-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KWVgawdGzy9+yNBTwoQxflWSiqTDpwKGK70WsoeNwlD8cYKPP77ga8hJ7ZJcydbT ddCkS4ZkHXVwXOnvJhXz/A== 0000795551-96-000003.txt : 19960423 0000795551-96-000003.hdr.sgml : 19960423 ACCESSION NUMBER: 0000795551-96-000003 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960422 FILED AS OF DATE: 19960422 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERAGENICS CORP CENTRAL INDEX KEY: 0000795551 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 581528626 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15443 FILM NUMBER: 96549052 BUSINESS ADDRESS: STREET 1: 5325 OAKBROOK PKWY CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7703818338 MAIL ADDRESS: STREET 1: 5325 OAKBROOD PKWY CITY: NORCROSS STATE: GA ZIP: 30093 DEF 14A 1 DEFINITIVE PROXY STATEMENT THERAGENICS CORPORATION 5325 OAKBROOK PARKWAY NORCROSS, GEORGIA 30093 --------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS --------------------- You are cordially invited to attend the Annual Meeting of Stockholders of Theragenics Corporation (the "Company") to be held at 10:00 A.M., Atlanta time, on Friday, May 24, 1996, at the Gwinnett Civic & Cultural Center, 6400 Sugarloaf Pkwy., Duluth, Georgia 30136 for the following purposes: 1. To elect two directors; 2. To consider and vote on a proposal to ratify the appointment of Grant Thornton as independent public accountants; 3. To transact such other business as may properly come before such meeting or any adjournments thereof. The Board of Directors has fixed the close of business on March 29, 1996, as the record date for the determination of the stockholders entitled to notice of, and to vote at, the meeting. Sincerely, /s/ BRUCE W. SMITH BRUCE W. SMITH, Secretary Norcross, Georgia April 19, 1996 YOUR VOTE IS IMPORTANT WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING OF STOCKHOLDERS, YOU ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. IF YOU DO ATTEND THE MEETING AND DECIDE THAT YOU WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY. THERAGENICS CORPORATION 5325 OAKBROOK PARKWAY NORCROSS, GEORGIA 30093 --------------------- PROXY STATEMENT --------------------- This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Theragenics Corporation (the "Company") to be voted at the Annual Meeting of Stockholders of the Company to be held on Friday, May 24, 1996, at the Gwinnett Civic & Cultural Center, 6400 Sugarloaf Pkwy., Duluth, Georgia 30136, at 10:00 o'clock in the morning, Atlanta time, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. The Board of Directors has fixed the close of business on March 29, 1996, as the record date for the determination of stockholders entitled to receive notice of, and to vote at, the forthcoming Annual Meeting of Stockholders or any adjournment thereof. Any person giving a proxy in the form accompanying this statement has the power to revoke it at any time prior to its exercise. A proxy may be revoked by attending and voting at the meeting or by written notice to the Secretary of the Company received at the Company's offices at 5325 Oakbrook Parkway, Norcross, Georgia, 30093 prior to the date of the Annual Meeting. When proxies are returned properly executed, the shares represented thereby will be voted as directed in the executed proxy. If the Proxy is returned but no choice is specified therein, it will be voted for the election of the nominees named therein and for each of the listed proposals. The expenses for soliciting proxies for the forthcoming Annual Meeting of Stockholders are to be paid by the Company. Solicitation of proxies may be made by means of personal calls upon, or telephonic or telegraphic communications with, stockholders or their personal representatives by directors, officers and employees of the Company, who will not be specially compensated for such services. The Company may or may not engage a proxy service to assist the Company in the solicitation of proxies. The Company did not use a proxy solicitation service for the 1995 Annual Meeting of Stockholders. It is anticipated that this Proxy Statement and enclosed Proxy will first be mailed to stockholders entitled to notice of and to vote at the Annual Meeting on or about April 19, 1996. VOTING SECURITIES AND PRINCIPAL SECURITY HOLDERS As of March 29, 1996, the Company had outstanding and entitled to vote at the Annual Meeting 11,504,954 shares of Common Stock, par value $.01 per share ("Common Stock"). The holders of Common Stock are entitled to vote as a single class and to one vote per share, exercisable in person or by proxy, at all meetings of stockholders. Holders of Common Stock do not have any cumulative voting rights. Abstentions and "broker non-votes" are counted for purposes of determining the presence or absence of a quorum for the transaction of business but not counted in determining the numbers of shares voted for or against any nominee for director or any proposal. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy and casting votes for the position on the Board which that nominee represents. The following table sets forth the ownership of the Company's Common Stock as of March 29, 1996 by each person known to the Company to be the beneficial owner of more than 5% of such Common Stock, by each executive officer and director and by all executive officers and directors as a group:
AMOUNT AND PERCENTAGE NATURE OF OF BENEFICIAL COMMON STOCK NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING(2) ------------------------------------------- ------------ ------------ Otis W. Brawley, M.D..................... 24,000(3) * 9715 Hill Street Kensington, MD 20895 Orwin L. Carter, Ph.D.................... 49,000(4) * 1029 Third Avenue South Stillwater, MN 55082 Dean W. Fitzgerald....................... 25,793 * 5325 Oakbrook Parkway Norcross, GA 30093 John V. Herndon.......................... 45,834(5) * 617 Longview Drive Waynesville, N.C. 28786 M. Christine Jacobs...................... 189,070(6) 1.6% 5325 Oakbrook Parkway Norcross, GA 30093 Mr. Charles Klimkowski................... 129,900(7) 1.1% 208 South LaSalle Street Chicago, IL 60604 Peter A.A. Saunders...................... 62,000(8) * 2 Regents Close South Croydon, Surrey CR2 7BW England Bruce W. Smith........................... 124,500(9) 1.1% 5325 Oakbrook Parkway Norcross, GA 30093 All Directors and Officers............... 650,097(10) 5.4% as a Group (seven persons) Non-Management Owning > 5% ------------------------------------ Bellingham Industries Inc................ 2,383,500 20.8% Urraca Building Frederico Boyd Avenue Panama City, Panama
- --------------- * Less than 1% (1) Each person named in the table has sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by him or her. (2) The percentage of shares of Common Stock is calculated assuming that the beneficial owner has exercised any conversion rights, options or other rights to subscribe held by such beneficial owner that are currently exercisable or exercisable within 60 days and that no other conversion rights, options or other rights to subscribe have been exercised by anyone else. (3) Includes 24,000 shares purchasable by Dr. Brawley within 60 days upon exercise of options. (4) Includes 48,000 shares purchasable by Dr. Carter within 60 days upon exercise of options. (5) Includes 13,334 shares purchasable by Mr. Herndon within 60 days upon exercise of options. (6) Includes 117,570 shares purchasable by Ms. Jacobs within 60 days upon exercise of options. (7) Includes 76,000 shares purchasable by Mr. Klimkowski within 60 days upon exercise of options. (8) Includes 62,000 shares purchasable by Mr. Saunders within 60 days upon exercise of options. (9) Includes 108,000 shares purchasable by Mr. Smith within 60 days upon exercise of options. (10) Includes 448,904 shares purchasable by all executive officers and directors within 60 days upon exercise of options. 2 PROPOSAL NUMBER ONE ELECTION OF DIRECTORS The Board of Directors of the Company is divided into three classes (Class I, Class II and Class III) with two directors in each class. One class of directors is elected each year for a three-year term. Two directors, representing the Class I Directors, are to be elected at the Annual Meeting. These Class I Directors will serve until the Annual Meeting of Stockholders in 1999 or until their successors shall have been elected and qualified. The current Board of Directors has selected, and will cause to be nominated at the meeting, Mr. John V. Herndon and Mr. Peter A.A. Saunders, who upon election will comprise the Class I Directors of the Board of Directors. Provided that a quorum of stockholders is present at the meeting in person or by proxy, directors will be elected by a plurality of the votes cast at the meeting. The persons named on the enclosed proxy card or their substitutes will vote all of the shares that they represent for the above-named nominee unless instructed otherwise on the proxy card. If at the time of the Annual Meeting of Stockholders any nominee is unable or declines to serve, the discretionary authority provided in the proxy will be exercised to vote for a substitute. Management has no reason to believe that a substitute nominee will be required. The directors and director nominees have supplied the Company with the following information concerning their age, principal employment, other directorships and positions with the Company:
DIRECTOR/NOMINEE PRINCIPAL OCCUPATION AND OTHER INFORMATION - ------------------------- ----------------------------------------------------- CLASS I DIRECTOR NOMINEES John V. Herndon Mr. Herndon joined the Company in April 1987, as Director since 1987 Executive Vice President and in July 1989, was Age: 55 appointed President, Chief Executive Officer and Chairman of the Board of Directors of the Company. In August 1993, Mr. Herndon relinquished his role as Chief Executive Officer while retaining his position as Chairman of the Board of Directors of the Company. Mr. Herndon stepped down as Chairman of the Board in December 1994, and currently serves as a Director as well as serving the Company in the position of Advisor-to-the-President. Peter A.A. Saunders Mr. Saunders is manager/owner of PASS Consultants, a Director since 1989 Great Britain based management consulting firm Age: 54 established in 1988. From April 1991 to April 1993, Mr. Saunders was also Managing Director of United Artists Communications in London, a cable television and telephone service provider. Mr. Saunders presently serves as a non-executive director for several other British companies including Mayday Healthcare Trust (hospital), Allied Radio plc (radio stations), and Eurobell (Sussex) Ltd. (cable TV and telecommunications). CLASS II DIRECTORS Charles R. Klimkowski Since 1980, Mr. Klimkowski has been employed by The Director since 1993 Chicago Corporation, most recently as a Senior Vice Age: 60 President and Director, a Portfolio Manager and a member of the Investment Policy Committee. Mr. Klimkowski was elected to the post of Chairman of Theragenics' Board of Directors in December 1994.
