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
ZONAGEN, 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:
ZONAGEN, INC.
2408 TIMBERLOCH PLACE, SUITE B-1
THE WOODLANDS, TEXAS 77380
August 27, 2004
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 2004 Annual Meeting of
Stockholders of Zonagen, Inc. to be held on Wednesday, September 29, 2004, at
1:00 p.m., Eastern Standard Time, at the Marriott New York East Side Hotel, 525
Lexington Avenue, New York, New York. A Notice of the Annual Meeting, Proxy
Statement and form of Proxy are enclosed with this letter.
We encourage you to read the Notice of the Annual Meeting and Proxy
Statement so that you may be informed about the business to come before the
meeting. Your participation in the Company's business is important, regardless
of the number of shares that you hold. To ensure your representation at the
meeting, please promptly sign and return the accompanying proxy card in the
postage-paid envelope. WE URGE YOU TO VOTE REGARDLESS OF WHETHER YOU INTEND TO
TENDER YOUR SHARES SO THAT WE MAY ENSURE THAT A QUORUM IS PRESENT FOR THE ANNUAL
MEETING.
We look forward to seeing you on September 29, 2004.
Sincerely,
/s/ Joseph S. Podolski
Joseph S. Podolski
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD SEPTEMBER 29, 2004
To the Stockholders of Zonagen, Inc.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Zonagen, Inc.
(the "Company") will be held on Wednesday, September 29, 2004, at 1:00 p.m.,
Eastern Standard Time, at the Marriott New York East Side Hotel, 525 Lexington
Avenue, New York, New York, for the following purposes:
1. To elect a board of seven directors of the Company, each to
serve until the Company's next Annual Meeting of Stockholders
or until their respective successors have been duly elected
and qualified;
2. To approve the Company's 2004 Stock Option Plan;
3. To ratify and approve the appointment of
PricewaterhouseCoopers LLP as the Company's registered
independent public accounting firm for its fiscal year ending
December 31, 2004; and
4. To act on such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Only stockholders of record at the close of business on August 20, 2004
will be entitled to notice of and to vote at the Annual Meeting.
It is important that your shares be represented at the Annual Meeting
regardless of whether you plan to attend. THEREFORE, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE AS
PROMPTLY AS POSSIBLE. If you are present at the Annual Meeting, and wish to do
so, you may revoke the proxy and vote in person.
By Order of the Board of Directors,
/s/ Louis Ploth, Jr.
Louis Ploth, Jr.
Secretary
The Woodlands, Texas
August 27, 2004
ZONAGEN, INC.
2408 TIMBERLOCH PLACE, SUITE B-1
THE WOODLANDS, TEXAS 77380
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 29, 2004
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying Proxy is solicited by the Board of Directors of Zonagen,
Inc. (the "Company"), to be voted at the Annual Meeting of Stockholders ("Annual
Meeting") of the Company to be held on Wednesday, September 29, 2004, at 1:00
p.m., Eastern Standard Time, at the Marriott New York East Side Hotel, 525
Lexington Avenue, New York, New York, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders, and at any adjournment(s)
of the Annual Meeting. If the accompanying Proxy is properly executed and
returned, the shares it represents will be voted at the Annual Meeting in
accordance with the directions noted thereon or, if no direction is indicated,
it will be voted in favor of the proposals described in this Proxy Statement. In
addition, the Proxy confers discretionary authority to the persons named in the
Proxy authorizing those persons to vote, in their discretion, on any other
matters properly presented at the Annual Meeting. The Board of Directors is not
currently aware of any such other matters.
Each stockholder of the Company has the unconditional right to revoke his
Proxy at any time prior to its exercise, either in person at the Annual Meeting
or by written notice to the Company addressed to Secretary, Zonagen, Inc., 2408
Timberloch Place, Suite B-1, The Woodlands, Texas 77380. No revocation by
written notice will be effective unless such notice has been received by the
Secretary of the Company prior to the day of the Annual Meeting or by the
inspector of election at the Annual Meeting.
The principal executive offices of the Company are located at 2408
Timberloch Place, Suite B-1, The Woodlands, Texas 77380. This Proxy Statement
and the accompanying Notice of Annual Meeting of Stockholders and Proxy are
being mailed to the Company's stockholders on or about August 27, 2004.
In addition to the solicitation of proxies by use of this Proxy Statement,
directors, officers and employees of the Company may solicit the return of
proxies by mail, personal interview, telephone or the Internet. Officers and
employees of the Company will not receive additional compensation for their
solicitation efforts, but they will be reimbursed for any out-of-pocket expenses
incurred. Brokerage houses and other custodians, nominees and fiduciaries will
be requested, in connection with the stock registered in their names, to forward
solicitation materials to the beneficial owners of such stock.
ALL COSTS OF PREPARING, PRINTING, ASSEMBLING AND MAILING THE NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS, THIS PROXY STATEMENT, THE ENCLOSED FORM OF PROXY
AND ANY ADDITIONAL MATERIALS, AS WELL AS THE COST OF FORWARDING SOLICITATION
MATERIALS TO THE BENEFICIAL OWNERS OF STOCK AND ALL OTHER COSTS OF SOLICITATION,
WILL BE BORNE BY THE COMPANY.
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's stockholders will be asked to
consider and act on the following matters:
1. Electing a board of seven directors of the Company, each to
serve until the Company's next Annual Meeting of Stockholders
or until their respective successors have been duly elected
and qualified;
2. Approving the Company's 2004 Stock Option Plan;
3. Ratifying and approving the appointment of
PricewaterhouseCoopers LLP as the Company's registered
independent public accounting firm for its fiscal year ending
December 31, 2004; and
4. Acting on such other business as may properly come before the
Annual Meeting or any adjournments thereof.
QUORUM AND VOTING
The close of business on August 20, 2004 has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to vote at
the Annual Meeting and any adjournment(s) thereof. As of the Record Date, the
Company had issued and outstanding 4,992,901 shares of the Company's common
stock, par value $.001 share (the "Common Stock").
Each stockholder of record of Common Stock will be entitled to one vote
per share on each matter that is called to vote at the Annual Meeting. Shares of
Common Stock may not be voted cumulatively.
The presence, either in person or by Proxy, of holders of shares
representing a majority of the Common Stock entitled to be cast at the Annual
Meeting is necessary to constitute a quorum at the Annual Meeting. Abstentions
and broker non-votes are counted for purposes of determining whether a quorum is
present. A plurality vote is required for the election of directors.
Accordingly, if a quorum is present at the Annual Meeting, the seven persons
receiving the greatest number of votes will be elected to serve as directors.
Withholding authority to vote for a director nominee and broker non-votes in the
election of directors will not affect the outcome of the election of directors.
All other matters to be voted on will be decided by the vote of the holders of
shares representing a majority of the votes present or represented at the Annual
Meeting and entitled to vote on such matter. On any such matter, an abstention
will have the same effect as a negative vote but, because shares held by brokers
will not be considered entitled to vote on matters as to which the brokers
withhold authority, a broker non-vote will have no effect on such vote.
All Proxies that are properly completed, signed and returned prior to the
Annual Meeting will be voted. Any Proxy given by a stockholder may be revoked at
any time before it is exercised by the stockholder by (i) filing with the
Secretary of the Company an instrument revoking it, (ii) executing and returning
a Proxy bearing a later date or (iii) attending the Annual Meeting and
expressing a desire to vote his shares of Common Stock in person. Votes will be
counted by Computershare Investor Services, LLC, the Company's transfer agent
and registrar.
PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
The Board of Directors has nominated and urges you to vote for the
election of Joseph S. Podolski, the Company's President and Chief Executive
Officer, Louis Ploth, Jr., the Company's Vice President, Business Development
and Chief Financial Officer, Daniel F. Cain, Jean L. Fourcroy, M.D., Ph.D.,
M.P.H., Zsolt Lavotha, Nola Masterson and David Poorvin, Ph.D., all of whom have
been nominated to serve as directors until the next Annual Meeting of
Stockholders or until their successors are duly elected and qualified. Ms.
Masterson and Dr. Poorvin were nominated for election to the Board of Directors
by the Company's Board for terms to begin at the 2004 Annual Meeting of
Stockholders. All of the Company's current directors unanimously recommended Ms.
Masterson and Dr. Poorvin for election to the Company's Board of Directors. The
chart below provides information regarding each nominee. Proxies solicited
hereby will be voted for all nominees unless stockholders specify otherwise in
their Proxies.
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If, at the time of or prior to the Annual Meeting, any of the nominees
should be unable or decline to serve, the discretionary authority provided in
the Proxy may be used to vote for a substitute or substitutes designated by the
Board of Directors. The Board of Directors has no reason to believe that any
substitute nominee or nominees will be required.
NOMINEES FOR ELECTION AS DIRECTORS
The names of the nominees for election as 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
---- --- ------------------------------- ----------
Joseph S. Podolski........................ 57 President and Chief Executive 1992
Officer and Director
Louis Ploth, Jr........................... 50 Vice President, Business 2004
Development and Chief Financial
Officer and Director
Daniel F. Cain............................ 59 Director 2004
Jean L. Fourcroy, M.D., Ph.D., M.P.H...... 74 Director 2004
Zsolt Lavotha............................. 54 Director 2004
Nola Masterson, M.S....................... 57 N/A N/A
David Poorvin, Ph.D....................... 58 N/A N/A
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. degree in chemical engineering
from the Illinois Institute of Technology.
Louis Ploth, Jr. Mr. Ploth was elected a director at the Company's 2003
Annual Meeting of Stockholders, which was concluded on January 14, 2004. 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 at which time he also served as
General Manager of Fertility Technologies, Inc., a former subsidiary of the
Company. 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 over 21 years of corporate financial and business
development experience, with over 17 years experience in the biotechnology
industry. Mr. Ploth has a B.S. degree from Montclair State College.
Daniel F. Cain. Mr. Cain was elected a director at the Company's 2003
Annual Meeting of Stockholders, which was concluded on January 14, 2004. Since
October 1994, Mr. Cain has provided consulting services for small businesses.
Since May 2000, he has also served as acting CEO of Wireless Medical, Inc., a
Colorado-based medical device company, and Enet Biz, a Colorado-based consulting
firm. From 1969 to 1994, Mr. Cain held various positions with Miles
Laboratories, Inc., Hexcel Corporation, Scripps-Miles, Inc., Synbiotics
Corporation and Heska Corporation. Mr. Cain has 35 years of broad business
experience including 26 years with medical companies. Sixteen of these years
were with three different biotech startup companies, one of which he co-founded.
Mr. Cain has held a wide variety of executive level management positions
including CEO/President and CFO. His
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experience also includes taking companies through the initial public offering
and secondary public offering stages and from start-up through
commercialization. He has prior experience of being an active board member of a
publicly traded company.
Jean L. Fourcroy, M.D., Ph.D., M.P.H. Dr. Fourcroy was elected a director
at the Company's 2003 Annual Meeting of Stockholders, which was concluded on
January 14, 2004. Dr. Fourcroy was engaged as a Medical Officer with the US Food
and Drug Administration from 1988 to 2001. Since leaving the FDA, Dr. Fourcroy
has been a consultant to the industry and a featured speaker and panel member in
numerous meetings and symposia. Dr. Fourcroy is a member of the Board of
Directors of the U.S. Anti-Doping Agency and is a Past President of the American
Medical Women's Association. Dr. Fourcroy is the recipient of a 1998 American
Urological Association Presidential Citation Award, the 1999 Camille Mermod
Award from the American Medical Women's Association, and an Outstanding Service
Award from the American Society of Andrology in April 2000. Dr. Fourcroy
received her M.D. from the Medical College of Pennsylvania and her Ph.D. from
the University of California at San Francisco. Her surgery and urology
residencies were completed at George Washington University Medical Center with
Board Certification in Urology in 1981. In 1999, she received her Masters in
Public Heath from the Medical College of Wisconsin.
Zsolt Lavotha. Mr. Lavotha was elected a director at the Company's 2003
Annual Meeting of Stockholders, which was concluded on January 14, 2004. Mr.
Lavotha most recently served as President and Chief Executive Officer of
Lavipharm Corp. ("Lavipharm") from December 1998 to April 2003. He has more than
25 years of experience in the pharmaceutical industry. Before joining Lavipharm,
he served as head of Wyeth's Europe/Africa/Middle East operations. He has also
held a variety of positions with Pfizer, Rhone-Poulene Rorer and Wyeth. Mr.
Lavotha earned a degree in science from Uppsala University (Sweden).
Nola Masterson, M.S. Ms. Masterson has been nominated for election to the
Company's Board for a term to begin at the 2004 Annual Meeting of Stockholders.
Ms. Masterson has 29 years of experience in the life science industry. Most
recently she was a Venture Partner and remains a Senior Advisor to TVM Techno
Venture Management, an international venture capital company. Ms. Masterson is
the Managing Member and General Partner of Science Futures LLC, I, II & III,
venture capital funds invested in life science funds and companies. She was the
first biotechnology analyst on Wall Street, working with Drexel Burnham Lambert
and Merrill Lynch. She is co-founder of Sequenom, Inc., a genetic analysis
company located in San Diego and Hamburg, Germany. Ms. Masterson has been the
CEO of Science Futures Inc., an investment and advisory firm since 1982. She
started the BioTech Meeting in Laguna Nigel, CA and the annual Biopharmaceutical
Conference in Europe. She was nominated to the 100 Irish American Business List
in 2003. Ms. Masterson began her career at Ames Company, a division of Bayer,
and spent 8 years at Millipore Corporation in sales and sales management. She
received her Masters in Biological Sciences from George Washington University,
and continued Ph.D. work at the University of Florida.
