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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the commission Only (as permitted by rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ZILA, INC.
(Name of Registrant As Specified In Its Charter)
(Name of Person(s) Filing the 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)0 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:
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ZILA, INC.
5227 NORTH 7TH STREET
PHOENIX, ARIZONA 85014-2800
(602) 266-6700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 10, 1998
The 1998 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 10, 1998, at 9:00 a.m., local time.
MATTERS TO BE VOTED ON:
1. Election of seven directors to serve for the next year or
until their successors are elected;
2. Ratification of the selection of Deloitte & Touche LLP as the
independent public accounting firm for the Company for the
fiscal year ending July 31, 1999; and
3. Any other matters as may properly come before the Annual
Meeting or any adjournment thereof.
The close of business on October 30, 1998 has been fixed as the Record
Date for the determination of Stockholders entitled to receive notice of and to
vote at this meeting or any adjournment of the meeting. The list of stockholders
entitled to vote at this meeting is available at the offices of the Company,
5227 North 7th Street, Phoenix, Arizona 85014, for examination by any
stockholder.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THIS MEETING, PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY, WHICH IS SOLICITED BY AND ON BEHALF OF THE
BOARD OF DIRECTORS. THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO
REVOKE SUCH PROXY OR TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO ATTEND THE
MEETING.
By Order of the Board of Directors,
/s/ Janice L. Backus
-----------------------------------
Janice L. Backus
Vice President and Secretary
Phoenix, Arizona
November 12, 1998
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PROXY STATEMENT
TABLE OF CONTENTS
GENERAL INFORMATION........................................................................................... 1
Who Can Vote......................................................................................... 1
Voting by Proxies.................................................................................... 1
How You May Revoke Your Proxy Instructions........................................................... 2
How Votes are Counted................................................................................ 2
Cost of this Proxy Solicitation...................................................................... 2
Attending the Annual Meeting......................................................................... 2
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?............................................................... 2
WHO SHOULD I CALL IF I HAVE QUESTIONS?........................................................................ 3
PROPOSALS..................................................................................................... 3
PROPOSAL NO. 1 - ELECT SEVEN DIRECTORS.............................................................. 3
PROPOSAL NO. 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS.................................... 4
ABOUT THE BOARD AND ITS COMMITTEES............................................................................ 8
EXECUTIVE COMPENSATION........................................................................................ 10
STOCK OPTION GRANTS........................................................................................... 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 1998..................................................................... 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION....................................................... 13
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT........................................................ 16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE....................................................... 17
STOCK PRICE PERFORMANCE GRAPH................................................................................. 18
PROPOSALS BY STOCKHOLDERS..................................................................................... 19
OTHER BUSINESS................................................................................................ 19
ANNUAL REPORT................................................................................................. 19
-i-
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PROXY STATEMENT
This Proxy Statement is furnished to the Stockholders of Zila, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies to be used in voting at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on December 10, 1998. The proxy materials were mailed on or
about November 12, 1998 to stockholders (the "Stockholders") of record at the
close of business on October 30, 1998 (the "Record Date").
Your vote is very important. For this reason, the Board of Directors is
requesting that you allow your Common Stock to be represented at the Annual
Meeting by the persons who are named on the enclosed Proxy Card (the "Proxies").
"We," "our," "Zila," and the "Company" refer to Zila, Inc.
GENERAL INFORMATION
Who Can Vote You are entitled to vote your Common Stock if our
records showed that you held your shares as of
October 30, 1998. At that date, 35,301,936 shares of
Common Stock were outstanding and entitled to vote.
Each share of Common Stock is entitled to one vote on
all matters on which Stockholders may vote. The
enclosed Proxy Card shows the number of shares that
you are entitled to vote. Your individual vote is
confidential and will not be disclosed to third
parties.
Voting by Proxies If your Common Stock is held by a broker, bank or
other nominee (i.e. in "street name"), you will
receive instructions from them which you must follow
in order to have your shares voted. If you hold your
shares in your own name as a holder of record, you
may instruct the Proxies how to vote your Common
Stock by signing, dating and mailing the Proxy Card
in the envelope provided. Of course, you can always
come to the meeting and vote your shares in person.
