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 Section 240.14a-11(c) or Section
240.14a-12
[_] Confidential, For Use of the Commission Only (As Permitted by Rule
14A-6(E)(2))
CARDIOTECH INTERNATIONAL, INC.
(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)(4) 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:
CARDIOTECH INTERNATIONAL, INC.
78-E Olympia Avenue
Woburn, Massachusetts 01801
http://www.cardiotech-inc.com
info@cardiotech-inc.com
August 16, 2001
To the Stockholders of CardioTech International, Inc.:
CardioTech International, Inc. (the "Company") is pleased to send you the
enclosed notice of the Annual Meeting of Stockholders (the "Meeting") to be held
at 10:00 a.m. (EST) on Monday, October 1, 2001 at the offices of the Company,
78-E Olympia Avenue, Woburn, MA 01801.
Ordinary annual meeting business will be transacted at the Meeting,
including the election of directors. Two (2) other actions will be submitted to
the stockholders at the Meeting:
1. to approve an amendment to the Company's Articles of Organization
increasing the number of shares of Common Stock, $.01 par value per
share, which the Company is authorized to issue from 20,000,000 shares
to 50,000,000 shares; and
2. to approve an amendment to the Company's 1996 Stock Option Plan
increasing the number of shares of Common Stock reserved under the
plan from 5,000,000 shares to 7,000,000 shares.
Please review the Company's enclosed Proxy Statement and Annual Report on
Form 10-KSB carefully. If you have any questions regarding this material,
please do not hesitate to call me at (781) 933-4772.
Sincerely yours,
Michael Szycher, Ph.D., MBA
Chairman and
Chief Executive Officer
CardioTech International, Inc.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING PLEASE COMPLETE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING.
CARDIOTECH INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
78-E Olympia Avenue
Woburn, Massachusetts 01801
To be held on October 1, 2001
The Annual Meeting of Stockholders (the "Meeting") of CardioTech
International, Inc. (the "Company") will be held on Monday, October 1, 2001, at
10:00 a.m. (EST) at the offices of the Company, 78-E Olympia Avenue, Woburn, MA
01801, for the following purposes:
1. To elect two (2) directors to hold office until their successors shall
be elected and shall have qualified;
2. To approve an amendment to the Company's Articles of Organization
increasing the number of shares of common stock, $.01 par value per
share, which the Company is authorized to issue from 20,000,000 shares
to 50,000,000 shares;
3. To approve an amendment to the Company's 1996 Stock Option Plan (the
"1996 Plan") increasing the number of shares of Common Stock reserved
under the Plan from 5,000,000 shares to 7,000,000 shares; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board has fixed the close of business on August 13, 2001, as the
record date for the determination of stockholders entitled to notice of, and to
vote and act at, the Meeting and only stockholders of record at the close of
business on that date are entitled to notice of, and to vote and act at, the
Meeting.
Stockholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, please complete and sign
the enclosed proxy card and return it promptly. If you choose, you may still
vote in person at the Meeting even though you previously submitted a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
CARDIOTECH INTERNATIONAL, INC.
Michael Adams
Clerk
Woburn, Massachusetts
August 16, 2001
3
CARDIOTECH INTERNATIONAL, INC.
78-E Olympia Avenue
Woburn, Massachusetts 01801
(617) 368-2700
--------------------
PROXY STATEMENT
--------------------
ANNUAL MEETING OF STOCKHOLDERS
to be held October 1, 2001
INTRODUCTION
The Annual Meeting of Stockholders
This proxy statement (the "Proxy Statement") is being furnished to holders
of shares of common stock, $.01 par value (the "Common Stock") of CardioTech
International, Inc., a Massachusetts corporation ("CardioTech" or the
"Company"), in connection with the solicitation of proxies by the Board of
Directors (the "Board") of the Company for use at the Annual Meeting of
Stockholders (the "Meeting") to be held at the offices of the Company, 78-E
Olympia Avenue, Woburn, MA 01801, on October 1, 2001 at 10:00 a.m. (EST), and at
any adjournment or adjournments thereof.
Matters to be Considered at the Meeting
At the Meeting, Stockholders will be acting upon the following matters: (i)
to elect two (2) directors to hold office until their successors shall be
elected and shall have been duly qualified; (ii) to approve an amendment to the
Company's Articles of Organization increasing the number of shares of Common
Stock which the Company is authorized to issue from 20,000,000 shares to
50,000,000 shares and (iii) to approve an amendment to the Company's 1996 Stock
Option Plan (the "1996 Plan") increasing the number of shares of Common Stock
reserved under the 1996 Plan from 5,000,000 shares to 7,000,000 shares.
Recommendations of the Board of Directors
THE BOARD UNANIMOUSLY RECOMMENDS ADOPTION OF ALL THE MATTERS TO BE
SUBMITTED TO THE STOCKHOLDERS AT THE MEETING.
Beneficial Ownership of Securities and Voting Rights
As of the close of business on August 13, 2001, the record date for the
Meeting, there were outstanding 8,507,451 shares of Common Stock. The Company
has no other shares of capital stock issued and outstanding. For more
information about the Company's authorized and outstanding capital stock, see
"OTHER INFORMATION -- Principal Stockholders."
Proxies; Votes Required
A stockholder may revoke his, her or its proxy at any time prior to its use
by giving written notice to the Clerk of the Company, by executing a revised
proxy at a later date or by attending the Meeting and voting in person. Proxies
in the form enclosed, unless previously revoked, will be voted at the Meeting in
accordance with the specifications made thereon or, in the absence of such
specifications, in favor of (i) the election of the nominees for directors
listed herein, (ii) the proposal to amend the Company's Articles of Organization
increasing the number of shares of Common Stock which the Company is authorized
to issue from 20,000,000 shares to 50,000,000 shares, (iii) the proposal to
4
amend the Company's 1996 Plan increasing the number of shares of Common Stock
reserved under the 1996 Plan from 5,000,000 shares to 7,000,000 shares, and (iv)
with respect to any other business which may properly come before the Meeting,
in the discretion of the named proxies.
