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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
[ ] Transaction Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 0-12648
MOLECULAR BIOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3078632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10030 Barnes Canyon Road, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 812-7200
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's executive officers is included in
Part I Item 4 of this report under the caption, "Executive Officers of the
Registrant".
DIRECTORS
There is set forth below for each of the Company's seven directors his
principal occupation, age, the year that he became a director of the Company and
additional biographical data:
BOBBA VENKATADRI, 55
President and Chief Executive Officer
Bobba Venkatadri has served as the Company's President since October
1995 and as a director of the Company since November 1995. He served as Chief
Operating Officer from October 1995 until May 1997, at which time he was
elected by the Company's Board to the office of Chief Executive Officer. He
held the position of Executive Vice President of the Pharmaceutical Division
of Centocor, Inc., from September 1992 until he joined the Company, and as
Vice President - Operations of Centocor's Pharmaceutical Division from March
1992 to September 1992. He was employed by Warner-Lambert Company from 1967
until February 1992 in a variety of Senior Management positions including,
Senior Director, Pharmaceutical Operations, President of Warner-Lambert,
Indonesia, and Vice President Parke-Davis Operations, USA. Mr. Venkatadri
serves on the Board of the San Diego YMCA.
DAVID W. BARRY, M.D., 55
Chairman and Chief Executive Officer
Triangle Pharmaceuticals, Inc.
David W. Barry, M.D., was elected to the Company's Board of Directors in
May 1996. He currently serves as Chairman and Chief Executive Officer of
Triangle Pharmaceuticals, Inc. Prior to joining Triangle Pharmaceuticals in
1995, Dr. Barry served for 18 years with Burroughs Wellcome and the Wellcome
Foundation in various positions, including Worldwide Group Director,
Research, Development & Medical Affairs of the Wellcome Foundation;
President of the Wellcome Research Laboratories; and a member of the Board of
Directors for the Wellcome Foundation and Wellcome PLC. He previously spent
five years with the U.S. Food and Drug Administration in various capacities.
Dr. Barry received his medical degree from Yale University School of Medicine.
ROBERT W. BRIGHTFELT, 55
President, Global Products
Dade Behring, Inc.
Robert W. Brightfelt has served as a director of the Company since
October 1987. Mr. Brightfelt received his B.S. and M.S. degrees in mechanical
engineering from the University of Nebraska in 1965 and 1967, respectively,
and his M.B.A. from the University of Georgia in 1970. He joined the DuPont
Company in 1967 as a mechanical engineer and held various management
positions in Dupont's Medical Products Department. Mr. Brightfelt retired
from DuPont in May, 1996, and currently serves as President, Global Products,
and as member of the Board of Directors for Dade Behring, Inc.
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CHARLES C. EDWARDS, M.D., 75
Charles C. Edwards, M. D., has served as a director of the Company since
March 1987. In 1969, he was appointed by President Nixon as Commissioner of
the U.S. Food and Drug Administration, and in 1973 he was appointed Assistant
Secretary for Health in the U.S. Department of Health, Education and Welfare.
In 1977, Dr. Edwards assumed the position of President and Chief Executive
Officer of Scripps Clinic and Research Foundation and served in that position
until 1991. In 1991, he was appointed the President and Chief Executive
Officer of the Scripps Institutions of Medicine and Science and served in
that position until 1993. Dr. Edwards currently serves as a director of
Bergen Brunswig Corporation, Northern Trust of California and the IDEC
Pharmaceutical Corporation. Additionally, Dr. Edwards serves on the Board of
Trustees of the Scripps Research Institute, the Scripps Institutes of
Medicine and Science, the San Diego Hospice and the San Diego YMCA. He
received his medical degree from the University of Colorado in 1948, and
received his surgical training at the Mayo Clinic in Rochester, Minnesota.
JERRY T. JACKSON, 58
Jerry T. Jackson has served as a director of the Company since December
1996. From 1965 until his retirement in 1995, Mr. Jackson was employed with
Merck & Company, Inc. in various management positions. From 1993 until
retirement, he held the position of Executive Vice President of Merck. During
this time, Mr. Jackson had responsibility for Merck's International Human
Health Division, Worldwide Human Vaccines, the AgVet Division, Astra/Merck
U.S. Operations and Worldwide Marketing. Mr. Jackson was Senior Vice
President of Merck & Company, Inc. from 1991 to 1992 and previously was
President of Merck Sharp and Dohme International. Mr. Jackson also currently
serves as a director on the boards of CorTherapeutics, Inc., Crescendo
Pharmaceutials Corp., and SunPharm Corporation.
