-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MRJdeKFlknb7kel743bTuPf9GRB+RuDrO7DP5Du9fOWN8Kesc+eUCXUuWe1RPdFo TxqfGDaMpOr5YrBhvkRDtw== 0001047469-99-029040.txt : 19990730 0001047469-99-029040.hdr.sgml : 19990730 ACCESSION NUMBER: 0001047469-99-029040 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOLECULAR BIOSYSTEMS INC CENTRAL INDEX KEY: 0000719598 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 363078632 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-10546 FILM NUMBER: 99672958 BUSINESS ADDRESS: STREET 1: 10030 BARNES CANYON RD CITY: SAN DIEGO STATE: CA ZIP: 92121-2789 BUSINESS PHONE: 6198127001 MAIL ADDRESS: STREET 1: 10030 BARNES CANYON ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 10-K/A 1 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1999 [ ] Transaction Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 0-12648 MOLECULAR BIOSYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3078632 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10030 Barnes Canyon Road, San Diego, California 92121 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (619) 812-7200 1 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the Company's executive officers is included in Part I Item 4 of this report under the caption, "Executive Officers of the Registrant". DIRECTORS There is set forth below for each of the Company's seven directors his principal occupation, age, the year that he became a director of the Company and additional biographical data: BOBBA VENKATADRI, 55 President and Chief Executive Officer Bobba Venkatadri has served as the Company's President since October 1995 and as a director of the Company since November 1995. He served as Chief Operating Officer from October 1995 until May 1997, at which time he was elected by the Company's Board to the office of Chief Executive Officer. He held the position of Executive Vice President of the Pharmaceutical Division of Centocor, Inc., from September 1992 until he joined the Company, and as Vice President - Operations of Centocor's Pharmaceutical Division from March 1992 to September 1992. He was employed by Warner-Lambert Company from 1967 until February 1992 in a variety of Senior Management positions including, Senior Director, Pharmaceutical Operations, President of Warner-Lambert, Indonesia, and Vice President Parke-Davis Operations, USA. Mr. Venkatadri serves on the Board of the San Diego YMCA. DAVID W. BARRY, M.D., 55 Chairman and Chief Executive Officer Triangle Pharmaceuticals, Inc. David W. Barry, M.D., was elected to the Company's Board of Directors in May 1996. He currently serves as Chairman and Chief Executive Officer of Triangle Pharmaceuticals, Inc. Prior to joining Triangle Pharmaceuticals in 1995, Dr. Barry served for 18 years with Burroughs Wellcome and the Wellcome Foundation in various positions, including Worldwide Group Director, Research, Development & Medical Affairs of the Wellcome Foundation; President of the Wellcome Research Laboratories; and a member of the Board of Directors for the Wellcome Foundation and Wellcome PLC. He previously spent five years with the U.S. Food and Drug Administration in various capacities. Dr. Barry received his medical degree from Yale University School of Medicine. ROBERT W. BRIGHTFELT, 55 President, Global Products Dade Behring, Inc. Robert W. Brightfelt has served as a director of the Company since October 1987. Mr. Brightfelt received his B.S. and M.S. degrees in mechanical engineering from the University of Nebraska in 1965 and 1967, respectively, and his M.B.A. from the University of Georgia in 1970. He joined the DuPont Company in 1967 as a mechanical engineer and held various management positions in Dupont's Medical Products Department. Mr. Brightfelt retired from DuPont in May, 1996, and currently serves as President, Global Products, and as member of the Board of Directors for Dade Behring, Inc. 2 CHARLES C. EDWARDS, M.D., 75 Charles C. Edwards, M. D., has served as a director of the Company since March 1987. In 1969, he was appointed by President Nixon as Commissioner of the U.S. Food and Drug Administration, and in 1973 he was appointed Assistant Secretary for Health in the U.S. Department of Health, Education and Welfare. In 1977, Dr. Edwards assumed the position of President and Chief Executive Officer of Scripps Clinic and Research Foundation and served in that position until 1991. In 1991, he was appointed the President and Chief Executive Officer of the Scripps Institutions of Medicine and Science and served in that position until 1993. Dr. Edwards currently serves as a director of Bergen Brunswig Corporation, Northern Trust of California and the IDEC Pharmaceutical Corporation. Additionally, Dr. Edwards serves on the Board of Trustees of the Scripps Research Institute, the Scripps Institutes of Medicine and Science, the San Diego Hospice and the San Diego YMCA. He received his medical degree from the University