<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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1
<PAGE>
[LOGO]
MOLECULAR BIOSYSTEMS, INC.
10030 Barnes Canyon Road
San Diego, California 92121
NOTICE OF
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 27, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Molecular Biosystems, Inc. (the "Company"), which will be
held on August 27, 1999, at 1:00 p.m. PDT at the Hilton La Jolla Torrey
Pines, 10950 North Torrey Pines Road, La Jolla, CA 92037, for the following
purposes:
1. ELECTION OF DIRECTORS. To elect a Board of Directors to serve
for the ensuing year.
2. RETENTION OF INDEPENDENT PUBLIC ACCOUNTANTS. To ratify the
appointment of Arthur Andersen LLP as the Company's
independent public accountants for the ensuing year.
3. STOCKHOLDER'S PROPOSAL. To present a stockholder's proposal to
reduce management salaries.
4. OTHER BUSINESS. To transact any other business that properly
comes before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on June 29,
1999 are entitled to notice of and to vote at the Annual Meeting and any
adjournment.
Your proxy is enclosed. Whether or not you plan to attend the Annual
Meeting in person, PLEASE PROMPTLY COMPLETE, SIGN AND RETURN THE ENCLOSED
MANAGEMENT PROXY IN THE ENCLOSED RETURN ENVELOPE. If you do attend the Annual
Meeting and you have already submitted your proxy, you may still vote
personally on each matter brought before the meeting. Thank you for your
continued support.
For the Board of Directors,
/s/ Bobba Venkatadri
Bobba Venkatadri
President and Chief Executive Officer
Dated: July 22, 1999 San Diego, California
<PAGE>
MOLECULAR BIOSYSTEMS, INC.
10030 Barnes Canyon Road
San Diego, California 92121
PROXY STATEMENT FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 27, 1999
GENERAL
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Molecular Biosystems,
Inc. (the "Company") for use at the 1999 Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held on August 27, 1999 at 1:00 p.m.
PDT at the Hilton La Jolla Torrey Pines, 10950 North Torrey Pines Road, La
Jolla, California 92037, and at all adjournments of the meeting.
This Proxy Statement, the accompanying notice and proxy are being
mailed to stockholders on or about August 2, 1999.
The Company's 1999 Annual Report, including financial statements for
the year ended March 31, 1999, is being mailed to all stockholders
concurrently with this Proxy Statement. Stockholders are referred to the 1999
Annual Report for financial and other information about the Company, but the
report is not incorporated in this Proxy Statement and is not a part of the
proxy soliciting material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED MARCH 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE TO EACH STOCKHOLDER WITHOUT CHARGE ON WRITTEN REQUEST TO ELIZABETH
HOUGEN, CHIEF FINANCIAL OFFICER OF THE COMPANY, AT 10030 BARNES CANYON ROAD, SAN
DIEGO, CALIFORNIA 92121.
REVOCABILITY OF PROXIES
A proxy for use in connection with the Annual Meeting is enclosed.
Any stockholder who signs and delivers a proxy has the right to revoke it, at
any time before it is exercised, by filing a signed revocation with the
Secretary of the Company or by filing a duly signed proxy bearing a later
date. In addition, the powers of the proxyholders will be revoked if the
person signing the proxy is present at the Annual Meeting and elects to vote
in person. Subject to these rights of revocation, all shares represented by a
properly signed proxy received in time for the Annual Meeting will be voted
by the proxyholders in accordance with the instructions on the proxy. IF NO
INSTRUCTION IS SPECIFIED WITH REGARD TO A MATTER TO BE ACTED UPON, THE SHARES
REPRESENTED BY THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS
OF THE BOARD OF DIRECTORS.
SHARES OUTSTANDING AND VOTING RIGHTS
There were approximately 18,733,745 shares of the Company's Common
Stock outstanding on June 29, 1999, which has been fixed as the record date
for the purpose of determining the stockholders entitled to notice of and to
vote at the Annual Meeting. Each holder of shares of the Company's Common
Stock will be entitled to one vote, in person or by proxy, for each share of
Common Stock held of record as of the record date, on any matter submitted to
a vote of the stockholders at the Annual Meeting.
