-2-
BUSINESS EXPERIENCE OF NOMINEES AND
EXECUTIVE OFFICERS
Following is a list of names, ages and positions with the Company of all
nominees for election as directors and all executive officers of the Company.
Name Age Position
Raymond C. Kubacki, Jr. 58 Chief Executive Officer,
President, Director and Nominee
A. Clinton Allen 59 Chairman of the Board,
Director and Nominee
Donald F. Flynn 63 Director and Nominee, Member of
Audit and Compensation Committees
Walter S. Tomenson, Jr. 56 Director and Nominee, Member of
Audit and Compensation Committees
Fred J. Weinert 55 Director and Nominee, Member of
Audit and Compensation Committees
William R. Thistle 53 Senior Vice President, General
Counsel
Peter C. Monson 47 Chief Financial Officer, Vice
President and Treasurer
Michael I. Schaffer, Ph.D . 58 Vice President,
Laboratory Operations
William Dausey 52 Vice President, Sales
All directors hold office until the next Annual Meeting of Stockholders or
until their successors are elected. Officers serve at the discretion of the
Board of Directors.
Mr. Kubacki has been the Company's President and Chief Executive Officer
and has served as a director of the Company since 1991. Prior to joining the
Company, he served as Vice President National Accounts and Director of Sales and
Marketing for Reliance COMM/TEC Corporation, a subsidiary of Reliance Electric
Co.
Mr. Allen has served as Chairman of the Board since March, 2002.
Previously, he served as Vice Chairman. Mr. Allen has been a director of the
Company since 1989. He is a director of Steinway Musical Instruments, Inc.,
Collector's Universe, Inc. and Integrated Alarm Services Group, Inc.
Mr. Flynn has been the sole stockholder of Flynn Enterprises, Inc. a
venture capital, hedging and consulting firm based in Chicago, Illinois since
its inception in 1988. He has also served as Chairman of the Board of LKQ
Corporation, a company engaged in the automobile recycling business, since 1999,
and served as its sole director from 1998 to 1999. He was the Vice Chairman of
Blue Chip Casino, Inc., an owner and operator of a river boat gaming vessel in
Michigan City, Indiana, from 1997 until 1999, when Blue Chip was sold to Boyd
Gaming Corporation. Mr. Flynn also was Chairman of the Board from
-3-
1992 until 1996, and Chief Executive Officer from 1992 until 1995, of Discovery
Zone, Inc., an operator of indoor entertainment and fitness facilities for
children. From 1972 to 1990, Mr. Flynn served in various positions with Waste
Management, Inc., including Senior Vice President and Chief Financial Officer.
Mr. Flynn serves as a director of Extended Stay America, Inc., an owner and
operator of extended-stay lodging facilities. Mr. Flynn has been a director of
the Company since 1989.
Mr. Tomenson has been Managing Director and Chairman of Client Development
of Marsh, Inc. since 1998. From 1993 to 1998, he was Chairman of FINPRO, the
financial services division of Marsh, Inc. In addition, he is a member of the
Board of Directors of Marsh, Inc. He is a Director of the Trinity College School
Fund, Inc. He also serves on the Executive Council of the Inner-City Scholarship
Fund. Mr. Tomenson has been a director of the Company since 1999.
Mr. Weinert is an entrepreneur whose current business activities are
concentrated in real estate development, theatre and film development, and also
in the cosmetic and fragrance industry in Latin America. He is CEO of Barrington
Services Group Inc., Bella Firms LLC, and San Telmo Inc. For the past 18 years
he has served on the Business Advisory Council for the University of Dayton. He
is also a trustee of the Center for Excellence in Education based in Washington,
DC. Mr. Weinert has been a director of the Company since 1991.
Mr. Thistle has been a Senior Vice President of the Company since
September, 2001 and General Counsel of the Company since 1995. He was a Vice
President of the Company from 1995 to 2001. From 1993 to 1995, he served as
Associate General Counsel for MGM Grand in Las Vegas. From 1989 to 1993, Mr.
Thistle was Associate General Counsel for Harrah's Casino Resorts. Mr. Thistle
is on the Legal Advisory Board of the Institute for a Drug Free Workplace and is
a board member of the Drug and Alcohol Testing Industry Association.