David Poorvin, Ph.D. Dr. Poorvin has been nominated for election to the
Company's Board for a term to begin at the 2004 Annual Meeting of Stockholders.
Dr. Poorvin has over 30 years of experience in the pharmaceutical industry and
is currently an Executive-in-Residence at Oxford Bioscience Partners, a venture
capital company. Dr. Poorvin also is engaged in private consulting for biotech
companies. At the end of 2003, Dr. Poorvin retired from Schering-Plough
Corporation as Vice President of their Business Development operations where he
negotiated licenses, joint ventures and acquisitions of pharmaceutical products
and research technologies. Dr. Poorvin's career at Schering Plough from 1981 to
2003 included 14 years in Business Development as well as tenure as the Director
of Clinical Research at Schering-Plough, a position he also held at Pfizer
Pharmaceuticals from 1977 to 1981. He was responsible for several NDA programs
and product approvals at both companies, including such drugs as Procardia and
Imdur. Dr. Poorvin started his career in the pharmaceutical industry at Lederle
Laboratories from 1973 to 1977, where he directed pre-clinical research in the
cardiovascular area. He received his B.A. degree from Hunter College of the City
University of New York. He received his Ph.D. from Rutgers University.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ELECTION OF EACH OF THE ABOVE-NAMED NOMINEES, AND PROXIES EXECUTED AND RETURNED
WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
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DIRECTORS' MEETINGS AND COMPENSATION
The Company's operations are managed under the broad supervision of the
Board of Directors, which has ultimate responsibility for the establishment and
implementation of the Company's general operating philosophy, objectives, goals
and policies. During 2003, the Board of Directors convened on twenty five
occasions (due to the Company's activities in searching for strategic
alternatives and activities associated with its decision to complete a Dutch
auction self tender offer) and took certain additional actions by unanimous
written consent in lieu of meetings. 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 2003. The Company's current policy is to have its directors
attend the Company's annual meeting of stockholders. Because all of the
Company's then non-employee directors were replaced at the 2003 annual meeting
of stockholders, only Mr. Podolski was present at such meeting.
Employee directors do not receive additional compensation for service on
the Board of Directors or its committees. The Company reimburses each
non-employee 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 currently receive $1,000 per meeting in
cash. Employee directors will be eligible to participate in the Company's 2004
Employee and Consultant Stock Option Plan if it is approved by the Company's
stockholders (the "Incentive Plan"). 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 on the date on which he first becomes a
non-employee director, and (ii) each non-employee director in office immediately
after 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 (if a non-employee) 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 (if a non-employee) in office immediately after 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. During 2003, the Company paid an
aggregate of $93,000 to the directors, issued stock awards totaling 10,871
shares of Common Stock to two directors, and granted options to purchase an
aggregate of 12,972 shares of Common Stock under the 2000 Director Plan to one
director, for their attendance at Board and committee meetings.
BOARD COMMITTEES
Pursuant to delegated authority, various Board functions are discharged by
the standing committees of the Board. The Board of Directors has appointed three
principal standing committees: the Compensation and Option Committee, the
Nominating and Corporate Governance Committee and the Audit Committee. Copies of
the Audit Committee Charter, Management and Compensation Committee Charter and
the Nominating and Corporate Governance Committee Charter are available in the
Corporate Governance section of the Company's web site at
http://www.zonagen.com. In addition, the Company has adopted a Code of Business
Conduct and Ethics for directors, officers and employees and a Code of Ethics
for Senior Financial Officers, which are available on the Corporate Governance
Section of the Company's website at http://www.zonagen.com. If any substantive
amendments are made to either code, the nature of such amendment will be
disclosed on the Company's website. In addition, if a waiver from either code is
granted to an executive officer, director or principal accounting officer, the
nature of such waiver will be disclosed on the Company's website.
COMPENSATION AND OPTION COMMITTEE. The Compensation and Option Committee,
currently comprised of Mr. Lavotha, as Chairman, and Mr. Cain, selects the
employees to whom stock options are to be granted, determines the terms and
conditions provided for in each option grant and reviews and recommends to the
Board of Directors the amount of compensation to be paid to officers of the
Company. The Compensation and Option Committee, then comprised of directors who
have since resigned, convened once in 2003 and took certain additional actions
by unanimous written consent in lieu of meetings. The Board of Directors has
determined that each member of the Compensation and Option Committee is
independent, as independence is defined in the listing standards for the Nasdaq
Stock Market.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE. The Nominating and
Corporate Governance Committee is currently comprised of Dr. Fourcroy and
Messrs. Cain and Lavotha. The Nominating and Corporate
5
Governance Committee investigates and makes recommendations to the Board with
respect to qualified candidates to be nominated for election to the Board and
reviews and makes recommendations to the Board of Directors with regard to
candidates for directors nominated by stockholders in accordance with the
Company's bylaws. The Nominating and Corporate Governance Committee did not meet
in 2003, when it was known as the Nominating Committee and was comprised of
former directors who did not stand for re-election at the 2003 Annual Meeting of
Stockholders which concluded on January 14, 2004. The Nominating and Corporate
Governance Committee will consider candidates for director who are properly
nominated by stockholders. Any stockholder wishing to propose a nominee should
submit a recommendation in writing to the Company's Corporate Secretary,
indicating the nominee's qualifications and other relevant biographical
information, confirmation of the nominee's consent to serve as a director, and
all other information required by the Company's bylaws for the nomination of
director candidates. This committee also investigates and makes recommendations
to the Board with regard to all matters of corporate governance, including the
structure, operation and evaluation of the Board and its committees. The Board
of Directors has determined that each member of the Nominating and Corporate
Governance Committee is independent, as independence is defined in the listing
standards for the Nasdaq Stock Market.
AUDIT COMMITTEE. The Audit Committee, currently comprised of Mr. Cain, as
Chairman, Dr. Fourcroy and Mr. Lavotha, provides assistance to the Board of
Directors in fulfilling its responsibilities relating to corporate accounting
and reporting practices, recommends to the Board of Directors the engagement by
the Company of its independent public accountants, approves services performed
by the Company's independent public accountants, including fee arrangements and
the range of audit and non-audit services, maintains a direct line of
communication between the Board of Directors and the Company's independent
public accountants and performs such other functions as may be prescribed with
respect to audit committees under applicable rules, regulations and policies of
The Nasdaq Stock Market, Inc. The Audit Committee also evaluates the Company's
system of internal controls, the internal audit function and other related
areas. The Audit Committee meets quarterly and convened four times in 2003 and
in 2004 convened once per quarter for the quarters ended March 31 and June 30,
2004 as well as once to review financial statements relating to the fiscal year
ended December 31, 2003.
As required by Nasdaq Stock Market and Securities and Exchange Commission
(the "Commission") rules regarding audit committees, the Board of Directors has
reviewed the qualifications of its Audit Committee and has determined that none
of the current members of the Audit Committee have a relationship with the
Company that might interfere with the exercise of their independence from the
Company or its management and has determined that each member of the Audit
Committee is independent, as independence is defined in the listing standards
for the Nasdaq Stock Market. The Board of Directors has determined that Mr.
Cain, Chairman of the Audit Committee, is an audit committee financial expert as
described in Item 401(h) of Regulation S-K.
EXECUTIVE SESSIONS OF THE BOARD OF DIRECTORS. The Company's policy is to
have its Non-Management Directors meet regularly in executive sessions following
at least two of its regularly scheduled meetings of the Board of Directors in a
calendar year. "Non-Management" Directors are all those Directors who are not
the Company's employees. "Non-Management" Directors include Directors, if any,
who are not independent as determined by the Board of Directors. The
Non-Management Directors presently consist of all current Directors except
Messrs. Podolski and Ploth and will also include Ms. Masterson and Dr. Poorvin
if they are elected to the Board. The independent Non-Management Directors will
meet in executive session at least one time per year, in connection with a
regularly scheduled meeting of the Board of Directors.
COMMUNICATIONS WITH DIRECTORS. The Company's security holders and other
interested parties may communicate with one or more of its Directors (including
any presiding Director or the Non-Management Directors as a group) by mail in
care of Secretary, Zonagen, Inc., 2408 Timberloch Pl., Suite B-1, The Woodlands,
Texas 77380. Such communications should specify the intended recipient or
recipients. All such communications, other than commercial solicitations or
communications, will be forwarded to the appropriate Director or Directors.
STOCKHOLDER NOMINATIONS. The Nominating and Corporate Governance Committee
will consider proposals for nominees for Director from others. In order to
nominate a Director at the Annual Meeting, the Company's Bylaws require that a
stockholder follow the procedures set forth in Section 2.12 of the Company's
Bylaws (available on the Company's web site at http://www.zonagen.com). In order
to recommend a nominee for a Director position, a stockholder must be a
stockholder of record at the time the stockholder gives notice of its
recommendation and the stockholder must be entitled to vote for the election of
Directors at the meeting at which such nominee will be considered. Stockholder
recommendations must be made pursuant to written notice delivered to the
Company's principal executive offices no less than 50 days nor more than 75 days
prior to the date of the
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annual or special meeting at which Directors are to be elected; provided, that
if the date of the annual or special meeting was not publicly announced more
than 65 days prior to the annual or special meeting, such notice by the
stockholder will be timely if delivered to the Secretary no later than the close
of business on the 15th day following the day on which such announcement of the
date of the meeting was communicated to the stockholders.
The stockholder notice must set forth the following:
1. As to each person the stockholder proposes to nominate for election
as a Director, all information relating to such person that would be required to
be disclosed in solicitations of proxies for the election of such nominees as
Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act");
2. The written consent to serve as a director if elected by each person
nominated;
3. Name and address of the stockholder as they appear on the Company's
books; and
4. The class and number of shares of Common Stock beneficially owned by
such stockholder.
In addition to complying with the foregoing procedures, any stockholder
nominating a director must also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE NOMINATIONS. The Nominating
and Corporate Governance Committee selects each nominee based on the nominee's
skills, achievements and experience. The following will be considered, among
other things, in selecting candidates for the Board of Directors: knowledge,
experience, and skills in areas critical to understanding the Company and its
business; personal characteristics, such as integrity and judgment; and
candidates' commitments to the boards of other companies.
When seeking candidates for Director, the Nominating and Governance
Committee may solicit suggestions from incumbent Directors, management,
stockholders or others. While the Committee has authority under its charter to
retain a search firm for this purpose, no such firm was utilized in 2003. After
conducting an initial evaluation of a potential candidate, the Committee will
interview that candidate if it believes such candidate might be suitable to be a
Director. The Committee may also ask the candidate to meet with management. If
the Committee believes a candidate would be a valuable addition to the Board of
Directors, it will recommend to the full Board of Directors that candidate's
election.
AUDIT COMMITTEE REPORT
The Audit Committee includes three directors who are independent, as
defined by the standards of the Nasdaq Stock Market. The Audit Committee assists
the Board in overseeing matters relating to the Company's accounting and
financial reporting practices, the adequacy of its internal controls and the
quality and integrity of its financial statements. On March 24, 2004, the Audit
Committee adopted, and the Board of Directors ratified, a new Audit Committee
Charter, a copy of which is filed as Appendix A.
The Audit Committee met four times during the year ended December 31,
2003. The Audit Committee reviewed with management and the independent auditors
the interim financial information included in the Company's quarterly reports on
Form 10-Q for the fiscal quarters ended March 31, June 30 and September 30, 2003
prior to their being filed with the Commission and reviewed in a meeting held in
2004 the financial information for the fiscal quarter and year ended December
31, 2003, as filed with the Company's Form 10-K for the year ended December 31,
2003.
The independent auditors provided the Audit Committee with a written
statement describing all the relationships between the Company and its auditors
that might bear on the auditors' independence consistent with Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees." The Audit Committee also discussed with the auditors any
relationships that may impact their objectivity and independence and satisfied
itself as to the auditors' independence.
The Audit Committee discussed and reviewed with the independent auditors
all communications required by generally accepted auditing standards, including
those described in Statement of Auditing Standards No. 61, as amended,
"Communication with Audit Committees."
With and without management present, the Audit Committee discussed and
reviewed the results of the independent auditors' examination of the Company's
December 31, 2003 financial statements. The discussion
7
included matters related to the conduct of the audit, such as the selection of
and changes in significant accounting policies, the methods used to account for
significant or unusual transactions, the effect of significant accounting
policies in controversial or emerging areas, the process used by management in
formulating particularly sensitive accounting estimates and the basis for the
auditors' conclusions regarding the reasonableness of those estimates,
significant adjustments arising from the audit and disagreements, if any, with
management over the application of accounting principles, the basis for
management's accounting estimates and the disclosures in the financial
statements.
The Audit Committee reviewed the Company's audited financial statements as
of and for the year ended December 31, 2003, and discussed them with management
and the independent auditors. Based on such review and discussions, the Audit
Committee recommended to the Board that the Company's audited financial
statements be included in its Annual Report on Form 10-K for the fiscal year
ended December 31, 2003 for filing with the Commission.
