SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[_] Confidential, for Use of the Commission Only (as permitted by
Rule14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
MGI PHARMA, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
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was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
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[LOGO OF MGI PHARMA, INC.]
MGI PHARMA, INC.
5775 West Old Shakopee Road
Suite 100
Bloomington, Minnesota 55437-3174
--------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 14, 2002
TO THE SHAREHOLDERS OF MGI PHARMA, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of MGI
PHARMA, INC. ("MGI" or the "Company") will be held on Tuesday, May 14, 2002, at
The Lutheran Brotherhood Auditorium, 625 Fourth Avenue South, Minneapolis,
Minnesota, at 3:30 p.m., Central time, for the following purposes:
1. To elect a Board of six directors to serve for the ensuing
year and until their successors are elected;
2. To amend the Company's Restated Articles of Incorporation to
increase the authorized Common Stock by 40,000,000 shares and
eliminate the Cumulative Preferred Stock;
3. To amend the Company's 1997 Stock Incentive Plan to extend the
term of the Plan through May 31, 2005 and to increase the
number of shares available for awards granted under the Plan
by 2,000,000 shares;
4. To amend the Company's Amended and Restated Stock Purchase
Plan to increase the number of shares which may be purchased
under the Plan by 200,000 shares;
5. To ratify the appointment of KPMG LLP as independent auditors
for the Company for the fiscal year ending December 31, 2002;
and
6. To consider and act upon any other matters that may properly
come before the meeting or any adjournment thereof.
Only holders of record of MGI Common Stock at the close of business on
March 15, 2002 will be entitled to receive notice of and to vote at the meeting
or any adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU
PLAN TO BE PERSONALLY PRESENT AT THE MEETING, HOWEVER, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU
LATER DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
EXERCISED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William C. Brown
William C. Brown
Secretary
March 29, 2002
[LOGO OF MGI PHARMA, INC.]
MGI PHARMA, INC.
5775 West Old Shakopee Road
Suite 100
Bloomington, Minnesota 55437-3174
-------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 2002
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of MGI PHARMA, INC. ("MGI" or the
"Company") for use at the annual meeting of shareholders (the "Annual Meeting")
to be held on Tuesday, May 14, 2002, at The Lutheran Brotherhood Auditorium, 625
Fourth Avenue South, Minneapolis, Minnesota, at 3:30 p.m., Central time, and at
any adjournment thereof, for the purposes set forth in the Notice of Annual
Meeting of Shareholders. This Proxy Statement and the form of proxy enclosed are
being mailed to shareholders commencing on or about March 29, 2002. A copy of
the Company's Annual Report to Shareholders for the year ended December 31, 2001
is being furnished to each shareholder with this Proxy Statement.
All holders of the Company's Common Stock whose names appear of record
on the Company's books at the close of business on March 15, 2002 will be
entitled to vote at the Annual Meeting. As of that date, a total of 25,046,288
shares of such Common Stock were outstanding, each share being entitled to one
vote. There is no cumulative voting. The affirmative vote of a majority of the
shares of Common Stock present and entitled to vote at the Annual Meeting is
necessary to elect the nominees for director named in the Proxy Statement, to
amend the Company's Restated Articles of Incorporation, to amend the Company's
1997 Stock Incentive Plan, to amend the Company's Amended and Restated Employee
Stock Purchase Plan, and to ratify the appointment of KPMG LLP ("KPMG") as the
Company's independent auditors. Shares of Common Stock represented by proxies in
the form solicited will be voted in the manner directed by a shareholder. If no
direction is given, the proxy will be voted for each such proposal. If a
shareholder abstains (or indicates a "withhold vote for" as to directors) from
voting as to any matter, then the shares held by such shareholder shall be
deemed present at the Annual Meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter, but shall not
be deemed to have been voted in favor of any such matter. If a broker returns a
"non-vote" proxy, indicating a lack of authority to vote on such matter, then
the shares covered by such non-vote shall be deemed present at the Annual
Meeting for purposes of determining a quorum but shall not be deemed to be
represented at the Annual Meeting for purposes of calculating the vote with
respect to any such matter.
So far as the management of the Company is aware, no matters other than
those described in this Proxy Statement will be acted upon at the Annual
Meeting. In the event that any other
matters properly come before the Annual Meeting calling for a vote of
shareholders, the persons named as proxies in the enclosed form of proxy will
vote in accordance with their best judgment on such other matters. A proxy may
be revoked at any time before being exercised, by delivery to the Secretary of
the Company of a written notice of termination of the proxy's authority or a
duly executed proxy bearing a later date.
Expenses in connection with the solicitation of proxies will be paid by
the Company. Proxies are being solicited primarily by mail, although employees
of the Company (including officers) who will receive no extra compensation for
their services may solicit proxies by telephone, facsimile transmission or in
person. In addition, the Company has retained Georgeson & Company, Inc. to
assist in the solicitation of proxies, and has agreed to pay such firm
approximately $7,500, plus reasonable expenses included for its services.
ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation provide that the Board
of Directors shall consist of no fewer than three members and require that a
majority of the members shall be persons who are not employed by, or rendering
consulting or professional services for compensation to, the Company, or any
corporation controlled by, controlling or under common control with the Company
(or related to or directly or indirectly controlled by any of the foregoing).
For such purposes, "control" is defined as direct or indirect beneficial
ownership of more than 25% of a corporation's voting stock.
Six directors have been nominated for election to the Company's Board
of Directors at the Annual Meeting to hold office until the next annual meeting
of shareholders or until their successors are duly elected and qualified (except
in the case of earlier death, resignation or removal).
The Board of Directors recommends that you vote FOR each of the
nominees named below. The affirmative vote of a majority of the shares of Common
Stock present and entitled to vote at the Annual Meeting is necessary to elect
the nominees for director named below. It is intended that the persons named as
proxies in the enclosed form of proxy will vote the proxies received by them for
the election as directors of the nominees named below. Each of the nominees is
currently serving on the Board of Directors. Each nominee has indicated a
willingness to serve, but in case any nominee is not a candidate at the Annual
Meeting, for reasons not now known to the Company, the persons named as proxies
in the enclosed form of proxy may vote for a substitute nominee in their
discretion. Information regarding the nominees is set forth below:
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Principal occupation and business experience
Name Age Director since for past five years
- ----------------------- ----------- --------------------- ------------------------------------------------
Charles N. Blitzer 61 April 1996 President and Chief Executive Officer of MGI;
prior to joining the Company in April 1996,
President and Chief Executive Officer of
Oncologix, Inc. (pharmaceuticals) since July
1992, and a variety of management positions
with Marion Merrell Dow Pharmaceuticals, Inc.
and Marion Laboratories, Inc. (pharmaceuticals)
since 1977.
Andrew J. Ferrara 62 May 1998 President and Chief Executive Officer, Boston
Healthcare (healthcare consulting firm) since
1993./(1)/
Hugh E. Miller 66 October 1992 Retired corporate executive; prior to retirement
in December 1990, Vice Chairman and Director of
ICI Americas Inc. (chemicals, pharmaceuticals,
agricultural, consumer and specialty products)./(2)/
Lee J. Schroeder 73 May 1989 President and Director, Lee Schroeder & Employees,
Inc. (pharmaceutical industry consultants); prior
to retirement in April 1985, President and Chief
Operating Officer of Foxmeyer Drug Co.(wholesale
drug company) and Executive Vice President of
Sandoz, Inc. (pharmaceuticals)./(3)/
-3-
Principal occupation and business experience
Name Age Director since for past five years
- ---------------------------- ----------- ------------------- -----------------------------------------------
David B. Sharrock 65 May 2001 Consultant to public and private pharmaceutical
companies since 1994; adjunct professor at the
College of Pharmacy, Ohio State University since
1994; research committee member at Cincinnati
Children's Hospital Medical Center since 2000.
