<PAGE>
[LOGO]
MOLECULAR BIOSYSTEMS, INC.
10030 Barnes Canyon Road
San Diego, California 92121
NOTICE OF
YEAR 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 22, 2000
Dear Stockholder:
You are cordially invited to attend the year 2000 Annual Meeting of
Stockholders of Molecular Biosystems, Inc. (the "Company"), which will be held
on September 22, 2000, at 1:00 p.m. PDT at the Company's principal offices at
10030 Barnes Canyon Road, San Diego, CA 92121, 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. 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 July 24, 2000
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: August 8, 2000 San Diego, California
<PAGE>
MOLECULAR BIOSYSTEMS, INC.
10030 Barnes Canyon Road
San Diego, California 92121
PROXY STATEMENT FOR
2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 22 , 2000
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 year 2000 Annual Meeting of Stockholders of the
Company (the "Annual Meeting") to be held on September 22, 2000 at 1:00 p.m. PDT
at the Company's principal offices at 10030 Barnes Canyon Road, San Diego, CA
92121, and at all adjournments of the meeting.
This Proxy Statement, the accompanying notice and proxy are being
mailed to stockholders on or about August 8, 2000.
The Company's 2000 Annual Report, including financial statements for
the year ended March 31, 2000, is being mailed to all stockholders concurrently
with this Proxy Statement. Stockholders are referred to the year 2000 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, 2000, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE TO EACH STOCKHOLDER WITHOUT CHARGE ON WRITTEN REQUEST TO BOBBA
VENKATADRI, (CHIEF EXECUTIVE OFFICER), 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 18,858,789 shares of the Company's Common
Stock outstanding on July 24, 2000, 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, 56
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 Boards of
the San Diego YMCA and American Heart Association.
DAVID W. BARRY, M.D., 56
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, 56
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 a member of the
Board of Directors for Dade Behring, Inc.
2
<PAGE>
CHARLES C. EDWARDS, M.D., 76
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, 59
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, 74
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 a Life Trustee of the University of Southern
California in Los Angeles.
DAVID RUBINFIEN, 79
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.
Mr. Venkatadri is currently the only member of the Executive Committee;
the remaining position is vacant. 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.
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.
3
<PAGE>
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, 2000, the Board of Directors
held 10 meetings, including five held by teleconference. The Audit Committee and
the Compensation Committee each met once during the year. Messrs. Luce,
Rubinfien and Venkatadri each attended all 10 meetings of the Board; Dr. Barry
and Mr. Brightfelt each attended nine meetings; Dr. Edwards attended seven
meetings; and Mr. Jackson attended eight meetings. All of the members of the
Audit Committee attended its one meeting. All of the members of the Compensation
Committee, other than Dr. Barry, attended its one meeting.
DIRECTORS' COMPENSATION
Directors receive a retainer of $8,000 per year, and a fee of $750 is
paid to each director for attendance at each regular committee meeting.
Generally, no additional fees are paid for attendance at Board meetings;
however, in recognition of the extraordinary service rendered by the directors,
including participation in five special Board meetings during calendar year 1999
and participation in the due diligence process with respect to the Company's
proposed merger with Palatin Technologies, Inc., the Company approved the
payment of $3,500 to each non-employee director. Furthermore, 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 automatically will be granted a non-statutory option to purchase 6,500
shares of the Company's common stock, provided that he has served as a
non-employee director for at least six 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 July 24, 2000:
<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 3,598,400 19.37%
Madison, WI 53707
Mallinckrodt Group, Inc.
675 McDonnell Blvd. 1,300,579 7.00%
St. Louis, MO 63134
</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 July 24, 2000 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 654,378 3.26%
David W. Barry, M.D. 19,500 *
Robert W. Brightfelt 39,500 *
Charles C. Edwards, M.D. 34,500 *
Jerry T. Jackson 44,500 *
Gordon C. Luce 37,000 *
David Rubinfien 34,500 *
Howard Dittrich, M.D. 261,024 1.30%
Elizabeth Hougen (4) 117,325 *
Joni Harvey (4) 211,532 1.05%
All directors and executive
officers as a group - 10 persons. 1,453,759 7.24%
</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 July 24, 2000. These shares are as follows: Mr.
Venkatadri, 572,675 shares; Dr. Barry, 19,500 shares; Mr. Brightfelt,
34,500 shares; Dr. Edwards, 34,500 shares; Mr. Jackson, 34,500 shares;
Mr. Luce, 34,500 shares; Mr. Rubinfien, 34,500 shares; Dr. Dittrich,
200,550 shares; Ms. Hougen, 86,000 shares; Ms. Harvey, 175,000 shares;
and the group of all directors and executive officers, 1,226,225
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 July 24, 2000.
(4) These persons terminated from service in April 2000.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company during
the fiscal years ended March 31, 2000, 1999 and 1998 to the following persons
(the "named executive officers"): (i) the Chief Executive Officer, and (ii) each
of the other most highly compensated executive officers of the Company serving
as of the fiscal year end on March 31, 2000.
