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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-21198
---------------------------
ZONAGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0233274
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2408 TIMBERLOCH PLACE, SUITE B-4 77380
THE WOODLANDS, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(281) 367-5892
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
------------------- ----------------------------
Common Stock, $.001 par value Pacific Exchange, Inc.
Rights to purchase Series One Junior Pacific Exchange, Inc.
Participating Preferred Stock
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
------------------- ----------------------------
Common Stock, $.001 par value Nasdaq National Market
Rights to purchase Series One Junior Nasdaq National Market
Participating Preferred Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulations S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $15,420,000 as of June 28, 2002, the last
business day of the registrant's most recently completed fiscal quarter, based
on the closing sales price of the registrant's common stock on The Nasdaq
National Market on such date of $1.50 per share. For purposes of the preceding
sentence only, all directors, executive officers and beneficial owners of ten
percent or more of the shares of the registrant's common stock are assumed to be
affiliates. As of March 14, 2003, 11,504,984 shares of the registrant's common
stock were outstanding.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The names of the Company's directors, and certain additional
information with respect to each of them, are set forth below.
YEAR FIRST
BECAME
NAME AGE POSITION WITH THE COMPANY DIRECTOR
------------------------------ ---------- ------------------------------------------ ------------
Martin P. Sutter............ 48 Chairman of the Board 1987
Joseph S. Podolski.......... 55 President and Chief Executive Officer 1992
and Director
Lloyd M. Bentsen, III....... 58 Director 2000
Steven Blasnik.............. 45 Director 1990
Timothy McInerney........... 42 Director 1996
Martin P. Sutter. Mr. Sutter, a co-founder of the Company, has served
as Chairman of the Board of Directors since December 1987. Since July 1988, Mr.
Sutter has been the Managing General Partner of The Woodlands Venture Partners,
L.P., a venture capital firm based in The Woodlands, Texas, and the General
Partner of The Woodlands Venture Fund, L.P. Since 1994, Mr. Sutter has been
managing director of Essex Woodlands Health Ventures, L.L.C. Mr. Sutter serves
on the boards of directors of Sontra Medical Corporation and Cell Therapeutics,
Inc., both of which are reporting companies under the Securities Exchange Act
of 1934, as amended. He has a B.S. degree from Louisiana State University and
an M.B.A. from the University of Houston.
Joseph S. Podolski. Mr. Podolski joined the Company in 1989 as Vice
President of Operations and has served as President and Chief Executive Officer
of the Company and as a director since 1992. Prior to joining the Company, Mr.
Podolski spent twelve years in various engineering, product development and
manufacturing positions at G.D. Searle, a subsidiary of Monsanto Company. Before
joining Monsanto, Mr. Podolski held positions in manufacturing, engineering,
quality control and development of fine chemicals, antibiotics, pharmaceuticals
and hospital products with Abbott Laboratories, Dearborn Chemical Company and
Baxter Pharmaceuticals. Mr. Podolski holds a M.S. in chemical engineering from
the Illinois Institute of Technology.
Lloyd M. Bentsen, III. Mr. Bentsen has been a Director of the Company
since June 2000. Mr. Bentsen is a general partner and co-founder of Triad
Ventures and the AM Fund, a group of venture capital funds that invest in
Texas-based emerging growth companies. Prior to founding his venture capital
firm in 1979, Mr. Bentsen spent ten years with Rotan Mosle, Inc., a regional
investment banking firm, as a member of the corporate finance department. Mr.
Bentsen is also on the board of directors of Stewart Information Services
Corporation, one of the largest title insurance companies in the United States
and traded on the New York Stock Exchange. Mr. Bentsen is a graduate of
Princeton University with an M.B.A. from Stanford University.
Steven Blasnik. Mr. Blasnik has served as a Director of the Company
since April 1990. Since 1987, Mr. Blasnik has been employed by the Perot Group
and is currently President of Perot Investments, Inc., an investment firm owned
by Ross Perot. He is also a director of Perot Systems Corporation, a reporting
company under the Securities Exchange Act of 1934, as amended. From 1983 to
1987, Mr. Blasnik was an attorney at Hughes & Luce in Dallas, Texas. Mr. Blasnik
has a B.S.E. from Princeton University and a J.D. from Harvard Law School.