Prior to retirement in December 1993, Mr. Sharrock
served in various positions with Marion Merrell
Dow, Inc. (pharmaceuticals) since 1958, including
Chief Operating Officer and Director from 1990 to
1993. He has also served as Chairman of the National
Wholesale Druggists Association, Associate Member
Advisory Council, and on the Board of Directors of:
Pharmaceutical Manufacturers Association, National
Pharmaceutical Council, Commerce Bank of Kansas City,
Fifth Third Bancorp, Cincinnati Financial, Inc., and
Unitog, Inc./(4)/
Arthur L. Weaver, M.D. 65 July 1998 Practicing Rheumatologist and Director of Clinical
Research at the Arthritis Center of Nebraska since
1988, clinical professor in the Department of Medicine,
University of Nebraska Medical Center since 1995./(5)/
- -----------------------------
(1) Mr. Ferrara is also a director of VelQuest Corporation.
(2) Mr. Miller is also a director of Wilmington Trust Co., Inc.
(3) Mr. Schroeder is also a director of Interneuron Pharmaceuticals, Inc.
and Bryan LGH Health Systems.
(4) Mr. Sharrock is also a director of Interneuron Pharmaceuticals Inc.,
Praecis Pharmaceuticals, Inc., Incara Pharmaceuticals Corporation,
Broadwing, Inc. and The Ohio State University Foundation.
(5) Dr. Weaver is also a director of the Arthritis Foundation, Nebraska
Chapter, and Lincoln Direct Life (f/k/a Lincoln Mutual Life Insurance
Company).
During 2001, the Board of Directors had the following committees: (i)
an audit committee consisting of Messrs. Ferrara, Schein, and Sharrock; (ii) a
compensation committee consisting of Messrs. Miller, Schroeder and Weaver; and
(iii) a nominating committee consisting of Messrs. Miller, Schroeder and
Blitzer. The audit committee reviews and makes recommendations to the Board of
Directors with respect to designated financial and accounting matters. The
compensation committee reviews and makes certain determinations with respect to
designated matters concerning remuneration of employees and officers. The
nominating committee considers and makes recommendations to the Board with
respect to the number and qualifications of the members of the Board of
Directors and the persons to be nominated for election to the Board of
Directors. During 2001, the audit committee held six meetings and the
compensation committee held three meetings. The nominating committee carries out
its duties without holding any formal meetings. In evaluating persons to be
nominated for election or appointment to the Board of Directors, the members of
the nominating committee meet on an
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informal basis to identify and present such persons for consideration by the
Board of Directors. Shareholder recommendations of potential nominees to the
Board of Directors are welcomed at any time and should be made in writing,
accompanied by pertinent information regarding nominee background and
experience, to the Secretary of the Company.
During 2001, the Board of Directors held eight meetings. Each incumbent
director attended at least 75% of the total number of meetings of the Board of
Directors and committees on which he served that were held during the period he
was a member of the Board of Directors or such committees. The Company's Board
of Directors and the committees thereof also act from time to time by written
action in lieu of meetings.
Compensation payable to nonemployee directors for service on the Board
of Directors and committees thereof for the next term of office is established
each year by the Board of Directors. During the current term, each nonemployee
director receives an annual retainer of $10,000, payable quarterly, plus $2,000
for each meeting of the Board attended in person, $1,000 for each meeting of the
Board attended by telephone, with the Chairman receiving an additional $500 per
meeting attended in person and $250 for attending by telephonic connection, also
payable quarterly. Additionally, each director receives $250 for each committee
meeting attended. The nonemployee directors also are able to elect prior to July
1 each year to receive shares of Common Stock in lieu of their annual retainer.
These shares would be issued on the last business day of each quarter pursuant
to awards under the 1997 Stock Incentive Plan and would be valued as of the
close of business on the date of issuance.
In addition to the fees described above, each new nonemployee director
receives an option to purchase 10,000 shares of Common Stock upon such
director's initial election or appointment to the Board of Directors. Each
nonemployee director also receives an option to purchase 7,500 shares of Common
Stock on the day of such director's re-election to the Board of Directors. The
exercise price of all such options granted is the fair market value of the
Common Stock on the date of grant. Messrs. Schein & Sharrock each received
options to purchase 10,000 shares of Common Stock at an exercise price of $10.01
in May 2001. Messrs. Ferrara, Miller, Schroeder and Weaver each received options
to purchase 7,500 shares of Common Stock at an exercise price of $10.01 in May
2001.
-5-
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, who serve at the pleasure of the
Board of Directors, are as follows:
Name Age Principal occupation and business experience for
past five years
- ------------------------ --- ---------------------------------------------------
Charles N. Blitzer 61 President and Chief Executive Officer of MGI; prior
to joining the Company in April 1996, President and
Chief Executive Officer of Oncologix, Inc.
(pharmaceuticals) since July 1992, and a variety of
management positions with Marion Merrell Dow
Pharmaceuticals, Inc. and Marion Laboratories, Inc.
(pharmaceuticals) since 1977.
Leon O. Moulder, Jr. 44 Executive Vice President since September 14, 1999;
prior to joining the Company in September 1999,
Vice President of Business Development and
Commercial Affairs at Eligix, Inc. (biomedical)
since November 1997, and a variety of sales, sales
management, marketing and business development
positions at Hoechst Marion Roussel, Inc., Marion
Merrell Dow Pharmaceuticals, Inc. and Marion
Laboratories, Inc. (pharmaceuticals) since
September 1981.
William C. Brown 46 Chief Financial Officer and Secretary since
September 14, 1999; formerly Vice President,
Finance since November 1997, Director, Finance and
Planning since 1996, and Controller from 1986 to
1996.
John R. MacDonald, Ph.D. 47 Senior Vice President, Research and Development
since January 2001, formerly Vice President,
Research and Development since 1997; Director,
Preclinical Research from 1994 to 1997; prior to
joining the Company in 1994, Senior Research
Associate of Parke-Davis Pharmaceutical Research,
Division of Warner-Lambert Company and a variety of
research and scientist positions with Parke-Davis
Pharmaceutical Research since 1987. Previously, Dr.
MacDonald held a research faculty position in the
Department of Pathology at the University of
California San Francisco's School of Medicine.
-6-
EXECUTIVE COMPENSATION
Report of Compensation Committee
Overview
The Board of Directors has delegated to the compensation committee (the
"Committee") the authority and responsibility to establish and make certain
decisions with respect to the compensation of the Company's executive officers,
as well as various aspects of other compensation and fringe benefit matters
applicable to all of the Company's employees, including executive officers. In
addition, the Committee administers the Company's stock option and stock based
incentive programs. The Committee is composed entirely of independent, outside
directors of the Company.
Through its executive compensation policies, the Company seeks to
attract and retain highly qualified executives who will contribute positively to
the Company's continued progress. To achieve these goals, the Company emphasizes
compensation arrangements that are tied to Company performance and which provide
key employees the opportunity to acquire a significant ownership interest in the
Company primarily through stock options and stock purchases. The Committee also
believes that the availability of certain benefits is important to its goal of
retaining high quality leadership and motivating executive performance
consistent with shareholder interest. Accordingly, the Company makes available a
range of benefit programs to its employees (including its executive officers),
including life and disability insurance, a 401(k) savings plan, a defined
contribution retirement plan, an employee stock purchase plan and other benefit
programs.
