1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ZILA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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 registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
2
ZILA, INC.
5227 NORTH 7TH STREET
PHOENIX, ARIZONA 85014-2800
(602) 266-6700
-----------------------------------------------------------------
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 1996
-----------------------------------------------------------------
To the Holders of Our Common Stock:
The 1996 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 12, 1996, at 9:00 a.m., local time. The Annual Meeting
will be for the following purposes:
1. To elect seven directors to the Company's Board to serve for
the next year or until their successors are elected.
2. To ratify the selection of Deloitte & Touche LLP as the
independent public accounting firm for the Company for the
fiscal year ending July 31, 1997.
3. To transact such other business as may properly come before
the Annual Meeting. Management is presently aware of no other
business to come before the Annual Meeting.
The Board of Directors has fixed the close of business on October 31,
1996 as the Record Date for the determination of Stockholders entitled to
receive notice of and to vote at the Annual Meeting or any adjournment thereof.
Shares of Common Stock can be voted at the Annual Meeting only if the holder is
present at the Annual Meeting in person or by valid proxy. A copy of the
Company's 1996 Annual Report to Stockholders, which includes the Company's
consolidated financial statements, was mailed with this Notice and Proxy
Statement on or about November 12, 1996 to all Stockholders of record on the
Record Date. The officers and directors of the Company cordially invite you to
attend the Annual Meeting.
Your attention is directed to the attached Proxy Statement.
By Order of the Board of Directors,
Janice L. Backus
Vice President and Secretary
Phoenix, Arizona
November 12, 1996
- --------------------------------------------------------------------------------
IMPORTANT
Stockholders are earnestly requested to DATE, SIGN and MAIL the enclosed proxy.
A postage paid envelope is provided for mailing.
- --------------------------------------------------------------------------------
3
ZILA, INC.
5227 NORTH 7TH STREET
PHOENIX, ARIZONA 85014-2800
(602) 266-6700
----------------------------------------------
PROXY STATEMENT
----------------------------------------------
This Proxy Statement is furnished to the stockholders of Zila, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies to be used in voting at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on December 12, 1996. The enclosed proxy is solicited by
the Board of Directors (the "Board") of the Company. The proxy materials were
mailed on or about November 12, 1996 to stockholders (the "Stockholders") of
record at the close of business on October 31, 1996 (the "Record Date").
A person giving the enclosed proxy has the power to revoke it at any
time before it is exercised by either: (i) attending the Annual Meeting and
voting in person; (ii) duly executing and delivering a proxy bearing a later
date; or (iii) sending written notice of revocation to the Secretary of the
Company at 5227 North 7th Street, Phoenix, Arizona 85014-2800.
The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others who forward
solicitation material to beneficial owners of the Common Stock. In addition to
the use of the mail, proxies may be solicited by personal interview, telephone,
or telegraph. The Company has arranged for Corporate Investor Communications,
Inc. to serve as its proxy solicitation agent. In such capacity, Corporate
Investor Communications, Inc. will coordinate the distribution of proxy
materials to Stockholders and oversee the return of proxy cards. The fees for
these services is estimated to be $5,500.
VOTING SECURITIES OUTSTANDING
Only holders of record of Common Stock at the close of business on
October 31, 1996 will be entitled to vote at the Annual Meeting. At that date,
there were 25,859,545 shares of Common Stock outstanding. Each share of Common
Stock is entitled to one vote on all matters on which Stockholders may vote.
There is no cumulative voting in the election of directors.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspectors of election appointed for the meeting and will
determine whether or not a quorum is present. The inspectors of election will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter submitted to the Stockholders for a vote.
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.
4
BOARD OF DIRECTORS
IN GENERAL
At the Annual Meeting, seven directors will be elected, each to hold
office until the Company's next annual meeting of Stockholders or until his
successor is elected and qualified. Subject to the requirements of applicable
Delaware law, the Board may from time to time determine the number of directors
of the Company.
