PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
May
13, 2005
Proxies
in the form enclosed with this Proxy Statement are solicited by the Board of
Directors of Discovery Laboratories, Inc., a Delaware corporation (“Discovery”
or the “Company”), with its principal executive offices at 2600 Kelly Road,
Suite 100, Warrington PA 18976, for use at the Annual Meeting of Stockholders
and any adjournment thereof (the “Annual Meeting”) to be held on Friday, May 13,
2005, at 9:00 a.m. Eastern Daylight Time at the James A. Michener Art Museum
located at 138 South Pine Street, Doylestown, Pennsylvania, 18901. It is
expected that this Proxy Statement and the form of proxy will be mailed to
stockholders on or about April 12, 2005.
Only
holders of record, as of March 16, 2005 (the “Record Date”), of shares of common
stock, par value $.001 per share (the “Common Stock”), of the Company will be
entitled to vote at the Annual Meeting and any adjournments or postponements
thereof. As of the Record Date, there were 53,511,946 shares of Common Stock
outstanding. Each share of Common Stock outstanding as of the Record Date will
be entitled to one vote.
Stockholders
may vote at the Annual Meeting in person or by proxy. Execution of a proxy will
not in any way affect a stockholder’s right to attend the Annual Meeting and
vote in person. Any stockholder giving a proxy has the right to revoke it by
written notice to the Secretary of the Company at any time before it is
exercised, by executing a proxy with a later date, or by attending and voting at
the Annual Meeting. All properly executed proxies that are returned in time to
be counted at the Annual Meeting will be voted as stated herewith in “Voting
Procedures.” Any stockholder giving a proxy has the right to withhold authority
to vote for any individual nominee to the Board of Directors by striking through
that nominee’s name on the proxy. In addition to the election of directors, the
stockholders will consider and vote upon proposals approving the selection of
the Company’s independent auditors, amending the Company’s Amended and Restated
1998 Stock Incentive Plan, as amended (the “1998 Plan”), to increase the number
of shares of Common Stock available for issuance under the 1998 Plan by 3
million shares, amending the Company’s Restated Certificate of Incorporation, as
amended, to increase the number of authorized shares of Common Stock available
for issuance by the Company from 80 million to 180 million, and to transact such
other business as may properly come before the meeting and any adjournments or
postponements thereof. Where a choice has been specified on the proxy with
respect to the foregoing matters, the shares represented by the proxy will be
voted in accordance with the specifications. If no specification is indicated,
the shares represented by the proxy will be voted FOR a respective
matter.
The Board
of Directors knows of no other matters to be presented at the Annual Meeting. If
any other matter should be presented at the Annual Meeting upon which a vote
properly may be taken, shares represented by all proxies received by the Board
of Directors will be voted with respect thereto in accordance with the judgment
of the persons named as proxies in the form of proxy.
PROPOSAL
I
ELECTION
OF DIRECTORS
At the
Annual Meeting, six directors will be elected by the stockholders to hold office
until the next annual meeting of stockholders and until their successors have
been elected and qualified. Management recommends that the persons named below
be elected as directors of the Company and it is intended that the accompanying
proxy will be voted for their election as directors, unless the proxy contains
contrary instructions. Shares of Common Stock represented by all proxies
received by the Board of Directors and not so marked as to withhold authority to
vote for any individual nominee or for all nominees will be voted (unless one or
more nominees are unable to serve) for the election of the nominees named below.
The Board of Directors knows of no reason why any such nominee should be unable
or unwilling to serve, but if such should be the case, proxies will be voted for
the election of some other person or the size of the Board of Directors will be
fixed at a lower number. The persons nominated for election to the Company’s
Board of Directors are: W. Thomas Amick; Robert J. Capetola, Ph.D.; Antonio
Esteve, Ph.D.; Max E. Link, Ph.D.; Herbert H. McDade, Jr.; and Marvin E.
Rosenthale, Ph.D. Each of the nominees currently serves as a director of the
Company. A plurality of the votes cast by the stockholders present or
represented by proxy and entitled to vote at the Annual Meeting is required for
the election of directors. See “Voting Procedures.”
