1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ZILA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
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):
-------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
5) Total fee paid:
-------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
3) Filing Party:
-------------------------------------------------------------------------
4) Date Filed:
-------------------------------------------------------------------------
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 11, 1997
To the Holders of Our Common Stock:
The 1997 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 11, 1997, 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 approve adoption of the 1997 Stock Option Award Plan.
3. To ratify the selection of Deloitte & Touche LLP as the
independent public accounting firm for the Company for the
fiscal year ending July 31, 1998.
4. 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,
1997 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 1997 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, 1997 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,
/s/ Janice L. Backus
----------------------------------
Janice L. Backus
Vice President and Secretary
Phoenix, Arizona
November 12, 1997
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 11, 1997. 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, 1997 to stockholders (the "Stockholders") of
record at the close of business on October 31, 1997 (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 fee 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, 1997 will be entitled to vote at the Annual Meeting. At that date,
there were 33,885,889 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.
1
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 69 Chairman of the Board, 1983
President and Chief
Executive Officer
Clarence J. Baudhuin (1) 68 Executive Vice President of 1983
Finance and Administration,
Treasurer and Director
Carl A. Schroeder (1) 68 Director 1984
Patrick M. Lonergan (1), (2) 62 Director 1992
Michael S. Lesser (2) 55 Director 1995
Douglas L. Ayer (2) 60 Director 1997
Curtis M. Rocca III 35 Vice President and Director 1997
- ----------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee.
2
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.
CARL A. 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.
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.
DOUGLAS L. AYER is a Director of Zila and previously served as a
Director of Bio-Dental Technologies Corporation ("Bio-Dental"), a wholly-owned
subsidiary 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.
CURTIS M. ROCCA III is the Vice President and a Director of Zila and
President of Bio-Dental. Mr. Rocca has been with Bio-Dental since 1990 when he
was hired as Chief Operating Officer and has served as a Director. Prior to
joining Bio-Dental, Mr. Rocca was Executive Vice President and Director of
Celebrity, Inc. of Placerville, California. 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.
3
6
MEETINGS AND COMPENSATION
During the fiscal year ended July 31, 1997, the Board of Directors of
the Company met on five occasions. All other actions taken by the Board of
Directors during the fiscal year ended July 31, 1997, 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, 1997, 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, 1997,
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 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 3, 1997, 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 $7.00,
$6.59 and $4.00, respectively. As of October 31, 1997, options to purchase
71,641 shares of Common Stock granted under the Directors Plan have been
exercised.
4
7
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,
1997, 1996 and 1995, of the persons who were, at July 31, 1997: (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 (2)
- --------------------------- ---- --------- --------- --------- --------------- ----------------
Joseph Hines 1997 $175,000 -- -- 25,300 $2,625
President, Chief Executive 1996 169,431 -- -- 23,029 2,315
Officer and Director 1995 158,292 -- -- 22,430 1,888
Clarence J. Baudhuin 1997 165,000 -- -- 24,300 2,475
Executive Vice President- 1996 160,124 -- -- 22,237 2,198
Finance and Administration 1995 150,372 -- -- 21,640 1,793
and Director
Edwin Pomerantz 1997 135,000 -- -- 21,100 2,025
Vice President-Regulatory 1996 131,456 -- -- 19,437 1,816
and Technical Affairs 1995 124,368 -- -- 18,840 1,483
Curtis M. Rocca III 1997 137,500 -- -- 80,000 --
Vice President, Director 1996 120,000 -- -- -- --
and President of Bio-Dental 1995 120,000 -- -- -- --
Technologies Corporation
Rocco Anselmo 1997 157,300 $31,460 -- 17,680 2,682
President of Zila 1996 152,536 25,000 -- 115,651 2,453
Pharmaceuticals (1) 1995 138,672 -- -- 13,750 1,567
(1) In October 1996, the Company's Board of Director's determined that Mr.
Anselmo'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) 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. These agreements established
minimum annual base salaries for Mr. Hines and Mr. Baudhuin of $148,176 and
$140,772, respectively. The current salaries of the foregoing officers were
authorized by the Board of Directors at the 1997 Annual Meeting of the Board of
Directors. Under the terms of these agreements, each agreement would be
5
8
automatically extended for successive one year periods unless a nonrenewal
notice is given by the Company or the respective officer sixty days prior to the
end of any renewal term. On December 8, 1996, the Company notified Mr. Hines and
Mr. Baudhuin that the Company had elected not to renew any of the respective
agreements. Accordingly, Mr. Hines' and Mr. Baudhuin's employment agreements
ended as of February 10, 1997. The Company's decision to not renew either of
these employment agreements was not based upon the performance of any of the
individuals and each of the officers continues to be employed by the Company in
the same respective capacities.