The shares represented by the enclosed proxy will be voted for the
election, as directors, of the seven nominees named below, unless a vote is
withheld from any individual nominee. If any nominee becomes unavailable for any
reason or if a vacancy should occur before election, which events are not
anticipated, the shares represented by the enclosed proxy may be voted for such
other person as may be determined by the holders of such proxy. The nominees
receiving the highest number of votes cast at the Annual Meeting will be
elected.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Information regarding the names, ages, positions with the Company and
the Board, and business experience of each of the directors and nominees is set
forth below. Each director has served continuously with the Company since his
first election as indicated below.
Director
NAME Age Position(s) Since
---- --- ----------- -----
Joseph Hines 68 Chairman of the Board, 1983
President and Chief Executive
Officer
Clarence J. Baudhuin (1) 67 Executive Vice President of 1983
Finance and Administration,
Treasurer and Director
Dr. James E. Tinnell (1) 59 Director 1980
Carl A. Schroeder (1) 67 Director 1984
H. Ray Cox (2) 62 Director 1989
Patrick M. Lonergan (2) 61 Director 1992
Michael S. Lesser (2) 54 Director 1995
(1) Member of the Audit Committee
(2) Member of the Compensation Committee.
3
5
JOSEPH HINES has served as President and Chief Executive Officer of the
Company 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.
CLARENCE J. BAUDHUIN has served the Company in his present capacity
since 1983. Mr. Baudhuin also served as Secretary of the Company from September
1983 until April 1989. From May 1981 until July 1983, Mr. Baudhuin acted as
Senior Vice President of Finance for Mattel Toy Company. Prior to that time, Mr.
Baudhuin was Senior Vice President of the Chemical-Plastics Group of Dart
Industries. Mr. Baudhuin is a certified public accountant.
DR. JAMES E. TINNELL graduated from the University of Arkansas School
of Medicine and has been engaged in private practice since 1965. Since 1979, Dr.
Tinnell has limited his professional practice to the treatment of herpes virus
patients at the Herpes Clinic in Las Vegas, Nevada. From 1974 until 1979, Dr.
Tinnell was the resident physician at a major hotel and casino in Las Vegas,
Nevada.
CARL A. SCHROEDER is, and since September 1991 has been, 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.
H. RAY COX is, and since August 1, 1991 has been, President and Chief
Executive Officer of Broadcast Development LLC in Phoenix, Arizona. From 1984 to
1991 he served as Senior Vice President of Corporate Affairs of The Circle K
Corporation in Phoenix, Arizona. Prior to that time, Mr. Cox served as President
of Cox Investor Relations from 1981 to 1984, as Senior Vice President of Charter
Media Company from 1979 to 1981, and as Executive Vice President of Combined
Communications Corporation from 1968 to 1979.
PATRICK M. LONERGAN is the co-founder of Numark Laboratories, Inc. and
has served as its President since January 1989. Prior to co-founding Numark, Mr.
Lonergan was employed in various capacities by Johnson & Johnson Products Inc.,
or one of its affiliates, from 1973 through December 1989, most recently as Vice
President & General Manager.
MICHAEL S. LESSER is the president of T.V. Direct, Inc. and the founder
of Lesser & Roffe Company, a business development consulting company, and has
served as its Chief Executive Officer since 1990. Prior to founding Lesser and
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.
