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|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under Rule 14a-12
CollaGenex Pharmaceuticals, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
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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
is calculated and state how it was determined):
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|_| Fee paid previously with preliminary materials:
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Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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COLLAGENEX PHARMACEUTICALS, INC.
41 University Drive
Newtown, PA 18940
April 23, 2003
To Our Stockholders:
You are cordially invited to attend the 2003 Annual Meeting of Stockholders
of CollaGenex Pharmaceuticals, Inc. at 8:30 A.M., local time, on Tuesday, May
20, 2003, 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 20, 2003
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 Tuesday, May 20, 2003, 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
2,500,000 to 3,000,000 shares and to reserve an additional 500,000 shares
of our common stock for issuance in connection with such increase for
awards to be 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, 2003; 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 14, 2003 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 23, 2003
Our 2002 Annual Report accompanies the Proxy Statement.
COLLAGENEX PHARMACEUTICALS, INC.
41 University Drive
Newtown, PA 18940
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PROXY STATEMENT
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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 Tuesday, May 20,
2003 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 14, 2003, 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 11,408,704 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 2,021,572
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 13,430,276, including the 2,021,572 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 only the holders of Series D preferred stock will 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 aggregate number of shares of common stock available for issuance
thereunder from 2,500,000 to 3,000,000 shares and to reserve an additional
500,000 shares of our common stock for issuance in connection with such increase
for awards to be 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, 2003, 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 such holders at the Annual
Meeting, shall constitute a quorum with respect to all matters except for the
election of directors. The presence, in person or by proxy, of holders of shares
of each of our common stock and our Series D preferred stock having a majority
of the votes entitled to be cast by each respective class of stock at the Annual
Meeting shall constitute a quorum with respect to the election of directors to
be elected by each respective class. 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 represented at
the Annual Meeting is required for the election of the Series D Director,
provided a quorum is present. 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 23, 2003. The Annual Report to
Stockholders of the Company for the year ended December 31, 2002, including
financial statements, is being mailed together with this Proxy Statement to all
stockholders of record as of April 14, 2003. 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 14, 2003.
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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 2004
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.
We are currently in the process of recruiting a new President and Chief
Executive Officer. Brian Gallagher, our current President and Chief Executive
Officer, has agreed to serve in such capacity pending the appointment of a
successor and to assist in an orderly transition process. In connection with
such transition, Dr. Gallagher has agreed to resign his position as a director
of the Company if requested by the Board of Directors. It is expected that Dr.
Gallagher's successor would also serve as a director of the Company whether or
not Dr. Gallagher continues to serve as a director.
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............. 55 1994 President, Chief Executive Officer
and Chairman of the Board
Peter R. Barnett, D.M.D.............. 51 1997 Director
Robert C. Black...................... 60 1999 Director
James E. Daverman.................... 53 1995 Director
Robert J. Easton..................... 58 1993 Director
W. James O'Shea...................... 53 2000 Director
Series D Preferred Stock Director:
- ----------------------------------
Served as a Position(s) with
Name Age Director Since the Company
- ---- --- -------------- ----------------
Stephen A. Kaplan.................... 44 1999 Director
The principal occupations and business experience, for at least the past
five years, of each nominee are as follows:
-3-
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 in vivo 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.
Dr. Barnett has been a member of our Board of Directors since February
1997. Dr. Barnett has served as President and Chief Executive Officer of Group
Dental Service, Inc., a dental insurance company, since November 2002. From
September 2001 to November 2002, he served as an independent healthcare
consultant. Dr. Barnett was formerly the 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 serves as a director and compensation committee member of numerous
privately held companies.
Mr. Easton has been a member of our Board of Directors since November 1993.
He currently serves as Chairman of Easton Associates, a healthcare 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 Regal
Entertainment Group and General Maritime Corporation, as well as numerous
privately held companies.
Pursuant to the terms of the 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.
Except as set forth above with respect to Dr. Gallagher, 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.
-4-
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.
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 Amended
and Restated 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 the
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.
There were seven meetings of the Board of Directors during 2002. 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
during 2002 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 four meetings in 2002. The
primary responsibilities of the Compensation Committee include approving
salaries and incentive compensation for our executive officers and administering
our stock option plans.
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 two meetings in 2002. 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 Peter R. Barnett. 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 2002. 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 2002, Brian M. Gallagher, Ph.D. was not paid any compensation for
his services as Chairman of the Board. Effective July 2002, each non-employee
director shall receive an annual retainer of $12,000 (such retainer was prorated
for the period from July 2002 to December 2002), a fee of $2,000 for each
regularly scheduled meeting of the Board of Directors attended in person and an
annual fee of $1,000 for each Committee on which they serve. 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 AND RELATED SHAREHOLDER MATTERS."
On July 8, 2002, we granted to each non-employee director, options to
purchase 10,356 shares of common stock at an exercise price per share of $6.60.