of Colorado in 1948, and received his surgical training at the Mayo Clinic in Rochester, Minnesota. JERRY T. JACKSON, 58 Jerry T. Jackson has served as a director of the Company since December 1996. From 1965 until his retirement in 1995, Mr. Jackson was employed with Merck & Company, Inc. in various management positions. From 1993 until retirement, he held the position of Executive Vice President of Merck. During this time, Mr. Jackson had responsibility for Merck's International Human Health Division, Worldwide Human Vaccines, the AgVet Division, Astra/Merck U.S. Operations and Worldwide Marketing. Mr. Jackson was Senior Vice President of Merck & Company, Inc. from 1991 to 1992 and previously was President of Merck Sharp and Dohme International. Mr. Jackson also currently serves as a director on the boards of CorTherapeutics, Inc., Crescendo Pharmaceutials Corp., and SunPharm Corporation. GORDON C. LUCE, 73 Gordon C. Luce has served as a director of the Company since June 1989. Mr. Luce joined Great American First Savings Bank in San Diego, California in 1969 as its President and Chief Executive Officer and held the position of Chairman of the Board from 1979 until his retirement in July 1990. During 1982, he was an Alternate Delegate to the United Nations and has served as a member of three Presidential commissions. Mr. Luce is a former Chairman of Scripps Clinic and Research Foundation and Scripps Health and is a former trustee of Scripps Research Institute. He is also currently serving as a director of a publicly held company, PS Group, and is a Trustee of the University of Southern California in Los Angeles. DAVID RUBINFIEN, 78 David Rubinfien has served as a director of the Company since December 1985. He held the position of President and Chief Executive Officer of Systemix, Inc. from January 1989 until January 1991, and from 1985 to 1988 he was Chairman and Chief Executive Officer of Microgenics Corporation in Concord, California. From 1973 to 1984, he held several key positions at Syntex Corporation in Palo Alto, California. Mr. Rubinfien also currently serves as a director of Matritech, Inc., another publicly held company. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers, and any persons holding more than ten percent of the Company's stock to report their initial ownership of the Company's stock and any subsequent changes in ownership to the Securities and Exchange Commission. Reports of changes in ownership generally are required to be filed by the tenth day of the month following the transaction. Based solely on its review of copies of such reports, the Company believes that during the fiscal year ended March 31, 1999, all filing requirements applicable to its directors, executive officers and other beneficial owners holding more than ten percent of the Company's common stock were satisfied. 3 COMMITTEES OF THE BOARD OF DIRECTORS The Company's Board of Directors has standing Executive, Audit, Compensation and Officer Options Committees. It does not have a standing nominating committee. The Executive Committee generally possesses the same powers as the full Board of Directors to manage the affairs of the Company, but may not amend the Company's certificate of incorporation or by-laws or make recommendations to the stockholders with respect to the merger, consolidation or dissolution of the Company or the sale of all or substantially all of the Company's assets. Mr. Venkatadri serves on the Executive Committee with a second director; the other position remains vacant following the resignation of Kenneth J. Widder in September 1998. The Audit Committee, composed of Messrs. Brightfelt, Jackson, Luce and Rubinfien, reviews the scope and results of the independent public accountants' engagement, the Company's internal accounting controls and other pertinent auditing and internal control matters. The Compensation Committee, composed of Messrs. Brightfelt and Rubinfien and Drs. Barry and Edwards, reviews and recommends to the Board of Directors the compensation levels of the Company's executive officers. In addition, the Compensation Committee reviews the procedures involved in setting management compensation and employee benefits. Acting as the Officer Options Committee, the Compensation Committee administers the Company's stock option plans as they relate to the executive officers of the Company. MEETINGS During the fiscal year ended March 31, 1999, the Board of Directors held six meetings. The Executive Committee met formally 11 times during the year and met informally on a number of additional occasions. The Audit Committee met once during the year and the Compensation Committee met three times during the year. Messrs. Venkatadri and Luce each attended all six meetings of the Board; Dr. Edwards, Messrs. Jackson and Rubinfien each attended five meetings, Dr. Barry attended four meetings, and Mr. Brightfelt attended three meetings. All of the members of