STOCK OPTION GRANTS
The following table sets forth information with respect to grants of
stock options pursuant to the Company's Stock Option Award Plan during the
fiscal year ended July 31, 1997 to the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable
------------------------------------------------------------ Value at
Assumed Annual
Rates of
% of Total Stock Price
Options Appreciation for
Granted to Exercise or Option Term(3)
Option Employees in Base Price Expiration -----------------------
Name Granted(1)(#) Fiscal Year (per share)(2) Date 5% ($) 10% ($)
- ---- ------------ ------------ ------------- ---------- ------- -------
Joseph Hines 25,300 3.6 7.0938 12/06 112,869 286,028
Clarence J. Baudhuin 24,300 3.6 7.0938 12/06 108,408 274,722
Edwin Pomerantz 21,100 3.0 7,0938 12/06 94,132 238,545
Curtis M. Rocca III 80,000 11.2 7.0000 1/07 352,181 924,832
Rocco Anselmo 17,680 2.5 7.0938 12/06 78,874 199,881
(1) All options granted in the fiscal year ended July 31, 1997 are fully
vested, other than options to purchase 80,000 shares of Common Stock
(the "Acquisition Options") issued in connection with certain
acquisitions made by the Company during the 1997 fiscal year. The
Acquisition Options vest one year from the date of grant.
(2) All options were granted at the fair market value (the mean of the
final closing bid and asked prices of the Common Stock on the NASDAQ)
on the date of grant. The exercise price and tax withholding
obligations related to exercise may be paid by delivery of already
owned shares or by offset of the underlying shares, subject to certain
conditions.
(3) Potential gains are reported net of the option exercise price, but
before taxes associated with exercise. These amounts are based upon
certain assumed rates of appreciation. Actual gains, if any, on stock
option exercises are dependent on the future performance of the Common
Stock and
6
9
overall stock market conditions, as well as the option holder's
continued employment. The amounts reflected in this table may not
necessarily be achieved.
The following table sets forth information with respect to the exercise
of stock options pursuant to the Company's Stock Option Award Plan during the
fiscal year ended July 31, 1997 by the Named Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 1997
Value of Unexercised
Number of Unexercised In-the-Money
Options at Options at
Fiscal Year End (#) Fiscal Year End ($)
---------------------------- ----------------------------------
Shares
Acquired on Value
Name Exercise(#) Realized ($)(1) Exercisable Unexercisable Exercisable(2) Unexercisable(2)
- ---- ----------- --------------- ----------- ------------- -------------- ----------------
Joseph Hines -0- -0- 387,269 -0- 1,765,524 -0-
Clarence J -0- -0- 208,177 -0- 750,518 -0-
Baudhuin
Edwin -0- -0- 167,847 -0- 751,608 -0-
Pomerantz
Curtis M 31,474 214,536 140,250 80,000 681,208 22,504
Rocca III
Rocco 29,401 75,263 117,680 -0- 300,196 -0-
Anselmo
(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
($7.2813) of the Company's Common Stock on July 31, 1997 and the
exercise price of the options.
7
10
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. 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, 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.
8
11
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 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 3.9%, and the average annual salary increase for other
senior management has been approximately 4.7% percent.
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, 1997, the Committee granted options representing 722,558
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 year 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 percent 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.
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 1997, Mr. Hines'
employment agreement ceased to be of any further effect; however, Mr. Hines
9
12
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 1997 Annual Meeting of
the Board of Directors. During the fiscal year ended July 31, 1997, the
Committee granted Mr. Hines options to purchase a total of 25,300 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
Michael S. Lesser
Douglas L. Ayer
10
13
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT
The following table sets forth, as of September 30, 1997, 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) 1,292,271(2) 3.9%
Clarence J. Baudhuin(1) 877,930(3) 2.7%
Edwin Pomerantz(1) 296,331(4) *
Rocco Anselmo(1) 131,653(5) *
Carl Schroeder(1) 22,500(6) *
Patrick M. Lonergan(1) 18,246(7) *
Michael S. Lesser(1) 5,000(8) *
Douglas L. Ayer(1) 127,875(9) *
Curtis M. Rocca III(1) 223,371(10) *
All officers and directors as a group
(11 persons) 3,501,214(11) 10.4%
- -----------------------------------
* Represents less than 1%.
(1) The address of this stockholder is c/o Zila, Inc., 5227 North 7th Street,
Phoenix, Arizona 85014-2800.
(2) Includes 387,269 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter.
(3) Includes 46,537 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter and 3,000 shares of Common Stock held in trust for the benefit of Mr.
Baudhuin's son.
(4) Includes 21,100 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter.
11
14
(5) Includes 49,492 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter.
(6) Includes 12,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter.
(7) Includes 12,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter.
(8) Includes 5,000 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter.