One-half of the outstanding shares of the Company's Common Stock,
represented in person or by proxy, will constitute a quorum at the Annual
Meeting. Shares with respect to which authority to vote is withheld,
abstentions and shares held of record by a broker or its nominee ("broker
shares") that are voted on any matter will be included in determining the
shares present. Broker shares that are not voted on any matter will not be
included in determining the shares present. The election of each director and
the approval of any other matter submitted to a vote of the stockholders
requires the affirmative vote of a majority of the shares voting. Shares with
respect to which authority is withheld, abstentions and broker shares that
are not voted will not be included in determining the number of shares voting
on the election of directors or any other matter submitted to a vote of the
stockholders.
1
<PAGE>
ITEM ONE
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of seven
members. Seven directors are to be elected at the Annual Meeting, each of
whom is to serve until the next Annual Meeting. The seven nominees for
election are now serving as directors, and the proxyholders named in the
accompanying proxy will vote the shares represented by the proxy FOR the
seven nominees unless authority to vote has been withheld on the proxy
returned by the stockholder. Directors are elected by a majority of the
shares voting.
There is set forth below for each of the seven nominees for election
as a director 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.
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
2
<PAGE>
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.
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.
3
<PAGE>
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.
STOCK OWNERSHIP
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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.
St. Louis, MO 63134 1,300,579 7.00%
</TABLE>
4
<PAGE>
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%
(This total does not include shares owned by Dr. Widder and Mr. Wills
who terminated employment prior to March 31, 1999.)
</TABLE>
* Represents less than 1% of the Company's outstanding Common Stock.
(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.
5
<PAGE>
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:
<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 Executive 1998 299,141 55,899 (3) 37,606 (2) - 100,000 3,269
Officer and Member of the 1997 285,012 36,000 (7) 38,825 (2) 20,000 (4) 50,000 3,562
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 - Finance 1998 87,500 5,274 (3) 1,500 (9) - 9,500 1,833
and Chief Financial Officer 1997 66,816 - 10,625 (9) - 5,500 1,355
Joni Harvey 1999 149,500 31,900 (1) - 47,813 (6) 91,000 -
Vice President - Operations 1998 129,231 30,570 (3) - - 24,000 -
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 Financial 1997 139,058 26,844 (7) - 30,000 (4) 80,000 2,853
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.
(8) Represents payments related to termination.
6
<PAGE>
(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.
7
<PAGE>
(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 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)
8
<PAGE>
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 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
9
<PAGE>
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 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,
10
<PAGE>
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.
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
11
<PAGE>
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.
Research Data Group Peer Group Total Return Worksheet
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>
12
<PAGE>
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.
ITEM TWO
APPROVAL OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has appointed the firm of Arthur
Andersen LLP as independent public accountants for the Company for the fiscal
year ending March 31, 2000. Arthur Andersen LLP has served as the Company's
independent public accountants since January 1981. The proxyholders named in the
accompanying proxy will vote the shares represented by the proxy FOR approval of
the appointment of Arthur Andersen LLP for the year ending March 31, 2000. If
the appointment of Arthur Andersen LLP is not approved, the Board of Directors
may reconsider the appointment.
Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting to respond to appropriate questions and to make a statement
if they desire to do so.
ITEM THREE
STOCKHOLDER PROPOSAL AND COMPANY RESPONSE
STOCKHOLDER PROPOSAL
Company shareholder Rami Reddy Mutyala, Ph.D., of San Diego,
California, has told the Company that he intends to present the following
proposal at the Annual Meeting. (The Company will provide Dr. Mutyala's
address and the number of voting securities he holds upon oral or written
request to Investor Relations.) The Board of Directors recommends a vote
AGAINST the proposal for reasons set forth following Dr. Mutyala's supporting
statement. To be adopted, the proposal must be approved by majority vote of
all shares present at the meeting (in person or by proxy) and voting.