the Audit Committee attended its one meeting. Mr. Venkatadri attended all 11 meetings of the Executive Committee. Mr. Rubinfien attended all three Compensation and Officer Options Committee meetings, Dr. Edwards attended two meetings and Dr. Barry and Mr. Brightfelt each attended one meeting. DIRECTORS' COMPENSATION Directors receive a retainer of $8,000 per year. No additional fees are paid for attendance at board meetings; however, a fee of $750 is paid to each director for attendance at each regular committee meeting. Pursuant to the terms of the 1998 Stock Option Plan, on the date of each Annual Meeting of Stockholders, each individual who is to continue to serve as a non-employee director will automatically be granted a non-statutory option to purchase 6,500 shares of Common Stock, provided such individual has served as a non-employee director for at least six (6) months and is not an owner of more than 5% of the stock of the Company. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth the compensation paid by the Company during the fiscal years ended March 31, 1999, 1998 and 1997 to the following persons (the "named executive officers"): (i) the Chief Executive Officer (ii) each of the other most highly compensated executive officers of the Company serving as of the fiscal year end on March 31, 1999, and (iii) two individuals who would have been included in (ii) but for the fact that they were no longer serving as of March 31, 1999: 4
Annual Compensation Long-Term Compensation ------------------------------------------- ----------------------------------------- Year Other Annual Restricted Securities All Other Ended Compensation Stock Underlying Compensation Name March 31 Salary ($) Bonus ($) ($) Award ($) Options (#) ($) (11) ------------------------- --------- ------------ ----------- -------------- ---------- ----------- -------------- Bobba Venkatadri 1999 311,355 103,800 (1) - 79,688 (6) 213,513 3,115 President, Chief 1998 299,141 55,899 (3) 37,606 (2) - 100,000 3,269 Executive 1997 285,012 36,000 (7) 38,825 (2) 20,000 (4) 50,000 3,562 Officer and Member of the Executive Committee Howard Dittrich, M.D. 1999 235,303 103,300 (10) - 63,750 (6) 131,300 4,005 Executive Vice President 1998 196,538 29,910 (3) - - 32,000 3,374 1997 163,758 - - 57,750 (5) 92,000 3,427 Elizabeth L. Hougen 1999 110,046 12,178 (1) - 38,250 (6) 63,000 1,833 Executive Director - 1998 87,500 5,274 (3) 1,500 (9) - 9,500 1,833 Finance and Chief 1997 66,816 - 10,625 (9) - 5,500 1,355 Financial Officer Joni Harvey 1999 149,500 31,900 (1) - 47,813 (6) 91,000 - Vice President - 1998 129,231 30,570 (3) - - 24,000 - Operations 1997 75,110 30,570 (7) - - 45,000 - Kenneth Widder, M.D. 1999 126,056 103,800 (1) 560,826 (8) - 57,900 1,815 Former Chairman of the 1998 266,578 81,806 (3) - - 100,000 2,512 Board And Member of the 1997 241,215 55,439 (7) - 60,000 (4) 50,000 3,015 Executive Committee Gerard A. Wills 1999 134,529 54,158 (1) 221,688 (8) - 23,500 2,338 Former Vice President- 1998 159,200 33,156 (3) - - 28,000 2,692 Finance and Chief 1997 139,058 26,844 (7) - 30,000 (4) 80,000 2,853 Financial Officer
(1) Paid in respect of performance for the fiscal year ended March 31, 1998. (2) Represents relocation expense payments. (3) Paid in respect of performance for the fiscal year ended March 31, 1997. (4) Awarded in respect of performance for the fiscal year ended March 31, 1996 and as additional compensation. The awards were paid in unregistered shares from which shares to satisfy withholding requirements were withheld. The net shares awarded were as follows: Dr. Widder, 4,220 shares; Mr. Venkatadri, 1,197 shares; and Mr. Wills, 1,828 shares. The shares were issued in April 1996 and were taxable immediately to the recipients, but the unregistered shares that they received could not be sold in the public market for two years (a period subsequently reduced to one year as a result of changes in holding period requirements of the Securities and Exchange Commission's Rule 144). (5) Awarded to Dr. Dittrich in connection with his employment in May 1996. The award was paid in unregistered shares from which shares to satisfy withholding requirements were withheld. The shares were issued in May 1996 and Dr. Dittrich was contractually restricted from selling any of these shares for a three-year period. (6) Awarded in respect of performance as a retention bonus. The shares were awarded as follows: Mr. Venkatadri, 25,000 shares; Dr. Dittrich, 20,000 shares; Ms. Hougen, 12,000 shares; Ms. Harvey, 15,000 shares. The shares were granted in December 1998 and issued in May 1999. These shares will be fully vested on February 1, 2000. Once vested, the shares will be immediately taxable to the recipients and the officers will have the ability to immediately trade these shares. (7) Paid in respect of performance for the fiscal year ended March 31, 1996. 