UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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. )
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(as permitted by Rule 14a-6(e)(2))
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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)
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COLLAGENEX PHARMACEUTICALS, INC.
41 University Drive
Newtown, PA 18940
April 23, 2004
To Our Stockholders:
You are cordially invited to attend the 2004 Annual Meeting of
Stockholders of CollaGenex Pharmaceuticals, Inc. at 8:30 A.M., local time, on
Tuesday, May 25, 2004, at the Philadelphia Marriott Downtown Hotel, 1201
Market Street, Philadelphia, Pennsylvania 19107.
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/ Colin W. Stewart
Colin W. Stewart
President and Chief Executive
Officer
COLLAGENEX PHARMACEUTICALS, INC.
41 University Drive
Newtown, PA 18940
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 25, 2004
The Annual Meeting of Stockholders of COLLAGENEX PHARMACEUTICALS, INC., a
Delaware corporation, will be held at the Philadelphia Marriott Downtown Hotel,
1201 Market Street, Philadelphia, Pennsylvania 19107, on Tuesday, May 25, 2004,
at 8:30 A.M., local time, for the following purposes:
(1) To elect eight directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been duly
elected and qualified;
(2) To ratify the appointment of KPMG LLP as our independent auditors for the
year ending December 31, 2004; and
(3) 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, 2004 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, 2004
Our 2003 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 25,
2004 at the Philadelphia Marriott Downtown Hotel, 1201 Market Street,
Philadelphia, Pennsylvania 19107 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, 2004, 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 14,131,377 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 16,152,949, 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 eight nominees named below as
directors, (ii) FOR the ratification of the appointment of KPMG LLP as our
independent auditors for the year ending December 31, 2004, and (iii) 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, 2004. The Annual Report to
Stockholders of the Company for the year ended December 31, 2003, including
consolidated financial statements, is being mailed together with this Proxy
Statement to all stockholders of record as of April 14, 2004. 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, 2004.
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ELECTION OF DIRECTORS
At the Annual Meeting, eight directors are to be elected (which number
shall constitute our entire Board of Directors) to hold office until the 2005
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 seven directors. The holders of Series D preferred stock, voting as a
class, will elect one director (referred to in this proxy statement as the
"Series D Director").
It is the intention of the persons named in the enclosed form of proxy to
vote the stock represented thereby, unless otherwise specified in the proxy, for
the election as directors of the persons whose names and biographies appear
below. All such persons are, at present, members of our Board of Directors. In
the event any of the nominees should become unavailable or unable to serve as a
director, it is intended that votes will be cast for a substitute nominee
designated by our Board of Directors. The Board of Directors has no reason to
believe that the nominees named will be unable to serve if elected. Each of the
nominees has consented to being named in this Proxy Statement and to serve if
elected.
The current members of our Board of Directors, who are also nominees for
election to our Board of Directors, are as follows:
Common Stock Directors:
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Served as a Position(s) with
Name Age Director Since the Company
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Colin W. Stewart.......... 52 2003 President and Chief
Executive Officer
Brian M. Gallagher, Ph.D.. 56 1994 Director
Peter R. Barnett, D.M.D... 52 1997 Director
Robert C. Black........... 61 1999 Director
James E. Daverman......... 54 1995 Chairman of the Board and
Director
Robert J. Easton.......... 59 1993 Director
W. James O'Shea........... 54 2000 Director
Series D Preferred Stock Director:
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Served as a Position(s) with
Name Age Director Since the Company
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Stephen A. Kaplan......... 45 1999 Director
The principal occupations and business experience, for at least the past
five years, of each nominee are as follows:
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Mr. Stewart joined CollaGenex in December 2003 as President and Chief
Executive Officer, and has been a member of our Board of Directors since
December 2003. From October 1998 until November 2003, Mr. Stewart served as the
President and Chief Executive Officer of Muro Pharmaceutical, Inc. a
pharmaceutical company. From 1988 to 1998, Mr. Stewart was employed by ASTA
Medica Ltd. in a number of sales, marketing and general management positions of
increasing responsibility. Prior to 1988, Mr. Stewart was employed by
Sterling-Winthrop, Ltd., a United Kingdom pharmaceutical company, for 13 years
in sales and general management.