(9) Includes 12,375 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter and 123,750 shares of Common Stock held by ICP of which Mr. Ayer is a
30% partner.
(10) Includes 140,250 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1997 or within sixty days
thereafter. Does not include options to purchase 80,000 shares of Common Stock
which vest on January 8, 1998.
(11) Includes the shares of Common Stock subject to the options and warrants to
purchase described above and 1,062,875 shares of Common Stock which are subject
to unexercised options that were exercisable on September 30, 1997 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 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 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, 1997, all filing requirements applicable to its officers,
directors, and greater than 10% beneficial owners were complying with except as
set forth below.
Carl Schroeder, a non-employee member of the Company's board of
directors, sold 700 shares of the Company's common stock in April 1997. A Form 4
reporting such sale was not filed until August 1997.
12
15
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, 1992 to July 31, 1997.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ZILA, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AMD THE NASDAQ PHARMACEUTICAL INDEX
7/92 7/93 7/94 7/95 7/96 7/97
Zila, Inc. ................. 100 134 163 171 326 308
Nasdaq Stock Market (U.S.).. 100 122 125 176 191 283
Nasdaq Pharmaceutical....... 100 80 71 99 120 141
- -----------------
* $100 Invested on 7/31/92 in Stock or Index --
including reinvestment of dividends.
Fiscal year ending July 31.
13
16
1997 STOCK OPTION AWARD PLAN
The Board adopted the 1997 Stock Option Award Plan ("Plan") in February
1997, subject to submission of the Plan to the stockholders for approval. Set
forth below is a description of the Plan.
The Board adopted the Plan in February 1997, a copy of which is
attached as Exhibit A to this Proxy Statement. Under the Plan, 1,000,000 shares
of the $.001 par value Common Stock of the Company are reserved for issuance.
The Plan authorizes the Company to grant to eligible employees of the Company
(i) incentive stock options to purchase shares of Common Stock and (ii)
non-qualified stock options to purchase shares of Common Stock. Such Plan is
being submitted to the stockholders for approval at the Annual Meeting.
The objectives of the Plan are to provide a means through which the
Company and its subsidiaries may attract able persons to enter the employ of the
Company or its subsidiaries and to provide a means whereby employees upon whom
the responsibilities of the successful administration and management of the
Company and its Subsidiaries rest, and whose present and potential contributions
to the welfare of the Company and its Subsidiaries are of importance, can
acquire and maintain stock ownership, thereby strengthening their commitment to
the welfare of the Company and its Subsidiaries and their desire to remain in
its employ. A further objective of the Plan is to provide such employees with
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company.
The Compensation Committee (the "Committee") formed by the Board is
comprised of non-employee directors who will administer the Plan and have the
authority to interpret its provisions, to establish and amend rules for its
administration, to make recommendations to the Board as to the types and amounts
of awards to be made pursuant to the Plan, subject to the Plan's limitations,
and to make initial determinations and recommendations to the Board as to the
persons to whom options will be granted and the terms, conditions and
restrictions of such awards. Although the Plan does not specify what portion of
the shares may be awarded in the form of incentive stock options or
non-qualified stock options, it is anticipated that a substantially greater
number of incentive stock options will be awarded under the Plan. Incentive
stock options awarded to eligible employees of the Company are qualified stock
options under the Internal Revenue Code. Further, the Plan is a stock option
plan meeting the requirements of Rule 16b-3 ("Rule 16b-3") promulgated under the
Securities and Exchange Act of 1934, as amended ("Exchange Act").
Incentive stock options may be granted under the Plan for terms of up
to ten years and at exercise prices at least equal to 100% of the fair market
value of the Common Stock as of the date of grant, except that incentive stock
options granted to any person who owns, immediately after such grant, stock
possessing more than 10% of the combined voting power of all classes of the
Company's stock or of any parent or subsidiary corporation must have an exercise
price at least equal to 110% of the fair market value of the Common Stock on the
date of grant. Non qualified stock options will have exercise prices as
determined by the Board. The aggregate fair market value, determined as of the
time an incentive stock option is granted, of the Common Stock with respect to
which incentive stock options are exercisable by an employee for the first time
during any calendar year, shall not exceed $100,000. There is no aggregate
dollar limitation on the amount of non-qualified stock options which may be
exercisable for the first time by an optionee
14
17
during any calendar year. Payment of the exercise price for any option may be in
(i) cash, (ii) withheld shares which upon exercise of an option having a fair
market value at the time the option is exercised equal to the option price (plus
applicable withholding tax) with the prior approval of the Company, (iii) a
manner acceptable to the Company, (iv) shares of Common Stock owned by an
optionee upon exercise of an option having a fair market value at the time the
option is exercised equal to the option price (plus the applicable withholding
tax) with the prior approval of the Company, or (iv) any combination of the
foregoing. Any option granted under the Plan will expire at the time fixed by
the Committee, which will not be more than ten years after the date it is
granted or, in the case of any person who owns more than 10% of the combined
voting power of all classes of the Company's stock or of any subsidiary
corporation, not more than five years after the date of grant. The Committee may
also specify when all or part of an option becomes exercisable, but in the
absence of such specification, the option will ordinarily be exercisable in
whole or part at any time during its term. Subject to the foregoing, the
Committee may accelerate the exercisability of any option in its discretion.
