<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 (S) 240.14a-11(c) or (S) 240.14a-12
ZONAGEN INC.
-----------------------------------------------
(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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________
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):
_____________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________
5) Total fee paid:
_____________________________________________________________________
[ ] 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.
1) Amount Previously Paid:
_________________________________________________
2) Form, Schedule or Registration Statement No.:
_________________________________________________
3) Filing Party:
_________________________________________________
4) Date Filed:
_________________________________________________
<PAGE>
ZONAGEN, INC.
2408 TIMBERLOCH PLACE, SUITE B-4
THE WOODLANDS, TEXAS 77380
May 12, 1997
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Zonagen, Inc. to be held on Wednesday, June 18, 1997, at 1:00 p.m., local
time, at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas. A
Notice of the Annual Meeting, Proxy Statement and form of proxy are enclosed
with this letter.
We encourage you to read the Notice of the Annual Meeting and Proxy Statement
so that you may be informed about the business to come before the meeting. Your
participation in the Company's business is important, regardless of the number
of shares that you hold. To ensure your representation at the meeting, please
promptly sign and return the accompanying proxy card in the postage-paid
envelope.
We look forward to seeing you on June 18, 1997.
Sincerely,
Joseph S. Podolski
President and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 18, 1997
To the Stockholders of Zonagen, Inc.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Zonagen, Inc.
(the "Company") will be held on Wednesday, June 18, 1997, at 1:00 p.m., local
time, at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas, for the
following purposes:
1. To elect a board of eight directors of the Company, each to serve
until the Company's next Annual Meeting of Stockholders or until their
respective successors have been duly elected and qualified;
2. To vote upon a proposal to approve the Zonagen, Inc. 1996 Nonemployee
Directors' Option Plan;
3. To ratify and approve the appointment of Arthur Andersen LLP as the
Company's independent public accountants for its fiscal year ending
December 31, 1997; and
4. To act upon such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on May 9, 1997 will be
entitled to notice of and to vote at the Annual Meeting.
It is important that your shares be represented at the Annual Meeting
regardless of whether you plan to attend. THEREFORE, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTPAID ENVELOPE AS
PROMPTLY AS POSSIBLE. If you are present at the Annual Meeting, and wish to do
so, you may revoke the proxy and vote in person.
By Order of the Board of Directors,
Louis Ploth, Jr.
Secretary
The Woodlands, Texas
May 12, 1997
<PAGE>
ZONAGEN, INC.
2408 TIMBERLOCH PLACE, SUITE B-4
THE WOODLANDS, TEXAS 77380
--------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 18, 1997
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying Proxy is solicited by the Board of Directors of Zonagen,
Inc. (the "Company"), to be voted at the Annual Meeting of Stockholders of the
Company to be held on Wednesday, June 18, 1997 (the "Annual Meeting"), at 1:00
p.m., local time, at The Houstonian Hotel, 111 North Post Oak Lane, Houston,
Texas, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders, and at any adjournment(s) of the Annual Meeting. If the
accompanying Proxy is properly executed and returned, the shares it represents
will be voted at the Annual Meeting in accordance with the directions noted
thereon or, if no direction is indicated, it will be voted in favor of the
proposals described in this Proxy Statement. In addition, the Proxy confers
discretionary authority to the persons named in the Proxy authorizing those
persons to vote, in their discretion, on any other matters properly presented at
the Annual Meeting. The Board of Directors is not currently aware of any such
other matters.
Each stockholder of the Company has the unconditional right to revoke his
Proxy at any time prior to its exercise, either in person at the Annual Meeting
or by written notice to the Company addressed to Secretary, Zonagen, Inc., 2408
Timberloch Place, Suite B-4, The Woodlands, Texas 77380. No revocation by
written notice will be effective unless such notice has been received by the
Secretary of the Company prior to the day of the Annual Meeting or by the
inspector of election at the Annual Meeting.
The principal executive offices of the Company are located at 2408 Timberloch
Place, Suite B-4, The Woodlands, Texas 77380. This Proxy Statement and the
accompanying Notice of Annual Meeting of Stockholders and Proxy are being mailed
to the Company's stockholders on or about May 12, 1997.
In addition to the solicitation of proxies by use of this Proxy Statement,
directors, officers and employees of the Company may solicit the return of
proxies by mail, personal interview, telephone or telegraph. Officers and
employees of the Company will not receive additional compensation for their
solicitation efforts, but they will be reimbursed for any out-of-pocket expenses
incurred. Brokerage houses and other custodians, nominees and fiduciaries will
be requested, in connection with the stock registered in their names, to forward
solicitation materials to the beneficial owners of such stock.
All costs of preparing, printing, assembling and mailing the Notice of Annual
Meeting of Stockholders, this Proxy Statement, the enclosed form of Proxy and
any additional materials, as well as the cost of forwarding solicitation
materials to the beneficial owners of stock and all other costs of solicitation,
will be borne by the Company.
<PAGE>
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's stockholders will be asked to consider
and act upon the following matters:
1. The election of a board of eight directors of the Company, each to
serve until the Company's next Annual Meeting of Stockholders or until their
respective successors have been duly elected and qualified;
2. A proposal to approve the Zonagen, Inc. 1996 Nonemployee Directors'
Stock Option Plan;
3. A proposal to ratify and approve the appointment of Arthur Andersen LLP
as the Company's independent public accountants for its fiscal year ending
December 31, 1997; and
4. Such other business as may properly come before the meeting or any
adjournments thereof.
QUORUM AND VOTING
The close of business on May 9, 1997 has been fixed as the record date (the
"Record Date") for the determination of stockholders entitled to vote at the
Annual Meeting and any adjournment(s) thereof. As of the Record Date, the
Company had issued and outstanding 7,395,409 shares of the Company's common
stock, par value $.001 share (the "Common Stock"), each share being entitled to
one vote per share, and 908,201 shares of the Company's Series B Preferred
Stock, par value $.001 per share (the "Preferred Stock"). The shares of
Preferred Stock have voting rights on all matters subject to a vote of the
holders of the Common Stock on an as-converted basis. As of the Record Date,
the shares of Preferred Stock are entitled to an aggregate of 1,370,838 votes
upon each of the matters to be voted on at the Annual Meeting. The total number
of votes that may be cast at the Annual Meeting is 8,766,247.
The presence, either in person or by proxy, of holders of shares
representing a majority of the votes entitled to be cast at the Annual Meeting
is necessary to constitute a quorum at the Annual Meeting. Abstentions and
broker non-votes are counted for purposes of determining whether a quorum is
present. A plurality vote is required for the election of directors.
Accordingly, if a quorum is present at the Annual Meeting, the eight persons
receiving the greatest number of votes will be elected to serve as directors.
Withholding authority to vote for a director nominee and broker non-votes in the
election of directors will not affect the outcome of the election of directors.
All other matters to be voted on will be decided by the vote of the holders of
shares representing a majority of the votes present or represented at the Annual
Meeting and entitled to vote on such matter. On any such matter, an abstention
will have the same effect as a negative vote but, because shares held by brokers
will not be considered entitled to vote on matters as to which the brokers
withhold authority, a broker non-vote will have no effect on such vote.
All Proxies that are properly completed, signed and returned prior to the
Annual Meeting will be voted. Any Proxy given by a stockholder may be revoked
at any time before it is exercised by the stockholder (i) filing with the
Secretary of the Company an instrument revoking it, (ii) executing and returning
a Proxy bearing a later date or (iii) attending the Annual Meeting and
expressing a desire to vote his shares of Common Stock in person. Votes will be
counted by Harris Trust & Savings Bank, the Company's transfer agent and
registrar.
-2-
<PAGE>
PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
The Board of Directors has nominated and urges you to vote for the election
of the eight nominees identified below, who have been nominated to serve as
directors until the next Annual Meeting of Stockholders or until their
successors are duly elected and qualified. Each of the nominees listed below is
a member of the Company's present Board of Directors. Proxies solicited hereby
will be voted for all nominees unless stockholders specify otherwise in their
Proxies.
If, at the time of or prior to the Annual Meeting, any of the nominees
should be unable or decline to serve, the discretionary authority provided in
the Proxy may be used to vote for a substitute or substitutes designated by the
Board of Directors. The Board of Directors has no reason to believe that any
substitute nominee or nominees will be required.
NOMINEES FOR ELECTION AS DIRECTORS
The names of the nominees for election as directors, and certain additional
information with respect to each of them, are set forth below.
<TABLE>
<CAPTION>
YEAR FIRST BECAME
NAME AGE POSITION WITH THE COMPANY DIRECTOR
- --------------------------- --- --------------------------- -----------------
<S> <C> <C> <C>
Martin P. Sutter 42 Chairman of the Board 1987
Joseph S. Podolski 49 President, Chief Executive 1992
Officer, and Director
Steven Blasnik 39 Director 1990
James L. Currie 60 Director 1996
Timothy McInerney, R.Ph. 36 Director 1996
David B. McWilliams 54 Director 1989
David W. Ortlieb 66 Director 1990
Allan D. Rudzik 62 Director 1994
</TABLE>
Martin P. Sutter. Mr. Sutter, a co-founder of the Company, has served as
Chairman of the Board of Directors since December 1987. Since July 1988, Mr.