Dr. Gallagher was our President and Chief Executive Officer from April
1994 until December 2003, has been a member of our Board of Directors since 1994
and was Chairman of the Board of Directors from March 2000 through December
2003. 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 an independent consultant in the managed care
field since November 2003. Prior to that, from November 2002 through October
2003, Dr. Barnett served as President and Chief Executive Officer of Group
Dental Service, Inc., a dental insurance company. 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 and became the Chairman of the Board of Directors in January 2004. Mr.
Daverman is managing general partner of Redfish Partners, L.P., an investment
and consulting company. Mr. Daverman also is a Senior Advisor to Robert W. Baird
and Co. Incorporated, an investment banking organization, and Chairman of the
Advisory Boards of Baird Venture Partners and Baird Capital Partners, Baird's
private equity businesses. Until October 2003 when he retired, Mr. Daverman
served as managing general partner of Marquette Venture Partners, a venture
capital investment company that he co-founded in 1986. Mr. Daverman is also a
member of the board of directors of Welch Allyn Holdings, Inc., a global medical
products company that is family owned. He chairs the Compensation and Management
Development Committee of the board of directors of Welch Allyn. Mr. Daverman
serves on the board of directors of several other privately-held companies.
Mr. Easton has been a member of our Board of Directors since November
1993. He currently serves as the 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 Board of Directors of 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,
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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.
All directors will hold office until the next annual meeting of
stockholders and until their successors shall have been duly elected and
qualified. None of our directors are related to any other director or to any of
our executive officers.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS, AS APPLICABLE, VOTE
FOR EACH OF THE NOMINEES FOR THE BOARD OF DIRECTORS. PLEASE NOTE THAT PROXIES
CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS THAN THE NOMINEES NAMED ABOVE.
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CORPORATE GOVERNANCE
General
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We believe that good corporate governance is important to ensure that we
are managed for the long-term benefit of our stockholders. During the past year,
we have continued to review our corporate governance policies and practices and
to compare them to those suggested by various authorities in corporate
governance and the practices of other public companies. We have also continued
to review the provisions of the Sarbanes-Oxley Act of 2002, the new and proposed
rules of the Securities and Exchange Commission and the new listing standards of
the NASDAQ National Market.
Based on this review, in January 2004, our Board of Directors adopted
Corporate Governance Guidelines, a Code of Business Conduct and Ethics and
charters for each of our Nominating and Corporate Governance Committee and
Compensation Committee. In February 2004, we also amended and restated the
charter for our Audit Committee. This section describes key corporate governance
guidelines and practices that we have adopted. You can access our current
committee charters, Corporate Governance Guidelines and Code of Business Conduct
and Ethics in the "Corporate Governance" section of our website located at
www.collagenex.com or by writing to: Nancy C. Broadbent, c/o CollaGenex
Pharmaceuticals, Inc., 41 University Drive, Newtown, Pennsylvania 18940.
Corporate Governance Guidelines
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The Board has adopted corporate governance guidelines to assist the Board
in the exercise of its duties and responsibilities and to serve the best
interests of the Company and its stockholders. These guidelines, which provide a
framework for the conduct of the Board's business, include that:
o the principal responsibility of the directors is to oversee the
management of the Company;
o a majority of the members of the Board shall be independent directors;
o the non-management/independent directors meet regularly in executive
session;
o directors have full and free access to management and, as necessary
and appropriate, independent advisors;
o new directors participate in an orientation program and all directors
are expected to participate in continuing director education on an
ongoing basis; and
o at least annually, the Board and its committees will conduct a
self-evaluation to determine whether they are functioning effectively.
Determination of Independence
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Under NASDAQ rules that become applicable to us on the date of the Annual
Meeting, a director will only qualify as an "independent director" if, in the
opinion of our Board of Directors, that person does not have a relationship
which would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director. Our Board of Directors has determined that
none of Messrs. Barnett, Black, Daverman, O'Shea, Kaplan or Easton has a
relationship which would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director and that each of these directors
is an "independent director" as defined under Rule 4200(a)(15) of the NASDAQ
Stock Market, Inc. Marketplace Rules.
