SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant |X|
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Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use
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(as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under Rule 14a-12
COLLAGENEX PHARMACEUTICALS, INC.
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(Name of Registrant as Specified in Its Charter)
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(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
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the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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COLLAGENEX PHARMACEUTICALS, INC.
41 University Drive
Newtown, PA 18940
April 15, 2002
To Our Stockholders:
You are cordially invited to attend the 2002 Annual Meeting of
Stockholders of CollaGenex Pharmaceuticals, Inc. at 8:30 A.M., local time, on
Thursday, May 9, 2002, at the Philadelphia Airport Marriott Hotel, One Arrivals
Road, Philadelphia, Pennsylvania.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented at the meeting.
It is important that your shares be represented at this meeting to assure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your stock represented by signing, dating and returning your
proxy in the enclosed envelope, as soon as possible. Your stock will be voted in
accordance with the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
/s/ Brian M. Gallagher
Brian M. Gallagher, Ph.D.
Chairman, President and
Chief Executive Officer
COLLAGENEX PHARMACEUTICALS, INC.
41 University Drive
Newtown, PA 18940
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 9, 2002
The Annual Meeting of Stockholders of COLLAGENEX PHARMACEUTICALS, INC., a
Delaware corporation, will be held at the Philadelphia Airport Marriott Hotel,
One Arrivals Road, Philadelphia, Pennsylvania, on Thursday, May 9, 2002, at 8:30
A.M., local time, for the following purposes:
(1) To elect seven directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been duly
elected and qualified;
(2) To amend our 1996 Stock Option Plan to increase the maximum aggregate
number of shares of common stock available for issuance thereunder from
2,000,000 to 2,500,000 shares and to reserve an additional 500,000 shares
of our common stock for issuance in connection with awards granted under
the 1996 Stock Option Plan;
(3) To ratify the appointment of KPMG LLP as our independent auditors for the
year ending December 31, 2002; and
(4) To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
Holders of our common stock and Series D preferred stock of record at the
close of business on April 4, 2002 are entitled to notice of and to vote at the
Annual Meeting, or any adjournment or adjournments thereof. A complete list of
such stockholders will be open to the examination of any stockholder at our
principal executive offices at 41 University Drive, Newtown, Pennsylvania 18940,
during ordinary business hours, for a period of 10 days prior to the Annual
Meeting as well as on the day of the Annual Meeting. The Annual Meeting may be
adjourned from time to time without notice other than by announcement at the
Annual Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER
OF SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL ENSURE A QUORUM
AND SAVE US THE EXPENSE OF FURTHER SOLICITATION. EACH PROXY GRANTED MAY BE
REVOKED BY THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS VOTED.
IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED IN
DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE SIGNED AND RETURNED
TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
/s/ Nancy C. Broadbent
Nancy C. Broadbent
Secretary
Newtown, Pennsylvania
April 15, 2002
OUR 2001 ANNUAL REPORT ACCOMPANIES THIS PROXY STATEMENT.
COLLAGENEX PHARMACEUTICALS, INC.
41 University Drive
Newtown, PA 18940
-----------------------------------------------
PROXY STATEMENT
-----------------------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of CollaGenex Pharmaceuticals, Inc. (also referred to in
this Proxy Statement as the "Company," "CollaGenex," "we," or "us") of proxies
to be voted at our Annual Meeting of Stockholders to be held on Thursday, May 9,
2002 at the Philadelphia Airport Marriott Hotel, One Arrivals Road,
Philadelphia, PA at 8:30 a.m., local time, and at any adjournment or
adjournments thereof. Holders of record of our common stock, $.01 par value per
share, and Series D cumulative convertible preferred stock, $.01 par value per
share, as of the close of business on April 4, 2002, will be entitled to notice
of and to vote at the Annual Meeting and any adjournment or adjournments
thereof. As of that date, there were 11,116,769 shares of our common stock
issued and outstanding and entitled to vote and 200,000 shares of our Series D
preferred stock issued and outstanding and entitled to vote. Such shares of
Series D preferred stock were, as of such date, convertible into 2,017,861
shares of common stock. Except for the proposal to elect the Series D Director
(as hereinafter defined), as set forth below, each share of common stock is
entitled to one vote on any matter presented at the Annual Meeting. The
aggregate number of common stock votes entitled to be cast at the Annual Meeting
is 13,127,880, including the 2,017,861 shares underlying the Series D preferred
stock to be voted on an as converted to common stock basis. The holders of all
classes of stock will vote as a single class for all proposals generally, except
that the holders of Series D preferred stock will also vote as a separate class
for the proposal to elect the Series D Director.
If proxies in the accompanying form are properly executed and returned,
the shares of common stock and Series D preferred stock represented thereby will
be voted in the manner specified therein. If not otherwise specified, the shares
of common stock and Series D preferred stock represented by the proxies will be
voted (i) FOR, as applicable, the election of the seven nominees named below as
directors, (ii) FOR a proposal to amend our 1996 Stock Option Plan to increase
the maximum number of shares of common stock available for issuance under the
1996 Stock Option Plan from 2,000,000 to 2,500,000 shares and to reserve an
additional 500,000 shares of our common stock for issuance in connection with
awards granted under the 1996 Stock Option Plan, (iii) FOR the ratification of
the appointment of KPMG LLP as our independent auditors for the year ending
December 31, 2002, and (iv) in the discretion of the persons named in the
enclosed form of proxy, on any other proposals which may properly come before
the Annual Meeting or any adjournment or adjournments thereof. Any stockholder
who has submitted a proxy may revoke it at any time before it is voted, by
written notice addressed to and received by the Secretary of the Company, by
submitting a duly executed proxy bearing a later date or by electing to vote in
person at the Annual Meeting. The mere presence at the Annual Meeting of the
person appointing a proxy does not, however, revoke the appointment.
The presence, in person or by proxy, of holders of shares of our common
stock, including the shares of common stock underlying the Series D preferred
stock to be voted on an as converted to common stock basis, in the aggregate
having a majority of the votes entitled to be cast by the holders of common
stock at the Annual Meeting, shall constitute a quorum with respect to all
matters except for the election of the Series D Director. The presence, in
person or by proxy, of holders of shares of Series D preferred stock having a
majority of the votes entitled to be cast by the holders of Series D preferred
stock at the Annual Meeting shall constitute a quorum with respect to the
election of the Series D Director. The affirmative vote by the holders of a
plurality of the shares of common stock represented at the Annual Meeting, but
not including the shares of common stock underlying the Series D preferred stock
to be voted on an as converted to common stock basis, is required for the
election of directors other than the Series D Director, provided a quorum of
such stockholders is present in person or by proxy. The affirmative vote by the
holders of a majority of the shares of Series D preferred stock is required for
the election of the Series D Director. All actions proposed herein other than
the election of directors may be taken upon the affirmative vote of stockholders
possessing a majority of the requisite voting power represented at the Annual
Meeting, provided a quorum is present in person or by proxy.
Abstentions are included in the shares present at the Annual Meeting for
purposes of determining whether a quorum is present, and are counted as a vote
against for purposes of determining whether a proposal is approved. Broker
non-votes (when shares are represented at the Annual Meeting by a proxy
specifically conferring only limited authority to vote on certain matters and no
authority to vote on other matters) are included in the determination of the
number of shares represented at the Annual Meeting for purposes of determining
whether a quorum is present but are not counted for purposes of determining
whether a proposal has been approved and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy cards, is being
mailed to our stockholders on or about April 15, 2002. The Annual Report to
Stockholders of the Company for the year ended December 31, 2001, including
financial statements, is being mailed together with this Proxy Statement to all
stockholders of record as of April 4, 2002. In addition, we have provided
brokers, dealers, banks, voting trustees and their nominees, at our expense,
with additional copies of the Annual Report so that such record holders could
supply such materials to beneficial owners as of April 4, 2002.
-2-
ELECTION OF DIRECTORS
At the Annual Meeting, seven directors are to be elected (which number
shall constitute our entire Board of Directors) to hold office until the 2003
Annual Meeting of Stockholders and until their successors shall have been
elected and qualified. The holders of common stock, voting as a class, will
elect six directors. The holders of Series D preferred stock, voting as a class,
will elect one director (referred to in this proxy statement as the "Series D
Director").
It is the intention of the persons named in the enclosed form of proxy to
vote the stock represented thereby, unless otherwise specified in the proxy, for
the election as directors of the persons whose names and biographies appear
below. All such persons are, at present, members of our Board of Directors. In
the event any of the nominees should become unavailable or unable to serve as a
director, it is intended that votes will be cast for a substitute nominee
designated by our Board of Directors. The Board of Directors has no reason to
believe that the nominees named will be unable to serve if elected. Each of the
nominees has consented to being named in this Proxy Statement and to serve if
elected.
The current members of our Board of Directors, who are also nominees for
election to our Board of Directors, are as follows:
COMMON STOCK DIRECTORS:
- ----------------------
SERVED AS A POSITION(S) WITH
NAME AGE DIRECTOR SINCE THE COMPANY
- ----- --- -------------- ------------
Brian M. Gallagher, Ph.D .... 54 1994 President, Chief Executive
Officer and Chairman of
the Board
Peter R. Barnett, D.M.D...... 50 1997 Director
Robert C. Black.............. 59 1999 Director
James E. Daverman............ 52 1995 Director
Robert J. Easton............. 57 1993 Director
W. James O'Shea.............. 52 2000 Director
SERIES D PREFERRED STOCK DIRECTOR:
- ----------------------------------
SERVED AS A POSITION(S) WITH
NAME AGE DIRECTOR SINCE THE COMPANY
- ----- --- -------------- -----------
Stephen A. Kaplan............ 43 1999 Director
The principal occupations and business experience, for at least the past
five years, of each nominee are as follows:
Dr. Gallagher joined CollaGenex in April 1994 as President and Chief
Executive Officer, and has been a member of our Board of Directors since 1994.