If you give us a proxy without giving specific voting
instructions, your shares will be voted by the
Proxies as recommended by the Board of Directors.
We are not aware of any other matters to be presented
at the Annual Meeting except those described in this
Proxy Statement. However, if any other matters not
described in the Proxy Statement are properly
presented at the meeting, the Proxies will use their
own judgment to determine how to vote your shares. If
the meeting is adjourned, your Common Stock may be
voted by the Proxies on the new meeting date as well,
unless you have revoked your proxy instructions prior
to that time.
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How You May You may revoke you proxy instructions by any of the
Revoke Your following procedures:
Proxy Instructions
1. Send the Company another signed
proxy with a later date;
2. Send a letter to the Company's
secretary revoking your proxy
before your Common Stock has been
voted by the Proxies at the
meeting; or
3. Attend the Annual Meeting and vote
your shares in person.
How Votes are Inspectors of election will be appointed for the
Counted meeting. The inspectors of election will determine
whether or not a quorum is present and will tabulate
votes cast by proxy or in person at the Annual
Meeting. If you have returned valid proxy
instructions or attend the meeting in person, your
Common Stock will be counted for the purpose of
determining whether there is a quorum, even if you
wish to abstain from voting on some or all matters
introduced at the meeting. If a broker indicates on
the proxy that it does not have discretionary
authority as to certain shares to vote on a
particular matter, those shares will not be
considered as present and entitled to vote with
respect to that matter.
Cost of this Proxy We will pay the cost of this proxy solicitation,
Solicitation including the charges and expenses of brokerage firms
and others who forward solicitation material to
beneficial owners of the Common Stock. The Company
will solicit proxies by mail. Proxies may also be
solicited by personal interview, telephone, or
telegraph. Corporate Investor Communications, Inc.
will serve as the Company's proxy solicitation agent.
In such capacity, Corporate Investor Communications,
Inc. will coordinate the distribution of proxy
materials to beneficial owners of Common Stock and
oversee the return of proxy cards. The fee for these
services is estimated to be $5,500.
Attending the
Annual Meeting If you are a beneficial owner of Common Stock held by
a broker or bank, you will need proof of ownership to
be admitted to the meeting. A recent statement or
letter from a broker or bank showing your current
ownership and ownership of the Company's shares on
the record date are examples of proof of ownership.
Although you may attend the meeting, you will not be
able to vote your Common Stock held in street name in
person at the meeting and will have to vote through
your broker or bank.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
Proposal 1: The seven nominees for director who receive the most
Election of Seven votes will be elected. There is no cumulative voting
Directors in the election of directors.
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Proposal 2: The affirmative vote of a majority of the voting
Ratification of power of Common Stock present at the Annual Meeting
Independent in person or by proxy will be required to ratify the
Public selection of independent auditors. Therefore, if you
Accountants "abstain" from voting, it has the same effect as if
you voted "against" this proposal.
WHO SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about the Annual Meeting or voting, please call
Janice L. Backus, our Vice President and Corporate Secretary, at (602) 266-6700.
PROPOSALS
PROPOSAL NO. 1 - ELECT SEVEN DIRECTORS
Number of An entire Board of Directors, consisting of seven
Directors to be directors, is to be elected at the Annual Meeting.
Elected Each Director elected will hold office until the next
annual meeting or until his successor is elected and
qualified. If any director resigns or otherwise is
unable to complete his or her term of office, the
Board will elect another director for the remainder
of the resigning director's term.
Vote Required The seven nominees receiving the highest number of
votes cast at the Annual Meeting will be elected.
There is no cumulative voting in the election of
directors.
Nominees of the The Board has nominated the following individuals to
the Board serve on Board of Directors of the Company for the
following year:
Joseph Hines
Clarence J. Baudhuin
Carl A. Schroeder
Patrick M. Lonergan
Michael S. Lesser
Curtis M. Rocca III
Thomas B. Simone
All of these nominees are currently serving on the
Board. Each of the nominees has agreed to be named in
this Proxy Statement and to serve if elected. See
page 5 for information regarding each of the nominees
listed above.