Options granted under the Plan are not assignable. Incentive stock
options may be exercised only while the optionee is employed by the Company or
within twelve months after termination by reason of death, within twelve months
after the date of disability, or within three months after termination for any
other reason.
As of the date of this Proxy Statement, only one option to purchase
49,017 shares has been granted by the Company under the Plan. Such option was
granted to Curtis M. Rocca III, Vice President and Director of the Company and
President of Bio-Dental Technologies Corporation. The per share exercise price
of such option is $7.00 and expires on January 8, 2007. Such option is effective
only upon the approval of the Plan by the stockholders of the Company.
TAX CONSEQUENCES RESPECTING OPTIONS UNDER THE PLAN
An employee will not recognize income on the awarding of incentive
stock options and non qualified stock options under the Plan. An optionee will
recognize ordinary income as the result of the exercise of a non qualified stock
option in the amount of the excess of the fair market value of the stock on the
day of exercise over the option exercise price.
Exercise of an option with previously owned stock generally is not a
taxable disposition of such stock. However, a taxable disposition of the
previously owned stock will occur if the previously owned stock was acquired
upon exercise of an incentive stock option less than one year earlier.
An employee will not recognize income on the exercise of an incentive
stock option, unless the option exercise price is paid with stock acquired on
the exercise of an incentive stock option and the following holding period for
such stock has not been satisfied. An employee will recognize long-term capital
gain or loss on a sale of the shares acquired upon exercise of an incentive
stock option, provided the shares acquired are not sold or otherwise disposed of
before the earlier of: (i) two years from the date of award of the option or
(ii) one year from the date of exercise of the option. If the shares are not
held for the required period of time, the employee will recognize ordinary
income to the extent the fair market value of the stock at the time the option
is exercised exceeds the option price, but limited to the gain recognized on
sale.
15
18
Under the Taxpayer Relief Act of 1997, an individual must hold a
capital asset for more than eighteen months to qualify for the new Federal
maximum income tax rate of 20%.
An employee generally must include in alternative minimum taxable
income the amount by which the price he paid for an incentive stock option is
exceeded by the fair market value of the stock acquired upon exercise of the
option at the time his rights to the stock are freely transferrable or are not
subject to a substantial risk of forfeiture.
The Company and its subsidiaries will be entitled to deductions for
federal income tax purposes as a result of the exercise of a non qualified stock
option and the disqualifying sale or disposition of incentive stock options in
the year and the amount that the employee recognizes ordinary income as a result
of such disqualifying disposition.
16
19
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Annual Meeting, the Company will seek the election of Joseph
Hines, Clarence J. Baudhuin, Carl A. Schroeder, Patrick M. Lonergan, Michael S.
Lesser, Douglas L. Ayer, and Curtis M. Rocca III 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, CARL A. SCHROEDER,
PATRICK M. LONERGAN, MICHAEL S. LESSER, DOUGLAS L. AYER,
AND CURTIS M. ROCCA III.
APPROVAL OF ADOPTION OF
1997 STOCK OPTION AWARD PLAN
(PROPOSAL NO. 2)
The Board adopted the 1997 Stock Option Award Plan ("Plan") in February
1997, subject to submission of the Plan to the stockholders for approval. A
description of this Plan is included as part of this Proxy Statement.
REQUIRED VOTE
The affirmative vote of a majority of the voting power of Common Stock
present at the Annual Meeting in person or by proxy will be required for the
approval of the Plan by the stockholders. It is intended that the proxies will
be voted for adoption of the Plan unless instructions to the contrary are
indicated on the accompanying proxy form.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE 1997 STOCK
OPTION AWARD PLAN.
17
20
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
(PROPOSAL NO. 3)
The principal independent public accounting firm utilized by the
Company during the fiscal years ended July 31, 1994, 1995, 1996, and 1997 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, 1998. 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.
PROPOSALS BY STOCKHOLDERS
Any Stockholder proposal that is intended to be presented at the
Company's 1998 Annual Meeting of Stockholders must be received at the Company's
principal executive offices by no later than July 18, 1998, 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
18
21
EXHIBIT A
ZILA, INC.
1997 STOCK OPTION AWARD PLAN
1. DEFINITIONS.
The following definitions shall be applicable throughout the Plan:
(a) "Board" means the Board of Directors of the Company.
