<PAGE>
SCHEDULE 14A
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.
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
ZONAGEN, INC.
2408 TIMBERLOCH PLACE, SUITE B-4
THE WOODLANDS, TEXAS 77380
April 1, 1999
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Zonagen, Inc. to be held on Thursday, May 13, 1999, at 1:00 p.m., local time,
at the Wyndham Greenspoint Hotel, 12400 Greenspoint Drive, 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 May 13, 1999.
Sincerely,
Joseph S. Podolski
President and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1999
To the Stockholders of Zonagen, Inc.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Zonagen, Inc.
(the "Company") will be held on Thursday, May 13, 1999, at 1:00 p.m., local
time, at the Wyndham Greenspoint Hotel, 12400 Greenspoint Drive, Houston, Texas,
for the following purposes:
1. To elect a board of six 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 amend the Company's 1993 Amended and Restated Employee and
Consultant Stock 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, 1999; and
4. To act on such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 19, 1999 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
April 1, 1999
<PAGE>
ZONAGEN, INC.
2408 TIMBERLOCH PLACE, SUITE B-4
THE WOODLANDS, TEXAS 77380
___________________________
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 13, 1999
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 Thursday, May 13, 1999 (the "Annual Meeting"), at 1:00
p.m., local time, at the Wyndham Greenspoint Hotel, 12400 Greenspoint Drive,
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 April 1, 1999.
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 on the following matters:
1. The election of a board of six 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 amend the Company's 1993 Amended and Restated
Employee and Consultant 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, 1999; and
4. Such other business as may properly come before the Annual
Meeting or any adjournments thereof.
QUORUM AND VOTING
The close of business on March 19, 1999 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 11,221,303 shares of the Company's common
stock, par value $.001 share (the "Common Stock").
Each stockholder of record of Common Stock will be entitled to one vote per
share on each matter that is called to vote at the Annual Meeting. Shares of
Common Stock may not be voted cumulatively.
The presence, either in person or by proxy, of holders of shares
representing a majority of the Common Stock 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 six 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 six 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.............. 43 Chairman of the Board 1987
Joseph S. Podolski............ 51 President, Chief Executive Officer, 1992
and Director
Steven Blasnik................ 41 Director 1990
Jeffrey M. Jonas, M.D......... 46 Director 1998
Nelson L. Levy, Ph.D. M.D..... 57 Director 1998
Timothy McInerney............. 38 Director 1996
</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. Since June 1998, Mr. Sutter has
been managing director of Essex Woodlands Health Ventures, L.L.C. Mr. Sutter is
a director of Aronex Pharmaceuticals, Inc., a biotechnology company based in The
Woodlands, Texas, and a director of Targeted Genetics Corporation, a Seattle-
based biotechnology company. 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 as Vice
President of Operations and has served as President and Chief Executive Officer
of the company and as a director since 1992. Prior to joining the Company, Mr.
Podolski spent twelve years in various engineering, product development and
manufacturing positions at G.D. Searle, a subsidiary of Monsanto Company.
Before joining Monsanto, Mr. Podolski held positions in manufacturing,
engineering, quality control and development of fine chemicals, antibiotics,
pharmaceuticals and hospital products with Abbott Laboratories, Dearborn
Chemical Company and Baxter Pharmaceuticals. Mr. Podolski holds a M.S. in
chemical engineering from the 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. He is also a director of Perot Systems Corporation. From 1983 to 1987,
Mr. Blasnik was an attorney at Hughes & Luce in Dallas, Texas. Mr. Blasnik has
a B.S.E. from Princeton University and a J.D. from Harvard Law School.
Jeffrey M. Jonas, M.D. Dr. Jonas has served as a Director of the Company
since April 1998. Dr. Jonas has served as the President and Chief Executive
Officer of AVAX Technologies, Inc., a biotechnology company based in Kansas
City, Missouri, since June 1996. From 1991 through 1996, Dr. Jonas served in
various capacities with The Upjohn Company, a major pharmaceuticals company
based in Kalamazoo, Michigan, serving most recently as Vice
-3-
<PAGE>
President --Clinical Development and Chief Medical Officer. Dr. Jonas has a B.A.
from Amherst College and an M.D. from Harvard Medical School.