Timothy McInerney. Mr. McInerney has served as a Director of the
Company since December 1996. Since 1992, Mr. McInerney has been a Managing
Director of Paramount Capital, Inc. where he oversees the overall distribution
of Paramount's private equity product. Prior to 1992, Mr. McInerney was a
research analyst focusing on the biotechnology industry at Ladenburg, Thalman &
Co. Prior to that, Mr. McInerney held equity sales positions at Bear, Stearns &
Co. and Shearson Lehman Brothers, Inc. Mr. McInerney also has worked in sales
and marketing for Bristol-Myers Squibb. He received his B.S. in pharmacy from
St. John's University at New York. He also completed a post-graduate residency
at the New York University Medical Center in drug information systems.
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive
officers of the Company, including the business experience of each during the
past five years.
NAME AGE POSITION
-------------------------------- -------- -------------------------------------------------
Joseph S. Podolski............. 55 President, Chief Executive Officer, and Director
Louis Ploth, Jr................ 49 Chief Financial Officer, Vice President, Business
Development and Secretary
Information pertaining to Mr. Podolski, who is both a director and an
executive officer of the Company, may be found in "Item 10. Directors and
Executive Officers of the Registrant - Directors."
Louis Ploth, Jr. Mr. Ploth has over seventeen years experience in the
biotechnology industry. Since January 2001, Mr. Ploth has served as Chief
Financial Officer, Vice President, Business Development and Secretary. He served
as Vice President, Finance from March 1999 to January 2001. He had previously
served as Chief Financial Officer and Vice President, Business Development from
1993 to 1998 and as Chief Financial Officer from 1998 to March 1999. Previously
Mr. Ploth was employed by Unisyn Technologies where he served concurrently as
Chief Financial Officer and as Vice President of Finance and Administration. Mr.
Ploth was also Corporate Controller of Synbiotics Corporation. Mr. Ploth has a
B.S. degree from Montclair State College.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers, and persons who own more than 10%
of the Common Stock, to file initial reports of ownership and reports of changes
in ownership (Forms 3, 4, and 5) of Common Stock with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all such forms that they file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and on written representations by
certain reporting persons that no reports on Form 5 were required, the Company
believes that during the fiscal year ended December 31, 2002, all Section 16(a)
filing requirements applicable to its officers, directors and 10% stockholders
were complied with in a timely manner, except that one report on Form 4 was
filed late by each of Messrs. Podolski and Ploth and one Form 5 was filed late
by Mr. Bentsen.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTORS' MEETINGS AND COMPENSATION
The Company's operations are managed under the broad supervision of the
Board of Directors, that has ultimate responsibility for the establishment and
implementation of the Company's general operating philosophy, objectives, goals
and policies. During 2002, the Board of Directors convened on three regularly
scheduled occasions and took certain additional actions by unanimous written
consent in lieu of meetings. In addition, the Board of Directors formed a
special committee for the purpose of discussing and negotiating the now
terminated merger agreement with Lavipharm Corp, and this special committee met
ten times. All directors attended at least 75% of the meetings held by the Board
and any committee of the Board on which he served during his tenure in 2002,
except that Mr. McInerney did not attend any meetings of the Board of Directors
or any committee at which the merger agreement was discussed as a result of his
firm's interest in the transaction with Lavipharm.
Employee directors do not receive additional compensation for service
on the Board of Directors or its committees. We reimburse each director for
travel expenses incurred in connection with attendance at Board meetings. For
Board and committee meetings attended in person or telephonically, non-employee
directors receive $1,000.00 per meeting in cash, stock awards, or options, at
the direction of the director. Employee directors are eligible to participate in
the Company's 1994 Employee and Consultant Stock Option Plan and the Company's
Amended and Restated 1993 Employee and Consultant Stock Option Plan (the
"Incentive Plans"). Non-employee directors are entitled to participate in the
Company's 2000 Non-employee Directors' Stock Option Plan (the "2000 Director
Plan").