Mr. Monson has been the Company's Chief Financial Officer since March,
2000. He has served as a Vice President and Treasurer of the Company since 1998.
From November, 1996 until joining the Company, Mr. Monson was a financial
consultant to several different companies, most recently with GTE
Internetworking. From 1994 to 1996, Mr. Monson was Chief Financial Officer of
Bet Systems, Inc. From 1991 to 1994, Mr. Monson was the Corporate Controller and
Treasurer of Gamma International, Ltd., now called Fortune Diversified
Industries, Inc., a publicly traded gaming company.
Dr. Schaffer joined the Company in 1999 as Vice President of Laboratory
Operations. Prior to joining the Company, he served as Director of Toxicology,
Technical Manager and Responsible Person for the Leesburg, Florida laboratory of
SmithKline Beecham Clinical Laboratories, from 1990 to 1999. Dr. Schaffer has
been an inspector for the Substance Abuse and Mental Health Services
Administration's National Laboratory Certification Program since 1989. Dr.
Schaffer was also a member of the Board of Directors of the American Board of
Forensic Toxicologists from 1990 to 1999.
Mr. Dausey joined the Company in April, 2000 as Vice President of Sales.
Prior to joining the Company, Mr. Dausey was Vice President Sales for
NorthWestern Corporation, since 1996. Previous positions include Vice President
of Sales for PTC Aerospace and various positions at BF Goodrich Company.
-4-
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein.
The Audit Committee reviews the reviews the Company's financial reporting
process on behalf of the Board. In fulfilling its responsibilities, the
Committee has reviewed and discussed the audited financial statements contained
in the 2002 Annual Report on Form 10-K with the Company's management and the
independent auditors. Management is responsible for the financial statements and
the reporting process, including the system of internal controls and disclosure
controls, and has represented to the Audit Committee that such financial
statements were prepared in accordance with generally accepted accounting
principles. The independent auditors are responsible for expressing an opinion
on the conformity of those audited financial statements with accounting
principles generally accepted in the United States.
The Audit Committee discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended. In addition, the Committee has
discussed with the independent auditors, the auditors' independence from the
Company and its management, including the matters in the written disclosures and
letter which were received by the Committee from the independent auditors as
required by Independence Standard Board No. 1, Independence Discussions with
Audit Committees, as amended.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board that the audited financial statements be included in
the Company's Annual Report on SEC Form 10-K for the year ended December 31,
2002.
Members of the Audit Committee:
Donald F. Flynn
Walter Tomenson
Fred J. Weinert
-5-
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended December 31, 2002,
2001, and 2000, the cash compensation paid by the Company as well as certain
other compensation paid or accrued for such year, to the Company's Chief
Executive Officer and the Company's four other most highly compensated executive
officers (collectively the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------- ----------
NAME AND OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING COMPEN-
POSITION YEAR $ $ $ OPTIONS(#) SATION($)
- -------- ---- ------- ----- ------------ ---------- ---------
Raymond C 2002 275,000 0 (1) 8,750 5,606(2)
Kubacki, Jr 2001 234,327 0 (1) 0 5,250(2)
President & CEO 2000 230,000 0 (1) 0 5,307(2)
A. Clinton Allen 2002 193,558 0 (1) 0 5,584(2)
Chairman 2001 195,000 0 (1) 0 5,250(2)
2000 188,192 0 (1) 12,500 5,304(2)
William R. Thistle 2002 212,050 0 (1) 12,500 4,835(2)
Vice President 2001 177,500 0 (1) 0 4,500(2)
& General 2000 155,077 0 (1) 8,750 4,558(2)
Counsel
Michael I. Schaffer 2002 162,375 0 (1) 2,500 4,025(2)
Vice President 2001 156,500 0 (1) 0 3,913(2)
Laboratory 2000 151,577 0 (1) 6,250 1,937(2)
Operations
William Dausey 2002 130,000 0 (1) 2,500 3,900(2)
Vice President 2001 130,000 0 (1) 0 1,950(2)
Sales 2000 90,000 0 (1) 12,500 0
(1) Any perquisites or other personal benefits received from the Company by
the named executive were substantially less than the reporting thresholds
established by the Securities and Exchange Commission (the lesser of
$50,000 or 10% of the individual's cash compensation).
(2) Employer contribution under a 401(k) Retirement Plan.