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We know of no reason why any of the listed nominees would not be able
to serve. However, if any nominee is unavailable for election, the Proxies will
vote your Common Stock to approve the election of any substitute nominee
proposed by the Board.
YOUR DIRECTORS RECOMMEND A VOTE FOR THE ELECTION OF THE SEVEN NOMINEES UNDER
PROPOSAL NO. 1.
PROPOSAL NO. 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The principal independent public accounting firm utilized by the
Company during the fiscal years ended July 31, 1994, 1995, 1996, 1997, and 1998
was Deloitte & Touche LLP, independent certified public accountants (the
"Auditors"). The Board of Directors presently contemplates that the Auditors
will be retained as the principal accounting firm to be utilized by the Company
throughout the fiscal year ending July 31, 1999. 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.
The Proxies will vote in favor of ratifying the selection of Deloitte &
Touche LLP unless instructions to the contrary are indicated on the accompanying
proxy form.
YOUR DIRECTORS RECOMMEND A VOTE FOR PROPOSAL NO. 2.
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BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
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 in the table below. Each director has served continuously with the Company
since his first election as indicated below.
DIRECTOR
NAME AGE POSITION(S) SINCE
---- --- ----------- --------
Joseph Hines 70 Chairman of the Board, 1983
President and Chief
Executive Officer
Clarence J. Baudhuin (1) 69 Assistant to the President on 1983
Special Projects and Director
Carl A. Schroeder (1) 69 Director 1984
Patrick M. Lonergan (1), (2) 63 Director 1992
Michael S. Lesser (2) 56 Director 1995
Curtis M. Rocca III 36 Director 1997
Thomas B. Simone (2) 56 Director 1998
(1) Member of the Audit Committee
(2) Member of the Compensation Committee.
Joseph Hines Mr. 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.
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Clarence J. Baudhuin Mr. Baudhuin has served the Company in his present
capacity since 1998. From 1983 through 1997, Mr.
Baudhuin served as Executive Vice President of
Finance and Administration, Chief Financial Officer
and Treasurer of the Company. He 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 Mr. Schroeder is retired. From September 1991 to
August 1996, Mr. Schroeder was the President of Dixon
Capital Corp. Between 1982 and September 1991, Mr.
Schroeder was a private business consultant. Mr.
Schroeder was also a principal in certain mining,
drilling and farming operations from 1987 to 1992.
From 1977 to 1982, he served as Chief Financial
Officer with a high technology division of the MEAD
Corporation. Mr. Schroeder received an engineering
degree from MIT and an MBA degree from Harvard
Business School.
Patrick M. Lonergan Mr. Lonergan is the co-founder of Numark
Laboratories, Inc. and has served as its President
since January 1989. From 1973 through December 1989,
Mr. Lonergan was employed in various capacities by
Johnson & Johnson Products Inc., or one of its
affiliates. When Mr. Lonergan left Johnson & Johnson
Products Inc. in 1989, his position was Vice
President & General Manager.
Michael S. Lesser Mr. Lesser is the president of T.V. Direct, Inc. and
the founder of Lesser & Roffe Company, a business
development consulting company. He has served as its
Chief Executive Officer since 1990. Prior to founding
Lesser & Roffe Company, Mr. Lesser served as
President of Ogilvy & Mather Co., Inc. from 1989 to
1990, as Chairman and Chief Executive Officer of Lowe
Marschalk Co., Inc. (a subsidiary of Revlon) from
1980 to 1989, and as Executive Vice President and
General Manager of Norcliff Thayer, Inc. (a
subsidiary of Interpublic) from 1973 to 1979.
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Curtis M. Rocca III Mr. Rocca is the Chief Executive Officer and Director
of Dental Partners, Inc., a privately held dental
practice consulting and management company. Prior to
joining Dental Partners, Mr. Rocca was President of
the Zila Professional Products Group, having held
this position following Zila's acquisition of
Bio-Dental Technologies Corporation in January 1997.
Prior to the firm's acquisition by Zila, Mr. Rocca
served as President, CEO and Chairman of Bio-Dental.