Process
In preparation for its annual compensation decisions, the Committee
reviews the progress the executive officers have made in leading the Company
towards both short- and long-term goals. In order to match the executive
officers' goals with shareholder goals, the Committee's general policy has been
to hold base salary adjustments to increments that reflect changes in the
cost-of-living (once the officer has reached a reasonable level of compensation
as determined by the Committee), to reward past performance with cash bonuses
and stock option grants and also to use stock option grants as a means of
motivating executive officers to perform at the highest possible level in the
future. The Committee intends to make the total compensation package for
executive officers competitive with the marketplace, with emphasis on
compensation in the form of equity ownership, the value of which is contingent
on the Company's longer-term market performance.
The Company retained an independent consulting firm, Towers Perrin (the
"Compensation Consultant"), to review and make recommendations regarding the
Company's compensation practices with respect to its executive officers. Based
on work done for the Company in 2000 and early 2001, the Compensation Consultant
provided updated recommendations regarding the Company's compensation practices
with respect to its executive officers. The Compensation Consultant compared the
Company's compensation practices to a group of similarly situated companies that
are in a similar industry and of a similar size. In making determinations with
respect to 2001 base salaries and stock options for all executive
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officers, the compensation decisions were based in part on the Compensation
Consultant's recommendations.
In making compensation decisions regarding the Company's executive
officers, the Committee first meets with the Company's Chief Executive Officer,
who presents his recommendations with respect to compensation for the other
executive officers. The Committee reviews the recommendations related to the
other executive officers and makes its own independent determination with
respect to each executive officer. The Committee, without participation of the
Chief Executive Officer, then makes its determination on compensation decisions
with respect to the Chief Executive Officer.
Executive Compensation Program
The components of the Company's executive compensation program which
are subject to the discretion of the Committee on an individual basis include
(a) base salaries, (b) stock incentive compensation and (c) performance-based,
incentive bonuses. The Committee makes determinations with respect to these
components based on a subjective evaluation of each officer, after consideration
of both Company and individual performance objectives.
At its meeting in January 2001, the Committee set 2001 base salaries
for and made stock option grants to the executive officers. The increases in
base salaries were intended to approximate the increase in the cost of living,
plus base salary adjustments based on performance, market conditions and the
promotion of one officer to an executive officer position. The Committee granted
stock options to the executive officers based on the Committee's subjective
judgment that these amounts were appropriate to retain these highly qualified
officers and to provide an incentive for continued high quality performance. In
March 2001, the Committee granted additional stock options to the executive
officers to serve as the 2002 annual option grants although for a smaller number
of shares than is typical for the annual option grant. These grants of a reduced
number of stock options in March 2001 were intended to conserve stock options
while accelerating the timing to partially offset the negative impact of
granting fewer stock options. All of the options granted to executive officers
in 2001 vest over a four-year period and are exercisable at the fair market
value of the Common Stock on the date of grant, as set forth in the table
entitled "Option Grants During Year Ended December 31, 2001," which follows this
report.
Cash incentive bonuses for 2001 were awarded in January 2002. The bonus
compensation program for executive officers in 2001 was a continuation of the
program adopted by the Committee in 1993. Under the bonus program, base cash
compensation coupled with up to a 30% cash bonus was considered by the Committee
to be a fair payment for good performance by the Company's executive officers,
other than the Chief Executive Officer. This determination was based primarily
on a review of compensation data from comparable companies and the Committee's
conclusion that a 30% bonus would place the compensation of the executive
officers on a par with the middle tier of such comparable companies.
Consultations in 2000 and early 2001 with the Compensation Consultant confirmed
the conclusions of the Committee that the bonus program was appropriate for the
Company's executive officers, other than the Chief Executive Officer. In
awarding the 2001 cash bonuses, the Committee considered the overall performance
of the Company, individual accomplishments
-8-
of the executive officers, and the performance of operating groups reporting to
each executive officer during 2001.
Compensation of the Chief Executive Officer
In 2001, Mr. Blitzer received a base salary increase of $20,000 to
$370,000, and options to purchase an aggregate of 122,500 shares of the
Company's Common Stock. The increase in Mr. Blitzer's base salary was intended
to approximate the increase in the cost of living in 2000, plus a base salary
adjustment based on performance and market conditions. The options were awarded
in two grants, the second of which was made at a reduced amount in 2001 in lieu
of the planned grant in January 2002. This second grant of a reduced number of
options was intended to conserve stock options while accelerating the timing to
partially offset the negative impact of granting fewer stock options. The size
of the option grants was based on the Committee's subjective judgment that this
amount was appropriate to retain Mr. Blitzer and to provide an incentive for
continued high performance. These options vest over a four-year period and are
exercisable at a price equal to the fair market value of Company Common Stock on
the dates of grant.
In January 2002, the Committee awarded Mr. Blitzer a cash bonus for
2001 of $149,850 or 40.5% of his 2001 base salary. This represented a
continuation of the bonus compensation program adopted by the Committee in 1993.
Based partially on recommendations in 2001 by the Compensation Consultant, a
combination of 2001 base salary and up to a 45% bonus were considered to be a
fair payment for good performance by the Chief Executive Officer. In awarding
Mr. Blitzer's 2001 cash bonus, the Committee considered: the increase in sales
of Salagen(R) Tablets (pilocarpine hydrochloride); the launch and growth in
sales of Hexalen(R) (altretamine) capsules; initiation of and continued
enrollment in the Phase 3 pancreatic trial of irofulven and advancement of a
series of other trials of irofulven; initiation of two Phase 2 trials for MG98;
the raising of over $72 million in a difficult capital market; a continued
increase in the institutional ownership of the Company's stock; and the
acquisition of exclusive U.S. and Canadian license and distribution rights for
palonosetron, a potent, highly selective 5-HT\\3\\-receptor antagonist with an
extended half-life used for the prevention of chemotherapy-induced nausea and
vomiting.
-9-
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the corporate deduction for compensation paid to
executive officers named in this Proxy Statement to one million dollars, unless
the compensation is performance-based. The Committee has considered the
potential long-term impact of this tax code provision on the Company and has
concluded that it is in the best interests of the Company and its shareholders
to attempt to qualify the Company's long-term incentives as performance-based
compensation within the meaning of the Code and thereby preserve the full
deductibility of long-term incentive payments to the extent they might ever be
impacted by this legislation. The Company has included provisions in its 1994
Stock Incentive Plan and the 1997 Stock Incentive Plan intended to preserve the
full deductibility of certain performance-based compensation under the Code.
HUGH E. MILLER,
LEE J. SCHROEDER and
ARTHUR L. WEAVER, M.D.
The Members of the Compensation Committee
10
Summary Compensation Table
The following table sets forth the cash and noncash compensation awarded to
or earned by the Chief Executive Officer and the other executive officers of the
Company.
