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:
<Table>
[ ] 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.
</Table>
ZILA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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ZILA, INC.
5227 NORTH 7TH STREET
PHOENIX, ARIZONA 85014-2800
(602) 266-6700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
December 5, 2001
The 2001 Annual Meeting of Stockholders of Zila, Inc. (the "Company")
will be held at the Scottsdale Hilton Resort, 6333 North Scottsdale Road,
Scottsdale, Arizona 85250 on December 5, 2001, at 9:00 a.m., local time.
MATTERS TO BE VOTED ON:
1. Election of seven directors to serve until the next annual
meeting of shareholders and 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, 2002; and
3. Consideration of any other matters that may properly come
before the Annual Meeting or any adjournment thereof.
The close of business on October 31, 2001 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 for any purpose related to the meeting during ordinary business
hours during the ten days prior to the meeting.
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 12, 2001
PROXY STATEMENT
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................1
WHO CAN VOTE.................................................................1
VOTING BY PROXIES............................................................1
HOW YOU MAY REVOKE YOUR PROXY INSTRUCTIONS...................................1
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?.......................................2
PROPOSALS....................................................................3
PROPOSAL NO. 1 - ELECT SEVEN DIRECTORS......................................3
PROPOSAL NO. 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS............3
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS....................................5
EXECUTIVE OFFICERS.....................................................7
ABOUT THE BOARD AND ITS COMMITTEES...........................................7
EXECUTIVE COMPENSATION.......................................................9
STOCK OPTION GRANTS.........................................................10
OPTION VALUE AS OF JULY 31, 2001............................................11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.....................12
REPORT OF THE AUDIT COMMITTEE...............................................15
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT......................16
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.....................17
STOCK PRICE PERFORMANCE GRAPH...............................................18
PROPOSALS BY STOCKHOLDERS...................................................19
OTHER BUSINESS..............................................................19
ANNUAL REPORT...............................................................19
-i-
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 5, 2001. The proxy
materials were mailed on or about November 12, 2001 to stockholders (the
"Stockholders") of record at the close of business on October 31, 2001 (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 31, 2001. At
that date, 43,653,727 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.
How You May You may revoke your proxy instructions by any of the
Revoke Your Proxy following procedures:
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.
-1-
How Votes are Inspectors of election will be appointed for the meeting.
Counted 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 We will pay the cost of this proxy solicitation, including
Proxy Solicitation 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. Georgeson Shareholder will serve as the
Company's proxy solicitation agent. In such capacity,
Georgeson Shareholder will assist in the distribution of
proxy materials to beneficial owners of Common Stock and
solicitation of votes at an estimated cost of $30,000 plus
its reasonable out-of-pocket expenses. Stockholders who
need additional material, have questions or need assistance
in voting should contact our proxy solicitor, Georgeson
Shareholder, toll free at (866) 324-8868.
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 seven nominees for director who receive the most votes
Election of Seven will be elected. There is no cumulative voting in the
Directors election of directors. If you indicate "vote withheld"
for any nominee on your proxy card, your vote will not
count for or against any nominee.
Proposal 2: The affirmative vote of a majority of the shares of Common
Ratification of Stock entitled to vote and present at the Annual Meeting in
Independent Public person or by proxy will be required to ratify the selection
Accountants of independent auditors. If you indicate "vote withheld" on
this proposal, 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, please call Janice L.
Backus, our Vice President and Corporate Secretary, at (602) 266-6700. If you
have any questions regarding voting, please contact Georgeson Shareholder toll
free at (866) 324-8868.
-2-
PROPOSALS
PROPOSAL NO. 1 - ELECT SEVEN DIRECTORS
Number of An entire Board of Directors, consisting of seven
Directors to be directors, is to be elected at the Annual Meeting. Each
Elected Director elected will hold office until the next annual
meeting of stockholders and 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 seven 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.
Nominees of the The Board has nominated the following individuals to serve
Board 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
H. Richard Grisham
All of these nominees, except for H. Richard Grisham, 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 5 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 2001 was Deloitte & Touche LLP,
independent certified public accountants (the "Auditors"). Our Board of
Directors has selected the Auditors to audit our financial statements the fiscal
year ending July 31, 2002 and to perform other appropriate accounting services.