Mr. Rocca holds a B.A. in Economics from the
University of California at Davis, where he graduated
with honors. Mr. Rocca currently serves as a director
of Pacific Grain Products, Inc., Woodland,
California.
Thomas B. Simone Mr. Simone has been President and CEO of Simone &
Associates, a firm that invests in and consults with
health care companies, since April 1994, and has been
Chairman of the Board and CEO of IBV Technologies,
Inc., a pharmaceutical compliance systems company
since October 1996. From February 1991 to March 1994,
he was President of McKesson Drug Company, a national
drug wholesaler that supplies branded and generic
pharmaceuticals and health and beauty care products
to drug stores, supermarkets, mass merchandisers and
hospital and alternate site pharmaceutical providers.
From 1989 until becoming President of McKesson, Mr.
Simone held a number of executive positions with
McKesson and its subsidiaries.
EXECUTIVE OFFICERS
Information regarding the names, ages, positions with
the Company, and business experience of the Company's
Executive Officers is set forth below.
Bradley C. Anderson Mr. Anderson, age 37, joined the Company as Vice
President and Treasurer in November 1996 and was
named Chief Financial Officer in January 1998. Prior
to joining the Company, from 1985 to 1996, Mr.
Anderson was employed by Deloitte & Touche LLP, most
recently as an Audit Senior Manager, in which
capacity Mr. Anderson provided auditing, planning,
and other assistance and consulting to numerous
privately and publicly held companies, including the
Company. Mr. Anderson received his B.S. in
Accountancy from Brigham Young University. Mr.
Anderson is a Certified Public Accountant.
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Janice L. Backus Ms. Backus, age 49, has served as Secretary of the
Company since April 1989 and in 1993 was named a Vice
President of the Company. From 1983 until April 1989,
Ms. Backus served as Assistant Secretary of the
Company. Ms. Backus has also served as the Assistant
to the President since 1983. Prior to joining the
Company, Ms. Backus held administrative and
secretarial positions with the American Heart
Association, Arizona Division, BX International and
Century Capital Corporation.
Rocco Anselmo Mr. Anselmo, age 49, joined the Company in 1993 as
the Vice President and General Manager of Zila
Pharmaceuticals, Inc. In January 1997 Mr. Anselmo
became President of Zila Pharmaceuticals and a Vice
President of the Company. From 1983 to 1993, Mr.
Anselmo held various positions with Oral-B
Laboratories, Inc., most recently as General Manager
of Oral-B Labs International from 1991 to 1993. From
1972 to 1983, Mr. Anselmo held various sales and
marketing positions with S.C. Johnson and Sterling
Drug Company.
ABOUT THE BOARD AND ITS COMMITTEES
The Board The Company is governed by a Board of Directors and
various committees which meet throughout the year.
During the fiscal year ended July 31, 1998, 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, 1998 were
accomplished by means of unanimous written consent.
During the period in which he served as director,
each of the directors attended 75% or more of the
meetings of the Board of Directors and of the
meetings held by committees of the Board on which he
served.
Board The Board has two principal committees, the
Committees Compensation Committee and the Audit Committee. The
function of each of these committees is described
below, along with the current membership and number
of meetings held during the fiscal year ended July
31, 1998. The Company does not maintain a standing
nominating committee or other committee performing
similar functions.
Compensation The Compensation Committee of the Board of Directors,
Committee which met once during the fiscal year ended July 31,
1998, administers the Company's Stock Option Award
Plan, reviews all aspects of compensation of the
Company's officers and makes recommendations on such
matters to the full Board of Directors. During the
fiscal year ended July 31, 1998, there were three
members of the Compensation Committee. Patrick M.
Lonergan and Michael S. Lesser served for the full
fiscal year, Douglas L. Ayer served until his
resignation in February 1998, and Thomas B. Simone
served from the date of Mr. Ayer's resignation
through the end of the fiscal year.
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Audit The Audit Committee, which met once during the fiscal
Committee year ended July 31, 1998, 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. During the fiscal year
ended July 31, 1998, there were three members of the
Audit Committee, Clarence J. Baudhuin, Carl A.