3
DIRECTOR/NOMINEE PRINCIPAL OCCUPATION AND OTHER INFORMATION - ------------------------- ----------------------------------------------------- Otis W. Brawley, M.D. Since 1990, Dr. Brawley has been Program Director of Director since 1995 the Community Oncology and Rehabilitation Branch, Age: 37 Early Detection and Community Oncology Program, a Division of Cancer Prevention and Control of the National Cancer Institute. Dr. Brawley has also been a Commissioned Officer of the U.S. Public Health Service since 1989 and Tenured with the Research Officer Group since February 1994. Dr. Brawley's professional activities have included; National Cancer Institute (NCI) Coordinator and Project Officer of the Prostate Cancer Prevention Trial, NCI Coordinator of the Minority Based Community Clinical Oncology Program, and coauthor and associate investigator in several protocols approved by the National Institutes of Health Clinical Center Investigational Review Committee. Dr. Brawley has received such distinguished honors as the Public Health Service Commendation in 1993 and the National Cancer Institute and the Equal Employment Opportunity Officer's Commendation in 1991 and 1993. Additionally he has coauthored more than 21 publications. Dr. Brawley also reviews for several prestigious publications. CLASS III DIRECTOR Orwin L. Carter, Ph.D. Dr. Carter presently serves as a consultant with Director since 1991 INCSTAR Corporation, a manufacturer of in vitro Age: 53 diagnostic test kits and an affiliate of Sorin Biomedica. From 1989 to March 1995, Dr. Carter served INCSTAR in various capacities including Chairman, C.E.O. and President. Dr. Carter also currently serves on the Board of Directors of Lifecore Biomedical, Inc. M. Christine Jacobs Ms. Jacobs joined the Company as National Sales Director since 1992 Manager in 1987 and was subsequently promoted to Vice Age: 45 President of General Sales and Marketing. Since 1992, Ms. Jacobs has been President and Chief Operating Officer of the Company and in August 1993, Ms. Jacobs was promoted to the position of Chief Executive Officer while retaining the position of President. Ms. Jacobs also serves as a director of the Georgia Biomedical Partnership, a non-profit organization which promotes economic and environmental development beneficial to the growth of biomedical business within Georgia.
The Board of Directors held four meetings in the fiscal year ended December 31, 1995, and acted by unanimous written consent in lieu of a meeting in a number of instances. All members participated in all meetings. All Directors were involved in informal discussions prior to the signing of all unanimous written consents. The Board of Directors has established two standing committees and has assigned certain responsibilities to each of those committees. The Audit Committee, formed in 1991, met twice during fiscal year 1995. The Audit Committee reviews the independence, qualifications and activities of the Company's independent certified public accountants and the activities of the Company's accounting staff. The Audit Committee also recommends to the Board the appointment of the Company's independent certified public accountants and reviews and approves the Company's annual financial statements together with other financial reports and related matters. The Audit Committee is composed of Mr. Saunders and Dr. Carter, each of whom attended all meetings. 4 The Compensation Committee, formed in 1990, met three times during fiscal year 1995. The Compensation Committee makes recommendations concerning remuneration of the Company's Chief Executive Officer. The Compensation Committee is composed of Dr. Brawley and Mr. Klimkowski, each of whom attended the meetings. The Board of Directors has no Nominating Committee. Directors who are not officers of the Company receive $500 per meeting plus expenses as compensation for attending Board of Directors and Committee meetings. EXECUTIVE OFFICERS The executive officers of the Company are set forth in the table below. All executive officers serve the Company under employment contracts.
EXECUTIVE OFFICER OFFICE AND OTHER INFORMATION - --------------------- --------------------------------------------------------- M. Christine Jacobs President and Chief Executive Officer since 1993. See Age: 45 information above under Class III Directors. Bruce W. Smith Treasurer and Chief Financial Officer of the Company and Age: 43 Secretary of the Board of Directors since 1989. Mr. Smith has served in financial capacities with the Company since joining it in January 1987. Dean Fitzgerald Vice President of Business Development since January Age: 49 1996. Mr. Fitzgerald joined the Company in 1993 as Manager of Client and Public Relations and was subsequently promoted to Director of Marketing and Sales before assuming his current duties. Prior to joining Theragenics, Mr. Fitzgerald was President of American Export Trading Company Inc., a manufacturer's representative and marketing consulting firm. REMUNERATION AND OTHER MATTERS EXECUTIVE COMPENSATION The following table summarizes the compensation paid by the Company for services rendered during the years indicated to each of the Company's executive officers whose total salary and bonus exceeded $100,000 during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE LONG- TERM COMPEN- ANNUAL COMPENSATION SATION ------------------------------ ------- OTHER ALL ANNUAL NUMBER OTHER NAME AND FISCAL COMPEN- OF COMPEN- PRINCIPAL POSITION YEAR SALARY(1) BONUS SATION(2) OPTIONS SATION(3) - ------------------- ------ ----------- ------- --------- ------- --------- M. Christine Jacobs 1995 $100,010 $68,000 -- -- $ 174 President & Chief 1994 $100,010 $28,000 -- -- $ 102 Executive Officer(4) 1993 $ 88,081 $16,667 -- 120,000 $ 143
- --------------- (1) Includes amounts deferred under the 401(k) feature of the Company's Employee Savings Plan. (2) Excludes certain personal benefits, the total value of which was less than 10% of the total annual salary and bonus. (3) Represents premiums on a term life insurance policy. 5 (4) The Company has an agreement with Ms. Jacobs, dated August 1, 1993, which provides for her employment for the period commencing August 1, 1993 and expiring July 31, 1996. This agreement provides for a minimum annual salary of $100,000 plus an annual bonus determined by the Board of Directors utilizing certain criteria. In addition the agreement provides a severance package in the event of termination of up to six months' salary and other related benefits. The following table sets forth information concerning the value of unexercised options as of December 31, 1995 held by Ms. Jacobs. No stock appreciation rights have ever been issued by the Company. OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES TABLE
NUMBER OF VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY IN-THE-MONEY SHARES OPTIONS ON OPTIONS ON ACQUIRED DECEMBER 31, 1995 DECEMBER 31, 1995 ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE - ------------------- -------- --------- ---------------- ------------------ M. Christine Jacobs 100,000 $975,000 117,570/40,000 $853,574/$260,000
Of the options described as exercisable but unexercised, 37,500 are exercisable at $3.00 per share until the option expiration date of April 1, 1997, and 80,000 are exercisable at $5.375 per share until the option expiration date of August 1, 2003. The 40,000 options currently unexercisable vest August 1, 1996 and are exercisable at $5.375 per share until the option expiration date of August 1, 2003. All options are immediately exercisable upon change in control of the Company. Terms of the option agreement provide for termination of options if the employee is terminated for cause or voluntarily terminates without the consent of the Company. Board Compensation Committee Report on Executive Compensation. The Compensation Committee has a policy that a significant portion of the Chief Executive Officer's pay should be related to the performance of the Company. Historically, it has been the Company's policy to establish employees base salaries at rates below what the Committee believes the officers could command in the market and supplement these base salaries with bonuses, if justified, based on the Company's and individual's performance. The Committee believes this policy is reflected, for example, in the terms of the Chief Executive's employment contract and criteria for a performance bonus. At the beginning of 1995, the Committee established criteria for the C.E.O.'s performance bonus based upon a combination of dollar sales levels and dollar after tax profitability. A matrix (the "Matrix") was established with cells within the Matrix representing specific combinations of sales and profits. Performance falling within a particular cell would result in a bonus to the C.E.O. expressed as a percent of the C.E.O.'s base salary. This Matrix, which allowed for bonuses running from 0% to 137% of the C.E.O.'s base salary, was constructed to reward the C.E.O. for reaching specific combinations of sales and profit levels with higher sales and profit resulting in a larger bonus. The percentages within the Matrix recognize both the benefit to the Company of reaching certain sales and profit levels and to a lesser extent the Committee's assessment of the compensation the C.E.O. could obtain in the market. In addition to the bonus called for in the Matrix, the Committee also has the option of awarding the C.E.O. an additional bonus of up to 10% of her base salary. This bonus which is subjectively determined by the Committee is based on less quantifiable measures of performance (i.e., problem resolution, marketing program development and execution, internal processes and procedures development, cash management and expense control, and the effective and efficient application of available resources to ensure both short-term and long-term Company health). Based upon the above criteria, Ms. Jacobs, the Company's C.E.O., was awarded a 68% bonus or $68,000. The 68% represents an 58% bonus called for by the Matrix plus a 10% bonus for the less quantifiable measures of performance. /s/ Otis W. Brawley, M.D. /s/ Charles R. Klimkowski - ------------------------------- --------------------------------- Otis W. Brawley, M.D. Charles R. Klimkowski 6 The following table summarizes the cumulative total return on investment in the Company's Common Stock for fiscal years 1990 through 1995: COMPARISON OF FIVE YEAR -- CUMULATIVE TOTAL RETURNS
