SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
ZONAGEN, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(s) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
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[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
ZONAGEN, INC.
2408 TIMBERLOCH PLACE, SUITE B-4
THE WOODLANDS, TEXAS 77380
May 16, 2002
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 2002 Annual Meeting of
Stockholders of Zonagen, Inc. to be held on Thursday, June 20, 2002, at 1:00
p.m., Central Daylight 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 June 20, 2002.
Sincerely,
Joseph S. Podolski
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD JUNE 20, 2002
To the Stockholders of Zonagen, Inc.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Zonagen,
Inc. (the "Company") will be held on Thursday, June 20, 2002, at 1:00 p.m.,
Central Daylight Time, at the Wyndham Greenspoint Hotel, 12400 Greenspoint
Drive, Houston, Texas, for the following purposes:
1. To elect a board of five 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; and
2. 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 May 10, 2002
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
Secretary
The Woodlands, Texas
May 16, 2002
ZONAGEN, INC.
2408 TIMBERLOCH PLACE, SUITE B-4
THE WOODLANDS, TEXAS 77380
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 20, 2002
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, June 20, 2002 (the "Annual Meeting"), at
1:00 p.m., Central Daylight 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 May 16, 2002.
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 the Internet.
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.
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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 five 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; and
2. Such other business as may properly come before the
Annual Meeting or any adjournments thereof.
QUORUM AND VOTING
The close of business on May 10, 2002 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 11,381,925 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 five 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 Computershare Investor Services, LLC, the Company's transfer agent
and registrar.
PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
The Board of Directors has nominated and urges you to vote for the
election of the five 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.
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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.
YEAR FIRST
BECAME
NAME AGE POSITION WITH THE COMPANY DIRECTOR
---- --- ------------------------- -----------
Martin P. Sutter............ 46 Chairman of the Board 1987
Joseph S. Podolski.......... 54 President and Chief Executive Officer 1992
and Director
Lloyd M. Bentsen, III....... 57 Director 2000
Steven Blasnik.............. 44 Director 1990
Timothy McInerney........... 41 Director 1996
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. 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.
Lloyd M. Bentsen, III. Mr. Bentsen has been a Director of the Company
since June 2000. Mr. Bentsen is a general partner and co-founder of Triad
Ventures and the AM Fund, a group of venture capital funds that invest in
Texas-based emerging growth companies. Prior to founding his venture capital
firm in 1979, Mr. Bentsen spent ten years with Rotan Mosle, Inc., a regional
investment banking firm, as a member of the corporate finance department. Mr.
Bentsen is also on the board of directors of Stewart Information Services
Corporation, one of the largest title insurance companies in the United States
and traded on the New York Stock Exchange. Mr. Bentsen is a graduate of
Princeton University with an M.B.A. from Stanford University.
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.
Timothy McInerney. 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. Prior to that, Mr. McInerney 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.
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DIRECTORS' MEETINGS AND COMPENSATION
The Company's operations are managed under the broad supervision of the
Board of Directors, that has ultimate responsibility for the establishment and
implementation of the Company's general operating philosophy, objectives, goals
and policies. During 2001, the Board of Directors convened on six 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 2001.
Employee directors do not receive additional compensation for service
on the Board of Directors or its committees. The Company reimburses each
non-employee director for travel expenses incurred in connection with attendance
at Board meetings. For board meetings attended in person non-employee directors
receive $1,000.00 per meeting in cash, stock awards, or options. 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"). Non-employee directors are
entitled to participate in the Company's 2000 Non-employee Directors' Stock
Option Plan (the "2000 Director Plan").
The Board terminated the 1996 Non-employee Directors' Stock Option Plan
(although all options previously granted will remain outstanding pursuant to
their original terms) in connection with the approval of the 2000 Director Plan.