5 (8) Represents payments related to termination. (9) Represents proceeds from same day sale of nonqualified stock options. (10) Includes $40,800 paid in respect of performance for fiscal year ended March 31, 1998, and $62,500 paid in recognition of promotion to Executive Vice-President in February 1999. (11) These amounts represent the Company's matching contribution under the Company's 401(k) plan. For each of the fiscal years ended March 31, 1999, 1998 and 1997, the matching contribution was 2% of the first 6% contributed by each participant. OPTION GRANTS IN LAST FISCAL YEAR The Company granted stock options under the Company's 1998 Stock Option Plan in respect of performance during the fiscal year ended March 31, 1999. The following table sets forth each grant of stock options made during the fiscal year ended March 31, 1999 to each of the named executive officers:
% of Total Potential Realizable Value Number of Options Exercise at Assumed Annual Rates Securities Granted to Price of Stock Price Appreciation Underlying Employees Per Expiration for Option Term Name Options (#) in Fiscal Year Share Date 5% ($) (5) 10% ($) (5) - ------------------------- ------------- --------------- ----------- ------------ ------------- ------------- Bobba Venkatadri 57,900 (1) 5.0% $ 9.69 5/12/08 $ 352,751 $ 893,940 10,613 (2) 0.9% 0.93 1/4/09 38,771 67,570 100,000 (3) 8.4% 2.75 1/21/09 172,946 438,279 45,000 (4) 3.8% 3.31 11/17/08 93,745 237,567 Howard Dittrich, M.D. 26,300 (1) 2.2% 9.69 5/12/08 160,231 406,055 65,000 (3) 5.5% 2.75 1/21/09 112,415 284,881 40,000 (4) 3.4% 3.31 11/17/08 83,328 211,171 Elizabeth L. Hougen 8,000 (1) 0.7% 9.69 5/12/08 48,739 123,515 30,000 (3) 2.5% 2.75 1/21/09 51,884 131,484 25,000 (4) 2.1% 3.31 11/17/08 52,080 131,982 Joni Harvey 21,000 (1) 1.8% 9.69 5/12/08 127,941 324,227 40,000 (3) 3.4% 2.75 1/21/09 69,178 175,312 30,000 (4) 2.5% 3.31 11/17/08 62,496 158,378 Kenneth J. Widder, M.D. 57,900 (1) 4.9% 9.69 5/12/08 352,751 893,940 Gerard A. Wills 23,500 (1) 2.0% 9.69 5/12/08 143,172 362,825
(1) These options were granted in May 1998 under the Company's 1998 Stock Option Plan as the fiscal year 1999 Incentive Compensation Plan. The shares became vested and exercisable on April 1, 1999 and have a term of ten years. Under the 1998 stock option plan, each option holder has the right to pay the exercise price by delivering shares of common stock that the holder previously acquired, and to have the Company withhold, from shares otherwise issuable upon the exercise of the option, sufficient shares to satisfy the Company's withholding liability in connection with the exercise. Each option generally may be exercised only when vested and while the holder is an employee of the Company or within 90 days following the termination of his employment. In the discretion of the Compensation Committee, this 90-day period may be extended in the case of nonstatutory stock options to any date ending on or before the applicable expiration date of the option. No option may be transferred except by will or applicable intestacy laws. (2) These options were granted on January 4, 1999 under the Company's 1998 Stock Option Plan in exchange for a salary deferral of $20,000. 6 (3) These options were granted in January 1999 under the Company's 1998 Stock Option Plan in respect of performance for the fiscal year ended March 31, 1999. All options vest in four equal installments beginning on the first anniversary of the date of grant and have a term of ten years. (4) These options were granted in December 1998 as part of the Company's retention bonus plan. The shares become vested and exercisable in November 1999 and have a term of 10 years. (5) The dollar amounts presented in these columns are the results of calculations at the 5% and 10% annual rates of stock appreciation prescribed by the Securities and Exchange Commission and are not intended to forecast possible future appreciation, if any, of the Company's stock price. No gain to the optionees is possible without an increase in the price of the Company's stock, which will correspondingly benefit all stockholders. For options granted during fiscal year ended March 31, 1999, assuming 5% and 10% compounded annual appreciation of the stock price over the term of the options, the average price of a share of Common Stock would be $3.31 and $8.34, respectively, on March 31, 2009. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES None of the named executive officers exercised stock options during the fiscal year ended March 31, 1999. The following table sets forth, for each of the named executive officers, the fiscal year-end number and value of unexercised options
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options at 3/31/99 (#) Options at 3/31/99 ($) (1) -------------------------------- -------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---------------------------- --------------- --------------- --------------- --------------- Bobba Venkatadri 320,000 378,513 $ - $ 18,009 Howard Dittrich, M.D. 72,500 207,800 - - Elizabeth L. Hougen 18,501 69,999 - - Joni Harvey 40,000 135,000 - - Kenneth J. Widder, M.D. 387,900 - - - Gerard A. Wills 189,000 - - -