NASDAQ STOCK NASDAQ MEASUREMENT PERIOD THERAGENICS MARKET (US PHARMACEUT (FISCAL YEAR COVERED) CORPORATION COMPANIES) ICALS STOCKS 1990 100 100 100 1991 680 161 266 1992 880 187 221 1993 680 215 197 1994 380 210 148 1995 1900 296 271
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Dr. Orwin Carter and Dr. Otis Brawley, directors of the Company, each received $500 for consulting services rendered to the Company. PROPOSAL NUMBER TWO RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS Stockholders will be asked to vote for a proposal to ratify the appointment of Grant Thornton as the independent public accountants of the Company for the fiscal year ending December 31, 1996. Grant Thornton has been the independent public accountants for the Company since fiscal year 1989. If the stockholders, by affirmative vote of the holders of a majority of the votes cast, do not ratify this appointment, the Board of Directors will reconsider its action and select other independent public accountants without further stockholder action. A representative of Grant Thornton is expected to be present at the Annual Meeting to respond to appropriate questions and will be given the opportunity to make a statement if such representative desires to do so. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY. 7 COMPLIANCE WITH FILING REQUIREMENTS Pursuant to Section 16(a) of the Securities Exchange Act of 1934, officers, directors, and beneficial owners of more than ten percent of the outstanding Common Stock are required to file reports with the Securities and Exchange Commission reporting their beneficial ownership of the Common Stock at the time they become subject to the reporting requirements and changes in beneficial ownership occurring thereafter. Based on a review of the reports submitted to the Company and written representations from persons known to the Company to be subject to these reporting requirements, the Company believes that its executive officers and directors complied with the Section 16(a) requirements. STOCKHOLDERS PROPOSALS Stockholders of Theragenics may submit proposals for inclusion in the proxy materials. These proposals must meet the stockholder eligibility and other requirements of the Securities and Exchange Commission. In order to be included in the Company's 1997 proxy material, a stockholder's proposal must be received not later than December 31, 1996 at Theragenics Corporation offices, 5325 Oakbrook Parkway, Norcross, Georgia 30093, ATTN.: Secretary. In addition, Theragenics' By-Laws provide that in order for business to be brought before the Annual Meeting, a stockholder must deliver or mail written notice to the principal executive offices of the Company, which written notice is received not less than 60 days nor more than 90 days prior to the date of the meeting. The notice must state the stockholder's name, address, number and class of shares of Theragenics stock held, and briefly describe the business to be brought before the meeting, the reasons for conducting such business at the Annual Meeting, and any material interest of the stockholder in the proposal. The By-Laws also provide that if a stockholder intends to nominate a candidate for election as a Director, the stockholder must deliver written notice of his or her intention to the Secretary of the Company. The notice must be received not less than 60 days nor more than 90 days before the date of the meeting of stockholders. The notice must set forth the name and address of, and the number of shares owned by, the stockholder (and that of any other stockholder known to be supporting said nominee). The notice must also set forth the name of the nominee for election as a Director, the age of the nominee, the nominee's business address and experience during the past five years, the number of shares of stock of the Company beneficially held by the nominee, and such other information concerning the nominee as would be required to be included in a proxy statement soliciting proxies for the election of the nominee. In addition, the notice must include the consent of the nominee to serve as a Director of Theragenics if elected. MISCELLANEOUS THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, TO ANY RECORD OR BENEFICIAL OWNER OF ITS COMMON STOCK AS OF MARCH 29, 1996, WHO REQUESTS A COPY OF SUCH REPORT. ANY REQUEST FOR THE 10-K REPORT SHOULD BE IN WRITING ADDRESSED TO: RON WARREN, DIRECTOR OF INVESTOR RELATIONS, THERAGENICS CORPORATION, 5325 OAKBROOK PARKWAY, NORCROSS, GA 30093. IF THE PERSON REQUESTING THE REPORT WAS NOT A SHAREHOLDER OF RECORD ON MARCH 29, 1996, THE REQUEST MUST INCLUDE A REPRESENTATION THAT SUCH PERSON WAS A BENEFICIAL OWNER OF COMMON STOCK OF THE COMPANY ON THAT DATE. COPIES OF ANY EXHIBITS TO THE FORM 10-K WILL BE FURNISHED ON REQUEST AND UPON PAYMENT OF THE COMPANY'S EXPENSES IN FURNISHING SUCH EXHIBITS. 8 OTHER MATTERS Management is not aware of any matters to be presented for action at the meeting other than those set forth in this Proxy Statement. However, should any other business properly come before the meeting, or any adjournment thereof, the enclosed Proxy confers upon the persons entitled to vote the shares represented by such Proxy discretionary authority to vote the same in respect of any such other business in accordance with their best judgment in the interest of the Company. Norcross, Georgia April 19, 1996 9 EX-13 2 ANNUAL REPORT TO SHAREHOLDERS THERAGENICS CORPORATION (An image of the palm of a hand with the caption "progressive thinking + healing technology" is presented here on the cover.) 1995 Annual Report table of contents The Business of Theragenics Corporation.........................i Financial Highlights............................................1 Our Progress Throughout 1995....................................2 Our Success Throughout 1995.....................................4 Management's Discussion and Analysis............................6 Report of Independent Certified Public Accountants....................................8 Financial Statements............................................9 Notes to Financial Statements..................................13 Supplementary Financial Information............................16 Stockholder Information.........................inside back cover
The business of Theragenics Corporation Theragenics Corporation ("Theragenics" or the "Company") was incorporated in November 1981 to commercially engage in the development, manufacture, and marketing of therapeutic radiological devices for use primarily in the treatment of cancer. The Company's products are intended to permit a physician to introduce short-range, short-lived radioactive material directly into cancerous tissue, thereby concentrating the impact of the radiation on the cancerous tissue to be destroyed while minimizing the effect on surrounding healthy tissue. To date the Company has internally developed two products - TheraSeed, a radioactive implant designed for the treatment of localized tumors, and TheraSphere, radioactive microspheres for the treatment of liver cancer. TheraSeed is being commercially distributed in the United States while TheraSphere is being commercially distributed in Canada. The conventional treatments for cancer to date have been surgery, radiation and chemotherapy. The treatments which have been most successful are those which remove or kill all of the cancerous tissue while avoiding excessive damage to the surrounding healthy, normal tissue. When the cancerous tissue cannot be completely removed or killed, the cancer usually returns to the primary site often with metastases to other areas. The Company's products are most effective on encapsulated, confined tumors. Each product is based on established physical principles and has the simple objective of delivering sufficient radiation to the target cancer to kill it while minimizing the radiation to surrounding tissue. financial highlights Set forth below are selected financial data derived from the statements of operations of the Company for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and the balance sheets of the Company at December 31, 1991, 1992, 1993, 1994 and 1995.
