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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-2.
ZILA, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than 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 0-12.
(1) Title of each class 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
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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,
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ZILA, INC.
5227 NORTH 7TH STREET
PHOENIX, ARIZONA 85014-2800
(602) 266-6700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
December 7, 2000
The 2000 Annual Meeting of Stockholders of Zila, Inc. (the "Company")
will be held at Marriott's Camelback Inn, 5402 East Lincoln Drive, Scottsdale,
Arizona 85253 on December 7, 2000, at 9:00 a.m., local time.
MATTERS TO BE VOTED ON:
1. Election of six directors to serve for the next year or until
their successors are elected;
2. Ratification of the selection of Deloitte & Touche LLP as our
independent public accounting firm for the fiscal year ending
July 31, 2001;
3. To amend the Company's 1997 Stock Option Award Plan to increase
the number of authorized shares thereunder from 1,000,000 to
3,000,000;
4. Approve the adoption of the Employee Stock Purchase Plan; and
5. Any other matters as may properly come before the Annual Meeting
or any adjournment thereof.
The close of business on October 20, 2000 has been fixed as the Record
Date for the determination of stockholders entitled to receive notice of and to
vote at this meeting or any adjournment of the meeting. The list of stockholders
entitled to vote at this meeting is available at the offices of the Company,
5227 North 7th Street, Phoenix, Arizona 85014, for examination by any
stockholder.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THIS MEETING, PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY, WHICH IS SOLICITED BY AND ON BEHALF OF THE
BOARD OF DIRECTORS. THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO
REVOKE SUCH PROXY OR TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO ATTEND THE
MEETING.
By Order of the Board of Directors,
/s/ Janice L. Backus
Janice L. Backus
Vice President and Secretary
Phoenix, Arizona
November 7, 2000
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PROXY STATEMENT
TABLE OF CONTENTS
GENERAL INFORMATION........................................................... 1
Who Can Vote............................................................ 1
Voting by Proxies....................................................... 1
How You May Revoke Your Proxy Instructions.............................. 2
How Votes are Counted................................................... 2
Cost of this Proxy Solicitation......................................... 2
Attending the Annual Meeting............................................ 2
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?............................... 2
WHO SHOULD I CALL IF I HAVE QUESTIONS?........................................ 3
PROPOSALS..................................................................... 3
PROPOSAL NO. 1 - ELECT SIX DIRECTORS................................... 3
PROPOSAL NO. 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS....... 4
PROPOSAL NO. 3 - PROPOSED INCREASE OF SHARES AUTHORIZED
FOR ISSUANCE UNDER THE STOCK OPTION AWARD PLAN.............. 5
PROPOSAL NO. 4 - APPROVAL OF ADOPTION OF
THE EMPLOYEE STOCK PURCHASE PLAN............................ 8
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS..................................... 10
EXECUTIVE OFFICERS............................................................ 13
ABOUT THE BOARD AND ITS COMMITTEES............................................ 14
EXECUTIVE COMPENSATION........................................................ 16
STOCK OPTION GRANTS........................................................... 17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 2000........................................ 18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION....................... 19
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT........................ 22
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE....................... 23
STOCK PRICE PERFORMANCE GRAPH................................................. 24
PROPOSALS BY STOCKHOLDERS..................................................... 25
OTHER BUSINESS................................................................ 25
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ANNUAL REPORT................................................................. 25
EXHIBIT A - EMPLOYEE STOCK PURCHASE PLAN
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PROXY STATEMENT
This Proxy Statement is furnished to the Stockholders of Zila, Inc., a
Delaware corporation (the "Company"), in connection with the Company's
solicitation of proxies to be used in voting at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on December 7, 2000. The proxy
materials were mailed on or about November 7, 2000 to stockholders (the
"Stockholders") of record at the close of business on October 20, 2000 (the
"Record Date").
Your vote is very important. For this reason, the Board of Directors is
requesting that you allow your Common Stock to be represented at the Annual
Meeting by the persons who are named on the enclosed Proxy Card (the "Proxies").
"We," "our," "Zila," and the "Company" refer to Zila, Inc.
GENERAL INFORMATION
Who Can Vote You are entitled to vote your Common Stock if our
records show that you held your shares as of October 20,
2000. At that date, 43,512,528 shares of Common Stock
were outstanding and entitled to vote. Each share of
Common Stock is entitled to one vote on all matters on
which Stockholders may vote. The enclosed Proxy Card
shows the number of shares that you are entitled to
vote. Your individual vote is confidential and will not
be disclosed to third parties.
Voting by Proxies If your Common Stock is held by a broker, bank or other
nominee (i.e., in "street name"), you will receive
instructions from them which you must follow in order to
have your shares voted. If you hold your shares in your
own name as a holder of record, you may instruct the
Proxies how to vote your Common Stock by signing, dating
and mailing the Proxy Card in the envelope provided. Of
course, you can always come to the meeting and vote your
shares in person. If you give us a proxy without giving
specific voting instructions, your shares will be voted
by the Proxies as recommended by the Board of Directors.
We are not aware of any other matters to be presented at
the Annual Meeting except those described in this Proxy
Statement. However, if any other matters not described
in the Proxy Statement are properly presented at the
meeting, the Proxies will use their own judgment to
determine how to vote your shares. If the meeting is
adjourned, your Common Stock may be voted by the Proxies
on the new meeting date as well, unless you have revoked
your proxy instructions prior to that time.
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How You May You may revoke your proxy instructions by any of the
Revoke Your following procedures:
Proxy Instructions
1. Send us another signed proxy with a later date;
2. Send a letter to the Company's secretary
revoking your proxy before your Common Stock has
been voted by the Proxies at the meeting; or
3. Attend the Annual Meeting and vote your shares
in person.
How Votes are Inspectors of election will be appointed for the
Counted meeting. The inspectors of election will determine
whether or not a quorum is present and will tabulate
votes cast by proxy or in person at the Annual Meeting.
If you have returned valid proxy instructions or attend
the meeting in person, your Common Stock will be counted
for the purpose of determining whether there is a
quorum, even if you wish to abstain from voting on some
or all matters introduced at the meeting. If a broker
indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on
a particular matter, those shares will not be considered
as present and entitled to vote with respect to that
matter.
Cost of this Proxy We will pay the cost of this proxy solicitation,
Solicitation including the charges and expenses of brokerage firms
and others who forward solicitation material to
beneficial owners of the Common Stock. We will solicit
proxies by mail. Proxies may also be solicited by
personal interview, telephone, or telegraph. Corporate
Investor Communications, Inc. will serve as the
Company's proxy solicitation agent. In such capacity,
Corporate Investor Communications, Inc. will coordinate
the distribution of proxy materials to beneficial owners
of Common Stock and oversee the return of proxy cards.
The fee for these services is estimated to be $5,500.
Attending the If you are a beneficial owner of Common Stock held by a
Annual Meeting broker or bank, you will need proof of ownership to be
admitted to the meeting. A recent statement or letter
from a broker or bank showing your current ownership and
ownership of the Company's shares on the record date are
examples of proof of ownership. Although you may attend
the meeting, you will not be able to vote your Common
Stock held in street name in person at the meeting and
will have to vote through your broker or bank.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
Proposal 1: The six nominees for director who receive the most votes
Election of Six will be elected. There is no cumulative voting in the
Directors election of directors.
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Proposal 2: The affirmative vote of a majority of the shares of
Ratification of Common Stock entitled to vote and present at the Annual
Independent Meeting in person or by proxy will be required to ratify
Public the selection of independent auditors. Therefore, if you
Accountants "abstain" from voting, it has the same effect as if you
voted "against" this proposal.
Proposal 3: The affirmative vote of a majority of the shares of
Approval of Common Stock entitled to vote and present at the Annual
Amendment of the Meeting in person or by proxy will be required to
1997 Stock Option approve the increase in shares reserved for issuance
Award Plan under the 1997 Stock Option Award Plan. Therefore, if
you "abstain" from voting, it has the same effect as if
you voted "against" the proposal.
Proposal 4: The affirmative vote of a majority of the shares of
Approval of the Common Stock entitled to vote and present at the Annual
Employee Stock Meeting in person or by proxy will be required to
Purchase Plan approve the adoption of the Employee Stock Purchase
Plan. Therefore, if you "abstain" from voting, it has
the same effect as if you voted "against" the proposal.
WHO SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about the Annual Meeting or voting, please call
Janice L. Backus, our Vice President and Corporate Secretary, at (602) 266-6700.