GORDON C. LUCE, 73
Gordon C. Luce has served as a director of the Company since June 1989.
Mr. Luce joined Great American First Savings Bank in San Diego, California in
1969 as its President and Chief Executive Officer and held the position of
Chairman of the Board from 1979 until his retirement in July 1990. During
1982, he was an Alternate Delegate to the United Nations and has served as a
member of three Presidential commissions. Mr. Luce is a former Chairman of
Scripps Clinic and Research Foundation and Scripps Health and is a former
trustee of Scripps Research Institute. He is also currently serving as a
director of a publicly held company, PS Group, and is a Trustee of the
University of Southern California in Los Angeles.
DAVID RUBINFIEN, 78
David Rubinfien has served as a director of the Company since December
1985. He held the position of President and Chief Executive Officer of
Systemix, Inc. from January 1989 until January 1991, and from 1985 to 1988 he
was Chairman and Chief Executive Officer of Microgenics Corporation in
Concord, California. From 1973 to 1984, he held several key positions at
Syntex Corporation in Palo Alto, California. Mr. Rubinfien also currently
serves as a director of Matritech, Inc., another publicly held company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and any persons holding more than ten percent of
the Company's stock to report their initial ownership of the Company's stock and
any subsequent changes in ownership to the Securities and Exchange Commission.
Reports of changes in ownership generally are required to be filed by the tenth
day of the month following the transaction.
Based solely on its review of copies of such reports, the Company believes
that during the fiscal year ended March 31, 1999, all filing requirements
applicable to its directors, executive officers and other beneficial owners
holding more than ten percent of the Company's common stock were satisfied.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has standing Executive, Audit,
Compensation and Officer Options Committees. It does not have a standing
nominating committee.
The Executive Committee generally possesses the same powers as the full
Board of Directors to manage the affairs of the Company, but may not amend
the Company's certificate of incorporation or by-laws or make recommendations
to the stockholders with respect to the merger, consolidation or dissolution
of the Company or the sale of all or substantially all of the Company's
assets. Mr. Venkatadri serves on the Executive Committee with a second
director; the other position remains vacant following the resignation of
Kenneth J. Widder in September 1998.
The Audit Committee, composed of Messrs. Brightfelt, Jackson, Luce and
Rubinfien, reviews the scope and results of the independent public accountants'
engagement, the Company's internal accounting controls and other pertinent
auditing and internal control matters.
The Compensation Committee, composed of Messrs. Brightfelt and Rubinfien
and Drs. Barry and Edwards, reviews and recommends to the Board of Directors
the compensation levels of the Company's executive officers. In addition, the
Compensation Committee reviews the procedures involved in setting management
compensation and employee benefits. Acting as the Officer Options Committee,
the Compensation Committee administers the Company's stock option plans as
they relate to the executive officers of the Company.
MEETINGS
During the fiscal year ended March 31, 1999, the Board of Directors held
six meetings. The Executive Committee met formally 11 times during the year
and met informally on a number of additional occasions. The Audit Committee
met once during the year and the Compensation Committee met three times
during the year. Messrs. Venkatadri and Luce each attended all six meetings
of the Board; Dr. Edwards, Messrs. Jackson and Rubinfien each attended five
meetings, Dr. Barry attended four meetings, and Mr. Brightfelt attended three
meetings. All of the members of the Audit Committee attended its one meeting.
Mr. Venkatadri attended all 11 meetings of the Executive Committee. Mr.
Rubinfien attended all three Compensation and Officer Options Committee
meetings, Dr. Edwards attended two meetings and Dr. Barry and Mr. Brightfelt
each attended one meeting.