Nelson L. Levy, Ph.D. M.D.. Dr. Levy has served as a Director of the
Company since August 1998. Dr. Levy is currently the Chairman and Chief
Executive Officer of The CoreTechs Corporation. Previously, he was the
President of Fujisawa Pharmaceutical Company, the North American ethical
pharmaceutical subsidiary of Japan's third-largest pharmaceutical company. From
1981 to 1984, he was Vice President of Research, Abbott Laboratories, Inc., and
from 1970 to 1981, he was a professor of microbiology and immunology at Duke
University Medical Center. He has published over 130 scientific papers and book
chapters and served on numerous advisory committees of the National Institutes
of Health. Dr. Levy is on the Board of Directors of four private companies and
on the Scientific Advisory Board of Ligand Pharmaceuticals, Inc., Neoprobe
Corporation and Quality Biologicals, Inc. Dr. Levy has B.A. and B.S. degrees
from Yale University, a M.D. from Columbia University College of Physicians and
Surgeons and a Ph.D. from Duke University.
Timothy McInerney, R.Ph. Mr. McInerney has served as a Director of the
Company since December 1996. Since 1992, Mr. McInerney has been a Managing
Director 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 Ladenburg, 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
OF EACH OF THE ABOVE-NAMED NOMINEES.
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 1998, the Board of Directors convened on four regularly
scheduled occasions and took certain additional actions by unanimous written
consent in lieu of meetings. All directors 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 1998, except for Dr. Nelson Levy who was elected at the
September 1998 Board of Directors' meeting.
Employee directors do not receive additional compensation for service on
the Board of Directors or its committees. The Company reimburses each
nonemployee director for travel expenses incurred in connection with attendance
at Board meetings. Certain nonemployee directors receive $1,000.00 per meeting,
for their services to the Board of Directors. Employee directors are eligible
to participate in the Company's 1994 Employee and Consultant Stock Option Plan
and the Amended and Restated 1993 Employee and Consultant Stock Option Plan (the
"Incentive Plans"). Nonemployee directors are entitled to participate in the
Company's 1996 Nonemployee Directors' Stock Option Plan (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. In 1998, the Company
granted options to acquire an aggregate of 62,500 shares of Common Stock to
nonemployee directors under the 1996 Director Plan.
-4-
<PAGE>
BOARD COMMITTEES
Pursuant to delegated authority, various Board functions are discharged by
the standing committees of the Board. The Board of Directors has appointed five
principal standing committees: the Executive Committee, the Option Committee,
the Compensation Committee, the Audit Committee and 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 did not meet in 1998. The Option Committee,
currently comprised of Messrs. Blasnik and McInerney, selects the employees to
whom stock options are to be granted and determines the conditions covered by
each option. The Compensation Committee, currently comprised of Messrs. Blasnik
and McInerney, reviews and recommends to the Board of Directors the amount of
compensation to be paid to all employees. The Option and Compensation
Committees convened on two occasions in 1998 and took certain additional actions
by unanimous written consent in lieu of meetings. The Audit Committee, currently
comprised of Dr. Jonas and Mr. McWilliams, a current director who is not
standing for re-election, 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 two occasions in 1998. The
Nominating Committee is currently comprised of Messrs. Sutter and McWilliams,
and did not meet during 1998.
PROPOSAL NUMBER 2:
AMENDMENT TO THE COMPANY'S 1993 AMENDED AND RESTATED EMPLOYEE AND CONSULTANT
STOCK OPTION PLAN
GENERAL
On March 5, 1999, the Board, subject to the approval by the stockholders of
the Company, approved the amendment of the Zonagen, Inc. Amended and Restated
1993 Employee and Consultant Stock Option Plan (as presently in effect, the
"Plan") to (i) increase the number of shares of Common Stock available for the
grant of options under the Plan to 2,000,000 shares, and (ii) extend the date
after which no further options may be granted to May 13, 2003. The purpose of
the Plan is to promote the interests of the Company by providing the employees
and consultants of the Company, who are largely responsible for the management,
growth and protection of the business of the Company, with a proprietary
interest in the Company. The following summary sets forth the material terms of
the Plan. The complete text of the Plan is included in an exhibit filed
pursuant to the Securities Exchange Act of 1934, as amended. A copy of the
amendment to the Plan is attached hereto as Exhibit A.
Options to purchase an aggregate of the greater of (i) 857,000 shares and (ii)
ten percent of the issued and outstanding shares of Common Stock determined as
of the close of business on the last day of the preceding fiscal quarter of the
Company (not to exceed ten percent of the authorized shares of Common Stock as
of the date the Plan was approved and adopted by the stockholders) may be
granted under the Plan as presently in effect. Options to purchase a total of
1,119,711 shares of the Company's Common Stock have been granted under the Plan,
leaving a total of 169,602 shares as to which options may be granted under the
Plan as presently in effect. The number of shares as to which options may be
granted would be increased to 2,000,000 shares pursuant to the amendment of the
Plan being submitted to the Company's stockholders for approval at the Annual
Meeting. The Plan as presently in effect terminates on May 13, 1999, which is
six years from its adoption. The proposed amendment extends this date for an
additional four year period. No other changes are proposed to be made to the
Plan.