Director Candidates
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The process followed by the Nominating and Corporate Governance Committee
to identify and evaluate director candidates includes requests to Board members
and others for recommendations, meetings from time to time to evaluate
biographical information and background material relating to potential
candidates and interviews of selected candidates by members of the Committee and
the Board.
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In considering whether to recommend any particular candidate for inclusion
in the Board's slate of recommended director nominees, the Nominating and
Corporate Governance Committee will apply the criteria set forth in our
Nominating and Corporate Governance Committee Charter. These criteria include
the candidate's integrity, business acumen, knowledge of our business and
industry, experience, diligence, conflicts of interest and the ability to act in
the interests of all stockholders. The Committee does not assign specific
weights to particular criteria and no particular criterion is a prerequisite for
each prospective nominee. We believe that the backgrounds and qualifications of
our directors, considered as a group, should provide a composite mix of
experience, knowledge and abilities that will allow the Board to fulfill its
responsibilities.
Stockholders may recommend individuals to the Nominating and Corporate
Governance Committee for consideration as potential director candidates by
submitting their names, together with appropriate biographical information and
background materials and a statement as to whether the stockholder or group of
stockholders making the recommendation has beneficially owned more than 5% of
our common stock for at least a year as of the date such recommendation is made,
to Nominating and Corporate Governance Committee, c/o Corporate Secretary,
CollaGenex Pharmaceuticals, Inc., 41 University Drive, Newtown, Pennsylvania
18940. Assuming that appropriate biographical and background material has been
provided on a timely basis, the Committee will evaluate stockholder-recommended
candidates by following substantially the same process, and applying
substantially the same criteria, as it follows for candidates submitted by
others.
Communications from Stockholders
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The Board will give appropriate attention to written communications that
are submitted by stockholders, and will respond if and as appropriate. The
Chairman of the Nominating and Corporate Governance Committee, subject to advice
and assistance from our Chief Executive Officer and, if requested, our outside
legal counsel, is primarily responsible for monitoring communications from
stockholders and for providing copies or summaries to the other directors as
considered appropriate.
Under procedures approved by a majority of the independent directors,
communications are forwarded to all directors if they relate to important
substantive matters and include suggestions or comments that the Chairman of the
Board considers to be important for the directors to know. In general,
communications relating to corporate governance and long-term corporate strategy
are more likely to be forwarded than communications relating to ordinary
business affairs, personal grievances and matters as to which we tend to receive
repetitive or duplicative communications.
Stockholders who wish to send communications on any topic to the Board
should address such communications to Board of Directors, c/o Corporate
Secretary, CollaGenex Pharmaceuticals, Inc., 41 University Drive, Newtown,
Pennsylvania 18940.
Code of Business Conduct and Ethics
- -----------------------------------
We have adopted a written Code of Business Conduct and Ethics that applies
to our directors, officers and employees, including our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. We have posted the Code of
Business Conduct and Ethics on our website, which is located at
www.collagenex.com. In addition, we intend to disclose on our website any
amendments to, or waivers from, any provision of the Code that applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions.
Board of Directors and Attendance by Members of the Board of Directors at
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Meetings
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Our Board of Directors currently consists of Colin W. Stewart, Brian M.
Gallagher, Ph.D., Peter R. Barnett, D.M.D., Robert C. Black, James E. Daverman,
who serves as Chairman, 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, eight members to our
Board of Directors at this time, we are actively recruiting potential candidates
for the one vacancy. This vacancy may be filled by the vote
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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 director resigns.
There were five meetings of the Board of Directors during 2003. Except for
Mr. Stewart, who became a member of our Board of Directors in December 2003,
each director attended at least 75% of the aggregate of all meetings of the
Board of Directors held during the period in which he served as a director and
the total number of meetings held by the committee on which he served during the
period, if applicable.