(b) "Certificate of Incorporation" means the Company's
Certificate of Incorporation, as amended or restated from time to time.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time. Reference in the Plan to any Section of the Code
shall be deemed to include any amendments or successor provisions to
such Section and any rules or regulations under such Section.
(d) "Committee" means the committee appointed by the Board to
administer the Plan as referred to in Section 4.
(e) "Commission" means the Securities and Exchange Commission
or any successor agency.
(f) "Company" means Zila, Inc., a Delaware corporation.
(g) "Date of Grant" means the date on which the granting of an
Option is authorized by the Board or such later date as may be
specified by the Board in such authorization as referred to in Section
7.
(h) "Eligible Employee" means any person regularly employed by
the Company or a Subsidiary on a full-time salaried basis who satisfies
all of the requirements of Section 6.
(i) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations promulgated
thereunder.
(j) "Fair Market Value" shall mean, with respect to the date a
given Option is granted or exercised, the value determined by the Board
in good faith using a generally accepted valuation method and, in the
case of Incentive Stock Options, determined in accordance with
applicable Treasury regulations; provided, however, that where there is
a public market for the Stock, the Fair Market Value per Share
- A-1 -
22
shall be the mean of the final bid and asked prices of the Stock on the
date of grant, as reported in The Wall Street Journal (or, if not so
reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotation System) or, in the event the
Stock is listed on a stock exchange, the Fair Market Value per Share
shall be the closing price on such exchange on the date of grant of the
Option, as reported in the Wall Street Journal.
(k) "Holder" means an employee of the Company or a Subsidiary
who has been granted an Option.
(l) "Incentive Stock Option" means any Option intended to be
and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(m) "Non-Employee Director" means a member of the Board who
qualifies as a "Non-employee Director" as defined in Rule 16b-3, as
promulgated by the Commission under the Exchange Act or any successor
definition adopted by the Commission.
(n) "Non-Qualified Options" means an Option which is not an
Incentive Stock Option
(o) "Normal Termination" means termination at retirement
pursuant to the Company or Subsidiary retirement plan then in effect.
(p) "Option" means an award granted under Section 6 of the
Plan and includes both Non-Qualified Options and Incentive Stock
Options.
(q) "Plan" means the Zila, Inc. 1996 Stock Option Award Plan.
(r) "Securities Act" means the Securities Act of 1933, as
amended from time to time, and the rules and regulations promulgated
thereunder.
(s) "Share" means a share of Stock.
(t) "Stock" means common stock of the Company as described in
the Certificate of Incorporation.
(u) "Subsidiary" means "subsidiary corporation" as defined in
Section 424(f) of the Code.
(v) "Termination" means separation from employment with the
Company or any of its Subsidiaries for any reason except due to death.
(w) "Treasury" means the Department of the Treasury of the
United States of America.
- A-2 -
23
2. PURPOSE.
The purpose of the Plan is to provide a means through which the Company
and its Subsidiaries may attract able persons to enter the employ of the Company
or its Subsidiaries and to provide a means whereby employees upon whom the
responsibilities of the successful administration and management of the Company
and its Subsidiaries rest, and whose present and potential contributions to the
welfare of the Company and its Subsidiaries are of importance, can acquire and
maintain stock ownership, thereby strengthening their commitment to the welfare
of the Company and its Subsidiaries and their desire to remain in its employ. A
further purpose of the Plan is to provide such employees with additional
incentive and reward opportunities designed to enhance the profitable growth of
the Company. So that the appropriate incentive can be provided, the Plan
provides for granting Non-Qualified Options and Incentive Stock Options, or any
combination of the foregoing.
3. EFFECTIVE DATE, DURATION, SCOPE AND STOCKHOLDER APPROVAL.
The Plan is effective as of February 5, 1997. The grant of any
Incentive Stock Options under the Plan is effective only upon the approval of
the Plan by the stockholders. Options may be granted as provided herein for a
period of ten years after such date. The Plan shall continue in effect until all
matters relating to the payment of Options granted under the Plan and
administration of the Plan have been settled.
4. ADMINISTRATION.
The Plan shall be administered by the Board or a Committee appointed by
the Board in accordance with Rule 16b-3 of the Exchange Act ("Rule 16b-3"). Any
Committee which has been delegated the duty of administering the Plan by the
Board shall be composed of two or more persons each of whom (i) is a
Non-Employee Director and (ii) is an "outside director" as defined in
Section 162(m)(4) of the Code. To the extent reasonable and practicable, the
Plan shall be consistent with the provisions of Rule 16b-3 to the degree
necessary to ensure that transactions authorized pursuant to the Plan are exempt
from the operation of Section 16(b) of the Exchange Act. Any reference herein to
the Board shall, where appropriate, encompass a Committee appointed to
administer the Plan in accordance with this Section 4.