Sutter has been the Managing General Partner of The Woodlands Venture Partners,
L.P., a venture capital firm based in The Woodlands, Texas, and the General
Partner of The Woodlands Venture Fund, L.P., one of the Company's principal
stockholders. In addition, Mr. Sutter has been a General Partner of Essex
Woodlands Health Ventures, L.P. since September 1994. From January 1985 to July
1988, he served as President of The Woodlands Venture Capital Company. Mr.
Sutter is the Chairman of the Board of Directors of Aronex Pharmaceuticals,
Inc., a biotechnology company based in The Woodlands, Texas, and a director of
Targeted Genetics Corporation. He has a B.S. degree from Louisiana State
University and an M.B.A. from the University of Houston.
Joseph S. Podolski. Mr. Podolski joined the Company in 1989 and has served
as President and Chief Executive Officer of the Company and as a Director since
July 1992. From 1977 to 1989, Mr. Podolski held several engineering, product
development and manufacturing positions with Monsanto Company, most recently as
Director of Manufacturing for a significant product line. Before Monsanto, Mr.
Podolski spent eight years at Abbott Laboratories, Dearborn Chemical Company and
Baxter Pharmaceuticals in manufacturing, engineering, quality control and
development of fine chemicals, antibiotics, pharmaceuticals and hospital
products. Mr. Podolski has a Bachelor's Degree in chemistry and a Master's
Degree in chemical engineering from Illinois Institute of Technology.
Steven Blasnik. Mr. Blasnik has served as a Director of the Company since
April 1990. Since 1987, Mr. Blasnik has been employed by the Perot Group and is
currently President of Perot Investments, Inc., an investment firm owned by Ross
Perot. From 1983 to 1987, Mr. Blasnik was an attorney at Hughes & Luce in
Dallas, Texas. Mr. Blasnik has a B.S.E. degree from Princeton University and a
J.D. degree from Harvard Law School.
-3-
<PAGE>
James L. Currie. Mr. Currie has served as a Director of the Company since
December 1996. Mr. Currie has been Managing General Partner of Essex Venture
Partners, L.P., a venture capital firm based in Chicago, Illinois, since 1985,
and as a General Partner of Essex Woodlands Health Ventures, L.P. since
September 1994. Mr. Currie is a director of Serologicals, Inc. and Ethical
Holdings, Ltd.
Timothy McInerney, R.Ph. Mr. McInerney has served as a Director of the
Company since December 1996. Since 1992, Mr. McInerney has been the Equity
Sales Manager of Paramount Capital, Inc. where he oversees the overall
distribution of Paramount's private equity product. Prior to 1992, Mr.
McInerney was a research analyst focusing on the biotechnology industry at
Lodenburn, Thalman & Co., and he held equity sales positions at Bear, Stearns &
Co. and Shearson Lehman Brothers, Inc. Mr. McInerney also has worked in sales
and marketing for Bristol-Myers Squibb. He received his B.S. in pharmacy from
St. John's University at New York. He also completed a post-graduate residency
at the New York University Medical Center in drug information systems.
David B. McWilliams. Mr. McWilliams has served as a Director of the
Company since June 1989, and served as President of the Company from that time
until July 1992. Since July 1992, Mr. McWilliams has been the President and a
Director of Texas Biotechnology Corporation, a biotechnology company
headquartered in Houston, Texas. Before joining the Company, Mr. McWilliams was
President and Chief Executive Officer of Kallestad Diagnostics, Inc., an
international immuno-diagnostics company. Before that, Mr. McWilliams was
President of Harleco Diagnostics and Executive Vice President of E.M. Science,
with responsibility for E. Merck's domestic diagnostic business. He also held
international general management positions with Abbott Laboratories and was with
McKinsey & Co. for four years as a general management consultant. Mr.
McWilliams has a Bachelor of Arts degree in chemistry from Washington and
Jefferson College and an M.B.A. from the University of Chicago.
David W. Ortlieb. Mr. Ortlieb has served as a Director of the Company
since August 1990. He served as President, Chief Executive Officer and Director
of Immunomedics, Inc. from July 1992 to February 1994. He served as President
and Chief Executive Officer of Texas Biotechnology Corporation from April 1990
until July 1992 and as a Director from April 1990 to April 1993. Mr. Ortlieb
served as President and a Director of the American Optical Corporation, a
diversified company principally involved with optics/ophthalmics, from 1987 to
1989. He was President, Chief Executive Officer and a Director of Erbamont
N.V., an international pharmaceutical and diagnostic products company, from 1983
to 1985. Mr. Ortlieb was an executive of Abbott Laboratories from 1972 to 1983.
Before that, he held various senior management positions with Mead Johnson &
Company, a pharmaceutical and nutritional company. Mr. Ortlieb received a B.S.
degree from Lawrence University and an M.B.A. and D.B.A. from Indiana
University, where he also served on the faculty. He is a member of Indiana
University's Academy of Alumni Fellows.
Allan D. Rudzik, Ph.D. Dr. Rudzik has served as a Director of the Company
since 1994. Dr. Rudzik is the retired Corporate Vice President and Chief
Scientific Officer of Berlex Laboratories, Inc. From 1993 to 1996, Dr. Rudzik
held the positions of Corporate Vice President, President and Chief Scientific
Officer of Berlex Laboratories in Richmond, California. From 1991 to 1993 Dr.
Rudzik held the same positions at Berlex Laboratories in Cedar Knolls, New
Jersey. He served as the Executive Vice President, Research and Development of
Berlex Laboratories from 1982 to 1991 and as Chief Scientific Officer from 1989
to 1991. Prior to joining Berlex Laboratories, Dr. Rudzik served in various
positions with The Upjohn Company. Dr. Rudzik received a B.S. and M.S. in
Pharmacy from the University of Alberta and a Ph.D. in Pharmacology from the
University of Wisconsin.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
OF EACH OF THE ABOVE-NAMED NOMINEES.
-4-
<PAGE>
DIRECTORS' MEETINGS AND COMPENSATION
The Company's operations are managed under the broad supervision of the
Board of Directors, which has ultimate responsibility for the establishment and
implementation of the Company's general operating philosophy, objectives, goals
and policies. During 1996, the Board of Directors convened on four regularly
scheduled and one specially scheduled occasions, and took certain additional
actions by unanimous written consent in lieu of meetings. Each director attended
at least 75% of the meetings held by the Board and any committee of the Board on
which he served during his tenure in 1996.
Employee directors do not receive additional compensation for service on
the Board of Directors or its committees. The Company pays David W. Ortlieb a
fee of $1,000 for each Board meeting attended in consideration of his service as
a director. The Company reimburses each nonemployee director for travel
expenses incurred in connection with attendance at Board meetings. Employee
directors are eligible to participate in the Company's 1994 Employee and
Consultant Stock Option Plan and Amended and Restated 1993 Employee and
Consultant Stock Option Plan (the "Incentive Plans"). Nonemployee directors are
entitled to participate in the Company's 1993 Non-employee Director Stock Option
Plan (the "1993 Director Plan"). The 1993 Director Plan entitles each newly-
elected nonemployee director to receive an option to purchase 5,000 shares of
Common Stock on the date of his election, at an exercise price equal to the
market price at the close of business on the date of grant. In addition, the
1993 Director Plan grants each existing nonemployee director an option to
purchase 2,500 shares of Common Stock on each occasion that such director is re-
elected. In 1996, the Company granted options to acquire an aggregate of 12,500
shares of Common Stock to nonemployee directors under the 1993 Director Plan.
If Proposal Number 2 is approved by the Company's stockholders at the Annual
Meeting, the Company will not issue further options under the 1993 Director
Plan, and nonemployee directors will be entitled to receive grants of options
under the 1996 Director Plan (as hereinafter defined). Under the 1996 Director
Plan, (i) each nonemployee director who is first elected to the Board is
entitled to receive an option to purchase 25,000 shares of Common Stock on the
date on which he first becomes a nonemployee director, and (ii) each nonemployee
director in office on the date of the Company's annual meeting of stockholders
will receive an option to purchase 2,500 shares of Common Stock effective on
such date. Each nonemployee director in office on the date of the adoption of
the 1996 Director Plan was granted an option to purchase 25,000 shares of Common
Stock on such date, subject to the approval of the 1996 Director Plan by the
Company's stockholders.
BOARD COMMITTEES
Pursuant to delegated authority, various Board functions are discharged by
the standing committees of the Board. The Board of Directors has appointed four
committees: the Executive Committee, the Option Committee, the Compensation
Committee and the Audit Committee. The Board of Directors does not have a
Nominating Committee. The Executive Committee, currently comprised of Messrs.