On March 10, 2000, Dr. Gallagher was appointed Chairman of the Board of
Directors. From 1988 until April 1994, Dr. Gallagher was employed by
Bristol-Myers Squibb Company and its predecessor, Squibb Corporation, in various
executive positions including strategic planning, worldwide product and business
development and marketing. From 1991 until April 1994, Dr. Gallagher was Vice
President and General Manager of Squibb Diagnostics in the imaging
pharmaceutical division. Prior to 1991, Dr. Gallagher served for ten years with
E.I. DuPont de Nemours & Co. in a variety of pharmaceutical research,
development, marketing and business management positions.
-3-
Dr. Barnett has been a member of our Board of Directors since February
1997. Dr. Barnett currently serves as an independent health care consultant. Dr.
Barnett was formerly President, Chief Executive Officer and a member of the
Board of Directors of HealthASPex, Inc., a claims technology firm, from June
2000 to September 2001. He was also President and Chief Operating Officer of
United Dental Care, Inc., a managed dental benefits firm, where he served in
such capacity from January 1995 until May 2000. From August 1994 to January
1995, Dr. Barnett was Executive Director of Prudential DMO, and from March 1993
to August 1994, he served as an independent consultant in the managed care
field. From January 1985 to March 1993, Dr. Barnett was a Senior Vice President
with Pearle Vision, Inc.
Mr. Black has been a member of our Board of Directors since September
1999. He was President of the Zeneca Pharmaceuticals Division of AstraZeneca,
Inc., a pharmaceutical company, until his retirement in June 1999. He joined
AstraZeneca, Inc. in 1965 as a pharmaceutical sales representative and held
numerous positions of increasing responsibility in sales and marketing prior to
becoming President of the Zeneca Pharmaceuticals Division in 1991.
Mr. Daverman has been a member of our Board of Directors since November
1995. He is a managing general partner of Marquette Partners, a venture capital
investment company which he founded in 1987. Mr. Daverman is President of
Marquette Management Partners, LLC, the general partner of Marquette Venture
Partners, L.P. and a general partner of MG II, L.P., the general partner of
Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P. Mr.
Daverman is a member of the Board of Directors of Endocardial Solutions, Inc.
and numerous privately held companies, for many of which he serves on the
compensation committee.
Mr. Easton has been a member of our Board of Directors since November
1993. He currently serves as Chairman of Easton Associates, a consulting firm,
and has held this position since May 2000. He was formerly Managing Director of
IBM Healthcare Consulting, Inc., a major health care consulting firm, where he
served in such capacity from 1981 to May 2000. Mr. Easton is a former President
of the Biomedical Marketing Association. Mr. Easton is a member of the Boards of
Directors of eXegenics, Inc. (formerly Cytoclonal Pharmaceuticals, Inc.),
Cepheid, Inc., and several privately held companies.
Mr. O'Shea has been a member of our Board of Directors since September
2000. He currently serves as President and Chief Operating Officer of Sepracor,
Inc., a position he has held since October 1999. Formerly, he was Senior Vice
President of AstraZeneca, Inc., a pharmaceutical company, from 1975 to October
1999.
Mr. Kaplan has been a member of our Board of Directors since September
1999. He is a principal and portfolio manager of Oaktree Capital Management,
LLC, which is the general partner of OCM Principal Opportunities Fund, L.P., a
venture capital fund. He has held such positions since June 1995 and November
1993, respectively. From November 1993 to May 1995 he was Managing Director of
Trust Company of The West. Mr. Kaplan serves as a director of Forest Oil
Corporation and General Maritime Corporation, as well as numerous privately held
companies.
Pursuant to the terms of our Certificate of Designation, Preferences and
Rights of Series D Cumulative Convertible Preferred Stock, as amended, the
holders of the Series D preferred stock, acting as a single class, have the
right to designate and elect one member of our Board of Directors. The holders
of the Series D preferred stock have exercised such right by designating Mr.
Kaplan to serve as a member of our Board of Directors.
All directors will hold office until the next annual meeting of
stockholders and until their successors shall have been duly elected and
qualified. None of our directors are related to any other director or to any of
our executive officers.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS, AS APPLICABLE, VOTE
FOR EACH OF THE NOMINEES FOR THE BOARD OF DIRECTORS. PLEASE NOTE THAT PROXIES
CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS THAN THE NOMINEES NAMED ABOVE.
-4-
COMMITTEES AND MEETINGS OF THE BOARD
Our Board of Directors currently consists of Brian M. Gallagher, Ph.D.,
who serves as Chairman, Peter R. Barnett, D.M.D., Robert C. Black, James E.
Daverman, Robert J. Easton, W. James O' Shea and Stephen A. Kaplan. Our By-Laws
currently provide that the total number of directors comprising our Board of
Directors shall be such number as is fixed by our Board of Directors, but in no
event less than one. Pursuant to the terms of our Certificate of Designation,
Preferences and Rights of Series D Cumulative Convertible Preferred Stock, as
amended, our Board of Directors shall consist of not less than five and not more
than nine directors. Our Board of Directors has provided that our full Board of
Directors shall be comprised of nine directors. Although we have nominated, and
are only seeking to elect, seven members to our Board of Directors at this time,
we are actively recruiting potential candidates for these two vacancies. These
two vacancies may be filled by the vote or written consent of a majority of our
directors elected by the holders of record of our common stock, and shall serve
until the next annual meeting of stockholders, unless earlier removed or such
directors resign. Proxies may not be voted for a greater number of persons than
such number of nominees named in this Proxy Statement and on the accompanying
proxy.
There were six meetings of the Board of Directors during 2001. Each
incumbent director attended at least 75% of the aggregate of all meetings of the
Board of Directors held during the period in which he served as a director and
the total number of meetings held by the committee on which he served during the
period, if applicable.
There are currently three committees of the Board of Directors: the
Compensation Committee; the Nominating Committee; and the Audit Committee.
The Compensation Committee of the Board of Directors
The Compensation Committee currently consists of W. James O'Shea, who
serves as Chairman, Robert C. Black and Robert J. Easton. The Compensation
Committee was established in March 1996 and held two meetings in 2001. The
primary responsibilities of the Compensation Committee include approving
salaries and incentive compensation for our executive officers and administering
our stock option plan.
The Nominating Committee of the Board of Directors
The Nominating Committee currently consists of Robert C. Black, who
serves as Chairman, Peter R. Barnett and Stephen A. Kaplan. The Nominating
Committee was established in March 2000 and held four meetings in 2001. The
primary responsibility of the Nominating Committee is reviewing and nominating
candidates for election to the Board of Directors. The Nominating Committee will
consider nominees for the Board of Directors suggested by stockholders whose
names are submitted in writing to the Nominating Committee in care of the office
of the Corporate Secretary of the Company.
The Audit Committee of the Board of Directors
The Audit Committee currently consists of James E. Daverman, who serves
as Chairman, Robert J. Easton and Stephen A. Kaplan. The Audit Committee was
established in March 1996 and currently acts under a charter adopted and
approved on May 8, 2000. The Audit Committee held four meetings in 2001. The
primary responsibilities of the Audit Committee include: (i) evaluating and
recommending to the Board of Directors the engagement of our independent
auditors; (ii) reviewing the results and scope of the audit and other services
provided by our independent auditors; and (iii) monitoring on a periodic basis
our internal controls. Such responsibilities are more fully set forth in the
Audit Committee Charter adopted by us on May 8, 2000, a copy of which was filed
as an Appendix to our proxy statement filed with the Securities and Exchange
Commission on April 18, 2001.
Each Audit Committee Member is an independent member of the Board of
Directors as defined in Rule 4200(a)(14) of the National Association of
Securities Dealers' listing standards. As an independent director of our Board
of Directors, each Audit Committee Member is not an officer or employee of the
Company or our subsidiaries or does not have a relationship which, in the
opinion of our Board of Directors, would interfere with the exercise of
independent judgement in carrying out the responsibilities of a director.
-5-
COMPENSATION OF DIRECTORS
During 2001, Brian M. Gallagher, Ph.D. was not paid any compensation for
his services as Chairman of the Board. Robert J. Easton, Peter R. Barnett,
Robert C. Black and W. James O'Shea each receive $1,500 per meeting for each
meeting of the Board of Directors attended. No other directors receive cash
compensation for services on the Board of Directors. We provide reimbursement to
directors for reasonable and necessary expenses incurred in connection with
attendance at meetings of the Board of Directors and other Company business.
From time-to-time, members of the Board of Directors have been granted
options to purchase shares of our common stock. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Pursuant to our 1996 Non-Employee Director Stock Option Plan, each new
non-employee director is automatically granted an option to purchase 25,000
shares of common stock, at an exercise price per share equal to the then current
fair market value per share. All such options become exercisable in five equal
annual installments commencing one year after the date of grant, provided that
the optionee then remains a director. The right to exercise annual installments
of options under the Non-Employee Plan will be reduced proportionately based on
the optionee's actual attendance at meetings of the Board of Directors if the
optionee fails to attend at least 75% of the meetings of the Board of Directors
held in any calendar year.
REPORT OF THE AUDIT COMMITTEE
March 25, 2002
To the Board of Directors of CollaGenex Pharmaceuticals, Inc.:
We have reviewed and discussed with management the Company's audited financial
statements as of and for the year ended December 31, 2001.
Management is responsible for the Company's internal controls and financial
reporting process. The Company's independent auditors are responsible for
performing an independent audit of the Company's financial statements in
accordance with accounting standards generally accepted in the United States of
America and to issue a report on those financial statements. As appropriate, the
Audit Committee reviews and evaluates, and discusses with the Company's
management, internal accounting, financial and auditing personnel and the
independent auditors, the following:
o the plan for, and the independent auditors' report on, each audit of the
Company's financial statements;
o the Company's financial disclosure documents, including all financial
statements and reports filed with the Securities and Exchange Commission
or sent to stockholders;
o management's selection, application and disclosure of critical accounting
policies;
o changes in the Company's accounting practices, principles, controls or
methodologies;
o significant developments or changes in accounting rules applicable to the
Company; and
o the adequacy of the Company's internal controls and accounting, financial
and auditing personnel.