Our Corporate Governance Guidelines provide that directors are expected to
attend the annual meeting of stockholders. Except for Mr. Stewart who became a
member of our Board of Directors in December 2003, all directors attended the
2003 Annual Meeting of Stockholders.
Committees of the Board
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The Board of Directors has established three standing committees - Audit,
Compensation and Nominating and Corporate Governance - each of which operates
under a charter that has been approved by our Board of Directors. Current copies
of each committee's charter are posted on the Corporate Governance section of
our website located at www.collagenex.com. In addition, a copy of the Audit
Committee Charter, as in effect on the date of this proxy statement, is attached
hereto as Appendix A.
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The Board of Directors has determined that all of the members of each of
the Board's three standing committees are independent as defined under the new
rules of the NASDAQ Stock Market that become applicable to us on the date of the
2004 Annual Meeting, including, in the case of all members of the Audit
Committee, the independence requirements contemplated by Rule 10A-3 under the
Securities Exchange Act of 1934. In addition, all of the members of the Audit
Committee are independent as defined by the rules of the NASDAQ Stock Market
that apply to us until the date of the 2004 Annual Meeting.
Audit Committee of the Board of Directors
-----------------------------------------
The Audit Committee currently consists of James E. Daverman, who served as
the Chairman during 2003, Robert J. Easton and Peter R. Barnett, who serves
currently as Chairman. During 2003, Messrs. Daverman, Easton and Barnett were
the only members of the Audit Committee. The Audit Committee was established in
March 1996 and currently acts under a charter that was adopted and approved on
May 8, 2000 and that was amended and restated in February 2004. The Audit
Committee held five meetings in 2003. It is anticipated that each of Messrs.
Daverman, Easton and Barnett, if elected to the Board of Directors by our
stockholders, will continue to serve on the Audit Committee. Our Audit
Committee's responsibilities include:
o appointing, approving the compensation of, and assessing the
independence of our independent auditor;
o overseeing the work of our independent auditor, including through the
receipt and consideration of certain reports from independent
auditors;
o reviewing and discussing with management and the independent auditors
our annual and quarterly consolidated financial statements and related
disclosures;
o monitoring our internal control over financial reporting, disclosure
controls and procedures and code of business conduct and ethics;
o discussing our risk management policies;
o establishing procedures for the receipt and retention of
accounting-related complaints and concerns;
o meeting independently with our internal auditing staff, independent
auditors and management; and
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o preparing the audit committee report required by SEC rules (which is
included on pages 10 and 11 of this proxy statement).
Pursuant to the Audit Committee Charter, the Audit Committee has reviewed
and discussed the audited consolidated financial statements for the year ended
December 31, 2003 with our management and independent auditors. Additionally,
the Audit Committee has discussed with the independent auditors the matters
required by Statement of Auditing Standards ("SAS") 61, has received the written
disclosures and the letter from the independent auditors required by the
Independence Standards Board Standard No. 1 and has discussed with the
independent auditors the independent auditors' independence. Based in part on
the foregoing, the Audit Committee recommended to the Board of Directors that
the consolidated financial statements as of and for the year ended December 31,
2003 audited by KPMG LLP be included in our Annual Report on Form 10-K.
The Board of Directors has determined that James Daverman is an "audit
committee financial expert" as defined in Item 401(h) of Regulation S-K.
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 currently acts under a charter
adopted and approved in January 2004. The Compensation Committee held eight
meetings in 2003. The primary responsibilities of the Compensation Committee
include approving salaries and incentive compensation for our executive officers
and administering our stock option plans. In addition, our Compensation
Committee has the following principal duties:
o annually reviewing and approving corporate goals and objectives
relevant to the Chief Executive Officer's compensation;
o determining the Chief Executive Officer's compensation;
o reviewing and approving, or making recommendations to the Board with
respect to, the compensation of our other executive officers;
o overseeing and administering our cash and equity incentive plans; and
o reviewing and making recommendations to the Board with respect to
director compensation.