PROPOSALS
PROPOSAL NO. 1 - ELECT SIX DIRECTORS
Number of An entire Board of Directors, consisting of six
Directors to be directors, is to be elected at the Annual Meeting. Each
Elected Director elected will hold office until the next annual
meeting or until his successor is elected and qualified.
If any director resigns or otherwise is unable to
complete his term of office, the Board will elect
another director for the remainder of the resigning
director's term.
Vote Required The six nominees receiving the highest number of votes
cast at the Annual Meeting will be elected. There is no
cumulative voting in the election of directors.
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Nominees of the The Board has nominated the following individuals to
Board serve on our Board of Directors for the following year:
Joseph Hines
Carl A. Schroeder
Michael S. Lesser
Curtis M. Rocca III
Christopher D. Johnson
Kevin J. Tourek
All of these nominees are currently serving on the
Board. Each of the nominees has agreed to be named in
this Proxy Statement and to serve if elected. See page
11 for information regarding each of the nominees listed
above.
We know of no reason why any of the listed nominees would not be able to
serve. However, if any nominee is unavailable for election, the Proxies will
vote your Common Stock to approve the election of any substitute nominee
proposed by the Board.
YOUR DIRECTORS RECOMMEND A VOTE FOR THE ELECTION OF THE SEVEN NOMINEES
UNDER PROPOSAL NO. 1.
PROPOSAL NO. 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The principal independent public accounting firm utilized by us during
the fiscal years ended July 31, 1994 through 2000 was Deloitte & Touche LLP,
independent certified public accountants (the "Auditors"). The Board of
Directors presently contemplates that the Auditors will be retained as the
principal accounting firm to be utilized by us throughout the fiscal year ending
July 31, 2001. We anticipate that a representative of the Auditors will attend
the Annual Meeting for the purpose of responding to appropriate questions. At
the Annual Meeting, a representative of the Auditors will be afforded an
opportunity to make a statement if the Auditors so desire.
The Proxies will vote in favor of ratifying the selection of Deloitte &
Touche LLP unless instructions to the contrary are indicated on the accompanying
proxy form.
YOUR DIRECTORS RECOMMEND A VOTE FOR PROPOSAL NO. 2.
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PROPOSAL NO. 3 - PROPOSED INCREASE OF SHARES AUTHORIZED
FOR ISSUANCE UNDER THE STOCK OPTION AWARD PLAN
Summary of the The Stock Option Award Plan was approved by the
Amendment stockholders at the 1997 Annual Meeting. The Board of
Directors adopted an Amendment to the Company's Stock
Option Award Plan on September 13, 2000 to increase the
number of authorized shares reserved for issuance upon
exercise of options granted under the Plan. The purpose
of the Stock Option Award Plan is to provide us with a
means to attract employees and to provide employees with
greater incentive to serve and promote our interests and
our stockholders by encouraging them to acquire a
proprietary interest in our business or increase the
proprietary interest they already have. We believe that
such a proprietary interest promotes our interests and
of our stockholders and that the continued
implementation of this policy is desirable. We desire to
take these actions because options to purchase all of
the original 1,000,000 shares reserved for issuance
under the Stock Option Award Plan have been granted.
Addition of Shares The number of shares reserved for issuance under the
Stock Option Award Plan is proposed to be increased from
1,000,000 to 3,000,000 shares.
Employees Eligible Options may be granted by the Board of Directors or a
for Options committee of the Board of Directors to enhance the
incentive of those of our employees who are responsible
for the continued growth and development and financial
success of our business.
Shares Subject to As of October 20, 2000, the closing price of our Common
the Plan Stock as reported on the NASDAQ Stock Market System was
$3.188. Either treasury or authorized and unissued
Common Stock (within the maximum limits of the Stock
Option Award Plan) can be issued under the Stock Option
Award Plan. All shares which expire or terminate
unexercised will be made available for the granting of
other options under the Stock Option Award Plan.
Adjustment Upon In the event of any change in the number of outstanding
Changes in Capital shares of Common Stock through the declaration of a
stock dividend, split-up, combination of shares,
recapitalization, merger, consolidation or other
corporate reorganization in which we are the surviving
corporation, or the number and kind of shares subject to
any options outstanding but unexercised, and the price
per share payable on the exercise of any options
outstanding but unexercised, will be adjusted as the
Board of Directors considers appropriate, and all
adjustments will be conclusive and binding.
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Option Price The option price per Share will be determined by the
Board of Directors at the time of grant but will not be
less than 100% of the fair market value of a share on
the date of grant. If the employee to whom an option is
granted, however, is at the time of the grant of the
option an owner of 10% or more of the total combined
voting power of all classes of the stock of the Company,
the option price per share will be at least 110% of the
fair market value of a share on the date of grant.
Period of Option The Board of Directors determines when an option will
expire, but no option can be exercised ten years from
the date of grant.
Limitations on No option is transferable, except in the event of a
Transfer and person's death to a designated beneficiary, or by will
Exercise of Option or the laws of descent and distribution. Only the
employee to whom the option is granted can exercise the
option during the employee's life. No option can be
exercised for less than 100 shares.
Conditions Each option is subject to restrictions or conditions
Governing Exercise with respect to the right to exercise and the time of
of Option exercise as the Board of Directors may prescribe.
Options are exercisable by the employee by giving
written notice and paying the purchase price either in
cash, withheld shares, a manner acceptable to us or
shares owned by the holder, or in a combination thereof.
Shares delivered in payment of the purchase price are
valued at their fair market value.
Limitations on During the calendar year in which any incentive stock
Grant of Incentive options granted under the Stock Option Award Plan first
Stock Options become exercisable by an optionee, the aggregate fair
market value of the shares which are subject to such
incentive stock options (determined as of the date the
incentive stock options were granted) cannot exceed
$100,000.
Cessation of An option will lapse ten years after it is granted,
Employment three months after normal retirement, 12 months after
termination due to permanent disability, three months
after any other termination of employment or any earlier
time set at the time of grant. If the optionee dies, the
option will lapse no later than 12 months after the date
of death.
Amendments The Board of Directors may amend or suspend the Stock
Option Award Plan or with the consent of the individual
participant, cancel, reduce or otherwise alter the
participant's options. Shareholder approval is required
to preserve or comply with exemptions under securities
laws or to preserve the status of incentive stock
options.
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Federal Income Tax With respect to an incentive stock option, the optionee
Consequences will realize no income for Federal income tax purposes
upon the grant of the option, but the difference between
the exercise price and the fair market value of the
shares at the date of issuance of the shares to the
employee (following exercise of the incentive stock
option) will constitute an item of tax preference which
may be subject to the alternative minimum tax. If the
optionee is subject to the alternative minimum tax, his
basis in the stock for alternative minimum tax purposes
will be increased by the amount included in income.
If the optionee does not sell shares acquired through
the exercise of incentive stock options within one year
after the issuance of the shares to him or her, or
within two years after the grant of the option, any
amount realized by the optionee in the event of a sale
of his shares which is in excess of his cost will be
taxed as a long-term capital gain. Sixty percent of the
net capital gain realized is an item of tax preference
which may be subject to the alternative minimum tax. The
alternative minimum tax is paid only if it exceeds the
regular tax.
We are not entitled to a deduction for Federal income
tax purposes, either in connection with the granting of
an incentive stock option or the issuance of shares upon
exercise. If, however, the optionee disposes of his
shares within the one-year or two-year periods mentioned
above, he will be required to include in his income, as
compensation, the excess of the fair market value of the
shares at the date of issuance or, in certain cases, if
less, the amount realized on disposition, over the
option price, and we will be entitled to a business
expense deduction in the year of disposition of the
shares equal to any amount which the optionee is
required to treat as compensation income.
With respect to a nonqualified stock option, an optionee
will not realize income upon the granting of the option;
however, in any year in which an optionee exercises an
option, the excess, if any, of fair market value of the
shares at the date of exercise over the option price
will be taxed as compensation at ordinary income tax
rates, and we will be entitled to a tax deduction for a
like amount in the same year.
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Options Awarded We have awarded the following options contingent upon
receiving shareholder approval of the Amendment:
Name and Position Number of Option Shares
----------------- -----------------------
Joseph Hines 90,000
President and
Chief Executive Officer
Thomas M. Laughlin 100,000
Vice President and
Chief Operating Officer
Bradley C. Anderson 30,000
Vice President and
Chief Financial Officer
Janice L. Backus 30,000
Vice President and
Corporate Secretary
Non-Executive Officer 160,900
Employee Group
The Amendment will not take effect unless it is approved by a vote of
the majority of shares of Common Stock entitled to vote and present at the
Annual Meeting in person or by proxy. If the stockholders do not approve the
Amendment, the above options will be treated as non-plan options. It is intended
that the Proxies will vote for adoption of the Amendment unless instructions to
the contrary are indicated on the accompanying proxy form.