General
Information Concerning the Board of Directors and its
Committees
The
operation of the Board of Directors is a dynamic process and the Board of
Directors regularly reviews changing legal and regulatory requirements for the
purpose of evolving best practices. Presently, a majority of the members of the
Board of Directors are independent. The Board of Directors appoints all members
of the Board committees. The Board of Directors has an Audit Committee, a
Compensation Committee and a Nominating Committee. The Board has affirmatively
determined that each director who serves on these committees is independent, as
the term is defined by applicable listing standards of the National Association
of Securities Dealers, Inc. (“NASD”) and Securities and Exchange Commission
(“SEC”) rules.
The Board
of Directors met five times in person and six times telephonically during the
fiscal year ended December 31, 2004. Except for W. Thomas Amick, who has
attended, either in person or by telephone, every meeting of the Board of
Directors since he became a member of the Board in September 2004, each
incumbent director attended, in person or by telephone, at least 90% of the
meetings of the Board of Directors and committees of the Board of Directors on
which he served during such fiscal year. The Company does not have a formal
policy regarding director attendance at the 2005 Annual Meeting, however, it is
expected, absent good reason, that all directors will be in
attendance.
Audit
Committee.
The
Audit Committee of the Board of Directors currently consists of Herbert H.
McDade, Jr., Max E. Link, Ph.D., and Marvin E. Rosenthale, Ph.D. Primary
functions include:
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overseeing
the Company’s financial statements, system of internal controls, auditing,
accounting and financial reporting
processes
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appointing,
compensating, evaluating and, when appropriate, replacing independent
auditors
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overseeing
the Company’s tax compliance
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reviewing
with management and the Company’s independent auditors the annual audit
plan
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reviewing
the Audit Committee charter
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reviewing
and pre-approving audit and permissible non-audit
services
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reviewing
and approving all related-party
transactions
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The Audit
Committee is also responsible for addressing matters of accounting policy with
the Company’s independent accountants. In discharging its role, the Audit
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities and personnel of the Company. The
Audit Committee also has the power to retain legal, accounting and other
advisors, as it deems necessary to carry out its duties.
The Board
of Directors has adopted a written Audit Committee charter. The composition of
the Audit Committee, the attributes of its members and its responsibilities, as
reflected in its charter, are intended to be in accordance with applicable
requirements of the NASD and the SEC for corporate audit committees. The Audit
Committee reviews and assesses the adequacy of its charter on an annual basis. A
copy of the Audit Committee's charter is attached as Appendix I to these proxy
materials. All members of the Company’s Audit Committee are “independent,” as
independence is currently defined in Rule 4200(a)(15) of the listing standards
of the NASD and meet the NASD’s current financial sophistication requirements.
The Audit Committee met five times during 2004. See the “Report of the Audit
Committee,” below.
On July
15, 2003, the Board of Directors determined that in addition to being
“independent”, Max Link, Ph.D. is an “audit committee financial expert” and is
“financially sophisticated,” as such terms are defined under applicable SEC and
NASD rules.
Compensation
Committee.
The
Compensation Committee currently consists of Herbert H. McDade, Jr., Max E.
Link, Ph.D., and Marvin E. Rosenthale, Ph.D. All members of the Compensation
Committee are “independent” as defined in the listing standards of the NASD.
Primary functions include:
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evaluating
and overseeing primary strategies for employee and executive
development
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determining
compensation policies applicable to the Company’s executive
officers
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determining
the compensation of the Chief Executive
Officer
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overseeing
significant employee benefits programs, policies and plans relating to the
Company’s employees and executives
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overseeing
human resources programs, compensation, benefits and equity plan
matters
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The
Compensation Committee met formally one time during 2004, and otherwise its
respective responsibilities were assumed by the full Board of
Directors.
Nominating
Committee.
The
Nominating Committee currently consists of Herbert H. McDade, Jr., Max E. Link,
Ph.D., and Marvin E. Rosenthale, Ph.D. Primary functions include:
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overseeing
the composition, structure and evaluation of the Board and its
committees
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identifying
qualified candidates for election to the
Board
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establishing
procedures for director candidate nomination and
evaluation
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monitoring
and safeguarding the independence of the
Board
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The
Nominating Committee considers candidates for director nominees proposed by
directors, the Chief Executive Officer and stockholders. The Nominating
Committee may retain recruiting professionals to identify and evaluate
candidates for director nominees. The Nominating Committee has the authority to
designate the nominees for director at each annual meeting of the stockholders
of the Company, to fill vacancies on the Board of Directors occurring between
such annual meetings and to evaluate the performance of the executive officers.