4
6
POTENTIAL NEW DIRECTORS
The Company has entered into a Merger Agreement dated August 8, 1996,
with Bio-Dental Corporation ("Bio-Dental") pursuant to which Bio-Dental would
become a wholly owned subsidiary of the Company (the "Merger"). Upon the
consummation of the Merger, each Bio-Dental shareholder would become a
shareholder of the Company. Bio-Dental shareholders are currently expected to
vote on the merger in November 1996, subsequent to the date of this Proxy
Statement. If the Merger is approved by the Bio-Dental shareholders, the Company
and Bio-Dental have agreed that two members of the Bio-Dental Board of directors
(the Bio-Dental Appointees") will be appointed to the Company's board of
directors. Set forth below is information regarding the Bio-Dental Appointees:
CURTIS M. ROCCA III currently serves as President , Chief Executive
Officer and Director of Bio-Dental and, upon consummation of the Merger, is
expected to be appointed Vice President and Director of Zila and President of
Bio-Dental as a wholly owned subsidiary of Zila. Mr. Rocca has been with
Bio-Dental since 1990 when he was hired as Chief Operating Officer. Prior to
joining Bio-Dental, Mr. Rocca was Executive Vice President and Director of
Celebrity, Inc. of Placerville, California. Celebrity, Inc. is a manufacturer
and distributor of automotive aftermarket accessories. Prior to joining
Celebrity, Inc., Mr. Rocca was employed as a marketing manager in Pacific Bell's
Fast Track management program. Mr. Rocca holds a B.A. degree in economics from
the University of California, Davis where he graduated with honors. Mr. Rocca
currently serves as a director of Pacific Grain Products, Inc., Woodland
California
DOUGLAS L. AYER currently serves as a member of the Board of Directors
of Bio-Dental and following the Merger, is expected to be appointed a Director
of Zila. Mr. Ayer has served as President of International Capital Partners,
Inc.(ICP) since July 1989. Prior to forming ICP, Mr. Ayer was Chairman and CEO
of Cametrics, Inc., a precision metal fabricating company, Executive Vice
President of Paine, Webber, Jackson and Curtis Inc. and a consultant with
McKinsey and Co., Inc. in New York and London. Mr. Ayer currently serves as a
director with Molded Container Corporation, Portland, Oregon; AmPro Corporation,
Melbourne, Florida; Biopool International, Ventura, California; Age Wave, Inc.,
Emeryville, California and Med Max., Inc., Detroit, Michigan.
MEETINGS AND COMPENSATION
During the fiscal year ended July 31, 1996, the Board of Directors of
the Company met on three occasions. All other actions taken by the Board of
Directors during the fiscal year ended July 31, 1996, 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.
The Compensation Committee of the Board of Directors, which met once
during the fiscal year ended July 31, 1996, 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. The
Audit Committee, which met once during the fiscal year ended July 31, 1996,
makes recommendations to the Board concerning the selection of outside auditors,
reviews the financial statements of the Company 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
5
7
to facilitate accurate and timely financial reporting. The Company does not
maintain a standing nominating committee or other committee performing similar
functions.
DIRECTORS' COMPENSATION
Non-employee members of the Board of Directors receive no cash
compensation for serving on the Board; however, such members are reimbursed for
expenses incurred in connection with their attendance at meetings of the Board.
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 1, 1996 and November 3, 1995 each non-employee director
then serving on the Board, was granted an option to purchase 2,500 shares of
Common Stock at per share exercise prices of $6.59 and $4.00, respectively. As
of October 31, 1996, options to purchase 42,500 shares of Common Stock granted
under the Directors Plan have been exercised.
6
8
EXECUTIVE COMPENSATION
The table below sets forth annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended July 31,
1996, 1995 and 1994, of the persons who were, at July 31, 1996: (i) the Chief
Executive Officer and (ii) the other executive officers of the Company (the
"Named Officers") whose total annual salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------- ------------
Other
Annual Securities
Compensa- Underlying All Other
Name and Principal Position Year Salary($) Bonus ($) tion($) Options/SARs(#) Compensation (3)
- --------------------------- ---- --------- --------- ------- --------------- ----------------
Joseph Hines 1996 $169,431 - - 23,029 $2,315
President, Chief Executive 1995 158,292 - - 22,430 1,888
Officer and Director 1994 156,504 - - 21,290 -
Clarence J. Baudhuin 1996 160,124 - - 22,237 2,198
Executive Vice President- 1995 150,372 - - 21,640 1,793
Finance and Administration 1994 148,252 - - 20,530 -
and Director
Edwin Pomerantz 1996 131,456 - - 19,437 1,816
Vice President-Regulatory 1995 124,368 - - 18,840 1,483
and Technical Affairs 1994 122,613 - - 17,820 -
Rocco Anselmo 1996 152,536 $25,000 - 115,651 2,453
Executive Vice President and 1995 138,672 - - 13,750 1,567
General Manager, Zila 1994 130,000 - $61,992 (2) 188,150 -
Pharmaceuticals (1)
(1) In October 1996, the Company's Board of Director's determined that Mr.