YOUR DIRECTORS RECOMMEND A VOTE FOR AMENDMENT OF THE STOCK OPTION AWARD PLAN
UNDER PROPOSAL NO. 3
PROPOSAL NO. 4 - APPROVAL OF ADOPTION OF
THE EMPLOYEE STOCK PURCHASE PLAN
Summary of the The Board adopted the Employee Stock Purchase Plan,
Employee Stock attached hereto as Exhibit B, in September 2000. The
Purchase Plan Plan provides eligible employees with the opportunity to
acquire a stock ownership interest in the Company
through periodic payroll deductions. The purpose of the
Plan is to provide a method whereby employees will have
an opportunity to acquire a proprietary interest in the
Company through the purchase of Common Stock.
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Shares Reserved The Plan has 2,000,000 shares of Common Stock reserved
and Eligibility for issuance to eligible employees. As of October 20,
2000, the closing price of our Common Stock as reported
on the NASDAQ stock market system was $3.188. Our
employees are eligible to participate in the Plan
following 90 days of continuous service with us.
Oversight The Board of Directors or a committee appointed by the
Board of Directors administers the Plan. The Board of
Directors has the authority to interpret the provisions
of the Plan and to establish and amend rules for its
administration subject to the Plan's limitations.
Restrictions on No employee will be granted an option to participate in
Participations the Stock Purchase Plan if, immediately after the grant,
he would own stock, and/or hold outstanding options to
purchase stock, possessing 5% or more of the total
combined voting power or value of all classes of stock
of the Company; or which permits his rights to purchase
stock under all of our employee stock purchase plans to
accrue at a rate which exceeds $25,000 in fair market
value of the stock for the calendar year in which such
option is granted.
Commencement of An employee can become a participant by completing an
Participation authorization for a payroll deduction on the form
provided and filing it with the office of the Treasurer
on or before the date set by the Board of Directors.
Annual Offerings The Plan will be implemented by annual offerings of our
Common Stock beginning on January 1 of each year and
ending on December 31 of the same year; provided,
however, that each annual offering may, in the
discretion of the Board of Directors, be divided into
two six-month offerings.
Method of Payment Eligible employees invest in the Plan through regular
and Stock Price payroll deductions of up to 15% (18% for the short
offering period) of their gross base salary for each
annual or semi-annual period of participation. At each
purchase date, payroll deductions are credited to an
account established in each participating employee's
name and shares of our Common Stock are automatically
purchased on behalf of that employee on the last
business day of each purchase period at the lesser of
85% of the market price per share of Common Stock on (i)
the commencement date of the purchase period or (ii) the
purchase period termination date. A participant can
elect, prior to the commencement date, to pay a lump sum
payment.
Transferability During a participant's lifetime, options are exercisable
only by that participant. Neither payroll deductions
credited to a participant's account nor any rights with
regard to the exercise of an option or to receive stock
under the Plan can be assigned, transferred, pledged, or
otherwise disposed of in any way by the participant
other than by will or the laws of descent and
distribution.
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Withdrawal A participant can withdraw payroll deductions or lump
sum payments credited to his account under the Plan at
any time by giving written notice. Upon termination of
employment for any reason, including retirement (but
excluding death while in our employ or a leave of
absence for a period beyond 90 days), the payroll
deductions or lump sum payments credited to his account
will be returned to him, or, in the case of his death
subsequent to the termination of his employment, to a
designated beneficiary. Upon termination of the
participant's employment because of death, the
participant's beneficiary will have the right to elect
to withdraw all of the payroll deductions or lump sum
payments credited to the participant's account under the
Plan, or to exercise the participant's option for the
purchase of stock.
Tax Consequences Participating employees will be subject to taxation on
any gain realized from the sale or other disposition of
Common Stock that was acquired under the Plan.
Dilution Protection If any change in our outstanding shares occurs by reason
of any stock split, combination of shares or other
similar transaction affecting the outstanding Common
Stock as a class, appropriate adjustments will be made
to the maximum number of shares issuable under the Plan.
Amendment and The Board of Directors can amend or terminate the Plan
Termination of the at any time. However, the Board of Directors does not
Plan have the power to increase the number of shares
available for issuance, amend the requirements as to the
class of employees eligible to participate, or
materially increase the benefits which can accrue to
participants under the Plan without shareholder
approval. No termination, modification or amendment of
the Plan can adversely affect the rights of an employee
under the Plan without that employee's consent.
The Plan will not take effect unless it is approved by a vote of the
majority of shares of Common Stock entitled to vote and present at the Annual
Meeting in person or by proxy. It is intended that the Proxies will be voted for
adoption of the Plan unless instructions to the contrary are indicated on the
accompanying proxy form.
YOUR DIRECTORS RECOMMEND A VOTE FOR ADOPTION OF THE PLAN UNDER PROPOSAL NO. 4
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Information regarding the names, ages, positions with us, and business
experience of each of the directors and nominees is set forth in the table
below. Each director has served continuously with us since his first election as
indicated below.
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DIRECTOR
NAME AGE POSITION(S) SINCE
---- --- ----------- -----
Joseph Hines 72 Chairman of the Board, 1983
President and Chief
Executive Officer
Carl A. Schroeder(1) 71 Director 1984
Michael S. Lesser(2) 58 Director 1995
Curtis M. Rocca III 38 Director 1997
Christopher D. Johnson(1) 48 Director 1999
Kevin J. Tourek (1)(2) 42 Director 1999
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Joseph Hines Mr. Hines has served as our President and Chief
Executive Officer since 1983. From 1976 until 1983, Mr.
Hines owned and operated Desert Valley Companies, Inc.,
a management consulting firm headquartered in Phoenix,
Arizona. From 1966 until 1976, Mr. Hines served as Chief
Executive Officer of several subsidiaries of Dart
Industries, formerly Rexall Drug and Chemical Company.
Carl A. Schroeder Mr. Schroeder is retired. From September 1991 to August
1996, Mr. Schroeder was the President of Dixon Capital
Corp. Between 1982 and September 1991, Mr. Schroeder was
a private business consultant. Mr. Schroeder was also a
principal in certain mining, drilling and farming
operations from 1987 to 1992. From 1977 to 1982, he
served as Chief Financial Officer with a high technology
division of the MEAD Corporation. Mr. Schroeder received
an engineering degree from MIT and an MBA degree from
Harvard Business School.
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Michael S. Lesser Mr. Lesser is the president of Dental Concepts LLC. From
1994 to January 1999, Mr. Lesser was president of T.V.
Direct, Inc. Mr. Lesser also was the founder of Lesser &
Roffe Company, a business development consulting
company. Prior to founding Lesser & Roffe Company, Mr.
Lesser served as President of Ogilvy & Mather Co., Inc.
from 1989 to 1990, as Chairman and Chief Executive
Officer of Lowe Marschalk Co., Inc. (a subsidiary of
Revlon) from 1980 to 1989, and as Executive Vice
President and General Manager of Norcliff Thayer, Inc.
(a subsidiary of Interpublic) from 1973 to 1979.
Curtis M. Rocca III Mr. Rocca is the Chief Executive Officer and Director of
Dental Partners, Inc., a privately held dental practice
consulting and management company. Prior to joining
Dental Partners, Mr. Rocca was President of the Zila
Professional Products Group, having held this position
following Zila's acquisition of Bio-Dental Technologies
Corporation in January 1997. Prior to the firm's
acquisition by Zila, Mr. Rocca served as President, CEO
and Chairman of Bio-Dental Technologies Corporation. Mr.
Rocca holds a B.A. in Economics from the University of
California at Davis, where he graduated with honors. Mr.
Rocca currently serves as a director of Pacific Grain
Products, Inc., located in Woodland, California.
Christopher D. Since 1995, Mr. Johnson has been a corporate finance
Johnson partner with Squire, Sanders & Dempsey, LLP, a law firm
with over 500 attorneys and offices in nine major U.S.
cities, eight European capitals, Taipei and Hong Kong.
Mr. Johnson has served on the firm's five-member
Management Committee since 1997. From 1994 to 1995, he
was a partner with the firm of Meyer, Hendricks, Victor,
Osborn & Maledon, and before that he was a partner with
the firm of Streich Lang. Mr. Johnson received a B.A.
from Princeton University and a J.D. from the University
of Virginia.