Annual Long Term
Compensation Compensation
----------------------------------- -------------------------------
Awards:
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary Bonus Options (1)
----------------------------- --------- --------- --------- ------------ -------------
Charles N. Blitzer 2001 $370,000 $149,850 122,500 $ 83,874
President and Chief Executive 2000 350,000 158,000 80,000 72,309
Officer 1999 325,000 135,000 65,000 93,599
Leon O. Moulder, Jr 2001 $236,775 $ 65,350 61,250 $ 22,655
Executive Vice President 2000 205,000 61,500 40,000 33,094
1999 54,404(2) 60,000 50,000 19,000
William C. Brown 2001 $204,500 $ 55,215 61,250 $ 22,655
Chief Financial Officer and 2000 177,106(3) 55,500 35,000 24,074
Secretary 1999 144,146(4) 42,000 25,000 22,699
John R. MacDonald, Ph.D. (5) 2001 $200,000 $ 54,000 61,250 $ 22,655
Senior Vice President, Research
and Development
______________________________
(1) These amounts represent the Company's contributions to the Company's
Retirement Savings Plan, MGI Funded Retirement Trust (formerly known as the
Money Purchase Retirement Plan) and split dollar insurance plan.
Company contributions under the Company's Retirement Savings Plan are made
in the form of MGI Common Stock. The amounts included under this column
attributable to Company contributions to the Retirement Savings Plan
represent the fair market value of MGI Common Stock on the date of the
Company's contribution. For 2001, Company contributions were as follows:
Mr. Blitzer, $13,569; Mr. Moulder, $13,569; Mr. Brown, $13,569, and Dr.
MacDonald, $13,569.
Company contributions under the MGI Funded Retirement Trust are made
annually following the end of each calendar year. For 2001, Company
contributions were as follows: Mr. Blitzer, $9,086; Mr. Moulder, $9,086;
Mr. Brown, $9,086, and Dr. MacDonald, $9,086.
The Company pays a portion of the premium on the split dollar life
insurance plan and proceeds payable under, or the cash surrender value of
such plan, are first payable to the Company up to the amount of premiums
paid by the Company. For 2001, Company payments were as follows: Mr.
Blitzer, $61,219; Mr. Moulder, $0; Mr. Brown, $0, and Dr. MacDonald, $0.
(2) Mr. Moulder joined the Company as Executive Vice President in September
1999. His base salary, on an annualized basis in 1999, was $205,000. The
$54,404 salary listed above is the actual salary received by Mr. Moulder in
1999.
(3) In July 2000, Mr. Brown was awarded an annualized salary increase of
$15,000. His base salary, on an annualized basis in 2000, was $185,000. The
$177,106 salary listed above is the actual salary received by Mr. Brown in
2000.
(4) Mr. Brown held the position of Vice President, Finance, from January 1,
1999 through September 15, 1999. In this position his annualized base
salary was $133,500. On September 16, 1999, Mr. Brown was promoted to an
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executive officer position as Vice President, Chief Financial Officer. In
this position his annualized base salary was $170,000. The $144,146 salary
listed above is the actual salary received by Mr. Brown in 1999.
(5) On January 16, 2001, Dr. MacDonald was promoted to an executive officer
position as Senior Vice President, Research and Development.
None of the Company's executive officers currently has a written employment
agreement. Each of Mr. Blitzer, Mr. Moulder, Mr. Brown, and Dr. MacDonald does,
however, have a termination agreement with the Company providing that, following
a "Change in Control" (as defined) of the Company, if such officer is terminated
by the Company without "Cause" (as defined) or leaves for "Good Reason" (as
defined), then (i) the officer will be entitled to receive a lump sum cash
payment equal to 24 times such officer's monthly base salary (as in effect at
the time of the Change in Control or the termination, whichever is higher),
which as of this date, would amount to $784,400 for Mr. Blitzer, $501,970 for
Mr. Moulder, $433,540 for Mr. Brown, and $424,000 for Dr. MacDonald and payment
of legal fees and expenses relating to the termination, and (ii) any
noncompetition arrangement between such officer and the Company will terminate.
The termination agreements provide that if the officer receives payments under
the agreement that would subject the officer to any federal excise tax due under
Sections 280G and 4999 of the Code, then the officer will also receive a cash
"gross-up" payment so that the officer will be in the same net after-tax
position that the officer would have been in had such excise tax not been
applied. Sections 280G and 4999 of the Code provide that if "parachute payments"
(compensatory payments contingent on a change in control) made to a covered
individual equal or exceed three times such individual's "base amount" (average
annual compensation over the five taxable years preceding the taxable year in
which the change in control occurs), the excess of such parachute payments over
such individual's base amount will be subject to a 20% excise tax and will not
be deductible by the Company. Under the termination agreements, "Change in
Control" is defined to include a change in control of the type required to be
disclosed under Securities and Exchange Commission proxy rules, an acquisition
by a person or group of 35% of the outstanding voting stock of the Company, a
proxy fight or contested election which results in Continuing Directors (as
defined) not constituting a majority of the Board of Directors or another event
which the majority of the Continuing Directors determines to be a change in
control; "Cause" is defined as willful and continued failure to perform duties
and obligations or willful misconduct materially injurious to the Company; and
"Good Reason" is defined to include a change in the officer's responsibility or
status, a reduction in salary or benefits or a mandatory relocation.
-12-
Stock Options
The following table summarizes stock option grants made by the Company to
each of its executive officers named in the Summary Compensation Table above as
a part of such person's 2001 base compensation.
Option Grants During Year Ended December 31, 2001
Individual Grants
--------------------------------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of
Securities Granted to Exercise Stock Price
Underlying Employees in or Base Appreciation for
Options Fiscal Year Price) Expiration Option Term (3)
---------------------------
Name Granted (1) 2001 ($/share) Date (2) 5% 10%
- ------------------------ -------------- ------------- ---------- ----------- --------------------------
Charles N. Blitzer 70,000 5.18 $16.75 1/16/11 $ 37,379 $ 1,868,663
52,500 (4) 3.88 $10.25 3/29/11 38,424 857,633
Leon O. Moulder, Jr. 35,000 2.59 $16.75 1/16/11 68,689 934,332
26,250 (4) 1.94 $10.25 3/29/11 69,212 428,816
William C. Brown 35,000 2.59 $16.75 1/16/11 68,689 934,332
26,250 (4) 1.94 $10.25 3/29/11 69,212 428,816
John R. MacDonald 35,000 2.59 $16.75 1/16/11 68,689 934,332
26,250 (4) 1.94 $10.25 3/29/11 69,212 428,816
________________________
(1) All options were granted with an exercise price equal to the closing price
of the Common Stock on the Nasdaq National Market on the date of grant. All
options granted to executive officers were granted in tandem with limited
stock appreciation rights, (each a "Limited Right"). Each Limited Right is
exercisable for cash in lieu of such associated options only upon the
occurrence of certain changes in control. Upon the occurrence of certain
defined accelerating events, these options would become immediately
exercisable.
The options which expire on January 11, 2011 are exercisable as to 25% of
the underlying option shares as of January 11, 2002, 50% of such option
shares as of January 11, 2003, 75% of such option shares as of January 11,
2004 and 100% of such option shares as of January 11, 2005.
The options which expire on March 29, 2011 are exercisable as to 25% of the
underlying option shares as of March 29, 2002, 50% of such option shares as
of March 29, 2003, 75% of such option shares as of March 29, 2004 and 100%
of such option shares as of March 29, 2005.
(3) These amounts represent certain assumed annual rates of appreciation only.
Potential realizable value is calculated assuming 5% and 10% appreciation
in the price of the Common Stock from the date of grant. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Common Stock, and overall stock market conditions. The amounts
reflected in this table may not necessarily be achieved. Assuming
25,005,050 shares of Common Stock are outstanding, a beginning stock price
of $16.75 per share and 5% and 10% annual appreciation in the price of the
Common Stock over 10 years, the aggregate market value of the Company's
outstanding Common Stock would increase from $418,834,588 to $682,237,409,
assuming 5% annual appreciation, and to $1,086,349,053 assuming 10% annual
appreciation.