Rocco's contributions to the Company had become integral to the operation of
Zila Pharmaceuticals (a wholly owned subsidiary of Zila, Inc.) and therefore the
Company determined that he should be considered an "officer" as such term is
defined in Rule 16a-1(f).
(2) Relocation Allowance
(3) Represents Company 401(k) plan matching contributions
EMPLOYMENT AGREEMENTS
In February, 1992, the Company entered into five-year employment
agreements with Joseph Hines and Clarence Baudhuin and a three-year employment
agreement with Edwin Pomerantz. These agreements established minimum annual base
salaries for Mr. Hines, Mr. Baudhuin and Mr. Pomerantz of $148,176, $140,772 and
$116,424, respectively. The current salaries of the foregoing officers were
authorized by the Board of Directors at the 1996 Annual Meeting of the Board of
Directors. Under the terms of the these agreements, each agreements would be
automatically extended for successive one year periods unless a nonrenewal
notice is given by the Company or the
7
9
respective officer sixty days prior to the end of any renewal term. On December
8, 1996, the Company notified Mr. Hines, Mr. Baudhuin and Mr. Pomerantz, that at
the Company had elected not to renew any of the respective agreements.
Accordingly, Mr. Pomerantz's employment agreement ended as of February 10, 1996.
Mr. Hines' and Mr. Baudhuin's employment agreements will end as of February 10,
1997. The Company's decision to not renew any of the employment agreements was
not based upon the performance of any of the individuals and each of the
officers continues to be employed by the Company in the same respective
capacities.
The following table sets forth information with respect to grants of
stock options pursuant to the Company's Stock Option Award Plan during the
fiscal year ended July 31, 1996 to the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-------------------------------------------------------------- Potential Realizable
Value at
Assumed Annual
Rates of
% of Total Stock Price
Options Appreciation for
Granted to Exercise or Option Term(3)
Option Employees in Base Price Expiration ----------------------------
Name Granted(1)(#) Fiscal Year (per share)(2) Date 5% ($) 10% ($)
- ---- ------------- ----------- -------------- ---- ------------ ------------
Joseph Hines 23,029 8.4 $4.75 12/8/05 $68,795 $174,334
Clarence J. Baudhuin 22,237 8.1 4.75 12/8/05 66,429 168,339
Edwin Pomerantz 19,437 7.1 4.75 12/8/05 58,064 147,142
Rocco Anselmo 100,000 36.3 4.3125 8/2/05 271,210 687,290
15,651 5.7 4.75 12/8/05 48,754 118,481
(1) All options granted in the fiscal year ended July 31, 1996 are fully
vested, except Mr. Anselmo's option to purchase 100,000 shares of
Common Stock which will vest in August 1997.
(2) All options were granted at the fair market value (the mean of the
final closing bid and asked prices of the Common Stock on the NASDAQ)
on the date of grant. The exercise price and tax withholding
obligations related to exercise may be paid by delivery of already
owned shares or by offset of the underlying shares, subject to certain
conditions.
(3) Potential gains are reported net of the option exercise price, but
before taxes associated with exercise. These amounts are based upon
certain assumed rates of appreciation. Actual gains, if any, on stock
option exercises are dependent on the future performance of the Common
Stock and overall stock market conditions, as well as the option
holder's continued employment. The amounts reflected in this table may
not necessarily be achieved.
The following table sets forth information with respect to the exercise
of stock options pursuant to the Company's Stock Option Award Plan during the
fiscal year ended July 31, 1996 by the Named Officers.