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.
-3-
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.
AUDIT FEES
The aggregate fees billed by Deloitte & Touche for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended July 31, 2001 and for the review of the financial statements included in
our Quarterly Reports on Form 10-Q for that fiscal year were $120,000.
ALL OTHER FEES
The aggregate fees billed by Deloitte & Touche for services other than
described above under "Audit Fees" for the fiscal year ended July 31, 2001 were
$109,000, including audit related services of $34,000 and non-audit related
services of $75,000. Audit related services generally include fees for pension
and statutory audits, business acquisitions, accounting consultations, internal
audit and SEC registration statements.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
We did not engage Deloitte & Touche to provide any information technology
services during the fiscal year ended July 31, 2001.
YOUR DIRECTORS RECOMMEND A VOTE FOR PROPOSAL NO. 2.
-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.
DIRECTOR
NAME AGE POSITION(S) SINCE
Joseph Hines 73 Chairman of the Board, 1983
President and Chief
Executive Officer
Carl A. Schroeder (1)(2) 72 Director 1984
Michael S. Lesser (2) 59 Director 1995
Curtis M. Rocca III 39 Director 1997
Christopher D. Johnson (1) 49 Director 1999
Kevin J. Tourek (1) (2) 43 Director 1999
H. Richard Grisham 56 Director Nominee
- -------------------
(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.
-5-
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 of Douglas,
Curtis & Allyn LLC, a business advisory firm. From
March 1998 to May 2001 Mr. Rocca was the Chief
Executive Officer and Director of Dental Partners,
Inc., a privately held dental practice consulting and
management company. 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. Johnson Since 1995, Mr. Johnson has been a corporate finance
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. National Airlines filed for bankruptcy
protection under Chapter 11 in December 2000. It is
currently operating under such protection. 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.
H. Richard Grisham Until his retirement in December 1999 Richard Grisham
was the Executive Vice President and Managing Director
- Health Care for Johnson Research and Capital. Mr.
Grisham is also the President and sole shareholder of
RiCar Oil Company that was formed in January 1997.
From January 1997 to January 1999, he was the Chief
Operating Officer and Vice President - Commercial
Business for United Healthcare of the Midwest - HMO,
one of the primary operating businesses of United
Health Group. From June 1995 to June 1996, he was the
President and Chief Operating Officer of Unity Health
System, a health care system comprised of several
acute care hospitals in St. Louis, Missouri. Mr.
Grisham received a B.S. in Pharmacy from the
University of Oklahoma College of Pharmacy and a
M.H.A. (Masters in Health Administration) from the
Washington University School of Medicine.
-6-
EXECUTIVE OFFICERS
Information regarding the names, ages, positions with
the Company, and business experience of the Company's
Executive Officers is set forth below.
Bradley C. Anderson Mr. Anderson, age 40, 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 52, 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.
Thomas M. Laughlin Mr. Laughlin, age 55, is our former Executive Vice
President. He joined us in April 2000 as Vice
President and Chief Operating Officer. From May 2001
to his resignation on July 11, 2001 he was our
Executive Vice President. 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.
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, 2001, our Board of Directors met four
times. All other actions taken by the Board of Directors
during the fiscal year ended July 31, 2001 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.
-7-
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, 2001. The Company does not maintain a standing
nominating committee or other committee performing similar
functions.
Compensation The Compensation Committee of the Board of Directors, which
Committee met once during the fiscal year ended July 31, 2001,
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, 2001, there were three
members of the Compensation Committee, Michael S. Lesser, Kevin
J. Tourek and Carl Schroeder.
Audit The Audit Committee, met five times during the fiscal year ended
Committee July 31, 2001, 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, 2001, there were three members of the
Audit Committee, Carl A. Schroeder, Christopher D. Johnson and
Kevin J. Tourek.