Nominating and Corporate Governance Committee of the Board of
----------------------------------------------------------------------
Directors
---------
In January 2004, our Board of Directors reconstituted our Nominating
Committee to expand its responsibilities and formed a Nominating and Corporate
Governance Committee, which currently consists of Robert C. Black, who serves as
Chairman, Peter R. Barnett and Stephen A. Kaplan. The Nominating and Corporate
Governance Committee currently acts under a charter adopted and approved in
January 2004. The Nominating Committee held one meeting in 2003. The
responsibilities of the Nominating and Corporate Governance Committee include:
o identifying and recommending nominees for election as directors and to
each of the Board's committees;
o reviewing and making recommendations to the Board with respect to
management succession planning;
o reviewing and assessing the adequacy of our corporate governance
guidelines and recommending any proposed changes to our Board of
Directors; and
o overseeing an annual evaluation of the Board.
-9-
Compensation of Directors
- -------------------------
During 2003, Brian M. Gallagher, Ph.D. was not paid any compensation for
his services as Chairman of the Board. Each non-employee director is entitled to
receive an annual retainer of $12,000, 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 he or she serves. 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 May 20, 2003, we granted to each non-employee director, options to
purchase 12,000 shares of common stock at an exercise price per share of $10.80.
Such options vest in four equal annual installments commencing one year after
the date of grant. In addition, on May 20, 2003, Mr. O'Shea was granted options
to purchase 2,500 shares of common stock at an exercise price per share of
$10.80. 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 of the Board of Directors
- -------------------------------------------------------
The Audit Committee has furnished the following report:
To the Board of Directors of CollaGenex Pharmaceuticals, Inc.:
The Audit Committee has reviewed our audited consolidated financial
statements for the fiscal year ended December 31, 2003 and has discussed these
consolidated financial statements with our management and our independent
auditors. Management is responsible for the preparation of our consolidated
financial statements and for maintaining an adequate system of disclosure
controls and procedures and internal control over financial reporting for that
purpose. Our independent auditors are responsible for conducting an independent
audit of our annual consolidated financial statements in accordance with
generally accepted accounting principles and issuing a report on the results of
their audit. The Audit Committee is responsible for providing independent,
objective oversight of these processes.
The Audit Committee has also received from, and discussed with, our
independent auditors various communications that our independent auditors are
required to provide to the Audit Committee, including the matters required to be
discussed by Statement on Auditing Standards 61 (Communication with Audit
Committees). SAS 61 requires our independent auditors to discuss with our Audit
Committee, among other things, the following:
o methods used to account for significant unusual transactions;
o the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
o the process used by management in formulating particularly sensitive
accounting estimates and the basis for the auditors' conclusions
regarding the reasonableness of those estimates; and
-10-
o disagreements with management over the application of accounting
principles, the basis for management's accounting estimates and the
disclosures in the consolidated financial statements.
Our independent auditors also provided the Audit Committee with the
written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). Independence
Standards Board Standard No. 1 requires auditors annually to disclose in writing
all relationships that, in the auditor's professional opinion, may reasonably be
thought to bear on independence, confirm their perceived independence and engage
in a discussion of independence. In addition, the Audit Committee discussed with
the independent auditors their independence from CollaGenex. The Audit Committee
also considered whether the independent auditors' provision of certain other
non-audit related services to us is compatible with maintaining such auditors'
independence.
Based on its discussions with management and the independent auditors, and
its review of the representations and information provided by management and the
independent auditors, the Audit Committee recommended to our Board of Directors
that the audited consolidated financial statements be included in our Annual
Report on Form 10-K for the year ended December 31, 2003.
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 summarizes the fees incurred by us for professional
services rendered by KPMG LLP, our independent auditor, for each of the last two
fiscal years:
Fee Category 2003 2002
- ------------ --------- ---------
Audit Fees............. $ 191,500 $ 132,000
Audit-Related Fees..... $ -- $ --
Tax Fees............... $ 43,870 $ 28,600
All Other Fees......... $ -- $ --
--------- ---------
Total Fees......... $ 235,370 $ 160,600
========= =========
Audit Fees
----------
Audit fees consist of fees for the audit of our consolidated financial
statements, the review of the interim consolidated financial statements included
in our quarterly reports on Form 10-Q and other professional services provided
in connection with regulatory filings or engagements.