Under the 2000 Director Plan, (i) each non-employee director who is
first elected to the Board is entitled to receive an option to purchase 40,000
shares of Common Stock on the date on which he first becomes a non-employee
director, and (ii) each non-employee director in office on the date of the
Company's annual meeting of stockholders will receive an option to purchase
5,000 shares of Common Stock effective on such date. Additionally under the 2000
Director Plan, the chairman of the board who is first elected to the Board is
entitled to receive an option to purchase 10,000 shares of Common Stock on the
date on which he first becomes chairman, and the chairman in office on the date
of each of the Company's annual meeting of stockholders will receive an option
to purchase 10,000 shares of Common Stock effective on such date. In 2001, the
Company granted options to acquire an aggregate of 30,000 shares of Common Stock
to non-employee directors under the 2000 Director Plan. During 2001, the Company
paid $5,000 to one director, issued stock awards totaling 2,690 shares of Common
Stock to two directors, and granted options to purchase an aggregate of 1,852
shares of Common Stock to one director, for the attendance of board meetings in
person.
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 principal standing committees: the Executive Committee, the Compensation
and Option Committee, the Nominating Committee and the Audit 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 convened once in 2001.
The Compensation and Option Committee, currently comprised of Messrs.
Blasnik and McInerney, selects the employees to whom stock options are to be
granted, determines the terms and conditions provided for in each option grant
and reviews and recommends to the Board of Directors the amount of compensation
to be paid to officers of the Company. The Compensation and Option Committee
convened once in 2001 and took certain additional actions by unanimous written
consent in lieu of meetings.
The Nominating Committee is currently comprised of Messrs. Sutter and
Podolski, and did not meet in 2001.
The Audit Committee, currently comprised of Messrs. Bentsen, Blasnik
and McInerney, 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
4
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 meets
quarterly and convened four times in 2001 and two times during the quarter ended
March 31, 2002.
As required by Nasdaq Stock Market and Securities and Exchange
Commission (the "Commission") rules regarding audit committees, the Board of
Directors has reviewed the qualifications of its Audit Committee and has
determined that none of the current members of the Audit Committee have a
relationship with the Company that might interfere with the exercise of their
independence from the Company or its management.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
In past years, the Audit Committee has recommended the appointment of
independent auditors for the current year to the board of directors, which in
turn has recommended ratification of such appointment by our stockholders.
Arthur Andersen LLP ("Andersen") had served in that capacity for us, but this
year, in light of the events surrounding Andersen, the Audit Committee and
management have decided to change independent auditors and are currently
performing due diligence to make an informed decision. Accordingly, the
stockholders are not being asked to ratify the appointment of independent
auditors to audit the Company's financial statements for the year ending
December 31, 2002. The Audit Committee intends to make a decision with respect
to the appointment of our independent auditors for the year ending December 31,
2002 that we believe to be in the best interest of the Company and its
stockholders.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee includes three directors who are independent, as
defined by the standards of the Nasdaq Stock Market. The Audit Committee assists
the Board in overseeing matters relating to the Company's accounting and
financial reporting practices, the adequacy of its internal controls and the
quality and integrity of its financial statements.
The Audit Committee met four times during the year ended December 31,
2001. Also, the Audit Committee reviewed with management and the independent
auditors the interim financial information included in the Company's quarterly
reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and
September 30, 2001 prior to their being filed with the Commission as well as for
the fiscal quarter ended December 31, 2001, as filed with the Company's Form
10-K for the year ended December 31, 2001.
The independent auditors provided the Audit Committee with a written
statement describing all the relationships between the Company and its auditors
that might bear on the auditors' independence consistent with Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees." The Audit Committee also discussed with the auditors any
relationships that may impact their objectivity and independence and satisfied
itself as to the auditors' independence.
The Audit Committee discussed and reviewed with the independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement of Auditing Standards No. 61, as amended,
"Communication with Audit Committees."
With and without management present, the Audit Committee discussed and
reviewed the results of the independent auditors' examination of the Company's
December 31, 2001 financial statements. The discussion included matters related
to the conduct of the audit, such as the selection of and changes in significant
accounting policies, the methods used to account for significant or unusual
transactions, the effect of significant accounting policies in controversial or
emerging areas, the process used by management in formulating particularly
sensitive accounting estimates and the basis for the auditors' conclusions
regarding the reasonableness of those estimates, significant adjustments arising
from the audit and disagreements, if any, with management over the application
of accounting principles, the basis for management's accounting estimates and
the disclosures in the financial statements.