Sutter and Podolski, is authorized to exercise, to the extent permitted by law,
the power of the full Board of Directors when a meeting of the full Board is not
practicable or necessary. The Executive Committee met formally on one occasion
in 1996 and informally on several other occasions. The Option Committee selects
the employees to whom stock options are to be granted and determines the
conditions covered by each option. The Option Committee, currently comprised of
Messrs. Blasnik, Currie and McInerney, convened on three occasions in 1996. The
Compensation Committee, currently comprised of Messrs. Blasnik, Currie and
McInerney, reviews and recommends to the Board of Directors the amount of
compensation to be paid to all employees. The Compensation Committee convened
on one occasion in 1996, and took certain additional actions by unanimous
written consent in lieu of meetings. The Audit Committee, currently comprised
of Messrs. McWilliams, Ortlieb and Rudzik, provides assistance to the Board of
Directors in fulfilling its responsibilities relating to corporate accounting
and reporting practices, recommends to the Board of Directors the engagement by
the Company of its independent public accountants, approves services performed
by the Company's independent public accountants, including fee arrangements and
the range of audit and non-audit services, maintains a direct line of
communication between the Board of Directors and the Company's independent
public accountants and performs such other functions as may be prescribed with
respect to audit committees under applicable rules, regulations and policies of
The Nasdaq Stock Market, Inc. The Audit Committee convened on one occasion in
1996.
-5-
<PAGE>
PROPOSAL NUMBER 2:
APPROVAL OF THE ZONAGEN, INC.
1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
GENERAL
On December 17, 1996, the Executive Committee adopted the Zonagen, Inc.
1996 Nonemployee Directors' Stock Option Plan (the "1996 Director Plan"), which
was subsequently ratified by the Board of Directors on April 29, 1997, subject
to approval by the Company's stockholders. The purpose of the 1996 Director
Plan is to promote the interests of the Company by aiding the Company in
attracting and retaining qualified nonemployee directors and to further align
the interests of such directors with those of stockholders through stock
options. A copy of the 1996 Director Plan is included as Exhibit A to this
Proxy Statement and the following summary is qualified in its entirety by
reference to the complete text of Exhibit A.
Nonemployee directors currently are entitled to receive grants of options
pursuant to the 1993 Director Plan. The 1993 Director Plan entitles each newly-
elected nonemployee director to receive an option to purchase 5,000 shares of
Common Stock on the date of his election, at an exercise price equal to the
market price at the close of business on the date of grant. In addition, the
1993 Director Plan grants each existing nonemployee director an option to
purchase 2,500 shares of Common Stock on each occasion that such director is re-
elected. If the 1996 Director Plan is approved by the Company's stockholders at
the Annual Meeting, the Company will no longer issue options under the 1993
Director Plan, and nonemployee directors will be entitled to receive grants of
options under the 1996 Director Plan. Under the 1996 Director Plan, (i) each
nonemployee director who is first elected to the Board is entitled to receive an
option to purchase 25,000 shares of Common Stock on the date on which he first
becomes a nonemployee director, and (ii) each nonemployee director in office on
the date of the Company's annual meeting of stockholders will receive an option
to purchase 2,500 shares of Common Stock effective on such date. Each
nonemployee director in office on the date of the adoption of the 1996 Director
Plan was granted an option to purchase 25,000 shares of Common Stock on such
date, subject to the approval of the 1996 Director Plan by the Company's
stockholders.
SUMMARY OF THE 1996 DIRECTOR PLAN
The 1996 Director Plan is a "formula" plan for purposes of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended, pursuant to
which options for shares of Common Stock are automatically granted to certain
eligible nonemployee directors of the Company as of specified dates. No person
exercises any discretion with respect to persons eligible to receive formula
grants of options under the 1996 Director Plan or the amount of formula grants
thereunder.
Eligibility. Persons who are nonemployee directors of the Company are
eligible to participate in the 1996 Director Plan. The Company presently has
seven such directors. Options granted under the 1996 Director Plan are
transferable only at the death of a nonemployee director. The 1996 Director
Plan sets forth various restrictions upon the exercise of options following the
date on which a nonemployee director ceases to be a director.
Shares Subject to 1996 Director Plan. The maximum number of shares of
Common Stock in respect of which options may be granted under the 1996 Director
Plan as currently in effect is 400,000, subject to appropriate adjustment upon a
reorganization, stock split, recapitalization or other change in the Company's
capital structure.
Option Period. Options granted to nonemployee directors under the 1996
Director Plan have a term of ten years from the date of grant.
Amendment. The Board in its discretion may terminate the 1996 Director
Plan at any time with respect to any shares for which options have not
theretofore been granted. The Board shall have the right to alter or amend the
1996 Director Plan or any part thereof from time to time; provided that no
change in any option theretofore granted may be made which would impair the
rights of the optionee without the consent of such optionee and provided,
further, that the
-6-
<PAGE>
Board may not make any alteration or amendment which would materially increase
the benefits accruing to participants under the 1996 Director Plan, increase the
aggregate number of shares which may be issued pursuant to the provisions of the
1996 Director Plan, change the class of individuals eligible to receive options
under the 1996 Director Plan or extend the term of the 1996 Director Plan,
without the approval of the stockholders of the Company.
Non-Qualified Options. Options issued under the 1996 Director Plan
constitute non-qualified stock options.
Automatic Grant of Options. In general, if the stockholders approve the
1996 Director Plan at the Annual Meeting (i) each nonemployee director who is
first elected to the Board is entitled to receive an option to purchase 25,000
shares of Common Stock on the date on which he first becomes a nonemployee
director (an "Initial Grant"), and (ii) each nonemployee director in office on
the date of the Company's annual meeting of stockholders will receive an option
to purchase 2,500 shares of Common Stock effective on such date (an "Annual
Grant"). In addition, each nonemployee director in office on the date of the
adoption of the 1996 Director Plan received an Initial Grant of an option to
purchase 25,000 shares of Common Stock on such date, subject to the approval of
the 1996 Director Option Plan by the Company's stockholders. The amounts of all
such option grants are subject to appropriate adjustment upon a reorganization,
stock split, recapitalization or other change in the Company's capital
structure.
Exercisability. Options granted pursuant to an Initial Grant under the 1996
Director Plan vest in five equal annual installments following the date of
grant. Options granted pursuant to an Annual Grant under the 1996 Director Plan
vest in 12 equal monthly installments following the date of grant.
Change in Capital Structure. Upon a change in the Company's capital
structure as a result of a stock split, dividend or recapitalization, the number
of shares subject to outstanding options and reserved under the 1996 Director
Plan and the exercise price of outstanding options shall be appropriately
adjusted to reflect the number and class of shares that would have been issuable
if such shares had been outstanding immediately prior to such event. Upon the
merger, liquidation or sale of substantially all of the assets of the Company,
or the purchase of 50% or more of the Company's outstanding Common Stock, then
effective as of the earlier of (i) the date of approval by the stockholders of
the Company of such merger, consolidation, reorganization, sale, lease or
exchange of assets or dissolution or such election of directors or (ii) the date
of such event, these options shall be exercisable in full.
Option Exercise Price. The exercise price of options granted automatically
under the 1996 Director Plan is 100% of the fair market value of the Common
Stock on the date of grant. The "fair market value" of a share of Common Stock
means, on any given date, the last sales price of the Common Stock on the Nasdaq
Stock Market or, if the Common Stock is listed on a national securities
exchange, as reported on the stock exchange composite tape on that date.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1996 DIRECTOR PLAN
General. A nonemployee director will not recognize any taxable income at
the time an option is granted. Ordinary income will be recognized by a
nonemployee director at the time of exercise in an amount equal to the excess of
the fair market value of the shares of Common Stock received over the option
price for such shares. However, if other shares of Common Stock have been
purchased by a nonemployee director within six months of the exercise of an
option, recognition of the income attributable to such exercise may under
certain circumstances be postponed for a period of up to six months from the
date of such purchase of such other shares of Common Stock due to liability to
suit under Section 16(b) of the Securities and Exchange Act of 1934, as amended
(the " Exchange Act"). If applicable, one effect of any such postponement
would be to measure the amount of the nonemployee director's taxable income by
reference to the fair market value of such shares at the time such liability to
suit under Section 16(b) of the Exchange Act no longer exists (rather than at
the earlier date of the exercise of the option). The nonemployee director will
generally recognize a capital gain or loss upon a subsequent sale of the shares
of Common Stock.
Deductibility. Upon a nonemployee director's exercise of an option granted
under the 1996 Director Plan, the Company may claim a deduction for compensation
paid at the same time and in the same amount as ordinary income is recognized by
the nonemployee director.