Audit-Related Fees
------------------
There were no fees to report in this category for 2003 and 2002.
Tax Fees
--------
Tax fees consist of fees for tax compliance, tax advice and tax planning
services.
-11-
All Other Fees
--------------
There were no fees to report in this category for 2003 and 2002.
Audit Committee Pre-Approval Policy and Procedures
--------------------------------------------------
The Audit Committee has adopted policies and procedures relating to the
approval of all audit and non-audit services that are to be performed by our
independent auditor. This policy generally provides that we will not engage our
independent auditor to render audit or non-audit services unless the service is
specifically approved in advance by the Audit Committee.
All engagements entered into with KPMG LLP subsequent to May 6, 2003, were
approved in accordance with the procedures described above.
-12-
EXECUTIVE OFFICERS
The following table identifies our current executive officers:
Capacities in In Current
Name Age Which Served Position Since
- ---- --- ------------- --------------
Colin W. Stewart............ 52 President, Chief December 2003
Executive Officer
and Director
Klaus Theobald(1)........... 45 Senior Vice January 2004
President and
Chief Medical
Officer
Nancy C. Broadbent(2)....... 47 Chief Financial March 1996
Officer, Treasurer
and Secretary
David F. Pfeiffer(3)........ 40 Senior Vice December 2000
President, Sales (Vice President,
and Marketing Marketing since
June 1997)
(1) Dr. Theobald joined CollaGenex in January 2004 as Senior Vice President and
Chief Medical Officer. From February 2003 to January 2004, Dr. Theobald was
pursuing personal interests. Prior to joining CollaGenex, from June 2002 to
February 2003, Dr. Theobald was the President and Chief Executive Officer
of Allergenics, Inc. a biotechnology company focused on oral protein
delivery. Prior to that, from July 1986 to May 2002, Dr. Theobald held
various senior positions at Aventis Behring and its predecessor companies,
and most recently served as Chief Medical Offficer of Aventis Behring's
Genesis Therapeutics subsidiary.
(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 pharmaceutical 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.
(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
-13-
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. Each of Nancy C. Broadbent,
Robert A. Ashley and David F. Pfeiffer failed to timely file a Form 4 with
respect to the grant of stock options on January 24, 2003. Ms. Broadbent and
Messrs. Pfeiffer and Ashley filed such information on a Form 4 with the
Securities and Exchange Commission on April 28, 2003, June 13, 2003 and June 16,
2003, respectively. Each of James W. O'Shea, James E. Daverman, Peter R.
Barnett, Robert J. Easton, Robert C. Black and Stephen A. Kaplan failed to
timely file a Form 4 with respect to the grant of stock options on May 20, 2003.
Mr. O'Shea filed such information on a Form 4 with the Securities and Exchange
Commission on June 16, 2003. Messrs. Daverman and Barnett filed such information
on a Form 4 with the Securities and Exchange Commission on June 30, 2003.
Messrs. Easton, Black and Kaplan filed such information on a Form 4 with the
Securities and Exchange Commission on July 7, 2003.
-14-
EXECUTIVE COMPENSATION
Summary of Compensation in Fiscal Years 2003, 2002 and 2001
- -----------------------------------------------------------
The following Summary Compensation Table sets forth information concerning
compensation during the years ended December 31, 2003, 2002 and 2001 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 2003, each other of our
executive officers as of December 31, 2003 and certain individuals who served as
executive officers during a part of 2003, whose aggregate cash compensation
exceeded $100,000 at the end of 2003 (collectively referred to as the "Named
Executives").