For the Fiscal Years Ended December 31, 1995 1994 1993 1992 1991 Net sales $7,781,962 $4,723,107 $4,090,803 $4,379,300 $2,469,413 Licensing fee 85,431 - - - 300,000 Costs and expenses: Cost of sales 2,645,730 1,790,450 1,677,631 1,227,154 818,184 Selling, general and administrative 2,395,846 1,844,239 1,607,288 1,639,334 1,254,821 Research and development 17,954 15,268 36,181 62,632 84,903 Other income(expense) 64,462 110,215 (85,959) 67,831 113,865 Taxes 1,100,000 453,000 254,000 582,000 280,000 Net profit/(loss) before extraordinary credit and change in accounting method 1,772,325 730,365 429,744 936,011 445,370 Extraordinary credit - - - 556,000 270,000 Change in accounting method - - 2,860,000 - - Net profit/(loss) 1,772,325 730,365 3,289,744 1,492,011 715,370 Net profit/(loss) per common share before extraordinary credit and change in accounting method .15 .06 .04 .08 .04 Net profit/(loss) per common share .15 .06 .28 .13 .07 Weighted average number of common shares outstanding 11,759,178 11,582,793 11,709,218 11,431,149 10,759,230 Total assets $16,878,182 $14,168,658 $12,618,869 $7,851,056 $3,299,375
(Three vertical bar graphs appear at the bottom of this page with the following titles and depicted data: Revenues (in millions); 1991 - $2,769; 1992 - $4,379; 1993 - $4,091; 1994 - $4,723 & 1995 - $7,867. Earnings Per Share; 1991 - $0.04; 1992 - $0.08; 1993 - $0.04; 1994 - $0.06 & 1995 - $0.15 Total Assets (in millions); 1991 - $3,299; 1992 - $7,851; 1993 - $12,619; 1994 - $14,169 & 1995 - $16,878.) our progress throughout 1995 TO OUR SHAREHOLDERS: 1995 represented a breakthrough year for Theragenics. We were able to increase revenues to unprecedented levels and shatter virtually every in-house record for production. What drove these achievements? Many things, but most importantly our success resulted from increases in manufacturing capacity; reliability of supply; success of the TheraSeed treatment as supported by clinical abstracts and presentations; and acceleration of marketing programs designed for patient awareness. THE YEAR IN REVIEW In almost every key measure of performance, we exceeded last year's results. For example, during the first six months of 1995 we surpassed 1994's annual net income. Focusing on strong expense management and cash balances allowed us to reap the benefits of increased capacity utilization. Financial highlights for 1995 include: 20th consecutive quarter of profitability; 67 percent increase in revenue to $7,867,393; 143 percent improvement in net income to $1,772,325; Earnings per share more than doubled to $0.15; A $5 million credit facility was secured. In addition to delivering solid financial performance in 1995, Theragenics' competitive position improved. The release of excellent product efficacy data helped promote TheraSeed awareness among our target audiences. This efficacy data, the result of a study conducted at the Northwest Tumor Institute in Seattle, showed TheraSeed to be 100 percent effective in treating localized, early-stage prostate cancer in its study group. This data not only confirmed TheraSeed's efficacy but also its ability to significantly reduce patient complications. Last year we completed the doubling of our manufacturing capabilities. This gave us the ability to grow both the business more rapidly and further remove reliance on outside vendors for our key raw material. Two cyclotrons also provide us with some sense of comfort, by reducing our exposure to risk from unexpected downtime. During 1993 and part of 1994 we were hampered by inconsistent supply. We're proud to report that during 1995 our employees delivered a consistent supply of TheraSeed in spite of normal production glitches. Our employees continued to show the zeal instilled by the Company's higher purpose of curing cancer. This commitment was translated into eighteen-hour work days as the needs of the Company dictated. We are very proud of our employees and they in turn are gratified that as a company we were able to supply enough product to treat more than 2,600 men for prostate cancer. Additionally, we were successful in increasing positive news coverage about the Company in financial publications. Theragenics was named by Individual Investor Magazine as part of their "Magic 25," a listing of fast track companies to watch in 1996. Other significant media recognition included Theragenics' naming to Georgia Trend's "10 Fastest Growing Companies in Georgia" and The Atlanta Journal and Constitution's "Top 100" companies in Georgia. We are proud of our 1995 results! Our balance sheet is the strongest it has ever been. We're healthy and looking forward to 1996. Someone once said, "it's all right to look back, as long as you don't stare," and I agree. Looking Forward While 1996 will pose many new challenges for Theragenics, we plan to stay focused on our priorities curing people of cancer, zero defect medical devices, a safe environment for our employees, increasing shareholder value and strong financial performance. Regarding operations, we have a third and fourth cyclotron on (An image of the right third of a one dollar bill with an upward slopping trend line and the intials NASDAQ superimposed on the dollar bill appears half way down this page on the right margin with the captio; Theragenics stock began the year at $3.25 per share and ended at $11.875.") (An image of earth appears at the bottom left hand corner of this page with the caption; "During 1996 the American Cancer Society expects 317,000 new cases of prostate cancer to be diagnosed.") (An image of a stephoscope appears at the top of this page with the caption; "As a company we were able to supply enough product to treat more than 2,600 men for prostate cancer.") order. Early in 1996 our construction efforts were delayed by inclement weather. While it's a problem, we do not believe we will see any significant delay in the installation of cyclotron number three. I'm optimistic that once spring arrives we will be moving rapidly. We are currently within budget regardless of our winter weather delay. Our cash reserves are adequate. We have not needed to draw from our new $5 million credit facility. This is a good sign that our accounts receivables are well managed. We believe we have enough cash available from operations combined with the credit facility to fund all of our current 1996 and 1997 projects. Producing TheraSeed has always been a labor intensive process. We plan to pursue automation and move away from tedious hand assembly. Given that we are the sole providers of this product, we will be faced with the difficult task of engineering custom automation. Although automating may exert a short-term downward pressure on profits, we plan to manage this as best we can. Keep in mind, these steps are necessary as we continue to increase output and maintain a safe environment where radiation exposure for our employees is minimized. We are excited about our 1996 marketing plans and recognize the need to expand awareness about the positive medical data revealed during 1995. We know several doctors using TheraSeed will continue to compile data and submit papers to prestigious medical journals. Patients, who have been seeded, remain impassioned advocates of our product and our treatment of this insidious disease. We will continue to support these programs with some new approaches now taking shape. The prostate cancer market has exploded during the past five years and is growing at 25 percent per year. Although there is a great deal of work left to be done, we have plans to address this expanding market. During 1996 the American Cancer Society expects 317,000 new cases of prostate cancer to be diagnosed. In response we'll enhance our programs to assist patients with education materials, books and experts. The thirst for knowledge by cancer patients is increasing. We will continue to be a front runner in prostate cancer support services to patients and families in need. The competitive environment continues to change and presents us with new challenges. Our chief competitor remains the surgical status quo treatment of prostate cancer. However, this year we began to see emerging new trends as ancillary, non-urologic groups took aim at quality of life issues for surgical patients. We have always believed that this battle for early stage prostate disease will be won on two fronts; efficacy and quality of life. We recognize these trends and are actively involved in promoting projects that support minimally invasive treatments with low complication rates. Positioning Theragenics in the face of these and other market forces such as managed care, Medicare reform, physician resistance, etc. are the best type of new challenge for us. Just three years ago, we had to be able to make the material before we worried about competitive forces. While proudly reflecting on last year's success, we are ready to forge ahead, solidifying our position as the type of company many investors find appealing. 