-7-
<PAGE>
OPTION GRANTS UNDER 1996 DIRECTOR PLAN
The following table sets forth the number of shares of Common Stock subject
to, and the exercise prices of, options granted under the 1996 Director Plan
subject to stockholder approval of the 1996 Director Plan at the Annual Meeting.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Number of Exercise Price
Name Options Granted(1) Per Share
- ---------------------------------------- ------------------ --------------
<S> <C> <C>
Martin P. Sutter 25,000 $8.38
David B. McWilliams 25,000 8.38
Steven Blasnik 25,000 8.38
David W. Ortlieb 25,000 8.38
Allan D. Rudzik 25,000 8.38
Timothy McInerney 25,000 8.38
James L. Currie 25,000 8.38
8.38
Nonemployee directors as a group 175,000 8.38
(7 persons)
- ---------------
</TABLE>
(1) Represents options to purchase 175,000 shares of Common Stock granted to all
nonemployee directors on December 17, 1996 at an exercise price of $8.38 per
share, which exercise price was equal to the fair market value of the Common
Stock on the date of grant. The fair market value of the Common Stock on
April 29, 1997 was $15.75 per share.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE ZONAGEN, INC. 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN.
PROPOSAL NUMBER 3:
RATIFICATION AND APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Arthur Andersen LLP as the
Company's independent public accountants to make an examination of the accounts
of the Company for the fiscal year ending December 31, 1997, subject to
ratification by the Company's stockholders. Representatives of Arthur Andersen
LLP will be present at the Annual Meeting and will have an opportunity to make a
statement, if they desire to do so. They will also be available to respond to
appropriate questions from stockholders attending the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
AND APPROVAL OF ARTHUR ANDERSEN LLP'S APPOINTMENT, AND PROXIES EXECUTED AND
RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
-8-
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation and Option Committees of the Board of Directors of the
Company currently consist of Steven Blasnik, James L. Currie and Timothy
McInerney, none of whom are officers or employees of the Company. The
Compensation Committee is responsible for evaluating the performance of
management and determining the compensation for certain executive officers of
the Company, and the Option Committee is responsible for administering the
Company's Incentive Plans under which grants may be made to employees of the
Company. The Compensation Committee (the "Committee") has furnished the
following report on executive compensation for 1996:
Under the supervision of the Committee, the Company has developed a
compensation policy which is designated to attract and retain key executives
responsible for the success of the Company and motivate management to enhance
long-term stockholder value. The annual compensation package for executive
officers primarily consists of (i) a cash salary which reflects the
responsibilities relating to the position and individual performance, (ii)
variable performance awards payable in cash or stock and tied to the
individual's or the Company's achievement of certain goals or milestones and
(iii) long-term stock based incentive awards which strengthen the mutuality of
interests between the executive officers and the Company's stockholders.
In determining the level and composition of compensation of each of the
Company's executive officers, the Committee takes into account various
qualitative and quantitative indicators of corporate and individual performance.
Although no specific target has been established, the Committee generally seeks
to set salaries comparable to those of peer group companies. In setting such
salaries, the Committee considers its peer group to be certain companies in the
biotechnology industries with market capitalizations similar to that of the
Company. Such competitive group does not necessarily include the companies
comprising the indexes reflected in the performance graph in this Proxy
Statement. Because the Company is still in the development stage, the use of
certain traditional performance standards (e.g., profitability and return on
equity) is not currently appropriate in evaluating the performance of the
Company's executive officers. Consequently, in evaluating the performance of
management the Committee takes into consideration such factors as the Company's
achieving specified milestones or goals in its clinical development programs.
In addition, the Committee recognizes performance and achievements that are more
difficult to quantify, such as the successful supervision of major corporate
projects and demonstrated leadership ability. For 1996, the Committee included
in its evaluation the significant progress made by the Company, including the
continuing advancement of the Company's clinical development of its products.
Base compensation is established through negotiation between the Company
and the executive officer at the time the executive is hired, and then
subsequently adjusted when such officer's base compensation is subject to review
or reconsideration. While the Company has entered into employment agreements
with certain of its executive officers, such agreements provide that base
salaries after the initial year will be determined by the Committee after
review. When establishing or reviewing base compensation levels for each
executive officer, the Committee, in accordance with its general compensation
policy, considers numerous factors, including the responsibilities relating to
the position, the qualifications of the executive and the relevant experience
the individual brings to the Company, strategic goals for which the executive
has responsibility, and compensation levels of companies at a comparable stage
of development who compete with the Company for business, scientific, and
executive talents. As stated above, such comparable companies are generally
those with similar market capitalizations and are not necessarily among the
companies comprising the Industry or Broad Market Indexes reflected in the
performance graph in this Proxy Statement. No pre-determined weights are given
to any one of such factors. The base salaries for the executive officers
generally, and the Chief Executive Officer specifically, for fiscal 1996 were
comparable to the Company's peer group companies.
In addition to each executive officer's base compensation, the Committee
may award cash bonuses and the Option Committee may grant awards under the
Company's Incentive Plans to chosen executive officers depending on the extent
to which certain defined personal and corporate performance goals are achieved.
Such corporate performance goals are the same as discussed above.
All employees of the Company, including its executive officers, are
eligible to receive long-term stock based incentive awards under the Company's
Incentive Plans as a means of providing such individuals with a continuing
-9-
<PAGE>
proprietary interest in the Company. Such grants further the mutuality of
interest between the Company's employees and its stockholders by providing
significant incentives for such employees to achieve and maintain high levels of
performance. The Company's Incentive Plans enhance the Company's ability to
attract and retain the services of qualified individuals. Factors considered in
determining whether such awards are granted to an executive officer of the
Company include the executive's position in the Company, his or her performance
and responsibilities, the amount of stock options, if any, currently held by the
officer, the vesting schedules of any such options and the executive officer's
other compensation. While the Committee does not adhere to any firmly
established formulas or schedules for the issuance of awards such as options or
restricted stock, the Committee will generally tailor the terms of any such
grant to achieve its goal as a long-term incentive award by providing for a
vesting schedule encompassing several years or tying the vesting dates to
particular corporate or personal milestones.
The annual base salary of Joseph S. Podolski, the President and Chief
Executive Officer of the Company, was initially set at $132,504 pursuant to an
employment agreement effective January 1993, which base salary was subsequently
increased in 1994 and 1995. Mr. Podolski's annual base salary for 1996 was
$150,000, unchanged from 1995. Mr. Podolski did not receive a bonus in 1996.
Mr. Podolski received options to purchase 100,000 shares of Common Stock in
1996.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), added by the Revenue Reconciliation Act of 1993, places a $1 million
cap on the deductible compensation that can be paid to certain executives of
publicly-traded corporations. Amounts that qualify as "performance based"
compensation under Section 162(m)(4)(c) of the Code are exempt from the cap and
do not count toward the $1 million limit. Generally, stock options will qualify
as performance based compensation. The Committee has discussed and considered
and will continue to evaluate the potential impact of Section 162(m) on the
Company in making compensation determinations, but has not established a set
policy with respect to future compensation determinations.
The foregoing report is given by the following members of the Compensation
Committee:
Steven Blasnik
James L. Currie
Timothy McInerney
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Exchange Act, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
-10-
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company, including the business experience of each during the past five
years.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joseph S. Podolski 49 President, Chief Executive Officer and
Director
Louis Ploth, Jr. 43 Vice President of Business Development and
Chief Financial Officer
Tommy L. Lee 46 Vice President of Corporate Development
</TABLE>
Information regarding the business experience of Mr. Podolski is set forth
above under the heading "Nominees for Election as Directors."
Louis Ploth, Jr. Mr. Ploth has served as the Company's Vice President of
Business Development and Chief Financial Officer since October 1993. From
February 1991 to April 1993, Mr. Ploth served as the Chief Financial Officer of
Unisyn Technologies and served as its Vice President of Finance and
Administration from July 1992 to April 1993. Mr. Ploth served as the Corporate
Controller of Synbiotics Corporation (a biotechnology company) from January 1986
to February 1991. Mr. Ploth has a B.S. degree from Montclair State College.
Tommy L. Lee. Mr. Lee joined the Company in February 1996 as Vice
President of Corporate Development. Mr. Lee also serves as the general manager
of Fertility Technologies, Inc. From 1994 to January 1995, Mr. Lee served as
Vice President of Marketing of Positron Corporation. Mr. Lee served as Vice
President of Marketing of Optex Biomedical, Inc. from 1989 to 1994. During
1988, Mr. Lee held the position of Director of Corporate Accounts with
Kardiother, Inc. Mr. Lee has also held various sales and marketing positions
with Mallinckrodt, Inc. and with A. H. Robbins Pharmaceutical Company. Mr. Lee
has a B.A. degree from the University of Texas.
-11-
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued during the last three years to the Company's
President and Chief Executive Officer and to each of the other executive
officers of the Company, determined as of the end of the last fiscal year, whose
annual compensation exceeded $100,000 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- --------------------------------------
RESTRICTED
STOCK ALL OTHER
YEAR SALARY BONUS AWARDS OPTIONS COMPENSATION(1)
------------------- --------- -------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Podolski.................. 1996 $150,000 -- -- 100,000 $ 6,000 (2)
President and Chief Executive 1995 $150,000 $35,000 -- 100,000 16,000 (2)
Officer 1994 $149,271 $26,236 -- 10,000 $ --
Tommy L. Lee........................ 1996 $105,420 -- -- 25,000 $ --
Vice President of
Corporate Development
</TABLE>
- --------------------
(1) During the periods indicated, perquisites for each individual named in the
Summary Compensation Table aggregated less than 10% of the total annual
salary and bonus reported for such individual in the Summary Compensation
Table. Accordingly, no such amounts are included in the Summary Compensation
Table.