5
<PAGE>
<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 ($) Options (#) ($) (8)
--------------------------- --------- ----------- ------------ ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bobba Venkatadri 2000 298,122 47,040 (1) - - 11,662 2,982
President, Chief 1999 311,355 103,800 (2) - 79,688 (6) 213,513 3,115
Executive Officer 1998 299,141 55,899 (3) 37,606 (5) - 100,000 3,269
and Member of the
Executive Committee
Howard Dittrich, M.D. 2000 250,000 37,495 (1) - - - 2,000
Executive Vice 1999 235,303 103,300 (4) - 63,750 (6) 131,300 4,005
President 1998 196,538 29,910 (3) - - 32,000 3,374
Elizabeth L. Hougen 2000 129,000 21,276 (1) - - - 2,462
Executive Director - 1999 110,046 12,178 (2) - 38,250 (6) 63,000 1,833
Finance and Chief 1998 87,500 5,274 (3) 1,500 (7) - 9,500 1,833
Financial Officer
Joni Harvey 2000 163,500 23,829 (1) - - - -
Vice President - 1999 149,500 31,900 (2) - 47,813 (6) 91,000 -
Operations 1998 129,231 30,570 (3) - - 24,000 -
</TABLE>
(1) Represents retention bonuses for the fiscal year ended March 31, 2000.
(2) Paid in respect of performance for the fiscal year ended March 31,
1998.
(3) Paid in respect of performance for the fiscal year ended March 31,
1997.
(4) Includes $40,800 paid in respect of performance for fiscal year ended
March 31, 1998, and $62,500 paid in recognition of promotion to
Executive Vice-President in February 1999.
(5) Represents relocation expense payment.
(6) Awarded in respect of performance as a retention bonus. The shares were
awarded as follows: Mr. Venkatadri, 25,000 shares; Dr. Dittrich, 20,000
shares; Ms. Hougen, 12,000 shares; Ms. Harvey, 15,000 shares. The
shares were granted in December 1998 and issued in May 1999. These
shares fully vested on February 1, 2000. Once vested, the shares are
immediately taxable to the recipients and the officers have the ability
to immediately trade these shares.
(7) Represents proceeds from same day sale of nonqualified stock options.
(8) These amounts represent the Company's matching contribution under the
Company's 401(k) plan. For each of the fiscal years ended March 31,
2000, 1999 and 1998, the matching contribution was 2% of the first 6%
contributed by each participant.
OPTION GRANTS IN LAST FISCAL YEAR
The Company granted stock options under the Company's 1998 Stock Option
Plan in respect of performance during the fiscal year ended March 31, 2000. The
following table sets forth each grant of stock options made during the fiscal
year ended March 31, 2000 to the named executive officer:
6
<PAGE>
<TABLE>
<CAPTION>
% of Total Potential Realizable Value
Number of Options Exercise at Assumed Annual Rates
Securities Granted to Price of Stock Price Appreciation
Underlying Employees Per Expiration for Option Term
Name Options (#) in Fiscal Year Share Date 5% ($) (2) 10% ($) (2)
------------------------- ------------- --------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bobba Venkatadri 11,662 (1) 5.3% $ 0.89 4/1/09 $ 40,709 $ 70.949
</TABLE>
(1) These options were granted on April 1, 1999 under the Company's 1998
Stock Option Plan ins exchange for a salary deferral of $21,000.
(2) 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, 2000, 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 $3.49 and $6.08,
respectively, on March 31, 2010.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None of the named executive officers exercised stock options during the
fiscal year ended March 31, 2000. The following table sets forth, for each of
the named executive officers, the fiscal year-end number and value of
unexercised options:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at 3/31/00 (#) Options at 3/31/00 ($) (1)
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---------------------------- ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Bobba Venkatadri 571,703 138,472 $ 7,298 $ 353
Howard Dittrich, M.D. 193,050 87,250 - -
Elizabeth L. Hougen 61,333 24,667 - -
Joni Harvey 123,000 52,000 - -
</TABLE>
(1) Based on the $ 1.25 per share closing price of the Company's Common
Stock on March 31, 2000.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
As of April 1, 2000, Mr. Venkatadri is paid an annual salary of
$315,000; Dr. Dittrich is paid an annual salary of $250,000. The Company's
employment contracts with its executive officers are of indefinite duration,
subject, however, to termination in certain events.
In April 2000, two executive officers, Ms. Hougen and Ms. Harvey
terminated their employment with the company. In accordance with employment
agreements, both Ms. Hougen and Ms. Harvey received severance in the amount of
12 months salary.
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) 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").
7
<PAGE>
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
ss. 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 on an annual basis by
the full Board; decisions of the Compensation Committee relating to executive
officers' stock options are not subject to the Board's review.