DIRECTORS' COMPENSATION
Directors receive a retainer of $8,000 per year. No additional fees are
paid for attendance at board meetings; however, a fee of $750 is paid to each
director for attendance at each regular committee meeting. Pursuant to the
terms of the 1998 Stock Option Plan, on the date of each Annual Meeting of
Stockholders, each individual who is to continue to serve as a non-employee
director will automatically be granted a non-statutory option to purchase
6,500 shares of Common Stock, provided such individual has served as a
non-employee director for at least six (6) months and is not an owner of more
than 5% of the stock of the Company.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company
during the fiscal years ended March 31, 1999, 1998 and 1997 to the following
persons (the "named executive officers"): (i) the Chief Executive Officer
(ii) each of the other most highly compensated executive officers of the
Company serving as of the fiscal year end on March 31, 1999, and (iii) two
individuals who would have been included in (ii) but for the fact that they
were no longer serving as of March 31, 1999:
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<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------- -----------------------------------------
Year Other Annual Restricted Securities All Other
Ended Compensation Stock Underlying Compensation
Name March 31 Salary ($) Bonus ($) ($) Award ($) Options (#) ($) (11)
------------------------- --------- ------------ ----------- -------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bobba Venkatadri 1999 311,355 103,800 (1) - 79,688 (6) 213,513 3,115
President, Chief 1998 299,141 55,899 (3) 37,606 (2) - 100,000 3,269
Executive 1997 285,012 36,000 (7) 38,825 (2) 20,000 (4) 50,000 3,562
Officer and Member of
the Executive Committee
Howard Dittrich, M.D. 1999 235,303 103,300 (10) - 63,750 (6) 131,300 4,005
Executive Vice President 1998 196,538 29,910 (3) - - 32,000 3,374
1997 163,758 - - 57,750 (5) 92,000 3,427
Elizabeth L. Hougen 1999 110,046 12,178 (1) - 38,250 (6) 63,000 1,833
Executive Director - 1998 87,500 5,274 (3) 1,500 (9) - 9,500 1,833
Finance and Chief 1997 66,816 - 10,625 (9) - 5,500 1,355
Financial Officer
Joni Harvey 1999 149,500 31,900 (1) - 47,813 (6) 91,000 -
Vice President - 1998 129,231 30,570 (3) - - 24,000 -
Operations 1997 75,110 30,570 (7) - - 45,000 -
Kenneth Widder, M.D. 1999 126,056 103,800 (1) 560,826 (8) - 57,900 1,815
Former Chairman of the 1998 266,578 81,806 (3) - - 100,000 2,512
Board And Member of the 1997 241,215 55,439 (7) - 60,000 (4) 50,000 3,015
Executive Committee
Gerard A. Wills 1999 134,529 54,158 (1) 221,688 (8) - 23,500 2,338
Former Vice President- 1998 159,200 33,156 (3) - - 28,000 2,692
Finance and Chief 1997 139,058 26,844 (7) - 30,000 (4) 80,000 2,853
Financial Officer
</TABLE>
(1) Paid in respect of performance for the fiscal year ended March 31, 1998.
(2) Represents relocation expense payments.
(3) Paid in respect of performance for the fiscal year ended March 31, 1997.
(4) Awarded in respect of performance for the fiscal year ended March 31, 1996
and as additional compensation. The awards were paid in unregistered
shares from which shares to satisfy withholding requirements were
withheld. The net shares awarded were as follows: Dr. Widder, 4,220
shares; Mr. Venkatadri, 1,197 shares; and Mr. Wills, 1,828 shares. The
shares were issued in April 1996 and were taxable immediately to the
recipients, but the unregistered shares that they received could not be
sold in the public market for two years (a period subsequently reduced to
one year as a result of changes in holding period requirements of the
Securities and Exchange Commission's Rule 144).
(5) Awarded to Dr. Dittrich in connection with his employment in May 1996. The
award was paid in unregistered shares from which shares to satisfy
withholding requirements were withheld. The shares were issued in May 1996
and Dr. Dittrich was contractually restricted from selling any of these
shares for a three-year period.
(6) Awarded in respect of performance as a retention bonus. The shares were
awarded as follows: Mr. Venkatadri, 25,000 shares; Dr. Dittrich, 20,000
shares; Ms. Hougen, 12,000 shares; Ms. Harvey, 15,000 shares. The shares
were granted in December 1998 and issued in May 1999. These shares will be
fully vested on February 1, 2000. Once vested, the shares will be
immediately taxable to the recipients and the officers will have the
ability to immediately trade these shares.
(7) Paid in respect of performance for the fiscal year ended March 31, 1996.
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(8) Represents payments related to termination.
(9) Represents proceeds from same day sale of nonqualified stock options.
(10) Includes $40,800 paid in respect of performance for fiscal year ended
March 31, 1998, and $62,500 paid in recognition of promotion to Executive
Vice-President in February 1999.
(11) These amounts represent the Company's matching contribution under the
Company's 401(k) plan. For each of the fiscal years ended March 31, 1999,
1998 and 1997, the matching contribution was 2% of the first 6%
contributed by each participant.