Schroeder, and Patrick M. Lonergan.
Director As of December 11, 1997 non-employee members of the
Compensation Company's Board of Directors receive compensation in
the amount of $1,500 per meeting of the Board of
Directors attended by such Director in person, and
$500 per meeting of the Board of Directors attended
by such Director by telephone. In 1989, the Board of
Directors adopted and the Stockholders approved the
Company's Non-Employee Directors Stock Option Plan
(the "Directors Plan"). Under the terms of the
Directors Plan, immediately exercisable options to
purchase 2,500 shares of Common Stock are granted to
each non-employee member of the Board of Directors on
the third trading day following the day the Company
publicly announces its year-end financial results for
the immediately preceding fiscal year; provided,
however, that options may not be granted to any
non-employee director who, during the fiscal year
immediately preceding the grant date, attended less
than 75% of the Board meetings and committee meetings
(if he is a member of such committee) held while he
was a member of the Board of Directors. The per share
price at which the options may be exercised is the
average of the closing bid and asked prices of the
Common Stock on the date of grant. The term of each
option granted under the Directors Plan is five years
from the date of grant. The Board may from time to
time amend the Directors Plan in whole or in part in
such respects as the Board may deem advisable, or may
terminate the Directors Plan.
On October 7, 1998, 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 $4.3125, $7.00, $6.59 and $4.00,
respectively. As of October 30, 1998, options to
purchase 84,141 shares of Common Stock granted under
the Directors Plan have been exercised.
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EXECUTIVE COMPENSATION
The table below sets forth annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended July 31,
1998, 1997 and 1996, of the persons who were, at July 31, 1998: (i) the Chief
Executive Officer and (ii) the other executive officers of the Company (the
"Named Officers") whose total annual salary and bonus exceeded $100,000.
Long-Term
Annual Compensation Compensation
------------------- ------------
Other
Annual Securities
Compensa- Underlying All Other
Name and Principal Position Year Salary($) Bonus ($) tion($) Options/SARs(#) Compensation (1)
- --------------------------- ---- --------- --------- ------- --------------- ----------------
Joseph Hines 1998 $180,833 -- -- 25,000 $ 2,712
President, Chief Executive 1997 175,000 -- -- 25,300 2,625
Officer and Director 1996 169,431 -- -- 23,029 2,315
Bradley C. Anderson 1998 113,333 -- -- 75,000 1,700
Vice President and Chief
Financial Officer
Rocco Anselmo 1998 161,792 -- -- 75,000 2,427
Vice President of Zila, Inc. 1997 157,300 $ 31,460 -- 17,680 2,682
and President of Zila 1996 152,536 25,000 -- 115,651 2,453
Pharmaceuticals, Inc.
(1) Represents Company 401(k) plan matching contributions.
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STOCK OPTION GRANTS
The following Named Officers were granted stock options under the
Company's Stock Option Award Plan during the fiscal year ended July 31, 1998.
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 25,000 4.3 5.8125 12/07 109,202 259,960
Bradley C. Anderson 75,000 12.8 5.8125 12/07 327,607 779,879
Rocco Anselmo 75,000 12.8 5.8125 12/07 327,607 779,879
(1) All options granted in the fiscal year ended July 31, 1998 are fully
exercisable, except for Rocco Anselmo's options, which become
exercisable at the rate of 25,000 per year on December 11 of 1998, 1999
and 2000.
(2) All options were granted at the fair market value (the mean of the
final closing bid and asked prices of the Common Stock on the NASDAQ)
on the date of grant. The exercise price and tax withholding
obligations related to exercise may be paid by delivery of already
owned shares or by offset of the underlying shares, subject to certain
conditions.
(3) 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.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF JULY 31, 1998
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, 1998 by the Named Officers.
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(2) Unexercisable Exercisable(3) Unexercisable(3)
- ---- ----------- --------------- -------------- ------------- -------------- ----------------
Joseph Hines -0- -0- 412,269 -0- 1,410,568 -0-
Bradley C -0- -0- 110,000 70,000(4) 35,168 -0-
Anderson
Rocco 55,949 181,862 17,680 75,000(5) -0- 35,168
Anselmo
(1) Represents the market value of the underlying securities on the date of
exercise, minus the exercise price of the options.