This report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such Acts.
Jean Fourcroy, M.D., Ph.D., M.P.H.
Zsolt Lavotha
Daniel F. Cain, Chairman
PROPOSAL NUMBER 2:
APPROVAL OF THE COMPANY'S 2004 STOCK OPTION PLAN
The Board of Directors has unanimously approved the adoption of the 2004
Stock Option Plan (the "Plan") and unanimously recommends that the Company's
stockholders vote FOR approval of the adoption of the Plan. If a proxy card is
signed and returned but no direction is made, the proxy will be voted FOR its
adoption. The affirmative vote of holders of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote at the 2004
Annual Meeting is required to approve the proposed Plan.
GENERAL
The purpose of the Plan is to promote the interests of the Company and its
stockholders by encouraging employees of the Company, its subsidiaries and
affiliated entities and its non-employee directors to acquire or increase their
equity interest in the Company, and to relate compensation to performance goals
of the Company, thereby giving them an added incentive to work toward the
continued growth and success of the Company. This Plan is to supersede and
replace the Amended and Restated 1993 Employee and Consultant Stock Option Plan
(the "1993 Plan"). The 1993 Plan was the principal plan used to award equity
incentives to employees and consultants and expired in May 2003. The Board of
Directors also contemplates that through the Plan, the Company, its subsidiaries
and its affiliated entities will be better able to compete for the services of
personnel needed for growth and success. However, nothing in the Plan shall
operate or be construed to prevent the Company from granting awards outside of
such Plan. In the opinion of the Company, the Plan is not subject to any of the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
The full text of the Plan is set forth in Appendix B to this Proxy
Statement. Certain features of the Plan are summarized below, but this summary
is qualified in its entirety by reference to the full text of the Plan. All
capitalized terms not defined herein have the meanings set forth in the Plan.
TYPES OF AWARDS
The Plan would permit the granting of stock options ("Options") to
purchase shares of Common Stock, which may be either incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that do not constitute
Incentive Stock Options ("Nonqualified Options").
8
ELIGIBILITY FOR PARTICIPATION
Incentive Stock Options may be granted only to individuals who are
employees (whether or not they are directors) of the Company, any parent or
subsidiary corporation (within the meaning of Section 424 of the Code) of the
Company or any member of a controlled group with the Company ("Affiliate"). All
other Options may be granted to employees, consultants or non-employee directors
of the Company. As of the date of this Proxy Statement, four employees and three
non-employee directors are eligible to participate in the Plan.
ADMINISTRATION
The Plan will be administered by the Compensation and Option Committee of
the Board of Directors, consisting of two or more directors of the Company
appointed by the Board of Directors. The members of the Compensation and Option
Committee, as of the date of this Proxy Statement, are Messrs. Zsolt Lavotha
(Chairman) and Daniel F. Cain. No person shall be eligible to serve on the
Compensation and Option Committee unless such person is a "Non-Employee
Director" as defined in Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), if and as such is then in effect, and
also an "outside director" within the meaning of Section 162(m) of the Code.
Subject to the terms and conditions of the Plan, the Compensation and Option
Committee has authority to determine the employees and directors who are to be
granted Options, the number of shares to be issued pursuant to such Options
(within the limits of the Plan), to interpret the Plan and all Options and to
administer the Plan.
AMENDMENT AND TERMINATION
The Board of Directors in its discretion may modify, revise or terminate
the Plan. Any modification or revision would require the approval of the
stockholders of the Company if required by applicable law or the rules of the
Nasdaq Stock Market, and no modification, revision or termination of the Plan
may (i) change the aggregate number of shares of the Common Stock which may be
issued under Options granted under the Plan, (ii) reduce the option price at
which Options may be granted, or otherwise materially increase the benefits
accruing to optionees under the Plan, (iii) change the class of persons eligible
to receive Options or (iv) otherwise cause the Plan to fail to comply with the
rules and regulations promulgated under Section 16(b) of the Exchange Act.
TERM OF THE PLAN
The Plan was adopted by the Board of Directors effective as of February
24, 2004, subject to approval by the Company's stockholders. No Options will be
exercisable or payable prior to approval of the Plan by the Company's
stockholders. Except with respect to Options then outstanding, if not sooner
terminated, the Plan will terminate on February 24, 2014, and no further Options
may be granted after such date.
SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Common Stock that may be issued under
the plan shall not exceed 750,000, subject to adjustment in the event of stock
splits and certain other corporate events. See " -- Adjustments to Shares." To
the extent shares cease to be issuable under an Option, such shares will be
released from the Option and will be available under the Plan for the grant of
additional Options. Such shares of Common Stock may be authorized but unissued
shares or reacquired shares. Each share of Common Stock issued pursuant to the
Plan will be fully paid and nonassessable. The closing market price per share of
the Common Stock on the Nasdaq SmallCap Market as of August 20, 2004, was $3.68.
OPTIONS
The Compensation and Option Committee has the authority to grant Options
that will be in such form as the Compensation and Option Committee may from time
to time approve subject to the terms of the Plan. The Compensation and Option
Committee also has the authority to determine whether Options granted to
employees will be Incentive Stock Options or Nonqualified Options. The aggregate
fair market value of Common Stock for which an optionee may be granted Incentive
Stock Options during a calendar year is $100,000.
9
The Compensation and Option Committee may, with the consent of the person
or persons entitled to exercise an Option, amend an Option, except that no such
amendment shall reduce the exercise price of any Option. The Compensation and
Option Committee may at any time or from time to time, in its discretion, extend
the time during which an Option may be exercised after termination of employment
or service as a director or accelerate the time or times at which such Option
may be exercised to any earlier time or times.
To exercise an Option granted under the Plan, the person entitled to
exercise the Option must deliver to the Company payment in full of the exercise
price for the shares being purchased, together with any required withholding tax
in the case of the exercise of a Nonqualified Option. The payment must either be
in cash or check acceptable to the Company, through delivery to the Company of
shares of Common Stock already owned by the person, by sale through a broker, or
by any combination thereof. The value of each share of Common Stock delivered
will be deemed to be equal to the per share closing price of the Common Stock on
the Nasdaq Stock Market on the date of delivery of the notice requesting such
exercise.
The price at which shares of Common Stock may be purchased upon the
exercise of an Option shall be equal to the fair market value per share of
Common Stock at the time of the grant based on the closing price of Common Stock
on the Nasdaq Stock Market on the date of grant of such Option. The Plan
expressly prohibits the repricing of Options except in the event of adjustments
for stock splits and other corporate events.
The exercise price for Options shall be subject to appropriate adjustments
in the event that the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares or other securities by reason
of merger, consolidation, recapitalization, reclassification, stock split, stock
dividend, combination of shares or the like. The Compensation and Option
Committee shall provide, in the Option grant, the time or times at which the
Options will be exercisable.
No Option may be exercised later than the date which is ten years after
the date of grant. The Compensation and Option Committee may, in its discretion,
provide in an option agreement (other than an Incentive Stock Option agreement)
that the option right granted to the individual may be transferred as provided
in such option agreement.
CHANGE OF CONTROL
Upon the occurrence of a change of control (defined generally as certain
acquisitions by a person, entity or group of 50% or more of the Company's
outstanding Common Stock or 50% of the combined voting power of the then
outstanding voting securities of the Company, or certain reorganizations,
mergers, consolidations or liquidations), each Option that is not then
immediately exercisable in full shall be immediately exercisable in full.
AMENDMENT OF AN OPTION
Subject to the restrictions set forth in the Plan, the Committee may amend
any outstanding Option and may waive, amend or accelerate any requirement or
condition to payment or exercise with respect to any Option. The Committee may
not amend any outstanding Option in a manner that would adversely affect the
rights of a Plan participant without such participant's consent.
ADJUSTMENTS TO SHARES
In the event the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares of the Company or other
securities by reason of merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares or the
like, the Compensation and Option Committee will make an appropriate and
equitable adjustment in the number and kind of shares of Common Stock subject to
the Plan (including shares of Common Stock as to which all outstanding Options,
or portions thereof then unexercised, are exercisable) so that after such event
the shares of Common Stock subject to the Plan and the proportionate interest of
each Option will be maintained as before the occurrence of such event. Any such
adjustment made by the Compensation and Option Committee will be final and
binding upon the Company and all other interested persons.
10
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
IN GENERAL
The Plan is not qualified under Section 401(a) of the Code.
The following summary is based on the applicable provisions of the Code as
currently in effect and the income tax regulations and proposed income tax
regulations thereunder.
STATUS OF OPTIONS
Options granted under the Plan may be either Incentive Stock Options or
Nonqualified Options. Under certain circumstances, an Incentive Stock Option may
be treated as a Nonqualified Option. The tax consequences both to the Optionee
and to the Company differ depending on whether an Option is an Incentive Stock
Option or a Nonqualified Option.
NONQUALIFIED OPTIONS
No federal income tax is imposed on the Optionee upon the grant of a
Nonqualified Option. Upon the exercise of a Nonqualified Option, the Optionee
will be treated as receiving compensation, taxable as ordinary income in the
year of exercise. The amount recognized as ordinary income upon exercise is the
excess of the fair market value of the shares of Common Stock at the time of
exercise over the exercise price paid for such Common Stock. At the time Common
Stock received upon exercise of a Nonqualified Option is disposed of, any
difference between the fair market value of the shares of Common Stock at the
time of exercise and the amount realized on the disposition would be treated as
capital gain or loss. The gain, if any, realized upon such a disposition will be
treated as long-term or short-term capital gain, depending on the holding period
of the shares of Common Stock. Any loss realized upon such a disposition will be
treated as a long-term or short-term capital loss, depending on the holding
period of the shares of Common Stock.
Upon an Optionee's exercise of a Nonqualified Option, and subject to the
application of Section 162(m) of the Code as discussed below, the Company may
claim a deduction for the compensation paid at the same time and in the same
amount as compensation is treated as being received by the Optionee, assuming
the Company satisfies the federal income tax reporting requirements with respect
to such compensation. The Company is not entitled to any tax deduction in
connection with a subsequent disposition by the Optionee of the shares of Common
Stock.
If the shares of Common Stock received upon the exercise of a Nonqualified
Option are transferred to the Optionee subject to certain restrictions, then the
taxable income realized by the Optionee, unless the Optionee elects otherwise,
and the Company's tax deduction (assuming any federal income tax reporting
requirements are satisfied) should be deferred and should be measured at the
fair market value of the shares at the time the restrictions lapse. The
restrictions imposed on officers, directors and 10% shareholders by Section
16(b) of the Exchange Act is such a restriction during the period prescribed
thereby if other shares have been purchased by such an individual within six
months of the exercise of a Nonqualified Option.
INCENTIVE STOCK OPTIONS
No federal income tax is imposed on the Optionee upon the grant of an
Incentive Stock Option. The Optionee would recognize no taxable income upon
exercise of an Incentive Stock Option if the Optionee (a) does not dispose of
the shares of Common Stock acquired pursuant to the exercise of an Incentive
Stock Option within two years from the date the Option was granted or within one
year after the shares of Common Stock were transferred to the Optionee (the
"Holding Period") and (b) is an employee of either (i) the company granting the
Option, (ii) the parent company or a subsidiary of such corporation or (iii) a
corporation which has assumed such Option of another corporation as a result of
a corporate reorganization, merger or similar transaction. Such employment must
continue for the entire time from the date the Option was granted until three
months before the date of exercise, or 12 months before the date of exercise if
employment ceases due to permanent and total disability. If Common Stock
received upon exercise of an Incentive Stock Option is disposed of after
completion of the Holding Period, any difference between the exercise price paid
for such Common Stock and the amount realized on the disposition would be
treated as a capital gain or loss. The gain, if any, realized upon such a
disposition will be
11
treated as long-term capital gain. Any loss realized upon such a disposition
will be treated as a long-term capital loss. The Company would not be entitled
to any deduction in connection with the grant or exercise of the Option or the
disposition of the shares of Common Stock so acquired.
If, however, an Optionee disposes of shares of Common Stock acquired
pursuant to exercise of an Incentive Stock Option before the Holding Period has
expired (a "Disqualifying Disposition"), the Optionee would be treated as having
received, at the time of disposition, compensation taxable as ordinary income.
In such event, subject to the application of Section 162(m) of the Code as
discussed below, the Company may claim a deduction for compensation paid at the
same time and in the same amount as compensation is treated as being received by
the Optionee. The amount treated as compensation is the lesser of (i) the excess
of the fair market value of the Common Stock at the time of exercise over the
exercise price or (ii) the excess of the amount realized on disposition over the
exercise price. The balance of the gain, if any, realized upon such a
disposition will be treated as long-term or short-term capital gain depending on
the holding period. If the amount realized at the time of the disposition is
less than the exercise price, the Optionee will not be required to treat any
amount as ordinary income, provided that the disposition is of a type that would
give rise to a recognizable loss. In such event, the loss will be treated as a
long-term or short-term capital loss depending upon the holding period. A
disposition generally includes a sale, exchange or gift, but does not include
certain other transfers, such as by reason of death or a pledge or exchange of
shares described in Section 424(c) of the Code.