All members of the Nominating Committee are “independent” as defined in the
listing standards of the NASD.
The
Nominating Committee strives to identify candidates who possess a mix of skills
and diverse perspectives (functional, cultural and geographic). Effort is made
to complement and supplement skills within the existing Board of Directors. In
selecting the nominees, the Nominating Committee assesses the independence,
character, relevant expertise and experience of candidates and endeavors to
collectively establish a number of areas of core competencies, including
business judgment, management, accounting and finance, industry knowledge,
leadership, strategic vision, knowledge of international markets and marketing.
The Board of Directors shall also seek some individuals who are widely
recognized as leaders in the fields of medicine or the biological sciences,
including those who have received prestigious awards and honors in their fields.
Additional criteria include a candidate’s personal and professional ethics,
integrity and values, as well as the willingness to devote sufficient time to
prepare for and attend meetings and participate effectively on the Board of
Directors.
On
September 10, 2004, at the Chief Executive Officer’s recommendation, the
Nominating Committee submitted for the Board of Directors’ approval the
nomination of Mr. Amick to the Company’s Board of Directors, and the Board
unanimously resolved that effective as of that date, Mr. Amick is appointed to
serve as a director until his successor is duly elected and qualified or as
otherwise provided in the Bylaws of the Company.
The
Nominating Committee met formally one time during 2004 and several times
informally to discuss possible candidates as nominees. The Company does not keep
records of the informal Nominating Committee meetings. The Nominating Committee
will consider any candidate submitted by stockholders in compliance with
applicable SEC rules and the By-Laws of the Company. The Nominating Committee
shall determine, in its sole discretion, whether such candidates meet the
Company’s qualifications for candidacy described above and in the charter of the
Nominating Committee. Stockholders should send suggestions for candidates,
accompanied by the candidate’s name, contact information, biographical material,
class or series and number of shares of capital stock of the Company owned
beneficially or of record by the person, and qualifications, to the Nominating
Committee, c/o the Secretary of the Company at its corporate headquarters
located at 2600 Kelly Road, Suite 100, Warrington, PA 18976. From time to time,
the Board may change the process through which stockholders may recommend
candidates to the Nominating Committee. Please refer to the Company’s website at
http://www.discoverylabs.com (this is not a hyperlink; you must visit this
website through an internet browser) for changes in this process.
The
charter of the Nominating Committee is attached to this proxy statement as
Appendix II and is also on our website at http://www.discoverylabs.com (this is
not a hyperlink; you must visit this website through an internet browser). Our
website and the information contained therein or connected thereto are not
incorporated into this Proxy Statement.
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics (the “Code”), designed
to guide directors and employees in recognizing and dealing with ethical issues
in support of the Company’s commitment to conducting its business in compliance
with all applicable laws and the highest ethical standards. Articles I-III and
VIII-XIII of the Code constitute the Company’s Code of Ethics for Senior
Financial Officers in accordance with Section 406 of the Sarbanes-Oxley Act of
2002. The Code applies to all directors, officers and employees of the Company.
The Code covers topics including, but not limited to, conflicts of interest,
confidentiality of information, fair dealing with customers, suppliers and
competitors and compliance with all applicable laws, rules and regulations
including, but not limited to, the rules and regulations of applicable
self-regulating organizations such as the NASD. In order to help foster an
environment of honesty and accountability, the Code provides mechanisms for
reporting good faith concerns or complaints on a confidential basis to the
Company.
A copy of
the Code is posted on the Company’s website at http://www.discoverylabs.com
(this is not a hyperlink; you must visit this website through an internet
browser) and can also be obtained, without charge, by request from the Secretary
of the Company at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania 18976.
Any amendments to, or waivers from, a provision of the Code that applies to the
Company’s directors and executive officers must be approved by the Board of
Directors. The Company will publicly disclose any such waivers or amendments
pursuant to the requirements of the SEC and the NASD. The Company’s website and
the information contained therein or connected thereto are not incorporated into
this Proxy Statement.
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