SUMMARY OF THE PLAN
Eligibility. All Employees and Consultants of the Company shall be eligible
to receive Incentive Awards pursuant to the Plan; however, Incentive Stock
Options may only be granted to Employees of the Company.
-5-
<PAGE>
Shares Subject to Plan. If the Company's stockholders approve the amendment
of the Plan at the Annual Meeting, the maximum number of shares of Common Stock
in respect of which options may be granted under the Plan, as amended, shall be
2,000,000, subject to appropriate adjustment upon a reorganization, stock split,
recapitalization or other change in the Company's capital structure.
Terms of Options. The price at which Common Stock may be purchased under an
Option shall be established by the Committee, provided that the price at which
Common Stock may be purchased under an Option that is intended to qualify as an
Incentive Option shall not be less than 100% of the fair market value of the
Common Stock on the date the Incentive Option is granted. In the case of any
10% holder of Common Stock, the price at which shares of Common Stock may be
purchased under an Incentive Option shall not be less than 110% of the fair
market value of the Common Stock on the date the Incentive Option is granted.
The expiration date of an Option shall be established by the Committee, provided
that no Incentive Option shall be exercisable after the expiration of ten years
from the date the Incentive Option is granted. In the case of a 10% holder of
Common Stock, no Incentive Option shall be exercisable after the expiration of
five years from the date the Incentive Option is granted. To the extent that
the aggregate fair market value (determined as of the time an Incentive Option
is granted) of the Common Stock with respect to which Incentive Options first
become exercisable by the Optionee during any calendar year (under the Plan and
any other incentive stock option plan(s) of the Company or any affiliate)
exceeds $100,000, the Incentive Options shall be treated as Nonqualified
Options. In making this determination, Incentive Options shall be taken into
account in the order in which they were granted.
Amendment. The Board of Directors of the Company may amend, terminate or
suspend the Plan at any time, in its sole and absolute discretion; provided,
however, that to the extent required to maintain the status of any Incentive
Option under the Code, no amendment that would (i) increase the aggregate number
of shares of Common Stock which may be issued under the Plan, (ii) materially
increase the benefits accruing to individuals holding Incentive Awards under the
Plan, or (iii) materially modify the requirements as to eligibility for
participation in the Plan, shall be made without the approval of the Company's
stockholders. The Plan will terminate on May 13, 1999, unless extended or
previously terminated.
Identification of Options. All Options granted under the Plan shall be
clearly identified in the agreement evidencing such Options as either Incentive
Stock Options or as Non-Qualified Stock Options.
Administration. The Plan provides that Committee shall be constituted in such
a manner as to permit the Plan to comply with Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with respect to a plan intended to qualify thereunder as a discretionary
plan. All questions of interpretation and application of the Plan and Options
shall be subject to the determination of the Committee. The Plan shall be
administered in such a manner as to permit the Options granted under it which
are designated to be Incentive Options to qualify as Incentive Options. To
comply with Section 162(m) of the Code, it is the Company's intent that the
Committee shall be constituted solely of two or more Directors who are "outside
directors" within the meaning of the Treasury Regulations promulgated under
Section 162(m) of the Code. The Committee has complete authority to construe,
interpret and administer provisions of the Plan, to determine which persons are
to be granted Options, the terms and conditions of Options, and to make all
other determinations necessary or deemed advisable in the administration of the
Plan.
Exercise of Options. Each Option may be exercised from time to time, in whole
or in part, in the manner and subject to the conditions the Committee, in its
sole discretion, may provide in the written option agreement, as long as the
Option is valid and outstanding. The consideration to be paid for the shares to
be issued upon exercise of an Option, including the method of payment, shall be
determined by the Committee and may consist entirely of (i) cash, certified
check, bank cashiers check or wire transfer, (ii) subject to the approval of the
Committee, in shares of the Company's capital stock owned by the Optionee, (iii)
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds required to pay the exercise price or (iv) any combination of
the foregoing methods of payment. The Committee will determine the period over
which individual Options become exercisable.
-6-
<PAGE>
Non-transferability and No Rights as Stockholder. Options shall not be
transferable by the Optionee otherwise than by will or under the laws of descent
and distribution, and shall be exercisable, during the Optionee's lifetime, only
by him. No Optionee shall have any rights as a stockholder with respect to
Common Stock covered by his Option until the date a stock certificate is issued
for the Common Stock.