OPTION GRANTS IN LAST FISCAL YEAR
The Company granted stock options under the Company's 1998 Stock Option
Plan in respect of performance during the fiscal year ended March 31, 1999. The
following table sets forth each grant of stock options made during the fiscal
year ended March 31, 1999 to each of the named executive officers:
<TABLE>
<CAPTION>
% of Total Potential Realizable Value
Number of Options Exercise at Assumed Annual Rates
Securities Granted to Price of Stock Price Appreciation
Underlying Employees Per Expiration for Option Term
Name Options (#) in Fiscal Year Share Date 5% ($) (5) 10% ($) (5)
- ------------------------- ------------- --------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bobba Venkatadri 57,900 (1) 5.0% $ 9.69 5/12/08 $ 352,751 $ 893,940
10,613 (2) 0.9% 0.93 1/4/09 38,771 67,570
100,000 (3) 8.4% 2.75 1/21/09 172,946 438,279
45,000 (4) 3.8% 3.31 11/17/08 93,745 237,567
Howard Dittrich, M.D. 26,300 (1) 2.2% 9.69 5/12/08 160,231 406,055
65,000 (3) 5.5% 2.75 1/21/09 112,415 284,881
40,000 (4) 3.4% 3.31 11/17/08 83,328 211,171
Elizabeth L. Hougen 8,000 (1) 0.7% 9.69 5/12/08 48,739 123,515
30,000 (3) 2.5% 2.75 1/21/09 51,884 131,484
25,000 (4) 2.1% 3.31 11/17/08 52,080 131,982
Joni Harvey 21,000 (1) 1.8% 9.69 5/12/08 127,941 324,227
40,000 (3) 3.4% 2.75 1/21/09 69,178 175,312
30,000 (4) 2.5% 3.31 11/17/08 62,496 158,378
Kenneth J. Widder, M.D. 57,900 (1) 4.9% 9.69 5/12/08 352,751 893,940
Gerard A. Wills 23,500 (1) 2.0% 9.69 5/12/08 143,172 362,825
</TABLE>
(1) These options were granted in May 1998 under the Company's 1998 Stock
Option Plan as the fiscal year 1999 Incentive Compensation Plan. The shares
became vested and exercisable on April 1, 1999 and have a term of ten
years. Under the 1998 stock option plan, each option holder has the right
to pay the exercise price by delivering shares of common stock that the
holder previously acquired, and to have the Company withhold, from shares
otherwise issuable upon the exercise of the option, sufficient shares to
satisfy the Company's withholding liability in connection with the
exercise. Each option generally may be exercised only when vested and while
the holder is an employee of the Company or within 90 days following the
termination of his employment. In the discretion of the Compensation
Committee, this 90-day period may be extended in the case of nonstatutory
stock options to any date ending on or before the applicable expiration
date of the option. No option may be transferred except by will or
applicable intestacy laws.
(2) These options were granted on January 4, 1999 under the Company's 1998
Stock Option Plan in exchange for a salary deferral of $20,000.
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(3) These options were granted in January 1999 under the Company's 1998 Stock
Option Plan in respect of performance for the fiscal year ended March 31,
1999. All options vest in four equal installments beginning on the first
anniversary of the date of grant and have a term of ten years.
(4) These options were granted in December 1998 as part of the Company's
retention bonus plan. The shares become vested and exercisable in November
1999 and have a term of 10 years.
(5) The dollar amounts presented in these columns are the results of
calculations at the 5% and 10% annual rates of stock appreciation
prescribed by the Securities and Exchange Commission and are not intended
to forecast possible future appreciation, if any, of the Company's stock
price. No gain to the optionees is possible without an increase in the
price of the Company's stock, which will correspondingly benefit all
stockholders. For options granted during fiscal year ended March 31, 1999,
assuming 5% and 10% compounded annual appreciation of the stock price over
the term of the options, the average price of a share of Common Stock would
be $3.31 and $8.34, respectively, on March 31, 2009.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None of the named executive officers exercised stock options during the
fiscal year ended March 31, 1999. The following table sets forth, for each of
the named executive officers, the fiscal year-end number and value of
unexercised options
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at 3/31/99 (#) Options at 3/31/99 ($) (1)
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Bobba Venkatadri 320,000 378,513 $ - $ 18,009
Howard Dittrich, M.D. 72,500 207,800 - -
Elizabeth L. Hougen 18,501 69,999 - -
Joni Harvey 40,000 135,000 - -
Kenneth J. Widder, M.D. 387,900 - - -
Gerard A. Wills 189,000 - - -
</TABLE>
(1) Based on the $2.625 per share closing price of the Company's Common
Stock on March 31, 1999.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
As of April 1, 1999, Mr. Venkatadri is paid an annual salary of $335,000
less $41,000 which he elected to defer pursuant to the 1998 Stock Plan; Dr.