-6-
STOCK OPTION GRANT TABLE
The following table contains information concerning the grant of stock
options to the named executive officers of the Company during the Company's
fiscal year ended December 31, 2002:
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
% OF TOTAL OF ASSUMED ANNUAL RATE
OPTIONS EXERCISE OF STOCK APPRECIATION
GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH)(2) DATE 0% 5%($) 10%($)
---- ---------- -------------- --------- ----------- -- ------- ---------
Raymond C. Kubacki, Jr 8,750(3) 24 13.68 5-9-12 0 75,279 190,771
William R. Thistle 12,500(4) 35 13.68 5-9-12 0 107,541 272,530
Michael I. Schaffer 2,500(5) 7 13.68 5-9-12 0 21,508 54,506
William Dausey 2,500(5) 7 13.68 5-9-12 0 21,508 54,506
Peter C. Monson 2,500(5) 7 13.68 5-9-12 0 21,508 54,506
(1) These options were granted pursuant to the Company's 2000 Stock
Option Plan.
(2) Represents the market value on the date of grant.
(3) Of these options, options with respect to 7,705 shares are incentive
stock options and vest with respect to 1,142 shares on May 9, 2003,
and with respect to 2,188 shares on May 9, 2004 and 2005, and with
respect to 2,187 on May 9, 2006; options with respect 1,045 shares
are non-qualified stock options and vest on May 9, 2003.
(4) Of these options, options with respect to 11,058 shares are
incentive stock options and vest with respect to 1,683 shares on May
9, 2003, and with respect to 3,125 shares on May 9, 2004, 2005, and
2006; options with respect 1,442 shares are non-qualified stock
options and vest on May 9, 2003.
(5) These options are all incentive stock options and vest with respect
to 25% of the shares covered thereby on May 9, 2003, and with
respect to an additional 25% on each of the three anniversary dates
thereafter.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to each of the
named executive officers concerning each exercise of stock options during the
fiscal year and the number and value of unexercised options held as of December
31, 2002.
-7-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
SHARES VALUE NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED REALIZED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ON EXERCISE ($)(1) YEAR-END(#) FISCAL YEAR-END ($)(2)
----------- ------ -------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Raymond C.
Kubacki, Jr. 0 0 159,939 13,438 74,548 0
A. Clinton Allen 0 0 75,201 9,376 24,849 0
William R. Thistle 0 0 28,876 18,749 0 0
Michael I. Schaffer 0 0 11,564 8,436 0 0
William Dausey 0 0 6,250 8,750 0 0
(1) Value realized represents the difference between the closing price of the
Common Stock on the date of exercise and the exercise price, multiplied by
the number of shares acquired on exercise.
(2) Represents the fair market value of the Company's Common Stock on December
31, 2002 ($9.33 per share based on the closing price on the American Stock
Exchange) minus the exercise price per share, of the in-the-money options,
multiplied by the number of shares subject to each option.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In connection with the grants by the Company to Mr. Kubacki and to Mr.
Thistle of options to acquire shares of the Company's Common Stock, the Company
agreed that notwithstanding the vesting schedule stated in the applicable option
agreement, such options would become exercisable in full upon a
change-in-control of the Company. The following events constitute a
change-in-control for purposes of the option agreements: (a) the aggregate
number of shares beneficially owned by the group of investors which purchased
securities of the Company on May 15, 1989 is less than the number held by any
other person or group, (b) the Company sells, leases or transfers all or
substantially all of its assets, or (c) the Company merges or consolidates with
another company and the existing stockholders of the Company end up owning less
than 50% of the combined company.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following Report of the Compensation Committee of the Board of Directors and
the performance graph included elsewhere in this proxy statement do not
constitute soliciting material and should not be deemed filed or incorporated by
reference into any other Company filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this Report or the performance graph by reference therein.
The Company's compensation policies for its executive officers are
carried out by the Compensation Committee consisting of Messrs. Flynn,
Tomenson, and Weinert. The Compensation Committee establishes compensation
policies for the Company and approves employment agreements and salary
increases for executive officers, and approves the grant of stock option
by the Company.
-8-
The Company's executive compensation program is designed to attract,
retain and reward executives who are responsible for leading the Company
in achieving its business objectives. This report is submitted by the
Compensation Committee and addresses the compensation policies for fiscal
year 2002 as they affected Mr. Kubacki, in his capacity as Chief Executive
Officer of the Company, and the other executive officers of the Company.
Compensation Philosophy
The Company's executive compensation philosophy is based on the
belief that competitive compensation is essential to attract, motivate and
retain highly qualified and industrious employees. The Company's policy is
to provide total compensation that is competitive for comparable work and
comparable corporate performance. The compensation program is also
designed to link the interests of the Company's executives to the
interests of the Company's shareholders.