Kevin J. Tourek Mr. Tourek is Senior Vice President of Legal and Human
Resources for National Airlines, Inc., based in Las
Vegas, Nevada. From 1987 to August 1998, Mr. Tourek was
a partner with the law firm of Streich Lang in Phoenix,
Arizona where his practice focused mainly on corporate
securities and finance matters. Mr. Tourek received his
B.A. from Michigan State University and a J.D. from the
Ohio State University College of Law.
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EXECUTIVE OFFICERS
Information regarding the names, ages, positions with
the Company, and business experience of the Company's
Executive Officers is set forth below.
Thomas M. Laughlin Mr. Laughlin, age 54, joined us as Vice President and
Chief Operating Officer in April 2000. Prior to joining
the Company, from 1997 to 2000, Mr. Laughlin was Senior
Vice President for Global New Business at Bayer, Inc. He
was responsible for developing new business
opportunities for the global Consumer Care Division,
with a focus on the North American Region. For ten years
prior to his work at Bayer, Mr. Laughlin was employed by
Pharmacia & Upjohn, Inc., most of that time serving as
Corporate Vice President and General Manager for the
Consumer Products Division of Upjohn. Mr. Laughlin has
also served at Richardson-Vicks/Procter & Gamble as Vice
President Marketing in the Personal Care Products
Division and at Pfizer, Inc., as Group Marketing
Director for the Consumer Healthcare Division. Mr.
Laughlin received an M.B.A. from Boston University, and
a B.A. from Dartmouth College.
Bradley C. Anderson Mr. Anderson, age 39, joined us as Vice President and
Treasurer in November 1996 and was named Chief Financial
Officer in January 1998. Prior to joining the Company,
from 1985 to 1996, Mr. Anderson was employed by Deloitte
& Touche LLP, most recently as an Audit Senior Manager,
in which capacity Mr. Anderson provided auditing,
planning, and other assistance and consulting to
numerous privately and publicly held companies,
including the Company. Mr. Anderson received his B.S. in
Accountancy from Brigham Young University. Mr. Anderson
is a Certified Public Accountant.
Janice L. Backus Ms. Backus, age 51, has served as our Secretary since
April 1989 and in 1993 was named a Vice President of the
Company. From 1983 until April 1989, Ms. Backus served
as Assistant Secretary of the Company. Ms. Backus has
also served as the Assistant to the President since
1983. Prior to joining the Company, Ms. Backus held
administrative and secretarial positions with the
American Heart Association, Arizona Division, BX
International and Century Capital Corporation.
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ABOUT THE BOARD AND ITS COMMITTEES
The Board The Company is governed by a Board of Directors and
various committees which meet throughout the year.
During the fiscal year ended July 31, 2000, our Board of
Directors met four times. All other actions taken by the
Board of Directors during the fiscal year ended July 31,
2000 were accomplished by means of unanimous written
consent. During the period in which he served as
director, each of the directors attended 75% or more of
the meetings of the Board of Directors and of the
meetings held by committees of the Board on which he
served.
Board The Board has two principal committees, the Compensation
Committees Committee and the Audit Committee. The function of each
of these committees is described below, along with the
current membership and number of meetings held during
the fiscal year ended July 31, 2000. The Company does
not maintain a standing nominating committee or other
committee performing similar functions.
Compensation The Compensation Committee of the Board of Directors,
Committee which met once during the fiscal year ended July 31,
2000, administers the Company's Stock Option Award Plan,
reviews all aspects of compensation of the Company's
officers and makes recommendations on such matters to
the full Board of Directors. During the fiscal year
ended July 31, 2000, there were two members of the
Compensation Committee, Michael S. Lesser and Kevin J.
Tourek.
Audit The Audit Committee, which met twice during the fiscal
Committee year ended July 31, 2000, makes recommendations to the
Board concerning the selection of outside auditors,
reviews the Company's financial statements and considers
such other matters in relation to the internal and
external audit of the financial affairs of the Company
as may be necessary or appropriate in order to
facilitate accurate and timely financial reporting.
During the fiscal year ended July 31, 2000, there were
three members of the Audit Committee, Carl A. Schroeder,
Christopher D. Johnson and Kevin J. Tourek. Mr. Lonergan
resigned from the Board of Directors, the Compensation
Committee and the Audit Committee in January 2000.
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Director As of December 11, 1997 non-employee members of the
Compensation Company's Board of Directors receive compensation in the
amount of $1,500 per meeting of the Board of Directors
attended by such Director in person, and $500 per
meeting of the Board of Directors attended by such
Director by telephone. In 1989, the Board of Directors
adopted and the stockholders approved the Company's
Non-Employee Directors Stock Option Plan (the "Directors
Plan"). Under the terms of the Directors Plan,
immediately exercisable options to purchase 2,500 shares
of Common Stock are granted to each non-employee member
of the Board of Directors on the third trading day
following the day the Company publicly announces its
year-end financial results for the immediately preceding
fiscal year; provided, however, that options may not be
granted to any non-employee director who, during the
fiscal year immediately preceding the grant date,
attended less than 75% of the Board meetings and
committee meetings (if he is a member of such committee)
held while he was a member of the Board of Directors.
The per share price at which the options may be
exercised is the average of the closing bid and asked
prices of the Common Stock on the date of grant. The
term of each option granted under the Directors Plan is
five years from the date of grant. The Board may from
time to time amend the Directors Plan in whole or in
part in such respects as the Board may deem advisable,
or may terminate the Directors Plan.
On November 2, 1999 and October 6, 2000, each
non-employee director then serving on the Board was
granted an option to purchase 2,500 shares of Common
Stock at a per share exercise price of $3.09 and 3.08,
respectively. As of October 20, 2000, options to
purchase 92,089 shares of Common Stock granted under the
Directors Plan have been exercised.
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EXECUTIVE COMPENSATION
The table below sets forth annual and long-term compensation for
services in all capacities to us for the fiscal years ended July 31, 2000, 1999
and 1998, of the persons who were, at July 31, 2000: (i) the Chief Executive
Officer and (ii) our other executive officers (the "Named Officers") whose total
annual salary and bonus exceeded $100,000.
Annual Long-Term
Compensation Compensation
------------ ------------
Securities
Underlying All Other
Name and Principal Position Year Salary($) Bonus ($) Options (3) Compensation (1)
- --------------------------- ---- --------- --------- ----------- ----------------
Joseph Hines 2000 $231,858 $10,000 90,000 $6,760
President, Chief Executive 1999 207,826 20,000 25,000 3,417
Officer and Director 1998 180,833 - 25,000 2,712
Thomas M. Laughlin (2) 2000 $86,041(2) - 100,000 -
Vice President and Chief
Operating Officer
Bradley C. Anderson 2000 $163,857 $10,725 30,000 $5,582
Vice President and Chief 1999 147,008 15,600 25,000 2,439
Financial Officer 1998 113,333 - 75,000 1,700
Janice L. Backus 2000 $134,231 $ 8,700 30,000 $5,339
Vice President and Corporate 1999 120,223 12,600 25,000 1,992
Secretary 1998 99,050 - 50,000 1,486
(1) Represents Company 401(k) plan matching contributions.
(2) Mr. Laughlin joined us in April 2000 and his salary reflects that he was
employed for only four months.
(3) The exercise price of all stock options granted were at least equal to
the fair market values of the Company's Common Stock on the date of
grant.
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STOCK OPTION GRANTS
The following Named Officers were granted stock options under the
Company's Stock Option Award Plan during the fiscal year ended July 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-------------------------------------------------------------- Potential Realizable
Value at
Assumed Annual
Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(3)
Option Employees in Price Expiration ---------------------
Name Granted(1)(#) Fiscal Year (per share)(2) Date 5% ($) 10% ($)
- ---- ------------- ----------- -------------- ---- ------ -------
Joseph Hines 90,000 18.1 3.08 12/9/2009 $174,224 $441,516
Thomas M. Laughlin 100,000 20.1 3.97 4/11/2010 249,608 632,556
Bradley C. Anderson 30,000 6.0 3.08 12/9/2009 58,075 147,172
Janice L. Backus 30,000 6.0 3.08 12/9/2009 58,075 147,172
(1) All options granted vest annually over a three-year period in equal
one-third increments and vesting commences on the first anniversary date
following the date of grant. All of the above options were granted on
December 9, 1999, except with respect to Mr. Laughlin's stock options
which were granted on April 11, 2000.
(2) All options were granted at the fair market value (the mean of the final
closing bid and asked prices of the Common Stock on the NASDAQ) on the
date of grant. The exercise price and tax withholding obligations
related to exercise may be paid by delivery of already owned shares or
by offset of the underlying shares, subject to certain conditions.