Proxies submitted with abstentions as to one or more proposals will be
counted as present for purposes of establishing a quorum for such proposals. The
expected date of the first mailing of this proxy statement and the enclosed
proxy is estimated to be August 31, 2001.
The affirmative vote of a plurality of the shares of the Company's Common
Stock present at the Meeting, in person or by proxy, is required for the
election of the members of the Board. The affirmative vote of the holders of a
majority of the shares of the Company's Common Stock issued and outstanding is
required for the approval of the amendment to the Company's Articles of
Organization, and the approval of the amendment to the 1996 Plan.
Shares of the Company's Common Stock represented by executed proxies
received by the Company will be counted for purposes of establishing a quorum at
the Meeting, regardless of how or whether such shares are voted on any specific
proposal. With respect to the required vote on any particular matter,
abstentions will be treated as votes cast or shares present and represented,
while votes withheld by nominee recordholders who did not receive specific
instructions from the beneficial owners of such shares will not be treated as
votes cast or as shares present or represented.
TABLE OF CONTENTS
Page No.
--------
Introduction 3
Table of Contents 4
Election of Directors 5
Executive Compensation 9
Amendment of Articles of Organization 11
Amendment to the 1996 Stock Option Plan 12
Other Information 15
Annex A
Report of the Audit Committee
ELECTION OF DIRECTORS
PROPOSAL 1
Introduction
Pursuant to Section 50A of Chapter 156B of the Massachusetts General Laws,
the Board is currently divided into three (3) classes having staggered terms of
three (3) years each. Under Section 50A, the Board may determine the total
number of directors and the number of directors to be elected at any annual
meeting or special meeting in lieu thereof. The Board has fixed at one (1) the
number of Class I directors to be elected at the Meeting. The Board has fixed
at one (1) the number of Class II directors to be elected at the Meeting. At the
Meeting, the stockholders will be asked to elect Robert R. Detwiler and Michael
Barretti as Class I and II directors, respectively, to serve in such capacity
until the 2003 and 2004 Annual Meetings, respectively, and until their
successors are duly elected and qualified.
It is the intention of the persons named in the enclosed proxy to vote to
elect the two nominees named above, one of whom is an incumbent director, and
each of whom has consented to serve if elected. If some unexpected occurrence
should make necessary, in the discretion of the Board, the substitution of some
other person for any of the nominees, it is the intention of the persons named
in the proxy to vote for the election of such other persons as may be designated
by the Board.
5
Nominees, Directors and Executive Officers
The directors and officers of the Company are as follows:
Name Age Position(s) Held
---- --- -----------------
Michael Szycher, Ph.D., MBA 63 Chairman, Chief Executive Officer and
Treasurer
Michael L. Barretti* 56 Director
Michael Adams 43 Director and Clerk
Anthony J. Armini, Ph.D. 63 Director
Robert R. Detwiler* 72 Nominee
---------------------------
* Nominee for election as a director at this Meeting
There are no family relationships between any director, executive officer,
or person nominated or chosen to become a director or executive officer.
Business Experience
NOMINEE TO SERVE AS DIRECTOR FOR A TERM EXPIRING
------------------------------------------------
AT THE 2003 ANNUAL MEETING (CLASS I DIRECTOR)
---------------------------------------------
Robert R. Detwiler is a director of Detwiler, Mitchell & Co. and the
President of one of its principal subsidiaries, Fechtor, Detwiler & Co., Inc.
("Fechtor Detwiler"). Mr. Detwiler has been with Fechtor Detwiler since 1975
since investing in one third of that company. He owned one third of Fechtor
Detwiler until the merger between Fechtor Detwiler and JMC Group, Inc. in August
1999. He was named a director of Detwiler, Mitchell & Co. in May 2000. Prior
to joining Fechtor Detwiler, Mr. Detwiler was employed in the securities
industry since 1957 at Smith Barney, Laird & Company and Wood, Struthers &
Winthrop. He is a registered General Securities Principal with the NASD. Mr.
Detwiler was selected to be nominated as a director of CardioTech in May 2001
when Mr. Chartoff, a Class I director, informed the Company that he would like
his term to end at the next stockholders meeting.
DIRECTOR SERVING A TERM EXPIRING AT THE
---------------------------------------
2002 ANNUAL MEETING (CLASS III DIRECTORS)
-----------------------------------------
Dr. Szycher has been Chairman of the Board, Chief Executive Officer and
Treasurer of the Company since June 1996. From October 1989 until joining the
Company in June 1996, Dr. Szycher served as Chairman of PolyMedica Industries,
Inc. ("PMI") and Chief Executive Officer of PMI from November 1990 to June 1996,
and as a director of PMI from its inception until June 1996.
DIRECTORS SERVING A TERM EXPIRING AT THE
----------------------------------------
2003 ANNUAL MEETING (CLASS I DIRECTORS)
Mr. Adams is the Vice President of PLC Systems, Inc. Prior to joining PLC
Systems in September 2000, Mr. Adams was Vice President of Assurance Medical,
Inc., ("Assurance Medical"). Prior to joining Assurance Medical in June 1999,
Mr. Adams was the Chief Operating Officer and Vice President of Regulatory
Affairs and Quality Assurance of the Company from June 1998 to May 1999. From
November 1994 through June 1998, Mr. Adams served as the Vice President of Cytyc
Corporation. Mr. Adams has been a director of CardioTech since May 1999.