The Audit Committee reviewed the Company's audited financial statements
as of and for the year ended December 31, 2001, and discussed them with
management and the independent auditors. Based on such review and discussions,
the Audit Committee recommended to the Board that the Company's audited
financial statements be included in its Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 for filing with the Commission.
5
FEES PAID TO PRINCIPAL ACCOUNTING FIRM
The following table sets forth the aggregate fees billed to the Company
by its principal accounting firm for the 2001 audit of its financial statements,
Andersen, for the fiscal year ended December 31, 2001:
Audit Fees $ 77,000
Financial Information Systems
Design and Implementation Fees 0
All Other Fees $ 20,834
----------
Total Fees $ 97,834
The Audit Committee considered whether the provision of the services
reflected under "All Other Fees" above might have affected Andersen's
independence with respect to their audit of the Company's financial statements,
and the Audit Committee believes that such services did not affect, and were
compatible with, Andersen's independence.
This report of the Audit 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 (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (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.
Steven Blasnik
Lloyd M. Bentsen, III
Timothy McInerney, Chairman
REPORT OF THE COMPENSATION AND OPTION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation and Option Committee (the "Committee") of the Board of
Directors of the Company currently consists of Steven Blasnik and Timothy
McInerney, neither of whom is an officer or employee of the Company. The
Committee is responsible for evaluating the performance of management and
determining the compensation for executive officers of the Company and for
administering the Company's Incentive Plans under which grants may be made to
employees of the Company. The Committee has furnished the following report on
executive compensation for 2001:
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 and
the general progress of the Company's clinical trials. 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.
6
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 2001 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 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 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, was increased to $280,000 for 2002. In increasing
Mr. Podolski's annual base salary for 2002, 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).
The Committee did not grant a bonus to Mr. Podolski for 2001. In March
2002, the Committee approved a bonus plan for Mr. Podolski under which he will
receive year end bonuses that will equal two percent (2%) of the amount of
milestone payments received by the Company during such year. Such plan
terminates after December 31, 2003, unless prior thereto there is either a
change of control or a termination of Mr. Podolski's employment. If either such
event occurs prior to such date, the bonus plan will terminate upon the
occurrence of such event. The Committee retains
7
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. 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 granted options to purchase an aggregate of 25,000
shares under the Company's Incentive Plans during 2001. In March 2002, the
Committee approved the grant of an option to Mr. Podolski to purchase 50,000
shares of Common Stock with an exercise price equal to the fair market value of
the Common Stock on the date of grant and usual time-based vesting provisions
and an additional performance option to purchase 225,000 shares of Common Stock
with an identical exercise price, all of which vest on the tenth anniversary of
the date of grant but with accelerated vesting of certain portions of such
option on certain milestone events related to the approval of Vasomax(TM) in
Europe and the United States. 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
Committee:
Timothy McInerney, Chairman
Steven Blasnik
The report of the 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.
8
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.
NAME AGE POSITION
---- --- --------
Joseph S. Podolski............. 54 President, Chief Executive Officer, and Director
Louis Ploth, Jr................ 47 Chief Financial Officer, Vice President, Business
Development and Secretary
Information pertaining to Mr. Podolski, who is both a director and an
executive officer of the Company, may be found in the section entitled
"Directors".
Louis Ploth, Jr. Mr. Ploth has over sixteen years experience in the
biotechnology industry. Since January 2001, Mr. Ploth has served as Chief
Financial Officer, Vice President, Business Development and Secretary. He served
as Vice President, Finance from March 1999 to January 2001. He had previously
served as Chief Financial Officer and Vice President, Business Development from
1993 to 1998 and as Chief Financial Officer from 1998 to March 1999. 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.