Here is Dr. Mutyala's proposal:
I PROPOSE THAT IT BE RECOMMENDED TO THE MBI BOARD OF DIRECTORS THAT
IT CONSIDER 40% CUT IN THE SALARIES OF THE OFFICERS OF MBI WHOSE SALARIES ARE
OVER $250,000 PER YEAR AND 20% CUT FOR OTHER OFFICERS, AND A $100,000 BONUS
FOR ALL THE OFFICERS, FOR EVERY $100 MILLION MARKET CAP INCREASE IN MBI.
Here is the statement Dr. Mutyala submitted in support of his proposal:
SINCE WE ALL BELIEVE IN ACCOUNTABILITY, IT IS VERY IMPORTANT TO
REWARD SENIOR MANAGEMENT BASED ON THEIR ACCOMPLISHMENTS. ONE OF THE BEST
METHODS TO MEASURE THE PERFORMANCE OF THE SENIOR MANAGEMENT OF ANY PUBLIC
TRADING COMPANY IS BASED ON THE MARKET VALUE OF THE COMPANY. THE MARKET VALUE
OF MBI DROPPED OVER 95% DURING THE LAST 8 YEARS (OVER $40 IN 1991/92) WHILE
WHOLE MARKET WENT UP OVER 200% DURING THE SAME PERIOD. THUS, MBI MANAGEMENT
IS FULLY RESPONSIBLE FOR BRINGING DOWN MBI'S MARKET CAPITALIZATION FROM
SMALLCAP GROUP TO MICROCAP GROUP. THEREFORE, MBI SENIOR MANAGEMENT MUST BE
ACCOUNTABLE FOR THE WORST PERFORMANCE IN THE HISTORY OF THIS COMPANY.
AS A RESULT, MBI LAID OFF EMPLOYEES AND REDUCED ITS PAYROLL BY
ALMOST 60% WITHOUT TAKING ANY CUTS IN THE SALARIES OF THE SENIOR MANAGEMENT
WHICH IS UNFAIR. IT IS UNFORTUNATE THAT LOWER LEVEL EMPLOYEES PAID THE PRICE
FOR THE MISTAKES OF THE INCOMPETENT SENIOR MANAGEMENT AND IT IS THEIR MORAL
RESPONSIBILITY TO TAKE CUTS IN THEIR SALARIES AND OTHER BENEFITS. FOR
EXAMPLE, ON JUNE 21, IMMUNE RESPONSE CORPORATION (IMNR), A LOCAL BIOTECH
13
<PAGE>
COMPANY LAID OFF 43 EMPLOYEES (30%) AND SIMULTANEOUSLY ANNOUNCED SALARY CUTS
FOR THE MANAGEMENT. I EXPECTED SIMILAR PAYCUTS FOR MBI MANAGEMENT WHEN MBI
LAID OFF 40 EMPLOYEES LAST YEAR, TO SHARE SOME PAIN ALONG WITH THE EMPLOYEES
WHO LOST THEIR JOBS. IN MY OPINION THE MANAGEMENT OF ANY RESPECTABLE PUBLIC
TRADING COMPANY IN THE WALL STREET, WHO HAS REAL INTEREST IN INCREASING THE
SHAREHOLDER'S VALUE WOULD DO WHAT IMNR MANAGEMENT DID FOR THE INVESTORS.