(2) Represents car allowance.
Option Grants in 1996
The following table provides certain information with respect to options
granted to the President and Chief Executive Officer and to each of the Named
Executive Officers during the fiscal year ended December 31, 1996 under the
Company's Incentive Plans:
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term (1)
----------------------------------------------------------- -----------------------------------------
Percent of
Total
Options Market
Granted to Price on
Options Employees in Exercise Date of Expiration
Name Granted Fiscal Year Price Grant Date 0% 5% 10%
- ---- ------------ ----------- -------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph S. Podolski 100,000 48% $8.38 $ 8.38 12/17/2006 -- $527,014 $1,335,556
Tommy L. Lee 25,000 12% $7.30 $10.75 1/15/2006 $86,250 $255,265 $ 514,568
</TABLE>
- --------------------
(1) The Securities and Exchange Commission requires disclosure of the potential
realizable value or present value of each grant. The disclosure assumes the
options will be held for the full ten-year term prior to exercise. Such
options may be exercised prior to the end of such ten-year term. The actual
value, if any, an executive officer may realize will depend upon the excess
of the stock price over the exercise price on the date the option is
exercised. There can be no assurance that the stock price will appreciate at
the rates shown in the table.
-12-
<PAGE>
Option Exercises and Holdings
The following table sets forth information concerning option exercises and the
value of unexercised options held by the executive officers of the Company named
in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN 1996
AND OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-money
Options Held at Options Held at
Shares December 31, 1996 (#) December 31, 1996(1) ($)
Acquired on Value -------------------------------- ------------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ -------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Podolski -- -- 96,858 169,412 611,357 342,906
Tommy L. Lee -- -- -- 25,000 -- 51,875
</TABLE>
- -----------------
(1) Computed based on the difference between aggregate fair market value and
aggregate exercise price. The fair market value of the Company's Common
Stock on December 31, 1996 was $9.38, based on the closing sales price on
the Nasdaq Small-Cap Market on December 31, 1996.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Podolski,
Ploth and Lee which provide for current annual salaries of $200,000, $98,000
and $110,000, respectively. The agreements provide that the Company will pay
Messrs. Podolski, Ploth and Lee an annual incentive bonus as may be approved by
the Board of Directors and that Messrs. Podolski, Ploth and Lee are entitled to
participate in all employee benefit plans sponsored by the Company. Mr.
Podolski's employment agreement provides for a primary term expiring in January
1998, with automatic annual renewals unless terminated by either party. If
terminated for reasons other than cause, Mr. Podolski is entitled to receive his
annual base salary and certain employment benefits for one year following
termination. The employment agreements for Messrs. Ploth and Lee expire in
September 1997 and January 1998, respectively, with automatic annual renewals
unless otherwise terminated by either party. If terminated for reasons other
than cause, Messrs. Ploth and Lee are entitled to salary and certain employment
benefits for six months following termination.
-13-
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
Common Stock to the Nasdaq Combined Composite Index and to the Nasdaq Index of
Pharmaceutical Companies. The graph covers the period from March 25, 1993 (the
date on which the Company's Common Stock was registered under Section 12(g) of
the Exchange Act), to December 31, 1996. The graph assumes that the value of
the investment in the Company's Common Stock and each index was $100 at March
25, 1993 and that all dividends were reinvested.
COMPARISON OF CUMULATIVE RETURN
AMONG ZONAGEN, INC.,
NASDAQ COMBINED COMPOSITE INDEX AND
NASDAQ PHARMACEUTICAL COMPANIES INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
3/25/93 12/31/93 12/30/94 12/29/95 12/31/96
- ----------------------------------------------------------------------------------------
Zonagen, Inc. 100 172.71 131.80 197.71 170.44
- ----------------------------------------------------------------------------------------
Nasdaq Combined Composite Index 100 114.29 111.72 158.00 194.33
- ----------------------------------------------------------------------------------------
Nasdaq Pharmaceutical Companies Index 100 128.09 96.40 176.36 176.90
- ----------------------------------------------------------------------------------------
</TABLE>
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or under the Exchange Act, except to the extent that the Company
specifically incorporates this graph by reference, and shall not otherwise be
deemed filed under such acts.
-14-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company
currently consists of Messrs. Blasnik, Currie and McInerney. Mr. Currie is a
General Partner of Essex Woodlands Health Ventures, L.P., a venture capital firm
which purchased 200,000 shares of Preferred Stock from the Company on September
30, 1996 for a cash purchase price of $2.0 million. Mr. McInerney is the Equity
Sales Manager of Paramount Capital, Inc., an investment banking firm which acted
as the placement agent for the Company's 1996 private placement of preferred
stock. In consideration for such services, Paramount received (i) $2.0 million
of cash in payment of its placement fees and expense allowance and (ii) a
warrant to purchase 169,250 shares of Preferred Stock at an exercise price of
$11.00 per share. In addition, the Company entered into a two-year financial
advisory agreement with Paramount pursuant to which the Company has agreed to
pay Paramount a retainer fee of $4,000 per month and additional fees with
respect to certain transactions for which Paramount provides advisory services.
During fiscal 1996, no executive officer of the Company served as (i) a
member of the compensation committee (or other board committee performing
equivalent functions) of another entity, one of whose executive officers served
on the Compensation Committee of the Board of Directors, (ii) a director of
another entity, one of whose executive officers served on the Compensation
Committee of the Board of Directors of the Company or (iii) a member of the
compensation committee (or other board committee performing equivalent
functions) of another entity, one of whose executive officers served as a
director of the Company.
CERTAIN TRANSACTIONS
The Company enters into transactions with related parties only with the
approval of a majority of the independent and disinterested Directors and only
on terms the Company believes to be comparable to or better than those that
would be available from unaffiliated parties. In the Company's view, all of the
transactions described herein satisfy such criteria.
In connection with the Company's acquisition of Fertility Technologies,
Inc. ("FTI"), currently a wholly-owned subsidiary of the Company, the Company
agreed to pay a deferred purchase price and to assume certain obligations to J.
Tyler Dean, the former sole shareholder of FTI. On January 31, 1997, the
Company issued an aggregate of 324,947 shares of Common Stock to J. Tyler Dean
in satisfaction of such obligations.
On September 30, 1996, Essex Woodlands Health Ventures, L.P. purchased
200,000 shares of Preferred Stock from the Company for a cash purchase price of
$2.0 million. Messrs. Sutter and Currie, both directors of the Company, are
General Partners of Essex Woodlands Health Ventures, L.P.
Certain other transactions and relationships are described under "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation" and
"-- Employment Agreements."
-15-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1997 by (i) each person
who is known by the Company to own beneficially more than five percent of the
outstanding shares of Common Stock or Preferred Stock, (ii) each director of the
Company, (iii) the Company's chief executive officer and each of the other Named
Executive Officers and (iv) all directors and executive officers as a group.
Except as described below, each of the persons listed in the table has sole
voting and investment power with respect to the shares listed.
<TABLE>
<CAPTION>
Amount and Amount and
Nature of Nature of
Beneficial Beneficial
Ownership of Percentage Ownership of Percentage
Name of Beneficial Owner Common Stock(1) of Class (2) Preferred Stock(1) of Class (2)
-------------------------- ------------------- ------------ --------------------- ------------
<S> <C> <C> <C> <C>
Petrus Fund, L.P. 755,793 10.2% -- --
12377 Merit Drive, Suite 1700
Dallas, Texas 75251
The Woodlands Venture Fund, L.P. 670,080 9.1% -- --
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
Essex Woodlands Health 301,886 (3) 3.9% 200,000 22.0%
Ventures, L.P.
190 S. LaSalle Street, Suite 2800
Chicago, Illinois 60603
SBSF Biotechnology Fund, L.P. 166,037 (4) 2.2% 110,000 (5) 12.1%
45 Rockefeller Plaza
New York, New York 10111
Martin P. Sutter 985,468 (6) 12.8% 200,000 (7) 22.0%
Joseph S. Podolski 116,059 (8) 1.6% -- --
Steven Blasnik 768,293 (9) 10.4% -- --
James L. Currie 301,886 (10) 3.9% 200,000 (11) 22.0%
Tommy L. Lee 5,000 (12) * -- --
Timothy McInerney 77,247 (13) 1.0% 33,460 (14) 3.5%
David B. McWilliams 39,974 (15) * -- --
David W. Ortlieb 27,342 (16) * -- --
Allan D. Rudzik 10,000 (17) * -- --
All directors and executive officers 2,047,383 (6)-(17) 25.6% 233,460 (7)(11)(14) 24.7%
as a group (10 persons)
</TABLE>
- --------------------
* Does not exceed one percent.