Changes in the Company's Capital Structure. If the Company shall effect a
subdivision or consolidation of shares or other capital readjustment, the
payment of a stock dividend, or other increase or reduction of the number of
shares of the Common Stock outstanding, without receiving compensation therefor
in money, services or property, then (i) the number, class, and per share price
of shares of Common Stock subject to outstanding Options shall be appropriately
adjusted in such a manner as to entitle an Optionee to receive upon exercise of
an Option, for the same aggregate cash consideration, the same total number and
class of shares as he would have received had he exercised his Option in full
immediately prior to the event requiring the adjustment; and (ii) the number and
class of shares of Common Stock then reserved for issuance under the Plan shall
be adjusted by substituting for the total number and class of shares of Common
Stock then reserved that number and class of shares of stock that would have
been received by the owner of an equal number of outstanding shares of each
class of Common Stock as the result of the event requiring the adjustment.
In the event of a merger or consolidation of the Company with or into another
entity or another transaction pursuant to which all or substantially all of the
assets of the Company are conveyed to another entity, the Committee shall, in
its discretion, either (i) cancel all outstanding Options and pay the Optionees
the excess of the value of the consideration received by stockholders in the
transaction over the exercise price of the Option, or (ii) provide for the
exchange of each Option outstanding immediately prior to the transaction for an
equivalent option by such successor entity.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
Incentive Stock Options. An employee who has been granted an Incentive Option
will not realize taxable income at the time of the grant or exercise (but in
some circumstances may be subject to an alternative minimum tax as a result of
the exercise) of such Option and the Company will not be entitled to a deduction
at either such time. If the employee makes no disposition of the shares
acquired pursuant to an Incentive Option within two years from the date of the
grant of such Option, or within one year of the transfer of such shares to him
or her, any gain or loss realized on a subsequent disposition of such shares
will be treated as a long-term capital gain or loss. Under such circumstances,
the Company will not be entitled to any deduction for federal income tax
purposes. If the foregoing holding period requirements are not satisfied, a
portion of any gain in the year of disposition will be taxable to the employee
as ordinary income, and the Company will be entitled to a corresponding
deduction. The Company will not be entitled to any deduction in connection with
any loss to the employee or the portion of any gain that is taxable to the
employee as short-term or long-term capital gain.
Non-qualified Stock Options. Non-Qualified Stock Options (options that are
not Incentive Options) will not qualify for special federal income tax
treatment. No tax is imposed on the optionee upon the grant of a Non-Qualified
Stock Option. Upon exercise of a Non-Qualified Stock Option, the employee will
realize ordinary income in an amount measured by the excess, if any, of the fair
market value of the shares on the date of exercise over the Option exercise
price; and the Company will be entitled to a corresponding deduction, provided
the Company withholds income tax with respect to such amount and provided that
such amount is not limited by Section 162(m) of the Code with respect to Options
with an exercise price that was less than the fair market value of the Common
Stock on the date of grant. However, if the shares received upon the exercise
of a Non-Qualified Stock Option are transferred to the optionee subject to
certain restrictions, then the taxable income realized by the optionee, unless
the optionee elects otherwise, and the Company's tax deduction (assuming any
federal income tax withholding requirements are satisfied) should be deferred
and should be measured based upon the fair market value of the shares at the
time the restrictions lapse. The restrictions imposed on officers, directors,
and 10% stockholders by Section 16(b) of the Securities Exchange Act of 1934, as
amended, is such a restriction during the period prescribed thereby if other
shares have been purchased by such individual within six months of the exercise
of a Non-Qualified Stock Option. Ordinary income realized upon the exercise of
a Non-Qualified Stock Option is not an adjustment for alternative minimum tax
purposes.
-7-
<PAGE>
Withholding. The Company has the right to deduct from any or all awards any
taxes required by law to be withheld and to require any payments necessary to
enable it to satisfy its withholding requirements.
Deductibility. The Plan has been designed to meet the requirements of Section
162(m) of the Code for stock option plans, including the requirement that the
Plan state the maximum number of shares that can be issued during a specified
period to an individual employee under the Plan. Thus, the provisions of
Section 162(m) should not limit the Company's ability to deduct all of the
compensation income generated in connection with the exercise of stock options
granted under the Plan except for stock options, if any, with exercise prices
less than the fair market value of the Common Stock on the date of grant.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
AND APPROVAL OF THE AMENDMENT TO THE CORPORATION'S AMENDED AND RESTATED 1993
EMPLOYEE AND CONSULTANT 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, 1999, 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 THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, 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 and Timothy McInerney, neither of
whom is an officer or employee 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 1998:
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 achievement
of certain personal and corporate 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 1998, 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 1998 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
proprietary interest in the Company. Such grants further the mutuality of
interest between the Company's employees
-9-
<PAGE>
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.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), added by the Revenue Reconciliation Act of 1993, places a $1.0 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 $1.0 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.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The annual base salary of Joseph S. Podolski, the Company's President and
Chief Executive Officer, remained at $200,000 for 1998, however, his salary was
increased from $200,000 for 1998 to $225,000 for 1999. In increasing Mr.