At present, the executive compensation program is comprised of
salary, cash incentive opportunities, long-term incentive opportunities in
the form of stock options, and benefits typically offered to executives by
major corporations. As an executive's level of responsibility increases,
the greater the mix of compensation shifts to reliance on the value of the
Common Stock through stock-based awards.
Section 162(m) of the Internal Revenue Code generally disallows a
tax deduction to a public company for compensation over $1 million paid to
its chief executive officer and its four other most highly compensated
executive officers. Qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met. It is the
Board's objective to maximize deductibility under Section 162(m) with
minimal sacrifices in flexibility and corporate objectives. Accordingly,
with respect to compensation payable to an applicable executive officer
which would otherwise be nondeductible, it is the Company's policy that
such amounts be deferred until the limitation on deductibility no longer
applies with respect to such person.
Compensation Elements
Base Salary
At the executive officer level, base salaries are conservative when
compared with companies of similar size and financial performance. Salary
ranges are assigned to each position based on a comparison of the
Company's positions with similar positions in companies of similar size in
the Company's industry, with range midpoints established at the average of
the marketplace. Actual salaries within the appropriate range depend upon
individual performance, experience and internal equity and are reviewed
and may be adjusted annually by the Company. Salary levels for executive
officers, other than the Chief Executive Officer, were determined for 2002
by Mr. Kubacki, the Chief Executive Officer, and Mr. Allen, who then
served as Vice Chairman, based on the foregoing criteria.
Incentive Compensation
The Company has generally not paid cash bonuses to executive
officers as rewards for superior performance, preferring instead to reward
executive officers with equity-based compensation in the form of stock
options.
-9-
Stock Options
Under the Company's 2000 Stock Option Plan for officers, directors,
and employees and consultants, the Stock Option Committee of the Board of
Directors or any other committee performing similar functions is
authorized to grant options with terms of up to ten years. The options
generally become exercisable with respect to 25% of the shares covered
thereby on the first anniversary of the date of grant and with respect to
an additional 25% on each of the next three anniversary dates thereafter.
In granting the stock options to executives, the Committee takes into
account the practices of other companies of comparable size as well as the
executive's level of responsibility and past contributions to the Company,
particularly in light of the Company's practice not to award cash bonuses.
Compensation to the Chief Executive Officer
Mr. Kubacki did not receive an increase in base salary in 2002 and
he did not receive a bonus for 2002. In May, 2002, Mr. Kubacki was granted
options to acquire up to 8,750 shares of Common Stock. Mr. Kubacki's
annual base salary was last adjusted in 2001. The primary factor
considered in establishing Mr. Kubacki's base compensation was the base
compensation paid to chief executive officers of comparably sized publicly
held corporations. Also considered was the Company's success in regulatory
matters under Mr. Kubacki's leadership.
Donald F. Flynn
Fred J. Weinert
Walter S. Tomenson
COMPENSATION OF DIRECTORS
Messrs. Kubacki and Allen receive no additional compensation for serving
on the Company's Board of Directors. The Company's outside (non-employee)
directors each receive cash compensation in the amount of $5,000 for each
meeting attended.
On March 15, 2002, each outside director was granted an option to acquire
5,150 shares at an exercise price of $13.60 per share, representing the mean of
the high and low sales prices of such Common Stock on March 14, 2002. Each such
option was granted under the 2000 Stock Option Plan, had a term of 10 years, and
was exercisable in full twelve months following the date of grant.
-10-
STOCK PRICE PERFORMANCE GRAPH(1)
[PERFORMANCE GRAPH]
1997 1998 1999 2000 2001 2002
------ ----- ----- ----- ----- -----
PSYCHEMEDICS CORPORATION 100.00 87.33 88.25 93.88 76.47 44.19
RUSSELL 2000 INDEX 100.00 97.20 116.24 111.22 112.36 88.11
AMEX MARKET VALUE INDEX 100.00 98.64 122.98 121.47 115.87 111.25
(1) The above graph assumes a $100 investment on January 1, 1998,
through the end of the 5-year period ended December 31, 2002 in the
Company's Common Stock, the Russell 2000 Index and the AMEX Market
Value Index. The prices all assume the reinvestment of dividends.