(3) The potential realizable value is calculated based on the 10-year term
of the option at the time of its grant. It is calculated by assuming
that the stock price on the date of grant appreciates at the indicated
annual rate, compounded annually over the term of the option. These
numbers are calculated based upon rules promulgated by the SEC and do
not represent the Company's estimated or projection of the future value
of the Common Stock. Potential gains are reported net of the option
exercise price, but before taxes associated with the exercise. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions, as
well as the option holder's continued employment. The amounts reflected
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in the table may not necessarily be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 2000
The following table sets forth information with respect to the exercise
of stock options pursuant to the Company's Stock Option Award Plan during the
fiscal year ended July 31, 2000 by the Named Officers.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year-End (#) Fiscal Year End ($)
------------------------------ -----------------------------------
Shares
Acquired on Value
Name Exercise(#) Realized ($)(1) Exercisable(2) Unexercisable Exercisable(3) Unexercisable(3)
- ---- ----------- --------------- -------------- ------------- -------------- ----------------
Joseph Hines - - 437,269 90,000 $558,631 $74,556
Thomas M. - - - 100,000 0 0
Laughlin
Bradley C. - - 205,000 30,000 0 24,852
Anderson
Janice L. - - 265,852 30,000 270,710 24,852
Backus
(1) Represents the market value of the underlying securities on the date of
exercise, minus the exercise price of the options.
(2) Options are considered to be exercisable if they could be exercised on
or before July 31, 2000.
(3) Represents the difference between the bid and asked closing prices
($3.9065) of the Company's Common Stock on July 31, 2000 and the
exercise price of the options.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
What is our Decisions on compensation of the Company's executive
Compensation officers are made by the Compensation Committee of the
Philosophy? Board of Directors (the "Committee"). Each member of the
Committee is a non-employee director. The Committee is
responsible for setting and administering the policies
that govern both annual compensation and stock ownership
programs. The Committee follows the belief that
compensation should be based upon the following
subjective principles:
- Compensation programs should reflect and
promote the Company's values, and reward
individuals for contributions to the
Company's success.
- Compensation should be related to the
value created for stockholders.
- Compensation programs should integrate
the long- and short-term strategies of
the Company.
- Compensation programs should be designed
to attract and retain executives
critical to the success of the Company.
- Stock ownership by management and
stock-based compensation plans are
beneficial in aligning the interests of
management and the stockholders in the
enhancement of stockholder value.
Total compensation for each member of senior management
is set by the Committee at levels which it believes are
competitive in relation to companies of similar type and
size. We retained an outside consultant to advise us
with respect to compensation matters. A report was
prepared and presented to the Compensation Committee for
consideration. The components of executive compensation
include salary, equity participation in the Company in
the form of options to purchase Common Stock, and a cash
bonus. Compensation for our executive officers is
usually set by the Committee in December of each fiscal
year. Due to the level of compensation received by the
officers of the Company, the Committee has not yet
deemed it necessary to adopt a policy regarding the one
million-dollar cap on deductibility of certain executive
compensation under Section 162(m) of the Internal
Revenue Code.
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Base Salary Salary recommendations are submitted annually to the
Committee by senior management. In evaluating such
recommendations, the Committee takes into account
management's efforts to improve net sales and expand the
number of markets into which the Company's products are
distributed and sold. The Committee also takes into
account management's consistent commitment to our
long-term success through the development of new and
improved products, as well as management's innovative
financing arrangements for the Company's marketing
programs. Such efforts have permitted us to initiate
marketing programs more extensive than what might not
otherwise be available to a company of similar size and
with similar resources.
Based upon its evaluation of these factors, the
Committee believes that senior management is dedicated
to achieving long-term financial improvements and that
the compensation policies, plans and programs
administered by the Committee contribute to management's
commitment. The Committee attempts to assimilate all of
the foregoing factors when it renders its compensation
decisions; however, the Committee recognizes that its
decisions are primarily subjective in nature due to the
subjective nature of the criteria. The Committee does
not assign any specified weight to the criteria it
considers.
Base salary recommendations are fixed at levels that the
Committee believes are paid to management with
comparable qualifications, experience and
responsibilities at other corporations of similar size
engaged in similar business as the Company; however, no
independent investigation of such levels has been
conducted by the Committee. The Committee's
recommendations are offered to the full Board of
Directors. The Committee's recommendation is ultimately
ratified, changed, or rejected by the full Board of
Directors. In the past three fiscal years, the average
annual salary increase for the Chief Executive Officer
has been approximately 8.1%, and the average annual
salary increase for other senior management has been
approximately 14.38%.
Options The Committee administers the Company's Stock Option
Award Plan (the "Award Plan"). All our employees are
eligible to participate in the Award Plan. The exercise
price of options granted under the Award Plan is never
less than the fair market value of the Company's common
stock on the day of grant. The number of options granted
by the Committee are based upon the Committee's
evaluation of the same factors described above under
"Base Salary." The Committee also takes into account the
relative scope of accountability and the anticipated
performance requirements and contributions of each
employee, as well as each employee's current equity
participation in the Company. In addition, the Committee
seeks the recommendation of senior management with
respect to options granted to all employees of the
Company, including the Chief Executive Officer and
senior management. During the fiscal year ending July
31, 2000, the Committee granted options representing
498,000 shares of Common Stock under the Award Plan.
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25
Bonus Senior management bonus compensation is paid under the
Company's Incentive Bonus Plan (the "Plan"). The Plan
was adopted by the Board of Directors and the Committee
during fiscal year 1993. Bonuses awarded under the Plan
may not exceed 30% of a senior manager's annual base
salary. The components which are considered under the
terms of the Plan are the Company's net sales and sales
volume and the job performance. Each member of senior
management is eligible for a bonus of up to 15% of the
member's base salary if the Company's annual net profits
improve by 25% over the prior year and a bonus of up to
7.5% of the senior manager's base salary if the
Company's annual sales volume increases by more than 75%
over the prior year. Performance components of the
senior manager's bonus may be as great as 7.5% of the
senior manager's annual base salary and are based upon
subjective criteria.
Chief Mr. Hines has served as our President and Chief
Executive Executive Officer since 1983. As Chief Executive
Officer Officer, Mr. Hines receives a base salary as well as
stock options under the Award Plan and is eligible to
participate in the Plan. In February 1997, Mr. Hines'
employment agreement ceased to be of any further effect;
however, Mr. Hines will continue as the President and
Chief Executive Officer of the Company. The Committee's
evaluation process of the Chief Executive Officer's
compensation is comprised of the same components that
are utilized in evaluating other members of senior
management. Mr. Hines' current base salary was set at
the 1999 Annual Meeting of the Board of Directors.
During the fiscal year ended July 31, 2000, the
Committee granted Mr. Hines options to purchase a total
of 90,000 shares of the Company's Common Stock under the
Award Plan. All the options were granted at fair market
value, vest annually over a three-year period, and will
expire ten years after the date of grant.
Compensation Committee
Michael S. Lesser
Kevin J. Tourek
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26
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
The following table sets forth, as of September 30, 2000, the number and
percentage of outstanding shares of Common Stock beneficially owned by (a) each
person known by us to beneficially own more than 5% of such stock, (b) each
director of the Company, (c) each of the Named Officers, and (d) all our
directors and executive officers as a group. The address of each stockholder
listed below is c/o Zila, Inc., 5227 North 7th Street, Phoenix, Arizona
85014-2800.
NAME AND ADDRESS OF SHARES BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED COMMON STOCK
---------------- ----- ------------
Joseph Hines 1,389,271(1) 3.2%
Thomas M. Laughlin 0 *
Janice L. Backus 342,110(2) *
Bradley C. Anderson 205,500(3) *
Carl Schroeder 30,000(4) *
Michael S. Lesser 15,000(5) *
Curtis M. Rocca III 53,539(6) *
Christopher D. Johnson 5,000(7) *
Kevin J. Tourek 5,000(8) *
All officers and directors as a group 2,032,920(9) 4.0%
(8 persons)
- -----------------------------------
* Represents less than 1%.
(1) Includes 437,269 shares of Common Stock which are subject to unexercised
options that were exercisable on September 29, 2000 or within 60 days
thereafter.
(2) Includes 265,852 shares of Common Stock which are subject to unexercised
options that were exercisable on September 29, 2000 or within 60 days
thereafter.
(3) Includes 205,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 29, 2000 or within 60 days
thereafter.
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27
(4) Includes 17,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 29, 2000 or within 60 days
thereafter.
(5) Includes 12,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 29, 2000 or within 60 days
thereafter.
(6) Includes 7,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 29, 2000 or within 60 days
thereafter.
(7) Includes 5,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 29, 2000 or within 60 days
thereafter.