Director Effective December 7, 2000 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. Directors
receive $750 per meeting of any of the Committees of the Board
that they attend in person and $500 per meeting that they attend
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 October 6, 2000 and September 21, 2001, each non-employee
director serving on the Board was granted an option to purchase
2,500 and 5,000 shares, respectively, of Common Stock at a per
share exercise price of and $3.08, and $1.865, respectively. As
of September 21, 2001, options to purchase 92,089 shares of
Common Stock granted under the Directors Plan have been
exercised.
-8-
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, 2001, 2000, and 1999
of the persons who were, at July 31, 2001: (i) the Chief Executive Officer and
(ii) our other executive officers (the "Named Officers") whose total annual
salary and bonus exceeded $100,000.
Annual Compensation Long-Term
Compensation
------------
Securities
Name and Principal Position Fiscal Underlying All Other
Year Salary ($) Bonus ($) Options (3) Compensation (1)
---- ---------- --------- ----------- ----------------
Joseph Hines 2001 $262,000 $26,681 40,000 $8,224
President, Chief Executive 2000 231,858 10,000 90,000 6,760
Officer and Director 1999 207,826 20,000 25,000 3,417
Thomas M. Laughlin (2) 2001 $326,520 $27,859 50,000 $3,152
Executive Vice President 2000 86,041(2) - 100,000 -
1999 - - - -
Bradley C. Anderson 2001 $184,080 $18,876 25,000 $7,001
Vice President and Chief 2000 163,857 10,725 30,000 5,582
Financial Officer 1999 147,008 15,600 25,000 2,439
Janice L. Backus 2001 $147,096 $14,694 25,000 $5,031
Vice President and Corporate 2000 134,231 8,700 30,000 5,339
Secretary 1999 120,223 12,600 25,000 1,992
- ---------------
(1) Represents Company 401(k) plan matching contributions.
(2) Mr. Laughlin joined us in April 2000 and resigned on July 11, 2001. His
salary in fiscal 2000 reflects that he was employed for only four months.
(3) The exercise price of all stock options granted were at least equal to the
fair market values of the Company's Common Stock on the date of grant.
-9-
STOCK OPTION GRANTS
The following Named Officers were granted stock options under the
Company's Stock Option Award Plan during the fiscal year ended July 31, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Potential Realizable
% of Total Value at Assumed
Number of Securities Options Annual Rates of
Underlying Granted to Exercise Stock Price
Option Employees in Price Expiration Appreciation for
Name Granted(1)(#) Fiscal Year (per share)(2) Date Option Term(3)
- ---- ------------- ----------- -------------- ---- --------------
5% ($) 10% ($)
------ -------
Joseph Hines 40,000 11.3 $2.66 12/7/2010 $66,839 $169,383
Thomas M. Laughlin 50,000 14.1 2.27 3/19/2011 71,238 180,531
Bradley C. Anderson 25,000 7.0 2.66 12/7/2010 41,774 105,864
Janice L. Backus 25,000 7.0 2.66 12/7/2010 41,774 105,864
- ----------
(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 7, 2000, except for Mr. Laughlin's stock options, which were
granted on March 19, 2001.
(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 ten-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 in the table may not necessarily be
achieved.
-10-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 2001
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, 2001 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 Unexercisable Exercisable(3) Unexercisable(3)
- ---- ----------- --------------- ----------- ------------- -------------- ----------------
Joseph Hines 69,247 168,825 192,269 100,000 -- --
Thomas M. Laughlin -- -- 33,334 116,666 -- --
Bradley C. Anderson -- -- 215,000 45,000 -- --
Janice L. Backus 34,623 84,412 150,852 45,000 -- --
- ----------
(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, 2001.
(3) Represents the difference between the bid and ask closing prices ($2.52) of
the Company's Common Stock on July 31, 2001 and the exercise price of the
options.
-11-
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
What is our Decisions on compensation of the Company's executive officers
Compensation are made by the Compensation Committee of the Board of Directors
Philosophy? (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.
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
-12-
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 13.2%, and the average
annual salary increase for other senior management has been
approximately 18.6%.
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, 2001, the
Committee granted options representing 354,800 shares of Common
Stock under the Award Plan.