(2) The Russell 2000 Index is comprised of the smallest 2,000 companies
in the Russell 3,000 Index. The Company has been unable to identify
a peer group of companies that engage in testing of drugs of abuse,
except for large pharmaceutical companies where such business is
insignificant to such companies' other lines of businesses. The
Company therefore uses in its proxy statements a peer index based on
market capitalization.
(3) The AMEX Market Value Index includes companies whose shares are
traded on the American Stock Exchange.
-11-
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS
OF MANAGEMENT
The following table shows, as of March 17, 2003, the number of shares
beneficially owned (i) by those stockholders who are known to the Company to own
beneficially more than five percent of the outstanding Common Stock of the
Company, (ii) by each director and nominee for director of the Company, (iii) by
each named executive officer, and (iv) by all directors and executive officers
as a group.
Amount and Nature of Percentage
Name Beneficial Ownership(1) Owned(2)
- ---- ---------------------- ----------
Richard T. Christoph 603,325(3) 11.6%
1650 Tall Grass Lane
Lake Forest, Illinois 60045
H. Wayne Huizenga 589,135(4) 11.3%
450 E. Las Olas Blvd. Suite 1500
Fort Lauderdale, Florida 33301
Donald F. Flynn 528,041(5)(6) 10.1%
676 North Michigan Avenue
Suite 4000
Chicago, Illinois 60611
Thomas J. Campbell 402,137(7) 7.7%
c/o Cisar and Mrofka Ltd.
1550 Spring Road #210
Oak Brook, IL 60523
John J. Melk 382,242(8) 7.3%
340 W. Barry Avenue, Coachhouse
Chicago, Illinois 60611
Raymond C. Kubacki, Jr. 228,825(5) 4.3%
A. Clinton Allen 169,297(5) 3.2%
Fred J. Weinert 132,232(5)(9) 2.5%
William Thistle 36,063(5) *
Walter S. Tomenson 21,888(5) *
Michael I. Schaffer 16,563(5) *
William Dausey 10,000(5) *
All Executive Officers and 1,156,972(10) 21.9%
Directors as a group (9 persons)
* denotes ownership of less than 1%
(1) Shares are considered beneficially owned, for the purpose of this table
only, if held by the person indicated as beneficial owner, or if such
person, directly or indirectly, through any contract,
-12-
arrangement, understanding, relationship or otherwise has or shares the
power to vote, to direct the voting of and/or to dispose of or to direct
the disposition of such security, or if the person has the right to
acquire beneficial ownership within sixty (60) days, unless otherwise
indicated in these footnotes.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person shown in this
table.
(3) Includes: (i) 65,700 shares held by said individual as trustee of the
Richard T. Christoph Trust, (ii) 43,700 shares held by said individual as
trustee of the Carla C. McMahon Trust, (iii) 106,600 held by Christoph
Securities, Inc. as to which said individual has sole dispositive and
voting power, and (iv) 3,850 shares owned by said individual's spouse.
(4) Includes: (i) 395,866 shares held by a limited partnership controlled by
said individual and (ii) 2,035 shares owned by said individual's spouse.
(5) Includes the following number of shares of Common Stock which the
individual has a right to acquire within 60 days pursuant to the exercise
of options: Mr. Allen - 81,452; Mr. Kubacki - 166,814; Mr. Flynn - 35,900;
Mr. Weinert - 37,000; Mr. Thistle - 36,063; Mr. Tomenson - 21,888; Mr.
Schaffer - 16,563; and Mr. Dausey - 10,000.
(6) Includes: (i) 4,831 shares owned by Mr. Flynn as trustee under Grantor
Trust Agreement dated April 24, 1989, as amended; (ii) 411,062 shares held
by DNB LP as to which said individual, as President and sole director of
the general partner, has sole dispositive and voting power; and (iii)
76,248 shares owned by said individual's spouse.
(7) Includes: (i) 86,613 shares over which said individual has shared voting
and dispositive power with his spouse as joint tenants; and (ii) 128,812
shares held by a limited partnership of which said individual's spouse is
the general partner.
(8) Includes 69,737 shares held by a corporation controlled by Mr. Melk.
(9) Includes 74,382 shares held by Mr. Weinert as trustee under the Fred J.
Weinert, Jr. Revocable Insurance Trust u/t/a dated May 17, 1982.
(10) Includes 419,743 shares which the executive officers and directors have
the right to acquire within 60 days pursuant to the exercise of options.