Dr. Anthony J. Armini has been the President, Chief Executive Officer, and
Chairman of the Board of Directors of Implant Science Corporation since 1984.
From 1972 to 1984, prior to founding Implant Sciences, Dr. Armini was Executive
Vice President at Spire Corporation. From 1967 to 1972, Dr. Armini was a Senior
Scientist at McDonnell Douglas Corporation. Dr. Armini received his Ph.D. in
nuclear physics from the University of California, Los Angeles in 1967. Dr.
6
Armini is the author of eleven patents, fifteen patents pending and fourteen
publications in the field of implant technology. Dr. Armini has over thirty
years of experience working with cyclotrons and linear accelerators, the
production and characterization of radioisotopes, and fifteen years experience
with ion implantation in the medical and semiconductor fields. Dr. Armini has
been a director of CardioTech since August 2000.
NOMINEE TO SERVE AS DIRECTOR FOR A TERM EXPIRING
------------------------------------------------
AT THE 2004 ANNUAL MEETING (CLASS II DIRECTOR)
----------------------------------------------
Mr. Barretti has been the President of Cool Laser Optics, Inc., a company
which commercializes optical technology specific to the medical laser industry,
since July 1996. From September 1994 to July 1996, Mr. Barretti was Vice
President of Marketing for Cynosure, Inc., a manufacturer of medical and
scientific lasers. From June 1987 to September 1994, Mr. Barretti was a
principal and served as Chief Executive Officer of NorthFleet Management Group,
a marketing management firm serving the international medical device industry.
From January 1991 to May 1994, Mr. Barretti also acted as President of
Derma-Lase, Inc., the U.S. subsidiary of a Glasgow, Scotland supplier of solid
state laser technologies to the medical field. Mr. Barretti has been a director
of the Company since January 1998.
7
Certain Transactions
The above-named nominees, directors and executive officers have indicated
that neither they nor any of their respective affiliates has any relationship
with the Company that is required to be disclosed pursuant to Item 404 of
Regulation S-B promulgated under the Securities Exchange Act of 1934, as
amended, except for the transactions referred to below.
Robert Detwiler loaned the Company $25,000.00 in February 2000, on a short
term basis. Mr. Detwiler received a warrant to purchaser 25,000 shares of
Common Stock, exercisable until February 28, 2005 at a price of $.50 per share,
representing the price of the Common Stock on the date of issuance.
As part of the sale by the Company of CardioTech Ltd. to Nervation Ltd. in
November 2000, Fector Detwiler provided a fairness opinion for which they were
paid $55,000.00. Mr. Detwiler is a director of Fechtor Detwiler
On March 15, 2000, Fechtor Detwiler in consideration for acting as Financial
Advisor in the conversion of 500,000 CardioTech warrants, received a warrant to
purchase 200,000 shares of Common Stock exercisable until March 5, 2005, at a
price of $1.88 per share.
Committees; Attendance
Meeting Attendance. During the fiscal year ended March 31, 2001, there were
four (4) meetings of the Board. The various committees of the Board also met a
total of four (4) times during fiscal 2001. Each director attended in excess of
75% of the total number of meetings of the Board and of committees of the Board
on which he served during fiscal 2001. In addition, from time to time, the
members of the Board and its committees acted by unanimous written consent
pursuant to Massachusetts law.
Audit Committee. The Board has designated from among its members an Audit
Committee, which consists of Mr. Michael Barretti and Mr. Michael Adams. Both
Mr. Barretti and Mr. Adams are independent members. The Audit Committee, which
reviews the Company's financial, accounting practices and controls, held one
meeting on April 18, 2001. The responsibilities of the Audit Committee are
outlined in a written charter, which is included as Annex A of this Proxy
Statement.
Compensation and Stock Option Committee. The Compensation and Stock Option
Committee, which met two (2) times during fiscal 2001, has two members, Mr.
Barretti (Chairman) and Mr. Adams. The Compensation and Stock Option Committee
reviews, approves and makes recommendations on the Company's compensation
policies, practices and procedures to ensure that legal and fiduciary
responsibilities of the Board are carried out and that such policies, practices
and procedures contribute to the success of the Company. The Compensation and
Stock Option Committee administers the 1996 Plan.
Nominating Committee. The Nominating Committee, which was established in
March 1998 and did not meet in fiscal 2001, has three members, Dr. Szycher, Mr.
Barretti and Mr. Adams. The Nominating Committee nominates individuals to serve
on the Board. The Nominating Committee will consider nominees recommended by
Stockholders. See "Stockholder Proposals" for the procedures to be followed by
Stockholders in submitting such recommendations.
Directors' Compensation
The Company's policy is to pay $750 per diem compensation to members of the
Board for attendance at Board meetings or committee meetings. All non-employee
directors are reimbursed for travel and other related expenses incurred in
attending meetings of the Board.
8
Directors are eligible to participate in the 1996 Plan. The 1996 Plan
provides for an initial grant of an option to purchase 14,854 shares of Common
Stock to each non-employee director upon first joining the Board and subsequent
grants of options to purchase 14,854 shares upon each anniversary of such
director's appointment. Such options are granted at an exercise price equal to
the fair market value of the Common Stock on the grant date and fully vest
following one year of service after the date of grant.
9
EXECUTIVE COMPENSATION
The annual and long-term remuneration paid to or accrued for the Chief
Executive Officer of the Company for services rendered during the years ended
March 31, 2000 and 2001 was as follows:
Summary Compensation Table
Long Term
Compensation
Annual Compensation Securities All Other
Underlying Compensation (1)
Name and Principal Position Year Salary Bonus Options $
Michael Szycher, Ph.D, MBA 2001 $225,481 - 225,000 $1,523
Chairman, CEO and Treasurer 2000 $205,067 - 156,060 $11,581
<FN>
-------------------
(1) Includes premiums paid by the Company for long term disability insurance
and term life insurance. Premiums paid in fiscal 2001 for long term
disability insurance and life insurance, respectively, were $612 and $911
for Dr. Szycher.