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock and Preferred Stock beneficially owned by such persons.
(2) In accordance with the rules of the Securities and Exchange Commission, each
beneficial owner's percentage ownership assumes the exercise or conversion
of all options, warrants and other convertible securities held by such
person and that are exercisable or convertible within 60 days after March
31, 1997.
(3) Represents shares of Common Stock issuable upon conversion of Preferred
Stock.
(4) Represents shares of Common Stock issuable upon conversion of Preferred
Stock. Includes 15,094 shares of Common Stock issuable upon conversion of
shares of Preferred Stock held by SBSF Biotechnology Partners, L.P.
(5) Includes 10,000 shares of Preferred Stock held by SBSF Biotechnology
Partners, L.P.
(6) Includes (i) 1,002 shares of Common Stock which are held by certain of Mr.
Sutter's family members, (ii) 670,080 shares of Common Stock which may be
deemed to be beneficially owned by Mr. Sutter by virtue of his affiliation
with The Woodlands Venture Fund, L.P., (iii) 301,886 shares of Common Stock
issuable upon conversion of Preferred Stock held by Essex Woodlands Health
Ventures, L.P. which may be deemed to be beneficially owned by Mr. Sutter by
virtue of his affiliation with Essex Woodlands Health Ventures, L.P., and
(iv) 12,500 shares of Common Stock issuable upon the exercise of options.
Mr. Sutter disclaims beneficial ownership of the shares owned by his family
members and those shares owned by The Woodlands Venture Fund, L.P. and Essex
Woodlands Health Ventures, L.P.
-16-
<PAGE>
(7) Represents shares of Preferred Stock which may be deemed to be beneficially
owned by Mr. Sutter by virtue of his affiliation with Essex Woodlands
Health Ventures, L.P. Mr. Sutter disclaims beneficial ownership of such
shares.
(8) Includes (i) 200 shares of Common Stock which are held by certain of Mr.
Podolski's family members and (ii) 107,559 shares of Common Stock issuable
upon the exercise of options. Mr. Podolski disclaims beneficial ownership
of the shares owned by his family members.
(9) Includes (i) 755,793 shares of Common Stock which may be deemed to be
beneficially owned by Mr. Blasnik by virtue of his affiliation with Petrus
Fund, L.P. and (ii) 12,500 shares of Common Stock issuable upon the
exercise of options. Mr. Blasnik disclaims beneficial ownership of the
shares owned by Petrus Fund, L.P.
(10) Represents shares of Common Stock issuable upon conversion of Preferred
Stock held by Essex Woodlands Health Ventures, L.P. which may be deemed to
be beneficially owned by Mr. Currie by virtue of his affiliation with Essex
Woodlands Health Ventures, L.P. Mr. Currie disclaims beneficial ownership
of such shares.
(11) Represents shares of Preferred Stock which may be deemed to be beneficially
owned by Mr. Currie by virtue of his affiliation with Essex Woodlands
Health Ventures, L.P. Mr. Currie disclaims beneficial ownership of such
shares.
(12) Represents shares of Common Stock issuable upon the exercise of options.
(13) Includes (i) 26,742 shares of Common Stock issuable upon the exercise of
warrants and (ii) 50,505 shares of Common Stock issuable upon the
conversion of shares of Preferred Stock that are issuable upon the exercise
of warrants.
(14) Represents shares of Preferred Stock issuable upon the exercise of
warrants.
(15) Includes 12,500 shares of Common Stock issuable upon the exercise of
options.
(16) Represents shares of Common Stock issuable upon the exercise of options.
(17) Represents shares of Common Stock issuable upon the exercise of options.
COMPLIANCE WITH SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and officers, and persons who own more than 10% of the
Common Stock, to file initial reports of ownership and reports of changes in
ownership (Forms 3, 4, and 5) of Common Stock with the Securities and Exchange
Commission (the "SEC") and The Nasdaq Stock Market. Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all such forms that they file.
To the Company's knowledge, based solely on the Company's review of the copies
of such reports received by the Company and on written representations by
certain reporting persons that no reports on Form 5 were required, the Company
believes that during the fiscal year ended December 31, 1995, all Section 16(a)
filing requirements applicable to its officers, directors and 10% stockholders
were complied with in a timely manner, with the exception of two late filings on
Form 3 by James L. Currie and Timothy McInerney in connection with their
respective elections to the Company's Board of Directors.
PROPOSAL OF STOCKHOLDERS
Any proposal of a stockholder intended to be presented at the next annual
meeting must be received at the Company's principal executive offices no later
than January 10, 1998 if the proposal is to be considered for inclusion in the
Company's Proxy Statement relating to such meeting.
FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING ANY FINANCIAL
STATEMENTS AND SCHEDULES AND EXHIBITS THERETO, MAY BE OBTAINED WITHOUT CHARGE BY
WRITTEN REQUEST TO SECRETARY, ZONAGEN, INC., 2408 TIMBERLOCH PLACE, SUITE B-4,
THE WOODLANDS, TEXAS 77380.
By Order of the Board of Directors
Louis Ploth, Jr.
Secretary
May 12, 1997
The Woodlands, Texas
-17-
<PAGE>
EXHIBIT A
ZONAGEN, INC.
1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The ZONAGEN, INC. 1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN (the "Plan")
is intended to promote the interests of ZONAGEN, INC., a Delaware corporation
(the "Company"), and its stockholders by helping to award and retain highly-
qualified independent directors and allowing them to develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company. Accordingly, the Company shall grant to directors of the Company
who are not employees or consultants of the Company or any of its subsidiaries
("Nonemployee Directors") the option ("Option") to purchase shares of the common
stock of the Company ("Stock"), as hereinafter set forth. Options granted under
the Plan shall be options which do not constitute incentive stock options,
within the meaning of section 422(b) of the Internal Revenue Code of 1986, as
amended.
II. OPTION AGREEMENTS
Each Option shall be evidenced by a written agreement in the form attached to
the Plan.
III. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are Nonemployee Directors of
the Company. Each Nonemployee Director who is in office on the effective date
of this Plan shall receive, on such date, an Option exercisable for 25,000
shares of Stock. Each nonemployee Director who is elected to the Board of
Directors of the Company (the "Board") for the first time after the effective
date of the Plan shall receive, as of the date of his or her election and
without the exercise of the discretion of any person or persons, an Option
exercisable for 25,000 shares of Stock (subject to adjustment in the same manner
as provided in Paragraph VII hereof with respect to shares of Stock subject to
Options then outstanding). As of the date of the annual meeting of the
stockholders of the Company in each year that the Plan is in effect as provided
in Paragraph VI hereof, each Nonemployee Director then in office who is not then
entitled to receive an Option pursuant to the preceding sentence shall receive,
without the exercise of the discretion of any person or persons, an Option
exercisable for 2,500 shares of Stock (subject to adjustment in the same manner
as provided in Paragraph VII hereof with respect to shares of Stock subject to
Options then outstanding). If, as of any date that the Plan is in effect, there
are not sufficient shares of Stock available under the Plan to allow for the
grant to each Nonemployee Director of an Option for the number of shares
provided herein, each Nonemployee Director shall receive an Option for his or
her pro-rata share of the total number of shares of Stock then available under
the Plan. All Options granted under the Plan shall be at the Option price set
forth in Paragraph V hereof and shall be subject to adjustment as provided in
Paragraph VII hereof.
IV. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted under
the Plan shall not exceed 400,000 shares of Stock. Such shares may consist of
authorized but unissued shares of Stock or previously issued shares of Stock
acquired by the Company. Any of such shares which remain unissued and which are
not subject to outstanding Options at the termination of the Plan shall cease to
be subject to the Plan, but, until termination of the Plan, the Company shall at
all times make available a sufficient number of shares to meet the requirements
of the Plan. Should any Option hereunder expire or terminate prior to its
exercise in full, the shares theretofore subject to such Option which may be
issued under the Plan shall be subject to adjustment in the same
A-1
<PAGE>
manner as provided in Paragraph VII hereof with respect to shares of Stock
subject to Options then outstanding. Exercise of an Option shall result in a
decrease in the number of shares of Stock which may thereafter be available,
both for purposes of the Plan and for sale to any one individual, by the number
of shares as to which the Option is exercised.
V. OPTION PRICE
The purchase price of Stock issued under each Option shall be the fair market
value of Stock subject to the Option as of the date the Option is granted. For
all purposes under the Plan, the fair market value of a share of Stock on a
particular date shall be equal to the last sales price of the Stock (i) reported
by the Nasdaq Stock Market on that date or (ii) if the Stock is listed on a
national stock exchange, reported on the stock exchange composite tape on that
date; or, in either case, if no prices are reported on that date, on the last
preceding date on which such prices of the Stock are so reported. If the Stock
is traded over the counter at the time a determination of its fair market value
is required to be made hereunder, its fair market value shall be deemed to be
equal to the average between the reported high and low or closing bid and asked
prices of Stock on the most recent date on which Stock was publicly traded. In
the event Stock is not publicly traded at the time a determination of its value
is required to be made hereunder, the determination of its fair market value
shall be made by the Board in such manner as it deems appropriate.