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, Mr. Hines
Officer 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 2000 Annual Meeting of the
Board of Directors. During the fiscal year ended July 31, 2001,
the
-13-
Committee granted Mr. Hines options to purchase a total of
40,000 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, Chairman
Kevin J. Tourek
Carl Schroeder
-14-
REPORT OF THE AUDIT COMMITTEE
The Committee is responsible for the oversight of the Company's financial
reporting process on behalf of the Board of Directors, including the Company's
internal controls, the quality of its financial reporting, and the independence
and performance of the Company's independent auditors. The Board of Directors
has adopted a written charter for the Audit Committee, a copy of which is
attached as Exhibit A to this Proxy Statement.
Management has the primary responsibility for the financial statements and
the reporting process including the systems of internal controls. The
independent auditors audit the annual financial statements prepared by
management, express an opinion as to whether those financial statements fairly
present the consolidated financial position, results of operations and cash
flows of the Company and its subsidiaries in conformity with accounting
principles generally accepted in the United States of America, and discuss with
us any issues they believe should be raised with us.
The Committee meets with management periodically to consider the adequacy
of the Company's internal controls and the objectivity of it financial
reporting. The Committee discusses these matters with the Company's independent
auditors. The Committee regularly meets privately with the independent auditors.
The Board of Directors has determined that none of the Directors serving
on the Committee has a relationship to the Company that may interfere with their
independence from the Company and its management. As a result, each Director who
serves on the Committee is "independent" as required by NASDAQ listing
standards.
This year, the Committee reviewed and discussed the Company's financial
statements with management and Deloitte & Touche, LLP ("Deloitte & Touche"), the
Company's independent auditors. Management has represented to the Committee that
the financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America.
The Committee has considered the non-audit services provided by Deloitte &
Touche during fiscal 2001 and determined that the provision of these services do
not impact the firm's independence from the Company.
The Committee has received from and discussed with Deloitte & Touche the
written disclosure and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). These items
relate to that firm's independence from the Company. We also discussed with
Deloitte & Touche any matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
Based on these reviews and discussions, the Committee recommends to the
Board of Directors that the Company's audited financial statements be included
in the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
2001.
AUDIT COMMITTEE
Christopher D. Johnson, Chairman
Kevin J. Tourek
Carl Schroeder
-15-
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
The following table sets forth, as of September 28, 2001, 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, (d) each nominee for
Director, and (e) all our directors, executive officers and nominee 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 COMMON
BENEFICIAL OWNER OWNED STOCK
- ---------------- ----- -----
Joseph Hines 1,215,905(1) 2.8%
Thomas M. Laughlin(2) 33,334 *
Janice L. Backus 261,733(3) *
Bradley C. Anderson 216,430(4) *
Carl Schroeder 32,500(5) *
Michael S. Lesser 17,500(6) *
Curtis M. Rocca III 56,039(7) *
Christopher D. Johnson 10,000(8) *
Kevin J. Tourek 10,500(9) *
H. Richard Grisham(10) 82,000 *
All officers, directors 1,935,941 4.4%
and nominee as a group
(10 persons)(11)
- ----------
* Represents less than 1%.
(1) Includes 192,269 shares of Common Stock which are subject to unexercised
options that were exercisable on September 28, 2001 or within 60 days
thereafter.
(2) Mr. Laughlin resigned as an officer on July 11, 2001.
-16-
(3) Includes 150,852 shares of Common Stock which are subject to unexercised
options that were exercisable on September 28, 2001 or within 60 days
thereafter.
(4) Includes 215,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 28, 2001 or within 60 days
thereafter.
(5) Includes 17,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 28, 2001 or within 60 days
thereafter.
(6) Includes 17,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 28, 2001 or within 60 days
thereafter.
(7) Includes 12,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 28, 2001 or within 60 days
thereafter.
(8) Includes 10,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 28, 2001 or within 60 days
thereafter.
(9) Includes 10,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 28, 2001 or within 60 days
thereafter.
(10) Nominee for election to the Board of Directors.
(11) 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,
2001 its officers, directors, and greater than 10% beneficial owners have
complied with all filing requirements applicable to them.
-17-
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, 1996 to July 31, 2001.