10
Option Grants in Last Fiscal Year
The following table sets forth information regarding each stock option
granted during the fiscal year ended March 31, 2001 to each of the named
executive officers.
Number of
Securities Percent of Total
Underlying Options Granted Exercise
Options to Employees in Price Per Expiration
Name Granted (#) Fiscal Year Share Date
-----------------------------------------------------------------------------
Michael Szycher, Ph.D 100,000 8.41% $ 2.250 10/20/10
125,000 10.52% $ .875 12/31/10
-------------------
(1) The Company granted options to purchase 1,188,454 shares of Common Stock to
employees in the fiscal year ended March 31, 2001. All options were granted
at an exercise price per share equal to the fair market value of the Common
Stock on the date of grant, determined by the closing price on the American
Stock Exchange on the trading day immediately preceding the grant date. All
options vest in four approximately equal annual installments, with the
initial tranche vesting on the date of grant.
Aggregated Option Exercises in Last Fiscal year and Fiscal Year-End Option
Values
The following table provides information regarding the number of shares of
Common Stock covered by both exercisable and unexercisable stock options held by
each of the named executive officers as of March 31, 2001 and the values of
"in-the-money" options, which values represent the positive spread between the
exercise price of any such option and the fiscal year-end value of the Common
Stock. No such options were exercised by the named executive officers during
the 2001 fiscal year.
Number of Securities
Underlying Unexercised Value of the Unexercised
--------------------------
Options/SARs at Fiscal in the Money Options/SARs
--------------------------
Year- End at Fiscal Year-End(1)
--------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---------------------- ----------- ------------- ----------- -------------
Michael Szycher, Ph.D. 959,328 29,085 $35,162 $12,500
-------------------
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Common Stock of $1.00, the closing sale price per
share of the Common Stock as reported on the American Stock Exchange for
March 31, 2001.
Employment Contracts, Terminations of Employment and Change in Control
Arrangements
The Company has entered into an employment agreement (the "Employment
Agreement") with Dr. Michael Szycher, pursuant to which said individual serves
as Chief Executive Officer of the Company. Pursuant to the terms of the
Employment Agreement, Dr. Szycher is to receive an annual base salary of Two
Hundred and Twenty Thousand ($220,000) dollars. Dr. Szycher's salary will be
reviewed annually by the Board. Additionally, Dr. Szycher may also be entitled
to receive an annual bonus payment in an amount, if any, to be determined by the
Compensation and Stock Option Committee of the Board.
The initial term of the Employment Agreement by and between the Company and
Dr. Szycher is set to expire on May 13, 2003. After such time, the term of the
Employment Agreement will be deemed to continue on a month-to-month basis if not
expressly extended while Dr. Szycher remains employed by the Company. Dr.
Szycher and CardioTech each have the right to terminate the Employment Agreement
at any time, with or without cause (as defined in the Employment Agreement),
11
upon thirty (30) days prior written notice. In the event that CardioTech
terminates the applicable Employment Agreement without cause, or Dr. Szycher
terminates his employment for good reason following a change in control (as such
terms are defined in the Employment Agreement) or CardioTech fails to renew the
Employment Agreement within two (2) years following the occurrence of a change
in control, Dr. Szycher will be entitled to receive severance equal to 2.99
times his annual base salary at termination. In such event, Dr. Szycher will be
bound by a noncompete covenant for one (1) year following termination of his
employment.
Substantially all of the stock options granted pursuant to the 1996 Plan
provide for the acceleration of the vesting of the shares of Common Stock
subject to such options in connection with certain changes in control of the
Company.
Compensation Committee Interlocks and Insider Participation
Other than Mr. Adams, no person serving on the Compensation and Stock
Option Committee at any time during Fiscal Year 2001 was a present or former
officer or employee of the Company or any of its subsidiaries. During Fiscal
Year 2001, other than Dr. Szycher, no executive officer of the Company served as
a member of the board of directors or compensation and stock option committee
(or other board committee performing equivalent functions) of another entity,
one of whose executive officers served on the Company's Board or Compensation
and Stock Option Committee.
During the year ended March 31, 2000, the Company sold Senior Notes to
Dresdner Kleinwort Benson Private Equity Partners ("Dresdner Kleinwort"). Under
that agreement, Dresdner Kleinwort has the right to nominate a member of the
Board. Dresdner Kleinwort has not exercised this right.
AMENDMENT OF ARTICLES OF ORGANIZATION
PROPOSAL 2
The Board of the Company has approved an amendment of the Company's
Articles of Organization to increase the number of authorized shares of Common
Stock from 20,000,000 to 50,000,000 shares.
As a result of the proposed change, the authorized capital stock of the
Company would consist of 50,000,000 shares of Common Stock, of which there were
8,507,451 shares outstanding on August 3, 2001. In addition, as of August 3,
2001, options to purchase 5,000,000 shares of the Company's Common Stock were
outstanding under the Company's 1996 Plan and warrants to purchase 1,055,000
shares of the Company's Common Stock were outstanding.