ALTERNATIVE MINIMUM TAX
Although the exercise of an Incentive Stock Option does not result in
current taxable income, there are implications with regard to the Alternative
Minimum Tax ("AMT"). The excess of the fair market value of shares of Common
Stock acquired upon exercise of an Incentive Stock Option over the exercise
price paid for such shares of Common Stock is an adjustment to AMT income for
the Optionee's taxable year in which such exercise occurs (unless the shares of
Common Stock are disposed of in the same taxable year and the amount realized is
less than the fair market value of the shares on the date of exercise, in which
event the amount included in AMT income will not exceed the amount realized on
the disposition over the adjusted basis of the shares).
PAYMENT OF OPTION PRICE IN SHARES
In the case of a Nonqualified Option, if the Option price is paid by the
delivery of shares of Common Stock previously acquired by the Optionee having a
fair market value equal to the Option price ("Previously Acquired Shares"), no
gain or loss would be recognized on the exchange of the Previously Acquired
Shares for a like number of shares of Common Stock. The Optionee's basis and
holding period in the number of shares of Common Stock received (to the extent
equal to the number of Previously Acquired Shares used) would be the same as his
or her basis and holding period in the Previously Acquired Shares used. The
Optionee would treat the fair market value of the number of shares of Common
Stock received in excess of the number of Previously Acquired Shares used as
ordinary compensation income. The Optionee's basis in such excess shares of
Common Stock would be equal to their fair market value at the time of exercise.
The Optionee's holding period in such excess shares of Common Stock begins on
the date the Optionee acquires those shares of Common Stock.
In the case of an Incentive Stock Option, the federal income tax
consequences to the Optionee of the payment of the Option price with Previously
Acquired Shares depends on the nature of the Previously Acquired Shares. If the
Previously Acquired Shares were acquired through the exercise of a qualified
stock option, an Incentive Stock Option or an option granted under an employee
stock purchase plan ("Statutory Option") and if such Previously Acquired Shares
are being transferred prior to expiration of the applicable Holding Period, the
transfer would be treated as a Disqualifying Disposition of the Previously
Acquired Shares. If the Previously Acquired Shares were acquired other than
pursuant to the exercise of a Statutory Option, or were acquired pursuant to the
exercise of a Statutory Option but have been held for the applicable Holding
Period, no gain or loss should be recognized on the exchange of the Previously
Acquired Shares. In either case, (i) the Optionee's basis and holding period in
the number of shares of Common Stock received (to the extent equal to the number
of Previously Acquired Shares used) would be the same as his or her basis and
holding period in the Previously Acquired Shares used, increased by any income
recognized to the Optionee upon the Disqualifying Disposition of the Previously
Acquired Shares, (ii) the Optionee's basis in the number of shares of Common
Stock received in excess of the number of Previously Acquired Shares used would
be zero, (iii) the Optionee's holding period in such excess shares of Common
Stock begins on the date the Optionee acquires those shares of Common Stock and
(iv) the other incentive
12
stock option rules would apply. Upon a subsequent Disqualifying Disposition of
the shares of Common Stock so received, the shares with the lowest basis would
be treated as disposed of first.
WITHHOLDING FOR TAXES
No issuance of Common Stock under the Plan shall be made until
arrangements satisfactory to the Company have been made for the withholding of
taxes.
ADDITIONAL TAX CONSEQUENCES
Code Section 4999 golden parachute provisions may apply to a participant
who receives any payment in the nature of compensation contingent on the change
of ownership or effective control of the Company. In the event that the
acceleration of vesting or any payment, distribution or issuance of stock is
subject to a golden parachute excise tax pursuant to Section 4999(a) of the
Code, the participant whose benefit is subject to such tax (generally, officers
or highly compensated employees) is entitled to receive a gross-up payment from
the Company so that the amount of the "net" benefit received by such participant
shall equal the amount of the benefit that would have been received in the
absence of a golden parachute tax. Section 280G of the Code disallows a
deduction to the Company for amounts subject to the excise tax under Code
Section 4999.
Section 162(m) of the Code places a $1 million cap on the deductible
compensation that may 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 million limit. Generally, Options granted with an exercise price at least
equal to the fair market value of the stock on the date of grant will qualify as
performance-based compensation. Other Awards may or may not so qualify,
depending on their terms.
NEW PLAN BENEFITS -- 2004 STOCK OPTION PLAN
On March 29, 2004, the Compensation and Option Committee granted options
to purchase an aggregate of 451,464 shares of Common Stock under the Plan,
subject to approval of the Plan by the Board of Directors and stockholders. Such
options were granted to the following persons or groups for the following
amounts at the fair market value of the Common Stock on the date of such grant
($2.72). In the event that the Company's stock price is higher than that on the
date of stockholder approval of the Plan, the Company will incur a charge to its
income statement in the amount of the difference.
DOLLAR NUMBER OF SHARES ISSUABLE
NAME AND POSITION VALUE(1) UPON EXERCISE OF OPTIONS(2)
----------------- -------- ---------------------------
Joseph S. Podolski -- 216,129
Louis Ploth, Jr. -- 127,138
Executive Group (Podolski and Ploth as a -- 343,267
group)
Non-Executive Director Group -- --
Non-Executive Officer Employee Group -- 108,197
(1) Not determinable.
(2) Of such amounts, the following shares are subject to bonus options
pursuant to which all of the shares issuable upon exercise of such bonus options
vest on January 26, 2005 assuming the Company has met certain milestones by
January 25, 2005, otherwise such bonus options terminate: Joseph S. Podolski,
58,561 shares; Louis Ploth, Jr., 20,925 shares; Executive Group, 79,486 shares;
Non-Executive Officer Employee Group, 17,504 shares.
PROPOSAL NUMBER 3:
RATIFICATION AND APPROVAL OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
The Board of Directors has appointed the firm of PricewaterhouseCoopers
LLP as the Company's registered independent public accounting firm to make an
examination of the accounts of the Company for the fiscal year ending December
31, 2004, subject to ratification by the Company's stockholders. The Company
anticipates
13
that representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting and will have an opportunity to make a statement, if they desire to do
so. They will also be available to respond to appropriate questions from
stockholders attending the Annual Meeting.
FEES PAID TO REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
The following table sets forth the aggregate fees billed to the Company by
its principal accounting firm, PricewaterhouseCoopers LLP, for fiscal years
ended December 31, 2003 and 2002, respectively:
2003 2002
-------- --------
AUDIT FEES $127,150 $ 81,900
AUDIT RELATED FEES 70,300 115,981
TAX FEES 9,250 6,000
ALL OTHER FEES 0 0
-------- --------
TOTAL FEES $206,700 $203,881
The services provided under the caption "Audit Fees" for 2003 and 2002
were for professional services rendered for audits of the Company's financial
statements and the Company's self tender offer. The services provided under the
caption "Audit Related Fees" for 2003 and 2002 relate to due diligence and
accounting consultation services performed in connection with the Company's
now-terminated transaction with Lavipharm. The services provided under the
caption "Tax Fees" for 2003 and 2002 relate to certain compliance related
services and tax advice to the Company. The Audit Committee considered whether
the provision of the services reflected under "Tax Fees" above might have
affected PricewaterhouseCoopers' independence with respect to their audit of the
Company's financial statements, and the Audit Committee believes that such
services did not affect, and were compatible with, PricewaterhouseCoopers'
independence. The Company replaced Arthur Andersen LLP with
PricewaterhouseCoopers LLP in June 2002. Please see "Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure" in the
Company's Form 10-K for the year ended December 31, 2003 for a complete
description.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee's policy provides that the Company's independent
auditor (the "Audit Firm") may provide only those services pre-approved by the
Audit Committee or its designated subcommittee. The Audit Committee annually
reviews and pre-approves the audit, review, attest and permitted non-audit
services to be provided during the next audit cycle by the Audit Firm. To the
extent practical, at the same meeting the Audit Committee also reviews and
approves a budget for each of such services. The term of any such pre-approval
is for the period of the annual audit cycle, unless the Audit Committee
specifically provides for a different period.
Services proposed to be provided by the Audit Firm that have not been
pre-approved during the annual review and the fees for such proposed services
must be pre-approved by the Audit Committee or its designated subcommittee.
Additionally, fees for previously approved services that are expected to exceed
the previously approved budget must also be pre-approved by the Audit Committee
or its designated subcommittee.
All requests or applications for the Audit Firm to provide services to the
Company must be submitted to the Audit Committee or its designated subcommittee
by the Audit Firm and the Chief Financial Officer and must include a joint
statement as to whether, in their view, the request or application is consistent
with applicable laws, rules and regulations relating to auditor independence. It
is the Company's policy that if any of its employees or any representative of
the Audit Firm becomes aware that any services are being, or have been, provided
by the Audit Firm to the Company without the requisite pre-approval, such
individual must immediately notify the Chief Financial Officer, who must
promptly notify the Chairman of the Audit Committee and appropriate members of
senior management so that prompt action may be taken to the extent deemed
necessary or advisable.
The Audit Committee may form and delegate to a subcommittee composed of
one or more of its members, the authority to grant specific pre-approvals under
its policy with respect to audit, review, attest and permitted non-audit
services, provided that any such grant of pre-approval shall be reported to the
full Audit Committee no later
14
than its next scheduled meeting. The Audit Committee may not delegate to
management its responsibilities to pre-approve services performed by the Audit
Firm.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION AND APPROVAL OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
THE COMPANY'S REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2004, AND PROXIES EXECUTED AND RETURNED WILL BE SO VOTED
UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
COMPENSATION AND OPTION COMMITTEE OF THE BOARD OF DIRECTORS REPORT
The Compensation and Option Committee (the "Committee") of the Board of
Directors of the Company currently consists of Messrs. Lavotha and Cain, who
were elected to this committee on January 16, 2004, 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 2003:
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.
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 certain of its executive officers, such agreements provide that base
salaries 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 2003 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.
15
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 remained at its 2002 level, $280,000, for 2003. Mr.
Podolski did not receive any cash bonus in 2003. The Committee last year
consisted of directors who no longer serve on the Company's board. Last year,
the Company was seeking strategic alternatives and eventually approved and
conducted a self tender offer that concluded in January 2004; therefore, no
actions were taken with respect to the compensation for the Company's Chief
Executive Officer or its other executive officers. Immediately following
completion of the tender offer, four of the five members of the Company's board
were replaced with four new directors, two of whom now serve on the Committee
(and listed below). The new Committee members will continue to use criteria
established by the Committee previously in determining Mr. Podolski's
compensation in the future as well as other factors and criteria that this
Committee determines is appropriate in setting compensation for the Company's
Chief Executive Officer.
The foregoing report is given by the following members of the Committee:
Zsolt Lavotha, Chairman
Daniel F. Cain
The report of the Committee shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933, as amended, or under the Exchange
Act, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers
of the Company, including the business experience of each during the past 5
years.
NAME AGE POSITION
---- --- --------
Joseph S. Podolski......... 57 President, Chief Executive Officer, and
Director
Louis Ploth, Jr............ 50 Chief Financial Officer, Vice President,
Business Development, Secretary and Director
Information pertaining to Messrs. Podolski and Ploth may be found in the
section entitled "Directors."
16
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 other officer
who had compensation in excess of $100,000 during the last fiscal year (the
"Named Executive Officer"):
ANNUAL COMPENSATION LONG-TERM COMPENSATION
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS ($) OPTIONS (#) COMPENSATION(1)
--------------------------- ---- -------- ----- ---------- ----------- ---------------
Joseph S. Podolski ............... 2003 $280,000 -- -- -- $ 6,000(2)
President and Chief Executive 2002 $272,708 -- $ 26,500 275,000 $ 6,000(2)
Officer ....................... 2001 $235,000 -- -- 25,000 $ 6,000(2)
Louis Ploth, Jr .................. 2003 $150,000 -- -- -- --
Chief Financial Officer, Vice 2002 $150,000 -- $ 26,500 -- --
President, Business Development 2001 $139,133 -- -- 30,000 --
and Secretary
----------
(1) During the periods indicated, perquisites for each individual named in the
Summary Compensation Table aggregated less than 10% of the total annual
salary and bonus reported for such individual in the Summary Compensation
Table. Accordingly, no such amounts are included in the Summary Compensation
Table.
(2) Represents car allowance.
Option Grants in 2003
There were no options granted to the President and Chief Executive Officer
and the other Named Executive Officer during the fiscal year ended December 31,
2003 under the Company's Incentive Plans.
Option Exercises and Holdings
The following table sets forth information concerning option exercises and
the value of unexercised options held by the President and Chief Executive
Officer and the other Named Executive Officer of the Company named in the
Summary Compensation Table as of the end of the last fiscal year:
AGGREGATED OPTION EXERCISES IN 2003
AND OPTION VALUES AT DECEMBER 31, 2003
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS HELD AT
SHARES DECEMBER 31, 2003 DECEMBER 31, 2003(1)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Joseph S. Podolski............. -- -- 248,000 287,000 -- --
Louis Ploth, Jr................ -- -- 102,700 24,000 -- --
----------
(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, 2003 was $1.85, based on the closing sales price on
the Nasdaq Stock Market on December 31, 2003. Neither Messrs. Podolski nor
Ploth have sold any shares of Common Stock they have received upon the
exercise of options or shares purchased on the open market during their
respective tenures as executive officers and directors of the Company.