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 the Company's only officer who had
compensation in excess of $100,000 during the last fiscal year (the "Named
Executive Officers"):
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------------------- STOCK UNDERLYING) ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS ($) OPTIONS (#) COMPENSATION(1)
--------------------------- ------ ----------- ----------- ----------- ------------ ---------------
Joseph S. Podolski.................... 2001 $ 235,000 -- -- 25,000 $ 6,000(4)
President and Chief Executive 2000 $ 232,500 $ 75,000(2) -- -- $ 6,000(4)
Officer 1999 $ 225,000 $ 13,680(3) -- 35,000 $ 6,000(4)
Louis Ploth, Jr....................... 2001 $ 139,133 -- -- 30,000 --
Chief Financial Officer, Vice 2000 $ 129,600 $ 57,500(2) -- 20,000 --
President, Business Development 1999 $ 121,500 $ 28,500 -- 30,000 --
and Secretary
----------
(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) Stay bonus granted on October 18, 1999 and paid during 2000.
(3) Performance bonus paid in 2000 but earned in 1999.
(4) Represents car allowance.
9
Option Grants in 2001
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, 2001 under
the Company's Incentive Plans:
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%
---- ---------- ----------- -------- -------- ---------- ------ --------- ----------
Joseph S. Podolski.. 25,000 18.1% $3.15 $3.15 9/20/2011 -- $ 49,525 $ 125,507
Louis Ploth, Jr..... 20,000 14.4% $2.72 $2.72 5/23/2011 -- $ 34,212 $ 86,700
Louis Ploth, Jr..... 10,000 7.2% $3.15 $3.15 9/20/2011 -- $ 19,810 $ 50,203
----------
(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 2001
AND OPTION VALUES AT DECEMBER 31, 2001
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS HELD AT
SHARES DECEMBER 31, 2001 DECEMBER 31, 2001(1)
ACQUIRED ON VALUE ---------------------------- ------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ------------ ----------- ------------- ----------- -------------
Joseph S. Podolski ...... -- -- 251,360 46,000 $ 314,578 $ 181,552
Louis Ploth, Jr. ........ -- -- 97,700 54,000 $ 157,216 $ 172,844
----------
(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, 2001 was $7.00, based on the closing sales price on
the Nasdaq Stock Market on December 31, 2001.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Podolski and Ploth
which provide for current annual salaries of $280,000 and $150,000,
respectively. The agreements provide that the Company will pay Messrs. Podolski
and Ploth an annual incentive bonus as may be approved by the Board of Directors
and that they are entitled to participate in all employee benefit plans
sponsored by the Company. Mr. Podolski's employment agreement provides for a
renewal term expiring in January 2003, 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. Mr. Podolski's employment agreement
provides that in the event that he terminates
10
his employment for Good Reason (defined as a change in duties or pay or the
like) or is terminated by the Company without Cause, within 12 months of a
Change of Control, that he will receive, in lieu of any other severance payments
payable to him under such agreement, a lump sum bonus payment of $666,045, as
consideration for past services and services rendered in connection with the
change of control. Such payment will be deposited in the Joe Podolski Rabbi
Trust, and paid to him in installments over the six years following the event.
Mr. Ploth's employment agreement expires in October 2002 with automatic annual
renewals unless otherwise terminated by either party. If terminated for reasons
other than cause, Mr. Ploth is entitled to salary and certain employment
benefits for six months following termination.
Mr. Ploth's agreement provides for the following additional benefits
for Mr. Ploth if he remains employed by the Company at the date of a change of
control:
o a lump sum cash bonus payable upon the earlier of (i) a change in control
(as defined therein) or (ii) the Board's termination of further action to
facilitate a change in control;
o upon a change in control, all outstanding options he holds shall
accelerate in full and shall remain exercisable for two years following
the change in control;
o upon a change in control, the Company shall pay him a lump sum cash
payment equal to one-half of his then current annual salary; and
o for a period of six months following a change in control, the Company
shall continue to provide his fringe benefits, such as health and dental
insurance.
11
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 fiscal years ending
December 31, 1996 to December 31, 2001. The graph assumes that the value of the
investment in the Company's Common Stock and each index was $100 at December 31,
1996 and that all dividends were reinvested.