(1) Based on the $2.625 per share closing price of the Company's Common Stock on March 31, 1999. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS As of April 1, 1999, Mr. Venkatadri is paid an annual salary of $335,000 less $41,000 which he elected to defer pursuant to the 1998 Stock Plan; Dr. Dittrich is paid an annual salary of $250,000; Ms. Hougen is paid an annual salary of $129,000; and Ms. Harvey is paid an annual salary of $163,500. The Company's employment contracts with its executive officers are of indefinite duration, subject, however, to termination in certain events. During the fiscal year ended March 31, 1999, two executive officers, Dr. Widder and Mr. Wills terminated their employment with the company. Dr. Widder is continuing to receive severance payments pursuant to a termination agreement. The Company currently has employment contracts with all executive officers of the Company. In the event of the termination of these employment agreements as a result of (i) a termination without cause within 2 7 years following a change of control or (ii) a constructive termination, MBI is required to pay severance in an amount ranging from 1.5 to 3 times (A) the officer's base salary in effect immediately prior to the change of control and (B) the higher of (x) 100% of the officer's target bonus as determined under MBI's incentive compensation plan or (y) an average of the three most recent bonuses awarded to the officer (collectively, referred to as "Severance Payments"). The employment agreements contain a limitation providing that the Severance Payments will be reduced as necessary so that their present value does not exceed 2.99 times the officer's base amount, as "base amount" is defined in Section 280G(b)(3) of the Internal Revenue Code. Additionally, the employment agreements specify that during the period of time in which Severance Payments are being paid to the officer, MBI is required to provide COBRA continuation coverage to the officer and dependents who are insured at the time of termination under the Company's medical, dental and vision insurance plans, and to assume the cost of continuation coverage provided to the officer and his or her covered dependents. The employment agreements also provide that, in the event of a change of control (whether or not followed by termination of employment), all stock options under any MBI stock option plan which the officer holds at the time of such change of control shall become fully "vested" (I.E., immediately exercisable). COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The compensation of the Company's executive officers is determined generally by the Compensation Committee of the Company's Board of Directors. The four members of the Compensation Committee, Drs. Edwards and Barry and Messrs. Brightfelt and Rubinfien, are outside directors of the Company. Decisions of the Compensation Committee relating to executive officers' base salaries and cash bonuses are reviewed and approved by the full Board; decisions of the Compensation Committee relating to executive officers' stock options are not subject to the Board's review. We remind readers that the Company's fiscal year begins on March 1. Compensation for fiscal year 1999 covers the calendar months of March through December of 1998 and the first three months of 1999. Cash bonuses that were awarded with respect to services provided in fiscal year 1998 were based on performance during the calendar months of March through December of 1997 and the first three months of 1998; and decisions as to salary increases for fiscal year 1999 related to services provided during that same period. EXECUTIVE COMPENSATION POLICIES The Company's executive compensation policies seek to coordinate compensation with the Company's product development goals, performance objectives and business strategy. These policies are intended to attract, motivate and retain executive officers whose contributions are critical to the Company's long-term success and to reward executive officers for attaining individual and corporate objectives which enhance stockholder value. The Company's compensation program for its executive officers consists of cash compensation and long-term compensation. Prior to fiscal year 1999, cash compensation was paid in the form of a base salary and a cash bonus, and long-term compensation was paid in the form of stock options. Cash bonuses were intended to provide executive officers with an opportunity to earn additional cash compensation through individual and Company performance. Stock options were intended to focus executive officers on managing the Company from the perspective of an owner with an equity interest and to align their long-term compensation with the benefits realized by the Company's