ZILA INC
Cumulative Total Return
---------------------------------------------------------------------------------------------
7/96 7/97 7/98 7/99 7/00 7/01
ZILA, INC. 100.00 94.35 80.65 43.95 50.00 32.65
NASDAQ STOCK MARKET (U.S.) 100.00 147.54 173.63 248.14 353.37 189.71
NASDAQ PHARMACEUTICAL 100.00 116.86 117.18 182.95 347.82 289.92
-18-
PROPOSALS BY STOCKHOLDERS
Any Stockholder proposal that is intended to be presented at the Company's
2001 Annual Meeting of Stockholders must be received at the Company's principal
executive offices no later than July 15, 2002, 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, 2001 accompanies this Notice and Proxy Statement and
was mailed to all shareholders of record on or about November 12, 2001. 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 31, 2001.
By Order of the Board of Directors,
/s/ Janice L. Backus
------------------------------------
Janice L. Backus
Vice President and Secretary
Phoenix, Arizona
-19-
Exhibit A
ZILA, INC.
AUDIT COMMITTEE CHARTER
GENERAL
The Audit Committee is a three-member committee of the Board of Directors
comprised of independent directors of the company as defined by Nasdaq. All
directors must be able to read and understand fundamental financial statements,
including the company's balance sheet, income statement, and cash flow
statement. At least one director must have past employment experience in finance
or accounting, requisite professional certification in accounting, or other
comparable experience or background, including a current or past position as a
chief executive or financial officer or other senior officer with financial
oversight responsibilities.
The Audit Committee's primary function is to assist the Board of Directors in
fulfilling its oversight responsibilities of the financial reporting process by
reviewing the following areas and recommending appropriate action, when
necessary, to Management and/or the Board of Directors: (1) financial
information which will be provided to shareholders and others, (2) the systems
of internal control which Management and the Board of Directors have
established, and (3) the audit process. The Audit Committee is responsible to
the Board of Directors and reports regularly to them on the activities of the
Committee. For a portion of each meeting, the Committee may meet with the
Company's management, Chief Financial Officer, Controller and independent
auditors, either collectively or individually, as warranted, and a portion of
each meeting may be restricted to Committee members only.
AUDIT COMMITTEE DUTIES AND RESPONSIBILITIES
1. Review and recommend to the Board of Directors the independent auditors
selected/retained to audit the financial statements of the company. In so
doing, the Committee will discuss and consider the auditor's independence,
will discuss the nature and rigor of the audit process and will provide an
open avenue of communication between the independent auditors and the
Committee.
2. Inquire of management and independent auditors about significant possible
risks or exposures to the Company and assess the steps management has
taken to minimize such risks and exposures.
3. Consider and review with financial management and independent auditors,
the adequacy of the Company's internal controls including computerized
management information systems and security, and elicit any
recommendations for the improvement of such internal control procedures or
particular areas where new or more detailed controls or procedures are
desirable.
4. Meet with the independent auditors to review the scope and fees of the
annual audit and, at the conclusion of the audit, review the audit
results, including any comments and recommendations included in the
independent auditors' management letter.
5. Review quarterly and annual financial information with financial
management and the independent auditors prior to filing with the
Securities and Exchange Commission.
6. Review with the independent auditors the types and extent of management
advisory services that management has engaged the independent auditing
firm to perform.
7. Review any matters brought to the Committee's attention regarding
financial, ethical, or legal matters.
8. Annually review the Audit Committee Charter and recommend changes to the
Board of Directors.
ZILA, INC.
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 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 the Scottsdale Hilton Resort, 6333 N.
Scottsdale Road, Scottsdale, Arizona 85250 on December 5, 2001, 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 seven directors to the Company's Board to serve
until the next Annual Meeting of Stockholders and until their successors are
elected.
Nominees: JOSEPH HINES, CARL A. SCHROEDER, MICHAEL S. LESSER, CURTIS M.
ROCCA III, CHRISTOPHER D. JOHNSON, KEVIN J. TOUREK AND H. RICHARD
GRISHAM
________ 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, 2002.
(Mark only one)
_____ VOTE FOR _______ VOTE AGAINST _______ VOTE WITHHELD
PLEASE PROMPTLY DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
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: ___________, 2001
_______________________________________
(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.