We have discussed with the Company's independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61, Communication with
Audit Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants ("SAS 61"). SAS 61 requires the
Company's independent auditors to discuss with the Company's Audit Committee,
among other things, the following:
o methods to account for significant unusual transactions;
o the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
o the process used by management in formulating particularly sensitive
accounting estimates and the basis for the auditor's conclusions
regarding the reasonableness of those estimates; and
o disagreements with management over the application of accounting
principles, the basis for management's accounting estimates and the
disclosures in the financial statements.
-6-
We have received, reviewed and discussed the written disclosures and the letter
from the independent auditors required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the Independence
Standards Board ("Independence Standards Board Standard No. 1"), and have
discussed with the auditors the auditors' independence. Independence Standards
Board Standard No. 1 requires auditors annually to disclose in writing all
relationships that in the auditor's professional opinion may be reasonably
thought to bear on independence, confirm their independence and engage in a
discussion of independence.
We have considered whether the non audit services provided by the independent
auditors, as set forth in the section of the Company's proxy statement entitled,
"Independent Auditor's Fees and Other Matters," are compatible with maintaining
the public accountants' independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
James E. Daverman
Audit Committee Chairman
Robert J. Easton
Audit Committee Member
Stephen A. Kaplan
Audit Committee Member
INDEPENDENT AUDITORS' FEES AND OTHER MATTERS
The following table presents fees for professional audit services
rendered by KPMG LLP for the audit of our annual financial statements for the
year ended December 31, 2001, and fees for other services rendered by KPMG LLP
for the year ended December 31, 2001:
FEE AMOUNT
- --- ------
Audit Fees
(excluding audit related services)(1).... $89,000
=======
Financial Information Systems Design and
Implementation(2)........................ $ 0
=======
All Other Fees:
Audit Related Fees(3)................. $62,500
Other Non-Audit Services(4)........... $19,600
-------
Total $82,100
=======
(1) Such amount includes professional services rendered in connection with
the audit of our consolidated financial statements for the most recent
fiscal year and the reviews of the condensed consolidated financial
statements included in each of our Quarterly Reports on Form 10-Q during
the fiscal year ended December 31, 2001.
(2) KPMG LLP did not provide any professional services to us or our
affiliates for the fiscal year ended December 31, 2001 in connection with
financial information systems design or implementation, the operation of
our information system or the management of our local area network.
-7-
(3) Such amount consists principally of services rendered in connection with
reviewing registration statements and issuing consents, addressing
Securities and Exchange Commission comment letters, reviewing related
amendments to our Annual Report on Form 10-K, auditing of financial
statements of employee benefit plans and certain accounting consultation.
(4) Other non-audit related fees consisted of tax compliance services.
-8-
EXECUTIVE OFFICERS
The following table identifies our current executive officers:
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVED POSITION SINCE
- ---- --- ------------- --------------
Brian M. Gallagher, Ph.D............ 54 President, Chief Executive April 1994
Officer and Chairman of (Director since November
the Board 1994 and Chairman since
March 2000)
Robert A. Ashley(1)................. 44 Senior Vice President January 1999
(Vice President,
Commercial Development
since September 1994)
Nancy C. Broadbent(2)............... 46 Chief Financial Officer, March 1996
Treasurer and Secretary
Jeffrey S. Day (3).................. 38 Vice President, Dermatology October 2001
Douglas C. Gehrig(4)................ 57 Vice President, Sales June 1997
David P. Pfeiffer(5)................ 39 Senior Vice President, December 2000
Sales and Marketing (Vice President,
Marketing since June
1997)
Michael Romanowicz, D.M.D., R.Ph.(6).. 42 Vice President of January 2002
Professional Affairs and (Senior Director of
Managed Care Professional Affairs and
Managed Care since
November 1999)
(1) Mr. Ashley joined CollaGenex in September 1994 as Vice President,
Commercial Development. He was promoted to Senior Vice President in
January 1999. From 1989 until September 1994, he was employed by
Bristol-Myers Squibb Company and its predecessor, Squibb Corporation, in
various positions including product development, commercial and business
development and, most recently, as Director, Business Development where
he was responsible for the worldwide product and market development of
several new drugs. From 1979 to 1989, Mr. Ashley held various positions
at Amersham International (UK) Ltd., including research, development,
manufacturing, sales and marketing positions, as well as worldwide
product development and product launch positions.
(2) Ms. Broadbent joined CollaGenex in March 1996 as Chief Financial Officer,
Treasurer and Secretary. From October 1994 until March 1996, Ms.
Broadbent served as Senior Vice President, Chief Financial Officer and
director of Human Genome Sciences, Inc., a pharmaceuticals company. From
January 1993 to October 1994, she served as Vice President and Chief
Financial Officer of Cangene, Inc., a biopharmaceutical company. From
January 1992 through December 1992, Ms. Broadbent served as an
independent financial consultant. From March 1990 to December 1991, she
was employed by Baring Brothers & Co., Inc., initially as Senior Vice
President and then as Executive Director, Corporate Finance. Prior to
that, Ms. Broadbent served for nine years in corporate finance positions
with Salomon Brothers, Inc. and PaineWebber Incorporated.
-9-
(3) Mr. Day joined CollaGenex in October 2001 as Vice President, Dermatology.
From March 2001 to October 2001, he served as President of Rx Pharma
Pharmaceuticals, Inc., a privately-held dermatology sales and marketing
company. From January 1996 to February 2001, he was Director of Trade and
Commercial Development with Ferndale Laboratories, Inc. From 1994 to
1996, Mr. Day was employed with Ciba Vision Ophthalmics as a National
Accounts Manager, and from 1992 to 1994, he was employed with Allergan,
Inc. as a Regional Accounts Manager. Mr. Day has approximately 14 years
of experience in the dermatology industry, including senior level
positions in sales, marketing and business development.
(4) Mr. Gehrig joined CollaGenex in June 1997 as Vice President, Sales. From
September 1991 until June 1997, he was employed by the Musculoskeletal
Transplant Foundation, most recently as Vice President, Hospital Sales.
From January 1990 until September 1991, Mr. Gehrig was Director of Sales
for the Consumer Product Division of Warner Lambert. Prior to that, he
served for 19 years in various sales, marketing and sales management
positions with Johnson & Johnson.
(5) Mr. Pfeiffer joined CollaGenex in June 1997 as Vice President, Marketing.
He was promoted to Senior Vice President, Sales and Marketing in December
2000. From September 1995 until June 1997, Mr. Pfeiffer served as
Director of Marketing, Health Management Services, for SmithKline
Beecham. From May 1994 to September 1995, he served as Director, Disease
Management Services of Stuart Disease Management Services, a division of
Zeneca Pharmaceuticals. From October 1991 to May 1994 he was employed in
various product management positions with Zeneca Pharmaceuticals Group.
From July 1988 to October 1991, he held various marketing and product
management positions with the Lederle Laboratories Division of American
Cyanamid.
(6) Dr. Romanowicz joined CollaGenex in November 1999 as Senior Director of
Professional Affairs and Managed Care. He was promoted in January 2002 to
his current position of Vice President of Professional Affairs and
Managed Care. From October 1997 to November 1999, he was employed by The
GMR Group, a pharmaceutical consulting and marketing company, in various
positions including Vice President of Clinical Services. From September
1992 to September 1997, he was employed in various managed care
capacities with Independence Blue Cross, a health care insurer.
None of our executive officers are related to any other executive officer
or to any of our directors. Our executive officers are elected annually by the
Board of Directors and serve until their successors are duly elected and
qualified.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors, officers and stockholders who beneficially own more than
10% of any class of our equity securities registered pursuant to Section 12 of
the Exchange Act to file initial reports of ownership and reports of changes in
ownership with respect to our equity securities with the Securities and Exchange
Commission. All reporting persons are required by the Securities and Exchange
Commission's regulations to furnish us with copies of all reports that such
reporting persons file with the Securities and Exchange Commission pursuant to
Section 16(a).
Based solely on our review of the copies of such forms received by us and
upon written representations of our reporting persons received by us, except as
described below, each such reporting person has filed all of their respective
reports pursuant to Section 16(a) on a timely basis. Jeffrey S. Day, Vice
President, Dermatology, failed to timely file a Form 3 relating to his
commencement of employment in such position with us on October 10, 2001. Mr. Day
subsequently filed such Form 3 with the Securities and Exchange Commission on
January 14, 2002.
-10-
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN FISCAL 2001, 2000 AND 1999
The following Summary Compensation Table sets forth information
concerning compensation for services in all capacities awarded to, earned by or
paid to each person who served as our Chief Executive Officer at any time during
2001 and each other of our executive officers whose aggregate cash compensation
exceeded $100,000 at the end of 2001 (collectively referred to as the "Named
Executives") during the years ended December 31, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE(1)
- -----------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-----------------------------------------------------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
($) ($) (#)
(a) (b) (c) (d)(3) (g)
- -----------------------------------------------------------------------------------------------------------
Brian M. Gallagher, Ph.D.(2).... 2001 315,000 131,615 100,000
President, Chief Executive 2000 300,000 35,615 95,000
Officer and Chairman of the 1999 268,000 137,917 75,000
Board
Robert A. Ashley................ 2001 225,000 93,908 80,000
Senior Vice President 2000 215,000 29,708 40,000
1999 190,000 64,117 35,000
Nancy C. Broadbent.............. 2001 210,000 87,881 50,000
Chief Financial Officer, 2000 200,000 3,881 25,000
Treasurer and Secretary 1999 186,000 53,717 25,000
Douglas C. Gehrig............... 2001 200,000 82,712 50,000
Vice President, Sales 2000 190,000 27,912 40,000
1999 157,000 53,505 25,000
David F. Pfeiffer .............. 2001 225,000 93,812 80,000
Senior Vice President, 2000 210,000 29,012 50,000
Sales and Marketing 1999 157,000 94,408 25,000
- -----------
(1) The costs of certain benefits are not included because they did not
exceed, in the case of each Named Executive, the lesser of $50,000 or 10%
of the total annual salary and bonus reported in the above table.