Podolski's annual base salary for 1999, the Committee evaluated a number of
factors, including Mr. Podolski's responsibilities, his general background and
qualifications, his achievement of various corporate and personal milestones set
by the Committee from time to time, and compensation levels for executives in
Mr. Podolski's position and with his background at peer group companies. The
Committee has not attached any particular relative weighting to the foregoing
factors (or any other factors which the Committee may also consider in reaching
compensation decisions for the Company's executive officers).
Mr. Podolski was granted an incentive bonus of $136,630 for 1998. Of this
amount, $35,000 related to the standard incentive bonus awards to the Company's
executive officers and was based on the achievement of certain personal and
corporate milestones by Mr. Podolski for 1998 and $101,630 was for his 1997
incentive award relating to the License Agreement with Schering-Plough
Corporation. In October 1997, the Committee agreed to award Mr. Podolski an
incentive bonus in the years ended December 31, 1997, 1998 and 1999, which bonus
will be equal to 1% of the net license fees, milestone payments and royalties
received by the Company pursuant to a License Agreement with Schering Plough
Corporation and its affiliates during that calendar year. These bonus payments
are contingent on Mr. Podolski's continued employment with the Company at the
time of payment. The Committee will retain discretion to determine the amount
of any future incentive bonus awards to be paid to Mr. Podolski under its
general plan of incentive bonus awards for the Company's executive officers, and
the Committee expects that it will evaluate a number of factors in reaching this
decision, including the Company's strategic goals for which Mr. Podolski has
responsibility, his other responsibilities, his initiatives and contributions to
the Company's achievement of various corporate and strategic goals, and his own
achievement of certain personal milestones as determined by the Committee from
time to time.
Mr. Podolski was not granted any stock options under the Company's
Incentive Plans during 1998. Mr. Podolski participates in the Company's
Incentive Plans on the same general terms as other participants in the Plan,
although the amount of shares underlying option grants to Mr. Podolski has
historically been larger than for other employees as a result of his position.
The foregoing report is given by the following members of the Compensation
Committee:
Steven Blasnik
Timothy McInerney
-10-
<PAGE>
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.
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................. 51 President, Chief Executive Officer and Director
Paul Lammers M.D., M.Sc............ 41 Senior Vice President of Clinical and Regulatory Affairs
F. Scott Reding.................... 47 Senior Vice President and Chief Financial Officer
Louis Ploth, Jr.................... 44 Vice President of Finance and Secretary
Michael T. Redman.................. 44 Vice President of Business Development
Jean Anne Mire..................... 48 Vice President of Investor Relations
David B. Bowman.................... 43 Vice President of Operations
</TABLE>
Information regarding the business experience of Mr. Podolski is set forth
above under the heading "Nominees for Election as Directors."
Paul Lammers, M.D., M.Sc. Dr. Lammers joined the Company as Senior Vice
President of Clinical and Regulatory Affairs in 1998. Previously Dr. Lammers
was with Hoechst Marion Roussel where he managed the Medical Services Group as
Head of Medical Services in International Marketing. Prior to joining Hoechst,
Dr. Lammers was employed for eight years at Organon, Inc., serving most recently
as Medical Director and Director of Medical Services. Dr. Lammers holds M.Sc.
and M.D. degrees from Catholic University, Nijmegen, The Netherlands.
F. Scott Reding. Mr. Reding joined the Company as Senior Vice President
and Chief Financial Officer in March 1999. Previously Mr. Reding was with
Immunotherapy, Inc. where he was Vice President, Chief Financial Officer and
Treasurer from 1996 to 1998. Prior to joining Immunotherapy, Mr. Reding was
employed for eight years at Nomura Securities International, Inc. serving most
recently as Head of U.S. Healthcare Group. Mr. Reding holds an M.B.A. from
Columbia University and an A.B.degree from Brown University.