stockholders. In May 1998, the Compensation Committee recommended, and the Board of Directors approved, the Company's Fiscal Year 1999 Incentive Compensation Plan. The plan introduced a two-pronged approach to incentive compensation, replacing the cash bonus program used in the Fiscal Year 1998 Incentive Compensation Plan and in prior fiscal years. The new plan uses the concept of a targeted bonus for each management employee. Under 8 the first prong, stock options are awarded to each management employee for a certain specified number of shares. The number of shares is determined in accordance with a formula, which provides that if stock prices rise by a specified percentage from the market price on the date of the option grant, an employee will have an increase in the value of his option shares equal to the cash bonus he or she would have been awarded under the old cash bonus program. The second prong consists of a cash incentive of various percentages of an employee's targeted bonus, depending on the level of end user sales of OPTISON. The plan is intended to provide a powerful incentive to management to focus on maximizing revenues but, due to the fact that it is composed mostly of stock, is sensitive to the Company's budget. In December 1998, following an overall workforce reduction, the Compensation Committee recommended, and the Board of Directors approved, an officer retention incentive and compensation program as part of a company-wide retention program. Pursuant to this program, shares of restricted stock and additional stock options were granted on a company-wide basis in fiscal year 1999 and cash bonuses will be awarded on a company-wide basis in fiscal year 2000. SALARIES. The Compensation Committee determines the salaries of executive officers on the basis of (i) the individual officers' scope of responsibilities and level of experience, (ii) the rate of inflation, (iii) the range of the Company's merit increases for its employees generally and (iv) the salaries paid to comparable officers in comparable companies. The Compensation Committee has not commissioned a formal survey of executive officer compensation at comparable companies, but has relied on published salary surveys for general indications of salary trends and informal surveys by the Company of other biomedical companies of roughly similar size. For fiscal year 1999, Dr. Widder received a salary increase of $12,500, or 5%, to $262,500; Mr. Venkatadri received a salary increase of $15,000, or 5%, to $315,000; Dr. Dittrich received an initial salary increase of $19,700, or 10%, to $216,700, and then, upon, promotion, received an additional salary increase of $33,300, or 15%, to $250,000; Mr. Wills received a salary increase of $16,000, or 10%, to $176,000; Ms. Harvey received a salary increase of $19,500, or 15%, to $149,500; and Ms. Hougen, who was appointed an executive officer in January 1999, received a salary increase of $24,300, or 24%, over the salary of $100,700 that she was being paid prior to her new appointment. Dr. Widder and Mr. Wills resigned during fiscal year 1999 and each received severance pay of $560,826 and $221,688, respectively, in fiscal year 1999. CASH BONUSES. In May 1998, the Company awarded cash bonuses of $103,800, $103,800, $40,800, $54,158, $31,900 and $12,178 to Dr. Widder, Mr. Venkatadri, Dr. Dittrich, Mr. Wills, Ms. Harvey and Ms. Hougen, respectively, for their services during fiscal year 1998. These bonuses were paid under the cash bonus program of the Fiscal Year 1998 Incentive Compensation Plan. First implemented in a prior fiscal year, the cash bonus program linked the payment of cash bonuses to individual and Company performance. Specifically, the program provided for the payment of cash bonuses after the close of each fiscal year using individual incentive targets ranging from 10% to 35% of the midpoints of base salary ranges established for each management position based on published industry standards. Each bonus was determined in the first instance on the basis of the Company's percentage of attainment of its performance objectives for the fiscal year, and then on the basis of the individual's percentage of attainment of his or her personal performance objectives. However, due to the broad scope of their responsibilities, Dr. Widder and Mr. Venkatadri's performance objectives were identical to the Company's performance objectives. For fiscal year 1998, the incentive targets for both Dr. Widder and Mr. Venkatadri were 35% of the midpoints of their respective base salary ranges. The incentive targets for Dr. Dittrich, Mr. Wills and Ms. Harvey were 25% of the midpoints of their respective base salary ranges. The incentive target for Ms. Hougen was 15% of the midpoint of her respective base salary range. As noted earlier the Company replaced the cash bonus program of fiscal year 1998 and prior fiscal years with stock options awarded under the Fiscal Year 1999 