17
Equity Compensation Plan Information
The following table provides information as of December 31, 2003,
regarding compensation plans (including individual compensation arrangements)
under which equity securities are authorized for issuance:
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE AVAILABLE FOR FUTURE ISSUANCE
BE ISSUED UPON EXERCISE EXERCISE PRICE OF UNDER EQUITY COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES SHOWN IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS THE FIRST COLUMN)
------------- ----------------------- -------------------- --------------------------------
Equity compensation 1,225,470 $ 5.98 380,397
plans approved by
shareholders(1)
Equity compensation -- -- --
plans not approved by
shareholders
--------- -------- -------
Total 1,225,470 $ 5.98 380,397
----------
(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 "Directors' Meetings and Compensation."
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Podolski and Ploth
which provide for current annual salaries of $300,000 and $190,000,
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 provides for automatic annual renewals
each January unless terminated in writing by either party. If terminated for
reasons other than cause, Mr. Podolski is entitled to receive his annual base
salary and certain employment benefits for 1 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 12 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 a change of control, 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 2 year
period following the closing of a change of control transaction and is entitled
to receive benefits coverage for a period of 12 months following his
termination.
Mr. Ploth's employment agreement expires in October 2004 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 6 months following termination.
Mr. Ploth 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. In addition, Mr. Ploth is entitled to
acceleration of all unvested options and an
18
extension of the period of exercisability of his options for a 2 year period
following the closing of a change of control, and he is entitled to receive
benefits coverage for a period of 12 months following closing.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Zsolt Lavotha, who is standing for re-election to the Company's Board of
Directors, previously served as President and Chief Executive Officer and a
director of Lavipharm Corp., a private corporation wholly owned by Lavipharm
S.A., a publicly traded Greek corporation, from December 1998 to April 2003. The
Company entered into a definitive merger agreement with Lavipharm in October
2002. In addition, immediately following execution of the definitive merger
agreement, the Company loaned $1 million to Lavipharm. The merger agreement
terminated in March 2003, and Lavipharm paid off the loan with interest in its
entirety in April 2003. Mr. Lavotha served in the capacities described above
during these transactions.
19
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,
1998 to December 31, 2003. The graph assumes that the value of the investment in
the Company's Common Stock and each index was $100 at December 31, 1998 and that
all dividends were reinvested.
5-YEAR CUMULATIVE TOTAL RETURN
AMONG ZONAGEN, INC.,
NASDAQ COMBINED INDEX AND NASDAQ PHARMAEUTICALS
[PERFORMANCE GRAPH]
1998 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------
ZONAGEN INC. 100.00 22.88 13.73 36.60 5.12 9.67
NASDAQ PHARMACEUTICALS 100.00 204.81 253.80 215.60 132.88 191.69
NASDAQ COMBINED INDEX 100.00 176.37 110.86 88.37 61.64 92.68
Assumes $100 invested on January 1, 1999 and
dividend reinvested
fiscal year ending December 31, 2003
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference into this Proxy Statement or any filing under the
Securities Act, or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the beneficial
ownership of Common Stock as of July 31, 2004 by (i) each person who is known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director and nominee for director of the Company, (iii) the
Company's Chief Executive Officer and the other Named Executive Officer, 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 OF
NAME OF BENEFICIAL OWNER COMMON STOCK(1) CLASS(2)
------------------------ --------------- -------------
BVF Partners L.P.
227 West Monroe, Suite 4800
Chicago, Illinois 60606.................................. 582,743(3) 11.7%
Daniel Cain................................................. 6,666(4) *
Jean L. Fourcroy, M.D., Ph.D., M.P.H........................ 6,666(4) *
Zsolt Lavotha............................................... 6,666(4) *
Nola E. Masterson........................................... 0 *
Joseph S. Podolski.......................................... 314,637(5) 6.0%
Louis Ploth................................................. 146,871(6) 2.9%
David Poorvin, Ph.D......................................... 0 *
All directors and executive officers
as a group (5 persons)................................... 481,506(4)-(6) 9.0%
----------
* Does not exceed 1%.
(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 July 31,
2004.
(3) Based on information contained in a Schedule 13G/A dated February 13, 2004,
BVF Partners L.P. shares voting and dispositive power with respect to all of
the shares listed above with its general partner, BVF Inc., on behalf of the
following entities with which it shares voting and dispositive power in the
following amounts: Biotechnology Value Fund, L.P., 221,443 shares;
Biotechnology Value Fund II, L.P., 116,138 shares; BVF Investments, L.L.C.,
217,862 shares; and Investment 10, L.L.C., 27,300 shares.
(4) Includes 6,666 shares issuable upon exercise of options, all with exercise
prices of $2.40 per share.
(5) Includes (i) 300 shares of Common Stock which are held by certain of Mr.
Podolski's family members and (ii) 222,456 shares of Common Stock issuable
upon the exercise of options with exercise prices per share ranging between
$2.72 to $8.38 and a weighted average of $6.48 per share. Mr. Podolski
disclaims beneficial ownership of the shares owned by his family members.
(6) Includes 117,074 shares of Common Stock issuable upon the exercise of
options with exercise prices per share ranging between $2.72 to $30.00 and a
weighted average of $11.28 per share.
COMPENSATION AND OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Option Committee currently consists of Messrs.
Lavotha and Cain, who were elected to this committee on January 16, 2004. During
fiscal 2003, 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.
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
21
of changes in ownership (Forms 3, 4, and 5) of Common Stock with the Commission.
Officers, directors and greater than 10% stockholders are required by the
Commission 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, 2003, all Section 16(a)
filing requirements applicable to its officers, directors and 10% stockholders
were complied with in a timely manner.
PROPOSALS OF STOCKHOLDERS
Any proposal of a stockholder intended to be presented at the next annual
meeting must be received at the Company's principal executive offices within a
reasonable time before the Company begins to print and mail the proxy statement
for next year's annual meeting to be considered for inclusion in such proxy
statement relating to such meeting. Such proposal must also comply with the
other requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as
amended, in order to be considered for inclusion in such proxy statement.
Additionally, with respect to proposals not submitted for inclusion in the proxy
statement, notice of the proposal must be received no less than 50 nor more than
75 days prior to next year's annual meeting, or the notice will be untimely and
the proposal will not be considered at such annual meeting.
FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AS AMENDED, INCLUDING
ANY FINANCIAL STATEMENTS AND SCHEDULES AND EXHIBITS THERETO, MAY BE OBTAINED
WITHOUT CHARGE BY WRITTEN REQUEST TO SECRETARY, ZONAGEN, INC., 2408 TIMBERLOCH
PLACE, SUITE B-1, THE WOODLANDS, TEXAS 77380.
By Order of the Board of Directors
/s/ Louis Ploth, Jr.
Louis Ploth, Jr.
Secretary
August 27, 2004
The Woodlands, Texas
22
APPENDIX A
ZONAGEN, INC.
AUDIT COMMITTEE CHARTER
ARTICLE I. STATEMENT OF PURPOSE AND AUTHORITY
The Audit Committee of Zonagen, Inc. is designated by the Board of
Directors (the "Board") of Zonagen, Inc. (the "Company") for the purposes of:
SECTION 1.1.Overseeing the accounting and financial reporting processes of
the Company, audits of the financial statements of the Company and
the integrity of the financial statements of the Company.
SECTION 1.2. Monitoring the qualifications, independence and performance
of the Company's independent auditors and internal audit function.
SECTION 1.3. Overseeing the Company's compliance with legal and regulatory
reporting requirements.
SECTION 1.4. Preparing the Audit Committee report as required to be
included in the Company's annual proxy statement under the rules of
the Securities and Exchange Commission ("SEC").
The Audit Committee is authorized to perform each of the duties enumerated
herein and any other duties it considers necessary or advisable in order to
carry out its oversight responsibilities, and it shall have access to all
records of the Company related thereto. The Audit Committee may perform other
functions as requested or approved by the Board.
The Company shall provide for appropriate funding, as determined by the
Audit Committee, in its capacity as a committee of the Board, for payment of:
(i) compensation to the independent auditors and any other public accounting
firm engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Company; (ii)
compensation of any advisors employed by the Audit Committee; and (iii) ordinary
administrative expenses of the Audit Committee that are necessary or appropriate
in carrying out its duties.
ARTICLE II. MEMBERSHIP
The Audit Committee shall be appointed by the Board and shall be comprised
of three or more directors as determined by the Board. Each member of the Audit
Committee shall satisfy the independence requirements of the Nasdaq Stock Market
or such other national exchange on which the Company may list its securities,
SECTION 10A(m) of the Securities Exchange Act of 1934, as amended by the
Sarbanes-Oxley Act of 2002, and the rules promulgated thereunder. Each member of
the Audit Committee must be able to read and understand fundamental financial
statements including a company's balance sheet, income statement and cash flow
statement. The Audit Committee shall have at least one member who satisfies the
requirements for an "audit committee financial expert" as provided under the
rules promulgated by the SEC and at least one member who has past employment
experience in finance or accounting (such as having been chief executive
officer, chief financial officer or other senior financial officer with
financial oversight responsibilities), requisite professional certification in
accounting, or other comparable experience or background which results in the
member's financial sophistication.
No director may serve as a member of the Audit Committee if such director
serves on the audit committees of more than two other public companies unless
the Board determines that such simultaneous service would not impair the ability
of such director to effectively serve on the Audit Committee, and discloses this
determination in the Company's annual proxy statement.
The Board shall appoint the members of the Audit Committee annually, on
the recommendation of the majority of the independent directors of the Board.
The members of the Audit Committee shall serve until their successors are
appointed and qualified, and shall designate a Chair of the Audit Committee who
will be responsible
A-1
for the scheduling of regular and special meetings and the functioning of the
Audit Committee. The Board shall have the power at any time to change the
membership of the Audit Committee and to fill vacancies, subject to such new
members satisfying the independence, experience and financial expertise
requirements. Except as expressly provided in this Charter or the bylaws of the
Company, or as otherwise provided by law or the rules of the Nasdaq Stock
Market, or such other national exchange on which the Company may list its
securities, the Audit Committee shall fix its own rules and procedures.
ARTICLE III. MEETINGS
The Audit Committee shall meet at least quarterly and at other times, as
circumstances may require, as determined by the Chairman of the Audit Committee
or at the request of the Company's Chief Executive Officer or Chief Financial
Officer, or the independent public accounting firm engaged by the Company to
perform audit services on behalf of the Company (referred to in this Charter as
the "independent auditor"). During these meetings, the Audit Committee shall
meet with management, internal auditing personnel and the independent auditor to
discuss any matters that the Audit Committee or any of these persons or firms
believe should be discussed privately. The Audit Committee shall meet in
executive session at least twice a year, and such executive session may fulfill
the Audit Committee's quarterly meeting requirement. The Audit Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent auditors to attend a meeting of the Audit Committee or to meet
with any members of, or consultants to, the Audit Committee.
The Audit Committee shall keep regular minutes of its proceedings. For the
transaction of any business at any meeting of the Audit Committee, a majority of
the members shall constitute a quorum. The Audit Committee shall take action by
the affirmative vote of a majority of the Audit Committee members present at a
duly held meeting. Unless otherwise restricted by the Corporation's Certificate
of Incorporation or Bylaws, any action that may be taken at any meeting of the
Committee may be taken without a meeting, if all members of the Committee
consent thereto in writing, and the writing is filed with the minutes of
proceedings of such committee.
ARTICLE IV. DELEGATION OF AUTHORITY OF THE BOARD OF DIRECTORS
The Audit Committee shall have and may exercise all the powers and
authority of the Board in the following matters:
the authority, without approval of the Board, to engage independent
counsel and other advisers as it determines necessary to carry out
its duties;
the authority, without approval of the Board, to determine
appropriate funding for the payment of compensation to the
independent auditor employed by the Company for the purpose of
rendering or issuing an audit report, to any independent counsel and
other advisers engaged by the Audit Committee, and to various
entities as a result of ordinary administrative expenses in carrying
out the Audit Committee's duties;
the direct responsibility for the appointment, compensation,
retention and oversight of the work of the independent auditor
employed by the Company (including resolution of disagreements
between management and the auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related
work, and the independent auditor shall report directly to the Audit
Committee;
the sole authority to approve the scope of engagement of the auditor
(such approval constituting approval of each audit service within
such scope of engagement) and to approve all audit engagement fees
and terms;
the responsibility to approve, in advance, all auditing services
(which may include providing comfort letters in connection with
securities underwritings), and non-audit services that are otherwise
permitted by law (including tax services, if any) that are provided
to the Company by the independent auditors; and
A-2
the authority to delegate to one or more of its members the
authority to preapprove auditing services and non-audit services
that are otherwise permitted by law, provided that each such
preapproval decision is presented to the full Audit Committee at a
scheduled meeting.
ARTICLE V. RESPONSIBILITIES
The Audit Committee shall have the following responsibilities:
Charter
SECTION 5.1. Review and reassess the adequacy of this Charter annually and
recommend any changes to the Board.
SECTION 5.2. Approve the form of the Charter to be included in the
Company's proxy statement in accordance with the applicable rules
and regulations of the SEC and the Nasdaq Stock Market.