The Board shall, from time to time, in its discretion, determine which
of the Eligible Employees are to be granted Options and the form, amount and
timing of such Options and, unless otherwise provided herein, the terms and
provisions thereof and the form of payment of an Option, if applicable, and such
other matters specifically delegated to It under this Plan. Subject to the
express provisions of the Plan, the Board shall have authority to interpret the
Plan and Options granted hereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan, and to make all other determinations necessary
or advisable in administering the Plan, all of which determinations shall be
final and binding upon all persons. A quorum of the Board shall consist of a
majority of its members and the Board may act by vote of a majority of its
members at a meeting at which a quorum is present, or without a meeting by a
written consent to the action taken signed
- A-3 -
24
by all members of the Board. No member of the Board shall be liable for any
action, interpretation or construction made in good faith with respect to the
Plan or any Option granted hereunder.
5. OPTIONS, SHARES SUBJECT TO THE PLAN.
The Board may, from time to time, grant Options to one or more
employees determined by it to be eligible for participation in the Plan, in
accordance with the provisions of Section 6; provided, however, that:
(a) Subject to Section 9, the aggregate number of Shares made
subject to Options under this Plan may not exceed 1,000,000.
(b) Such Shares shall be deemed to have been used in the
exercise of Options whether actually delivered or whether the Fair
Market Value equivalent of such Share is paid in cash. To the extent
that an Option lapses or the rights of its Holder terminate, such
Shares subject to such Option shall again be available for the grant of
an Option.
(c) Stock delivered or retained by the Company in settlement
under the Plan may be authorized and unissued Stock or Stock held in
the treasury of the Company.
6. ELIGIBILITY.
Officers and other employees of the Company and its Subsidiaries who,
in the opinion of the Board, are responsible for the continued growth and
development and financial success of the business of the Company or of its
Subsidiaries shall be eligible to be granted Options under the Plan. Subject to
the provisions of the Plan, the Board shall, from time to time, select from such
eligible persons those to whom Options shall be granted and determine the number
of Options to be granted. Non-Employee Directors shall not be eligible to
receive Options under the Plan.
7. STOCK OPTIONS.
Stock Options under the Plan may be of two types: Incentive Stock
Options and Non-Qualified Options. Any Stock Option granted under the Plan will
be in such form as the Board may from time to time approve.
The Board will have the authority to grant any optionee Incentive Stock
Options, Non-Qualified Options or both types of Options. Incentive Stock Options
may only be granted to Eligible Employees. To the extent that any Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it will be deemed to be a Non-Qualified
Option.
Options will be evidenced by Option agreements, the terms and
provisions of which may differ. An Option agreement will indicate on its face
whether it is an agreement for an Incentive
- A-4 -
25
Stock Option, a Non-Qualified Option, or both. The Date of Grant of an Option
will be the date the Committee by resolution selects an individual to be a
participant in any grant of an Option, determines the number of Shares to be
subject to such Option to be granted to such individual and specifies the terms
and provisions of the Option. The Company will notify a participant of any grant
of an Option, and a written option agreement or agreements shall be duly
executed and delivered by the Company to the participant.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options will be interpreted, amended or altered
nor shall any discretion or authority granted under the Plan be exercised so as
to disqualify the Plan under Section 422 of the Code or, without the consent of
the optionee, to disqualify any Incentive Stock Option under such Section 422.
Options granted under the Plan will be subject to the following terms
and conditions and will contain such additional terms and conditions as the
Committee shall deem desirable:
(a) Option Price. The Option price per Share shall be set by
the Board but shall in no instance be less than the Fair Market Value
at the Date of Grant in the case of Incentive Stock Options (110% of
the Fair Market Value in the case of a grant of Incentive Stock Options
to Eligible Employees owning 10% or more of the combined voting power
of all classes of stock of the Company). The Option price per Share for
Shares to be issued pursuant to exercise of a Non-Qualified Option
shall be determined by the Board.
(b) Form of Payment. At the time of the exercise of the
Option, the Option price (plus the applicable withholding tax) shall be
payable in (i) cash, (ii) withheld Shares upon exercise of an Option
having a Fair Market Value at the time the Option is exercised equal to
the Option price (plus the applicable withholding tax) with the prior
approval of the Company, (iii) a manner acceptable to the Company,
(iii) with Shares owned by the Holder upon exercise of an Option having
a Fair Market Value at the time the Option is exercised equal to the
Option Price (plus the applicable withholding tax) with the prior
approval of the Company, or (iv) any combination of the foregoing.