8
10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 1996
Value of Unexercised
Number of Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End (#) Fiscal Year End ($)
Acquired on Value --------------------------------- -----------------------------------
Name Exercise(#) Realized ($)(1) Exercisable Unexercisable Exercisable(2) Unexercisable(2)
- ---- ----------- --------------- ----------- ------------- -------------- ----------------
Joseph Hines -0- -0- 361,969 -- $1,885,187 --
Clarence J.
Baudhuin 100,000 $287,500 183,877 -- 809,159 --
Edwin
Pomerantz 76,190 731,250 146,747 -- 681,602 --
Rocco
Anselmo 148,644 391,104 29,401 100,000 104,723 $331,250
(1) Represents the market value of the underlying securities on the date of
exercise, minus the exercise price of the options.
(2) Represents the difference between the bid and asked closing prices
($7.625) of the Company's Common Stock on July 31, 1996 and the
exercise price of the options.
9
11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy. Decisions on compensation of the Company's
executive officers are made by the three member Compensation Committee of the
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 which 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 management's and the
stockholders' interest 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; however, no independent investigation of such levels
has been conducted by the Committee. The components of executive compensation
include salary, equity participation in the Company in the form of options to
purchase common stock, and a bonus plan. Compensation for executive officers of
the Company 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. Messrs. Hines and Baudhuin both have employment agreements
with the Company establishing an annual base salary that is subject to increase,
but not decrease, at the discretion of the Board of Directors. Both agreements
are subject to automatic renewal in February 1997, unless either party elects
not to renew their respective agreement. In December 1995, the Company notified
Messrs. Hines and Baudhuin that the Company had elected not to renew their
respective employment agreements. See Executive Compensation--Employment
Agreements.
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 the
long-term success of the Company through the development of new and improved
products,
10
12
as well as management's innovative financing arrangements for the Company's
marketing programs. Such efforts have permitted the Company to initiate
marketing programs more extensive than what might not otherwise be available to
a company of similar size and with similar resources. These unique marketing
programs link the repayment of the marketing funds to the success of the
products being marketed.
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 which the Committee
believes is 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 2.2%, and the average annual salary increase for other
senior management has been approximately 3.9%.
Options. The Committee administers the Company's Stock Option Award
Plan (the "Award Plan"). All employees of the Company 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, 1996, the Committee granted options representing 275,467
shares of Common Stock under the Award Plan.
Bonus. Bonus compensation is paid under the Company's Performance Bonus
Plan (the "Bonus Plan"). The Performance Bonus Plan was adopted by the Board of
Directors and the Committee during fiscal 1993 and, as of the date of this
report, no bonuses have been awarded. Bonuses awarded under the Bonus Plan may
not exceed 30% of an employee's annual base salary. The components which are
considered under the terms of the Bonus Plan are the Company's net sales, the
Company's sales volume, and the employee's job performance. All employees are
eligible for a bonus of up to 15% of their respective base salaries if the
Company's annual net profits improve by 25% over the prior year and a bonus of
up to 7.5% of their respective base salaries if the Company's annual sales
volume increases by more than 75% over the prior year. Performance components of
the employee's bonus may be as great as 7.5% and are based upon subjective
criteria.
11
13
Chief Executive Officer. Mr. Hines has served as President and Chief
Executive Officer of the Company since 1983. As Chief Executive Officer, Mr.
Hines receives a base salary as well as stock options under the Award Plan and
is eligible to participate in the Bonus Plan. In February 1992, the Company
entered into an employment agreement with Mr. Hines that establishes his annual
base salary at $148,176, subject to increase, but not decrease at the discretion
of the Board of Directors. In December 1995, the Company notified Mr. Hines the
Company had elected not to renew his employment agreement. Accordingly, in
February 1997, Mr Hines' current employment agreement will cease to be of any
further effect; however, Mr. Hines will continue as the President and Chief
Executive Officer of the Company. See Executive Compensation--Employment
Agreements. The Committee's evaluation process of the Chief Executive Officer's
compensation is comprised of the exact same components that are utilized in
evaluating other members of senior management. Mr. Hines' current base salary
was set at the 1995 Annual Meeting of the Board of Directors. During the fiscal
year ended July 31, 1996, the Committee granted Mr. Hines options to purchase a
total of 23,029 shares of the Company's Common Stock under the Award Plan. All
the options were granted at fair market value, were immediately exercisable, and
expire ten years after the date of grant.