Audit Committee Report and Proxy Disclosures
The Audit Committee shall prepare any report or other disclosures,
including any recommendation of the Audit Committee, required by the rules of
the SEC to be included in the Company's annual proxy statement. In connection
with the Audit Committee report, the Audit Committee shall:
SECTION 5.3. Review with management and the independent auditor the annual
audited financial statements, the accompanying auditor's opinion and
other financial disclosures included in the Company's annual report
on Form 10-K and its annual proxy statement, including the
Management's Discussion and Analysis section contained in any such
report, and the selection, application and disclosure of critical
accounting policies and other financial reporting issues highlighted
by management and the independent auditor.
SECTION 5.4. Discuss with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61, as amended,
relating to the conduct of the audit. Such discussions shall also
include the independent auditor's judgment about the quality of the
Company's accounting principles, including such matters as
accounting for significant transactions, significant accounting
policies, estimates and adjustments, and disagreements with
management.
SECTION 5.5. Discuss with the independent auditor the independence of the
independent auditor, giving consideration to the range of audit and
non-audit services performed. In this connection, the Audit
Committee is responsible for reviewing, at least annually, a formal
written statement from the independent auditor delineating all
relationships with the Company, consistent with Independence
Standards Board Standard No. 1.
SECTION 5.6. Recommend to the Board whether the Company's annual audited
financial statements and accompanying notes should be included in
the Company's Annual Report on Form 10-K.
SECTION 5.7. Determine whether fees paid to the independent auditor are
compatible with maintaining the independence of the independent
auditor.
Additional Authorizations
In its discretion, the Audit Committee shall also have the authority to:
SECTION 5.8. Conduct an annual evaluation of the Audit Committee's
performance, which shall include a comparison of the performance of
the Audit Committee with the requirements of this Charter. The
performance evaluation shall be conducted in such manner as the
Audit Committee deems appropriate.
A-3
SECTION 5.9. Make regular reports to the Board concerning the activities
of the Audit Committee and to make such recommendations with respect
to its activities and other matters as the Audit Committee may deem
necessary or appropriate.
SECTION 5.10. To obtain from the independent auditors in connection with
any audit a timely report relating to the Company's annual audited
financial statements describing all critical accounting policies and
practices used, all alternative treatments within generally accepted
accounting principles for policies and practices related to material
items that have been discussed with management, ramifications of the
use of such alternative disclosures and treatments, and the
treatment preferred by the independent auditors, and any material
written communication between the independent auditors and
management such as any "management" letter or schedule of unadjusted
differences.
SECTION 5.11. Review with management and the independent auditor the
effect of regulatory and accounting initiatives, as well as
contingent liabilities and off-balance sheet structures, if any, on
the Company's financial statements.
SECTION 5.12. Discuss periodically with Company management the Company's
major financial risk exposure and the steps implemented to monitor
and control same, including a discussion of the appropriateness of
existing guidelines and procedures in place to govern the risk
assessment and management process. To the extent the Audit Committee
determines that changes to such guidelines or procedures appear
appropriate, to recommend such changes.
SECTION 5.13. Discuss with management the types of information proposed to
be disclosed in the Company's earnings press releases, as well as
the type of financial information and earnings guidance, if any, to
be provided to analysts and ratings agencies. Review of any news
release containing the summary quarterly financial information of
the Company (paying particular attention to the use of "pro-forma"
or "adjusted non-GAAP information") and approval of same prior to
its release and furnishing to the SEC.
SECTION 5.14. To assist the Audit Committee in performing its duties to
evaluate the independent auditing firm's qualifications, performance
and independence, at least annually, obtain and review a report by
the independent auditor describing: (i) the firm's internal
quality-control procedures; (ii) any material issues raised by the
most recent quality-control review, or peer review, of such firm, or
by any inquiry or investigation by governmental or professional
authorities, within the preceding five (5) years regarding one or
more independent audits carried out by the firm, and any steps taken
by such firm in respect of those issues; and (iii) all relationships
between the independent auditor and the Company.
SECTION 5.15. Review with the senior-most internal auditor and independent
auditors the results of their reviews with respect to officers'
expense accounts and perquisites, and their use of corporate assets.
SECTION 5.16. Review major issues regarding accounting principles and
financial statement presentations, including any significant changes
to the Company's selection or application of auditing and accounting
principles and practices as suggested by the independent auditor,
internal auditors or management, and major issues as to the adequacy
of the Company's internal controls and special audit steps adopted
in light of material control deficiencies.
SECTION 5.17. Meet with the independent auditor prior to the audit to
review the planning procedures and staffing of the audit.
SECTION 5.18. Review periodically (i) the experience, qualifications and
performance of the senior members of the Company's internal auditing
team and (ii) the internal audit activities, staffing and budget.
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SECTION 5.19. Discuss with management the timing and process for
implementing the rotation of the lead audit partner, the concurring
partner and any other active audit engagement team partner.
SECTION 5.20. Review the significant reports or communications (and
management's and/or the internal audit department's responses
thereto) prepared in connection with internal audits, including
reports and communications related to the Company's internal
controls over financial reporting and any deficiencies therein.
SECTION 5.21. Review with the independent auditor any problems or
difficulties the auditor may have encountered and any "management"
or "internal control" letter provided by the auditor and the
Company's response to that letter. Such review should include:
(a) any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities, access
to required information or significant disagreements with
management;
(b) any changes required in the planned scope of the internal and
external audits; and
(c) the internal audit responsibilities, budget and staffing.
SECTION 5.22. Discuss, as appropriate, with the national office of the
independent auditor any issues on which such office was consulted by
the Company's audit team and matters of audit quality and
consistency.
Auditing, Accounting and Financial Reporting Responsibilities
SECTION 5.23. Prior to the filing of the Company's Form 10-Q, review with
management and the independent auditor the Company's quarterly
financial statements, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," the selection, application and disclosure of
critical accounting policies, and the results of the independent
auditor's review of same.
SECTION 5.24. Ensure that the independent auditor attests to, and reports
on, the assessment of the effectiveness of the Company's internal
control structure and procedures of the Company for financial
reporting to be made as of the end of each of the Company's fiscal
years included in each annual report of the Company as may be
required in accordance with applicable law and the rules and
regulations of the SEC.
SECTION 5.25. Assure the regular rotation of the lead audit partner and
the reviewing audit partner of the independent auditing firm engaged
by the Company as required by law.
SECTION 5.26. Establish policies and procedures regarding the hiring of
independent auditors.
Legal Matters
SECTION 5.27. Review with outside legal counsel legal matters that may
have a material impact on the financial statements, the Company's
compliance policies and any material reports or inquiries received
from regulators or governmental agencies.
SECTION 5.28. Meet with the Company's Chief Executive Officer and Chief
Financial Officer from time to time at the request of either such
officer, to permit such officers to provide the attestations or
certifications required by the rules and regulations of the SEC or
the Nasdaq Stock Market.
SECTION 5.29. Advise the Board with respect to the Company's policies and
procedures regarding conflicts of interest and compliance with
material laws and regulations.
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SECTION 5.30. Approve all related-party transactions between the Company
and management.
SECTION 5.31. Establish policies regarding hiring employees or former
employees of the independent auditors engaged by the Company.
ARTICLE VI. OVERSIGHT RESPONSIBILITY TO REVIEW REPORTS
SECTION 6.1. Establish procedures for legal counsel to report evidence of
any material violation of securities laws or breach of fiduciary
duties or similar violations by the Company or any of its agents.
SECTION 6.2. Establish procedures to promote and protect whistleblowing,
including procedures for:
(a) Receiving, retaining and addressing complaints received by the
Company relating to accounting, internal accounting controls
or auditing matters, and
(b) Enabling employees of the Company to submit to the Audit
Committee, on a confidential and anonymous basis, any concerns
regarding questionable accounting or auditing matters.
SECTION 6.3. Consider the report of the Company's independent auditor
regarding:
(a) All critical accounting policies and practices to be used;
(b) All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management officials of the Company ,
ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent
auditor; and
(c) Other written communications between the independent auditor
and management of the Company, such as any management letter
or schedule of unadjusted differences.
SECTION 6.4. To inquire of the Company's Chief Executive Officer and Chief
Financial Officer as to the existence of any significant
deficiencies or material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the Company's ability to record, process,
summarize and report financial information, and as to the existence
of any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal control over financial reporting.
SECTION 6.5. Discuss with management and the independent auditors:
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize, and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls.
SECTION 6.6. Review disclosures made by the Company's Chief Executive
Officer and Chief Financial Officer regarding compliance with their
certification obligations as required under the Sarbanes-Oxley Act
of 2002 and the rules promulgated thereunder, including the
Company's disclosure controls and procedures and internal controls
for financial reporting and evaluations thereof.
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Although the Audit Committee has the authority and responsibilities set
forth in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits, to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles or to certify the Company's financial statements. This is the
responsibility of management and the independent auditor.
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APPENDIX B
ZONAGEN, INC.
2004 STOCK OPTION PLAN
1. PURPOSE. This 2004 Stock Option Plan (the "Plan") of Zonagen, Inc.
(the "Company"), for officers, directors, key consultants and other key
personnel, is intended to advance the best interest of the Company by providing
such persons who have a substantial responsibility for its management and growth
with additional incentive and by increasing their proprietary interest in
recognition of their continued contributions to the success of the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Committee")
comprised of at least two members of the Board of Directors of the Company
(the "Board"), which Committee shall be appointed by the Board; provided,
however, to the extent that by reason of the position or relationship of
any director or employee to the Company, Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), applies to the
director or employee, or Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code") applies to the Company, the Committee shall
be comprised of not less than two members of the Board who are
"non-employee directors" as defined under rules and regulations
promulgated under Section 16(b) of the Exchange Act and who are "outside
directors" as defined in Section 162(m) of the Code and the regulations
promulgated thereunder. No member of the Committee shall vote or act upon
any matter relating solely to himself. The Board shall have the power from
time to time to fill vacancies on the Committee arising by resignation,
death, removal, or otherwise.
(b) The Committee shall designate a chairman from among its members,
who shall preside at all of its meetings, and shall designate a secretary,
without regard to whether that person is a member of the Committee, who
shall keep the minutes of the proceedings and all records, documents, and
data pertaining to its administration of the Plan. Meetings shall be held
at such times and places as shall be determined by the Committee, and a
vote of a majority of the members of the Committee shall decide any
question brought before the meeting. In addition, the Committee may take
any action otherwise proper under the Plan by the affirmative vote, taken
without a meeting, by the unanimous written consent given by its members.
No member of the Committee shall be liable for any act or omission of any
other member of the Committee or for any act or omission on his own part,
including, but not limited to, the exercise of any power or discretion
given to him under the Plan, except if resulting from his own gross
negligence or willful misconduct.
(c) Subject to the foregoing, all questions of interpretation and
application of the Plan, or of options granted hereunder (the "Options"),
shall be subject to the determination, which shall be final and binding,
of the Committee. The Committee, in the exercise of this power, may
correct any defect, supply any omission, or reconcile any inconsistency in
the Plan, or in any option agreement, in a manner and to the extent that
it may deem necessary or expedient to make the Plan fully effective. The
Committee may, at the expense of the Company, employ legal counsel and
such other professional advisors as it may deem desirable for the Plan and
may rely on advice received from such counsel or advisors. When
appropriate, the Plan shall be administered in order to qualify certain of
the Options granted hereunder as Incentive Stock Options described in
Section 5 of the Plan.
3. OPTION SHARES. The stock subject to the Options and other provisions
of the Plan shall be shares of the Company's Common Stock, $.001 par value (the
"Stock"). The total amount of Stock with respect to which Options may be granted
shall not exceed in the aggregate 750,000 shares; provided, that such aggregate
number of shares shall be subject to adjustment in accordance with the
provisions of Section 16 hereof. Such shares may be treasury shares or
authorized but unissued shares. In the event that any outstanding Option shall
be surrendered or expire or terminate for any reason, or the unvested portion of
any outstanding Option shall terminate by reason of the severance of employment
of the optionee for any reason, the shares of Stock allocable to the unexercised
portion
of such surrendered, expired or terminated Option, or the shares of Stock
allocable to such terminated unvested portion of such Option, may again be
subject to an Option under the Plan.
4. ELIGIBILITY.
(a) The individuals who shall be eligible to participate in the Plan
shall be such members of the Board, non-employee consultants and key
employees (including such officers who may be members of the Board) of the
Company or directors, non-employee consultants and key employees of any
parent or subsidiary corporation (as defined below), as the Committee
shall determine from time to time; provided, however, that any such
individual who is not an employee of the Company, or its parent or
subsidiary corporation, shall not be eligible to receive an Option which
is an Incentive Stock Option described in Section 5 of the Plan, and
further provided that no such employee who owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the corporation employing the employee, or of its parent or
subsidiary corporation, shall be eligible to receive an Option which is an
Incentive Stock Option described in Section 5 of the Plan, unless, at the
time that such Option is granted, the option price is at least one hundred
ten percent (110%) of the fair market value of the Stock at the time the
Option is granted and the Option, by its own terms, is not exercisable
after the expiration of five years from the date such Option is granted.
For purposes of the preceding sentence, the attribution rules under
Section 424(d) of the Internal Revenue Code of 1986, as amended (the
"Code"), shall apply for purposes of determining an employee's percentage
ownership.