Such options vest in four equal annual installments commencing one year after
the date of grant. Beginning with the 2003 Annual Meeting of Stockholders, upon
re-election, each non-employee director shall automatically be granted an option
to purchase 12,000 shares of common stock, at an exercise price per share equal
to the then current fair market value per share. All such options shall become
exercisable in four equal annual installments commencing one year after the date
of grant, provided that the optionee then remains a director. 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
February 18, 2003
To the Board of Directors of CollaGenex Pharmaceuticals, Inc.:
We have reviewed and discussed with management the Company's audited
consolidated financial statements as of and for the year ended December 31,
2002.
Management is responsible for the Company's internal controls and financial
reporting process. The Company's independent auditors are responsible for
performing an audit of the Company's consolidated financial statements in
accordance with auditing standards generally accepted in the United States of
America and to issue a report on those consolidated financial statements. As
appropriate, the Audit Committee reviews, 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 consolidated 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, accounting and financial
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;
-6-
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.
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 we 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 consolidated financial statements referred to above
be included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.
James E. Daverman
Audit Committee Chairman
Robert J. Easton
Audit Committee Member
Peter R. Barnett
Audit Committee Member
INDEPENDENT AUDITORS' FEES AND OTHER MATTERS
The following table presents fees for professional services rendered by
KPMG LLP for the audit of our annual consolidated financial statements for the
year ended December 31, 2002, and fees for other services rendered by KPMG LLP
for the year ended December 31, 2002:
Fee Amount
Audit Fees
(excluding audit-related services)(1) ... $110,000
========
Financial Information Systems Design and
Implementation(2)........................ $ 0
========
All Other Fees:
Audit-Related Fees (3)................... $ 22,000
Other Non-Audit Services(4).............. $ 28,600
--------
Total $ 50,600
========
(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, 2002.
-7-
(2) KPMG LLP did not provide any professional services to us or our affiliates
for the fiscal year ended December 31, 2002 in connection with financial
information systems design or implementation, the operation of our
information system or the management of our local area network.
(3) Such amount consists principally of professional services rendered for
issuing consents in connection with our filing of registration statements
and certain accounting consultation for potential transactions.
(4) Other non-audit related fees consisted principally 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................. 55 President, Chief Executive April 1994
Officer and Chairman of the (Director since November
Board 1994 and Chairman since
March 2000)
Robert A. Ashley(1)...................... 45 Senior Vice President, January 1999
Commercial Development (Vice President,
Commercial Development
since September 1994)
Nancy C. Broadbent(2).................... 47 Chief Financial Officer, March 1996
Treasurer and Secretary
David P. Pfeiffer(3)..................... 40 Senior Vice President, December 2000
Sales and Marketing (Vice President, Marketing
since June 1997)
As previously reported, we have commenced an executive search for a
successor President and Chief Executive Officer to Dr. Gallagher. Dr. Gallagher
has agreed to remain in his current position until a successor is appointed, and
he will work closely with the Company as a consultant for a period of time
thereafter to ensure a smooth transition. We have established a search committee
of our board of directors and have engaged an executive recruiting firm to help
identify a successor to Dr. Gallagher. The Company and Dr. Gallagher have
executed an agreement, pursuant to which we shall compensate Dr. Gallagher for,
among other things, his services during the transition period and to recognize
his historical contributions to the Company. We also entered into a consulting
agreement with Dr. Gallagher pursuant to which he will provide consulting
services to us for a period of 24 months following the appointment of a new
chief executive officer.
(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. 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.
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. Robert J. Easton, a member
of our board of directors, failed to timely file a Form 4 relating to the
issuance of shares of our common stock in payment of dividends on shares of our
Series D preferred stock held by Mr. Easton. Mr. Easton subsequently filed a
Form 5 with the Securities and Exchange Commission on February 13, 2003. James
E. Daverman, a member of our board of directors, 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. Representatives of
Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P. failed to
timely file a Form 4 relating to the issuance of shares of our common stock in
payment of dividends on shares of our Series D preferred stock held by Marquette
Venture Partners II, L.P. and MVP II Affiliates Fund, L.P. A Form 5 was filed
with the Securities and Exchange Commission on February 13, 2003 on behalf of
Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P.
-10-
EXECUTIVE COMPENSATION
Summary of Compensation in Fiscal 2002, 2001 and 2000
The following Summary Compensation Table sets forth information concerning
compensation during the years ended December 31, 2002, 2001 and 2000 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 2002, each other of our
executive officers as of December 31, 2002 and certain individuals who served as
executive officers during a part of 2002, whose aggregate cash compensation
exceeded $100,000 at the end of 2002 (collectively referred to as the "Named
Executives").