Incentive Compensation Plan. As also noted earlier, the Company will be awarding cash bonuses in fiscal year 2000 as part of a company-wide retention program. In February 1999, the Company also paid a cash bonus of $62,500 to Howard Dittrich, M.D., in recognition of his promotion to the position of Executive Vice-President. The Company's Executive Compensation Program is reviewed annually by the Company's Board of Directors. The bonuses for fiscal years 1998 and 1999 paid to Dr. Widder, Mr. Venkatadri, Dr. Dittrich, Mr. Wills 9 and Ms. Harvey were recommended by management, reviewed by the Compensation Committee and approved by the Board of Directors. STOCK OPTIONS AND RESTRICTED STOCK GRANTS. In May 1998, the Executive Committee awarded stock options for 57,900, 57,900, 26,300, 23,500, 21,000 and 8,000 to Dr. Widder, Mr. Venkatadri, Dr. Dittrich, Mr. Wills, Ms. Harvey and Ms. Hougen. In addition, in December 1998, the Compensation Committee awarded stock options for 45,000, 40,000, 30,000 and 25,000 shares to Mr. Venkatadri, Dr. Dittrich, Ms. Harvey and Ms. Hougen, respectively, and restricted stock grants of 25,000, 20,000, 15,000 and 12,000 shares, to Mr. Venkatadri, Dr. Dittrich, Ms. Harvey and Ms. Hougen, respectively, as part of the officer retention incentive and compensation program, which was implemented following the overall workforce reduction, as noted earlier. In January 1999, the Compensation Committee awarded additional stock options for 110,613, 65,000, 40,000 and 30,000 shares to Mr. Venkatadri, Dr. Dittrich, Ms. Harvey and Ms. Hougen, respectively, in recognition of their contributions during fiscal year 1999 to the Company's attainment of its performance objectives and their level of attainment of individual performance objectives. COMPANY-WIDE PERFORMANCE FACTORS INFLUENCING COMPENSATION DECISIONS. The principal Company-wide performance factors influencing the Compensation Committee's decisions in respect of cash bonuses with respect to services provided in fiscal year 1998 were as follows: (i) the receipt in December 1997 of marketing approval for OPTISON from the United States Food and Drug Administraion ("FDA"), (ii) a fast OPTISON product launch in the United States; (iii) the receipt in January 1998 of a recommendation for approval to market OPTISON in Europe by the European Union's Committee for Proprietary Medicinal Products of the European Medicines Evaluation Agency ("CPMP"); (iv) the negotiation of a cooperative development and marketing agreement between the Company and Chugai Pharmaceutical Co., Ltd., granting Chugai an exclusive license with respect to the manufacture and development of OPTISON and ORALEX in the Far East; and (v) the implementation of an organizational development plan to strengthen skills and reduce turnover. The principal Company-wide performance factors influencing the Compensation Committee's decisions in respect of stock options with respect to services provided in fiscal year 1999 were as follows: (i) the receipt of approval to market OPTISON in Europe and its subsequent launch; (ii) the initiation of preclinical trials for the Company's CT-imaging agent code-named MB840; and (iii) the development and implementation of a major corporate restructuring program involving the retention of key corporate personnel amidst an overall workforce reduction. COMPENSATION OF CHIEF EXECUTIVE OFFICER The Compensation Committee determined Mr. Venkatadri's compensation for fiscal year 1999 on the basis of the criteria applicable to the Company's executive officers generally. As noted, Mr. Venkatadri received a salary increase for the fiscal year 1999 of $15,000, or 5%, to $315,000. In addition, Mr. Venkatadri was awarded, in May 1998, a cash bonus of $103,800 and stock options for 57,900 shares with respect to services provided in fiscal year 1998 and, in January 1999, stock options for 110,613 shares with respect to services provided in fiscal year 1999. In general, the cash bonus and stock options were in recognition of his attainment of personal performance objectives during fiscal years 1998 and 1999, which coincided with the Company's attainment of its performance objectives. More specifically, Mr. Venkatadri's cash bonus was based on the receipt of marketing approval for OPTISON by the FDA, the fast OPTISON product launch, the CPMP marketing approval for OPTISON, the Chugai agreement and the organizational development plan, all as described above. Mr. Venkatadri's stock options were based on the marketing approval and launch of OPTISON in Europe, initiation of preclinical trials for MB840 and his implementation of a major corporate restructuring program, all as described above. 