(b) Except as otherwise provided, for all purposes of the Plan, the
term "parent corporation" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if,
on the date of grant of the Option in question, each of the corporations
other than the Company owns, directly or indirectly, stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain; and the
term "subsidiary corporation" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if, on the date of grant
of the Option in question, each of the corporations other than the last
corporation in the chain owns, directly or indirectly, stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
5. AUTHORITY TO GRANT OPTIONS. The Committee may grant the following
options from time to time to such eligible individuals as it shall from time to
time determine:
(a) Incentive Stock Options. The Committee may grant to an eligible
employee an Option (or Options) to buy a stated number of shares of Stock
under the terms and conditions of the Plan, so that the Option shall be an
"incentive stock option" within the meaning of Section 422 of the Code.
(b) Non-Incentive Stock Options. The Committee may grant to an
eligible member of the Board, non-employee consultant or key employee an
Option (or Options) to buy a stated number of shares of Stock under the
terms and conditions of the Plan, even though such Option shall not be an
"incentive stock option" within the meaning of Section 422 of the Code.
Subject only to any applicable limitations set forth in the Plan, the number of
shares of Stock to be covered by any Option and the manner in which options
shall vest shall be as determined by the Committee.
6. OPTION PRICE.
(a) The price at which shares may be purchased pursuant to an Option
which is an Incentive Stock Option shall be at least one hundred percent
(100%) of the fair market value of the shares of Stock on the date such
Option is granted. In the case of any employee described in Section 4
hereof who owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the corporation employing
the employee or of its parent or subsidiary corporation (described in
Section 4), the Option price at which shares may be so purchased pursuant
to any Option which is an Incentive Stock Option granted hereunder shall
be not less than one hundred ten percent (110%) of the fair market value
(as defined below) of the Stock on the date such Option is granted.
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(b) The price at which shares may be purchased pursuant to an Option
which is a Non-Incentive Stock Option shall be specified by the Committee
at the time such Option is granted, and, except as otherwise provided
under the Plan, may be less than, equal to, or greater than the fair
market value of the shares of Stock on the date such Option is granted.
Notwithstanding the preceding sentence, the price at which shares may be
purchased pursuant to an Option which is a Non-Incentive Stock Option
shall not be less than eighty-five percent (85%) of the fair market value
of the shares of Stock on the date such Option is granted.
(c) To the extent that Section 162(m) of the Code applies to the
Company and Options granted under the Plan, the exercise price of shares
of Stock subject to Options granted on or after such application date
shall be at least equal to the "fair market value" (as defined in Section
6) of the underlying shares of Stock on the date of grant, and the number
of shares of Stock subject to Options granted to any optionee during the
term of the Plan that extends on or after such application date shall not
exceed $1,000,000. In all events, determinations under the preceding
sentence shall be made in a manner that is consistent with Section 162(m)
of the Code and regulations promulgated thereunder.
(d) For purposes of this Plan, the "fair market value" of a share of
Stock at any particular date shall mean the closing price of a share of
Stock on that date as reported on any officially recognized exchange or
the closing bid price in the over-the-counter-market, provided that if no
shares of Stock were traded on any officially recognized exchange or
over-the-counter-market on that date, or if, in the discretion of the
Committee, another means of determining the fair market value of a share
of Stock at such date shall be necessary or advisable in order to comply
with or conform to the requirements of any applicable law, governmental
regulation or ruling of the Internal Revenue Service or the Securities and
Exchange Commission, the Committee may provide for another means for
determining such fair market value.
7. DURATION OF OPTIONS. No Option which is an Incentive Stock Option
shall be exercisable after the expiration of ten years from the date such Option
is granted; and the Committee in its discretion may provide that such Option
shall be exercisable, in whole or in part, during such ten-year period or during
any shorter period of time. In the case of any employee who owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the corporation employing the employee or of its parent or
subsidiary corporation (described in Section 4), no Option which is an Incentive
Stock Option shall be exercisable after the expiration of five years from the
date such Option is granted. No Option which is a Non-Incentive Stock Option
shall be exercisable after the expiration of ten years from the date such Option
is granted; and the Committee, in its discretion, may provide that such Option
shall be exercisable, in whole or in part, throughout such ten-year period or
during any shorter period of time.
8. MAXIMUM VALUE OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
Notwithstanding any other provisions of the Plan to the contrary, the aggregate
fair market value (determined as of the date the Option is granted) of the
Stock, for which an optionee may be granted Incentive Stock Options, with
respect to which Options are first exercisable by the optionee in any calendar
year (under this Plan and any other incentive stock option plan(s) of the
Company and any parent and subsidiary corporation(s) thereof) shall not exceed
$100,000.
9. AMOUNT EXERCISABLE. Each Option may be exercised, so long as it is
valid and outstanding, from time to time and in part or as a whole, as the
Committee in its discretion may provide. For purposes of the preceding sentence,
any Option shall be deemed to be outstanding until such Option is exercised in
full or expires by reason of time; provided, however, any Option may be
cancelled by the mutual assent of the Committee and the optionee.
Notwithstanding any other provision of the Plan to the contrary, except in any
case in which the Committee determines to waive the requirement of this sentence
in its discretion for any reason or no reason whatsoever, no Option may be
exercised to purchase less than 100 shares unless the optionee holds less than
100 shares, in which event all shares held must be exercised.
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10. EXERCISE OF OPTIONS.
(a) Options shall be exercised by the delivery of written notice to
the Company setting forth the number of shares of Stock with respect to
which the Option is to be exercised and, subject to the subsequent
provisions hereof, the address to which the certificates representing
shares of the Stock issuable upon the exercise of such Option are to be
mailed. In order to be effective, such written notice shall be accompanied
at the time of its delivery to the Company by payment of the option price
of such shares of Stock, which payment shall be made in cash or by
cashier's check, certified check, or postal or express money order payable
to the order of the Company in an amount (in United States dollars) equal
to the option price of such shares of Stock. Such notice shall be
delivered in person to the Secretary of the Company or shall be sent by
registered mail, return receipt requested, to the Secretary of the
Company, in which case, delivery shall be deemed made on the date such
notice is deposited in the mail. In its sole and absolute discretion, the
Committee may require, as an additional condition to the issuance of Stock
upon exercise of an Option, that the optionee furnish the Committee with
an executed copy of a stock purchase agreement and/or stock voting
agreement in such form as may be required by the Committee at the time
notice of exercise is delivered to the Company. In addition, the Committee
may request that there be presented to and, filed with it, such evidence
as it may deem necessary to establish that the shares of Stock to be
purchased are being acquired for investment and not with a view as to
their distribution. Also, the Committee may require an additional amount
payable (in the form stated above) equal to any federal, state or local
taxes which the Committee, with the advice of legal counsel, deems
necessary or appropriate to be withheld in connection with the exercise of
an Option hereunder.
(b) Alternatively, unless otherwise specified in the Option, payment
of the option price may be made, in whole or in part, in shares of Stock
previously issued to the optionee or in shares of Stock to be received
upon exercise of the Option. Unless otherwise specified in the Option, by
requesting the Company to automatically apply shares received upon the
exercise of any portion of an Option to satisfy the exercise price for an
additional portion of the Option, an optionee may receive the actual value
of the Option (the difference between the aggregate exercise price and the
fair market value of the Stock subject to the Option) in shares of Stock
without making any payment other than surrender (through exercise) of the
Option. If payment is made, in whole or in part, in shares of Stock, then
the optionee shall deliver to the Company, in payment of the option price
of the shares of Stock with respect to which such Option is exercised, (i)
certificates registered in the name of such optionee representing a number
of shares of Stock legally and beneficially owned by such optionee, free
of all liens, claims and encumbrances of every kind and having a fair
market value on the date of delivery of such notice that is not greater
than the option price of the shares of Stock with respect to which such
Option is to be exercised, such certificates to be accompanied by stock
powers duly endorsed in blank by the record holder of the shares
represented by such certificates; and (ii), if the option price of the
shares of Stock with respect to which such Option is to be exercised
exceeds such fair market value, cash or a cashier's check, certified
check, or postal or express money order payable to the order of the
Company in an amount (in United States dollars) equal to the amount of
such excess.
(c) As promptly as practicable after the receipt by the Company of
(i) such written notice from the optionee setting forth the number of
shares of Stock with respect to which such Option is to be exercised, (ii)
payment of the option price of such shares in the form required by the
foregoing provisions of this Section 10, (iii) a fully executed stock
purchase agreement and/or stock voting agreement in the form required by
the Committee, if any is so required, (iv) such evidence of intent to
acquire such Stock for investment as may be required by the Committee, and
(v) an amount equal to any federal, state or local taxes which the
Committee deems necessary or appropriate to be withheld incident to the
exercise of an Option hereunder, the Company shall cause to be delivered
to such optionee (or to a specified escrow agent if so required under the
terms of any applicable stock purchase agreement and/or stock voting
agreement), certificates representing the number of shares of Stock with
respect to which such Option has been so exercised; provided, that such
delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company has deposited such certificates in the United States
mail, addressed to the optionee, at the address specified pursuant to this
Section 10, or to the trustee, escrow agent or other designated person if
the Committee requires the execution of a stock purchase agreement and/or
stock voting agreement as a condition of purchase.
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11. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the
optionee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during his lifetime, only by him or his duly appointed
legal representative in the event of any disability or incapacity of the
optionee.
12. TERMINATION OF OPTIONS.
(a) Subject to the subsequent provisions of this Section 12, unless
otherwise provided in the Option, upon severance of the employment
relationship between the Company and the optionee for any reason, for or
without cause, any unexpired Options granted to the optionee under the
Plan shall terminate as of 12:01 a.m. Central Time in the State of Texas
on such severance date with respect to any portion thereof that is not
then vested and the unvested shares subject to the Option shall be
immediately forfeited and shall again be subject to Section 3. After the
death of the optionee, his executors, administrators or any person or
persons to whom his Option may be transferred by will or by the laws of
descent and distribution, shall have the right, at any time prior to its
termination or expiration, to exercise the Option to the extent to which
the deceased optionee was entitled to exercise such Option immediately
prior to the optionee's death, except that the provisions of Section 12(b)
shall continue to apply to the option holder following the death of the
optionee. Whether authorized leave of absence, or absence on military or
government service, shall constitute severance of the employment
relationship between the Company and the optionee shall be determined by
the Committee at the time thereof. Similarly, except as otherwise provided
in the Option, any Option granted to an individual (who is a member of the
Board or a consultant and not an eligible employee described in Section 4)
shall terminate on the date the optionee ceases to be a member of the
Board or ceases to provide consulting services, as applicable, for
whatever reason and has no employment relationship described in Section 4.
(b) In the event that an Option holder performs any intentionally
harmful act with respect to the Company or any parent corporation or
subsidiary corporation described in Section 4(c), then all unexercised
Options may be terminated at the discretion of the President. An
intentional harmful act would include (without limitation)
misappropriation or theft of assets from the Company, or any illegal or
intentional act or omission that is determined by a majority of the
members of the Board (in a vote taken at a meeting or pursuant to written
consents) to be an act or omission that may damage the reputation of the
Company or any parent or subsidiary corporation described in the
immediately preceding sentence. Accidental acts or omissions, minor errors
in judgment, or any termination of employment will not qualify as
"intentionally harmful acts."
(c) An employment relationship between the Company and the optionee
shall be deemed to exist during any period in which the optionee is
employed by the Company, by any parent or subsidiary corporation, by a
corporation issuing or assuming a stock option in a transaction to which
Section 424(a) of the Code applies, or by a parent or subsidiary
corporation of such corporation issuing or assuming a stock option (and
for this purpose, the phrase "corporation issuing or assuming a stock
option" shall be substituted for the word "Company" in the definitions of
parent and subsidiary corporations specified in Section 4 of the Plan, and
the parent-subsidiary relationship shall be determined at the time of the
corporate action described in Section 424(a) of the Code).
(d) Upon dissolution or liquidation of the Company, or in the event
of bankruptcy of the Company, all unexercised Options shall terminate as
of 12:01 a.m. Central Time in the State of Texas on the effective date of
such dissolution, liquidation or bankruptcy.
13. REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any shares of Stock under any Option if the issuance of such shares could
constitute a violation by the optionee or the Company of any provision of any
law, statute, or regulation of any Federal, State or other governmental
authority. Specifically, in connection with the Securities Act of 1933 (as now
in effect or hereafter amended, the "Act"), upon exercise of any Option, unless
a registration statement under such Act is in effect with respect to the shares
of Stock covered by such Option, the Company shall not be required to issue such
shares unless the Committee has received evidence satisfactory to it to the
effect that the holder of such Option is acquiring such shares for investment,
and not with a view to the distribution thereof, and that such shares of Stock
may otherwise be issued without registration under such Act or State securities
laws. Any determination in this regard by the Committee shall be final, binding
and
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conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act. The Company shall not be
obligated to take any affirmative action in order to cause the exercise of an
Option, or the issuance of shares pursuant thereto, to comply with any law or
regulation of any governmental authority.
14. NO RIGHTS AS SHAREHOLDER. No optionee shall have rights as a
shareholder with respect to shares covered by his Option until the date of
issuance of a stock certificate for such shares; and, except as otherwise
provided in Section 16 hereof, no adjustment for dividends, or otherwise, shall
be made if the record date therefor is prior to the date of issuance of such
certificate.