Dittrich is paid an annual salary of $250,000; Ms. Hougen is paid an annual
salary of $129,000; and Ms. Harvey is paid an annual salary of $163,500. The
Company's employment contracts with its executive officers are of indefinite
duration, subject, however, to termination in certain events.
During the fiscal year ended March 31, 1999, two executive officers, Dr.
Widder and Mr. Wills terminated their employment with the company. Dr. Widder
is continuing to receive severance payments pursuant to a termination agreement.
The Company currently has employment contracts with all executive officers
of the Company. In the event of the termination of these employment agreements
as a result of (i) a termination without cause within 2
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years following a change of control or (ii) a constructive termination, MBI
is required to pay severance in an amount ranging from 1.5 to 3 times (A) the
officer's base salary in effect immediately prior to the change of control
and (B) the higher of (x) 100% of the officer's target bonus as determined
under MBI's incentive compensation plan or (y) an average of the three most
recent bonuses awarded to the officer (collectively, referred to as
"Severance Payments").
The employment agreements contain a limitation providing that the Severance
Payments will be reduced as necessary so that their present value does not
exceed 2.99 times the officer's base amount, as "base amount" is defined in
Section 280G(b)(3) of the Internal Revenue Code.
Additionally, the employment agreements specify that during the period of
time in which Severance Payments are being paid to the officer, MBI is required
to provide COBRA continuation coverage to the officer and dependents who are
insured at the time of termination under the Company's medical, dental and
vision insurance plans, and to assume the cost of continuation coverage provided
to the officer and his or her covered dependents.
The employment agreements also provide that, in the event of a change of
control (whether or not followed by termination of employment), all stock
options under any MBI stock option plan which the officer holds at the time of
such change of control shall become fully "vested" (I.E., immediately
exercisable).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is determined
generally by the Compensation Committee of the Company's Board of Directors.
The four members of the Compensation Committee, Drs. Edwards and Barry and
Messrs. Brightfelt and Rubinfien, are outside directors of the Company.
Decisions of the Compensation Committee relating to executive officers'
base salaries and cash bonuses are reviewed and approved by the full Board;
decisions of the Compensation Committee relating to executive officers' stock
options are not subject to the Board's review.
We remind readers that the Company's fiscal year begins on March 1.
Compensation for fiscal year 1999 covers the calendar months of March through
December of 1998 and the first three months of 1999. Cash bonuses that were
awarded with respect to services provided in fiscal year 1998 were based on
performance during the calendar months of March through December of 1997 and the
first three months of 1998; and decisions as to salary increases for fiscal year
1999 related to services provided during that same period.
EXECUTIVE COMPENSATION POLICIES
The Company's executive compensation policies seek to coordinate
compensation with the Company's product development goals, performance
objectives and business strategy. These policies are intended to attract,
motivate and retain executive officers whose contributions are critical to the
Company's long-term success and to reward executive officers for attaining
individual and corporate objectives which enhance stockholder value.
The Company's compensation program for its executive officers consists
of cash compensation and long-term compensation. Prior to fiscal year 1999,
cash compensation was paid in the form of a base salary and a cash bonus, and
long-term compensation was paid in the form of stock options. Cash bonuses
were intended to provide executive officers with an opportunity to earn
additional cash compensation through individual and Company performance.
Stock options were intended to focus executive officers on managing the
Company from the perspective of an owner with an equity interest and to align
their long-term compensation with the benefits realized by the Company's
stockholders.
In May 1998, the Compensation Committee recommended, and the Board of
Directors approved, the Company's Fiscal Year 1999 Incentive Compensation Plan.
The plan introduced a two-pronged approach to incentive compensation, replacing
the cash bonus program used in the Fiscal Year 1998 Incentive Compensation Plan
and in prior fiscal years. The new plan uses the concept of a targeted bonus
for each management employee. Under
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the first prong, stock options are awarded to each management employee for a
certain specified number of shares. The number of shares is determined in
accordance with a formula, which provides that if stock prices rise by a
specified percentage from the market price on the date of the option grant,
an employee will have an increase in the value of his option shares equal to
the cash bonus he or she would have been awarded under the old cash bonus
program. The second prong consists of a cash incentive of various
percentages of an employee's targeted bonus, depending on the level of end
user sales of OPTISON. The plan is intended to provide a powerful incentive
to management to focus on maximizing revenues but, due to the fact that it is
composed mostly of stock, is sensitive to the Company's budget.