(4) This stock option grant was made at a reduced amount in 2001 in lieu of the
planned grant in January 2002. The grant was intended to conserve stock
options while accelerating the timing to partially offset the negative
impact of granting fewer stock options.
-13-
The following table summarizes stock option exercises during the year
ended December 31, 2001 by the executive officers named in the Summary
Compensation Table above, and the values of the options held by such persons at
December 31, 2001.
Aggregated Option Exercises During Year Ended December 31, 2001
and Value of Options Held at December 31, 2001
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options Options Held at
Shares Value Held at December 31, December 31,
Acquired Realized 2001 Exercisable/ 2001(Exercisable/
Name on Exercise (1) Unexercisable) Unexercisable)(1)
------------------------- ------------ -------------------------------------- --------------------
Charles N. Blitzer 105,058 $ 676,859 251,734/227,500 $ 2,259,631/$ 516,519
Leon O. Moulder, Jr. 0 0 35,000/116,250 $ 82,000/$ 214,038
William C. Brown 23,074 $ 174,455 54,775/102,500 $ 240,606/$ 192,644
John R. MacDonald 0 0 53,025/85,625 $ 433,489/$ 177,419
-------------------------
(1) "Value" has been determined based upon the difference between the per share
option exercise price and the market value of the Common Stock at the date
of exercise or December 31, 2001.
14
AUDIT COMMITTEE REPORT AND APPOINTMENT OF INDEPENDENT AUDITORS
Report of Audit Committee
The Audit Committee operates under a written charter approved by the
Board of Directors. All members of the Audit Committee are independent for
purposes of Nasdaq listing requirements.
Our Committee has reviewed and discussed with management the audited
financial statements of the Company for the year ended December 31, 2001 (the
"Audited Financial Statements"). In addition, we have discussed with KPMG, the
independent auditing firm for the Company, the matters required by Statement on
Auditing Standards No. 61 (Communication with Audit Committees).
The Committee also has received, reviewed and discussed the written
disclosures from KPMG required by Independence Standards Board Statement No. 1
(Independence Discussions with Audit Committees), and we have discussed with the
independent auditors that firm's independence.
Based on the foregoing review and discussions, we have recommended to
the Company's Board of Directors the inclusion of the Audited Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, to be filed with the Securities and Exchange Commission.
ANDREW J. FERRARA
PHILIP S. SCHEIN, M.D.
DAVID B. SHARROCK
The Members of the Audit Committee
15
Independent Auditor Fees
The fee table below reports fees billed or to be billed to MGI by KPMG
for professional services provided to MGI for the year ended December 31, 2001.
The Company's Audit Committee has considered whether the provision of the
non-audit fees below is compatible with maintaining KPMG's independence and has
determined that such fees are compatible with maintaining KPMG's independence.
- --------------------------------------------------------------------------------
Audit Fees $ 62,400
Financial Information Systems Design
and Implementation Fees 0
-----------
All Other Fees:
Equity Offerings $ 120,950
Tax Services 8,650
Other 0
-------
Total All Other Fees 129,600
------------
Total Fees $192,000
===========
- --------------------------------------------------------------------------------
Ratification of Appointment of Auditors
The Board of Directors has appointed KPMG as independent auditors for
the Company for the fiscal year ending December 31, 2002. A proposal to ratify
that appointment will be presented at the Annual Meeting. KPMG has served as the
Company's auditors since the Company's incorporation and has no relationship
with the Company other than that arising from its employment as independent
auditors. Representatives of KPMG are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions from shareholders. If
the appointment of KPMG is not ratified by the shareholders, the Board of
Directors is not obligated to appoint other auditors, but the Board of Directors
will give consideration to such unfavorable vote. THE BOARD OF DIRECTORS AND
MANAGEMENT RECOMMEND THAT YOU VOTE FOR RATIFICATION OF THE APPOINTMENT OF KPMG
AS THE COMPANY'S INDEPENDENT AUDITORS.
16
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on
MGI's Common Stock with the cumulative total return on the Nasdaq National
Market (U.S. Companies) Index and on The Nasdaq Pharmaceutical Stock Index for
the last five fiscal years (assuming the investment of $100 in each on December
31, 1996 and the reinvestment of all dividends).
[Performance Graph Appears Here]
Cumulative Total Return
----------------------------------------------------------------
MGI PHARMA INC 12/96 12/97 12/98 12/99 12/00 12/01
MGI PHARMA, INC. 100.00 89.71 229.41 280.89 388.24 359.53
NASDAQ STOCK MARKET (U.S.) 100.00 122.48 172.68 320.89 193.01 153.15
NASDAQ PHARMACEUTICAL 100.00 103.05 130.81 246.64 307.65 262.17
----------------------------------------------------------------
17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of March 15, 2002, certain information
with respect to Common Stock beneficially owned by directors of the Company, the
executive officers of the Company named in the Summary Compensation Table above,
and all directors and executive officers as a group. No shareholders are known
to the Company to have been beneficial owners of more than five percent of
Company Common Stock as of March 15, 2002. Except as otherwise indicated, the
shareholders listed in the table have sole voting and investment power with
respect to the Common Stock owned by them.
Amount and Nature of Percent
Name of Beneficial Owners Beneficial Ownership of Class
------------------------------------------------- ------------------------- ----------
Charles N. Blitzer (1) (2) 444,309 1.8%
Andrew J. Ferrara(1) 19,413 *
Hugh E. Miller (1) 63,764 *
Philip S. Schein, M.D. (1) 2,500 *
Lee J. Schroeder (1) 48,250 *
David B. Sharrock (1) 3,500 *
Arthur L. Weaver, M.D.(1) 18,750 *
William C. Brown (1) (2) 153,557 *
John R. MacDonald (1) (2) 93,136 *
Leon O. Moulder, Jr. (1) (2) 81,416 *
All directors and executive officers as a group
(10 persons) (1) (2) 928,595 3.7%
_______________________
*Less than 1%
(1) Includes the following number of shares which could be acquired within 60
days of March 15, 2002 through the exercise of stock options: Mr. Blitzer,
331,109 shares; Mr. Ferrara, 18,750 shares; Mr. Miller, 58,750 shares; Dr.
Schein, 2,500 shares; Mr. Sharrock, 2,500 shares; Mr. Schroeder, 22,499
shares; Dr. Weaver, 18,750 shares; Dr. MacDonald, 78,963 shares; Mr.
Moulder, 60,313 shares; Mr. Brown, 82,713 shares; and all directors and
executive officers, 676,847 shares.
(2) Includes the following number of shares beneficially owned as of December
31, 2001 through the Company's Retirement Savings Plan: Mr. Blitzer, 8,142
shares; Dr. MacDonald, 9,335 shares; Mr. Moulder, 1,103 shares; and Mr.
Brown, 11,425 shares.
-18-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and all persons who beneficially own more than
10 percent of the outstanding shares of the Company's Common Stock to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of such Common Stock. Directors, executive officers and
such beneficial owners are also required to furnish the Company with copies of
all Section 16(a) reports they file. To the Company's knowledge, based solely
upon a review of the copies of such reports furnished to the Company and written
representations that no other reports were required during the fiscal year ended
December 31, 2001, all Section 16(a) reporting requirements applicable to the
Company's directors, executive officers and such beneficial owners were complied
with.