PURPOSE AND EFFECT OF AMENDMENT
The purpose of the proposed amendment to the Articles is to authorize additional
shares of the Company's Common Stock which will be available in the event that
the Board determines that it is necessary or appropriate to effect future stock
dividends or stock splits, to raise additional capital through the sale of
securities, to acquire another company or its business or assets through the
issuance, of securities, to establish a strategic relationship with a corporate
partner through the exchange. of securities, or to take such other action
necessitating additional shares of stock as deemed appropriate by the Board. In
determining the appropriate level of authorized shares of the Company's Common
Stock, the Board considered, among other factors (i) that as of August 3, 2001,
approximately 14,562,451 million shares of the Company's Common Stock were
issued or reserved for issuance, (ii) that if the Board decides to issue
additional shares of Common Stock to finance the Company's activities, the
number of authorized shares may not be enough for such transaction and (iii)
that an additional 2,000,000 shares of Common Stock must be reserved for the
proposed amendment to the Company's 1996 Plan. If this proposed amendment is
adopted, 35,437,549 additional shares of the Company's Common Stock will be
available for issuance by the Board without any further stockholder approval,
although certain issuance of shares may require stockholder approval in
accordance with the requirements of the American Stock Exchange or under
Massachusetts Business Corporation Law. No stockholder has preemptive rights to
purchase any stock of the Company. The additional shares might be issued at such
times and under such circumstances as to have a dilutive effect on earnings per
share and on the equity ownership of the present common stockholders. The
Company has no pending or proposed acquisition of or strategic relationship with
another company which would require use of the additional shares to be
authorized.
12
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE ARTICLES
OF ORGANIZATION
AMENDMENT TO THE 1996 STOCK OPTION PLAN
PROPOSAL 3
Introduction
In 1996, the Company's stockholders approved the 1996 Plan which had been
adopted, subject to stockholder approval, by the Board. Currently, options to
purchase a total of 5,000,000 shares of Common Stock may be granted under the
1996 Plan to employees of the Company (including employees who are directors),
consultants who are not employees and other affiliates of the Company, who are
defined as persons associated with the Company in such other capacity or
relationship as may be permitted by the Board (recipients of stock options are
herein known collectively as "Participants"). As of August 3, 2001 a total of
3,834,870 shares were granted to employees of the Company, consultants and other
associated persons under the 1996 Plan,, of which, grants totaling 1,578,413
shares were granted to executive officers. The exercise price for such options
ranges from $.50 to $3.80.
Proposed Amendment
On April 18, 2001, the Board adopted an Amendment, subject to stockholder
approval at the Meeting. The Amendment provides for increasing the number of
shares of Common Stock available for grant pursuant to the 1996 Plan from
5,000,000 shares to 7,000,000 shares.
Description of the 1996 Plan
The 1996 Plan covers a total of 5,000,000 shares of Common Stock (this
number will increase to 7,000,000 if the Amendment is approved). Options may be
awarded under the 1996 Plan to employees of the Company (including employees who
are directors), consultants who are not employees and other affiliates of the
Company as defined below during the ten-year life of the 1996 Plan. The 1996
Plan provides for the grant of options intended to qualify as incentive stock
options under Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code") ("Incentive Stock Options"), and options which are not Incentive Stock
Options ("Non-Statutory Stock Options").
Only employees of the Company or its subsidiaries (currently approximately
26 persons) may be granted Incentive Stock Options. Affiliates of the Company,
defined as employees of the Company, members of the Company's Board, or persons
associated with the Company in such other capacity or relationship as may be
permitted by the Board, may be granted Non-Statutory Stock Options.
The Option Compensation Committee ("the Committee") of the Board will
administer the 1996 Plan, select the persons to whom options are granted and fix
the terms of such options.
The exercise date of an option granted under the 1996 Plan will be fixed by
the Committee, but may not be later than ten years from the date of grant.
Options may be exercised in such installments as are fixed by the Committee.
Options under the 1996 Plan will not be transferable by the Participant
other than by will or the laws of descent and distribution, although they may be
exercised during the Participant's lifetime by his/her legal representative if
he/she becomes incapacitated. All options must be exercised within three months
after termination of the Participant's affiliation with the Company, except that
options shall remain outstanding for their entire term following termination due
to death or for one year following termination due to permanent disability
whichever is shorter.
13
The exercise price of Incentive Stock Options granted under the 1996 Plan
must be at least equal to the fair market value of the Common Stock, as
determined by the Board, on the date of grant. Non-Statutory Stock Options may
be granted at exercise prices not less than 100% of the fair market value of the
Common Stock on the date of the grant or not less than 110% of such fair market
value in the case of options granted to employees who at the time of grant
possess more than 10% of the total combined voting power of all classes of stock
of the Company. The Option Compensation Committee is authorized to determine,
in its discretion, the exercise price of other options, including any options
that may be regranted to employees after their original grant has lapsed
unexercised.
The 1996 Plan provides for automatic adjustment to the number of shares of
Common Stock issuable upon exercise of options granted under the 1996 Plan to
reflect stock dividends, stock splits, reorganizations, mergers and various
other transactions occurring after the date of grant. Payment for shares
purchased upon exercise of an option must be made in cash or, at the Committee's
discretion, by delivery of shares of Common Stock of the Company, or by a
combination of such methods.
The Company's Board may at any time amend or revise the terms of the 1996
Plan, except that no such amendment or revision may be made without the approval
of the holders of a majority of the Company's outstanding capital stock, voting
together as a single class, if such amendment or revision would (a) materially
increase the number of shares which may be issued under the 1996 Plan (other
than changes in capitalization), (b) increase the maximum term of options, (c)
decrease the minimum option price, (d) permit the granting of options to anyone
not included within the 1996 Plan's eligible categories, (e) extend the term of
the 1996 Plan or (f) materially increase the benefits accruing to eligible
individuals under the 1996 Plan.