(2) Options are considered to be exercisable if they could be exercised on
or before July 31, 1998.
(3) Represents the difference between the bid and asked closing prices
($6.2814) of the Company's Common Stock on July 31, 1998 and the
exercise price of the options.
(4) These options become exercisable at the rate of 35,000 per year on
November 25, 1998 and 1999.
(5) These options become exercisable at the rate of 25,000 per year on
December 11 of 1998, 1999 and 2000.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
What is our Decisions on compensation of the Company's executive
Compensation officers are made by the three-member Compensation
Philosophy? 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 that
govern both annual compensation and stock ownership
programs. The Committee follows the belief that
compensation should be based upon the following
subjective principles:
- Compensation programs should reflect and
promote the Company's values, and reward
individuals for contributions to the
Company's success.
- Compensation should be related to the value
created for stockholders.
- Compensation programs should integrate the
long- and short-term strategies of the
Company.
- Compensation programs should be designed to
attract and retain executives critical to the
success of the Company.
- Stock ownership by management and stock-based
compensation plans are beneficial in aligning
the interests of management and the
stockholders in the enhancement of
stockholder value.
Total compensation for each member of senior
management is set by the Committee at levels which it
believes are competitive in relation to companies of
similar type and size; 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.
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Base Salary Salary recommendations are submitted annually to the
Committee by senior management. In evaluating such
recommendations, the Committee takes into account management's
efforts to improve net sales and expand the number of markets
into which the Company's products are distributed and sold.
The Committee also takes into account management's consistent
commitment to 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.
Based upon its evaluation of these factors, the Committee
believes that senior management is dedicated to achieving
long-term financial improvements and that the compensation
policies, plans and programs administered by the Committee
contribute to management's commitment. The Committee attempts
to assimilate all of the foregoing factors when it renders its
compensation decisions; however, the Committee recognizes that
its decisions are primarily subjective in nature due to the
subjective nature of the criteria. The Committee does not
assign any specified weight to the criteria it considers.
Base salary recommendations are fixed at levels that the
Committee believes are paid to management with comparable
qualifications, experience and responsibilities at other
corporations of similar size engaged in similar business as
the Company; however, no independent investigation of such
levels has been conducted by the Committee. The Committee's
recommendations are offered to the full Board of Directors.
The Committee's recommendation is ultimately ratified,
changed, or rejected by the full Board of Directors. In the
past three fiscal years, the average annual salary increase
for the Chief Executive Officer has been approximately 5.2%,
and the average annual salary increase for other senior
management has been approximately 11.9%.
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
14
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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, 1998, the Committee granted options representing
586,000 shares of Common Stock under the Award Plan.
Bonus Senior management bonus compensation is paid under the
Company's Performance Bonus Plan (the "Plan"). The 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 Plan may
not exceed 30% of a senior manager's annual base salary. The
components which are considered under the terms of the Plan
are the Company's net sales and sales volume and the job
performance. Each member of senior management is eligible for
a bonus of up to 15% of the member's base salary if the
Company's annual net profits improve by 25% over the prior
year and a bonus of up to 7.5% of the senior manager's base
salary if the Company's annual sales volume increases by more
than 75% over the prior year. Performance components of the
senior manager's bonus may be as great as 7.5% of the senior
manager's annual base salary and are based upon subjective
criteria.
Chief Mr. Hines has served as President and Chief Executive Officer
Executive of the Company since 1983. As Chief Executive Officer, Mr.