(8) Includes 5,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 29, 2000 or within 60 days
thereafter.
(9) Includes the shares of Common Stock subject to the options described above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors and persons who beneficially
own more than 10% of a registered class of the Company's equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the National Association of Securities Dealers Automated
Quotation System. Officers, directors and greater than 10% stockholders are
required by Exchange Act regulations to furnish us with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms were
required for such persons, we believe that during the fiscal year ended July 31,
2000 its officers, directors, and greater than 10% beneficial owners have
complied with all filing requirements applicable to them.
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28
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return of the Company's
Common Stock with the NASDAQ stock market index (U.S. companies) and the NASDAQ
pharmaceutical index from July 31, 1995 to July 31, 2000.
Cumulative Total Return
---------------------------------------------------------
7/95 7/96 7/97 7/98 7/99 7/00
Zila, INC 100.00 190.77 180.00 153.85 83.84 95.38
Nasdaq Stock Market (U.S.) 100.00 108.96 160.79 189.28 270.71 385.48
Nasdaq Pharmaceutical 100.00 120.86 141.85 142.47 219.75 413.26
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29
PROPOSALS BY STOCKHOLDERS
Any Stockholder proposal that is intended to be presented at the
Company's 2000 Annual Meeting of Stockholders must be received at the Company's
principal executive offices no later than July 10, 2000, if such proposal is to
be considered for inclusion in the Company's proxy statement and form of proxy
relating to such meeting.
OTHER BUSINESS
The Annual Meeting is being held for the purposes set forth in the
Notice that accompanies this Proxy Statement. The Board is not presently aware
of any business to be transacted at the Annual Meeting other than as set forth
in the Notice.
ANNUAL REPORT
The Company's Annual Report with certified financial statements for the
fiscal year ended July 31, 2000 accompanies this Notice and Proxy Statement and
was mailed to all shareholders of record on or about November 7, 2000. Any
exhibit to the Annual Report will be furnished to any requesting person who sets
forth a good faith representation that he or she was a beneficial owner of the
Company's Common Stock on October 20, 2000.
By Order of the Board of Directors,
/s/ Janice L. Backus
Janice L. Backus
Vice President and Secretary
Phoenix, Arizona
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30
EXHIBIT A
ZILA, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
1.1. The Zila, Inc. Employee Stock Purchase Plan is intended to
provide a method whereby employees Zila, Inc. and its subsidiary corporations
(hereinafter referred to, unless the context otherwise requires, as the
"Company") will have an opportunity to acquire a proprietary interest in the
Company through the purchase of shares of the Common Stock of the Company. It is
the intention of the Company to have the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The provisions of the Plan shall be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code.
2. DEFINITIONS.
2.1. Base Pay. "Base Pay" shall mean regular straight-time
earnings excluding payments for overtime, shift premium, bonuses and other
special payments, commissions and other marketing incentive payments.
2.2. Committee. "Committee" shall mean the individuals described
in Article XI.
2.3. Employee. "Employee" means any person who is customarily
employed on a full-time or part-time basis by the Company and is regularly
scheduled to work more than 20 hours per week.
2.4. Subsidiary Corporation. "Subsidiary Corporation" shall mean
any present or future corporation which (i) would be a "Subsidiary Corporation"
of Company, as that term is defined in Section 424(f) of the Code, and (ii) is
designated as a participant in the Plan by the Committee.
3. ELIGIBILITY AND PARTICIPATION.
3.1. Initial Eligibility. Any Employee who shall have completed
ninety (90) days' employment and shall be employed by the Company on the date
his participation in the Plan is to become effective shall be eligible to
participate in offerings under the Plan which commence on or after such ninety
day period has concluded.
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31
3.2. Leave of Absence. For purposes of participation in the Plan,
a person on leave of absence shall be deemed to be an Employee for the first 90
days of such leave of absence and such Employee's employment shall be deemed to
have terminated at the close of business on the 90th day of such leave of
absence unless such Employee shall have returned to regular full-time or
part-time employment (as the case may be) prior to the close of business on such
90th day. Termination by the Company of any Employee's leave of absence, other
than termination of such leave of absence on return to full-time or part-time
employment, shall terminate an Employee's employment for all purposes of the
Plan and shall terminate such Employee's participation in the Plan and right to
exercise any option.
3.3. Restrictions on Participation. Notwithstanding any provisions
of the Plan to the contrary, no Employee shall be granted an option to
participate in the Plan:
3.3.1. if, immediately after the grant, such Employee would
own stock, and/or hold outstanding options to purchase stock, possessing 5% or
more of the total combined voting power or value of all classes of stock of the
Company (for purposes of this paragraph, the rules of Section 424(d) of the Code
shall apply in determining stock ownership of any Employee); or
3.3.2. which permits his rights to purchase stock under all
Employee stock purchase plans of the Company to accrue at a rate which exceeds
$25,000 in fair market value of the stock (determined at the time such option is
granted) for the calendar year in which such option is granted.
3.4. Commencement of Participation. An eligible Employee may
become a participant by completing an authorization for a payroll deduction on
the form provided by the Company and filing it with the office of the Treasurer
of the Company on or before the date set therefor by the Committee, which date
shall be prior to the Offering Commencement Date for the Offering (as such terms
are defined below). Payroll deductions for a Participant shall commence on the
applicable Offering Commencement Date when his authorization for a payroll
deduction becomes effective and shall end on the Offering Termination Date of
the Offering to which such authorization is applicable unless sooner terminated
by the participant as provided in Paragraph 8.
4. OFFERINGS.
4.1. Annual Offerings. The Plan will be implemented by annual
offerings of the Company's Common Stock (the "Offerings") beginning on the 1st
day of January in each year, each Offering terminating on December 31 of the
same year; provided, however, that each annual Offering may, in the discretion
of the Committee exercised prior to the commencement thereof, be divided into
two six-month Offerings commencing, respectively, on January 1 and July 1 of
such year and terminating on June 30 of such year and December 31 of such year,
respectively.
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32
4.2.
5. PAYROLL DEDUCTIONS.
5.1. Amount of Deduction. At the time a participant files an
authorization for payroll deduction, the participant shall elect to have
deductions made from his or her pay on each payday during the time he or she is
a participant in an Offering at the rate of from 1% to 15%, in whole percent
increments, of his or her Base Pay in effect at the Offering Commencement Date
of such Offering; provided, however, for the Short Offering Period, a
participant may elect to have deductions made from his pay on each pay day
during the time he or she is a participant in the Offering at the rate of from
1% to 18% of his or her Base Pay at the Offering Commencement Date of August 1,
2000. In the case of a part-time hourly Employee, such Employee's Base Pay
during an Offering shall be determined by multiplying such Employee's hourly
rate of pay in effect on the Offering Commencement Date by the number of
regularly scheduled hours of work for such Employee during such Offering.
5.2. Participant's Account. All payroll deductions made for a
participant shall be credited to his or her account under the Plan. A
participant may not make any separate cash payment into such account except when
on leave of absence as provided in Section 5.4 of the Plan or as lump sum
payment as provided in Section 5.5.
5.3. Changes in Payroll Deductions. A participant may discontinue
his participation in the Plan as provided in Paragraph 8, but no other change
can be made during an Offering and, specifically, a participant may not alter
the amount of his or her payroll deductions or lump sum payment pursuant to
Section 5.5 for that Offering.
5.4. Leave of Absence. If a participant goes on a leave of
absence, such participant shall have the right to elect: (a) to withdraw the
balance in his or her account pursuant to Section 7.2 of the Plan, (b) to
discontinue contributions to the Plan but remain a participant in the Plan, or
(c) to remain a participant in the Plan during such leave of absence,
authorizing deductions to be made from payments by the Company to the
participant during such leave of absence and undertaking to make cash payments
to the Plan at the end of each payroll period to the extent that amounts payable
by the Company to such participant are insufficient to meet such participant's
authorized Plan deductions.
5.5. Lump Sum Payment Option. Notwithstanding the foregoing
provisions of this Paragraph 5, a participant may elect prior to the Offering
Commencement Date of any Offering period to pay a fixed sum for shares to be
paid as a lump sum payment to be made prior to the Offering Termination Date;
provided, however, in no event, shall such amount exceed the amount that could
be deferred for payment if the maximum rate for payroll deductions were elected
by the participant.
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6. GRANTING OF OPTION.