The 1996 Plan contains the following terms and conditions required in order
to permit treatment of the options granted thereunder as incentive stock
options: (i) all incentive stock options must be expressly designated as such at
the time of grant and (ii) if any person to whom an incentive stock option is
granted owns, at the time of the grant of such option, Common Stock possessing
more than 10% of the combined voting power of all classes of the Company, then
(a) the purchase price per share of the Common Stock subject to such option
shall not be less than 110% of the fair market value of one share of Common
Stock at the time of grant and (b) the exercise period shall not exceed five
years from the date of grant.
Directors are eligible to participate in the 1996 Plan. The 1996 Plan
provides for an initial grant of an option to purchase 14,854 shares of Common
Stock to each non-employee director upon first joining the Board and subsequent
grants of options to purchase 14,854 shares upon each anniversary of such
director's appointment. Such options are granted at an exercise price equal to
the fair market value of the Common Stock on the grant date and fully vest
following one year of service after the date of grant.
Federal Income Tax Consequences
Incentive Stock Options. In general, a Participant will not recognize
taxable income upon the grant or exercise of an Incentive Stock Option.
Instead, a Participant will recognize taxable income with respect to an
Incentive Stock Option only upon the sale of Common Stock acquired through the
exercise of the option ("ISO Stock"). The exercise of an ISO stock, however,
may subject the Participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the Participant has owned the ISO Stock at the time it is
sold. If the Participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the Participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the Participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then any gain will be treated
as ordinary compensation income to the extent that it does not exceed the gain
that the Participant would have realized had he sold the shares immediately upon
exercise of the option and the remaining gain, if any, will be a capital gain.
This capital gain will be a long-term capital gain if the Participant has held
the ISO Stock for more than one year prior to the date of sale.
14
If a Participant sells ISO Stock for less than the exercise price, then the
Participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the Participant has held the ISO Stock for more than
one year prior to the date of sale.
Nonqualified Stock Options. A Participant will not recognize taxable income
upon the grant of a Non-Statutory Stock Options. A Participant who exercises a
Non-Statutory Stock Options, generally, will recognize ordinary compensation
income in an amount equal to the excess of the fair market value of the Common
Stock acquired through the exercise of the option ("NSO Stock") on the Exercise
Date over the exercise price.
With respect to any NSO Stock, a Participant will have taxable income
recognized upon the exercise of the option. Upon selling NSO Stock, a
Participant generally will recognize capital gain or loss in an amount equal to
the excess of the sale price of the NSO Stock over the Participant's tax basis
in the NSO Stock. This capital gain or loss will be a long-term gain or loss if
the Participant has held the NSO Stock for more than one year prior to the date
of the sale.
Tax Consequences to the Company. The Company will be entitled to a
deduction in connection with a grant of a stock option only in the event and to
the extent ordinary income is recognized by the Participant. Any such deduction
will be allowed to the Company for its taxable year within which ends the
taxable year in which the Participant's recognition of ordinary income occurs.
Any such deduction will be subject to the limitations of Section 162(m) of the
Internal Revenue Code.
Once income associated with such a grant is recognizable to a Participant
for Federal income tax purposes, the Participant must either pay to the Company
an amount sufficient to satisfy any federal, state and local taxes required to
be withheld or make alternative arrangements acceptable to the Company.
The foregoing summary is not a complete description of all tax aspects of
the Plan. The foregoing relates only to Federal income taxes; there may be
other Federal tax consequences associated with the 1996 Plan, as well as
foreign, state and local tax consequences.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS BELIEVES THE ADOPTION OF THE PROPOSED AMENDMENT TO
THE 1996 STOCK OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND THEREFORE RECOMMENDS A VOTE FOR THE APPROVAL OF THIS PROPOSAL.
THE AMENDMENT TO THE 1996 PLAN WILL NOT BECOME EFFECTIVE UNLESS IT IS APPROVED
BY THE STOCKHOLDERS AT THE MEETING.
15
OTHER INFORMATION
PROXY SOLICITATION
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, the officers and regular employees of the
Company may solicit proxies personally or by telephone.
Additionally, the Company intends to utilize a paid solicitation agent
(anticipated to be Georgeson Shareholder Communications, Inc.). They will
develop a communications strategy, distribute proxy materials and solicit voted
proxies from all banks, brokers, nominees and intermediaries. They may also be
asked to contact registered and/or non-objecting beneficial holders. This may
be done over the telephone.
The fees are expected to be approximately $6,000. If telephone solicitations
are requested, then an additional $300 set-up fee, plus $5 per shareholder
contacted and $5 per each vote taken by telephone will be charged.
OTHER BUSINESS
The Board knows of no other matter to be presented at the meeting. If any
additional matter should properly come before the meeting, it is the intention
of the persons named in the enclosed proxy to vote such proxy in accordance with
their judgment on any such matters.
PRINCIPAL STOCKHOLDERS
The number of shares of Common Stock beneficially owned by the persons or
entities known by management to be the beneficial owners of more than 5% of the
outstanding shares, the number of shares beneficially owned by each director,
each nominee for election or re-election as a director and each executive
officer, the number of shares beneficially owned by all directors and officers
as a group, as of the record date, as "beneficial ownership" has been defined
under rules promulgated by the Securities and Exchange Commission, and the
actual sole or shared voting power of such persons, as of the record date, are
set forth in the following table.
The Securities and Exchange Commission Rule 13d-3 defines "beneficial
ownership" as voting or investment decision power over shares. Beneficial
ownership does not necessarily mean that the holder enjoys any economic benefit
from those shares.