SOME OF MBI'S MANAGEMENT SALARIES ARE VERY HIGH COMPARED TO THEIR
QUALIFICATIONS AND PERFORMANCE. FOR EXAMPLE, 1) MBI MANAGEMENT FAILED TO
CONVINCE MKG TO MARKET OPTISON AGGRESSIVELY SINCE JANUARY 1998, 2) MBI
MANAGEMENT LOST CREDIBILITY WITH WALL STREET, FOR EXAMPLE, SNUS WITHOUT ANY
APPROVED PRODUCT IN THE MARKET HAS MARKET CAP (3/1/99) OF $64M VS. $43M FOR
MBI WITH AN APPROVED PRODUCT IN THE MARKET AND AN EXCELLENT PIPELINE AND VERY
HIGH MARKET POTENTIAL, AND 3) NOT INITIATING OUTSOURCING OF MANUFACTURING
OPTISON AND OTHER COST REDUCTION PLANS IN EARLY 1998, AS A RESULT MBI LOST
MANY GOOD EMPLOYEES, AND MANAGEMENT DOESN'T SEEM TO HAVE MUCH INTEREST TO
IMPROVE STOCKHOLDERS VALUE EXCEPT THEIR PAYCHECKS. IN SUMMARY, THIS IS THE
TIME TO RE-EVALUATE THE INTENTIONS OF THE MANAGEMENT, WHETHER THEY ARE
WORKING FOR PAYCHECK OR TO IMPROVE THE STOCKHOLDERS VALUE. IF WE DON'T ACT
NOW, WE COULD LOSE ALL OUR HARD-EARNED MONEY. THEREFORE, THE [ABOVE PROPOSAL]
IS MY PROPOSAL TO PUT ON 1999 PROXY FOR YOUR APPROVAL, AND I REQUEST EVERY
STOCKHOLDER TO VOTE YES ON THIS PROPOSAL. PERSONALLY, I AM NEITHER AGAINST
THE COMPANY NOR THE MANAGEMENT, MY ONLY INTEREST AS A MAJOR SHAREHOLDER IS TO
INCREASE THE STOCKHOLDERS VALUE AND REWARD THE MANAGEMENT BASED ON THEIR
PERFORMANCE. THIS PROPOSAL IS GOOD FOR BOTH, INVESTORS AND THE MANAGEMENT. IT
IS UNFORTUNATE THAT THE PROPOSAL CAME FROM INVESTORS RATHER THAN MANAGEMENT
ACCEPTING SALARY CUTS VOLUNTARILY. DON'T MISS THIS OPPORTUNITY. .
COMPANY'S RESPONSE TO STOCKHOLDER PROPOSAL
The Board of Directors recommends a vote AGAINST this proposal. The
Board believes that the proposed salary reductions could seriously damage the
Company's operations.
Every company needs talented, dedicated management. It is all the
more important for a company like Molecular Biosystems, the first to
introduce a revolutionary new product and technology to a heavily-regulated
and conservative marketplace. To attract and keep qualified managers, the
Company must offer a competitive salary.
In the Board's judgment, NO QUALIFIED EXECUTIVE WOULD WORK FOR THE
COMPANY IF THE PROPOSED PUNITIVE SALARY REDUCTIONS WERE ENACTED, or if
officers believe that the Board would arbitrarily slash salaries to well
below market value. It is the opinion of the Board that were it to accept the
proposal's recommendation the Company would be without effective management
for the foreseeable future.
With only four officers, the Company is managed very leanly and, in
the Board's judgment, effectively. You are respectfully referred to the
Company's SEC filings for a full account of current management's initiatives
and activities, all designed to increase shareholder value. The Board,
through its Compensation Committee, carefully examines individual performance
and industry standards in setting salaries. The Board also takes your
opinions into account. After considering all customary and relevant factors,
the Board is very confident that current compensation levels are fair and
rational.
The Board calls to your attention the fact that the Company's
management - (AND NO OTHER COMPANY'S MANAGEMENT) - has successfully achieved
approval for the sale and manufacture of the world's first ultrasound
contrast agent, OPTISON. The Board has also tasked the Company's executive
staff to work diligently with Mallinckrodt to increase OPTISON sales.
Additionally, management is moving aggressively on other fronts to attempt to
increase the value of your shares.
The Board believes that it has been prudent in setting executive
salaries. Mr. Venkatadri's base salary is very conservative compared to the
salaries of chief executive officers of other public companies with
potentially competitive contrast agents in development, and the Board has
already decided that there will be no executive bonus plan for the current
fiscal year. Significantly, total executive cash compensation at MBI DECLINED
OVER 20% from fiscal year 1998 to 1999, owing mostly to deep reductions in
executive staff.