Under the 2000 Director Plan, (i) each non-employee director who is
first elected to the Board is entitled to receive an option to purchase 40,000
shares of the Company's common stock, par value $.001 per share ("Common
Stock"), on the date on which he or she first becomes a non-employee director,
and (ii) each non-employee director in office on the date of the Company's
annual meeting of stockholders will receive an option to purchase 5,000 shares
of Common Stock effective on such date. Additionally under the 2000 Director
Plan, the Chairman of the Board who is first elected to the Board is entitled to
receive an option to purchase 10,000 shares of Common Stock on the date on which
he first becomes Chairman, and the Chairman in office on the date of each of the
Company's annual meetings of stockholders will receive an option to purchase
10,000 shares of Common Stock effective on such date. In 2002, the Company
granted options to acquire an aggregate of 53,360 shares of Common Stock to
non-employee directors under the 2000 Director Plan. During 2002, the Company
paid $13,000 to one director, issued stock awards totaling 11,572 shares of
Common Stock to two directors, and granted options to purchase an aggregate of
23,360 shares of Common Stock to one director, for their attendance at Board and
committee meetings.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued during the last three years to the Company's
President and Chief Executive Officer and to the Company's only officer who had
compensation in excess of $100,000 during the last fiscal year (the "Named
Executive Officers"):
ANNUAL COMPENSATION LONG-TERM COMPENSATION
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS ($) OPTIONS (#) COMPENSATION(1)
---------------------------------------- ------ ------------ ------------ ------------ ------------ ---------------
Joseph S. Podolski ..................... 2002 $ 272,708 -- $ 26,500 275,000 $ 6,000(3)
President and Chief Executive ..... 2001 $ 235,000 -- -- 25,000 $ 6,000(3)
Officer ......................... 2000 $ 232,500 $ 75,000(2) -- -- $ 6,000(3)
Louis Ploth, Jr ........................ 2002 $ 150,000 -- $ 26,500 -- --
Chief Financial Officer, Vice ..... 2001 $ 139,133 -- -- 30,000 --
President, Business Development ... 2000 $ 129,600 $ 57,500(2) -- 20,000 --
and Secretary
----------
(1) During the periods indicated, perquisites for each individual named in
the Summary Compensation Table aggregated less than 10% of the total
annual salary and bonus reported for such individual in the Summary
Compensation Table. Accordingly, no such amounts are included in the
Summary Compensation Table.
(2) Stay bonus granted on October 18, 1999 and paid during 2000.
(3) Represents car allowance.
Option Grants in 2002
The following table provides certain information with respect to
options granted to the President and Chief Executive Officer and to each of the
Named Executive Officers during the fiscal year ended December 31, 2002 under
the Company's Incentive Plans:
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION Term(1)
-------------------------------------------------------------------- -------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS MARKET
UNDERLYING GRANTED TO PRICE ON
OPTIONS EMPLOYEES IN EXERCISE DATE OF EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE GRANT DATE 0% 5% 10%
--------------------- ------------- ------------- ---------- ---------- ---------- ---- --------- -----------
Joseph S. Podolski .. 275,000 99.3% $ 4.34 $ 4.34 03/20/2012 -- $ 750,586 $ 3,016,882
Louis Ploth, Jr ..... -- -- -- -- -- -- -- --
----------
(1) The Securities and Exchange Commission (the "SEC") requires disclosure
of the potential realizable value or present value of each grant. The
disclosure assumes the options will be held for the full ten-year term
prior to exercise. Such options may be exercised prior to the end of
such ten-year term. The actual value, if any, an executive officer may
realize will depend on the excess of the
stock price over the exercise price on the date the option is
exercised. There can be no assurance that the stock price will
appreciate at the rates shown in the table.