1995 was gratifying in more than just financial ways. We now have many new employees who are entrusting their professional careers to this company and our strong future. As evidenced by heavy market trading at year end, Theragenics has attracted new investors who like what we do and trust us to deliver long-term shareholder value. The patients who represent our dads, brothers, sons and loved ones need and trust us to effectively deliver a treatment for cancer. This is a responsibility we do not take lightly. Thank you for your past and present support. Sincerely, /s/ M. Christine Jacobs M. Christine Jacobs (Photograph of M. Christine Jacobs on lower right hand corner of this page.) "I see my mission as giving men hope, encouragement and to let them know they have options. There is a better way of solving prostate cancer problems other than surgery. There is no need to panic since no immediate decision is needed men have time to familiarize themselves with their options and select the treatment they feel comfortable with. If there is only one message I could send to all men it would be, catch the cancer early and learn your options before selecting a treatment." Don Kaltenbach (A photograph of Don Katenbach and his daughter appears on the page with the above quote and is captioned; "Don Kaltenbach, formerly suffering from prostate cancer, and his daughter, Whitney") "In the five years I have been with Theragenics, I have seen weekly production consistently increase, especially after the installation of the Cyclotrons. It is very encouraging to know that we are helping so many men in their battle with prostate cancer. Every time I pack an order I am reminded that there is a person with cancer at the other end and it makes my work here more than just a job." Carolyn Hughes (A photograph of Carolyn Hughes appears on the page with the above quote and is captioned; "Carolyn Hughes, Theragenics technician") "Pd-103 seed implantation for early stage prostate cancer is an effective treatment that is convenient, cost-effective, and has minimum impact on quality of life compared to the conventional treatments of surgery or external radiation." Dr. John Blasko (A photograph of Dr. John Blasko appears on the page with the above quote and is captioned; "John Blasko, MD - Director of Radiation Oncology, Northwest Tumor Institute, Seattle, WA.") Management's discussion and analysis of financial condition and results of operations The following discussion of the Company's financial condition, results of operations and liquidity is intended to clarify and highlight the Company's operating trends, liquidity and capital resources. It should be read in conjunction with the financial statements and related notes contained in the financial section of this Report. RESULTS OF OPERATIONS 1995 Compared to 1994 1995 Revenues - With increased production capacity, consistent supply of product, enhanced marketing programs and favorable clinical data, 1995 revenues increased substantially (66.6%) to $7.9 million versus $4.7 million in 1994. Along with the factors already noted, increased acceptance of its prostate cancer treatment in the medical community and increased public awareness of the medical advantages of the TheraSeed treatment method versus other existing methods of treating prostate cancer were major factors in driving the substantial sales increase. Additionally, the Company believes sales were positively affected in 1995 by further publication of supportive data from the clinical study of patients treated with TheraSeed. This study had shown no local recurrence of prostate cancer and low rates of incontinence and impotence within the study group. 1995 Costs and Expenses - As a result of the increase in sales, cost of sales rose. However, cost of sales as a percent of sales fell to 34% versus 38% in 1994. This percentage improvement was primarily attributable to increased utilization of production capacity and economics of scale partially offset by increased depreciation. Although management believes that cost of sales as a percentage of revenue may continue to decline should sales in future periods exceed those achieved in 1995, no assurances can be given with respect to the operating margins in future periods. In particular, continued improvements in manufacturing operations and optimization of the production process may cause smaller improvements in net margin. Selling, General and Administrative ("SG&A") expenses also increased in dollar amount but declined as a percent to sales in 1995 to 30% versus 39% in 1994. In particular, advertising and public relations expenses increased significantly from 1994 to 1995 to support activities associated with increased sales. Also, headcount expenses increased in response to the additional workload created by the higher sales. The addition of a cyclotron and facilities caused depreciation and amortization to increase 45$ or $828,000 from 1994 to 1995. Operating margins increased to 36% in 1995 versus 23% in 1994 due to increased sales and a reduction in SG&A expenses as a percent of sales reflecting efficiency gains from increased volumes. Other income and expense was slightly higher in 1995 versus 1994 due to a lower level of construction in progress in 1995 that, in turn, limited the amount of interest expense capitalizable. 1995 Earnings - Earnings increased more than 142% to $1,772,000 or $.15 per share in 1995 from 1994's earnings of $730,000 or $.06 per share. Such increase again was primarily due to increased sales and a reduction in SG&A expenses as a percent of sales reflecting efficiency gains from increased volumes. At December 31, 1995, the Company's deferred tax asset balance was $1,810,000. Since emerging from its development stage in 1989, the Company has utilized approximately $3,900,000 of operating loss carryforwards through December 31, 1995 and has achieved twenty consecutive profitable quarters since 1991. To realize income benefit from its remaining operating loss carryforwards at December 31, 1995, it will be necessary for the Company to generate future taxable income of approximately $5,900,000, prior to the expiration of the operating loss carryforward periods. Based on the Company's results of operations subsequent to receiving FDA clearance in 1986 for its product, and on expected future results of operations, management currently strongly believes these net operating loss carryforwards will be fully utilized prior to their statutory expiration. Historical Comparison 1994 Revenues - 1994 revenues increased more than 15% to $4.7 million versus $4.1 million for 1993. In 1994, Theragenics emerged from a two year manufacturing changeover that distanced the Company from unreliable outside vendors. As the Company's experience with cyclotron operations and subsequent radioactive processes grew, the realities of these operations became clear. No single cyclotron can be expected to run at full power for 52 weeks a year. In addition to the need for regular maintenance, these operations require a "cool down" period before maintenance can be performed. These "cool down" periods are imperative as safety of the Company's employees (i.e., minimizing radiation exposure) is among the Company's highest priorities. During the first part of 1994, production dependability of the #1 cyclotron dictated the pace of sales growth. Once consistent supply was demonstrated, the Company began reclaiming marketing momentum. Fueling this momentum were favorable five-year clinical data (July 1994) and the dedication of additional financial resources to marketing. 1994 Costs and Expenses - As a result of the increase in sales, cost of sales rose. However, cost of sales as a percent of sales fell from 41% in 1993 to 38% in 1994. This decrease in percent of cost of sales to sales reflected the economies of scale associated with the large fixed cost component of the Company's expense base. Selling, General and Administrative ("SG&A") expenses increased more than would have been expected if operations had continued under the same structure as existed in 1993. Changes were made in the advertising, public relations and investor relations areas in 1994 which increased SG&A costs. These changes proved to have significant success in increasing sales and investor awareness. Other income and expense improved by $196,000 due to reduced interest expense. Both the higher level of construction in progress in 1994 that increased the amount of interest expense capitalizable and the replacement of an existing loan at 10.25% interest with a new loan at 8.47% were the causes of this reduced interest expense. 1994 Earnings - In 1994, the Company recorded a net profit of $730,000 or $.06 per share. In 1993, the Company recorded a net profit of $3,290,000, or $.28 per share. Included in the 1993 profit number is a one-time positive earnings adjustment of $2,860,000, or $.24 per share due to the mandated implementation of FASB-109, "Accounting for Income Taxes." This booking which appears on the balance sheet as an asset titled "Deferred Income Tax Asset" primarily represents the tax benefit which arises from the carryforward of prior years' operating losses. Because of the differing accounting principles applied between years, to accurately compare results of 1994 and 1993 requires that "Net Earnings Before Cumulative Effect of Change in Accounting Principle" be the basis for comparison. Using this method, 1994's earnings were $730,000, or $.06 per share and 1993's $430,000, or $.04 per share. LIQUIDITY AND CAPITAL RESOURCES Theragenics had cash, cash equivalents, short-term investments and marketable securities of $3.3 million at December 31, 1995, compared to $2.4 million at year end 1994 and $3.4 million at year end 1993. Cash flows from operating activities were $3.4 million in 1995 compared to $1.6 million in 1994 and $1.1 million in 1993. Capital spending was $2.4 million in 1995, $3.4 million in 1994 and $2.7 million in 1993. Spending in each of these years relates to construction of Theragenics' cyclotron facility. Spending in 1993 primarily represented a continuation of payments began in 1992 for initial construction of the facility and the installation of the first cyclotron. Spending in 1994 primarily represented progress payments on a project to add a second cyclotron to the facility. This project began in 1993 and was completed in 1995. Spending in 1995 represents the beginning of a project to add cyclotrons three and four to the facility. The expansion project for addition of cyclotrons three and four which began in 1995 is estimated to cost approximately $9,000,000 when completed. As of February 15, 1996, approximately $3,000,000 has already been expended on this project with the remainder scheduled for expenditure before the second quarter of 1997. Management believes that funding for the remainder of this project should be available from current cash balances, cash from future operations and Theragenics' credit