(c) Other Terms and Conditions. If the Holder has not died or
terminated employment, the Option shall become exercisable in such
manner and within such period or periods, not to exceed ten years (in
the case of Incentive Stock Options, not to exceed five years for
Eligible Employees owning 10% or more of the combined voting power of
all classes of stock of the Company) from its Date of Grant as shall be
set forth in the Stock Option Agreement relating to such grant. An
Option may be exercised as to such number of Shares and at such times
as set forth in the Stock Option Agreement; provided, however, no
Option shall be exercised for less than the lesser of 100 Shares or the
full number of Shares for which the Option is then exercisable. An
Option shall lapse under the following circumstances:
- A-5 -
26
(i) Ten years after it is granted, three months after
Normal Termination, twelve months after the date of Termination if due
to permanent disability, three months after any other Termination or
any earlier time set by the grant.
(ii) If the Holder dies within the Option period, the
Option shall lapse unless it is exercised within the Option period and
in no event later than twelve months after the date of his death by the
Holder's legal representative or representatives or by the person or
persons entitled to do so under the Holder's last will and testament
or, if the Holder shall fail to make testamentary disposition of such
Option or shall die intestate, by the person or persons entitled to
receive said Option under the applicable laws of descent and
distribution.
(iii) Notwithstanding the foregoing, in no event
shall the period of exercise be less than thirty days after Normal
Termination or the death of the Holder; provided, however, that in no
event shall an Incentive Stock Option be exercised more than ten years
after the Date of Grant.
(d) Stock Option Agreement. Each Option granted under the Plan
shall be evidenced by a "Stock Option Agreement" between the Company
and the Holder of the Option containing provisions determined by the
Board. The provisions shall be subject to the following terms and
conditions:
(i) Any Option or portion thereof that is exercisable
shall be exercisable as to such number of Shares and at such times as
set forth in the Stock Option Agreement, except as limited by the terms
of the Plan heretofore.
(ii) Every Share purchased through the exercise of an
Option shall be paid for in full at the time of the exercise. Each
Option shall cease to be exercisable, as to any Share, when the Holder
purchases the Share, or when the Option lapses.
(iii) Options shall not be transferable by the Holder
except by will or the laws of descent and distribution and shall be
exercisable during the Holder's lifetime only by the Holder.
(iv) An unexpired Option shall become immediately
exercisable (1) automatically on the Holder's Normal Termination, (2)
at the discretion of the Board, in whole or in part, on the date the
Holder becomes eligible to receive early retirement benefits, as
defined under the retirement plan of the Company then in effect, and
(3) under such other circumstances as the Board may direct.
(e) Individual Dollar Limitations. In the case of an Incentive
Stock Option, the aggregate Fair Market Value (determined as of the
time such Option is granted) of the Stock with respect to which the
Incentive Stock Option is exercisable
- A-6 -
27
for the first time by an individual during any calendar year (under all
such plans of the Company or Subsidiaries) shall not exceed $100,000.
(f) Restriction on Stock Subject to Option. The Board may
require in connection with the grant of an Option that the Holder
remain in the employ of the Company or a Subsidiary for at least one
year following the exercise. The terms of such restriction shall be set
forth in the Stock Option Agreement.
8. GENERAL.
(a) Government and Other Regulations. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, and the
requirements of any stock exchange upon which the Shares may then be
listed and shall be further subject to the approval of counsel for the
Company with respect to such compliance. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been
obtained.
(b) Reservation of Shares. The Company, during the term of
this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the
failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(c) Tax Withholding. The employee or other person receiving
Stock upon exercise of an Option may be required to pay to the Company
or to a Subsidiary, as appropriate, the amount of any such taxes which
the Company or Subsidiary is required to withhold with respect to such
Stock. In connection with such obligation to withhold tax, the Company
may defer making delivery of such Stock unless and until indemnified on
such withholding liability to its satisfaction.
(d) Claim to Options and Employment Rights. No employee or
other person shall have any claim or right to be granted an Option
under the Plan. Neither this Plan nor any action taken hereunder shall
be construed as giving any employee any right to be retained in the
employ of the Company or a Subsidiary.
(e) Beneficiaries. Any payment of Options due under this Plan
to a deceased participant shall be paid to the beneficiary designated
by the participant and
- A-7 -
28
filed with the Board. If no such beneficiary has been designated or
survives the participant, payment shall be made to the participant's
legal representative. A beneficiary designation may be aged or revoked
by a participant at any time provided the change or revocation is filed
with the Board. The designation by a married participant of one or more
persons other than the participant's spouse must be consented to by the
spouse.
(f) Nontransferability. A person's rights and interests under
the Plan, including amounts payable, may not be assigned, pledged, or
transferred except, in the event of an employee's death, to a
designated beneficiary as provided in the Plan, or in the absence of
such designation, by will or the laws of descent and distribution.