Option Exercises and Holdings
The following table sets forth information concerning option exercises
and the value of unexercised options held by the President and Chief Executive
Officer and each of the Named Executive Officers of the Company named in the
Summary Compensation Table as of the end of the last fiscal year:
AGGREGATED OPTION EXERCISES IN 2002
AND OPTION VALUES AT DECEMBER 31, 2002
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS HELD AT
SHARES DECEMBER 31, 2002 DECEMBER 31, 2002(1)
ACQUIRED ON VALUE ------------------------------- -------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------ -------------- -------------- -------------- -------------- -------------- --------------
Joseph S. Podolski ... 27,360 101,232 236,000 309,000 $ 0 $ 0
Louis Ploth, Jr ...... -- -- 114,700 37,000 $ 0 $ 0
----------
(1) Computed based on the difference between aggregate fair market value
and aggregate exercise price. The fair market value of the Company's
Common Stock on December 31, 2002 was $0.98, based on the closing sales
price on the Nasdaq Stock Market on December 31, 2002.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2002,
regarding compensation plans (including individual compensation arrangements)
under which equity securities are authorized for issuance:
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE NUMBER OF SECURITIES REMAINING
BE ISSUED UPON EXERCISE EXERCISE PRICE OF AVAILABLE FOR FUTURE ISSUANCE UNDER
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, EQUITY COMPENSATION PLANS (EXCLUDING
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS SECURITIES SHOWN IN THE FIRST COLUMN)
--------------------- ----------------------- --------------------- --------------------------------------
Equity
compensation
plans approved by
shareholders (1) 1,531,710 $ 6.76 1,043,304
Equity
compensation
plans not
approved
by shareholders -- -- --
--------------------- ----------------------- --------------------- --------------------------------------
Total 1,531,710 $ 6.76 1,043,304
----------
(1) Consists of shares of Common Stock issued or remaining available for
issuance under the Incentive Plans and the 1996 Director Plan and 2000 Director
Plan. The material terms of the 2000 Director Plan are described above under
"Item 11. Executive Compensation - Directors' Meetings and Compensation." The
2000 Director Plan was originally approved by the Company's stockholders. The
Company amended the 2000 Director Plan without stockholder approval as permitted
by the terms of the 2000 Director Plan on October 24, 2002.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Podolski and Ploth
which provide for current annual salaries of $285,000 and $150,000,
respectively. The agreements provide that the Company will pay Messrs. Podolski
and Ploth an annual incentive bonus as may be approved by the Board of Directors
and that they are entitled to participate in all employee benefit plans
sponsored by the Company.
Mr. Podolski's employment agreement was amended in October 2002 and
provides for a renewal term expiring in January 2004, with automatic annual
renewals unless terminated by either party. The October 2002 amendment clarified
the provisions described below relating to the lump sum payment following a
change of control but did not change the economics of the Rabbi Trust. If
terminated for reasons other than cause, Mr. Podolski is entitled to receive his
annual base salary and certain employment benefits for one year following
termination. In addition, he is entitled to the following severance payments in
the event he is terminated without cause or resigns for good reason within
twelve months following a change of control: a cash lump sum payment equal to
the present value of the aggregate amount of payments set forth below, in which
the present value is determined as of the closing date of the change of control
transaction (as if he was terminated or had resigned on such date). Mr. Podolski
has agreed to defer payment of such amount, and in lieu of such lump sum
payment, he will receive the payments listed in the following table. All of the
payments listed below, other than the first payment made at the closing of the
merger, would be made out of an irrevocable Rabbi Trust which would be funded by
the Company immediately prior to the closing of a change of control transaction:
AMOUNT OF PAYMENT PAYMENT DUE DATE
-------------------------- ---------------------------------------------------
Current base salary On the closing of the change of control transaction
$150,000 1st anniversary after closing
$150,000 2nd anniversary after closing
$150,000 3rd anniversary after closing
$150,000 4th anniversary after closing
$125,000 5th anniversary after closing
$75,000 6th anniversary after closing
Finally, Mr. Podolski is entitled to acceleration of all unvested
options and an extension of the period of exercisability of his options for a
two year period following the closing of the merger and is entitled to receive
benefits coverage for a period of twelve months following his termination.
Mr. Ploth, the Company's chief financial officer, is entitled to
receive a lump sum payment upon the closing of a change of control transaction,
regardless of whether he is terminated or continues with the combined company,
in an amount equal to his current base salary at the time of the closing, which
is expected to be $150,000, his current base salary. This was amended in October
2002 and replaces his previous change of control payment of one-half of his
current base salary plus an additional $25,000 cash payment for the consummation
of a change of control transaction. In addition, Mr. Ploth is entitled to
acceleration of all unvested options and an extension of the period of
exercisability of his options for a two year period following the closing of the
merger and he is entitled to receive benefits coverage for a period of twelve
months following closing. The benefits coverage was increased from the six month
period in place prior to the October 2002 amendment.