Compensation Committee
Patrick M. Lonergan, Chairman
H. Ray Cox
Michael S. Lesser
12
14
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT
The following table sets forth, as of September 30, 1996, the number
and percentage of outstanding shares of Common Stock beneficially owned by (a)
each person known by the Company to beneficially own more than 5% of such stock,
(b) each director of the Company, (c) each of the Named Officers, and (d) all
directors and executive officers of the Company as a group.
NAME AND ADDRESS OF SHARES BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED COMMON STOCK
------------------ ------------------- ------------
Joseph Hines(1) 1,266,971(2) 4.8%
Clarence J. Baudhuin(1) 947,318(3) 3.6%
Edwin Pomerantz(1) 405,213(4) 1.6%
Rocco Anselmo(1) 154,235(5) *
James E. Tinnell, M.D.(1) 321,311(6) 1.2%
Carl Schroeder(1) 20,700(7) *
H. Ray Cox(1) 12,250(8) *
Patrick M. Lonergan(1) 15,746(9) *
Michael S. Lesser(1) 2,500(10) *
All officers and directors as a group
(10 persons) 3,439,400(11) 12.8%
- -----------------------------------
* Represents less than one percent.
(1) The address of this stockholder is c/o Zila, Inc., 5227 North 7th Street,
Phoenix, Arizona 85014-2800.
(2) Includes 361,969 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1996 or within sixty days
thereafter.
(3) Includes 183,877 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1996 or within sixty days
thereafter and 6,000 shares of Common Stock held in trust for the benefit of Mr.
Baudhuin's son.
(4) Includes 146,747 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1996 or within sixty days
thereafter.
13
15
(5) Includes 29,441 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1996 or within sixty days
thereafter.
(6) Includes 10,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1996 or within sixty days
thereafter.
(7) Includes 10,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1996 or within sixty days
thereafter.
(8) Includes 250 shares of Common Stock held jointly with Mr. Cox's wife, and
10,000 shares of Common Stock which are subject to unexercised options that were
exercisable on September 30, 1996 or within sixty days thereafter.
(9) Includes 10,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1996 or within sixty days
thereafter.
(10) Includes 2,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1996 or within sixty days
thereafter.
(11) Includes the shares of Common Stock subject to the options and warrants to
purchase described above and 939,886 shares of Common Stock which are subject to
unexercised options that were exercisable on September 30, 1996 or within sixty
days thereafter.
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 ten percent 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 ten-percent stockholders are required by Exchange Act regulations to
furnish the Company 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, the Company believes that during the fiscal year
ended July 31, 1996, all filing requirements applicable to its officers,
directors, and greater than ten-percent beneficial owners were complied with
except as set forth below. Patrick M. Lonergan, a member of the Company's Board
of Directors failed to timely report two purchases of the Company's Common Stock
which in the aggregate equaled 615 shares. Mr. Lonergan purchased such shares in
January 1996 and should have reported such transactions to the Securities and
Exchange Commission on a Form 4 not later than February 12, 1996; however such
report was not filed until March 1996.
14
16
CERTAIN TRANSACTIONS
On July 16, 1980, Dr. Tinnell, a member of the Company's Board of
Directors, assigned to the Company's predecessor his rights in a patent
application covering the original formulation for ZILACTIN(R), and all rights to
any improvements to the ZILACTIN(R) formulation, and to any patents granted by
the United States or foreign countries. In consideration for the assignment, the
Board agreed to pay Dr. Tinnell a royalty of five percent of the Company's gross
sales of the treatment composition. For the fiscal year ended July 31, 1996, Dr.