(2) In November 1994, Dr. Gallagher purchased 125,000 shares of the our
restricted common stock at $0.335 per share. Such shares were subject to
the Company's right of first refusal, pursuant to which we were permitted
to buy such shares back from Dr. Gallagher at $0.335 per share, if Dr.
Gallagher was terminated for cause, and at the then current market value
per share, if he was terminated for any other reason. On May 11, 1999,
the Board of Directors unanimously voted to remove the right of first
refusal restriction from the 125,000 shares. At December 31, 2001, Dr.
Gallagher held all of such shares, with a year-end value of $970,625
based on the value of the common stock as of such date ($8.10 per share),
less the purchase price per share paid for such shares ($0.335 per
share).
(3) Such bonus amounts for each Named Executive for fiscal years 2000 and
1999 have been restated to reflect, among other things, the amount of
bonus earned by each such Named Executive in those fiscal years
notwithstanding the fact that such bonus may have been paid in the
subsequent year.
-11-
Option Grants in 2001
The following table sets forth information concerning individual grants
of stock options made during 2001 to each of the Named Executives.
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION
GRANTED IN FISCAL PRICE EXPIRATION TERM (2)
NAME (#) YEAR (1) ($/Sh) DATE 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- ------------------------------------------------------------------------------------------------------------------
Brian M. Gallagher, Ph.D..... 100,000 17.54% 5.1875 2/27/11 326,239 826,754
Robert A. Ashley............. 80,000 14.03% 5.1875 2/27/11 260,991 661,403
Nancy C. Broadbent........... 50,000 8.77% 5.1875 2/27/11 163,120 413,377
Douglas C. Gehrig............ 50,000 8.77% 5.1875 2/27/11 163,120 413,377
David F. Pfeiffer............ 80,000 14.03% 5.1875 2/27/11 260,991 661,403
- -----------
(1) Based on an aggregate of 570,100 options granted to employees in 2001,
including options granted to Named Executives.
(2) Based on a grant date fair market value of $5.1875 per share.
-12-
Aggregated Option Exercises in 2001 and Year End Option Values
The following table sets forth information concerning each exercise of
options during 2001 by each of the Named Executives and the year end value of
unexercised in-the-money options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL FISCAL
ACQUIRED YEAR-END YEAR-END
ON VALUE (#) ($)(1)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
Name (#) ($) UNEXERCISABLE UNEXERCISABLE
(a) (b) (c) (d) (e)
- ---------------------------------------------------------------------------------------------------------------------
Brian M. Gallagher, Ph.D....... -- -- 254,000 / 241,000 874,740 / 288,460
Robert A. Ashley............... -- -- 110,500 / 132,000 333,092 / 204,868
Nancy C. Broadbent............. -- -- 75,000 / 90,000 148,370 / 134,980
Douglas L. Gehrig.............. -- -- 100,000 / 95,000 51,320 / 131,280
David F. Pfeiffer.............. -- -- 108,000 / 127,000 68,792 / 201,168
- ----------
(1) Based on a year end fair market value of the underlying securities equal
to $8.10 per share, less the exercise price payable for such shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
We have executed indemnification agreements with each of our executive
officers and directors pursuant to which we have agreed to indemnify such
parties to the full extent permitted by law, subject to certain exceptions, if
any such party becomes subject to an action because such party is a director,
officer, employee, agent or fiduciary of the Company. In general, our employees
are covered by confidentiality agreements.
In addition, each of Dr. Gallagher, Ms. Broadbent and Messrs. Ashley,
Gehrig, and Pfeiffer have agreed that during the term of his or her employment
and for a period of two years thereafter, such person will not directly or
indirectly provide services to or for any business engaged in research regarding
the development, manufacture, testing, marketing or sale of collagenase
inhibiting drugs for application in periodontal disease or any other application
which, during the period of such person's employment with us, is either marketed
or in advanced clinical development by us.
-13-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of, and during 2001
consisted of, W. James O'Shea, who serves as Chairman, Robert C. Black and
Robert J. Easton. There are no, and during 2001 there were no, Compensation
Committee interlocks.
As of March 15, 2002, Mr. Easton, in his individual capacity, held 25,532
shares of our common stock. Such shares of common stock include those shares of
common stock which were previously issued by us upon conversion of our Series A
preferred stock, Series B preferred stock and Series C preferred stock
previously held by Mr. Easton. As of March 15, 2002, Mr. Easton also held 2,000
shares of our Series D preferred stock which were convertible into 20,179 shares
of our common stock as of such date.
In September 1995, we entered into a registration rights agreement with
each of the then holders of our Series A, Series B and Series C redeemable
preferred stock pursuant to which we have granted certain registration rights to
such stockholders. Pursuant to such registration rights agreement, at any time
beginning six months after June 20, 1996, the effective date of our initial
public offering, the holders of at least a majority of the common stock issued
upon the conversion of the Series A, Series B and Series C redeemable preferred
stock (referred to collectively as the "Registrable Securities") have the right,
subject to certain restrictions set forth in the registration rights agreement,
to require that we register the Registrable Securities requested by such holders
at our expense (on no more than two occasions) on either a Form S-1, Form S-2 or
Form S-3 Registration Statement under the Securities Act of 1933, as amended. We
are not, however, required to register any Registrable Securities unless such
shares represent at least 10% of our outstanding shares of common stock, or, if
less than 10%, if the anticipated aggregate offering price exceeds $1,000,000.
The holders of Registrable Securities also have the right to an unlimited
number of registrations on Form S -3 under the Securities Act, as of 1933, as
amended. We are not, however, required to effect such a registration unless the
requesting holders reasonably anticipate having an aggregate disposition price
of at least $500,000.
Also pursuant to the registration rights agreement, if, at any time
during the seven-year period commencing on the effective date of our initial
public offering, we propose to register any of our common stock under the
Securities Act of 1933, as amended, for sale to the public, the holders of the
Registrable Securities have unlimited piggyback registration rights at our
expense, subject to certain restrictions set forth in the registration rights
agreement.
Also in September 1995, we granted to the then holders of Series A,
Series B and Series C redeemable preferred stock certain rights to participate
in certain future offerings undertaken by us. Such rights to participate require
that, with certain exceptions including, but not limited to, an underwritten
public offering, any time we propose to issue, sell or exchange, or reserve
therefor, any securities, we must first offer to sell to each of the
pre-conversion holders of Series A, Series B and Series C redeemable preferred
stock their respective pro rata share of such securities at a price and on terms
identical to the price and terms of the securities proposed to be issued, sold
or exchanged in the applicable offering.
In May 1999, we entered into a Stockholder and Registration Rights
Agreement with each of the holders of our Series D preferred stock pursuant to
which, among other things, we registered on a Registration Statement on a Form
S-3, all of the shares of our common stock underlying the shares of Series D
preferred stock then issued and outstanding. The Stockholder and Registration
Rights Agreement further obligates us to register, on a Registration Statement
on Form S-3, all of the shares of common stock issued as dividends on the Series
D preferred stock to the holders thereof within a reasonable period of time
after each such dividend payment is made. We are obligated to keep current each
such Registration Statement on Form S-3 until such time as all of the shares of
common stock registered thereunder have been sold or are otherwise exempt from
registration.
The holders of at least a majority of the Series D preferred stock also
have the right, subject to certain restrictions, to require us to register the
shares of common stock underlying their Series D preferred stock on a
Registration Statement on Form S-1 at our expense (on no more than two
occasions). Also, pursuant to the Stockholder and Registration Rights Agreement,
if we propose to register any of our securities under the Securities Act of
1933, as amended, for sale to the public, the holders of the Series D preferred
stock have certain piggyback registration rights with respect to the shares of
common stock underlying their Series D preferred stock at our
-14-
expense, subject to certain restrictions. In addition, if we grant registration
rights to the holders of any of our securities that are more favorable than the
registration rights granted under the Stockholder and Registration Rights
Agreement, then the holders of the Series D preferred stock shall be deemed to
have been granted such superior registration rights as well with respect to the
shares of common stock underlying their Series D preferred stock. Also pursuant
to the terms of the Stockholder and Registration Rights Agreement, the holders
of Series D preferred stock have certain rights of first refusal with respect to
certain stock issuances by us, beginning twelve months after the date of initial
issuance of the Series D preferred stock.
-15-
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
our common stock with the cumulative total return on the Nasdaq Composite Index
and the Nasdaq Pharmaceutical Index (capitalization weighted) for the period
beginning on January 1, 1997 and ending on the last day of our last completed
fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)(3)
Among CollaGenex, the Nasdaq Composite Index and the
Nasdaq Pharmaceutical Index
(Capitalization Weighted)
[THE FOLLOWING TABLE WAS REPRESENTED AS
A LINE GRAPH IN THE PRINTED MATERIALS]
Base
Company/ Period
Index January June December June December June December June December June December
Name 1997 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001
- ----------- ------- ------ -------- ------- -------- ------- -------- ------ -------- ------ --------
CGPI....... $100.00 $147.60 $153.75 $106.15 $118.45 $123.00 $307.50 $115.38 $45.39 $100.86 $99.63
NASDAQ..... $100.00 $111.90 $122.48 $147.28 $172.68 $211.79 $320.83 $313.18 $192.98 $169.78 $153.12
NASDAQ
PHAR....... $100.00 $102.13 $103.05 $104.36 $130.81 $146.41 $246.64 $336.22 $307.65 $283.02 $262.19
- -----------
(1) Graph assumes $100 invested on January 1, 1997 in our common stock, the
Nasdaq Composite Index and the Nasdaq Pharmaceutical Index
(capitalization weighted).
(2) Total return assumes reinvestment of dividends.
(3) Year ended December 31.
-16-
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report:
The Compensation Committee is comprised of three non-employee directors.
The Compensation Committee recommends, and the Board approves, all matters
relating to executive compensation, including setting and administering policies
governing executive salaries, bonuses (if any) and stock option awards (if any).
The Compensation Committee meets twice annually to set performance objectives
for the Chief Executive Officer and to determine the annual compensation of the
CEO and our other senior executives. The CEO is not present during the
discussion of his compensation.
EXECUTIVE COMPENSATION POLICY
The goal of our executive compensation policy is to ensure that an
appropriate relationship exists between executive compensation and the creation
of stockholder value, while at the same time attracting and retaining qualified
senior management. In order to continually attract and retain highly experienced
executives, our compensation packages for senior executives are highly
competitive with those paid to executives of other emerging pharmaceutical
companies.
COMPENSATION MIX
Our executive compensation packages generally include three components:
base salary, a discretionary annual cash bonus and stock options.
BASE SALARY
The Compensation Committee seeks to establish base salaries for each
position and level of responsibility which are competitive with those of
executive officers at other emerging pharmaceutical companies.
DISCRETIONARY CASH BONUS
The Compensation Committee believes that discretionary cash bonuses are
important to motivate and reward executive officers. However, cash bonuses are
not guaranteed. Annual cash bonuses are awarded to executives based on their
achievements against a stated list of objectives developed at the beginning of
each year by senior management and the Compensation Committee. Such objectives
are reviewed and approved by the Board of Directors.
STOCK OPTIONS
Stock option grants are designed to align the long term interests of our
executives with those of our stockholders by rewarding executives for increasing
stockholder value. All executive officers are awarded option grants upon joining
the Company which are competitive with those at comparable emerging
pharmaceutical companies. In addition, the Compensation Committee may award
additional stock option grants annually. When granting stock options, the
Compensation Committee considers the recommendation of our CEO and the relative
performance and contributions of each officer compared to that of other officers
within the Company with similar levels of responsibility. The Compensation
Committee has in the past granted, and may continue to grant from time to time
in the future, options to our executive officers containing target milestones
with respect to the trading price of our common stock and accelerated vesting
upon the achievement of such milestones.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In establishing Dr. Gallagher's compensation package, the Compensation
Committee seeks to maintain a level of total current compensation that is
competitive with that paid to chief executive officers of other comparable
emerging pharmaceutical companies. In addition, in order to align Dr.
Gallagher's interests with the interests of our stockholders, the Compensation
Committee attempts to make a substantial portion of the value of his total
compensation dependent on the appreciation of our stock price.
-17-
Dr. Gallagher's performance is evaluated annually by the Compensation
Committee against a stated list of short, medium and long term objectives
developed by the Compensation Committee at the beginning of each year and
approved by the Board of Directors. Based on his achievements relating to these
objectives, the Compensation Committee recommended, and the Board approved, a
bonus to Dr. Gallagher of $131,615 for 2001, which was paid in 2002 and an
increase in base salary from $315,000 to $324,450 effective January 1, 2002.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally disallows a tax deduction to public companies for certain compensation
in excess of $1 million paid to the company's CEO and the four other most highly
compensated executive officers. Certain compensation, including qualified
performance-based compensation, will not be subject to the deduction limit if
certain requirements are met. The Compensation Committee reviews the potential
effect of Section 162(m) periodically and uses its judgment to authorize
compensation payments that may be subject to the limit when the Compensation
Committee believes such payments are appropriate and in the best interests of
the Company and our stockholders, after taking into consideration changing
business conditions and the performance of our employees.
Compensation Committee Members:
W. James O'Shea, Chairman
Robert C. Black, Member
Robert J. Easton, Member
-18-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There were, as of March 15, 2002, approximately 116 holders of record and
approximately 3,500 beneficial holders of our common stock. The following table
sets forth certain information, as of March 15, 2002, with respect to holdings
of our common stock by (i) each person known by us to be the beneficial owner of
more than 5% of the total number of shares of the common stock outstanding as of
such date, based on currently available Schedules 13D and 13G filed with the
SEC, (ii) each of our directors (which includes all nominees) and Named
Executives, and (iii) all directors and officers as a group.
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ------------------------------------ -------------------- --------
(i) Certain Beneficial Owners:
Oaktree Capital Management, LLC
OCM Principal Opportunities Fund, L.P.
333 South Grand Avenue, 28th Floor
Los Angeles, California 90071....................... 2,321,982(3) 18.0%
Perseus-Soros BioPharmaceutical Fund, L.P.
c/o Soros Fund Management LLC
888 Seventh Avenue, 29th Floor
New York, NY 10106 ................................ 1,266,668(4) 11.1%
Marquette Venture Partners II, L.P.
and MVP II Affiliates Fund, L.P.
520 Lake Cook Road, Suite 450
Deerfield, Illinois 60015........................... 1,023,464(5) 9.1%
Ashford Capital Management, Inc.
P.O. Box 4172
Wilmington, Delaware 19807.......................... 791,366(6) 7.1%
(ii) Directors (which includes all nominees) and
Named Executives:
Brian M. Gallagher, Ph.D............................ 458,000(7) 4.0%
Robert A. Ashley.................................... 184,100(8) 1.6%
Nancy C. Broadbent.................................. 153,000(9) 1.4%
Douglas C. Gehrig................................... 132,320(10) 1.2%
David F. Pfeiffer................................... 150,500(11) 1.3%
Peter R. Barnett, D.M.D............................. 27,000(12) *
Robert Black........................................ 10,000(13) *
James E. Daverman................................... 1,103,464(14) 9.8%
Robert J. Easton.................................... 75,161(15) *
Stephen Kaplan...................................... 2,334,982(16) 18.0%
W. James O'Shea..................................... 5,000(17) *
(iii) All Directors and executive officers as a
group (13 persons)........................... 4,661,027(18) 33.4%
- -----------
* Less than 1%
-19-
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons and entities named in the
table have sole voting and investment power with respect to all shares.
(2) Applicable percentage of ownership for each holder is based on 11,110,019
shares of common stock outstanding on March 15, 2002, plus any common
stock equivalents and presently exercisable stock options or warrants
held by each such holder, and options or warrants held by each such
holder which will become exercisable within 60 days after March 15, 2002.
(3) Includes 1,785,805 shares of common stock issuable upon the conversion of
177,000 shares of the Series D preferred stock held thereby and 561,177
shares of common stock issued in payment of dividends on the Series D
preferred stock.
(4) Includes 266,668 shares of common stock underlying warrants which are or
may be exercisable as of March 15, 2002 or 60 days after such date.
(5) Includes an aggregate of 1,019,775 shares of common stock owned by
Marquette Venture Partners II, L.P. (which includes 98,089 shares of
common stock issuable upon the conversion of 9,722 shares of the Series D
preferred stock held thereby, 30,826 shares of common stock issued in
payment of dividends on such Series D preferred stock and 890,860 shares
of common stock otherwise held thereby), and an aggregate of 3,689 shares
of common stock owned by MVP II Affiliates Fund, L.P (which includes
2,805 shares of common stock issuable upon the conversion of 278 shares
of the Series D preferred stock held thereby, and 884 shares of common
stock issued in payment of dividends on such Series D preferred stock).
(6) Includes 200,000 shares of common stock registered in the name of Ashford
Capital Partners, LP and 200,000 shares of common stock registered in the
name of Anvil Investment Associates, LP. Also includes 53,333 shares of
common stock underlying warrants held by Ashford Capital Partners, LP and
53,333 shares of common stock underlying warrants held by Anvil
Investment Associates, LP, which are or may be exercisable as of March
15, 2002 or 60 days after such date. Theodore H. Ashford is Chairman and
CEO of Ashford Capital Management, Inc., the Advisor to the general
partners of Ashford Capital Partners, LP and Anvil Investment Associates,
LP and, as such, has the power to vote or direct the vote of and to
dispose of or direct the disposition of the shares owned by Ashford
Capital Partners, LP and Anvil Investment Associates, LP. Mr. Ashford
expressly disclaims beneficial ownership of such shares, except as to his
proportionate interest in Ashford Capital Partners, LP and Anvil
Investment Associates, LP.
(7) Includes 333,000 shares of common stock underlying options which are or
may be exercisable as of March 15, 2002 or 60 days after such date.
(8) Includes 151,500 shares of common stock underlying options which are or
may be exercisable as of March 15, 2002 or 60 days after such date.
(9) Includes 105,000 shares of common stock underlying options which are or
may be exercisable as of March 15, 2002 or 60 days after such date. Also
includes 2,000 shares of common stock held as custodian for Ms.
Broadbent's minor child, 1,000 shares of common stock held in the name of
Ms. Broadbent's spouse and 1,000 shares of common stock held in the name
of Ms. Broadbent's parent who resides with Ms. Broadbent.
(10) Includes 127,000 shares of common stock underlying options which are or
may be exercisable as of March 15, 2002 or 60 days after such date.
(11) Includes 143,000 shares of common stock underlying options which are
exercisable as of March 15, 2002 or 60 days after such date.
(12) Includes 25,000 shares of common stock underlying options which are
exercisable as of March 15, 2002 or 60 days after such date.
-20-
(13) Includes 10,000 shares of common stock underlying options which are
exercisable as of March 15, 2002 or 60 days after such date.
(14) James E. Daverman is President of Marquette Management Partners, LLC, the
general partner of Marquette Venture Partners, L.P. and a general partner
of MG II, L.P., the general partner of Marquette Venture Partners II,
L.P. and MVP II Affiliates Fund, L.P. and, as such, has the power to vote
or direct the vote of and to dispose of or direct the disposition of the
shares owned by Marquette Venture Partners II, L.P. and MVP II Affiliates
Fund, L.P. Mr. Daverman expressly disclaims beneficial ownership of such
shares, except as to his proportionate interest in Marquette Venture
Partners II, L.P. and MVP II Affiliates Fund, L.P. Includes 25,000 shares
of common stock underlying options which are exercisable as of March 15,
2002 or 60 days after such date and 55,000 shares of common stock
otherwise held by Mr. Daverman, individually.
(15) Includes 25,000 shares of common stock underlying options which are
exercisable as of March 15, 2002 or 60 days after such date. Also
includes 20,179 shares of common stock issuable upon the conversion of
2,000 shares of the Series D preferred stock held by Mr. Easton and 6,343
shares of common stock issued in payment of dividends on such Series D
preferred stock. Also includes 19,189 shares of common stock held by Mr.
Easton, individually, and 4,450 shares of common stock held as trustee
for the Rachel Easton Charitable Trust.
(16) Stephen Kaplan is a principal of OCM Principal Opportunities Fund, L.P.
and, as such, has the power to vote or direct the vote of and to dispose
of or direct the disposition of the shares owned by OCM Principal
Opportunities Fund, L.P. Mr. Kaplan expressly disclaims beneficial
ownership of such shares, except as to his proportionate interest in OCM
Principal Opportunities Fund, L.P. Includes 3,000 shares of common stock
held by Mr. Kaplan in his individual capacity and 10,000 shares of common
stock underlying options which are exercisable as of March 15, 2002 or 60
days after such date.
(17) Includes 5,000 shares of common stock underlying options which are
exercisable as of March 15, 2002 or 60 days after such date.
(18) See Notes 7 through 17.
-21-
SERIES D PREFERRED STOCK
There were, as of March 15, 2002, 6 holders of record of our Series D
preferred stock. The following table sets forth certain information, as of March
15, 2002, with respect to the beneficial ownership of our Series D preferred
stock by (i) each person known by us to be the beneficial owner of more than 5%
of the total number of shares of Series D preferred stock outstanding as of such
date, (ii) each of our directors (which includes all nominees) and Named
Executives who beneficially own shares of Series D preferred stock, and (iii)
all directors and officers as a group.
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ------------------------------------ --------------------- --------
(i) Certain Beneficial Owners:
OCM Principal Opportunities Fund, L.P.................. 177,000(3) 88.5%
Richard A. Horstmann................................... 10,000(4) 5.0%
Marquette Venture Partners II, L.P. and
MVP II Affiliates Fund, L.P......................... 10,000(5) 5.0%
(ii) Directors (which includes all nominees) and
Named Executives:
Robert J. Easton....................................... 2,000(6) 1.0%
Stephen Kaplan......................................... 177,000(7) 88.5%
(iii) All Directors and officers as a
group (13 persons).............................. 189,000(5)(6)(7) 94.5%
- -----------
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons and entities named in the
table have sole voting and investment power with respect to all shares.
(2) Applicable percentage of ownership is based on 200,000 shares of Series D
preferred stock outstanding on March 15, 2002.
(3) Such shares of Series D preferred stock are convertible into 1,785,805
shares of common stock.
(4) Such shares of Series D preferred stock are convertible into 100,893
shares of common stock.
(5) Of such shares of Series D preferred stock, 9,722 shares are held by
Marquette Venture Partners II, L.P. and are convertible into 98,089
shares of common stock. Also, of such shares of Series D preferred stock,
278 shares are held by MVP II Affiliates Fund, L.P. and are convertible
into 2,805 shares of common stock.
(6) Such shares of Series D preferred stock are convertible into 20,179
shares of common stock.
(7) Stephen Kaplan is a principal of OCM Principal Opportunities Fund, L.P.
and, as such, has the power to vote or direct the vote of and to dispose
of or direct the disposition of the shares owned by OCM Principal
Opportunities Fund, L.P. Mr. Kaplan expressly disclaims beneficial
ownership of such shares, except as to his proportionate interest in OCM
Principal Opportunities Fund, L.P.
-22-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For transactions and information relating to certain registration rights
and rights to participate in certain future offerings undertaken by us, for Mr.
Easton, who currently serves, and during 2001 served, as a member of our
Compensation Committee, please see "EXECUTIVE COMPENSATION - Compensation
Committee Interlocks and Insider Participation."
James E. Daverman, a member of our board of directors, is a managing
general partner of Marquette Venture Partners, a venture capital investment
company which he founded in 1987. Additionally, Mr. Daverman is President of
Marquette Management Partners, LLC, the general partner of Marquette Venture
Partners, L.P. and a general partner of MG II, L.P., the general partner of
Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P. Both
Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P. are, as of
March 15, 2002, holders of 921,686 and 884 shares, respectively, of our common
stock. Such shares include those shares of our common stock which were
previously issued by us upon conversion of our Series A preferred stock, Series
B preferred stock and Series C preferred stock previously held by each entity.
Such entities are entitled, therefore, to identical registration rights and
rights to participate in future offerings undertaken by us as is Mr. Easton,
with respect to such shares of our common stock.
As of March 15, 2002: (i) Marquette Venture Partners II, L.P. and MVP II
Affiliates Fund, L.P. held an aggregate of 10,000 shares of our Series D
preferred stock which were convertible into 100,894 shares of our common stock
as of such date; and (ii) OCM Principal Opportunities Fund, L.P., with which Mr.
Kaplan, a member of our board of directors, is affiliated, held an aggregate of
177,000 shares of our Series D preferred stock which were convertible into
1,785,805 shares of our common stock. Such entities are entitled, therefore, to
identical registration rights and rights to participate in future offerings
undertaken by us as is Mr. Easton, with respect to such shares of Series D
preferred stock.
1996 STOCK OPTION PLAN PROPOSAL
The 1996 Stock Option Plan was adopted by the Board of Directors and
approved by our stockholders on March 22, 1996 and March 29, 1996, respectively.
Those eligible to receive stock option grants or stock purchase rights under the
1996 Stock Option Plan include our employees, directors and consultants. The
1996 Stock Option Plan was adopted to
o attract and retain the best available personnel for positions of
substantial responsibility;
o provide additional incentives to employees, members of the Board of
Directors and consultants of the Company and our subsidiaries; and
o promote the success of our business.
Currently there are 2,000,000 shares of common stock reserved for
issuance upon the exercise of options and/or stock purchase rights granted under
the 1996 Stock Option Plan.
The 1996 Stock Option Plan is administered by the Compensation Committee,
which is comprised solely of outside directors. The Compensation Committee
determines, among other things, the
o nature of the options to be granted;
o persons, or grantees, who are to receive options;
o number of shares to be subject to each option;
o exercise price of the options; and
o vesting schedule of the options.
-23-
The 1996 Stock Option Plan provides for the granting of options intended
to qualify as incentive stock options, or ISOs, as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, or the Code, to our employees. The
1996 Stock Option Plan also provides for the granting of non-qualified stock
options, or NQSOs, to employees, non-employee directors and consultants who
perform services for us or our subsidiaries. The exercise price of all ISOs
granted under the 1996 Stock Option Plan may not be less than the fair market
value of the shares at the time the option is granted. In addition, no ISO may
be granted to an employee who owns more than 10% of the total combined voting
power of all classes of our stock unless the exercise price as to that employee
is at least 110% of the fair market value of the stock at the time of the grant.
To the extent that options designated as ISOs become exercisable for the first
time during any calendar year for common stock having a fair market value
greater than $100,000 (determined for each share as of the date of grant of the
options covering such share), the portion of such options which exceeds such
amount shall be treated as NQSOs. Options may be exercisable for a period of not
more than ten years from the date of grant; provided, however, that the term of
an ISO granted to an employee who owns more than 10% of the total combined
voting power of all classes of our stock may not exceed five years. The exercise
price of NQSOs granted under the 1996 Stock Option Plan may not be less than 85%
of the fair market value per share of the common stock on the date of grant. No
NQSO may be granted to a person who owns more than 10% of the total combined
voting power of all classes of our stock unless the exercise price to that
person is at least 110% of the fair market value of the stock at the time of the
grant. The exercise price must be paid in full at the time an option is
exercised, and at the Compensation Committee's discretion, all or part of the
exercise price may be paid with previously owned shares or other approved
methods of payment. An option is exercisable as determined by the Compensation
Committee. The 1996 Stock Option Plan will terminate on March 28, 2006.
Subject to the terms as specified in any option agreement, the following
time table applies with respect to exercising outstanding vested options if a
grantee's employment or consulting relationship is terminated:
Reason for termination during term of
employment or consulting relationship Latest exercise date
------------------------------------- --------------------
Disability One year following termination by grantee
Death One year following death by grantee's estate
Any other reason 90 days following termination by grantee
Options are not assignable or otherwise transferable except by will or
the laws of descent and distribution and shall be exercisable during the
grantee's lifetime only by the grantee.
The 1996 Stock Option Plan also permits the awarding of stock purchase
rights at not less than 50% of the fair market value of the shares as of the
date offered. The 1996 Stock Option Plan requires the execution of a restricted
stock purchase agreement in a form determined by the Compensation Committee.
Once a stock purchase right is exercised, the purchaser will have the rights of
a stockholder. The purchaser will be a stockholder when the purchase is entered
on our records.
The 1996 Stock Option Plan provides that in the event of a
o reorganization; o recapitalization;
o stock split; o stock dividend;
o combination of or reclassification o or any other change in
of shares; the corporate structure
or our shares,
the Board of Directors shall make adjustments with respect to the shares that
may be issued under the 1996 Stock Option Plan or that are covered by
outstanding options, or in the option price per share.
The Board shall notify the grantee at least fifteen days prior to a
dissolution or liquidation of the Company. The outstanding options, not
previously exercised, will terminate immediately prior to the consummation of
such proposed action. In the event of a merger or consolidation of the Company
or the sale of all or substantially all of our assets (hereinafter referred to
as a "merger"), the outstanding options will be assumed or an equivalent option
will be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. If such
-24-
successor corporation does not agree to assume the outstanding options or to
substitute equivalent options, the Board of Directors will, in lieu of such
assumption or substitution, provide for the grantee to have the right to
exercise all of his or her outstanding options. If the Board of Directors makes
an option fully exercisable in lieu of assumption or substitution, in the event
of a merger, the Board of Directors shall notify the grantee that the option
will be fully exercisable for a period of fifteen days from the date of such
notice, and the option will terminate upon the expiration of such period. The
option will be considered assumed if, following the merger, the option confers
the right to purchase, for each share of common stock subject to the option
immediately prior to the merger, the consideration (whether stock, cash, or
other securities or property) received in the merger by holders of common stock
for each share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares). If such consideration received
in the merger was not solely common stock of the successor corporation or its
parent, the Board of Directors may, with the consent of the successor
corporation and the participant, provide for the consideration to be received
upon the exercise of an option for each share of stock subject to the option to
be solely common stock of the successor corporation or its parent equal in fair
market value to the per share consideration received by holders of common stock
in the merger or sale of assets.
The Board may at any time amend, alter, suspend or discontinue the 1996
Stock Option Plan, but no such action will be made which would impair the rights
of any grantee under any grant previously made, without such grantee's consent.
In addition, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act of 1934, as amended, or with Section 422 of the Code (or
any other applicable law or regulation, including the requirements of the
National Association of Securities Dealers or an established stock exchange), we
shall obtain stockholder approval of any 1996 Stock Option Plan amendment in
such a manner and to such a degree as required. Any such amendment or
termination of the 1996 Stock Option Plan is not permitted to affect options
already granted and such options will remain in full force and effect as if the
1996 Stock Option Plan had not been amended or terminated, unless mutually
agreed otherwise between each grantee and the Board of Directors, which
agreement must be in writing and signed by the grantee and the Company.
FEDERAL INCOME TAX ASPECTS
The following generally summarizes the United States federal income tax
consequences that generally will arise with respect to awards granted under the
1996 Stock Option Plan. This summary is based on the tax laws in effect as of
the date of this Proxy Statement. Changes to these laws could alter the tax
consequences described below.
INCENTIVE STOCK OPTIONS
A participant will not have income upon the grant of an ISO. Also, except
as described below, a participant will not have income upon exercise of an ISO
if the participant has been employed by us or any of our majority-owned
corporate subsidiaries at all times beginning with the option grant date and
ending three months before the date the participant exercises the option. If the
participant has not been so employed during that time, then the participant will
be taxed as described below under "Non-Qualified Stock Options." The exercise of
an ISO may subject the participant to the alternative minimum tax.
A participant will have income upon the sale of the stock acquired under
an ISO at a profit (if sales proceeds exceed the exercise price). The type of
income will depend on when the participant sells the stock. If a participant
sells the stock more than two years after the option was granted and more than
one year after the option was exercised, then all of the profit will be
long-term capital gain. If a participant sells the stock prior to satisfying
these waiting periods, then the participant will have engaged in a disqualifying
disposition and a portion of the profit will be ordinary income and a portion
may be capital gain. This capital gain will be long-term if the participant has
held the stock for more than one year and otherwise will be short-term. If a
participant sells the stock at a loss (sales proceeds are less than the exercise
price), then the loss will be a capital loss. This capital loss will be
long-term if the participant held the stock for more than one year and otherwise
will be short-term.
-25-
NON-QUALIFIED STOCK OPTIONS
A participant will not have income upon the grant of a NQSO. A
participant will have compensation income upon the exercise of a NQSO equal to
the value of the stock on the day the participant exercised the option less the
exercise price. Upon sale of the stock, the participant will have capital gain
or loss equal to the difference between the sales proceeds and the value of the
stock on the day the option was exercised. This capital gain or loss will be
long-term if the participant has held the stock for more than one year and
otherwise will be short-term.
RESTRICTED STOCK
A participant will not have income upon the grant of restricted stock
unless an election under Section 83(b) of the Code is made within 30 days of the
date of grant. If a timely 83(b) election is made, then a participant will have
compensation income equal to the value of the stock less the purchase price.
When the stock is sold, the participant will have capital gain or loss equal to
the difference between the sales proceeds and the value of the stock on the date
of grant. If the participant does not make an 83(b) election, then when the
stock vests the participant will have compensation income equal to the value of
the stock on the vesting date less the purchase price. When the stock is sold,
the participant will have capital gain or loss equal to the sales proceeds less
the value of the stock on the vesting date. Any capital gain or loss will be
long-term if the participant held the stock for move than one year and otherwise
will be short-term.
TAX CONSEQUENCES TO US
There will be not tax consequences to us except that we will be entitled
to a deduction when a participant has compensation income. Any such deduction
will be subject to the limitations of Section 162(m) of the Code.
-26-
PREVIOUSLY GRANTED OPTIONS UNDER THE 1996 STOCK OPTION PLAN
Through March 31, 2002, we had granted options to purchase an aggregate
of 2,064,630(1) shares of common stock under the 1996 Stock Option Plan at an
average exercise price of $10.93 per share. As of March 31, 2002, 855,866
options to purchase shares were vested and 12,775 options to purchase shares had
been exercised under the 1996 Stock Option Plan. The following table sets forth
the options granted under the 1996 Stock Option Plan to (i) the Named
Executives; (ii) all current executive officers as a group; (iii) each nominee
for election as a Director; (iv) all current Directors who are not executive
officers as a group; (v) each associate of any of such Directors, executive
officers or nominees; (vi) each person who has received or is to receive 5% of
such options or rights; and (vii) all employees, including all current officers
who are not executive officers, as a group:
OPTIONS GRANTED
THROUGH WEIGHTED AVERAGE
NAME MARCH 31, 2002(2) EXERCISE PRICE EXPIRATION DATE
- ---------------------------------------------- ----------------- ------------------ -----------------
Brian M. Gallagher, Ph.D..................... 295,000 $10.96 2/2007 - 1/2012
Robert A. Ashley............................. 130,000 $10.94 2/2007 - 1/2012
Nancy C. Broadbent........................... 105,000 $10.21 2/2007 - 1/2012
Douglas C. Gehrig............................ 150,000 $11.49 7/2007 - 1/2012
David F. Pfeiffer............................ 170,000 $11.67 7/2007 - 1/2012
All current executive officers as a group
(7 persons)(3)............................ 975,000 $10.88 2/2007 - 1/2012
All current Directors who are not executive
officers as a group (6 persons)........... -- -- --
All employees, including all current
officers who are not executive officers,
as a group (150 persons)(3)(4)............ 1,089,630 $10.98 11/2006-3/2012
As of March 31, 2002, the market value of the common stock underlying the
1996 Stock Option Plan was $11.00 per share.
- -----------
(1) Of the 2,064,630 options granted as of March 31, 2002, 232,000 of such
options have been canceled and may be reissued by us.
(2) Options are granted under the 1996 Stock Option Plan pursuant to various
vesting schedules. In general, such options vest over two (2) to five (5)
year periods.
(3) All 157 of our employees and consultants are eligible to participate in
the 1996 Stock Option Plan.
(4) Includes 3 consultants who were granted options to purchase an aggregate
of 60,000 shares of common stock at an exercise price of $12.19 per share
with an expiration date of February 2009.
Each of the following individuals prior to the proposed increase in
shares of common stock available under the 1996 Stock Option Plan, holds more
than five-percent (5%) of the total options issuable under the 1996 Stock Option
Plan: Brian M. Gallagher, Ph.D. 14.8%; Robert A. Ashley 6.5%; Nancy C. Broadbent
5.3%; Douglas C. Gehrig 7.5% and David F. Pfeiffer 8.5%. Subsequent to the
adoption of the proposed amendment to the 1996 Stock Option Plan, as further
discussed below, each of the following individuals will hold more than
five-percent of the total options issuable under the 1996 Stock Option Plan:
Brian M. Gallagher, Ph.D. 11.8%; Robert A. Ashley 5.2%; Douglas C. Gehrig 6.0%
and David F. Pfeiffer 6.8%.
-27-
PROPOSED AMENDMENT
Stockholders are being asked to consider and vote upon a proposed
amendment to the 1996 Stock Option Plan to increase the maximum number of shares
of common stock available for issuance under the 1996 Stock Option Plan from
2,000,000 to 2,500,000 shares and to reserve an additional 500,000 shares of our
common stock for issuance in connection with awards granted under the 1996 Stock
Option Plan.
The Board of Directors believes that the Amendment provides an important
inducement to recruit and retain the best available personnel. The Board of
Directors believes that providing employees with an opportunity to invest in the
Company rewards them appropriately for their efforts on behalf of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Our Board of Directors intends, subject to stockholder approval, to
retain KPMG LLP as our independent auditors for the year ending December 31,
2002. KPMG LLP also served as our independent auditors for 2001.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER
31, 2002.
Representatives of KPMG LLP are expected to attend the Annual Meeting and
have an opportunity to make a statement and/or respond to appropriate questions
from stockholders.
STOCKHOLDERS' PROPOSALS
Stockholders who intend to have a proposal considered for inclusion in
our proxy materials for presentation at our 2003 Annual Meeting of Stockholders
pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934, as
amended, must submit the proposal to us at our offices at 41 University Drive,
Newtown, Pennsylvania 18940, attention Nancy C. Broadbent, not later than
December 12, 2002.
Stockholders who intend to present a proposal at such meeting without
inclusion of such proposal in our proxy materials pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended, are required to provide
advanced notice of such proposal to us at the aforementioned address not later
than February 25, 2003.
If we do not receive notice of a stockholder proposal within this
timeframe, our management will use their discretionary authority to vote the
shares they represent, as our Board of Directors may recommend. We reserve the
right to reject, rule out of order, or take other appropriate action with
respect to any proposal that does not comply with these other applicable
requirements.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of our Proxy Statement or Annual Report may have been
sent to multiple stockholders in your household. We will promptly deliver a
separate copy of either document to you if you call or write us at 41 University
Drive, Newtown, Pennsylvania 18940, or call us at (215) 579-7388. If you want to
receive separate copies of the Annual Report and Proxy Statement in the future,
or if you are receiving multiple copies and would like to receive only one copy
for your household, you should contact your bank, broker, or other nominee
record holder, or you may contact us at the above address and phone number.
-28-
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Annual Meeting other than the matters referred to above and does
not intend to bring any other matters before the Annual Meeting. However, if
other matters should come before the Annual Meeting, it is intended that holders
of the proxies will vote thereon in their discretion.
GENERAL
The accompanying proxy is solicited by and on behalf of our Board of
Directors, whose notice of meeting is attached to this Proxy Statement, and the
entire cost of such solicitation will be borne by us.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by directors, officers and other employees of
the Company who will not be specially compensated for these services. We will
also request that brokers, nominees, custodians and other fiduciaries forward
soliciting materials to the beneficial owners of shares held of record by such
brokers, nominees, custodians and other fiduciaries. We will reimburse such
persons for their reasonable expenses in connection therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of our directors and officers is based upon
information received from the individual directors and officers.
WE WILL FURNISH, WITHOUT CHARGE, A COPY OF OUR REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 2001, INCLUDING CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF OUR STOCKHOLDERS OF
RECORD ON APRIL 4, 2002, AND TO EACH BENEFICIAL STOCKHOLDER ON THAT DATE UPON
WRITTEN REQUEST MADE TO MS. NANCY C. BROADBENT, SECRETARY, COLLAGENEX
PHARMACEUTICALS, INC., 41 UNIVERSITY DRIVE, NEWTOWN, PENNSYLVANIA 18940. A
REASONABLE FEE WILL BE CHARGED FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE
IN THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
/s/ Nancy C. Broadbent
Nancy C. Broadbent,
Secretary
Newtown, Pennsylvania
April 15, 2002
-29-
COMMON STOCK
COLLAGENEX PHARMACEUTICALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Brian M. Gallagher, Ph.D.
and Nancy C. Broadbent, and each of them, his or her true and lawful agent and
proxy with full power of substitution in each, to represent and to vote on
behalf of the undersigned all of the shares of CollaGenex Pharmaceuticals, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the Philadelphia Airport Marriott
Hotel, One Arrivals Road, Philadelphia, Pennsylvania at 8:30 A.M., local time,
on Thursday, May 9, 2002, and at any adjournment or adjournments thereof, upon
the following proposals more fully described in the Notice of Annual Meeting of
Stockholders and Proxy Statement for the Meeting (receipt of which is hereby
acknowledged).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
COLLAGENEX PHARMACEUTICALS, INC.
COMMON STOCK
MAY 9, 2002
Please detach and mail in the envelope provided
A [X] Please mark your votes as in this example.
1. ELECTION OF FOR WITHHELD Nominees:
DIRECTORS. [ ] [ ] Brian M. Gallagher, Ph.D. James E. Daverman
Peter R. Barnett, D.M.D Robert J. Easton
VOTE FOR all the nominees listed at right; Robert C. Black W. James O'Shea
except vote withheld from the following
nominee(s) (if any).
-------------------------------------------------
2. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK OPTION PLAN FOR AGAINST ABSTAIN
TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF COMMON STOCK [ ] [ ] [ ]
AVAILABLE FOR ISSUANCE THEREUNDER FROM 2,000,000 SHARES TO 2,500,000
SHARES AND TO RESERVE AN ADDITIONAL 500,000 SHARES OF COMMON STOCK OF
THE COMPANY FOR ISSUANCE IN CONNECTION WITH AWARDS GRANTED UNDER THE
1996 STOCK OPTION PLAN.
3. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE FOR AGAINST ABSTAIN
INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, [ ] [ ] [ ]
2002.
4. In his or her discretion, the proxy is authorized to vote upon other
matters as may properly come before the Meeting.
I will I will not
[ ] [ ]
attend the Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Signature of Common Stockholder Signature of Common Stockholder Dated:
---------------------- ------------------------ -----------
IF HELD JOINTLY
NOTE: THIS PROXY MUST BE SIGNED EXACTLY AS THE NAME APPEARS HEREON. WHEN SHARES
ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER,
GIVING FULL TITLE AS SUCH. IF THE SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
PREFERRED STOCK
COLLAGENEX PHARMACEUTICALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Brian M. Gallagher, Ph.D.
and Nancy C. Broadbent, and each of them, his or her true and lawful agent and
proxy with full power of substitution in each, to represent and to vote on
behalf of the undersigned all of the shares of CollaGenex Pharmaceuticals, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the Philadelphia Airport Marriott
Hotel, One Arrivals Road, Philadelphia, Pennsylvania at 8:30 A.M., local time,
on Thursday, May 9, 2002, and at any adjournment or adjournments thereof, upon
the following proposals more fully described in the Notice of Annual Meeting of
Stockholders and Proxy Statement for the Meeting (receipt of which is hereby
acknowledged).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE
ANNUAL MEETING OF STOCKHOLDERS
COLLAGENEX PHARMACEUTICALS, INC.
PREFERRED STOCK
MAY 9, 2002
Please detach and mail in the envelope provided
A [ ] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
FOR WITHHELD
[ ] [ ]
1. ELECTION
OF
STEPHEN A. KAPLAN AS DIRECTOR
2. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK OPTION PLAN TO FOR AGAINST ABSTAIN
INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF COMMON STOCK AVAILABLE [ ] [ ] [ ]
FOR ISSUANCE THEREUNDER FROM 2,000,000 SHARES TO 2,500,000 SHARES AND TO
RESERVE AN ADDITIONAL 500,000 SHARES OF COMMON STOCK OF THE COMPANY FOR
ISSUANCE IN CONNECTION WITH AWARDS GRANTED UNDER THE 1996 STOCK OPTION
PLAN.
3. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE FOR AGAINST ABSTAIN
INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, [ ] [ ] [ ]
2002.
4. In his or her discretion, the proxy is authorized to vote upon other
matters as may properly come before the Meeting.
I will I will not
[ ] [ ]
attend the Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Signature of Preferred Stockholder Signature of Preferred Stockholder Dated:
------------------------ ----------------------- ----------
IF HELD JOINTLY
NOTE: THIS PROXY MUST BE SIGNED EXACTLY AS THE NAME APPEARS HEREON. WHEN SHARES
ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER,
GIVING FULL TITLE AS SUCH. IF THE SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
APPENDIX A
COLLAGENEX PHARMACEUTICALS, INC.
1996 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, non-Employee
members of the Board and Consultants of the Company and its Subsidiaries and to
promote the success of the Company's business. Options granted under the Plan
may be incentive stock options (as defined under Section 422 of the Code) or
non-statutory stock options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder. Stock purchase
rights may also be granted under the Plan.
2. CERTAIN DEFINITIONS. As used herein, the following definitions
shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common stock" means the Common Stock of the Company.
(f) "Company" means CollaGenex Pharmaceuticals, Inc., a Delaware
corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
(i) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange for the last market trading day prior to the time of
determination as reported in the Wall Street Journal or such other source as the
Administrator deems reliable or;
(ii) If the Common Stock is quoted on Nasdaq (but not on the
National Market System thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high and low asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
(o) "Optioned Stock" means the Common Stock subject to an
Option.
(p) "Optionee" means an Employee or Consultant who receives an
Option.
(q) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1996 Stock Plan.
(s) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of stock purchase rights under Section 11 below.
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(t) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(u) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 2,000,000 shares of Common Stock, such number of shares
determined on a post-reverse stock split recapitalization basis, such
recapitalization to be completed upon consummation of the Company's proposed
initial public offering of Common Stock. The shares may be authorized, but
unissued, or reacquired Common Stock.
If an option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
respect to grants of Options or stock purchase rights to Employees who are also
officers or directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") with
respect to a plan intended to qualify thereunder as a discretionary plan, or (B)
a Committee designated by the Board to administer the Plan, which Committee
shall be constituted in such a manner as to permit the Plan to comply with Rule
16b-3 with respect to a plan intended to qualify thereunder as a discretionary
plan. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to directors,
non-director officers and Employees who are neither directors nor officers.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Options or stock purchase rights to
Employees who are neither directors nor officers of the Company or to
Consultants, the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with Rule 16b-3, or (B) a Committee designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy the legal
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requirements relating to the administration of incentive stock option plans, if
any, of Delaware corporate law and applicable securities laws and of the Code
(the "Applicable Laws"). Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and stock purchase rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and stock
purchase rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation or waiver of
forfeiture restrictions regarding any Option or other award and/or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period);
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted; and
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(x) to determine the terms and restrictions applicable to stock
purchase rights and the Restricted Stock purchased by exercising such stock
purchase rights.
(c) EFFECT OF COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his right or the Company's right to terminate
his employment or consulting relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
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7. TERM OF OPTION. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that in the case of an Incentive
Stock Option, the term shall be no more than ten (10) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
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for the total number of Shares as to which the option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under Applicable Laws. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his Option to the extent
that Optionee was entitled to exercise
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it at the date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of such termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
but only within twelve (12) months from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee,
the Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) RULE 16B-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee. The terms of the
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
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11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock purchase rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer stock purchase rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the stock purchase right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the Committee
may determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the stock purchase right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock purchase right is exercised, except as provided in Section 13
of the Plan.
12. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS.
At the discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax liability
in connection with an Option or stock purchase right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold
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from the Shares to be issued upon exercise of the Option, or the Shares to be
issued in connection with the stock purchase right, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this
purpose shall be made in writing in a form acceptable to the Administrator and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval
of the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or stock purchase
right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of
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any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger or consolidation of the Company with or into
another corporation or the sale of all or substantially all of the Company's
assets (hereinafter, a "merger"), the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that such successor
corporation does not agree to assume the Option or to substitute an equivalent
option, the Board shall, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger, the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option will terminate upon the
expiration of such period. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger, the Option or right confers the
right to purchase, for each Share of stock subject to the Option immediately
prior to the merger, the consideration (whether stock, cash, or other securities
or property) received in the merger by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger was not solely common stock of the
successor corporation or its Parent, the Board may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of the Option, for each Share of stock subject to the
Option, to be solely common stock of the successor corporation or its Parent
equal in Fair Market Value to the per share consideration received by holders of
Common Stock in the merger or sale of assets.
14. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
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Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
18. AGREEMENTS. Options and stock purchase rights shall be evidenced
by written agreements in such form as the Board shall approve from time to time.
19. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
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20. INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
to equivalent information.
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