Name and Common Stock Percentage of
Address of Beneficially Outstanding Voting Power
Beneficial Owner** Owned (1) Shares Shares Percentage
--------------------------------------- ------------ ------------- ------- -----------
Michael Szycher, Ph.D., MBA (2) 1,844,112 13.76% 315,699 3.71%
78-E Olympia Avenue, Woburn, MA 01801
Michael L. Barretti (3) 306,888 2.29% 40,000 *
Michael Adams (4) 315,882 2.36% 30,000 *
Anthony J. Armini, Ph.D. (5) 44,625 * - *
Robert R. Detwiler 168,900 * 168,900 1.99%
Robert Chartoff (6) 99,625 * 30,000 *
All executive officers and directors
as a group (5 persons) (7) 2,611,132 19.49% 415,699 4.88%
-------------------
* Represents beneficial ownership of less than One (1%) percent of the
Company's outstanding shares of Common Stock.
16
** Addresses are given for beneficial owners of more than Five (5%) percent of
the Company's outstanding shares of Common Stock.
(1) The number of shares of Common Stock issued and outstanding on August 3,
2001 was 8,507,451. The calculation of percentage of ownership for each
listed beneficial owner is based upon the number of shares of Common Stock
issued and outstanding at August 3, 2001, plus shares of Common Stock
subject to options held by such person at August 3, 2001 and exercisable
within 60 days thereafter. The persons and entities named in the table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them, except as noted below.
(2) Includes 1,528,413 shares of Common Stock, which may be purchased within 60
days of August 3, 2001 upon the exercise of stock options and/or warrants.
(3) Includes 266,888 shares of Common Stock, which may be purchased within 60
days of August 3, 2001 upon the exercise of stock options and/or warrants.
(4) Includes 285,882 shares of Common Stock, which may be purchased within 60
days of August 3, 2001 upon the exercise of stock options and/or warrants.
(5) Includes 44,625 shares of Common Stock, which may be purchased within 60
days of August 3, 2001 upon the exercise of stock options and/or warrants.
(6) Includes 69,625 shares of Common Stock, which may be purchased within 60
days of August 3, 2001 upon the exercise of stock options and/or warrants.
(7) See footnotes (2) through (6).
INFORMATION CONCERNING AUDITORS
Based upon the recommendation of its Audit Committee, the Board has
selected the firm of Arthur Andersen LLP as the independent auditors of the
Company for the fiscal year ending March 31, 2002. Prior to the selection of
Arthur Andersen LLP as the Company's independent auditors, BDO Seidman, LLP,
acted in such capacity for the Company since fiscal year 2000. The Company
anticipates a representative from Arthur Andersen LLP will be in attendance at
the Meeting.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the 2002 Proxy
Statement provided that such proposals are received by the Clerk of the Company
no later than May 4, 2002 and are otherwise in compliance with applicable
Securities and Exchange Commission regulations.
ADDITIONAL INFORMATION
Accompanying this Proxy Statement is a copy of the Company's Annual Report
on Form 10-KSB for the year ended March 31, 2001. The Annual Report on Form
10-KSB constitutes the Company's Annual Report to its Stockholders for purposes
of Rule 14a-3 under the Securities Exchange Act of 1934.
Stockholders who have questions in regard to any aspect of the matters
discussed in this Proxy Statement should contact Dr. Michael Szycher, Chief
Executive Officer of the Company, at (781) 933-4772.
17
ANNEX A
REPORT OF THE AUDIT COMMITTEE
To the Board of Directors of Cardiotech International Corporation.
We are responsible for considering management's recommendation of
independent certified public accountants for each fiscal year, recommending the
appointment or discharge of independent accountants to the Board of Directors
and confirming the independence of the accountants. It is also our
responsibility for reviewing and approving the scope of the planned audit, the
results of the audit and the accountant's compensation for performing such
audit; reviewing the Company's audited financial statements; and reviewing the
Company's internal accounting controls and discussing such controls with the
independent accountants.
In connection with the audit of the Company's financial statements for the
year ended March 31, 2001, we met with representatives from BDO Seidman, LLP,
the Company's independent certified public accountants as required by Statements
on Auditing Standards 61. In addition, we have reviewed and discussed with
management the Company's audited financial statements for the year ended March
31, 2001.
Specifically, we have discussed with the independent certified public
accountants the matters required to be discussed by Statements on Auditing
Standards No. 61, COMMUNICATION WITH AUDIT COMMITTEES, as amended, by the
Auditing Standards Board of the American Institute of Certified Public
Accountants. In connection with the Company's year ended 2001 financial
statements, there was one meeting with the independent certified public
accountants and management. All audit committee members attended at least 75%
of these meetings.
The independent certified public accountants' fees for audit services and
non-audit services for the year ended March 31, 2001 were $60,000 and $30,000,
respectively. We have received the written disclosures and the letter from the
independent certified public accountants required by Independence Standard No.
1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as amended, by the
Independence Standards Board, and have discussed with the public accountants the
accountants' independence.
Based on the review and discussion referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual report on Form 10-KSB for the years ended March 31,
2001.
/s/ Michael Barretti
/s/ Michael Adams
18
APPENDIX A
-----------
CHARTER AND POWERS OF THE AUDIT COMMITTEE
-----------------------------------------
RESOLVED, THAT THE MEMBERSHIP OF THE AUDIT COMMITTEE SHALL CONSIST OF AT LEAST
TWO MEMBERS OF THE BOARD OF DIRECTORS, A MAJORITY OF WHOM (I.E.: TWO
INDEPENDENT, IF COMMITTEE CONSISTS OF TWO OR THREE MEMBERS) SHALL BE INDEPENDENT
DIRECTORS (SUBJECT TO THE COMPANY'S REMAINING A SMALL BUSINESS FILER UNDER SEC
RULES), WHO SHALL SERVE AT THE PLEASURE OF THE BOARD OF DIRECTORS.