PROPOSAL TO AMEND THE COMPANY'S
RESTATED ARTICLES OF INCORPORATION
The Company's Restated Articles of Incorporation authorize the issuance of
40,338,000 shares of stock, of which 30,000,000 shares, par value $.01 per
share, are designated Common Stock, 10,000,000 shares, par value of $.10 per
share, are designated Preferred Stock and 338,000 shares, par value $.10 per
share, are designated Cumulative Preferred Stock. As of February 28, 2002, there
were 25,046,288 shares of Common Stock issued and outstanding. Of the unissued
shares of Common Stock, approximately 3,900,000 shares were reserved for
issuance under the Company's stock incentive and other stock plans. Accordingly,
at February 28, 2002, there were approximately 1,000,000 shares of Common Stock
available for general corporate purposes. No shares of Preferred Stock have been
issued. No shares of Cumulative Preferred Stock are outstanding.
On March 11, 2002, the Board of Directors of the Company determined that it
would be in the best interests of the Company and its shareholders to amend the
Company's Restated Articles of Incorporation (1) to increase the number of
shares of Common Stock authorized for issuance from 30,000,000 shares to
70,000,000 shares to permit the Company to raise capital in public or private
offerings, to fund potential acquisitions, to issue shares pursuant to the
Company's stock-based compensation plans, and to further other corporate
purposes deemed necessary or appropriate; and (2) to eliminate the Cumulative
Preferred Stock from the authorized capital stock of the Company.
The full text of the proposed amendments is as follows:
NOW, THEREFORE, BE IT RESOLVED, that Article V of the Restated
Articles of Incorporation of the Company be amended to increase the number
of shares of Common Stock of the Company from thirty million (30,000,000)
shares to seventy million (70,000,000) shares, so that the first paragraph
of Article V will read as follows:
"ARTICLE V
The authorized number of shares of this corporation shall be
eighty million (80,000,000), of which seventy
-19-
million (70,000,000) shares shall be Common Stock of the par value of
$.01 per share and ten million (10,000,000) shares shall be Preferred
Stock of the par value of $.10 per share."
FURTHER RESOLVED, that subsection (e) of Article V, which describes
the rights and preferences of the Cumulative Preferred Stock, be deleted in
its entirety and all of the references in Article V to the Cumulative
Preferred Stock be deleted.
The Board of Directors believes that the availability of additional
authorized but unissued shares will provide the Company with greater flexibility
to issue Common Stock for a variety of corporate purposes, without the delay and
expense associated with convening a special shareholders' meeting. These
purposes may include raising equity capital, acquiring products, adopting
additional stock plans or reserving additional shares for issuance under
existing plans. In addition to the shares currently reserved for issuance under
the Company's stock incentive and other stock plans, as indicated above, the
Company would reserve an additional 2,000,000 shares of Common Stock under the
Company's 1997 Stock Incentive Plan and an additional 200,000 shares under the
Amended and Restated Stock Purchase Plan if the proposed amendments submitted to
the shareholders herein are approved.
The Board has not authorized the issuance of any additional shares of
Common Stock, and there are no current agreements or commitments for the
issuance of a material number of additional shares. If the proposed amendment to
the Restated Articles of Incorporation is adopted, the additional authorized
shares of Common Stock will be available for issuance from time to time at the
discretion of the Board of Directors without further action by the shareholders,
except where shareholder approval is required by law or Nasdaq requirements or
to obtain favorable tax treatment for certain employee benefit plans. The
additional authorized shares would be part of the existing class of the
Company's Common Stock and, if and when issued, would have the same rights and
privileges as the shares of Common Stock presently outstanding. Such additional
shares of Common Stock would not (and the shares of Common Stock currently
outstanding do not) entitle holders thereof to cumulative voting rights.
Any future issuance of additional authorized shares of Common Stock may,
among other things, dilute the earnings per share of the Common Stock and the
equity and voting rights of those holding Common Stock at the time the
additional shares are issued.
Although an increase in the number of authorized shares of Common Stock
could, under certain circumstances, be construed as delaying or preventing a
change of control of the Company (for example, by diluting the stock ownership
of a person seeking to effect a change in the composition of the Board of
Directors or contemplating a tender offer or other transaction for the
combination of the Company with another company), the Company is not proposing
this amendment to the Restated Articles of Incorporation in response to any
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer or solicitation in opposition to management.
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock entitled to vote as of the record date is
necessary for
-20-
approval of the proposed amendments to the Restated Articles of Incorporation.
Proxies will be voted in favor of such proposal unless otherwise specified. THE
BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND THAT YOU VOTE FOR THE AMENDMENTS TO
THE COMPANY'S RESTATED ARTICLES OF INCORPORATION.
PROPOSAL TO AMEND THE 1997 STOCK INCENTIVE PLAN
The Board of Directors has adopted, subject to shareholder approval,
amendments to the Company's 1997 Stock Incentive Plan (the "Plan") to increase
by 2,000,000 the number of shares of Common Stock available for issuance
pursuant to awards granted under the Plan and to extend the term of the Plan for
an additional three-year period, until May 31, 2005. As of February 28, 2002,
only 144,357 shares remained available for grant under the Plan. The market
value of a share of Common Stock on February 28, 2002 was $15.60 per share. The
Plan was initially adopted by the Board of Directors on January 14, 1997 and
approved by shareholders on May 13, 1997. On March 14, 2000, the Board of
Directors adopted an amendment to increase the number of shares available for
grant under the Plan by 1,500,000, which amendment was approved by shareholders
on May 9, 2000. The Plan expires by its terms on May 13, 2002.
The Board of Directors believes that stock options have been, and will
continue to be an important compensation element in attracting, motivating and
retaining key employees. The granting of incentive stock options to employees is
consistent with the Company's past practices, with practices in the industry,
and is a factor in promoting the long-term development of the Company. The Board
of Directors believes that the increase in authorized shares is necessary
because of the need to continue to make awards under the Plan to attract,
motivate and retain key employees.
Summary of the Plan
The Plan provides for the granting of (a) stock options, including
"incentive stock options" ("Incentive Stock Options") meeting the requirements
of Section 422 of the Code, and stock options that do not meet such requirements
("Nonqualified Stock Options"), (b) restricted stock and restricted stock units,
(c) performance awards, (d) dividend equivalents, (e) stock appreciation rights
("SARs") and (f) other stock-based awards. The Plan currently authorizes the
issuance of 2,700,000 shares of the Company's Common Stock, plus any shares that
are represented by awards granted under the Company's 1994 Stock Incentive Plan,
the 1984 Stock Option Plan and the 1982 Incentive Stock Option Plan (the "Prior
Plans") which are forfeited, expire or are canceled without delivery of shares
or which result in the forfeiture of shares back to the Company. As of February
28, 2002, an aggregate of 337,678 shares under the Prior Plans had become
available for issuance under the Plan and 510,789 shares were subject to
outstanding awards under the Prior Plans. If the proposed amendment is approved
by the shareholders, the Company will have increased the number of reserved
shares of Common Stock issuable under the Plan by 2,000,000. The Plan is
administered by a Committee of the Board of Directors (the "Committee"). The
Committee has the authority to establish rules for the administration of the
Plan; to select the key individuals to whom awards are granted; to determine the
types of awards to be granted and the number of shares of Common Stock covered
by such awards; and to set the terms and conditions of such awards. Awards may
provide that upon the grant or exercise thereof the holder will receive shares
of Common Stock, cash or any combination thereof, as the Committee shall
determine.