15. EMPLOYMENT OR DIRECTORSHIP OR CONSULTANT OBLIGATION.
(a) The granting of any Option shall not impose upon the Company any
obligation to employ or continue to employ any optionee; and the right of
the Company to terminate the employment of any officer or other employee
shall not be diminished or affected by reason of the fact that an Option
has been granted to him.
(b) The granting of any Option shall not impose upon the Company,
the Board, or any other directors of the Company, any obligation to
nominate any optionee for election as a director, and the right of the
stockholders of the Company to terminate any person as a director shall
not be diminished or affected by reason of the fact that an Option has
been granted to him.
(c) The granting of any Option shall not impose upon the Company any
obligation to engage or continue the engagement of any optionee who is a
consultant; and the right of the Company to terminate the engagement of
any consultant shall not be diminished or affected by reason of the fact
that an Option has been granted to him.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE AND CHANGES IN CONTROL.
(a) The existence of outstanding Options shall not affect in any way
the right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of, or affecting, the Stock or
the rights thereof, or the dissolution or liquidation of the Company, or
any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or
otherwise.
(b) If the Company shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend, or
other increase or reduction of the number of shares of the Stock
outstanding, without receiving compensation therefor in money, services or
property, then (i) the number, class, and per share price of shares of
Stock subject to outstanding Options hereunder shall be appropriately
adjusted in such a manner as to entitle an optionee to receive upon
exercise of an Option, for the same aggregate cash consideration, the same
total number and class of shares as he would have received had he
exercised his Option in full immediately prior to the event requiring the
adjustment; and (ii) the number and class of shares then reserved for
issuance under the Plan shall be adjusted by substituting for the total
number and class of shares of Stock then reserved that number and class of
shares of Stock that would have been received by the owner of an equal
number of outstanding shares of each class of Stock as the result of the
event requiring the adjustment.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company is the surviving corporation, each holder of an outstanding
Option, upon exercise of such Option, shall be entitled to receive (at no
additional cost but subject to any required action by stockholders) in
lieu of the number and class of shares of Stock with respect to which such
Option is exercisable, the number and class of shares of stock (or other
securities or consideration) to which such holder would have been entitled
pursuant to the terms of the agreement of
B-6
merger or consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of the same
number and class of shares of Stock which he would have otherwise received
upon exercise of such Option.
(d) Except as expressly provided herein, the issue by the Company of
shares of stock of any class, or securities convertible into shares of
stock of any class, for cash, property, labor, or services, either upon
direct sale, the exercise of rights or warrants to subscribe therefor, or
the conversion of shares or obligations of the Company convertible into
such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number, class or price
of shares of Stock then subject to outstanding Options.
(e) Unless otherwise provided in the optionee's Option, in the event
of a "change in control" (as defined below), (i) after the effective date
of such change in control, each holder of an outstanding Option shall be
entitled, upon exercise of such Option, to receive at no additional cost,
in lieu of shares of Stock, shares of such stock (or other securities or
consideration) as the holders of shares of Stock received pursuant to the
terms of the change in control; and (ii) any limitations set forth in or
imposed pursuant to Section 9 hereof shall automatically lapse so that all
Options, from and after a 30-day period preceding the effective date of
such change in control, shall be fully vested and exercisable in full
until such Options terminate or expire pursuant to the terms of the Plan
and such Options. "Change in control" shall mean the occurrence of any of
the following events:
(i) The consummation of any of the following transactions: (1)
any merger, consolidation, share exchange or other business
combination of the Company with or into another corporation or other
entity, whether or not the Company is the surviving entity, or any
acquisition of securities or assets of another entity by the
Company, or any reorganization, reverse stock split,
recapitalization or similar transaction, if following such
transaction (A) more than fifty percent (50%) of the combined voting
power of the then outstanding equity securities of the entity
resulting from such transaction entitled to vote (or upon
conversion, exchange, exercise or any other event, would be entitled
to vote) generally in the election of directors (or the equivalent
of directors) ("Voting Securities") is not beneficially owned,
directly or indirectly, by the persons or entities who were the
beneficial owners (the "Existing Majority") of at least fifty
percent (50%) of the then outstanding Voting Securities of the
Company immediately prior to such transaction, or (B) the Existing
Majority is not entitled to elect at least a majority of the members
of the board of directors (or its equivalent) of the entity
resulting from the transaction; or (2) any sale, lease, exchange, or
other transfer (in one transaction or series of related
transactions) of all, or substantially all, of the assets of the
Company, whether or not the Company continues in business with the
proceeds of any such sale; or (3) the liquidation or dissolution of
the Company; or
(ii) A transaction in which any person or entity (other than
the Company, or any profit-sharing, employee stock ownership or
other employee benefit plan sponsored by the Company or any
affiliate, or any trustee of or fiduciary with respect to any such
plan when acting in such capacity, or any group comprised solely of
such entities) shall (1) purchase any Voting Securities of the
Company for cash, securities or any other consideration pursuant to
a tender offer or exchange offer, without the prior consent of the
Board, or (2) become the beneficial owner, directly or indirectly
(in one transaction or series of transactions), of more than fifty
percent (50%) of the then outstanding Voting Securities of the
Company; or
(iii) If, during any period of two consecutive years,
individuals who at the beginning of such period constituted the
entire Board and any new director whose election by the Board, or
nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election by the stockholders was
previously so approved, cease for any reason to constitute a
majority of the Board.
17. SUBSTITUTION OPTIONS. Options may be granted under this Plan from
time to time in substitution for stock options held by employees, directors or
consultants of other corporations who are about to become
B-7
employees, directors or consultants of the Company as the result of a merger,
consolidation of the employing corporation with the Company, acquisition by the
Company of the assets of the employing corporation, or the acquisition by the
Company of stock of the employing corporation as the result of which it becomes
a subsidiary of the Company. The terms and conditions of the substitute options
so granted may vary from the terms and conditions set forth in this Plan to such
extent as the Board of the Company at the time of grant may deem appropriate in
order to conform them, in whole or in part, to the provisions of the stock
options for which such substitute options are granted; provided, however, with
respect to any stock options which are Incentive Stock Options, no such
variation shall adversely affect the status of any substitute option as an
Incentive Stock Option described in Section 5 of the Plan.
18. AMENDMENT OR TERMINATION OF PLAN. The Board may modify, revise or
terminate this Plan at any time and from time to time; provided, however, that
without the further approval of the holders of at least a majority of the
outstanding shares of Stock, the Board may not (i) change the aggregate number
of shares which may be issued under Options granted pursuant to the provisions
of the Plan; (ii) reduce the option price at which Options may be granted, or
otherwise materially increase the benefits accruing to optionees under the Plan;
(iii) change the class of persons eligible to receive Options; or (iv) otherwise
cause the Plan to comply with the rules and regulations promulgated under
Section 16(b) of the Exchange Act, if applicable; provided, however, that the
Board shall have the power to make such changes in the Plan (and in the
regulations and administrative provisions thereunder) or in any outstanding
Option as, in the opinion of counsel for the Company, may be necessary or
appropriate from time to time to enable any Option granted pursuant to the Plan
to qualify as an Incentive Stock Option described in Section 5 of the Plan, or
such other stock option as may be described in the Code, from time to time, so
as to receive preferential federal income tax treatment.
19. WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied
in a written option agreement, which shall be subject to the terms and
conditions prescribed above and shall be signed by the optionee and by the
President of the Company for and in the name and on behalf of the Company. The
option agreement shall contain such other provisions as the Committee in its
discretion shall deem advisable. Subject to the following sentence, the
Committee may waive any conditions or rights with respect to, or amend, alter,
suspend, discontinue, or terminate, any unexercised Option theretofore granted,
prospectively or retroactively, with the consent of any optionee. Provided,
however, the Committee shall have no authority or power to take any action
described in the immediately preceding sentence to the extent that such action
could result in failure of payments under an Option to qualify as "performance
based compensation" as defined in Section 162(m) of the Code where such payments
otherwise would have qualified as such performance based compensation with
respect to any employee of the Company or any parent or subsidiary if, as of the
close of the taxable year, such employee is the chief executive officer of such
entity or an individual acting in such capacity, or the total compensation of
such employee for the taxable year is required to be reported to stockholders
under the Securities Exchange Act of 1934 (as now in effect or hereafter
amended) by reason of such employee being among the four (4) highest compensated
officers for the taxable year (other than the chief executive officer).
B-8
20. INDEMNIFICATION OF THE COMMITTEE AND THE BOARD. With respect to
administration of the Plan, the Company shall indemnify each present and future
member of the Committee and the Board against, and each member of the Committee
and the Board shall be entitled without further act on his part to indemnity
from the Company for, all expenses (including the amount of judgments and the
amount of approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to the Company itself) reasonably incurred
by him in connection with, or arising out of, any action, suit, or proceeding in
which he may be involved by reason of his being or having been a member of the
Committee and the Board, whether or not he continues to be such member of the
Committee and the Board at the time of incurring such expenses; provided,
however, that such indemnity shall not include any expenses incurred by any such
member of the Committee and the Board (i) in respect of matters as to which he
shall be finally adjudged in any such action, suit or proceeding to have been
guilty of gross negligence or willful misconduct in the performance of his duty
as a member of the Committee and the Board, or (ii) in respect of any matter in
which any settlement is effected, to an amount in excess of the amount approved
by the Company on the advice of its legal counsel; and, provided further, that
no right of indemnification under the provisions set forth herein shall be
available to, or enforceable by, any such member of the Committee and the Board
unless, within sixty (60) days after institution of any such action, suit or
proceeding, he shall have offered the Company, in writing, the opportunity to
handle and defend same at its own expense. The foregoing right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee and the Board, and shall be
in addition to all other rights to which such member of the Committee and the
Board may be entitled as a matter of law, contract, or otherwise.
21. NO GUARANTEE OF TAX CONSEQUENCES. Neither the Company nor the
Committee makes any commitment or guarantee that any federal or state tax
treatment will apply or be available to any person participating or eligible to
participate in the Plan. Option holders shall be responsible for all tax
consequences related to holding of any vested or nonvested Options or the
exercise of Options.
22. SEVERABILITY. In the event that any provision of this Plan shall be
held illegal, invalid or unenforceable for any reason, such provision shall be
fully severable, but shall not affect the remaining provisions of the Plan, and
the Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision had never been included herein.
23. GENDER, TENSE AND HEADINGS. Whenever the context requires such,
words of the masculine gender used herein shall include the feminine and neuter,
and words used in the singular shall include the plural. Section headings as
used herein are inserted solely for convenience and reference and constitute no
part of the Plan.
24. GOVERNING LAW. The provisions of this Plan shall be construed
according to the laws of the State of Delaware, except as superseded by federal
law, and in accordance with applicable provisions of the Code and regulations or
other authority issued thereunder by the appropriate governmental authority.
Furthermore, certain provisions of this Plan are intended to comply with
applicable requirements for Incentive Stock Options, as described in Section 5
of the Plan, and shall be construed accordingly.
25. EFFECTIVE DATE OF PLAN. The Plan shall become effective and shall
be deemed to have been adopted on February 24, 2004, if within one year of that
date it shall have been approved by the holders of at least the majority of the
outstanding Stock. No Option shall be granted pursuant to the Plan after one day
less than ten years after the date that the Plan was adopted by the Board or the
date the Plan was approved by the stockholders of the Company, whichever is
earlier.
B-9
PROXY - ZONAGEN, INC.
THE ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph S. Podolski and Louis Ploth, Jr. or
their designees as proxies to represent the undersigned at the Annual Meeting of
Stockholders to be held at the Marriott New York East Side Hotel, 525 Lexington
Avenue, New York, New York, September 29, 2004, at 1:00 p.m. Eastern Standard
Time, and any adjournments thereof, and to vote the shares of stock the
undersigned would be entitled to vote if personally present, as indicated below.
The shares of stock represented by this proxy will be voted as directed.
If no contrary instruction is given, the shares will be voted FOR the election
of the nominees for director, FOR the approval of the Company's 2004 Stock
Option Plan and FOR ratification of PricewaterhouseCoopers LLP as the Company's
registered independent public accounting firm.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be voted on reverse side.)
ZONAGEN, INC.
[ ] Mark this box with an X if you have made changes to your name or address
details above.
ANNUAL MEETING PROXY CARD
A. ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR the listed nominees:
FOR WITHHOLD
01 - Joseph S. Podolski [ ] [ ]
02 - Louis Ploth, Jr. [ ] [ ]
03 - Daniel F. Cain [ ] [ ]
04 - Jean L. Fourcroy, M.D., Ph.D., M.P.H. [ ] [ ]
05 - Zsolt Lavotha [ ] [ ]
06 - Nola Masterson, M.S. [ ] [ ]
07 - David Poorvin, Ph.D. [ ] [ ]
B. ISSUES
The Board of Directors recommends a vote FOR the following proposals:
2. To approve the Company's 2004 Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To ratify the election of PricewaterhouseCoopers LLP as the Company's
registered independent public accounting firm for the fiscal year ended December
31, 2004.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
C. AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
NOTE: Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy.
All joint holders must sign. When signing as attorney, trustee, executor,
administrator, guardian or corporate officer, please provide your FULL title.
Signature 1 - Please keep signature Signature 2 - Please keep signature
within the box within the box
___________________________________ ____________________________________
Date (mm/dd/yyyy)__________________