facility. In the last three years, the Company's working capital has been obtained from internally generated funds and borrowings from banks. Working capital totaled $3.7 million at December 31, 1995, including $500,000 representing the current portion of an outstanding long-term obligation. This compares to $2.5 million at year end 1994 which also included $500,000 representing the current portion of outstanding long-term obligations. In the first quarter of 1993, Theragenics received funding on a $1.9 million loan secured by the Company's cyclotron facility (the "1993 Term Loan"). The 1993 Term Loan was to mature in 1995 and bore interest at 10.25% per annum. In the third quarter of 1994, Theragenics received funding on a $2.1 million loan secured by the Company's cyclotron facility including a second cyclotron (the "1994 Term Loan"). The 1994 Term Loan matures in 1998 and bears interest at 8.47% per annum. Of the $2.1 million loan, $1.4 million was used to pay off the outstanding balance under the existing long-term financing while the remainder was used to provide partial financing for the purchase of the second cyclotron and the facility expansion to house it. As of December 31, 1995, $1,500,000 remained outstanding on the 1994 Term Loan. In December 1995, the Company amended and restated its other existing bank credit facility (the "Bank Credit Facility"). The Bank Credit Facility, as amended and restated, initially consisted of a $1 million receivables credit facility and an additional $2 million revolving credit facility. Based on the Company meeting specified financial thresholds, the Bank Credit Facility will be increased to $5,000,000 upon receipt by the bank of the Company's Form 10-K for the year ended December 31, 1995. Borrowings under the Bank Credit Facility are secured by substantially all of the Company's assets. The Bank Credit Facility contains certain covenants all of which the Company was in compliance with at year end. Borrowings under the Bank Credit Facility may be made, at the Company's option, at an interest rate equal to the London Interbank Offered Rate ("LIBOR") plus 2% or the lender's prime rate as defined. At year-end, $3,000,000 of the Bank Credit Facility was available but unused. Although internal forecasts had indicated that there would be a need to access the credit facility in the fourth quarter of 1995, strong fourth quarter results did not require the Company to do so. Management believes that cash flow from operations, the availability of funds under its bank credit agreements and the availability of other forms of financing should permit the Company to meet its anticipated capital expenditures and working capital needs as well as to service its debt and fund future growth as new business opportunities arise. INFLATION AND CHANGING PRICES Management does not believe that inflation has had an abnormal or unanticipated effect on the Company's operations. report of independent certified public accountants BOARD OF DIRECTORS Theragenics Corporation We have audited the balance sheets of Theragenics Corporation (a Delaware corporation) as of December 31, 1994 and 1995, and the related statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Theragenics Corporation as of December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As described in Note E, the Company changed its method of accounting for income taxes in 1993, as required by Statement of Financial Accounting Standards No. 109. GRANT THORNTON LLP. Atlanta, Georgia January 17, 1996 balance sheets December 31, 1994 and December 31, 1995 Theragenics Corporation
December 31, December 31, ASSETS 1994 1995 Current Assets Cash and short-term investments (Note B-8) $ 2,317,463 $ 3,266,338 Marketable securities (Note B-9) 50,000 - Trade accounts receivable (Note B-2) 732,424 1,335,645 Inventories (Notes B-3 and C) 192,161 166,955 Prepaid expenses and other current assets 91,801 67,521 Total current assets 3,383,849 4,836,459 Property. Plant and Equipment - at cost (Notes B-4 and F) Building and improvements 899,760 1,690,045 Leasehold improvement 138,978 138,978 Machinery and equipment 5,167,815 8,203,256 Office furniture and equipment 44,721 44,721 6,251,274 10,077,000 Less accumulated depreciation and amortization (1,445,206) (2,194,164) 4,806,068 7,882,836 Land 49,485 49,485 Construction in progress (Note D) 3,602,825 2,140,894 8,458,378 10,073,215 Other Assets Deferred tax asset (Note E) 2,179,000 1,810,000 Patent costs (Note B-5) 94,982 90,704 Other 52,449 67,804 2,326,431 1,968,508 $14,168,658 $16,878,182 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt (Note F) $ 469,765 $ 511,362 Trade accounts payable 226,209 348,191 Accrued salaries, wages, and payroll taxes 110,132 225,138 Income taxes payable (Note E) 113 3,255 Other current liabilities 33,036 12,680 Total current liabilities 839,255 1,100,626 Long-Term Debt: (Note F) 1,519,354 1,008,135 Commitments and Contingencies: (Note G) Shareholders' Equity: (Note I) Common stock, authorized 50,000,000 shares of $.01 par value; issued and outstanding 10,961,887 in 1994 and 11,394,785 in 1995. 109,618 113,948 Additional paid-in capital 15,207,453 16,390,170 Accumulated deficit (3,507,022) (1,734,697) Total shareholders' equity 11,810,049 14,769,421 $14,168,658 $16,878,182
The accompanying notes are an integral part of these statements. statement of earnings For The Three Years Ended December 31, 1995 Theragenics Corporation
Year Ended December 31, 1993 1994 1995 Revenues:(Notes G and J) Product sales $ 4,090,803 $ 4,723,107 $ 7,781,962 Licensing fees - - 85,431 4,090,803 4,723,107 7,867,393 Costs & Expenses: Cost of sales 1,677,631 1,790,450 2,645,730 Selling, general, and administrative 1,607,288 1,844,239 2,395,846 Research and development 36,181 15,268 17,954 3,321,100 3,649,957 5,059,530 Other Income (Expense): Interest income 114,905 135,888 143,424 Interest expense (Note F) (195,035) - (51,967) Other (5,829) (25,673) (26,995) (85,959) 110,215 64,462 Net earnings before income taxes, and cumulative effect of change in accounting principle $ 683,744 $ 1,183,365 $ 2,872,325 Income Tax Expense (Note E) 254,000 453,000 1,100,000 Net earnings before cumulative effect of change in accounting principle $ 429,744 $ 730,365 $ 1,772,325 Cumulative effect on prior years of change in accounting for income taxes (Note E) 2,860,000 - - Net Earnings $ 3,289,744 $ 730,365 $ 1,772,325 Earnings Per Common Share (Note B-7) Earnings before cumulative effect of change in accounting principle $ .04 $ .06 $ .15 Cumulative effect on prior years of change in accounting for income taxes .24 - - Net Earnings $ .28 $ .06 $ .15 Weighted Average Shares 11,709,218 11,582,793 11,759,178
The accompanying notes are an integral part of these statements. statement of shareholders' equity For The Three Years Ended December 31, 1995 Theragenics Corporation
Common Stock Additional Number of Par value paid-in Accumulated shares $.01 capital deficit Total Balance, December 31, 1992 10,583,635 $105,836 $14,866,040 $(7,527,131) $ 7,444,745 Exercise of warrants 200,000 2,000 173,000 - 175,000 Exercise of stock options, net 129,302 1,293 122,902 - 124,195 Net earnings for the year - - - 3,289,744 3,289,744 Balance, December 31, 1993 10,912,937 $109,129 $15,161,942 $(4,237,387) $11,033,684 Exercise of stock options, net 48,950 489 45,511 - 46,000 Net earnings for the year - - - 730,365 730,365 Balance, December 31, 1994 10,961,887 $109,618 $15,207,453 $(3,507,022) $11,810,049 Exercise of stock options, net 432,898 4,330 469,717 - 474,047 Income tax benefit from stock options exercised - - 713,000 - 713,000 Net earnings for the year - - - 1,772,325 1,772,325 Balance, December 31, 1995 11,394,785 $113,948 $16,390,170 $(1,734,697) $14,769,421
statements of cash flows For The Three Years Ending December 31, 1995 Theragenics Corporation
Year Ended December 31, 1993 1994 1995 Cash Flows from Operating Activities: Net earnings $3,289,744 $ 730,365 $ 1,772,325 Adjustments to reconcile net earnings to net cash provided by operating activities: Cumulative effect of change in accounting for income taxes (2,860,000) - - Deferred income tax expense 248,000 433,000 1,082,000 Depreciation and amortization 515,831 571,615 828,072 Loss on disposal of property and equipment 3,458 1,571 1,677 Change in assets and liabilities: Accounts receivable (18,347) (197,133) (603,221) Inventories 84,737 (32,834) 25,206 Prepaid expenses and other current assets (17,228) 22,448 24,280 Other assets 17,526 (200) - Trade accounts payable (102,239) 78,402 121,982 Accrued salaries, wages and payroll taxes (7,938) 21,400 115,006 Income tax payable (20,387) (1,500) 3,142 Other current liabilities (21,001) 16,442 (20,356) Total adjustments (2,177,588) 913,211 1,577,788 Net cash provided by operating activities 1,112,156 1,643,576 3,350,113 Cash Flows from Investing Activities: Purchase and construction of property and equipment (2,740,263) (3,376,967) (2,426,961) Maturities of marketable securities 205,127 309,765 50,000 Patent costs (51,346) (587) (3,632) Net cash used by investing activities (2,586,482) (3,067,789) (2,380,593) Cash Flows from Financing Activities: Proceeds from long-term debt 1,900,000 2,100,000 - Repayment of long-term debt (569,561) (1,441,320) (469,622) Proceeds from exercise of stock options and warrants, net 299,195 46,000 474,047 Other assets - (46,025) (25,070) Net cash (used) provided by financing activities 1,629,634 658,655 (20,645) Net Increase (Decrease)in Cash and Short-Term Investments 155,308 (765,558) 948,875 Cash and Short-Term Investments at Beginning of Year 2,927,713 3,083,021 2,317,463 Cash and Short-Term Investments at End of Year $ 3,083,021 $ 2,317,463 $ 3,266,338
Supplemental Schedule of Non Cash Financing Activities: During 1995, the Company realized an income tax benefit from the exercise and early disposition of certain stock options, resulting in an increase in the deferred tax asset and additional paid in capital of $713,000.