Mr. Ploth's employment agreement expires in October 2003 with automatic
annual renewals unless otherwise terminated by either party. If terminated for
reasons other than cause, Mr. Ploth is entitled to salary and certain employment
benefits for six months following termination.
PERFORMANCE GRAPH
The following performance graph compares the performance of the Common
Stock to the Nasdaq Combined Composite Index and to the Nasdaq Index of
Pharmaceutical Companies. The graph covers the fiscal years ending December 31,
1997 to December 31, 2002. The graph assumes that the value of the investment in
the Company's Common Stock and each index was $100 at December 31, 1997 and that
all dividends were reinvested.
COMPARISON OF CUMULATIVE RETURN
AMONG ZONAGEN, INC.,
NASDAQ COMBINED MARKET INDEX AND
NASDAQ PHARMACEUTICAL COMPANIES INDEX
(PERFORMANCE GRAPH)
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
---------- ---------- ---------- ---------- ---------- ----------
Zonagen, Inc. 100.00 105.15 24.06 14.43 38.49 5.39
Nasdaq Combined Market Index 100.00 141.04 248.76 156.35 124.64 86.94
Nasdaq Pharmaceutical Companies Index 100.00 135.75 278.03 344.54 292.68 180.38
ASSUMES $100 INVESTED ON JAN. 1, 1998
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2002
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference into this Form 10-K or any filing under the Securities
Act of 1933, as amended, or under the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
COMPENSATION AND OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Option Committee currently consists of Messrs.
Blasnik and McInerney. During fiscal 2002, no executive officer of the Company
served as (i) a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose executive
officers served on the Compensation Committee of the Board of Directors, (ii) a
director of another entity, one of whose executive officers served on the
Compensation Committee of the Board of Directors of the Company or (iii) a
member of the compensation committee (or other board committee performing
equivalent functions) of another entity, one of whose executive officers served
as a director of the Company.
REPORT OF THE COMPENSATION AND OPTION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation and Option Committee (the "Committee") of the Board of
Directors of the Company currently consists of Steven Blasnik and Timothy
McInerney, neither of whom is an officer or employee of the Company. The
Committee is responsible for evaluating the performance of management and
determining the compensation for executive officers of the Company and for
administering the Company's Incentive Plans under which grants may be made to
employees of the Company. The Committee has furnished the following report on
executive compensation for 2002:
Under the supervision of the Committee, the Company has developed a
compensation policy which is designated to attract and retain key executives
responsible for the success of the Company and motivate management to enhance
long-term stockholder value. The annual compensation package for executive
officers primarily consists of (i) a cash salary which reflects the
responsibilities relating to the position and individual performance, (ii)
variable performance awards payable in cash or stock and tied to the achievement
of certain personal and corporate goals or milestones and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests between
the executive officers and the Company's stockholders.
In determining the level and composition of compensation of each of the
Company's executive officers, the Committee takes into account various
qualitative and quantitative indicators of corporate and individual performance.
Although no specific target has been established, the Committee generally seeks
to set salaries comparable to those of peer group companies. In setting such
salaries, the Committee considers its peer group to be certain companies in the
biotechnology industries with market capitalizations similar to that of the
Company. Such competitive group does not necessarily include the companies
comprising the indexes reflected in the performance graph in this Proxy
Statement. Because the Company is still developing technologies, the use of
certain traditional performance standards (e.g., profitability and return on
equity) is not currently appropriate in evaluating the performance of the
Company's executive officers. Consequently, in evaluating the performance of
management, the Committee takes into consideration such factors as the Company's
achieving specified milestones or goals in its clinical development programs and
the general progress of the Company's clinical trials. In addition, the
Committee recognizes performance and achievements that are more difficult to
quantify, such as the successful supervision of major corporate projects and
demonstrated leadership ability. Finally, as a result of the Company's recent
decision to indefinitely suspend further development efforts in VASOMAX and the
related decision to seek strategic alternatives, the Committee will also take
into account the performance of management in fostering the goal of completing a
strategic alternative to the benefit of the Company and its stockholders.