Tinnell earned royalties of $300,078, and was paid royalties of $295,494 by the
Company, which included $31,235 accrued as of July 31, 1995. As of July 31,
1996, the Company accrued royalties of $35,819 attributable to Dr. Tinnell.
The Company leases office space to a radio broadcast company
("Broadcast") controlled by H. Ray Cox, one of the directors of the Company.
Under the terms of the lease, monthly rent is approximately $3,600. As of
October 31, 1996, Broadcast was in arrears approximately $55,000 in rent and
other items receivables related to this lease.
15
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, 1991 to July 31, 1996.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ZILA, INC., THE NASDAQ STOCK MARKET -- US INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
Measurement Period NASDAQ STOCK NASDAQ
(Fiscal Year Covered) ZILA, INC. MARKET -- US PHARMACEUTICAL
- --------------------- ---------- ------------ --------------
July 1991 100 100 100
July 1992 78 117 116
July 1993 104 143 93
July 1994 127 147 82
July 1995 133 206 115
July 1996 253 225 140
* $100 INVESTED ON 07/31/91 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING JULY 31.
16
18
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Annual Meeting, the Company will seek the election of Joseph
Hines, Clarence J. Baudhuin, Dr. James E. Tinnell, Carl A. Schroeder, H. Ray
Cox, Patrick M. Lonergan, and Michael S. Lesser as directors, each to hold
office until the Company's next annual meeting of Stockholders or until his
successor is elected and qualified.
REQUIRED VOTE
The seven nominees receiving the highest number of votes cast at the
Annual Meeting will be elected.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
JOSEPH HINES, CLARENCE J. BAUDHUIN, DO. JAMES E. TINNELL, CARL
A. SCHROEDER, H. RAY COX, PATRICK M. LONERGAN, AND MICHAEL S.
LESSER.
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
The principal independent public accounting firm utilized by the
Company during the fiscal years ended July 31, 1994, 1995, and 1996 was Deloitte
& Touche LLP, independent certified public accountants (the "Auditors"). It is
presently contemplated that the auditors will be retained as the principal
accounting firm to be utilized by the Company throughout the fiscal year ending
July 31, 1997. The Company anticipates 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.
REQUIRED VOTE
Ratification of the selection of the Auditors requires the affirmative
vote of a majority of the voting power of Common Stock present at the Annual
Meeting in person or by proxy.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
SELECTION OF THE AUDITORS.
17
19
PROPOSALS BY STOCKHOLDERS
Any Stockholder proposal that is intended to be presented at the
Company's 1997 Annual Meeting of Stockholders must be received at the Company's
principal executive offices by no later than July 18, 1997, 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.
By Order of the Board of Directors,
Janice L. Backus
Vice President and Secretary
Phoenix, Arizona
November 12, 1996
18
20
[FRONT OF PROXY CARD]
ZILA, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints JOSEPH HINES, CLARENCE J.
BAUDHUIN and JANICE L. BACKUS, 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 Marriott's Camelback Inn, 5402 East
Lincoln Drive, Scottsdale, Arizona 85253 on December 12, 1996, 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: To elect seven directors to the Company's Board to serve for the
next year or until their successors are elected.
NOMINEES: JOSEPH HINES, CLARENCE J. BAUDHUIN, H. RAY COX, CARL A. SCHROEDER, DR.
JAMES E. TINNELL, PATRICK M. LONERGAN and MICHAEL S. LESSER
- --------- 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: Ratification of the selection of Deloitte & Touche as the
independent public accounting firm for the Company for the fiscal year ending
July 31, 1997. (Mark only one.)
- --------- VOTE FOR
- --------- VOTE AGAINST
- --------- VOTE WITHHELD
PLEASE PROMPTLY DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
21
[REVERSE OF PROXY CARD]
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: __________________________ , 1996.
---------------------------
(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.