Louis Ploth, Jr. Mr. Ploth has thirteen years experience in the
biotechnology industry. He joined Zonagen in 1993 and served as Chief Financial
Officer from his hiring until March 1999, as well as Vice President of Business
Development from his hiring until November 1998. Currently Mr. Ploth serves as
Vice President of Finance. Previously Mr. Ploth was employed by Unisyn
Technologies where he served concurrently as Chief Financial Officer and as Vice
President of Finance and Administration. Mr. Ploth was also Corporate
Controller of Synbiotics Corporation. Mr. Ploth has a B.S. degree from
Montclair State College.
Michael T. Redman. Mr. Redman joined the Company as Vice President of
Business Development in November 1998. Prior to joining Zonagen, Mr. Redman was
Vice President of Business Development at Particle Dynamics, a division of KV
Pharmaceutical, from 1997 to 1998 and Director of Sales and Marketing at Eurand,
a wholly owned subsidiary of American Home Products, from 1994 to 1997. Mr.
Redman was also employed at Biovail Corporation and Corning, Inc. Mr. Redman
holds a B.A. degree in biochemistry from the University of Missouri.
Jean Anne Mire. Ms. Mire has served as the Company's Vice President of
Investor Relations since 1997. Prior to joining Zonagen, Ms. Mire was employed
by Harris Webb & Garrison, an investment banking firm, from 1994 to 1997 where
she was Senior Vice President in the Corporate Finance Department and Senior
Vice President in Equity Research.
-11-
<PAGE>
From 1990 to 1994, Ms. Mire was a biotechnology analyst at Kemper Securities,
Inc. for three years, where she was Senior Vice President in Equity Research.
Ms. Mire holds an M.B.A from Tulane University and a B.S. degree in pharmacy
from Northeast Louisiana University.
David B. Bowman. Mr. Bowman joined the Company in 1990 as Laboratory
Manager. In 1996 Mr. Bowman was promoted to Director of Manufacturing and
Preclinical Operations and has served as Vice President of Operations since
1997. Prior to joining Zonagen, Mr. Bowman was employed by Monsanto Company,
where he focused on product development, technical support, and start-up of
manufacturing facilities. Mr. Bowman holds B.S. and M.P.H. degrees from the
University of Michigan.
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 $100,000 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- -------------
Restricted Securities
Stock UNDERLYING All Other
Name and Principal Position Year Salary Bonus AWARDS ($) Options (#) Compensation(1)
- ---------------------------- ------ --------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Podolski........................ 1998 $200,000 $136,630 -- -- $ 6,000 (2)
President and Chief Executive 1997 $200,000 $135,000 -- -- $ 6,000 (2)
Officer 1996 $150,000 -- -- 100,000 $ 6,000 (2)
Paul Lammers.............................. 1998 $122,724 -- -- 40,000 $42,029 (3)
Senior Vice President of Clinical 1997 -- -- -- -- --
And Regulatory Affairs 1996 -- -- -- -- --
Louis Ploth, Jr........................... 1998 $112,250 -- -- 5,000 --
Vice President of Finance 1997 $100,228 $ 35,000 -- 20,000 --
and Secretary 1996 $ 98,832 -- -- 13,000 --
Jean Anne Mire............................ 1998 $100,798 -- -- -- --
Vice President of Investor 1997 $ 16,667 -- -- 35,000 --
Relations 1996 -- -- -- -- --
David B. Bowman........................... 1998 $100,625 $ 10,000 -- 5,000 --
Vice President of Operations 1997 $ 79,875 $ 35,000 -- 20,000 --
1996 $ 69,659 -- -- 13,000 --
</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.
(3) Represents relocation allowance.
-12-
<PAGE>
Option Grants in 1998
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, 1998 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
Number of Total
Securities Options Market
Underlying 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... -- -- -- -- -- -- -- --
Paul Lammers......... 40,000 4.1% $ 22.00 $ 22.00 03/21/08 -- $553,427 $1,402,493
Louis Ploth, Jr...... 5,000 1.8% $ 20.38 $ 20.38 06/25/08 -- $ 64,069 $ 162,363
Jean Anne Mire....... -- -- -- -- -- -- -- --
David B. Bowman...... 5,000 1.8% $ 20.38 $ 20.38 06/25/08 -- $ 64,069 $ 162,363
</TABLE>
(1) The Securities and Exchange Commission (the "SEC") 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 on 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.