6.1. Number of Option Shares. On the Commencement Date of each
Offering, a participating Employee shall be deemed to have been granted an
option to purchase a maximum number of shares of the stock of the Company equal
to an amount determined as follows: an amount equal to (a) that percentage of
the Employee's Base Pay which he or she has elected to have withheld (but not in
any case in excess of 15%, except for the Short Offering Period, in which case
not in excess of 18%), multiplied by (b) the Employee's Base Pay during the
period of the Offering (c) divided by 85% of the lower of the closing price of
the stock of the Company on the applicable Offering Commencement Date or the
Offering Termination Date, as provided in Section 6.2; provided, however, in the
case of a lump sum payment pursuant to Section 5.5, such maximum number of
shares shall equal to (a) the total lump sum payment, divided by (b) above. The
market value of the Company's stock shall be determined as provided in
paragraphs (a) and (b) of Section 6.2 of the Plan below. An Employee's Base Pay
during the period of an Offering shall be determined by multiplying, in the case
of a one-year Offering, his nominal weekly rate of pay (as in effect on the last
day prior to the Commencement Date of the particular Offering) by 52 or the
hourly rate by 2,080 or, in the case of a six-month Offering, by 26 or 1040, or
as similarly adjusted for the Short Offering Period commencing July 21, 2000, as
the case may be, provided that, in the case of a part-time hourly Employee, the
Employee's Base Pay during the period of an Offering shall be determined by
multiplying such Employee's hourly rate by the number of regularly scheduled
hours of work for such Employee during such Offering.
6.2. Option Price. The option price of stock purchased with
payroll deductions made during such annual Offering for a participant therein
shall be the lower of:
6.2.1. 85% of the closing price of the stock on the Offering
Commencement Date or the nearest prior business day on which trading occurred on
the NASDAQ National Market System, the NASDAQ SmallCap Market or any national
securities exchange; or
6.2.2. 85% of the closing price of the stock on the Offering
Termination Date or the nearest prior business day on which trading occurred on
the NASDAQ National Market System, the NASDAQ SmallCap Market or any national
securities exchange. If the Common Stock of the Company is not admitted to
trading on any of the aforesaid dates for which closing prices of the stock are
to be determined, then reference shall be made to the fair market value of the
stock on that date, as determined on such basis as shall be established or
specified for the purpose by the Committee.
7. EXERCISE OF OPTION.
7.1. Automatic Exercise. Unless a participant gives written notice
to the Company as hereinafter provided, his option for the purpose of stock with
payroll deductions made during any Offering will be deemed to have been
exercised automatically on the Offering
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Termination Date applicable to such Offering, for the purchase of the number of
full shares of stock which the accumulated payroll deductions in his or her
account at that time will purchase at the applicable option price (but not in
excess of the number of shares for which options have been granted to the
Employee pursuant to Section 6.1 of the Plan), and any excess in his account at
that time will be returned to him or her.
7.2. Withdrawal of Account. By written notice to the Treasurer of
the Company, at any time prior to the Offering Termination Date applicable to
any Offering, a participant may elect to withdraw all the accumulated payroll
deductions in his or her account at such time.
7.3. Fractional Shares. Fractional shares will not be issued under
the Plan. Any accumulated payroll deduction which would have been used to
purchase fractional shares will be returned to the participant's account
promptly following the termination of an Offering, without interest.
7.4. Transferability of Option. During a participant's lifetime,
options held by such Participant shall be exercisable only by that participant.
7.5. Delivery of Stock. As promptly as practicable after the
Offering Termination Date of each Offering, the Company will deliver to each
participant, as appropriate, the stock purchased upon exercise of his option.
8. WITHDRAWAL.
8.1. In General. As indicated in Section 7.2 of the Plan, a
participant may withdraw payroll deductions or lump sum payments credited to his
or her account under the Plan at any time by giving written notice to the
Treasurer of the Company. All of the participant's payroll deductions and any
lump sum payments credited to his or her account will be paid to him or her
promptly after receipt of his or her notice of withdrawal, and no further
payroll deductions will be made from his or her pay during such Offering. The
Company may, at its option, treat an attempt to borrow by an Employee on the
security of his or her accumulated payroll deductions or lump sum payments as an
election to withdraw such deductions.
8.2. Effect on Subsequent Participation. A participant's
withdrawal from any Offering will not have any effect on his or her eligibility
to participate in any succeeding Offering or in any similar plan which may
hereafter be adopted by the Company.
8.3. Termination Of Employment. Upon termination of the
participant's employment for any reason, including retirement (but excluding
death while in the employ of the Company or continuation of a leave of absence
for a period beyond 90 days), the payroll deductions or lump sum payments
credited to his or her account will be returned to him or her, or, in the case
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35
of his or her death subsequent to the termination of his or her employment, to
the person or persons entitled thereto under Section 12.1 of the Plan.
8.4. Termination of Employment Due to Death. Upon termination of
the participant's employment because of death, the participant's beneficiary (as
defined in Section 12.1 of the Plan) shall have the right to elect, by written
notice given to the Treasurer of the Company prior to the earlier of the
Offering Termination Date or the expiration of a period of sixty (60) days
commencing with the date of the death of the participant, either:
8.4.1. to withdraw all of the payroll deductions or lump sum
payments credited to the participant's account under the Plan, or
8.4.2. to exercise the participant's option for the purchase
of stock on the Offering Termination Date next following the date of the
participant's death for the purchase of the number of full shares of stock which
the accumulated payroll deductions or lump sum payments in the participant's
account at the date of the participant's death will purchase at the applicable
option price, and any excess in such account will be returned to said
beneficiary, without interest. In the event that no such written notice of
election shall be duly received by the office of the Treasurer of the Company,
the beneficiary shall automatically be deemed to have elected, pursuant to this
Section 8.4.2, to exercise the participant's option.
8.5. Leave of Absence. A participant on leave of absence shall,
subject to the election made by such participant pursuant to Section 5.4 of the
Plan, continue to be a participant in the Plan so long as such participant is on
continuous leave of absence. A Participant who has been on leave of absence for
more than 90 days and who therefore is not an Employee for the purpose of the
Plan shall not be entitled to participate in any Offering commencing after the
90th day of such leave of absence. Notwithstanding any other provisions of the
Plan, unless a participant on leave of absence returns to regular full-time or
part-time employment with the Company at the earlier of: (a) the termination of
such leave of absence or (b) three months from the 90th day of such leave of
absence, such participant's participation in the Plan shall terminate on
whichever of such dates first occurs.
9. INTEREST.
9.1. Payment of Interest. No interest will be paid or allowed on
any money paid into the Plan or credited to the account of any participant
Employee; provided, however, that interest shall be paid on any and all money
which is distributed to an Employee or his or her beneficiary pursuant to the
provisions of Sections 7.2, 8.1, 8.3, 8.4 and 10.1 of the Plan. Such
distributions shall bear simple interest during the period from the date of
withholding or lump sum payments to the date of return at the regular passbook
savings account rates per annum in effect at Bank One, Arizona, during the
applicable Offering period or, if such rates are not published or otherwise
available for such purpose, at the regular passbook savings account rates per
annum in effect during such period
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at another major commercial bank in Phoenix, Arizona selected by the Committee.
Where the amount returned represents an excess amount in an Employee's account
after such account has been applied to the purchase of stock, the Employee's
account shall be deemed to have been applied first toward purchase of stock
under the Plan, so that interest shall be paid on the last withholdings during
the period which results in the excess amount.
10. STOCK.
10.1. Maximum Shares. The maximum number of shares which shall be
issued under the Plan, subject to adjustment upon changes in capitalization of
the Company as provided in Section 12.4 of the Plan shall be 2,000,000 shares to
be made available for such Offerings as the Company elects. If the total number
of shares for which options are exercised on any Offering Termination Date in
accordance with Paragraph 6 exceeds the maximum number of shares for the
applicable Offering, the Company shall make a pro rata allocation of the shares
available for delivery and distribution in an nearly a uniform manner as shall
be practicable and as it shall determine to be equitable, and the balance of
payroll deductions or lump sum payments credited to the account of each
participant under the Plan shall be returned to him or her as promptly as
possible.
10.2. Participant's Interest in Option Stock. The participant will
have no interest in stock covered by his or her option until such option has
been exercised.
10.3. Registration of Stock. Stock to be delivered to a
participant under the Plan will be registered in the name of the participant,
or, if the participant so directs by written notice to the Treasurer of the
Company prior to the Offering Termination Date applicable thereto, in the names
of the participant and one such other person as may be designated by the
participant, as joint tenants with rights of survivorship or as tenants by the
entireties, to the extent permitted by applicable law.