In December 1998, following an overall workforce reduction, the
Compensation Committee recommended, and the Board of Directors approved, an
officer retention incentive and compensation program as part of a company-wide
retention program. Pursuant to this program, shares of restricted stock and
additional stock options were granted on a company-wide basis in fiscal year
1999 and cash bonuses will be awarded on a company-wide basis in fiscal year
2000.
SALARIES. The Compensation Committee determines the salaries of executive
officers on the basis of (i) the individual officers' scope of responsibilities
and level of experience, (ii) the rate of inflation, (iii) the range of the
Company's merit increases for its employees generally and (iv) the salaries paid
to comparable officers in comparable companies. The Compensation Committee has
not commissioned a formal survey of executive officer compensation at comparable
companies, but has relied on published salary surveys for general indications of
salary trends and informal surveys by the Company of other biomedical companies
of roughly similar size.
For fiscal year 1999, Dr. Widder received a salary increase of $12,500, or
5%, to $262,500; Mr. Venkatadri received a salary increase of $15,000, or 5%, to
$315,000; Dr. Dittrich received an initial salary increase of $19,700, or 10%,
to $216,700, and then, upon, promotion, received an additional salary increase
of $33,300, or 15%, to $250,000; Mr. Wills received a salary increase of
$16,000, or 10%, to $176,000; Ms. Harvey received a salary increase of $19,500,
or 15%, to $149,500; and Ms. Hougen, who was appointed an executive officer in
January 1999, received a salary increase of $24,300, or 24%, over the salary of
$100,700 that she was being paid prior to her new appointment. Dr. Widder and
Mr. Wills resigned during fiscal year 1999 and each received severance pay of
$560,826 and $221,688, respectively, in fiscal year 1999.
CASH BONUSES. In May 1998, the Company awarded cash bonuses of $103,800,
$103,800, $40,800, $54,158, $31,900 and $12,178 to Dr. Widder, Mr. Venkatadri,
Dr. Dittrich, Mr. Wills, Ms. Harvey and Ms. Hougen, respectively, for their
services during fiscal year 1998. These bonuses were paid under the cash bonus
program of the Fiscal Year 1998 Incentive Compensation Plan. First implemented
in a prior fiscal year, the cash bonus program linked the payment of cash
bonuses to individual and Company performance. Specifically, the program
provided for the payment of cash bonuses after the close of each fiscal year
using individual incentive targets ranging from 10% to 35% of the midpoints of
base salary ranges established for each management position based on published
industry standards. Each bonus was determined in the first instance on the
basis of the Company's percentage of attainment of its performance objectives
for the fiscal year, and then on the basis of the individual's percentage of
attainment of his or her personal performance objectives. However, due to the
broad scope of their responsibilities, Dr. Widder and Mr. Venkatadri's
performance objectives were identical to the Company's performance objectives.
For fiscal year 1998, the incentive targets for both Dr. Widder and Mr.
Venkatadri were 35% of the midpoints of their respective base salary ranges.
The incentive targets for Dr. Dittrich, Mr. Wills and Ms. Harvey were 25% of the
midpoints of their respective base salary ranges. The incentive target for Ms.
Hougen was 15% of the midpoint of her respective base salary range.
As noted earlier the Company replaced the cash bonus program of fiscal year
1998 and prior fiscal years with stock options awarded under the Fiscal Year
1999 Incentive Compensation Plan. As also noted earlier, the Company will be
awarding cash bonuses in fiscal year 2000 as part of a company-wide retention
program.
In February 1999, the Company also paid a cash bonus of $62,500 to Howard
Dittrich, M.D., in recognition of his promotion to the position of Executive
Vice-President.
The Company's Executive Compensation Program is reviewed annually by the
Company's Board of Directors. The bonuses for fiscal years 1998 and 1999 paid
to Dr. Widder, Mr. Venkatadri, Dr. Dittrich, Mr. Wills
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and Ms. Harvey were recommended by management, reviewed by the Compensation
Committee and approved by the Board of Directors.