MARKET COMPARISON OF CUMULATIVE RETURN
AMONG ZONAGEN, INC.,
NASDAQ COMBINED MARKET INDEX AND
NASDAQ PHARMACEUTICAL COMPANIES INDEX
--------------------------------------------------------------------------------------------------------------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
Zonagen, Inc. 100 194 204 47 28 75
Nasdaq Combined Market Index 100 122 169 315 190 152
Nasdaq Pharmaceutical Companies Index 100 103 130 247 307 261
--------------------------------------------------------------------------------------------------------------------
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 or 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.
12
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, 2002 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.
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP OF PERCENTAGE
NAME OF BENEFICIAL OWNER COMMON STOCK(1) OF CLASS(2)
------------------------ ------------------- -----------
Joseph Edelman 905,300(3) 8.0%
c/o First New York Securities L.L.C.
850 Third Avenue, 17th Floor
New York, New York 10022..............................
Petrus Fund, L.P.
12377 Merit Dr., Suite 1700 755,793(4) 6.6%
Dallas, Texas 75251...................................
Lloyd M. Bentsen, III....................................... 13,000(5) *
Steven Blasnik.............................................. 825,508(6) 7.2%
Joseph S. Podolski.......................................... 291,481(7) 2.5%
Martin P. Sutter ........................................... 247,899(8) 2.2%
Timothy McInerney........................................... 213,698(9) 1.9%
Louis Ploth................................................. 108,497(10) *
All directors and executive officers
as a group (6 persons)................................. 1,700,083(5)-(10) 14.3%
* 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 March 31, 2002.
(3) Based on information contained in a Schedule 13G filed on behalf of Mr.
Edelman on January 23, 2002 and a Schedule 13G filed on behalf of First
New York Securities L.L.C. on April 5, 2002. Pursuant to information
contained in both filings, 788,900 of such shares are held by Perceptive
Life Sciences Master Fund Ltd., the investment manager of which is
Perceptive Advisors LLC, of which Mr. Edelman is managing member.
(4) Based on information provided to the Company by Petrus Fund, L.P.
(5) Includes 13,000 shares issuable upon exercise of options.
(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) 69,715 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) Includes (i) 300 shares of Common Stock which are held by certain of Mr.
Podolski's family members and (ii) 224,000 shares of Common Stock issuable
upon the exercise of options. Mr. Podolski disclaims beneficial ownership
of the shares owned by his family members.
(8) Includes (i) 115,029 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., (ii) 80,000 shares of Common Stock
issuable upon the exercise of options and (iii) 524 shares of Common Stock
which are held by certain of Mr. Sutter's family members. Mr. Sutter
disclaims beneficial ownership of the shares owned by Essex/Woodlands
Health Ventures, L.P. and by his family members.
(9) Includes (i) 51,194 shares of Common Stock issuable upon the exercise of
warrants, (ii) 53,500 shares of Common Stock issuable upon the exercise of
options, and (iii) 3,131 shares of Common Stock which are held by certain
of Mr. McInerney's family members. Mr. McInerney disclaims beneficial
ownership of the shares owned by his family members.
(10) Includes 103,700 shares of Common Stock issuable upon the exercise of
options.
13
COMPENSATION AND OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Option Committee currently consists of Messrs.
Blasnik and McInerney. During fiscal 2001, 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.
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, 2001, all Section 16(a)
filing requirements applicable to its officers, directors and 10% stockholders
were complied with in a timely manner.
PROPOSALS 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 17, 2003 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
Secretary
May 16, 2002
The Woodlands, Texas
14
PROXY ZONAGEN, INC. PROXY
THE ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph S. Podolski and Louis Ploth, Jr. 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, June 20, 2002, 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.
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 director.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
1. Election of Directors -
Nominee(s): For All Withhold All For All Except*
01 Martin P. Sutter 02 Joseph S. Podolski 03 Lloyd M. Bentsen III [ ] [ ] [ ]
04 Steven Blasnik 05 Timothy McInerney, R. Ph.
------------------------------------------------------------------------------------------------------------------------
* INSTRUCTION: To withhold authority to vote for any individual nominee, print that nominee's name on the line provided:
At their discretion, the proxies are authorized to vote on such other business as may properly come before the meeting.
Dated: , 2002
-------------------------------------------
-------------------------------------------------------
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.