An "independent director" means a person other than an officer or employee
of the Company or its subsidiaries or any other individual having a relationship
which, in the opinion of the Company's board of directors, would interfere with
the exercise of independent judgment in carrying out the responsibilities of a
director. The following persons shall not be considered independent:
(1) a director who is employed by the Company or any of its affiliates for
the current year or any of the past three years;
(2) a director who accepts any compensation from the Company or any of its
affiliates in excess of $60,000 during the previous fiscal year, other than
compensation for board service, benefits under a tax-qualified retirement
plan, or non-discretionary compensation;
(3) a director who is a member of the immediate family of an individual who
is, or has been in any of the past three years, employed by the Company or
any of its affiliates as an executive officer. Immediate family includes a
person's spouse, parents, children, siblings, mother-in-law, father-in-law,
brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who
resides in such person's home;
(4) a director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which the
company made, or from which the Company received, payments (other than
those arising solely from investments in the Company's securities) that
exceed 5% of the Company's or business organization's consolidated gross
revenues for that year, or $200,000, whichever is more, in any of the past
three years;
(5) a director who is employed as an executive of another entity where any
of the company's executives serve on that entity's compensation committee.
RESOLVED, THAT THE CHARTER AND POWERS OF THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS (THE "AUDIT COMMITTEE") SHALL BE:
(1) Assisting the Board of Directors in the oversight of the maintenance by
management of the reliability and integrity of the accounting policies and
financial reporting and disclosure practices of the Company.
(2) Assisting the Board of Directors in the oversight of the establishment
and maintenance by management of processes to assure that an adequate
system of internal control is functioning within the Company.
(3) Assisting the Board of Directors in the oversight of the establishment
and maintenance by management of process to assure compliance by the
Company with all applicable laws, regulations and Company policy.
RESOLVED, THAT THE AUDIT COMMITTEE SHALL HAVE THE FOLLOWING SPECIFIC POWERS AND
DUTIES:
19
(1) Holding such regular meetings as may be necessary and such special
meetings as may be called by the Chairman of the Audit Committee or at the
request of the independent accountants;
(2) Reviewing the performance of the independent accountants and making
recommendations to the Board of Directors regarding the appointment or
termination of the independent accountants;
(3) Ensuring its receipt from the independent accountants of a formal
written statement delineating all relationships between the independent
accountants and the Company consistent with Independence Standards Board
Standard;
(4) Actively engaging in a dialogue with the independent accountants with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent accountants and for taking
or recommending that the Board of Directors take appropriate action to
oversee the independence of the outside auditor;
(5) Selecting, evaluating and, where appropriate, replacing the independent
auditors (or nominating independent auditors to be proposed for shareholder
approval in any proxy statement), which independent auditors shall
ultimately be accountable to the Board of Directors and the Audit
Committee, as representatives of the shareholders;
(6) Conferring with the independent accountants concerning the scope of
their examinations of the books and records of the Company and its
subsidiaries: reviewing and approving the independent accountants' annual
engagement letter: reviewing and approving the Company's internal annual
audit plans and procedures: and authorizing the auditors to perform such
supplemental reviews or audits as the Committee may deem desirable;
(7) Reviewing with management, the independent accountants significant
risks and exposures, audit activities and significant audit findings;
(8) Reviewing the range and cost of audit and non-audit services performed
by the independent accountants;
(9) Reviewing the Company's audited annual financial statements and the
independent accountants opinion rendered with respect to such financial
statements, including reviewing the nature and extent of any significant
changes in accounting principles or the application thereof;
(10) Reviewing the adequacy of the Company's systems of internal control;
(11) Obtaining from the independent accountants their recommendations
regarding internal controls and other matters relating to the accounting
procedures and the books and records of the Company and its subsidiaries
and reviewing the correction of controls deemed to be deficient;
(12) Providing an independent, direct communication between the Board of
Directors, and independent accountants;
20
(13) Reviewing the adequacy of internal controls and procedures related to
executive travel and entertainment;
(14) Reviewing the programs and policies of the Company designed to ensure
compliance with applicable laws and regulations and monitoring the results
of these compliance efforts;
(15) Reporting through its Chairman to the Board of Directors following the
meetings of the Audit Committee;
(16) Reviewing the powers of the Committee annually and reporting and
making recommendations to the Board of Directors on these responsibilities;
(17) Conducting or authorizing investigations into any matters within the
Audit Committee's scope of responsibilities; and
(18) Considering such other matters in relation to the financial affairs of
the Company and its accounts, and in relation to the internal and external
audit of the Company as the Audit Committee may, in its discretion,
determine to be advisable.
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
CARDIOTECH INTERNATIONAL, INC.
October 1, 2001
Please Detach and Mail in the Envelope Provided
[X] Please mark your
votes as in this
example
WITHHOLD
FOR AUTHORITY
the nominees to vote for the
listed at right names listed at right FOR AGAINST ABSTAIN
1. Election Nominees: 2. Approval of an amendment to
of [ ] [ ] Michael L. Barrett the Company's Articles of [ ] [ ] [ ]
Directors Robert R. Detwilar Organization.
Instructions: To withhold authority to vote for 3. Approval of the Amendment
Any individual nominee, strike out that to the Company's 1996 Stock [ ] [ ] [ ]
Nominee's name in the list at right. Option Plan.
4. In their discretion, such
other matters as may
properly come before the [ ] [ ] [ ]
meeting or any adjournment
thereof.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
RECORD DATE SHARES:______________________
Please be sure to sign and date this proxy.
Mark box at right if comments or
Address change have been noted [ ]
above.
Shareholder sign here:_______________________________________ Co-owner sign here:__________________________________ Date:_____
NOTE: Please sign this proxy exactly as your name appears on the books of the Company. Joint owners should each sign personally.
Trustee and other fiduciaries should indicate the capacity in which the sign, and where more than one name appears, a majority
must sign. If a corporation, this signature should be that of an authorized officer who should state him or her.