Base compensation is established through negotiation between the
Company and the executive officer at the time the executive is hired, and then
subsequently adjusted when such officer's base compensation is subject to review
or reconsideration. While the Company has entered into employment agreements
with its executive officers, such agreements provide that base salaries after
the initial year will be determined by the Committee after review. When
establishing or reviewing base compensation levels for each executive officer,
the Committee, in accordance with its general compensation policy, considers
numerous factors, including the responsibilities relating to the position, the
qualifications of the executive and the relevant experience the individual
brings to the Company, strategic goals for which the executive has
responsibility, and compensation levels of companies at a comparable stage of
development who compete with the Company for business, scientific and executive
talents. As stated above, such comparable companies are generally those with
similar market capitalizations and are not necessarily among the companies
comprising the industry or broad market indexes reflected in the performance
graph in this Proxy Statement. No pre-determined weights are given to any one of
such factors. The base salaries for the executive officers generally, and the
Chief Executive Officer specifically, for fiscal 2002 were comparable to the
Company's peer group companies.
In addition to each executive officer's base compensation, the
Committee may award cash bonuses and the Committee may grant awards under the
Company's Incentive Plans to chosen executive officers depending on the extent
to which certain defined personal and corporate performance goals are achieved.
Such corporate performance goals are the same as discussed above.
All employees of the Company, including its executive officers, are
eligible to receive long-term stock-based incentive awards under the Company's
Incentive Plans as a means of providing such individuals with a continuing
proprietary interest in the Company. Such grants further the mutuality of
interest between the Company's employees and its stockholders by providing
significant incentives for such employees to achieve and maintain high levels of
performance. The Company's Incentive Plans enhance the Company's ability to
attract and retain the services of qualified individuals. Factors considered in
determining whether such awards are granted to an executive officer of the
Company include the executive's position in the Company, his or her performance
and responsibilities, the amount of
stock options, if any, currently held by the officer, the vesting schedules of
any such options and the executive officer's other compensation. While the
Committee does not adhere to any firmly established formulas or schedules for
the issuance of awards such as options or restricted stock, the Committee will
generally tailor the terms of any such grant to achieve its goal as a long-term
incentive award by providing for a vesting schedule encompassing several years
or tying the vesting dates to particular corporate or personal milestones.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), added by the Revenue Reconciliation Act of 1993, places a $1.0 million
cap on the deductible compensation that can be paid to certain executives of
publicly-traded corporations. Amounts that qualify as "performance based"
compensation under Section 162(m)(4)(c) of the Code are exempt from the cap and
do not count toward the $1.0 million limit. Generally, stock options will
qualify as performance based compensation. The Committee has discussed and
considered and will continue to evaluate the potential impact of Section 162(m)
on the Company in making compensation determinations, but has not established a
set policy with respect to future compensation determinations.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The annual base salary of Joseph S. Podolski, the Company's President
and Chief Executive Officer, was increased to $285,000 for 2002. In increasing
Mr. Podolski's annual base salary for 2002, the Committee evaluated a number of
factors, including Mr. Podolski's responsibilities, his general background and
qualifications, his achievement of various corporate and personal milestones set
by the Committee from time to time, and compensation levels for executives in
Mr. Podolski's position and with his background at peer group companies. The
Committee has not attached any particular relative weighting to the foregoing
factors (or any other factors which the Committee may also consider in reaching
compensation decisions for the Company's executive officers).
In 2002, Mr. Podolski did not receive a cash bonus but he did receive a
bonus plan under which he will receive year end bonuses that will equal two
percent (2%) of the amount of milestone payments received by the Company during
such year. Such plan terminates after December 31, 2003, unless prior thereto
there is either a change of control or a termination of Mr. Podolski's
employment. If either such event occurs prior to such date, the bonus plan will
terminate upon the occurrence of such event. The Committee retains discretion to
determine the amount of any future incentive bonus awards to be paid to Mr.
Podolski under its general plan of incentive bonus awards for the Company's
executive officers. The Committee expects that it will evaluate a number of
factors in reaching this decision, including the Company's strategic goals for
which Mr. Podolski has responsibility, his other responsibilities, his
initiatives and contributions to the Company's achievement of various corporate
and strategic goals and his own achievement of certain personal milestones as
determined by the Committee from time to time.