Option Exercises and Holdings
The following table sets forth information concerning option exercises and
the value of unexercised options held by the President and Chief Executive
Officer and each of the Named Executive Officers of the Company named in the
Summary Compensation Table as of the end of the last fiscal year:
AGGREGATED OPTION EXERCISES IN 1998
AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options Held at Options Held at
Shares December 31, 1998 December 31, 1998(1)
Acquired on Value -------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
----- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Podolski............. -- -- 166,570 100,000 $2,422,285 $1,115,000
Paul Lammers................... -- -- -- 40,000 -- --
Louis Ploth, Jr................ -- -- 38,900 32,800 $ 458,112 $ 144,350
Jean Anne Mire................. -- -- 7,000 28,000 $ 1,874 $ 7,496
David B. Bowman................ -- -- 29,700 32,800 $ 372,501 $ 144,350
</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, 1998 was $19.125, based on the closing sales price on
the Nasdaq Stock Market on December 31, 1998.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Podolski,
Lammers, Reding, Ploth and Redman which provide for current annual salaries of
$225,000, $175,000, $175,000, $120,000 and $130,000, respectively. The
agreements provide that the Company will pay Messrs. Podolski, Lammers, Reding,
Ploth and Redman an annual
-13-
<PAGE>
incentive bonus as may be approved by the Board of Directors and that Messrs.
Podolski, Lammers, Reding, Ploth and Redman 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 2000, 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. Lammers, Reding, Ploth and Redman expire in April 2000,
March 2001, September 1999 and November 2000, respectively, with automatic
annual renewals unless otherwise terminated by either party. If terminated for
reasons other than cause, Messrs. Lammers, Reding, Ploth and Redman are entitled
to salary and certain employment benefits for six months following termination.
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, 1998. 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>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
Zonagen, Inc. 100 78.38 117.57 101.35 196.62 206.76
Nasdaq Combined Composite Index 100 97.78 136.22 166.80 204.05 281.64
- ------------------------------------------------------------------------------------------------------------------
Nasdaq Pharmaceutical Companies Index 100 75.26 137.69 138.09 142.69 183.10
- ------------------------------------------------------------------------------------------------------------------
</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 and McInerney. 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 1995 and 1996 private
placements of preferred stock.
During fiscal 1998, 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.
Certain other transactions and relationships are described under "Proposal
Number 1: Election of Directors -- Directors' Meetings and Compensation,"
"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 February 28, 1999 by (i) each
person who is known by the Company to own beneficially more than five percent of
the outstanding shares of Common 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
Nature of
Beneficial
Ownership of Percentage
Name of Beneficial Owner Common Stock(1) of Class(2)
------------------------ --------------- ------------
<S> <C> <C>
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404...................................... 864,500 7.3%
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202...................................... 822,300 6.9%
Fidelity Management & Research Corporation
82 Devonshire St.
Boston, MA 02109......................................... 725,800 6.1%
Capital Research & Management
333 South Hope Street
Los Angeles, CA 90071..................................... 640,000 5.4%
Petrus Fund, L.P.
12377 Merit Dr., Suite 1700
Dallas, TX 75251......................................... 755,793 6.3%
Martin P. Sutter............................................ 313,110(3) 2.6%
Joseph S. Podolski.......................................... 185,170(4) 1.5%
David Bowman................................................ 30,700(5) *
Steven Blasnik.............................................. 782,876(6) 6.6%
Paul Lammers................................................ 8,000(7) *
Timothy McInerney........................................... 98,518(8) *
Jean Anne Mire.............................................. 7,400(9) *
Louis Ploth................................................. 41,300(10) *
All directors and executive officers As a group
(12 persons)............................................... 1,473,657(3)-(10) 12.3%
</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 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
February 28, 1999.
(3) Includes (i) 144,146 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., (ii) 105,029 shares of Common Stock which may
be deemed to be beneficially owned by Mr. Sutter by virtue of his
affiliation with Essex Woodlands Health Ventures, L.P., and (iii) 27,083
shares of Common Stock issuable upon the exercise of options. Mr. Sutter
disclaims beneficial ownership of the shares owned by The Woodlands Venture
Fund, L.P. and Essex Woodlands Health Ventures, L.P.
(4) Includes (i) 300 shares of Common Stock which are held by certain of Mr.
Podolski's family members and (ii) 176,570 shares of Common Stock issuable
on the exercise of options. Mr. Podolski disclaims beneficial ownership of
the shares owned by his family members.
(5) Includes 29,700 shares of Common Stock issuable upon the exercise of
options.
-16-
<PAGE>
(6) 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) 27,083 shares of Common Stock issuable upon the
exercise of options. Mr. Blasnik disclaims beneficial ownership of the
shares owned by Petrus Fund, L.P.
(7) Represents shares of Common Stock issuable upon the exercise of options.
(8) Includes (i) 77,934 shares of Common Stock issuable upon the exercise of
warrants, and (ii) 14,583 shares of Common Stock issuable upon the exercise
of options.