-13-
INDEPENDENT AUDITORS
Pursuant to written consents in lieu of meetings of the Audit Committee
and the full Board of Directors dated July 16, 2002, the Company approved Ernst
& Young LLP ("Ernst & Young") as independent auditors for 2003.
On June 26, 2002, the Company terminated its engagement of Arthur Andersen
LLP ("Andersen") as independent auditors. Andersen's report on the Company's
audited financial statements for each of the years ended December 31, 2000, and
December 31, 2001, did not contain an adverse opinion or a disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope, or accounting
principles. During the years ended December 31, 2000, and December 31, 2001, and
the interim period between December 31, 2001, and June 26, 2002, there were no
disagreements between the Company and Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
it to make reference to the subject matter in connection with its report on the
Company's financial statements for those years. Also, during those two years and
interim period, there were no reportable events as listed in Item 304(a)(1)(v)
of Regulation S-K.
During the years ended December 31, 2000, and December 31, 2001, and the
interim period between December 31, 2001, and June 26, 2002, the Company did not
consult with Ernst & Young regarding application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements, or any other matter or reportable event listed in Items 304(a)(2)(i)
and (ii) of Regulation S-K. Representatives of Ernst & Young will be available
at the Annual Meeting to respond to questions.
For the year ended December 31, 2002, the Company retained Ernst & Young
to provide services in the following categories and amounts:
Audit Fees $65,000
Audit Related Fees 10,000
All Other Fees 27,000
--------
Total Fees $102,000
The Audit Committee has considered whether the provision of non-audit
services by Ernst & Young is compatible with maintaining auditor independence.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders must comply with Rule 14a-8 of the Securities and
Exchange Commission issued under the Securities Exchange Act of 1934, and must
be received at the principal executive offices of the Company not later than
December 3, 2003.
OTHER MATTERS
The Board of Directors knows of no other matters which may come before the
Meeting. However, if any matter not now known is presented at the Meeting, it is
the intention of the persons named in the accompanying form of proxy to vote
said proxy in accordance with their judgment on such matter.
-14-
The Company will bear the cost of solicitation of proxies. Solicitations
of proxies by mail may be followed by telephone or other personal solicitation
of certain stockholders by officers or other employees of the Company.
By order of the Board of Directors,
EDWARD S. BREWER, JR.,
Secretary
April 1, 2003
-15-
PSYCHEMEDICS CORPORATION
PROXY FOR 2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Raymond C. Kubacki, Jr. and Peter C. Monson, or
either of them (with full power to act alone), attorneys or attorney of the
undersigned (with full power of substitution to each), to vote for and in the
name of the undersigned, at the 2003 Annual Meeting of Stockholders of
Psychemedics Corporation (the "Company") to be held on Wednesday, May 14, 2003
at 2:30 p.m. at The Charles Hotel in Harvard Square, 1 Bennett Street,
Cambridge, Massachusetts 02138 and any adjournments thereof, according to the
number of shares and as fully as the undersigned would be entitled to vote if
personally present.
Without limiting the general authorization hereby given, said proxies are, and
each of them is, instructed to vote or act as follows on the proposals set forth
in the Company's Proxy Statement dated April 1, 2003 and on such other matters
as may properly come before the meeting.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this proxy exactly as your name appears on the books of the Company.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If the shareholder is a corporation, the signature should
be that of an authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
/X/ Please mark votes as
in this example.
With For All
For hold Except
(1) Election of Directors. / / / / / /
Raymond C. Kubacki, Jr.; A. Clinton Allen; Donald F. Flynn; Walter S. Tomenson,
Jr.; and Fred J. Weinert
NOTE: If you do not wish your shares voted "For" a particular nominee,
mark the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
The Board of Directors recommends a vote FOR Proposal 1.
This proxy, when properly executed, will be voted in the manner directed
by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR the proposal set forth in paragraph (1).
PSYCHEMEDICS CORPORATION
Mark box at right if an address change or comment has been noted on the
reverse side of this card. / /
CONTROL NUMBER:
RECORD DATE SHARES:
--------------------------
Please be sure to sign and date this Proxy. Date
- --------------------------------------------------------------------------------
- ---------Stockholder sign here------------------------Co-owner sign here--------
DETACH CARD DETACH CARD
PSYCHEMEDICS CORPORATION
Dear Shareholder:
Please take note of the important information enclosed with this Proxy
Ballot.
Your vote counts, and you are strongly encouraged to exercise your right
to vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall
be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders,
May 14, 2003.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Psychemedics Corporation