VI. TERM OF PLAN
The Plan shall be effective on the date the Plan is approved the Board,
provided that the Plan shall be subject to approval by the stockholders of the
Company at the first annual meeting of the Company's stockholders following the
effective date of the Plan. Except with respect to Options then outstanding, if
not sooner terminated under the provisions of Paragraph VIII, the Plan shall
terminate upon and no further Options shall be granted after the expiration of
ten years from the date the Plan is approved by the Board.
VII. RECAPITALIZATION OR REORGANIZATION
A. The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization,
or other change in the Company's capital structure or its business, any merger
or consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
B. The shares with respect to which Options may be granted are shares of Stock
as presently constituted, but if, and whenever, prior to the expiration of an
Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
C. If the Company recapitalizes, reclassifies its capital stock, or otherwise
changes its capital structure (a "recapitalization"), the number and class of
shares of Stock covered by an Option theretofore granted shall be adjusted so
that such Option shall thereafter cover the number and class of shares of stock
and securities to which the optionee would have been entitled pursuant to the
terms of the recapitalization if, immediately prior
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<PAGE>
to the recapitalization, the optionee had been the holder of record of the
number of shares of Stock then covered by such Option.
D. Any adjustment provided for in Subparagraph (B) or (C) above shall be
subject to any required stockholder action.
E. Except as hereinbefore expressly provided, the issuance by the Company of
shares of stock of any class or securities convertible into shares of stock of
any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
VIII. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect to
any shares for which Options have not theretofore been granted. The Board shall
have the right to alter or amend the Plan or any part thereof from time to time;
provided, that no change in any Option theretofore granted may be made which
would impair the rights of the optionee without the consent of such optionee and
provided, further, that the Board may not make any alteration or amendment which
would materially increase the benefits accruing to participants under the Plan,
increase the aggregate number of shares which may be issued pursuant to the
provisions of the Plan, change the class of individuals eligible to receive
Options under the Plan or extend the term of the Plan, without the approval of
the stockholders of the Company.
IX. SECURITIES LAWS
A. The Company shall not be obligated to issue any Stock pursuant to any
Options granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of
1933, as amended, and such other state and federal laws, rules or regulations as
the Company deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
B. It is intended that the Plan and any grant of an Option made to a person
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), meet all of the requirements of Rule 16b-3, as currently in effect
or as hereinafter modified or amended ("Rule 16b-3"), promulgated under the 1934
Act. If any provision of the Plan or any such Option would disqualify the Plan
or such Option under, or would otherwise not comply with, Rule 16b-3, such
provision or Option shall be construed or deemed amended to conform to
Rule 16b-3.
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<PAGE>
NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
(INITIAL GRANT)
AGREEMENT made as of the _____ day of __________, 19_____, between ZONAGEN,
INC., a Delaware corporation (the "Company"), and ____________________
("Director").
To carry out the purposes of the ZONAGEN, INC. 1996 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN (the "Plan"), by affording Director the opportunity to
purchase shares of common stock of the Company ("Stock"), and in consideration
of the mutual agreements and other matters set forth herein and in the Plan, the
Company and Director hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants the Director the
right and option ("Option") to purchase all or any part of an aggregate of
_______ shares of Stock, on the terms and conditions set forth herein and in the
Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option shall not be treated as an incentive stock option within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to the
exercise of this Option shall be $________ per share, which has been determined
to be not less than the fair market value of the Stock at the date of grant of
this Option. For all purposes of this Agreement, fair market value of Stock
shall be determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this Option as
herein provided, this Option may be exercised, by written notice to the Company
at its principal executive offices addressed to the attention of Chief Executive
Officer, at any time and from time to time after the date of grant hereof, but,
except as otherwise provided below, this Option shall not be exercisable for
more than a percentage of the aggregate number of shares offered by this Option
determined by the number of full years from the first day of the calendar month
coincident with or next following the date of grant hereof to the date of such
exercise, in accordance with the following schedule:
Percentage of Shares
Number of Full Years That May Be Purchased
Less than 1 year................................. 0.00%
1 year but less than 2 years..................... 20.00%
2 years but less than 3 years.................... 40.00%
3 years but less than 4 years.................... 60.00%
4 years but less than 5 years.................... 80.00%
5 years or more.................................. 100.00%
Notwithstanding the foregoing, if (i) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company), (ii) the Company sells, leases or exchanges or
agrees to sell, lease or exchange all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of the
Company's voting stock (based upon voting power), or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board of Directors of the Company (each such event is referred
to herein as a "Corporate Change"), then effective as of the earlier of (1) the
date of approval by the stockholders of the
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<PAGE>
Company of such merger, consolidation, reorganization, sale, lease or exchange
of assets or dissolution or such election of directors or (2) the date of such
Corporate Change, this Option shall be exercisable in full.
This Option and all rights granted hereunder are not transferable by
Director other than by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title 1 of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and may be exercised during Director's lifetime only by Director or
Director's guardian or legal representative. This Option may be exercised only
while Director remains a member of the Board of Directors of the Company (the
"Board") and will terminate and cease to be exercisable upon Director's
termination of membership on the Board, except that:
(a) If Director's membership on the Board terminates by reason of
disability, this Option may be exercised in full by Director (or Director's
estate or the person who acquires this Option by will or the laws of
descent and distribution or otherwise by reason of the death of Director)
at any time during the period of one year following such termination.
(b) If Director dies while a member of the Board, Director's estate,
or the person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Director, may exercise
this Option in full at any time during the period of one year following the
date of Director's death.
(c) If Director's membership on the Board terminates for any reason
other than as described in (a) or (b) above, this Option may be exercised
by Director at any time during the period of three months following such
termination, or by Director's estate (or the person who acquires this
Option by will or the laws of descent and distribution or otherwise by
reason of the death of Director) during a period of one year following
Director's death if Director dies during such three month period, but in
each case only as to the number of shares Director was entitled to purchase
hereunder upon exercise of this Option as of the date Director's membership
on the Board so terminates.
This Option shall not be exercisable in any event after the expiration of
ten years from the date of grant hereof. The purchase price of shares as to
which this Option is exercised shall be paid in full at the time of exercise (A)
in cash (including check, bank draft or money order payable to the order of the
Company), (B) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (C) any combination of cash or Stock. No
fraction of a share of Stock shall be issued by the Company upon exercise of an
Option or accepted by the Company in payment of the purchase price thereof;
rather, Director shall provide a cash payment for such amount as is necessary to
effect the issuance and acceptance of only whole shares of Stock. Unless and
until a certificate or certificates representing such shares shall have been
issued by the Company to Director, Director (or the person permitted to exercise
this Option in the event of Director's death) shall not be or have any of the
rights or privileges of a stockholder of the Company with respect to shares
acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
the disposition of shares of Stock acquired by exercise of this Option results
in compensation income to Director for federal or state income tax purposes,
Director shall deliver to the Company at the time of such exercise or
disposition such amount of money or shares of Stock as the Company may require
to meet its obligation under applicable tax laws or regulations, and, if
Director fails to do so, the Company is authorized to withhold from any cash or
Stock renumeration then or thereafter payable to Director any tax required to be
withheld by reason of such resulting compensation income. Upon an exercise of
this Option, the Company is further authorized in its discretion to satisfy any
such withholding requirement out of any cash or shares of Stock distributable to
Director upon such exercise.
5. STATUS OF STOCK. The Company intends to register for issuance under
the Securities Act of 1933, as amended (the "Act"), the shares of Stock
acquirable upon exercise of this Option, and to keep such registration effective
throughout the period this Option is exercisable. In the absence of such
effective registration or an available exemption from registration under the
Act, issuance of shares of Stock acquirable upon exercise of this Option will be
delayed until registration of such shares is effective or an exemption from
registration under the Act is available. The Company intends to use its best
efforts to ensure that no such delay will occur. In the event exemption from
registration under
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<PAGE>
the Act is available upon an exercise of this Option, Director (or the person
permitted to exercise this Option in the event of Director's death or
incapacity), if requested by the Company to do so, will execute and deliver to
the Company in writing an agreement containing such provisions as the Company
may require to assure compliance with applicable securities laws.
Director agrees that the shares of Stock which Director may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable federal or state securities
laws. Director also agrees (i) that the certificates representing the shares of
Stock purchased under this Option may bear such legend or legends as the Company
deems appropriate in order to assure compliance with applicable securities laws,
(ii) that the Company may refuse to register the transfer of the shares of Stock
purchased under this Option on the stock transfer records of the Company if such
proposed transfer would in the opinion of counsel satisfactory to the Company
constitute a violation of any applicable securities law and (iii) that the
Company may give related instructions to its transfer agent, if any, to stop
registration of the transfer of the shares of Stock purchased under this Option.
6. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
Director.
7. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Director has executed
this Agreement, all as of the day and year first above written.