Supplementary Cash Flow Disclosure: Interest paid, net of amounts capitalized $ 195,035 $ - $ 53,843 Interest received $ 120,032 $ 144,452 $ 139,693 Income taxes paid $ 26,387 $ 21,500 $ 14,858
The accompanying notes are an integral part of these statements. notes to financial statements December 31, 1994 and 1995 Theragenics Corporation NOTE A Organization and Description of Business Theragenics Corporation (the "Company") was organized in November 1981 to develop, manufacture, and market radiological pharmaceuticals and devices used in the treatment of cancer. The Company manufactures and markets primarily one product, which is used in the treatment of cancer. Use of the Company's product is regulated by the U.S. Food and Drug Administration (FDA). The Company sells its product primarily to hospitals, physicians and other health service providers in the United States. The Company therefore is directly affected by FDA regulations and the well being of the health care industry. NOTE B Summary of Significant Accounting Policies A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: 1. Use of Estimates in Preparation of Financial Statements In preparing financial statements in conformity with Generally Accepted Accounting Principles ("GAAP"), management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Accounts Receivable The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. 3. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the specific identification method. Inventory costs consist primarily of costs incurred in the extraction, purification and irradiation processes of an isotope which is the basic component of the Company's primary product. 4. Depreciation Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on a straight-line basis. Estimated service lives are as follows: Building 30 years Machinery, leasehold improvements, furniture and equipment 5-10 years A significant portion of the Company's depreciable assets are utilized in the production of its product. Management periodically evaluates the realizability of its depreciable assets in light of its current industry environment. Management believes that no impairment of depreciable assets exists at December 31, 1995. It is possible, however, that management's estimates concerning the realizability of the Company's depreciable assets could change in the near term due to changes in the Company's technological and regulatory environment. 5. Patent Costs The Company capitalizes the costs of patent applications for its products. Amortization is computed on a straight line basis over the estimated economic lives of the patents, commencing at the date of grant of the related patent. Patent costs are net of accumulated amortization of $29,366 and $37,276 at December 31, 1994 and 1995, respectively. 6. Research and Development Costs The costs of research and development and consumable supplies and materials to be used for the development of the Company's intended products are expensed when incurred. 7. Net Earnings Per Common Share The net earnings per common share is based on the weighted average number of common shares and common equivalent shares outstanding during each period (11,709,218 in 1993, 11,582,793 in 1994 and 11,759,178 in 1995). Fully diluted information is not presented, as fully diluted earnings per share is not materially different from the primary earnings per share presented. 8. Statements of Cash Flows For purposes of reporting cash flows, cash and short-term investments include cash on hand, cash in banks and commercial paper with original maturities of less than 90 days. 9. Marketable Securities The Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), effective January 1, 1994. The adoption of SFAS 115 had no effect upon prior periods. At December 31, 1994, marketable securities are categorized as available for sale and as a result are stated at fair value, which approximated cost. The Company held no marketable securities at December 31, 1995. 10. Stock Based Compensation The Company stock option plans are accounted for under APB Opinion 25, Accounting for Stock Issued to Employees, and related interpretations. NOTE C Inventories Inventory consists of the following:
December 31, 1994 1995 Raw material $ 17,361 $ 17,361 Work in process 79,820 92,887 Finished goods 33,361 56,707 Raw material to be recovered 61,619 - $192,161 $166,955
"Raw material to be recovered" includes finished products which cannot be sold due to loss of radiation. The irradiated isotope contained in these products can be recovered and reused through a purification process. NOTE D Construction in Progress At December 31, 1995, construction in progress represented payments made for the construction of manufacturing equipment and facility expansion. Total cost of this project is expected to be approximately $9,000,000, and is expected to be completed in February 1997. At December 31, 1994, construction in progress represented payments made for the construction of manufacturing equipment which was completed and placed in service during 1995. NOTE E Income Taxes The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS" and "FASB") No. 109, Accounting for Income Taxes, which requires a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company implemented SFAS 109 as of January 1, 1993. The deferred tax asset recorded is primarily a result of the recognition of the Company's net operating loss carryforward. The cumulative effect on prior years of the change in accounting principle increased net earnings by $2,860,000 ($.24 per share) and is included in earnings for 1993. The effect of the change on 1993 was to decrease net earnings before cumulative effect of a change in accounting principle by $248,000 ($.02 per share) and The provision for income tax is summarized as follows:
1993 1994 1995 Current tax expense $ 6,000 $ 20,000 $ 18,000 Deferred tax expense 248,000 433,000 1,082,000 $ 254,000 $ 453,000 $1,100,000
Significant components of the deferred tax asset are as follows:
December 31, 1994 1995 Loss carryforwards $2,455,000 $2,240,000 Depreciation (370,000) (565,000) Other 94,000 135,000 $2,179,000 $1,810,000
The significant portions of the operating loss carryforwards were incurred while the Company was in the development stage. Upon receiving clearance to market its "TheraSeed " product from the U.S. Food and Drug Administration (FDA) in 1986, the Company commenced manufacturing and distribution of its product in 1987. Since emerging from the development stage in 1989, the Company has utilized approximately $3,900,000 of these operating loss carryforwards through December 31, 1995 by generating taxable income. In order to realize income benefit from the remaining operating loss carryforwards at December 31, 1995, it will be necessary for the Company to generate future taxable income of approximately $5,900,000, prior to the expiration of the operating loss carryforward periods. Based on the Company's results of operations subsequent to receiving FDA clearance to market for its product, and on expected future results of operations, management believes that currently it is more likely than not that the income tax benefits of the operating loss carryforwards will be realized within the carryforward period. The amount of deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The provision for income taxes differs from the amount of income tax determined by applying the applicable federal rates due to the following:
1993 1994 1995 Tax at applicable federal rate of 34% $ 232,000 $ 402,000 $ 977,000 State tax, net 22,000 47,000 115,000 Other - 4,000 8,000 $ 254,000 $ 453,000 $1,100,000
For income tax purposes only, the Tax Reform Act of 1986 enacted an alternative minimum tax system for corporations (the "AMT"). AMT is imposed at a 20% rate on the Company's AMT income which is determined by making statutory adjustments to regular taxable income. A company pays the greater of the taxes computed under the "regular" tax system or the AMT system. Because AMT net operating loss carryforwards may only be utilized to offset 90% of the AMT income, the Company was subject to the AMT in 1993, 1994 and 1995, resulting in an alternative minimum tax of $6,000, $20,000 and $18,000, respectively. These amounts will be allowed as a credit carryover to reduce the regular tax liability in future years, but not below the AMT of such years. At December 31, 1995, the Company had approximate net federal operating loss carryforwards for regular tax and AMT purposes as follows:
Net operating Net operating loss (regular) loss (AMT) Year of expiration 2002 $1,013,000 $ - 2003 2,485,000 2,254,000 2004 1,806,000 1,765,000 2005 590,000 555,000 $5,894,000 $4,574,000
NOTE F Notes Payable In December 1995, the Company entered into an amended and restated loan and security agreement (the "loan agreement") with a financial institution. This loan agreement incorporated and restated the Company's existing term loan and line of credit facility. A summary of the applicable terms follows. Term Loan The term loan is payable in monthly installments of $51,862, including interest at 8.47%. $1,989,119 and $1,519,497 were outstanding under the term loan at December 31, 1994 and 1995, respectively. Interest expense of approximately $140,000 and $106,000 was capitalized with expansion of the manufacturing facility and construction of certain manufacturing equipment during 1994 and 1995, respectively. Line of Credit The loan agreement provides for a line of credit of up to $1,000,000. Interest on outstanding borrowings is payable monthly at the prime rate or, at the Company's option, may be payable at the LIBOR rate plus 2%. There was no outstanding borrowings under the line of credit at December 31, 1994 or 1995. Revolving Credit Facility The loan agreement also provides for a revolving credit facility of up to $2,000,000. The maximum borrowings under the revolving credit facility can be increased to $4,000,000 under certain conditions. These conditions include, among other things, that the Company achieve certain minimum earnings levels, as defined, for four consecutive quarters. The Company has met the minimum earnings requirements as of December 31, 1995, and management expects that the revolving credit facility will be increased to $4,000,000 during 1996. Interest on outstanding borrowings is payable monthly at the prime rate or, at the Company's option, may be payable at the LIBOR plus 2%. No amounts were outstanding under the revolving credit facility at December 31, 1995. All outstanding borrowings under the revolving credit facility are due in April 1997. However, the outstanding borrowings can be repaid in sixty equal and consecutive monthly installments commencing in May 1997 if the Company meets certain minimum earnings levels, as defined, and certain other financial ratios for the year ending December 31, 1996. Additionally, certain mandatory repayments based on "excess cash flow", as defined, would be required commencing in May 1998 and annually thereafter. All outstanding borrowings