Officer Hines receives a base salary as well as stock options under
the Award Plan and is eligible to participate in the Plan. In
February 1997, Mr. Hines' employment agreement ceased to be of
any further effect; however, Mr. Hines will continue as the
President and Chief Executive Officer of the Company. The
Committee's evaluation process of the Chief Executive
Officer's compensation is comprised of the same components
that are utilized in evaluating other members of senior
management. Mr. Hines' current base salary was set at the 1997
Annual Meeting of the Board of Directors. During the fiscal
year ended July 31, 1998, the Committee granted Mr. Hines
options to purchase a total of 25,000 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
Thomas B. Simone
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PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
The following table sets forth, as of September 30, 1998, 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) 1,362,271(2) 3.9%
Clarence J. Baudhuin(1) 849,273(3) 2.4%
Bradley C. Anderson(1) 145,500(4) *
Rocco Anselmo(1) 99,024(5) *
Carl Schroeder(1) 25,000(6) *
Patrick M. Lonergan(1) 18,846(7) *
Michael S. Lesser(1) 8,500(8) *
Curtis M. Rocca III(1) 83,121 *
Thomas B. Simone(1) -0- *
All officers and directors as a group
(10 persons) 2,907,645(9) 8.2%
- -----------------------------------
* 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 412,269 shares of Common Stock which are subject to
unexercised options that were exercisable on September 30, 1998 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, 1998 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 145,000 shares of Common Stock which are subject to
unexercised options that were exercisable on September 30, 1998 or
within sixty days thereafter, and does not include 35,000 shares of
Common Stock which are subject to unexercised options that become
exercisable on November 25, 1999.
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20
(5) Includes 17,680 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1998 or within sixty
days thereafter, and does not include 75,000 shares of Common Stock
which are subject to unexercised options that become exercisable over a
three-year period on December 11 of 1998, 1999 and 2000.
(6) Includes 12,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1998 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, 1998 or within sixty
days thereafter.
(8) Includes 7,500 shares of Common Stock which are subject to unexercised
options that were exercisable on September 30, 1998 or within sixty
days thereafter.
(9) Includes the shares of Common Stock subject to the options and warrants
to purchase described above and 240,852 shares of Common Stock which
are subject to unexercised options that were exercisable on September
30, 1998 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, 1998 its officers, directors, and greater than 10% beneficial
owners have complied with all filing requirements applicable to them.
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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, 1993 to July 31, 1998.
Zila Inc (ZILA)
CUMULATIVE TOTAL RETURN
---------------------------------------------------
7/93 7/94 7/95 7/96 7/97 7/98
ZILA, INC. 100.00 121.57 127.45 243.14 229.41 196.08
NASDAQ STOCK MARKET (U.S.) 100.00 102.91 144.50 157.43 232.31 274.20
NASDAQ PHARMACEUTICAL 100.00 88.72 124.15 150.06 176.13 177.28
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PROPOSALS BY STOCKHOLDERS
Any Stockholder proposal that is intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received at the Company's
principal executive offices by no later than July 16, 1999, if such proposal is
to be considered for inclusion in the Company's proxy statement and form of
proxy relating to such meeting.
OTHER BUSINESS
The Annual Meeting is being held for the purposes set forth in the
Notice that accompanies this Proxy Statement. The Board is not presently aware
of any business to be transacted at the Annual Meeting other than as set forth
in the Notice.
ANNUAL REPORT
The Company's Annual Report with certified financial statements for the
fiscal year ended July 31, 1998 accompanies this Notice and Proxy Statement and
was mailed to all shareholders of record on or about November 12, 1998. Any
exhibit to the Annual Report will be furnished to any requesting person who sets
forth a good faith representation that he or she was a beneficial owner of the
Company's Common Stock on October 30, 1998.
By Order of the Board of Directors,
/s/ Janice L. Backus
----------------------------
Janice L. Backus
Vice President and Secretary
Phoenix, Arizona
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PROXY ZILA, INC. PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints JOSEPH HINES, JANICE L. BACKUS
and BRADLEY C. ANDERSON, or any 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 10, 1998, 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, CURTIS M. ROCCA III and THOMAS B.
SIMONE.
- ---------- 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 LLP as the
independent public accounting firm for the Company for the fiscal year ending
July 31, 1999. (Mark only one)
- ---------- VOTE FOR
- ---------- VOTE AGAINST
- ---------- VOTE WITHHELD
PLEASE PROMPTLY DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
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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:
- ---------------------------------------------, 1998
----------------------------------
(Signature)
----------------------------------
(Signature)
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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.