Mr. Podolski was granted 25,000 shares under the Company's Incentive
Plans during 2002 and was granted an option to purchase 50,000 shares of Common
Stock with an exercise price equal to the fair market value of the Common Stock
on the date of grant and usual time-based vesting provisions and an additional
performance option to purchase 225,000 shares of Common Stock with an identical
exercise price, all of which vest on the tenth anniversary of the date of grant
but with accelerated vesting of certain portions of such option on certain
milestone events related to the approval of Vasomax(TM) in Europe and the United
States. Mr. Podolski participates in the Company's Incentive Plans on the same
general terms as other participants in the Plan, although the amount of shares
underlying option grants to Mr. Podolski has historically been larger than for
other employees as a result of his position.
The foregoing report is given by the following members of the
Committee:
Timothy McInerney, Chairman
Steven Blasnik
The report of the Committee shall not be deemed incorporated by
reference into this Form 10-K or any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the
beneficial ownership of Common Stock as of March 31, 2003 by (i) each person who
is known by the Company to own beneficially more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii) the
Company's chief executive officer and each of the other Named Executive Officers
and (iv) all directors and executive officers as a group. Except as described
below, each of the persons listed in the table has sole voting and investment
power with respect to the shares listed.
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP OF PERCENTAGE
NAME OF BENEFICIAL OWNER COMMON STOCK(1) OF CLASS(2)
------------------------------------------ ---------------- ------------
Petrus Fund, L.P. ........................ 755,793(3) 6.6%
12377 Merit Dr., Suite 1700
Dallas, Texas 75251 .................
Lloyd M. Bentsen, III .................... 21,000(4) *
Steven Blasnik ........................... 860,638(5) 7.4%
Joseph S. Podolski ....................... 338,181(6) 2.9%
Martin P. Sutter ......................... 273,304(7) 2.4%
Timothy McInerney ........................ 147,027(8) 1.3%
Louis Ploth .............................. 150,497(9) 1.3%
All directors and executive officers
as a group (6 persons) .............. 1,790,647(4)-(9) 14.7%
* Does not exceed one percent.
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by such persons.
(2) In accordance with the rules of the Securities and Exchange Commission,
each beneficial owner's percentage ownership assumes the exercise or
conversion of all options, warrants and other convertible securities
held by such person and that are exercisable or convertible within 60
days after March 31, 2003.
(3) Based on information provided to the Company by Petrus Fund, L.P.
(4) Includes 21,000 shares issuable upon exercise of options.
(5) Includes (i) 755,793 shares of Common Stock which may be deemed to be
beneficially owned by Mr. Blasnik by virtue of his affiliation with
Petrus Fund, L.P. and (ii) 104,845 shares of Common Stock issuable upon
the exercise of options. Mr. Blasnik disclaims beneficial ownership of
the shares owned by Petrus Fund, L.P.
(6) Includes (i) 300 shares of Common Stock which are held by certain of
Mr. Podolski's family members and (ii) 246,000 shares of Common Stock
issuable upon the exercise of options. Mr. Podolski disclaims
beneficial ownership of the shares owned by his family members.
(7) Includes (i) 115,029 shares of Common Stock which may be deemed to be
beneficially owned by Mr. Sutter by virtue of his affiliation with
Essex Woodlands Health Ventures, L.L.C., (ii) 90,000 shares of Common
Stock issuable upon the exercise of options and (iii) 524 shares of
Common Stock which are held by certain of Mr. Sutter's family members.
Mr. Sutter disclaims beneficial ownership of the shares owned by
Essex/Woodlands Health Ventures, L.P. and by his family members.
(8) Includes (i) 51,194 shares of Common Stock issuable upon the exercise
of warrants, (ii) 61,500 shares of Common Stock issuable upon the
exercise of options, and (iii) 3,131 shares of Common Stock which are
held by certain of Mr. McInerney's family members. Mr. McInerney
disclaims beneficial ownership of the shares owned by his family
members.
(9) Includes 120,700 shares of Common Stock issuable upon the exercise of
options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ZONAGEN, INC.
By: /s/ Joseph S. Podolski
-----------------------------------------
Joseph S. Podolski
President and Chief Executive Officer
Dated: April 29, 2003