STOCK OPTIONS AND RESTRICTED STOCK GRANTS. In May 1998, the Executive
Committee awarded stock options for 57,900, 57,900, 26,300, 23,500, 21,000 and
8,000 to Dr. Widder, Mr. Venkatadri, Dr. Dittrich, Mr. Wills, Ms. Harvey and Ms.
Hougen.
In addition, in December 1998, the Compensation Committee awarded stock
options for 45,000, 40,000, 30,000 and 25,000 shares to Mr. Venkatadri, Dr.
Dittrich, Ms. Harvey and Ms. Hougen, respectively, and restricted stock grants
of 25,000, 20,000, 15,000 and 12,000 shares, to Mr. Venkatadri, Dr. Dittrich,
Ms. Harvey and Ms. Hougen, respectively, as part of the officer retention
incentive and compensation program, which was implemented following the overall
workforce reduction, as noted earlier.
In January 1999, the Compensation Committee awarded additional stock
options for 110,613, 65,000, 40,000 and 30,000 shares to Mr. Venkatadri, Dr.
Dittrich, Ms. Harvey and Ms. Hougen, respectively, in recognition of their
contributions during fiscal year 1999 to the Company's attainment of its
performance objectives and their level of attainment of individual performance
objectives.
COMPANY-WIDE PERFORMANCE FACTORS INFLUENCING COMPENSATION DECISIONS. The
principal Company-wide performance factors influencing the Compensation
Committee's decisions in respect of cash bonuses with respect to services
provided in fiscal year 1998 were as follows: (i) the receipt in December 1997
of marketing approval for OPTISON from the United States Food and Drug
Administraion ("FDA"), (ii) a fast OPTISON product launch in the United States;
(iii) the receipt in January 1998 of a recommendation for approval to market
OPTISON in Europe by the European Union's Committee for Proprietary Medicinal
Products of the European Medicines Evaluation Agency ("CPMP"); (iv) the
negotiation of a cooperative development and marketing agreement between the
Company and Chugai Pharmaceutical Co., Ltd., granting Chugai an exclusive
license with respect to the manufacture and development of OPTISON and ORALEX in
the Far East; and (v) the implementation of an organizational development plan
to strengthen skills and reduce turnover.
The principal Company-wide performance factors influencing the Compensation
Committee's decisions in respect of stock options with respect to services
provided in fiscal year 1999 were as follows: (i) the receipt of approval to
market OPTISON in Europe and its subsequent launch; (ii) the initiation of
preclinical trials for the Company's CT-imaging agent code-named MB840; and
(iii) the development and implementation of a major corporate restructuring
program involving the retention of key corporate personnel amidst an overall
workforce reduction.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee determined Mr. Venkatadri's compensation for
fiscal year 1999 on the basis of the criteria applicable to the Company's
executive officers generally.
As noted, Mr. Venkatadri received a salary increase for the fiscal year
1999 of $15,000, or 5%, to $315,000. In addition, Mr. Venkatadri was awarded,
in May 1998, a cash bonus of $103,800 and stock options for 57,900 shares with
respect to services provided in fiscal year 1998 and, in January 1999, stock
options for 110,613 shares with respect to services provided in fiscal year
1999. In general, the cash bonus and stock options were in recognition of his
attainment of personal performance objectives during fiscal years 1998 and 1999,
which coincided with the Company's attainment of its performance objectives.
More specifically, Mr. Venkatadri's cash bonus was based on the receipt of
marketing approval for OPTISON by the FDA, the fast OPTISON product launch, the
CPMP marketing approval for OPTISON, the Chugai agreement and the organizational
development plan, all as described above. Mr. Venkatadri's stock options were
based on the marketing approval and launch of OPTISON in Europe, initiation of
preclinical trials for MB840 and his implementation of a major corporate
restructuring program, all as described above.
10
<PAGE>
Furthermore, in December 1998, the Compensation Committee awarded to Mr.
Venkatadri additional stock options for 45,000 shares and a restricted stock
grant of 25,000 shares as part of the officer retention incentive and
compensation program, which was implemented following the overall workforce
reduction.
Compensation Committee
David W. Barry, M.D.
Robert W. Brightfelt
Charles C. Edward, M.D.