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Long-Term
Annual Com- Compensation
pensation (1) Awards
----------------- ------------
Securities All Other
Underlying Compensa-
Name and Principal Year Salary Bonus Options tion
Position ($) ($) (#) ($)
(a) (b) (c) (d) (g) (i)
- --------------------------------------------------------------------------------
Colin W. Stewart........ 2003 22,538(2) 50,000(2) 300,000 --
President, Chief
Executive Officer
and Director
Brian M. Gallagher,
Ph.D.(3)............. 2003 304,786 155,787 -- 251,000(4)
President, Chief 2002 324,450 79,436 75,000 --
Executive Officer 2001 315,000 131,615 100,000 --
and Chairman of
the Board
Robert A. Ashley (5).. 2003 238,702 91,804 24,000 --
Senior Vice 2002 231,750 72,827 40,000 --
President, 2001 225,000 93,908 80,000 --
Commercial
Development
Nancy C. Broadbent.... 2003 222,789 86,112 24,000 --
Chief Financial 2002 216,300 72,807 30,000 --
Officer, Treasurer 2001 210,000 87,881 50,000 --
and Secretary
David F. Pfeiffer .... 2003 238,702 91,840 24,000 --
Senior Vice 2002 231,750 72,759 40,000 --
President, Sales 2001 225,000 93,812 80,000 --
and Marketing
- -----------
(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.
(2) On December 8, 2003, Mr. Stewart joined CollaGenex as President and Chief
Executive Officer and a member of our Board of Directors. During 2003, Mr.
Stewart was paid $22,538 in base salary compensation. Pursuant to Mr.
Stewart's employment agreement, Mr. Stewart is entitled to an annual base
salary of $350,000. Mr. Stewart was also awarded an initial $50,000
one-time, sign-on bonus in December 2003.
(3) As previously reported, during 2003 we commenced a search for a successor
President and Chief Executive Officer to Dr. Gallagher. On December 8,
2003, Colin W. Stewart joined CollaGenex and Dr. Gallagher resigned from
his position as President, Chief Executive Officer and Chairman of the
Board. Dr. Gallagher continues to serve as one of our directors.
-15-
(4) In March 2003, Dr. Gallagher was awarded non-cash compensation, relating
to certain modifications of Dr. Gallagher's stock option agreements. This
non-cash compensation was valued at $251,000 based on the variance between
the applicable option exercise price and the then current fair market
value of the Company's common stock at the time of modification.
(5) On February 27, 2004, Mr. Ashley resigned from his position as Senior Vice
President, Commercial Development.
-16-
Option Grants in 2003
- ---------------------
The following table sets forth information concerning individual grants of
stock options made during 2003 to each of the Named Executives.
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------
Individual Grants
- ------------------------------------------------------------------------------------------------
Percent
of Total Potential
Options Realizable
Number of Granted to Value
Securities Employees Exercise at Assumed Annual
Underlying in or Expir- Rates of Stock
Options Fiscal Base ation Price Appreciation
Name Granted Year(1) Price Date For Option Term (3)
(#) ($/Sh)(2) 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- ------------------------------------------------------------------------------------------------
Colin W. Stewart.... 300,000 36.37 10.25 12/7/2013 1,933,850 4,900,758
Brian M. Gallagher,
Ph.D.............. -- -- -- -- -- --
Robert A. Ashley.... 24,000 2.90 10.16 1/23/2013 153,350 388,618
Nancy C. Broadbent.. 24,000 2.90 10.16 1/23/2013 153,350 388,618
David F. Pfeiffer... 24,000 2.90 10.16 1/23/2013 153,350 388,618
- -----------
(1) Based on an aggregate of 824,850 options granted to employees in 2003,
including options granted to the 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.
-17-
Aggregated Option Exercises in 2003 and Year End Option Values
- --------------------------------------------------------------
The following table sets forth information concerning each exercise of
options during 2003 by each of the Named Executives and the year end value of
unexercised in-the-money options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- -----------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Shares Value Year-End Year-End
Acquired on Value (#) ($)(1)
Exercise Realized Exercisable/ Eexercisable
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------
Colin W. Stewart ............. -- -- 0/300,000 0/264,000
Brian M. Gallagher, Ph.D .... 100,000 1,311,480 470,000/0 1,383,775/0
Robert A. Ashley ............. -- -- 197,500/109,000 894,341/315,709
Nancy C. Broadbent ........... 21,000 172,838 116,500/81,500 391,598/218,565
David F. Pfeiffer ............ 45,000 394,842 143,000/111,000 198,668/313,575
- ----------
(1) Based on a year end fair market value of the underlying securities equal to
$11.13 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 Ms. Broadbent and Mr. Pfeiffer and with Mr. Stewart on December 8, 2003.