-21-
In order to meet the requirements of Section 162(m) of the Code, the Plan
provides that no more than 450,000 options may be granted to any single optionee
in any three consecutive calendar years. In addition, the Plan provides that no
single optionee can be awarded more than 225,000 shares of stock in any calendar
year and no more than 200,000 shares of restricted stock may be issued under the
Plan in the aggregate.
The exercise price per share under any stock option, the grant price of any
SAR, and the purchase price of any security which may be purchased under any
other stock based award may not be less than 100% of the fair market value of
the Company's Common Stock on the date of the grant of such option, SAR or stock
based award. Options must be exercised by payment in full of the exercise price,
either in cash or, at the discretion of the Committee, in whole or in part by
the tendering of shares of Common Stock or other consideration having a fair
market value on the date the option is exercised equal to the exercise price.
The holder of an SAR is entitled to receive the excess of the fair market
value (calculated as of the exercise date or, if the Committee shall so
determine, as of any time during a specified period before or after the exercise
date) of a specified number of shares over the grant price of the SAR.
The holder of restricted stock may have all of the rights of a shareholder
of the Company, including the right to vote the shares subject to the restricted
stock award and to receive any dividends with respect thereto, or such rights
may be restricted. Restricted stock may not be transferred by the holder until
the restrictions established by the Committee lapse. Holders of restricted stock
units have the right, subject to any restrictions imposed by the Committee, to
receive shares of Common Stock (or a cash payment equal to the fair market value
of such shares) at some future date. Upon termination of the holder's employment
during the restriction period, restricted stock and restricted stock units shall
be forfeited, unless the Committee determines otherwise.
Any shares that are used by a Plan participant as full or partial payment
to the Company of the purchase price relating to an award, or in connection with
the satisfaction of tax obligations relating to an award in accordance with the
provisions relating to tax withholding under the Plan, will again be available
for the granting of awards under the Plan.
The Board of Directors may amend, alter or discontinue the Plan at any
time, provided that without shareholder approval no such change shall be made
that (i) would violate any rules or regulations of the National Association of
Securities Dealers, Inc. or any securities exchange applicable to the Company,
or (ii) would cause the Company to be unable, under the Code, to grant Incentive
Stock Options under the Plan.
Federal Income Tax Consequences
The following is a summary of the principal federal income tax consequences
generally applicable to awards under the Plan. The grant of an option or SAR is
not expected to result in any taxable income for the recipient. The holder of an
Incentive Stock Option generally will have no taxable income upon exercising the
Incentive Stock Option (except that a liability may arise pursuant to the
alternative minimum tax and a liability for payroll taxes may also arise). The
Company will not be entitled to a tax deduction when an Incentive Stock Option
is exercised
-22-
but may be obligated to pay the employer's share of certain payroll taxes. Upon
exercising a Nonqualified Stock Option, the optionee must recognize ordinary
income equal to the excess of the fair market value of the shares of Common
Stock acquired on the date of exercise over the exercise price, and the Company
will be entitled at that time to a tax deduction for the same amount. Upon
exercising an SAR, the amount of any cash received and the fair market value on
the exercise date of any shares of Common Stock received are taxable to the
recipient as ordinary income and deductible by the Company. The tax consequence
to an optionee upon a disposition of shares acquired through the exercise of an
option will depend on how long the shares have been held and upon whether such
shares were acquired by exercising an Incentive Stock Option or by exercising a
Nonqualified Stock Option or SAR. Generally, there will be no tax consequence to
the Company in connection with the disposition of shares acquired under an
option, except that the Company may be entitled to a tax deduction in the case
of a disposition of shares acquired under an Incentive Stock Option before the
applicable Incentive Stock Option holding periods set forth in the Code have
been satisfied.
With respect to other awards granted under the Plan that are payable in
cash or shares of Common Stock that are either transferable or not subject to
substantial risk of forfeiture, the holder of such an award must recognize
ordinary income equal to the excess of (a) the cash or the fair market value of
the shares of Common Stock received (determined as of the date of such receipt)
over (b) the amount (if any) paid for such shares of Common Stock by the holder
of the award, and the Company will be entitled at that time to a deduction for
the same amount. With respect to an award that is payable in shares of Common
Stock that are restricted as to transferability and subject to substantial risk
of forfeiture, unless a special election is made pursuant to the Code, the
holder of the award must recognize ordinary income equal to the excess of (i)
the fair market value of the shares of Common Stock received (determined as of
the first time the shares become transferable or not subject to substantial risk
of forfeiture, whichever occurs earlier) over (ii) the amount (if any) paid for
such shares of Common Stock by the holder, and the Company will be entitled at
that time to a tax deduction for the same amount.
Under the Plan, the Committee may permit participants receiving or
exercising awards, subject to the discretion of the Committee and upon such
terms and conditions as it may impose, to surrender shares of Common Stock
(either shares received upon the receipt or exercise of the award of shares
previously owned by the optionee) to the Company to satisfy federal and state
withholding tax obligations. In addition, the Committee may grant, subject to
its discretion and such rules as it may adopt, a bonus to a participant in order
to provide funds to pay all or a portion of federal and state taxes due as a
result of the receipt or exercise of (or lapse of restrictions to) an award. The
amount of such bonus will be taxable to the participant as ordinary income, and
the Company will have a corresponding deduction equal to such amount (subject to
the usual rules concerning reasonable compensation).
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock represented at the meeting and entitled to vote on this
matter is necessary for approval of the proposed amendments to the Plan. Proxies
will be voted in favor of such proposal unless otherwise specified. THE BOARD OF
DIRECTORS AND MANAGEMENT RECOMMEND THAT YOU VOTE FOR THE AMENDMENTS TO THE PLAN.
---
-23-
PROPOSAL TO AMEND THE
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has approved an amendment to the MGI PHARMA,
INC. Amended and Restated Employee Stock Purchase Plan (the "Stock Purchase
Plan"), subject to stockholder approval, pursuant to which an additional 200,000
shares of Common Stock would be reserved for purchase under the Stock Purchase
Plan. The Stock Purchase Plan was approved by the Board of Directors and the
shareholders of the Company in May 1988, and amended and restated in May 1993.
On January 14, 1998, the Board of Directors adopted an amendment to increase the
number of shares that may be purchased under the Stock Purchase Plan from
250,000 to 400,000 shares and to extend its term for an additional five years,
which amendment was approved by shareholders on May 12, 1998.
Summary of the Stock Purchase Plan
The Stock Purchase Plan provides for the purchase of shares of MGI's
Common Stock by eligible employees of the Company and certain related
corporations through payroll deductions of 1% to 15% of an employee's current
compensation. The Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code").
The Stock Purchase Plan is administered by the Compensation Committee
of the Board of Directors, which also interprets the Stock Purchase Plan.
Employees of the Company and certain related corporations, other than those
employees whose customary employment is less than 20 hours weekly, are eligible
to participate in the Stock Purchase Plan. In addition, an employee who
immediately after receiving a right to purchase shares would own, directly or
indirectly, stock equal to 5% or more of the total combined voting power or
value of all of the capital stock of the Company or all of its affiliates will
not be eligible to participate in the Stock Purchase Plan. The Stock Purchase
Plan will terminate if and when all the shares of the Company's Common Stock
provided for in the Stock Purchase Plan have been sold. Subject to the approval
of this proposal by the shareholders, the Board of Directors has reserved
600,000 shares of MGI's Common Stock for issuance under the Stock Purchase Plan.