10.4. Restrictions on Exercise. The Board of Directors may, in its
discretion, require as conditions to the exercise of any option that the shares
of Common Stock reserved for issuance upon the exercise of the option shall have
been duly listed, upon official notice of issuance, upon a stock exchange, and
that either:
10.4.1. a Registration Statement under the Securities Act of
1933, as amended, with respect to said shares shall be effective, or
10.4.2. the participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is his
intention to purchase the shares for investment and not for resale or
distribution.
11. ADMINISTRATION.
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37
11.1. Appointment of Committee. The Plan shall be administered by
the Board of Directors or a Committee appointed by the Board to administer the
Plan at any time or from time to time. If the Company has a class of equity
securities registered under Section 12 of the Exchange Act, the Plan shall be
administered by a Committee appointed by the Board in accordance with Rule 16b-3
of the Exchange Act ("Rule 16b-3"). Any Committee which has been delegated the
duty of administering the Plan by the Board shall be composed of two or more
persons each of whom (i) is a non-Employee Director and (ii) is an "outside
director" as that term is used in Section 162(m)(4) of the Code. To the extent
reasonable and practicable, the Plan shall be consistent with the provisions of
Rule 16b-3 to the degree necessary to ensure that transactions authorized
pursuant to the Plan are exempt from the operation of Section 16(b) of the
Exchange Act. No member of the Committee shall be eligible to purchase stock
under the Plan.
11.2. Authority of Committee. Subject to the express provisions of
the Plan, the Committee shall have plenary authority in its discretion to
interpret and construe any and all provisions of the Plan, to adopt rules and
regulations for administering the Plan, and to make all other determinations
deemed necessary or advisable for administering the Plan. The Committee's
determination on the foregoing matters shall be conclusive.
11.3. Rules Governing the Administration of the Committee. The
Board of Directors may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee in accordance with the terms of
Section 11.1. The Committee may select one of its members as its Chairman and
shall hold its meetings at such times and places as it shall deem advisable and
may hold telephonic meetings. A majority of its members shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members. The Committee may correct any defect or omission or reconcile any
inconsistency in the Plan, in the manner and to the extent it shall deem
desirable. Any decision or determination reduced to writing and signed by a
majority of the members of the Committee shall be as fully effective as if it
had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary and shall make such rules and regulations for
the conduct of its business as it shall deem advisable.
12. MISCELLANEOUS.
12.1. Designation of Beneficiary. A participant may file a written
designation of a beneficiary who is to receive any stock and/or cash. Such
designation of beneficiary may be changed by the participant at any time by
written notice to the Treasurer of the Company. Upon the death of a participant
and upon receipt by the Company of proof of identity and existence at the
participant's death of a beneficiary validly designated by him or her under the
Plan, the Company shall deliver such stock and/or cash to such beneficiary. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such stock and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such stock and/or cash to
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the spouse or to any one or more dependents of the participant as the Company
may designate. No beneficiary shall, prior to the death of the participant by
whom he had been designated, acquire any interest in the stock or cash credited
to the participant under the Plan.
12.2. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with Section 7.2
of the Plan.
12.3. Use of Funds. All payroll deductions received or held by the
Company under this Plan may be used by the Company for any corporate purpose and
the Company shall not be obligated to segregate such payroll deductions.
12.4. Adjustment Upon Changes in Capitalization.
12.4.1. If, while any options are outstanding, the
outstanding shares of Common Stock of the Company have increased, decreased,
changed into, or been exchanged for a different number or kind of shares or
securities of the Company through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split or similar transaction,
appropriate and proportionate adjustments may be made by the Committee in the
number and/or kind of shares which are subject to purchase under outstanding
options and on the option exercise price or prices applicable to such
outstanding options. In addition, in any such event, the number and/or kind of
shares which may be offered in the offerings described in Paragraph 4 hereof
shall also be proportionately adjusted. No adjustments shall be made for stock
dividends. For the purposes of this Paragraph, any distribution of shares to
shareholders in an amount aggregating 20% or more of the outstanding shares
shall be deemed a stock split and any distributions of shares aggregating less
than 20% of the outstanding shares shall be deemed a stock dividend.
12.4.2. Upon the dissolution or liquidation of the Company,
or upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all of the property or stock of the
Company to another corporation, the holder of each option then outstanding under
the Plan will thereafter be entitled to receive at the next Offering Termination
Date upon the exercise of such option for each share as to which such option
shall be exercised, as nearly as reasonably may be determined, the cash,
securities and/or property which a holder of one share of the Common Stock was
entitled to receive upon and at the time of such transaction. The Board of
Directors shall take such steps in connection with such transactions as the
Board shall deem necessary to assure that the provisions of this Section 12.4
shall thereafter be applicable, as nearly as reasonably may be determined, in
relation to the said cash, securities and/or property as to which such holder of
such option might thereafter be entitled to receive.
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12.5. Amendment and Termination. The Board of Directors shall have
complete power and authority to terminate or amend the Plan; provided, however,
that the Board of Directors shall not, without the approval of the stockholders
of the Corporation (a) increase the maximum number of shares which may be issued
under any Offering (except pursuant to Section 12.4 of the Plan); (b) amend the
requirements as to the class of Employees eligible to purchase stock under the
Plan or permit the members of the Committee to purchase stock under the Plan; or
(c) materially increase the benefits which may accrue to participants under the
Plan. No termination, modification, or amendment of the Plan may, without the
consent of an Employee then having an option under the Plan to purchase stock,
adversely affect the rights of such Employee under such option.
12.6. Effective Date. The Plan shall become effective as of August
1, 2000, subject to approval by the holders of the majority of the Common Stock
present and represented at a special or annual meeting of the shareholders held
on or before July 31, 2001. If the Plan is not so approved, the Plan shall not
become effective.
12.7. No Employment Rights. The Plan does not, directly or
indirectly, create any right for the benefit of any Employee or class of
employees to purchase any shares under the Plan, or create in any Employee or
class of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an Employee's employment at any time.
12.8. Effect of Plan. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Employee participating in the Plan, including, without
limitation, such Employee's estate and the executors, administrators or trustees
thereof, heirs and legatees, and any receiver, trustee in bankruptcy or
representative of creditors of such Employee.
12.9. Governing Law. The law of the State of Arizona will govern
all matters relating to this Plan except to the extent it is superseded by the
laws of the United States.
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40
PROXY ZILA, INC. PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints JOSEPH HINES, JANICE L.
BACKUS and BRADLEY C. ANDERSON, or any one of them acting in the absence of the
others, with full power of substitution, the true and lawful attorneys and
proxies of the undersigned, to attend the Annual Meeting of the Stockholders of
ZILA, INC. (the "Company") to be held at Marriott's Camelback Inn, 5402 East
Lincoln Drive, Scottsdale, Arizona 85253, on December 7, 2000, at 9:00 a.m.,
local time, and any adjournments thereof, and to vote the shares of Common Stock
of the Company standing in the name of the undersigned, as directed below, with
all the powers the undersigned would possess if personally present at the
meeting.
Proposal No. 1: Elect six directors to the Company's Board to serve for the
next year or until their successors are elected.
NOMINEES: JOSEPH HINES, CARL A. SCHROEDER, MICHAEL S. LESSER, CURTIS M.
ROCCA III,
CHRISTOPHER D. JOHNSON and KEVIN J. TOUREK.
- --------- VOTE for all nominees except those whose names are written on the line
provided below (if any).
- --------------------------------------------------------------------------------
- --------- VOTE WITHHELD on all nominees
Proposal No. 2: Ratify the selection of Deloitte & Touche LLP as the
independent public accounting firm for the Company for the fiscal year ending
July 31, 2001. (Mark only one.)
- --------- VOTE FOR
- --------- VOTE AGAINST
- --------- VOTE WITHHELD
Proposal No. 3: Approve an amendment to the Company's Stock Option Award Plan
to increase the number of authorized shares thereunder from 1,000,000 to
3,000,000. (Mark only one.)
- --------- VOTE FOR
- --------- VOTE AGAINST
- --------- VOTE WITHHELD
Proposal No. 4: Approve the adoption of the Employee Stock Purchase Plan.
(Mark only one.)
- --------- VOTE FOR
- --------- VOTE AGAINST
- --------- VOTE WITHHELD
PLEASE PROMPTLY DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
41
This proxy will be voted in accordance with the directions indicated herein.
IF NO SPECIFIC DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR APPROVAL OF
ALL NOMINEES LISTED HEREIN, FOR APPROVAL OF THE PROPOSALS LISTED HEREIN AND,
WITH RESPECT TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING, IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES.
DATED: , 2000
----------------------------------------
----------------------------------
(Signature)
----------------------------------
(Signature)
When signing as executor,
administrator, attorney, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate name
by president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person. If a joint
tenancy, please have both joint
tenants sign.