The Company's fiscal year begins on April 1. Compensation for fiscal
year 2000 accordingly covers the calendar months of April through December 1999
and January through March 2000. Decisions as to salary increases for fiscal year
2000 were based on performance during fiscal year 1999 (i.e., April through
December 1998 and January through March 1999).
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.
In the past, the Company's compensation program for its executive
officers consisted of a base salary and incentive compensation paid in the form
of a cash bonus and stock options. In light of the Company's financial
performance and its failure to meet its fiscal year 1999 performance objectives,
the Company opted not to have any incentive compensation plan in fiscal year
2000. However, pursuant to an officer retention incentive and compensation
program, the Company paid retention bonuses in February 2000. These bonuses were
part of a Company-wide employee retention program, which was recommended by
management, reviewed by the Compensation Committee and approved by the Board of
Directors in December 1998. The program was implemented in response to a need to
retain key corporate personnel amidst an overall workforce reduction following
the Company's strategic decision to outsource manufacturing.
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 2000, Mr. Venkatadri received a salary increase of
$21,000, or 6.7%, to $336,000; Dr. Dittrich did not receive a salary increase
and continued at his current salary of $250,000; Ms. Harvey received a
8
<PAGE>
salary increase of $14,000, or 9.4%, to $163,500; and Ms. Hougen received a
salary increase of $4,000, or 3.2%, to $129,000. Mr. Venkatadri elected to defer
his salary increase pursuant to the salary deferral feature of the Company's
1998 Stock Option Plan.
CASH BONUSES. In February 2000, the Company awarded cash bonuses of
$47,040, $37,495, $23,829 and $21,276 to Mr. Venkatadri, Dr. Dittrich, Ms.
Harvey and Ms. Hougen, respectively, pursuant to the Company's officer retention
incentive and compensation program.
STOCK OPTIONS AND RESTRICTED STOCK GRANTS. No stock options or
restricted stock grants were given to executive officers in fiscal year 2000,
with the exception that Mr. Venkatadri received stock options on April 1, 1999
for 11,662 shares in exchange for his salary deferral of $21,000 as noted above.
COMPANY-WIDE PERFORMANCE AND OTHER FACTORS INFLUENCING COMPENSATION
DECISIONS. The principal Company-wide factor influencing the Compensation
Committee's decisions in respect of cash retention bonuses was the need to
retain key corporate personnel amidst an overall workforce reduction, as
discussed above.
The Compensation Committee's decision not to give cash incentive
bonuses was based on the Company's failure to achieve a number of its
performance objectives, as well as certain issues relating to the Company's
contemplated (but ultimately abortive) merger with Palatin Technologies, Inc.
The Compensation Committee's decision not to give stock options or
restricted stock grants to executive officers was based on the reasoning that
such long-term incentive compensation vehicles were not appropriate in light of
the fact that, due to the contemplated merger, a majority of the senior
management team would no longer be employed by the Company after June 2000.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee determined Mr. Venkatadri's compensation for
fiscal year 2000 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
2000 of $21,000, or 6.7%, to $336,000 and, in addition, was awarded a cash
retention bonus of $47,040 in February 2000.
Compensation Committee
David W. Barry, M.D.
Robert W. Brightfelt
Charles C. Edward, M.D.
David Rubinfien
9
<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, 2000,
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, 1995 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.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------------
3/95 3/96 3/97 3/98 3/99 3/00
<S> <C> <C> <C> <C> <C> <C>
MOLECULAR BIOSYSTEMS, INC. 100 106 112 114 32 15
S & P SMALLCAP 600 100 131 142 210 177 231
NASDAQ PHARMACEUTICAL 100 176 161 193 245 509
</TABLE>
10
<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, 2001. 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, 2001. 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.
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, 2000, 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.
11
<PAGE>
STOCKHOLDER PROPOSALS
Any stockholder of the Company who wishes to present a proposal to be
considered at the 2001 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,
2001
For the Board of Directors,
/s/ BOBBA VENKATADRI
------------------------------------
Bobba Venkatadri
President and Chief Executive Officer
Dated: August 8, 2000
San Diego, California
12
<PAGE>
P R O X Y MOLECULAR BIOSYSTEMS, INC. P R O X Y
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 August 8, 2000 and hereby appoints Bobba Venkatadri and
Howard Dittrich, M.D., proxies and attorneys-in-fact, with full power 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
July 24, 2000, at the 2000 Annual Meeting of Stockholders to be held on
September 22, 2000, at 1:00 p.m. PDT at the Company's offices at 10030 Barnes
Canyon Road, or at any adjournments thereof.
Please mark your votes in connection with the following proposals:
<TABLE>
<S> <C> <C> <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
</TABLE>
(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>
<S> <C> <C> <C>
2. Approve appointment of Arthur Andersen LLP as independent auditors.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
SEE REVERSE SIDE
<PAGE>
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) AND FOR PROPOSAL 2. 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