10 Furthermore, in December 1998, the Compensation Committee awarded to Mr. Venkatadri additional stock options for 45,000 shares and a restricted stock grant of 25,000 shares as part of the officer retention incentive and compensation program, which was implemented following the overall workforce reduction. Compensation Committee David W. Barry, M.D. Robert W. Brightfelt Charles C. Edward, M.D. David Rubinfien STOCK PERFORMANCE CHART The graph set forth below compares cumulative total stockholder return on the Company's Common Stock for the five years ended March 31, 1999, with the cumulative total return over the same period of companies on the Standard & Poor's Smallcap 600 Stock Total Return Index, and the NASDAQ Pharmaceutical Index. The NASDAQ Pharmaceutical Index represents all companies trading on NASDAQ under the Standard Industrial Classification (SIC) Code for pharmaceuticals, including biotechnology companies. The graph assumes that $100 was invested on March 31, 1994 in the Company and each of the two indices and that all dividends were reinvested. It should be noted that the Company has not paid dividends on its Common Stock, and no dividends are included in the representation of the Company's performance. The cumulative total stockholder return on the Company's Common Stock shown on the graph below is not necessarily indicative of future performance. Molecular Biosystems Inc (MB) '
CUMULATIVE TOTAL RETURN ---------------------------------------- 3/94 3/95 3/96 3/97 3/98 3/99 MOLECULAR BIOSYSTEMS, INC. 100 48 51 54 54 15 S & P SMALLCAP 600 100 105 138 150 221 186 NASDAQ PHARMACEUTICAL 100 100 176 161 193 245
11 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of each person (other than directors and executive officers of the Company) known to the Company to own more than 5% of the Company's outstanding Common Stock as of June 29, 1999:
SHARES OF SHARES OF PERCENT OF NAME AND ADDRESS OF COMMON STOCK OUTSTANDING BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK ----------------------- ------------------ ------------ State of Wisconsin Investment Board P.O Box 7842 2,913,900 15.68% Madison, WI 53707 Mallinckrodt Group, Inc. 675 McDonnell Blvd 1,300,579 7.00% St. Louis, MO 63134
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS The following table sets forth certain information regarding the shares of the Company's Common Stock beneficially owned as of June 29, 1999 by (i) each director and nominee for director, (ii) each executive officer named in the Summary Compensation Table on page 6 and (iii) all of the directors and executive officers of the Company as a group:
Shares of Percent of Common Stock Outstanding Beneficially Common Name Owned (1)(2) Stock (3) - ------------------------------------- ------------------ ---------------- Bobba Venkatadri 427,175 2.13% David W. Barry, M.D. 13,000 * Robert W. Brightfelt 33,000 * Charles C. Edwards, M.D. 28,000 * Jerry T. Jackson 38,000 * Gordon C. Luce 30,500 * David Rubinfien 28,000 * Howard Dittrich, M.D. 140,393 * Elizabeth Hougen 38,101 * Joni Harvey 84,500 * Kenneth J. Widder, M.D. (4) 387,900 1.93% Gerard A. Wills (4) 190,828 * All directors and executive officers as a group - 10 persons. 860,669 4.42%
(This total does not include shares owned by Dr. Widder and Mr. Wills who terminated employment prior to March 31, 1999.) * Represents less than 1% of the Company's outstanding Common Stock. 12 (1) Each person named has voting and investment power over the shares listed, and these powers are exercised solely by the person named or shared with a spouse. (2) The shares listed for each person named or the group include shares of the Company's Common Stock subject to stock options exercisable on or within 60 days after June 29, 1999. These shares are as follows: Mr. Venkatadri, 387,978 shares; Dr. Barry, 13,000 shares; Mr. Brightfelt, 28,000 shares; Dr. Edwards, 28,000 shares; Mr. Jackson, 28,000 shares; Mr. Luce, 28,000 shares; Mr. Rubinfien, 28,000 shares; Dr. Dittrich, 113,800 shares; Ms. Hougen, 24,000 shares; Ms. Harvey, 69,500 shares; Dr. Widder, 387,900; Mr. Wills, 189,000 and the group of all directors and executive officers (excluding Dr. Widder and Mr. Wills), 748,278 shares. (3) The percentage for each person named or the group has been determined by including in the number of shares of the Company's outstanding Common Stock the number of shares subject to stock options exercisable by that person or group on or within 60 days after June 29, 1999. (4) These persons terminated from service before March 31, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the fiscal year ended March 31, 1997, the Company entered into a real estate investment agreement with Mr. Vendatadri and his wife in connection with the purchase of their home in San Diego, California. The Company contributed $300,000 to the purchase and acquired an undivided 53% interest in the home as tenants in common with Mr. and Mrs. Venkatadri. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on July 28, 1999. MOLECULAR BIOSYSTEMS, INC. By: /s/ Bobba Venkatadri ---------------------- Bobba Venkatadri President and Chief Executive Officer 13 -----END PRIVACY-ENHANCED MESSAGE-----