David Rubinfien
STOCK PERFORMANCE CHART
The graph set forth below compares cumulative total stockholder return
on the Company's Common Stock for the five years ended March 31, 1999, with
the cumulative total return over the same period of companies on the Standard
& Poor's Smallcap 600 Stock Total Return Index, and the NASDAQ Pharmaceutical
Index. The NASDAQ Pharmaceutical Index represents all companies trading on
NASDAQ under the Standard Industrial Classification (SIC) Code for
pharmaceuticals, including biotechnology companies. The graph assumes that
$100 was invested on March 31, 1994 in the Company and each of the two
indices and that all dividends were reinvested. It should be noted that the
Company has not paid dividends on its Common Stock, and no dividends are
included in the representation of the Company's performance. The cumulative
total stockholder return on the Company's Common Stock shown on the graph
below is not necessarily indicative of future performance.
Molecular Biosystems Inc (MB)
<TABLE>'
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------
3/94 3/95 3/96 3/97 3/98 3/99
<S> <C> <C> <C> <C> <C> <C>
MOLECULAR BIOSYSTEMS, INC. 100 48 51 54 54 15
S & P SMALLCAP 600 100 105 138 150 221 186
NASDAQ PHARMACEUTICAL 100 100 176 161 193 245
</TABLE>
11
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of each person (other than directors and executive officers of the
Company) known to the Company to own more than 5% of the Company's outstanding
Common Stock as of June 29, 1999:
<TABLE>
<CAPTION>
SHARES OF SHARES OF PERCENT OF
NAME AND ADDRESS OF COMMON STOCK OUTSTANDING
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
----------------------- ------------------ ------------
<S> <C> <C>
State of Wisconsin Investment Board
P.O Box 7842 2,913,900 15.68%
Madison, WI 53707
Mallinckrodt Group, Inc.
675 McDonnell Blvd 1,300,579 7.00%
St. Louis, MO 63134
</TABLE>
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the shares of
the Company's Common Stock beneficially owned as of June 29, 1999 by (i) each
director and nominee for director, (ii) each executive officer named in the
Summary Compensation Table on page 6 and (iii) all of the directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
Shares of Percent of
Common Stock Outstanding
Beneficially Common
Name Owned (1)(2) Stock (3)
- ------------------------------------- ------------------ ----------------
<S> <C> <C>
Bobba Venkatadri 427,175 2.13%
David W. Barry, M.D. 13,000 *
Robert W. Brightfelt 33,000 *
Charles C. Edwards, M.D. 28,000 *
Jerry T. Jackson 38,000 *
Gordon C. Luce 30,500 *
David Rubinfien 28,000 *
Howard Dittrich, M.D. 140,393 *
Elizabeth Hougen 38,101 *
Joni Harvey 84,500 *
Kenneth J. Widder, M.D. (4) 387,900 1.93%
Gerard A. Wills (4) 190,828 *
All directors and executive
officers as a group - 10 persons. 860,669 4.42%
</TABLE>
(This total does not include shares owned by Dr. Widder and Mr. Wills
who terminated employment prior to March 31, 1999.)
* Represents less than 1% of the Company's outstanding Common Stock.
12
<PAGE>
(1) Each person named has voting and investment power over the shares
listed, and these powers are exercised solely by the person named or
shared with a spouse.
(2) The shares listed for each person named or the group include shares of
the Company's Common Stock subject to stock options exercisable on or
within 60 days after June 29, 1999. These shares are as follows: Mr.
Venkatadri, 387,978 shares; Dr. Barry, 13,000 shares; Mr. Brightfelt,
28,000 shares; Dr. Edwards, 28,000 shares; Mr. Jackson, 28,000 shares;
Mr. Luce, 28,000 shares; Mr. Rubinfien, 28,000 shares; Dr. Dittrich,
113,800 shares; Ms. Hougen, 24,000 shares; Ms. Harvey, 69,500 shares;
Dr. Widder, 387,900; Mr. Wills, 189,000 and the group of all directors
and executive officers (excluding Dr. Widder and Mr. Wills), 748,278
shares.
(3) The percentage for each person named or the group has been determined by
including in the number of shares of the Company's outstanding Common
Stock the number of shares subject to stock options exercisable by that
person or group on or within 60 days after June 29, 1999.
(4) These persons terminated from service before March 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended March 31, 1997, the Company entered into a
real estate investment agreement with Mr. Vendatadri and his wife in
connection with the purchase of their home in San Diego, California. The
Company contributed $300,000 to the purchase and acquired an undivided 53%
interest in the home as tenants in common with Mr. and Mrs. Venkatadri.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on July 28, 1999.
MOLECULAR BIOSYSTEMS, INC.
By: /s/ Bobba Venkatadri
----------------------
Bobba Venkatadri
President and Chief Executive Officer
13