ZONAGEN, INC.
By:_______________________________________
DIRECTOR
__________________________________________
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<PAGE>
NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
(ANNUAL GRANT)
AGREEMENT made as of the _____ day of __________, 19_____, between ZONAGEN,
INC., a Delaware corporation (the "Company"), and ____________________
("Director").
To carry out the purposes of the ZONAGEN, INC. 1996 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN (the "Plan"), by affording Director the opportunity to
purchase shares of common stock of the Company ("Stock"), and in consideration
of the mutual agreements and other matters set forth herein and in the Plan, the
Company and Director hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants the Director
the right and option ("Option") to purchase all or any part of an aggregate of
_______ shares of Stock, on the terms and conditions set forth herein and in the
Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option shall not be treated as an incentive stock option within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to the
exercise of this Option shall be $________ per share, which has been determined
to be not less than the fair market value of the Stock at the date of grant of
this Option. For all purposes of this Agreement, fair market value of Stock
shall be determined in accordance with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this Option
as herein provided, this Option may be exercised, by written notice to the
Company at its principal executive offices addressed to the attention of Chief
Executive Officer, at any time and from time to time after the date of grant
hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares offered
by this Option determined by the number of full calendar months from the first
day of the calendar month coincident with or next following the date of grant
hereof to the date of such exercise, in accordance with the following schedule:
Percentage of Shares
Number of Full Calendar Months That May Be Purchased
Less than 1 month........................................ 0.00%
1 month but less than 2 months........................... 8.33%
2 months but less than 3 months.......................... 16.67%
3 months but less than 4 months.......................... 25.00%
4 months but less than 5 months.......................... 33.33%
5 months but less than 6 months.......................... 41.67%
6 months but less than 7 months.......................... 50.00%
7 months but less than 8 months.......................... 58.33%
8 months but less than 9 months.......................... 66.67%
9 months but less than 10 months......................... 75.00%
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10 months but less than 11 months........................ 83.33%
11 months but less than 12 months........................ 91.67%
12 months or more........................................ 100.00%
Notwithstanding the foregoing, if (i) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company), (ii) the Company sells, leases or exchanges or
agrees to sell, lease or exchange all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of the
Company's voting stock (based upon voting power), or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board of Directors of the Company (each such event is referred
to herein as a "Corporate Change"), then effective as of the earlier of (1) the
date of approval by the stockholders of the Company of such merger,
consolidation, reorganization, sale, lease or exchange of assets or dissolution
or such election of directors or (2) the date of such Corporate Change, this
Option shall be exercisable in full.
This Option and all rights granted hereunder are not transferable by
Director other than by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title 1 of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and may be exercised during Director's lifetime only by Director or
Director's guardian or legal representative. This Option may be exercised only
while Director remains a member of the Board of Directors of the Company (the
"Board") and will terminate and cease to be exercisable upon Director's
termination of membership on the Board, except that:
(a) If Director's membership on the Board terminates by reason of
disability, this Option may be exercised in full by Director (or Director's
estate or the person who acquires this Option by will or the laws of
descent and distribution or otherwise by reason of the death of Director)
at any time during the period of one year following such termination.
(b) If Director dies while a member of the Board, Director's estate,
or the person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Director, may exercise
this Option in full at any time during the period of one year following the
date of Director's death.
(c) If Director's membership on the Board terminates for any reason
other than as described in (a) or (b) above, this Option may be exercised
by Director at any time during the period of three months following such
termination, or by Director's estate (or the person who acquires this
Option by will or the laws of descent and distribution or otherwise by
reason of the death of Director) during a period of one year following
Director's death if Director dies during such three month period, but in
each case only as to the number of shares Director was entitled to purchase
hereunder upon exercise of this Option as of the date Director's membership
on the Board so terminates.
This Option shall not be exercisable in any event after the expiration of
ten years from the date of grant hereof. The purchase price of shares as to
which this Option is exercised shall be paid in full at the time of exercise (A)
in cash (including check, bank draft or money order payable to the order of the
Company), (B) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (C) any combination of cash or Stock. No
fraction of a share of Stock shall be issued by the Company upon exercise of an
Option or accepted by the Company in payment of the purchase price thereof;
rather, Director shall provide a cash payment for such amount as is necessary to
effect the issuance and acceptance of only whole shares of Stock. Unless and
until a certificate or certificates representing such shares shall have been
issued by the Company to Director, Director (or the person permitted to exercise
this Option in the event of Director's death) shall not be or have any of the
rights or privileges of a stockholder of the Company with respect to shares
acquirable upon an exercise of this Option.
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<PAGE>
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
the disposition of shares of Stock acquired by exercise of this Option results
in compensation income to Director for federal or state income tax purposes,
Director shall deliver to the Company at the time of such exercise or
disposition such amount of money or shares of Stock as the Company may require
to meet its obligation under applicable tax laws or regulations, and, if
Director fails to do so, the Company is authorized to withhold from any cash or
Stock renumeration then or thereafter payable to Director any tax required to be
withheld by reason of such resulting compensation income. Upon an exercise of
this Option, the Company is further authorized in its discretion to satisfy any
such withholding requirement out of any cash or shares of Stock distributable to
Director upon such exercise.
5. STATUS OF STOCK. The Company intends to register for issuance under
the Securities Act of 1933, as amended (the "Act"), the shares of Stock
acquirable upon exercise of this Option, and to keep such registration effective
throughout the period this Option is exercisable. In the absence of such
effective registration or an available exemption from registration under the
Act, issuance of shares of Stock acquirable upon exercise of this Option will be
delayed until registration of such shares is effective or an exemption from
registration under the Act is available. The Company intends to use its best
efforts to ensure that no such delay will occur. In the event exemption from
registration under the Act is available upon an exercise of this Option,
Director (or the person permitted to exercise this Option in the event of
Director's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Director agrees that the shares of Stock which Director may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable federal or state securities
laws. Director also agrees (i) that the certificates representing the shares of
Stock purchased under this Option may bear such legend or legends as the Company
deems appropriate in order to assure compliance with applicable securities laws,
(ii) that the Company may refuse to register the transfer of the shares of Stock
purchased under this Option on the stock transfer records of the Company if such
proposed transfer would in the opinion of counsel satisfactory to the Company
constitute a violation of any applicable securities law and (iii) that the
Company may give related instructions to its transfer agent, if any, to stop
registration of the transfer of the shares of Stock purchased under this Option.
6. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
Director.
7. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Director has executed
this Agreement, all as of the day and year first above written.
ZONAGEN, INC.
By:_______________________________________
DIRECTOR
__________________________________________
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ZONAGEN, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO BE HELD JUNE 18, 1997
The undersigned hereby appoints Joseph S. Podolski and Louis Ploth, Jr., and
each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and vote, as designated on the reverse side,
all of the shares of the common stock and all of the shares of Series B
Preferred Stock of Zonagen, Inc. (the "Company") held of record by the
undersigned on May 9, 1997 at the Annual Meeting (the "Annual Meeting") of
Stockholders of the Company to be held on Wednesday, June 18, 1997, at 1:00
p.m., local time, at The Houstonian Hotel, 111 North Post Oak Lane, Houston,
Texas, and any adjournment(s) thereof.
(TO BE DATED AND SIGNED ON REVERSE SIDE)
<TABLE>
<CAPTION>
<S> <C> <C>
FOR WITHHOLD
AUTHORITY
1. To elect eight directors of the Company each to serve until the Company's next Annual Meeting of [ ] [ ]
Stockholders or until their respective successors have been duly elected and qualified;
[INSTRUCTION: To withhold authority is vote for any individual nominee, write such name or names in the space provided below.]
________________________________
Nominees: Martin P. Sutter
Joseph S. Podolski
Steven Blasnik
James L. Currie
Timothy McInerney, R.Ph.
David B. McWilliams
David W. Ortlieb
Allan D. Rudzik
FOR AGAINST ABSTAIN
2. To vote upon a proposal to approve the Zonagen, Inc. 1996 Nonemployee Directors' Option Plan; [ ] [ ] [ ]
3. To ratify and approve the appointment of Arthur Andersen LLP as the Company's independent public accountants for its fiscal year
ending December 31, 1997;and [ ] [ ] [ ]
4. To act upon such other business as may promptly come before the meeting or any adjournments thereof.
Only stockholders of record at the close of business on May 9, 1997 will be entitled to notice of and to vote at the Annual
Meeting.
It is important that your shares be represented at the Annual Meeting regardless of whether you plan to attend. THEREFORE, PLEASE
MARK, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING POSTPAID ENVELOPE AS PROMPTLY AS POSSIBLE. If you are present at
the Annual Meeting, and wish to do so, you may revoke the Proxy and vote in person.
SIGNATURE ___________________________ DATE _________________ SIGNATURE __________________________ DATE ___________________
Signature if held jointly
Note: Please execute this Proxy as your name appears hereon. When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in
full corporate name by the president or other authorized officer. If a partnership, please sign in partnership name by
authorized person.
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