(g) Indemnification. Each person who is or shall have been a
member of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may
be a party or in which he may be involved by reason of any action or
failure to act under the Plan and against and from any and all amounts
paid by him in satisfaction of judgment in such action, suit, or
proceeding against him. He shall give the Company an opportunity, at
its own expense, to handle and defend the same before he undertakes to
handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the
Company's Bylaws or Certificate of Incorporation, as a matter of law,
or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
(h) Reliance on Reports. Each member of the Board shall be
fully justified in relying or acting in good faith upon any report made
by the independent public accountants of the Company and its
Subsidiaries and upon any other information furnished in connection
with the Plan by any person or persons other than himself. In no event
shall any person who is or shall have been a member of the Board be
liable for any determination made or other action taken, including the
furnishing of information, or failure to act, if in good faith.
(i) Relationship to Other Benefits. No payment under the Plan
shall be taken into account in determining any benefits under any
pension, retirement, savings, profit sharing, group insurance, welfare
or other benefit plan of the Company or any Subsidiary.
(j) Expenses. The expenses of administering the Plan shall be
borne by the Company and its Subsidiaries.
(k) Pronouns. Masculine pronouns and other words of masculine
gender shall refer to both men and women.
- A-8 -
29
(l) Titles and Headings. The titles and headings of the
Sections in the Plan are for convenience of reference only, and in the
event of any conflict, the text of the Plan, rather than such titles or
headings, shall control.
(m) Fractional Shares. No fractional Shares shall be issued
and the Board shall determine whether cash shall be given in lieu of
fractional Shares or whether such fractional Shares shall be eliminated
by rounding up or rounding down unless otherwise provided in the Plan.
(n) Construction of Plan. The place of administration of the
Plan shall be in the State of Arizona, and the validity, construction,
interpretation, administration and effect of the Plan and of its rules
and regulations, and rights relating to the Plan, shall be determined
in accordance with the laws of the State of Arizona.
9. CHANGES IN CAPITAL STRUCTURE.
(a) If the outstanding Stock of the Company shall at any time
be changed or exchanged by declaration of a stock dividend, split-up,
combination of Shares, recapitalization, merger, consolidation, or
other corporate reorganization in which the Company is the surviving
corporation, the number and kind of Shares subject to the Plan or
subject to any Options theretofore granted, and the Option prices,
shall be appropriately and equitably adjusted so as to maintain the
proportionate number of Shares without changing the aggregate Option
price and the Board may make any other adjustments as the Board deems
appropriate for purposes of the Plan. The determination of the Board as
to the terms of any adjustment shall be conclusive except to the extent
governed by Treasury regulations applicable to Incentive Stock Options.
(b) In the event of a liquidation or dissolution of the
Company, sale of all or substantially all of its assets, or a merger,
consolidation or other corporate reorganization in which the Company is
not the surviving corporation, or any merger or other reorganization in
which the Company is the surviving corporation but the holders of its
Stock receive securities of another corporation, or in the event a
person makes a tender offer to the stockholders of the Company, the
Board may, but need not, accelerate the time at which unexercised
Options may be exercised. Nothing herein contained shall prevent the
substitution of a new Option by the surviving or acquiring corporation.
10. AMENDMENTS AND TERMINATION.
The Board may at any time or from time to time (i) amend, terminate or
suspend the Plan and, if suspended, reinstate the Plan in whole or in part, or
(ii) with the express written consent of an individual participant, cancel,
reduce or otherwise alter such participant's outstanding Options under the Plan;
provided, however, that any such amendment, termination, suspension,
cancellation,
- A-9 -
30
reduction or alteration shall be further approved by the shareholders of the
Company if such approval is required to preserve or comply with any exemption,
whether under Rule 16b-3 or otherwise, from Section 16(b) of the Exchange Act or
to preserve the status of Incentive Stock Options within the meaning of
Section 422 of the Code.
As approved by the Board of Directors as of February 5, 1997.
/s/ Joseph Hines
----------------------------------
JOSEPH HINES
Chairman
ATTEST:
/s/ Janice L. Backus
----------------------------------
JANICE L. BACKUS
Secretary
- A-10 -
31
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 undesigned, 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 11, 1997, 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, CARL A. SCHROEDER, PATRICK M.
LONERGAN, MICHAEL S. LESSER, DOUGLAS L. AYER and CURTIS M. ROCCA
III
[ ] 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: Approval of adoption of the 1997 Stock Option Award. (Mark
only one)
[ ] VOTE FOR [ ] VOTE AGAINST [ ] VOTE WITHHELD
PROPOSAL NO. 3: Ratification of the selection of Deloitte & Touche as the
independent public accounting firm for the Company for the fiscal year ending
July 31, 1998. (Mark only one)
[ ] VOTE FOR [ ] VOTE AGAINST [ ] VOTE WITHHELD
32
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:
- ------------------------ , 1997
------------------------------------
(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.