Under the Stock Purchase Plan, there are two six-month purchase periods
(each a "Purchase Period"). One Purchase Period begins on the first business day
of January and ends on the last business day in June and the other begins on the
first business day of July and ends on the last business day of December. On the
last business day of each Purchase Period, each participant receives the right
to purchase as many whole shares of the Common Stock as could be purchased with
the balance in that participant's stock purchase account as of that date. The
exercise price for rights granted under the Stock Purchase Plan is the lesser of
85% of the fair market value of the Common Stock on (i) the first business day
of the Purchase Period or (ii) the last business day of the Purchase Period. No
participant may purchase stock under the Stock Purchase Plan and under all other
stock purchase plans of the Company and its affiliates at a rate exceeding
$25,000 in fair market value of such stock (determined at the beginning of each
Purchase Period) for each calendar year.
The Board of Directors may amend or discontinue the Stock Purchase Plan
at any time. In the absence of shareholder approval, however, no amendment or
discontinuation of the Stock
-24-
Purchase Plan shall be made that: (i) absent such shareholder approval, would
cause Rule 16b-3 under the Securities Act of 1934, as amended, to become
unavailable with respect to the Stock Purchase Plan, (ii) reduces the price per
share at which the Common Stock may be purchased, or (iii) increases the number
of shares of the Common Stock available for issuance under the Stock Purchase
Plan.
As permitted under the Stock Purchase Plan, in March 2002 the Board of
Directors extended the term of the Stock Purchase Plan until June 30, 2008.
Federal Income Tax Consequences
The Stock Purchase Plan and the right of participants to make purchases
thereunder, are intended to qualify under the provisions of Sections 421 and 423
of the Code. Payroll deductions under the Stock Purchase Plan will be taxable to
a participant as compensation for the year in which such amounts would otherwise
have been paid to the participant. No income will be taxable to a participant at
the time of grant of the option or purchase of shares (except that a liability
for payroll taxes may arise to both the participant and the Company). A
participant may become liable for tax upon disposition of the shares acquired as
summarized below.
If the shares are sold or disposed of (including by way of gift) at
least two years after the date of the beginning of the offering period (the
"date of option grant") and at least one year after the date such shares are
purchased (the "date of option exercise"), in this event, the lesser of (a) the
excess of the fair market value of the shares at the time of such disposition
over the purchase price of the shares subject to the option (the "option price")
or (b) the excess of the fair market value of the shares at the time the option
was granted over an amount equal to what the option price would have been if it
had been computed as of the date of option grant, will be treated as ordinary
income to the participant. Any further gain upon such disposition will be
treated as capital gain. Any such capital gain would be taxed at long-term rates
if the stock is held for more than 12 months. If the shares are sold and the
sale price is less than the option price, there is no ordinary income and the
participant has a capital loss for the difference.
In the event that the shares are sold or disposed of (including by way
of gift or by exchange in connection with the exercise of an incentive stock
option) before the expiration of the holding periods described above, the excess
of the fair market value of the shares on the date of option exercise over the
option price will be treated as ordinary income to the participant. This excess
will constitute ordinary income in the year of sale or other disposition even if
no gain is realized on the sale or a gratuitous transfer of the shares is made.
The balance of any gain will be treated as capital gain. Even if the shares are
sold for less than their fair market value on the date of option exercise, the
same amount of ordinary income is attributed to a participant and a capital loss
is recognized equal to the difference between the sales price and the value of
the shares on such date of option exercise. The Company ordinarily will be
allowed a tax deduction at the time and in the amount of the ordinary income
recognized by the participant, but may also be required to withhold income tax
upon such amount or report such amount to the Internal Revenue Service.
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock represented at the meeting and entitled to vote on this
matter is necessary for approval of the proposed amendment to the Stock Purchase
Plan. Proxies will be voted in favor
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of such proposal unless otherwise specified. THE BOARD OF DIRECTORS AND
MANAGEMENT RECOMMEND THAT YOU VOTE FOR THE AMENDMENT TO THE STOCK PURCHASE
PLAN.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Any shareholder proposals to be considered for inclusion in the
Company's proxy material for the 2003 Annual Meeting of Shareholders must be
received at the Company's principal executive office at 5775 West Old Shakopee
Road, Suite 100, Bloomington, Minnesota 55437, no later than November 29, 2002.
In connection with any matter to be proposed by a shareholder at the 2003 Annual
Meeting, but not proposed for inclusion in the Company's proxy materials, the
proxy holders designated by the Company for that meeting may exercise their
discretionary voting authority with respect to that shareholder proposal if
appropriate notice of that proposal is not received by the Company at its
principal executive office by November 29, 2002.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William C. Brown
William C. Brown
Secretary
March 29, 2002
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[LOGO OF MGI PHARMA, INC.]
MGI PHARMA, INC.
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 14, 2002
3:30 p.m. Central Time
Lutheran Brotherhood Auditorium
625 Fourth Avenue South
Minneapolis, Minnesota
[LOGO OF MGI PHARMA, INC.]
MGI PHARMA, INC.
5775 West Old Shakopee Road, Suite 100
Bloomington, MN 55437-3174 proxy
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This proxy is solicited on behalf of the Board of Directors.
By signing this proxy, you revoke all prior proxies and appoint Charles N.
Blitzer and William C. Brown, or either one of them, as Proxies, each with the
power to appoint his substitute and to act without the other, and authorize
each of them to represent and to vote, as designated herein, all shares of
common stock of MGI PHARMA, INC. held of record by the undersigned on March 15,
2002, at the Annual Meeting of Shareholders of the Company to be held on May
14, 2002 or any adjournment thereof.
If no choice is specified, the proxy will be
voted "FOR" Items 1, 2, 3, 4 and 5.
See reverse for voting instructions.
Please mark, sign and date your proxy card and
return it in the postage-paid envelope provided.
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The Board of Directors Recommends a Vote FOR Items 1, 2, 3, 4 and 5.
1. Election of directors: 01 Charles N. Blitzer 04 Lee J. Schroeder
02 Andrew J. Ferrara 05 David B. Sharrock
03 Hugh E. Miller 06 Arthur Weaver, M.D.
[_] Vote FOR [_] Vote WITHHELD
all nominees from all nominees
(except as marked)
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
___________________________________________
___________________________________________
\|/ Please fold here \|/
2. To amend the Company's Restated Articles of Incorporation to increase the
authorized Common Stock by 40,000,000 shares and eliminate the
Cumulative Preferred Stock;
[_] For [_] Against [_] Abstain
3. To amend the Company's 1997 Stock Incentive Plan to extend the term of the
Plan through May 31, 2005 and to increase the number of shares available
for awards granted under the Plan by 2,000,000 shares;
[_] For [_] Against [_] Abstain
4. To amend the Company's Amended and Restated Stock Purchase Plan to
increase the number of shares which may be purchased under the Plan by
200,000 shares;
[_] For [_] Against [_] Abstain
5. To ratify the appointment of KPMG LLP as independent auditors for the
Company for the fiscal year ending December 31, 2002; and
[_] For [_] Against [_] Abstain
6. To consider and act upon any other matters that may properly come before
the meeting or any adjournment thereof.
[_] For [_] Against [_] Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL.
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Address Change? Mark Box [_]
Indicate changes below: Date________________________________________
____________________________________________
____________________________________________
Signature(s) in Box
Please sign exactly as your name(s) appear
on Proxy. If held in joint tenancy, all
persons must sign. Trustees, administrators,
etc., should include title and authority.
Corporations should provide full name of
corporation and title of authorized officer
signing the Proxy.
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