under the loan agreement are collateralized by substantially all of the Company's assets. Provisions of the loan agreement limit the amount of annual capital expenditures, the incurrence of additional debt and, among other things, require the maintenance of certain minimum financial ratios. As of December 31, 1995, the Company was in compliance with the provisions of the loan agreement. NOTE G Commitments and Contingencies Licensing Agreement The Company holds a worldwide exclusive license from the University of Missouri for the use of technology, patented by the University, used in the Company's "TheraSphere" product. The licensing agreement provides for the payment of royalties based on the level of sales and on lump sum payments received pursuant to a licensing agreement with Nordion International, Inc. (see below). The Company has granted certain of its geographical rights under the licensing agreement with the University of Missouri to Nordion International, Inc., a Canadian company which is a producer, marketer and supplier of radioisotope products and related equipment. Under the Nordion agreement, the Company will receive a licensing fee for each geographic area in which Nordion receives new drug approval. The Company will also be entitled to a percentage of future revenues earned by Nordion as royalties under he agreement. Royalties from this agreement for each of the three years in the period ended December 31, 1995 were not significant. In March 1995, the Company received approximately $85,000 from Nordion for the right to use certain patents and to manufacture, distribute, and sell TheraSphere for all applications worldwide. Letter of Credit The Company has a letter of credit outstanding for approximately $315,000 relating to regulatory requirements. Lease Commitment The Company leases office space under a noncancelable lease which expires in December 1998. Approximate minimum lease payments under the lease are as follows: 1996, $64,000; 1997, $67,000; 1998, $69,000. Rent expense was approximately $70,000, $61,000 and $61,500 for the years ended December 31, 1993, 1994 and 1995, respectively. NOTE H Transactions with Related Parties Certain shareholders and directors provide consulting services to the Company. Total consulting fees paid to shareholders and directors were approximately $77,500, $5,500 and $1,000 during the years ended December 31, 1993, 1994 and 1995, respectively. NOTE I Stock Options and Warrants The Company's board of directors has approved three stock option plans which in aggregate cover up to 2,200,000 shares of common stock. The plans provide for the expiration of options ten years from the date of grant and requires the exercise price of the options granted to be at least equal to 100% of market value on the date granted. Stock option transactions for the three years ended December 31, 1995 are summarized as follows:
Option Shares 1993 1994 1995 Outstanding, beginning of year 1,188,316 1,258,116 1,226,716 Granted 200,000 40,000 221,000 Exercised (130,200) (49,900) (450,000) Canceled - (21,500) - Outstanding, end of year 1,258,116 1,226,716 997,716 Option Price $1.00-$6.38 $1.00-$6.38 $1.00-$6.38
As of December 31, 1995, options covering approximately 773,000 shares were exercisable. Expiration dates for these options range from 1996-2005. Two hundred thousand warrants (200,000) were exercised during 1993, resulting in proceeds to the Company of $175,000. The Company also has warrants outstanding at December 31, 1995, covering 100,000 shares of common stock. The warrants are exercisable at a price of $7.50 per share and expire in May 1999. The Company follows the practice of recording amounts received upon the exercise of options by crediting common stock and additional capital. No changes are reflected in the statements of operations as a result of the grant or exercise of options. The Company realizes an income tax benefit from the exercise or early disposition of certain stock options. This benefit results in an increase to the deferred tax asset and an increase in additional paid-in capital. NOTE J Major Customers During 1994, there were sales to one major customer that equaled approximately ten percent of sales. During 1993 and 1995, there were no customers which individually comprised ten percent of sales. NOTE K Employee Benefit Plan The Company sponsors a defined contribution 401(k) Plan covering all employees with at least six months of service and at least 21 years of age. The Plan permits participants to defer a portion of their compensation through payroll deductions. The Company may, at its discretion, contribute to the Plan on behalf of participating employees. No such Company discretionary contributions have been made during any of the three years ended December 31, 1995. Note L Recently Issued Accounting Standard The Company currently accounts for the issuance of stock options to employees in accordance with Accounting Principles Board Opinion ("APB") Number 25, "Accounting for Stock Issued to Employees." In October 1995, the FASB issued SFAS Number 123 ("SFAS 123"), "Accounting for Stock Based Compensation." SFAS 123 allows for the continued use of the method prescribed by APB 25, referred to as intrinsic value method. SFAS 123 also provides an alternative method, referred to as the fair value method. If the intrinsic value method of accounting for the issuance of stock options is used, then SFAS 123 requires disclosure of pro forma net income and earnings per share, as if the fair value method had been used. Management anticipates that the Company will continue to account for the issuance of stock options to employees in accordance with APB 25. Therefore, the only effect of adopting SFAS 123 will be the new disclosure requirements. These disclosure requirements are effective for the year ending December 31, 1996. supplementary financial information Quarterly Results
YEAR 1st 2nd 3rd 4th Net Sales 1994 1,153,857 1,104,670 1,129,094 1,335,486 1995 1,834,462 1,911,647 1,926,456 2,194,828 Net Earnings 1994 177,649 147,483 117,625 287,608 1995 381,610 384,893 421,106 584,716 Net Earnings per Common Share 1994 .02 .01 .01 .02 1995 .03 .03 .04 .05
stockholder information INVESTOR COMMUNITY INFORMATION Stockholders, registered representatives, professional investment managers and financial analysts wanting additional information about Theragenics Corporation are invited to contact: Mr. Ronald A. Warren Director of Investor Relations and Assistant Secretary Theragenics Corporation 5325 Oakbrook Parkway Norcross, Georgia 30093 800-998-8479 or 770-381-8338. AVAILABILITY OF FORM 10-K The Company will furnish without charge a copy of its Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1994, including financial statements and schedules, to any record or beneficial owner of its Common Stock as of May 5, 1995, who requests a copy of such Report. Any request for the 10-K Report should be in writing addressed to: Mr. Ronald A. Warren Director of Investor Relations and Assistant Secretary Theragenics Corporation 5325 Oakbrook Parkway Norcross, Georgia 30093 800-998-8479 or 770-381-8338. COMMON STOCK PRICE RANGES Theragenics Corporation's common stock is traded on the national market system under the Nasdaq Symbol "THRX." The following table sets forth the quarterly high and low sales prices for the periods indicated as reported by Nasdaq. The prices shown represent actual sales prices without retail markups, markdowns or commissions.
Share Price of Common Stock 1994 High Low First Quarter $ 4-3/8 $ 3-1/4 Second Quarter $ 4-3/4 $ 3-1/2 Third Quarter $ 4-5/8 $ 3-3/8 Fourth Quarter $ 3-7/8 $ 2-1/4 1995 High Low First Quarter $ 3-3/4 $ 2-1/4 Second Quarter $ 6-1/2 $ 3-1/8 Third Quarter $ 6-3/8 $ 4-7/8 Fourth Quarter $12-1/2 $ 4-7/8
TRANSFER AGENT AND REGISTRAR Stockholders wishing to change the name on their certificates, or to report a lost certificate, should contact the transfer agent: SunTrust Bank Tom Donaldson Stock Transfer Department P.O. Box 4625 Mail Code 008 Atlanta, Georgia 30302 404-588-7831 INDEPENDENT PUBLIC ACCOUNTANTS Grant Thornton, Atlanta, Georgia GENERAL COUNSEL Smith, Gambrell & Russell, Atlanta, Georgia COMMON SHAREHOLDERS OF RECORD As of March 29, 1996, Theragenics had 681 record holders of common stock. DIVIDEND POLICY Theragenics has never paid cash dividends on the common stock, and has no current plans to begin paying cash dividends. DIRECTORS AND EXECUTIVE OFFICERS Charles Klimkowski * Chairman, Theragenics Corporation Senior Vice President, The Chicago Corporation M. Christine Jacobs * President and Chief Executive Officer Otis Brawley, M.D. * Director of Oncology and Rehabilitation Branch, Early Detection and Community Oncology Program, National Cancer Institute Dr. Orwin L. Carter, Ph.D. * Consultant, INCSTAR Corporation Dean W. Fitzgerald Vice President of Business Development John V. Herndon * Advisor-to-the-President, Theragenics Corporation Peter A.A. Saunders * Consultant, PASS Consultants Bruce W. Smith Treasurer, Chief Financial Officer and Secretary * Director of Theragenics Corporation THERAGENICS CORPORATION (An illustration of the palm of a hand with Theragenics' corporate logo superimposed on the palm appears in the center of this page.) 5325 Oakbrook Parkway, Norcross, Ga 30093 770.381.8338 EX-99 3 PROXY CARD THERAGENICS CORPORATION 5325 OAKBROOK PARKWAY NORCROSS, GEORGIA 30093 PROXY -- ANNUAL MEETING OF STOCKHOLDERS -- MAY 24, 1996. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Ms. M. Christine Jacobs and Mr. Bruce W. Smith, or either of them (the "Proxies"), as the undersigned's proxy or proxies, each with the power to appoint her/his substitute, and hereby authorizes them to represent and to vote, as designated below, all shares of Common Stock of Theragenics Corporation (the "Company") which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company to be held on May 24, 1996, or any adjournment thereof. 1. ELECTION OF DIRECTORS. / / FOR all nominees listed below / / WITHHOLD AUTHORITY (except as marked to the contrary) to vote for all nominees listed below (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below.) JOHN V. HERNDON PETER A.A. SAUNDERS 2. PROPOSAL TO RATIFY THE APPOINTMENT OF GRANT THORNTON AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996. / / FOR / / AGAINST / / ABSTAIN (CONTINUED ON REVERSE SIDE) 3. In their discretion, the Proxies, or either of them, are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof. This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted in favor of John V. Herndon and Peter A.A. Saunders for election as directors and FOR Proposal 2. Date ------------------------------ ------------------------------ Signature ------------------------------ Signature, if held jointly Please sign exactly as your name or names appear at left. When shares are held by joint tenants, both should sign. If signing in any fiduciary or representative capacity, give full title as such. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE. -----END PRIVACY-ENHANCED MESSAGE-----