14
<PAGE>
The proposal's argument that you penalize management for the
Company's market performance is not well-founded. This is dramatically
illustrated by comparing the market performance of other public companies
developing ultrasound contrast agents: On May 1, 1997 -- the date Mr.
Venkatadri's appointment as CEO became effective -- Sonus was trading at
$23.75 per share. Its share price has declined to $5.19 per share on June 30,
1999, a decrease of 78%. The corresponding prices for Alliance are $7.75 and
$2.63, a decline of 66%. MBI's price decline was from $6.75 to $2.43, or 64%.
Clearly, the proposal's arbitrary and self-contradictory complaints about
management's actions have not correctly identified the cause of the decline
of your share value.
In any event, the Board does not believe that comparing the share
prices and market capitalization of companies whose shares are as volatile as
these is a good measure of management effectiveness.
In sum, the Board believes that the proposed salary cuts are
unjustifiable and would reduce the Company's ability to add value to your
investment. The Board of Directors strongly urges a vote AGAINST the
stockholder proposal.
COMPLIANCE WITH REPORTING REQUIREMENTS
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.
OTHER MATTERS
The Board of Directors has no knowledge of any other business to
come before the Annual Meeting and does not intend to present any other
matters. However, if any other business properly comes before the meeting or
any adjournment of the meeting, the persons named as proxies will have
discretionary authority to vote the shares represented by the accompanying
proxy in accordance with their best judgment.
The cost of this solicitation of proxies will be borne by the
Company. Some officers and regular employees of the Company may solicit
proxies in person or by mail, telephone or telecopier, but will not receive
any additional compensation for their services. The Company may also request
brokerage firms, banks and other custodians, nominees and fiduciaries to
forward soliciting material to the persons for whom they hold shares of the
Company's Common Stock, and may reimburse their reasonable expenses in doing
so.
15
<PAGE>
STOCKHOLDER PROPOSALS
Any stockholder of the Company who wishes to present a proposal to
be considered at the 2000 Annual Meeting of the Stockholders, and who wishes
to have the proposal included in the Company's proxy statement and form of
proxy relating to that meeting, must deliver the proposal in writing to the
Company at 10030 Barnes Canyon Road, San Diego, California 92121, no later
than April 4, 2000.
For the Board of Directors,
/s/ Bobba Venkatadri
Bobba Venkatadri
President and Chief Executive Officer
Dated: July 22, 1999
San Diego, California
16
<PAGE>
PROXY MOLECULAR BIOSYSTEMS, INC. PROXY
10030 BARNES CANYON ROAD
SAN DIEGO, CA 92121
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Molecular Biosystems, Inc., hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated July 22, 1999 and hereby appoints Bobba
Venkatadri and Elizabeth L. Hougen, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, to represent and
vote as designated below all of the shares of Common Stock of Molecular
Biosystems, Inc. held of record by the undersigned on June 29, 1999, at the
1999 Annual Meeting of Stockholders to be held on August 27, 1999, at 1:00
p.m. PDT at the Hilton La Jolla Torrey Pines, 10950 North Torrey Pines Road,
La Jolla, CA 92037, or at any adjournments thereof.
Please mark your votes in connection with the following proposals:
<TABLE>
<S><C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) 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 BELOW.)
David W. Barry, Robert W. Brightfelt, Charles C. Edwards, Jerry T. Jackson
Gordon C. Luce, David Rubinfien, Bobba Venkatadri
</TABLE>
2. APPROVE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote "AGAINST" proposal 3.
3. TO PRESENT A STOCKHOLDER'S PROPOSAL TO REDUCE MANAGEMENT SALARIES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
SEE REVERSE SIDE
IN THEIR DISCRETION, THE PROXIES ARE EACH AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
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 FOR THE NOMINEES FOR DIRECTOR (PROPOSAL 1), FOR PROPOSAL 2 AND
AGAINST PROPOSAL 3. AS TO ANY OTHER ITEM OF BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING, THIS PROXY WILL BE VOTED IN THE BEST JUDGMENT OF THE
APPOINTED PROXIES.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as an attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name, by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
DATED:
----------------------------
----------------------------------
Signature
----------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE