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
Annual Compensation(1) Awards
----------------------------------------------------------------
Securities
Underlying
Name and Principal Position Year Salary Bonus Options
($) ($) (#)
(a) (b) (c) (d) (g)
- ----------------------------------------------------------------------------------------------------------------------
Brian M. Gallagher, Ph.D....... 2002 324,450 79,436 75,000
President, Chief Executive 2001 315,000 131,615 100,000
Officer and Chairman of the 2000 300,000 35,615 95,000
Board
Robert A. Ashley................ 2002 231,750 72,827 40,000
Senior Vice President, 2001 225,000 93,908 80,000
Commercial Development 2000 215,000 29,708 40,000
Nancy C. Broadbent.............. 2002 216,300 72,807 30,000
Chief Financial Officer, 2001 210,000 87,881 50,000
Treasurer and Secretary 2000 200,000 3,881 25,000
David F. Pfeiffer .............. 2002 231,750 72,759 40,000
Senior Vice President, Sales 2001 225,000 93,812 80,000
and Marketing 2000 210,000 29,012 50,000
Douglas C. Gehrig............... 2002 206,000 57,166 30,000
Vice President, Corporate 2001 200,000 82,712 50,000
Accounts 2000 190,000 27,912 40,000
Michael Romanowicz, D.M.D.,
R.Ph...................... 2002 175,000 58,836 30,000
Vice President of 2001 140,000 31,412 15,000
Professional Affairs and 2000 125,000 26,214 9,000
Managed Care
- -----------
(1) In accordance with the rules of the Securities and Exchange Commission, the
costs of certain perquisites and other personal benefits are not included
because they did not exceed, in the case of each Named Executive, the
lesser of $50,000 or 10% of the total annual salary and bonus for the Named
Executives for the fiscal years reported in the above table.
-11-
Option Grants in 2002
The following table sets forth information concerning individual grants
of stock options made during 2002 to each of the Named Executives.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------
Potential Realizable
Percent of Value at
Number of Total Assumed Annual Rates of
Securities Options Stock
Underlying Granted to Exercise Price Appreciation for
Options Employees in or Base Option
Granted Fiscal Price Expiration Term (3)
Name (#) Year (1) ($/Sh)(2) Date 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- ------------------------------------------------------------------------------------------------------------------------
Brian M. Gallagher, Ph.D..... 75,000 12.17 7.97 1/24/12 375,922 952,660
Robert A. Ashley............. 40,000 6.49 7.97 1/24/12 200,492 508,085
Nancy C. Broadbent........... 30,000 4.87 7.97 1/24/12 150,369 381,064
David F. Pfeiffer............ 40,000 6.49 7.97 1/24/12 200,492 508,085
Douglas C. Gehrig............ 30,000 4.87 7.97 1/24/12 150,369 381,064
Michael Romanowicz,
D.M.D. ................. 30,000 4.87 7.95 1/01/12 149,991 380,108
- -----------
(1) Based on an aggregate of 616,086 options granted to employees in 2002,
including options granted to Named Executives.
(2) Based on a grant date fair market value equal to the grant date exercise
price per share of the applicable option for each of the Named Executives
and assumes no adjustments to the grant date exercise price.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
terms assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the common stock on the date of option grant over the
term of the options. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and common stock holdings are dependent on the
timing of such exercise and the future performance of the common stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts will be received by the option
holder.
-12-
Aggregated Option Exercises in 2002 and Year End Option Values
The following table sets forth information concerning each exercise of
options during 2002 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 Value of
Securities 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......... -- -- 333,000/237,000 1,263,250/420,750
Robert A. Ashley................. -- -- 151,500/131,000 525,605/283,520
Nancy C. Broadbent............... 5,000 28,000 105,000/90,000 275,450/190,875
David F. Pfeiffer................ -- -- 143,000/132,000 189,520/280,280
Douglas C. Gehrig................ -- -- 126,999/98,001 137,887/187,638
Michael Romanowicz, D.M.D....... -- -- 24,250/49,750 31,758/101,064
- ----------
(1) Based on a year end fair market value of the underlying securities equal to
$9.49 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.
On September 18, 2002, we entered into change of control agreements with
each of Dr. Gallagher, Ms. Broadbent and Messrs. Ashley, Gehrig and Pfeiffer. In
the event the employment of Dr. Gallagher, Ms. Broadbent, Mr. Ashley, Mr. Gehrig
or Mr. Pfeiffer is terminated as a result of an Involuntary Termination within
24 months of a Change of Control (each as defined in such agreements), the
change of control agreements provide for, among other things (i) a lump sum
payment of 1.5 times base salary and 1.5 times the average bonus paid for the
three fiscal years prior to the Termination Date (as defined in the agreements),
(ii) health coverage and benefits for a period of 24 months, and (iii) certain
outplacement/administrative support for a period of 18 months.
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-
As previously reported, we have commenced an executive search for a
successor President and Chief Executive Officer to Dr. Gallagher. Dr. Gallagher
has agreed to remain in his current position until a successor is appointed, and
he will work closely with the Company as a consultant for a period of time
thereafter to ensure a smooth transition. We have established a search committee
of our board of directors and have engaged an executive recruiting firm to help
identify a successor to Dr. Gallagher. The Company and Dr. Gallagher have
executed a Transition Agreement and Release, pursuant to which we shall
compensate Dr. Gallagher for, among other things, his services during the
transition period and to recognize his historical contributions to the Company.
Under the terms of such agreement, Dr. Gallagher is eligible for a one-time,
lump sum bonus of $150,000, to be paid to Dr. Gallagher in connection with his
separation from the Company. Of such amount, $50,000 shall be earned by Dr.
Gallagher automatically on the date of his separation from the Company and
$100,000 shall be paid on such date based upon his continued performance prior
to separation. The Company has also agreed to reimburse Dr. Gallagher for
certain COBRA premiums, or to make certain comparable payments to Dr. Gallagher,
for a period of 24 months following his separation from the Company. The Company
also agreed to pay Dr. Gallagher a lump sum of $15,000 at the time of separation
for certain expenses. The Company also agreed, effective upon the execution of
such agreement, to accelerate Dr. Gallagher's right to exercise all unvested
stock options previously granted to him. In addition, the exercise dates for
certain of Dr. Gallagher's options were extended to the latest date on which the
options would have expired according to their respective terms.
As a result of the Transition Agreement and Release, we recognized a
non-cash compensation charge relating to modifications of Dr. Gallagher's stock
option agreements of approximately $251,000 in the first quarter of 2003. The
Company also agreed to reimburse Dr. Gallagher for certain excise taxes, if any,
imposed on him in connection with such agreement. We also entered into a
consulting agreement with Dr. Gallagher pursuant to which he will provide
consulting services to us for a period of 24 months following the appointment of
a new chief executive officer. Under such agreement, Dr. Gallagher is obligated
to provide approximately 80 hours of consulting services to the Company during
the first two months following his separation and approximately 15 hours per
month thereafter through the second anniversary date of his separation from the
Company. Dr. Gallagher shall provide such services as an independent contractor
at a rate of $27,037.50 per month.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of, and during 2002 consisted
of, W. James O'Shea, who serves as Chairman, Robert C. Black and Robert J.
Easton. There are no, and during 2002 there were no, Compensation Committee
interlocks.
As of March 15, 2003, Mr. Easton, in his individual capacity, held 26,409
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, 2003, Mr. Easton also held 2,000
shares of our Series D preferred stock which were convertible into 20,216 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 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
-14-
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 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, 1998 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
Period June December June December June December June December June December
Company/ January 1, 30, 31, 30, 31, 30, 31, 30, 31, 30, 31,
Index Name 1998 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002
- ------------- --------- ------ -------- ------- ------- ------- ------- ------- ------- ------ ------
CGPI......... $100.00 $ 68.96 $ 76.96 $ 80.00 $200.00 $ 75.04 $ 29.52 $ 65.60 $64.80 $59.20 $75.92
NASDAQ....... $100.00 $109.24 $144.64 $160.36 $182.32 $295.21 $302.18 $199.65 $162.93 $138.97 $115.56
NASDAQ PHAR.. $100.00 $146.95 $231.68 $250.08 $271.84 $297.09 $217.94 $129.37 $115.58 $92.22 $91.06
(1) Graph assumes $100 invested on January 1, 1998 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 the Chief Executive Officer'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 the
Chief Executive Officer's interests with the interests of our stockholders, the
Compensation Committee attempts to make a substantial portion of the value of
the Chief Executive Officer's total compensation dependent on the appreciation
of our stock price.
-17-
The Chief Executive Officer'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 $79,436 for 2002, which was paid in 2003
and set his base salary at $324,450 effective January 1, 2003.
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
AND RELATED SHAREHOLDER MATTERS
There were, as of March 15, 2003, approximately 121 holders of record and
approximately 3,023 beneficial holders of our common stock. The following table
sets forth certain information, as of March 15, 2003, 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 executive 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.......................... 2,220,823(3) 16.8%
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) 10.9%
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109............................ 1,116,927(5) 9.8%
Marquette Venture Partners II, L.P.
and MVP II Affiliates Fund, L.P.
520 Lake Cook Road, Suite 450
Deerfield, Illinois 60015.............................. 1,028,031(6) 8.9%
Ashford Capital Management, Inc.
P.O. Box 4172
Wilmington, Delaware 19807............................. 869,766(7) 7.5%
(ii) Directors (which includes all nominees) and Named Executives:
Brian M. Gallagher, Ph.D............................... 695,000(8) 5.8%
Robert A. Ashley....................................... 220,100(9) 1.9%
Nancy C. Broadbent..................................... 186,500(10) 1.6%
David F. Pfeiffer...................................... 195,500(11) 1.7%
Douglas C. Gehrig...................................... 166,820(12) 1.4%
Michael Romanowicz, D.M.D............................. 33,000(13) *
Peter R. Barnett, D.M.D................................ 28,900(14) *
Robert Black........................................... 15,000(15) *
James E. Daverman...................................... 1,108,031(16) 9.6%
Robert J. Easton....................................... 76,075(17) *
Stephen Kaplan......................................... 2,233,823(18) 16.9%
W. James O'Shea........................................ 10,000(19) *
(iii) All Directors and executive officers as a
group (10 persons)............................ 4,768,929(20) 32.8%
- -----------
* 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 11,406,204
shares of common stock outstanding on March 15, 2003, 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, 2003.
(3) Includes 1,789,090 shares of common stock issuable upon the conversion of
177,000 shares the Series D preferred stock held thereby and 431,733 shares
of common stock, including 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, 2003 or 60 days after such date.
(5) As disclosed on a Schedule 13G filed with the Securities and Exchange
Commission on February 12, 2003, assuming no changes in beneficial
ownership since such filing. According to such Schedule 13G, Wellington
Management Company, in its capacity as investment adviser, may be deemed to
beneficially own 1,116,927 shares of common stock, which shares are held of
record by clients of Wellington Management Company. Wellington Management
Company reports that it has shared power to vote or direct the vote of
519,100 shares and shared power to dispose or direct the disposition of
1,116,927 shares, while its clients have the right to receive, or direct
the receipt of, dividends from, or proceeds from the sale of, such shares.
(6) Includes an aggregate of 1,024,215 shares of common stock owned by
Marquette Venture Partners II, L.P. (which includes 98,269 shares of common
stock issuable upon the conversion of 9,722 shares of the Series D
preferred stock held thereby, and 925,946 shares of common stock, including
shares of common stock issued in payment of dividends on such Series D
preferred stock) and an aggregate of 3,816 shares of common stock owned by
MVP II Affiliates Fund, L.P. (which includes 2,810 shares of common stock
issuable upon the conversion of 278 shares of the Series D preferred stock
held thereby, and 1,006 shares of common stock, including shares of common
stock issued in payment of dividends on such Series D preferred stock).
(7) Includes 195,000 shares of common stock registered in the name of Ashford
Capital Partners, LP and 171,700 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, 2003 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.
(8) Includes 570,000 shares of common stock underlying options which are or may
be exercisable as of March 15, 2003 or 60 days after such date.
(9) Includes 197,500 shares of common stock underlying options which are or may
be exercisable as of March 15, 2003 or 60 days after such date.
(10) Includes 137,500 shares of common stock underlying options which are or may
be exercisable as of March 15, 2003 or 60 days after such date. Also
includes 2,000 shares of common stock held as custodian for Ms. Broadbent's
minor child, 2,000 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.
(11) Includes 188,000 shares of common stock underlying options which are
exercisable as of March 15, 2003 or 60 days after such date.
-20-
(12) Includes 161,500 shares of common stock underlying options which are
exercisable as of March 15, 2003 or 60 days after such date.
(13) Includes 33,000 shares of common stock underlying options which are
exercisable as of March 15, 2003 or 60 days after such date.
(14) Includes 25,000 shares of common stock underlying options which are
exercisable as of March 15, 2003 or 60 days after such date.
(15) Includes 15,000 shares of common stock underlying options which are
exercisable as of March 15, 2003 or 60 days after such date.
(16) 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,
2003 or 60 days after such date and 55,000 shares of common stock otherwise
held by Mr. Daverman, individually.
(17) 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
20,216 shares of common stock issuable upon the conversion of 2,000 shares
of the Series D preferred stock held by Mr. Easton and 26,409 shares of
common stock, including shares of common stock issued in payment of
dividends on such Series D preferred stock. Also includes 4,450 shares of
common stock held as trustee for the Rachel Easton Charitable Trust.
(18) 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, 2003 or 60
days after such date.
(19) Includes 10,000 shares of common stock underlying options which are
exercisable as of March 15, 2003 or 60 days after such date.
(20) See Notes 8 through 19.
-21-
SERIES D PREFERRED STOCK
There were, as of March 15, 2003, 6 holders of record of our Series D
preferred stock. The following table sets forth certain information, as of March
15, 2003, 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
Beneficial Percent
Name and Address of Beneficial Owner(1) 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, 2003.
(3) Such shares of Series D preferred stock are convertible into 1,789,090
shares of common stock.
(4) Such shares of Series D preferred stock are convertible into 101,079 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 98,269 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
2,810 shares of common stock.
(6) Such shares of Series D preferred stock are convertible into 20,216 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-
Equity Compensation Plan Information
The following table provides information about the securities authorized
for issuance under our equity compensation plans as of December 31, 2002.
- -----------------------------------------------------------------------------------------------------------------
Number of Number of securities
securities to be remaining available for
issued upon Weighted-average future issuance under
exercise of exercise price of equity compensation
outstanding outstanding plans (excluding
options, warrants options, warrants securities reflected in
and rights and rights column (a))
Plan Category (a) (b) (c)
- ------------------------------------------------------------------------------------------------------------------
(i) Equity compensation plans approved
by security holders:
Option Plans(1)................ 2,237,695 $9.70 730,209(2)
(ii) Equity compensation plans not
approved by
security holders(3)........... 1,300,335 $6.32 --
Total............................... 3,538,030 $8.46 730,209
- ----------
(1) Includes information regarding the following stockholder-approved equity
compensation plans: (i) 1992 Stock Option Plan, as amended; (ii) 1996 Stock
Option Plan; and (iii) 1996 Non-Employee Director Stock Option Plan, as
amended.
(2) With respect to the 1996 Stock Option Plan, this table includes the 630,209
shares available for issuance prior to the Annual Meeting but excludes the
additional 500,000 shares that would be available for issuance if the
proposal set forth herein to increase the maximum aggregate number of
shares of common stock available for issuance under the 1996 Stock Option
Plan is approved at the Annual Meeting.
(3) The following describes the material features of our equity compensation
plans that have not been approved by our security holders, as set forth in
the above table:
On March 12, 2001, we consummated a private equity offering of
1,500,000 shares of common stock for an aggregate purchase price of $7.5
million. The investors in such financing were issued warrants to purchase
an aggregate of 400,000 shares of our common stock, which are exercisable
for up to three years from the date of such financing at an exercise price
per share of $6.00. We also issued to our financial advisor in such
financing warrants to purchase an aggregate of 150,000 shares of our common
stock, 142,860 of which remained outstanding as of December 31, 2002,
exercisable for up to three years from the date of such financing at an
exercise price of $5.70 per share, as partial consideration for services
rendered in connection with the financing. All such warrants may be deemed
automatically exercised in certain circumstances based upon our stock
price.
On February 14, 2002, we entered into an equity line arrangement under
the terms of a Common Stock Purchase Agreement with Kingsbridge Capital
Limited. The equity line provided for the sale of up to $8.5 million in
registered shares of our common stock to Kingsbridge. The equity line
terminated pursuant to its terms on February 13, 2003, and prior to such
termination, we had drawn down and issued an aggregate of approximately
$1.3 million in registered shares of common stock under such equity line
arrangement. In connection with the consummation of the equity line and
pursuant to the terms of a warrant agreement executed
-23-
by us, we issued Kingsbridge a warrant to purchase 40,000 shares of our
common stock at an exercise price of $9.38 per share. Such warrant became
exercisable as of August 14, 2002, and will expire on August 13, 2007. We
have registered the shares of our common stock which may be issued by us
upon any exercise of the warrant by Kingsbridge under a shelf registration
statement on Form S-3.
On January 15, 1999 and February 27, 2001, we granted options to Brian
M. Gallagher, Ph.D., our current President and Chief Executive Officer, to
purchase 75,000 and 100,000 shares of our common stock, respectively, at
respective per share exercise prices of $10.063 and $5.1875. Pursuant to
the terms of the Transition Agreement and Release we executed with Dr.
Gallagher (i) the vesting period of the options granted on January 15, 1999
has been accelerated such that they are fully vested and shall remain
exercisable until January 14, 2009, and (ii) the vesting period of the
options granted on February 27, 2001 has been accelerated such that they
are fully vested and shall remain exercisable until February 26, 2011.
On January 15, 1999 and February 27, 2001, we granted options to
Robert A. Ashley, our Senior Vice President of Commercial Development, to
purchase 35,000 and 80,000 shares of our common stock, respectively, at
respective per share exercise prices of $10.063 and $5.1875. The options
granted on January 15, 1999 vest in five equal annual installments
beginning on the first anniversary of the date of grant and expire on the
earlier of January 14, 2009 or 90 days after Mr. Ashley ceases to be
employed by the Company. Such January options will become immediately
exercisable if the closing price of our common stock, as quoted on the
Nasdaq National Market, exceeds a predetermined per share price for a
certain number of consecutive days. The options granted on February 27,
2001 vest in five equal installments beginning on the date of grant and
thereafter on each anniversary of the date of grant. Such February options
expire on the earlier of February 26, 2011 or 90 days after Mr. Ashley
ceases to be employed by the Company.
On January 15, 1999 and February 27, 2001, we granted options to Nancy
C. Broadbent, our Chief Financial Officer, Treasurer and Secretary, to
purchase 25,000 and 50,000 shares of our common stock, respectively, at
respective per share exercise prices of $10.063 and $5.1875. The options
granted on January 15, 1999 vest in five equal annual installments
beginning on the first anniversary of the date of grant and expire on the
earlier of January 14, 2009 or 90 days after Ms. Broadbent ceases to be
employed by the Company. Such January options will become immediately
exercisable if the closing price of our common stock, as quoted on the
Nasdaq National Market, exceeds a predetermined per share price for a
certain number of consecutive days. The options granted on February 27,
2001 vest in five equal installments beginning on the date of grant and
thereafter on each anniversary of the date of grant. Such February options
expire on the earlier of February 26, 2011 or 90 days after Ms. Broadbent
ceases to be employed by the Company.
On January 15, 1999 and February 27, 2001, we granted options to David
F. Pfeiffer, our Senior Vice President of Sales and Marketing, to purchase
25,000 and 80,000 shares of our common stock, respectively, at respective
per share exercise prices of $10.063 and $5.1875. The options granted on
January 15, 1999 vest in five equal annual installments beginning on the
first anniversary of the date of grant and expire on the earlier of January
14, 2009 or 90 days after Mr. Pfeiffer ceases to be employed by the
Company. Such January options will become immediately exercisable if the
closing price of our common stock, as quoted on the Nasdaq National Market,
exceeds a predetermined per share price for a certain number of consecutive
days. The options granted on February 27, 2001 vest in five equal
installments beginning on the date of grant and thereafter on each
anniversary of the date of grant. Such February options expire on the
earlier of February 26, 2011 or 90 days after Mr. Pfeiffer ceases to be
employed by the Company.
On January 15, 1999 and February 27, 2001, we granted options to
Douglas C. Gehrig, our Vice President of Corporate Accounts, to purchase
25,000 and 50,000 shares of our common stock, respectively, at respective
per share exercise prices of $10.063 and $5.1875. The options granted on
January 15, 1999 vest in five equal annual installments beginning on the
first anniversary of the date of grant and expire on the earlier of January
14, 2009 or 90 days after Mr. Gehrig ceases to be employed by the Company.
Such January options will become immediately exercisable if the closing
price of our common stock, as quoted on the Nasdaq National Market, exceeds
a predetermined per share price for a certain number of consecutive days.
The options granted on February 27, 2001 vest in five equal installments
beginning on the date of grant and thereafter on each anniversary of the
date of grant. Such February options expire on the earlier of February 26,
2011 or 90 days after Mr. Gehrig ceases to be employed by the Company.
-24-
On October 12, 2000, we granted options to Michael Romanowicz, our
Vice President of Professional Affairs and Managed Care, to purchase 9,000
shares of our common stock at an exercise price of $5.00 per share. The
options vest in four equal annual installments beginning on the first
anniversary of the date of grant and expire on the earlier of October 11,
2010 or 90 days after Mr. Romanowicz ceases to be employed by the Company.
On October 12, 2000, we granted options to approximately 128 of our
employees to purchase an aggregate of 228,750 shares of our common stock at
an exercise price of $5.00 per share. Such options generally vest in two to
four equal annual installments beginning on the first anniversary of the
date of grant and expire on the earlier of October 11, 2010 or 90 days
after employment with the Company terminates. As of December 31, 2002,
20,275 of such options had been exercised and 53,000 of such options had
been canceled.
In addition, on May 16, 1996, June 3, 1996 and January 15, 1999 we
granted options to four employees to purchase an aggregate of 18,500 shares
of common stock with exercise prices ranging from $2.00 to $10.063 per
share. As of December 31, 2002, 10,500 of such options had been exercised.
-25-
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, held by
Mr. Easton, who currently serves, and during 2002 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, 2003, holders of 925,946 and 1,006 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, 2003: (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 an aggregate of 101,079 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 1,789,090 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 2,500,000 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.
-26-
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 statutory stock
options, or NSOs 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 (under all plans of the Company and its
subsidiaries) 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 NSOs. 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 NSOs
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 NSOs 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 21, 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
-27-
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
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 Statutory 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.
-28-
NON STATUTORY STOCK OPTIONS
A participant will not have income upon the grant of a NSO. A participant
will have compensation income upon the exercise of a NSO 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 more 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.
-29-
PREVIOUSLY GRANTED OPTIONS UNDER THE 1996 STOCK OPTION PLAN
Through March 31, 2003, we had granted options to purchase an aggregate of
2,589,116(1) shares of common stock under the 1996 Stock Option Plan at an
average exercise price of $10.64 per share. As of March 31, 2003, 1,217,976
options to purchase shares were vested and 20,775 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) all current
Directors who are not executive officers as a group; (iv) each nominee for
election as a Director; (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, 2003(2) Exercise Price Expiration Date
- --------------------------------------------- ------------------ ----------------- ----------------
Brian M. Gallagher, Ph.D., President, Chief
Executive Officer and Chairman of the
Board..................................... 295,000 $10.96 2/2007 - 1/2012
Robert A. Ashley, Senior Vice President,
Commercial Development.................... 154,000 $10.82 2/2007 - 1/2013
Nancy C. Broadbent, Chief Financial Officer,
Treasurer and Secretary................... 129,000 $10.03 2/2007 - 1/2013
David F. Pfeiffer, Senior Vice President,
Sales and Marketing....................... 194,000 $11.48 7/2007 - 1/2013
Douglas C. Gehrig, Vice President, Corporate
Accounts.................................. 169,000 $11.34 7/2007 - 1/2013
Michael Romanowicz, D.M.D., R.Ph., Vice
President of Professional Affairs and
Managed Care ............................. 84,000 $10.58 11/2009 - 1/2013
Peter R. Barnett, D.M.D...................... 10,356 $6.60 7/2012
Robert C. Black.............................. 10,356 $6.60 7/2012
James E. Daverman............................ 10,356 $6.60 7/2012
Robert J. Easton............................. 10,356 $6.60 7/2012
W. James O'Shea.............................. 10,356 $6.60 7/2012
Stephen A. Kaplan............................ 10,356 $6.60 7/2012
All current executive officers as a group
(4 persons)(3)............................ 772,000 $10.91 2/2007 - 1/2013
All current Directors who are not executive
officers as a group (6 persons)........... 62,136 $6.60 7/2012
All employees, including all current
officers who are not executive officers,
as a group (148 persons)(3)(4)............ 1,754,980 $10.67 11/2006 - 3/2013
As of March 31, 2003, the market value of the common stock underlying
the 1996 Stock Option Plan was $8.55 per share.
- -----------
(1) Of the 2,589,116 options granted as of March 31, 2003, 292,625 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 to five year
periods.
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(3) All 152 of our current 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. 11.8%; Robert A. Ashley 6.2%; Nancy C. Broadbent
5.2%; David F. Pfeiffer 7.8%; and Douglas C. Gehrig 6.8%. 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. 9.8%; Robert A. Ashley 5.1%; David F. Pfeiffer 6.5%;
and Douglas C. Gehrig 5.6%.
PROPOSED AMENDMENT
Stockholders are being asked to consider and vote upon a proposed amendment
to the 1996 Stock Option Plan to increase the maximum aggregate number of shares
of common stock available for issuance under the 1996 Stock Option Plan from
2,500,000 to 3,000,000 shares and to reserve an additional 500,000 shares of our
common stock for issuance in connection with such increase for awards to be
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, 2003. KPMG
LLP also served as our independent auditors for 2002.
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, 2003.
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 2004 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 20, 2003.
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, 2004.
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.
-31-
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 write to 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.
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 properly 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, 2002, INCLUDING CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF OUR STOCKHOLDERS OF
RECORD ON APRIL 14, 2003, 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 23, 2003
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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 Tuesday, May 20, 2003, 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)
ANNUAL MEETING OF STOCKHOLDERS OF
COLLAGENEX PHARMACEUTICALS, INC.
PREFERRED STOCK
MAY 20, 2003
Please date, sign and mail your proxy card in the envelope
provided as soon as possible.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE. [X]
1. ELECTION OF DIRECTOR
Nominee:
[_] FOR Stephen A. Kaplan
[_] WITHHOLD AUTHORITY
2. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK FOR AGAINST ABSTAIN
OPTION PLAN TO INCREASE THE MAXIMUM AGGREGATE NUMBER [ ] [ ] [ ]
OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE
THEREUNDER FROM 2,500,000 SHARES TO 3,000,000 SHARES AND
TO RESERVE AN ADDITIONAL 500,000 SHARES OF COMMON STOCK
OF THE COMPANY FOR ISSUANCE IN CONNECTION WITH SUCH INCREASE
FOR AWARDS TO BE GRANTED UNDER THE 1996 STOCK OPTION PLAN.
3. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF FOR AGAINST ABSTAIN
KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY [ ] [ ] [ ]
FOR THE YEAR ENDING DECEMBER 31, 2003.
4. In his or her discretion, the proxy is authorized to vote upon other matters as may FOR AGAINST ABSTAIN
properly come before the Meeting. [ ] [ ] [ ]
Please check the box if you are
planning to attend the Meeting in person. [ ]
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method. [ ]
Signature of Preferred Stockholder Date: Signature of Preferred Stockholder Date:
--------------- ---------- ----------------- ------
IF HELD JOINTLY
Note:Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
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 Tuesday, May 20, 2003, 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)
ANNUAL MEETING OF STOCKHOLDERS OF
COLLAGENEX PHARMACEUTICALS, INC.
COMMON STOCK
MAY 20, 2003
Please date, sign and mail your proxy card in the envelope
provided as soon as possible.
Please detach and mail in the envelope provided.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE. |X|
1. ELECTION OF DIRECTORS Nominees:
[_] For All Nominees [_] Brian M. Gallagher, Ph.D. [_] James E. Daverman
[_] Withhold Authority for All Nominees [_] Peter R. Barnett, D.M.D. [_] Robert J. Easton
[_] For All Except (See instructions below) [_] Robert C. Black [_] W. James O'Shea
Instruction: To withhold authority to vote for any individual nominee(s) mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: [X]
2. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK FOR AGAINST ABSTAIN
OPTION PLAN TO INCREASE THE MAXIMUM AGGREGATE NUMBER [ ] [ ] [ ]
OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE
THEREUNDER FROM 2,500,000 SHARES TO 3,000,000 SHARES AND
TO RESERVE AN ADDITIONAL 500,000 SHARES OF COMMON STOCK
OF THE COMPANY FOR ISSUANCE IN CONNECTION WITH SUCH INCREASE
FOR AWARDS TO BE GRANTED UNDER THE 1996 STOCK OPTION PLAN.
3. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF FOR AGAINST ABSTAIN
KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY [ ] [ ] [ ]
FOR THE YEAR ENDING DECEMBER 31, 2003.
4. In his or her discretion, the proxy is authorized to vote upon other matters as may FOR AGAINST ABSTAIN
properly come before the Meeting. [ ] [ ] [ ]
Please check the box if you are
planning to attend the Meeting in person. [ ]
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
[ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Signature of Common Stockholder Date: Signature of Common Stockholder Date:
-------------------- ------------ ----------------- --------
IF HELD JOINTLY
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If 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.
-2-
(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 2,500,000 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
-3-
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
-4-
(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.
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.
-5-
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 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
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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 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
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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.
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
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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 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
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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
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
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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 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
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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.
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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