(9) Includes 7,000 shares of Common Stock issuable upon the exercise of
options.
(10) Includes 38,900 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"). 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, 1998, all Section 16(a)
filing requirements applicable to its officers, directors and 10% stockholders
were complied with in a timely manner.
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 1, 2000 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
April 1, 1999
The Woodlands, Texas
-17-
<PAGE>
EXHIBIT A
FIRST AMENDMENT
TO THE
ZONAGEN, INC.
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
This First Amendment (the "Amendment") to the Zonagen, Inc. (the
"Company") Amended and Restated 1993 Employee and Consultant Stock Option Plan
(the "Plan") is executed pursuant to Section 14 of the Plan. All capitalized and
undefined terms used herein shall have the meanings ascribed to such terms in
the Plan.
WHEREAS, the Company's Board of Directors (the "Board") is authorized by
Section 14 of the Plan to amend the Plan from time to time, subject to any
required stockholder approval of any such amendments; and
WHEREAS, at a meeting on March 5, 1999 the Board approved (i) setting the
number of shares of the Company's common stock, par value $.001 per share (the
"Common Stock"), for which options may be granted under the Plan at 2,000,000
shares and (ii) extending the term of the Plan to May 13, 2003; and
WHEREAS, at a meeting held on May 13, 1999, the Company's stockholders
approved the Amendment.
NOW, THEREFORE, in order to amend Sections 3 and 19 of the Plan as
authorized by the Board and approved by the stockholders:
1. The second paragraph of Section 3 of the Plan is hereby revised in its
entirety to read as follows:
"The Committee may grant Options, shares of Restricted Stock and Stock
Bonuses under the Plan with respect to a number of shares of Common
Stock that in the aggregate does not exceed 2,000,000. The Company
will, during the term of this Plan, reserve and keep available for
issuance a sufficient number of shares of Common Stock to satisfy the
requirements of the Plan."
2. The last sentence of Section 19 of the Plan is hereby revised in its
entirety to read as follows:
"No Options, shares of Restricted Stock or Stock Bonuses may be
granted under the Plan after May 13, 2003."
3. Except as amended hereby, the terms and provisions of the Plan shall
remain in full force and effect, and the Plan and this Amendment shall
be read, taken and construed as one and the same instrument.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing Amendment to the Plan by the Board of the Company and approval and
adoption thereof by the stockholders of the Company, the Company has caused this
Amendment to be duly executed in its name and behalf by its proper officers
thereunto duly authorized as of the 13th day of May, 1999.
ZONAGEN, INC.
By:
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Name:
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Title:
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ZONAGEN, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS
This Proxy is Solicited on behalf of the Board of Directors
The undersigned hereby appoints Joseph S. Podolski and F. Scott Reding or
their designees as proxies to represent the undersigned at the Annual Meeting of
Stockholders to be held at the Wyndham Greenspoint Hotel, 12400 Greenspoint
Drive, Houston, Texas, May 13, 1999, at 1:00 p.m., Central Daylight Savings
Time, and any adjournments thereof, and to vote the shares of stock the
undersigned would be entitled to vote if personally present, as indicated below.
<TABLE>
<CAPTION>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to
(except as marked to the contrary below) vote for all nominees listed below
Martin P. Sutter, Joseph S. Podolski, Steven Blasnik, Jeffrey M. Jonas, Nelson L. Levy, and Timothy McInerney
INSTRUCTION: To withhold authority to vote for any individual nominee, print that nominee's name on the line provided:
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2. To approve an amendment to the Corporation's Amended and Restated
1993 Employee Consultant Stock Option Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratify the election of Arthur Andersen LLP as independent accountants
of the Company for the fiscal year ended December 31, 1999. [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote on such other business as may properly come before the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
</TABLE>
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The shares of stock represented by this proxy will be voted as directed. If no
contrary instruction is given, the shares will be voted FOR the election of the
nominees, FOR the approval of the amendment to the Company's Amended and
Restated 1993 Employee and Consultant Stock Option Plan and FOR ratification of
the selection of Arthur Andersen LLP as the Company's independent accountants
for the fiscal year ended December 31, 1999.
DATED:_______________________________
_____________________________________
(Signature)
_____________________________________
(Signature if held jointly)
Please date, sign as name appears at
the left, and return promptly. If the
Shares are registered in the names of
two or more persons, each should sign.
When signing as Corporate Officer,
President, Executor, Administrator,
Trustee or Guardian, please give full
title. Please note any changes in your
address alongside the address as it
appears in the proxy.