In the event the employment of Mr. Stewart, Ms. Broadbent 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 Ms. Broadbent and Mr. Pfeiffer have agreed that
during the term of his or her employment and for a period of two years
thereafter, they 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 their
employment with us, is either marketed or in advanced clinical development by
us. Pursuant to the terms of the Transition Agreement and Release we entered
into with Dr. Gallagher on March 18, 2003, Dr. Gallagher has agreed that until
September 18, 2004 he will not engage in any business or enterprise (whether as
owner, partner, officer, director, employee, consultant, investor, lender or
otherwise, except as the holder of not more than 1% of the
-18-
outstanding stock of a publicly-held company) that develops, manufactures,
markets, licenses, sells or provides any product or service that competes with
any product or service developed, manufactured, marketed, licensed, sold or
provided, or planned to be developed, manufactured, marketed, licensed, sold or
provided, by us while Dr. Gallagher was our employee.
During 2003, we commenced an executive search for a successor President
and Chief Executive Officer to Dr. Gallagher and on December 8, 2003 we hired
Colin W. Stewart as the successor to Dr. Gallagher. We executed a Transition
Agreement and Release with Dr. Gallagher, pursuant to which we compensated Dr.
Gallagher for, among other things, his services during the transition period and
in recognition of his historical contributions to CollaGenex. Under the terms of
such agreement, Dr. Gallagher was eligible for a one-time, lump sum bonus of
$150,000, which was paid to Dr. Gallagher in connection with his separation from
CollaGenex. Of such amount, $50,000 was earned by Dr. Gallagher automatically on
the date of his separation from the Company and $100,000 was paid on such date
based upon his performance prior to separation. We 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
CollaGenex. We also paid Dr. Gallagher a lump sum of $15,000 at the time of
separation for certain expenses. In addition, effective upon the execution of
such agreement, we accelerated Dr. Gallagher's right to exercise all unvested
stock options previously granted to him and 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. We
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 Mr.
Stewart. Under such agreement, Dr. Gallagher provided approximately 80 hours of
consulting services to CollaGenex during the first two months following his
separation and has agreed to provide approximately 15 hours per month thereafter
through the second anniversary date of his separation from CollaGenex. Dr.
Gallagher shall provide such services as an independent contractor at a rate of
$27,037.50 per month.
We entered into an Incentive Bonus Agreement with an effective date of
August 27, 2003, with David F. Pfeiffer, our Senior Vice President, Sales and
Marketing, pursuant to which Mr. Pfeiffer shall receive, in certain
circumstances, an incentive bonus equal to his annual base salary. Pursuant to
the terms of such agreement, the incentive bonus shall be payable only if (i)
Mr. Pfeiffer remains actively employed with us through August 27, 2004, or (ii)
we terminate Mr. Pfeiffer's employment without cause prior to August 27, 2004.
On December 8, 2003, we entered into a Stock Option Agreement with Mr.
Stewart, pursuant to which we granted inducement stock options to Mr. Stewart,
effective the date of commencement of his employment. These options were granted
without stockholder approval pursuant to NASDAQ Marketplace Rule
4350(i)(1)(A)(iv) under the following terms: 300,000 non-qualified stock
options, exercise price equal to the fair market value on the grant date,
ten-year duration and vesting at the rate of 20% for each year of service with
the Company. In certain circumstances, if the closing price of our common stock,
as quoted on the NASDAQ National Market, exceeds a pre-determined per share
price for a certain number of consecutive days, a portion of such options will
vest immediately.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Compensation Committee currently consists of, and during 2003
consisted of, W. James O'Shea, who serves as Chairman, Robert C. Black and
Robert J. Easton. There are no, and during 2003 there were no, Compensation
Committee interlocks.
As of April 1, 2004, 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 April 1, 2004, 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.
During 2003, we engaged an outside firm to perform certain consulting
services for approximately $55,000. One of the primary stakeholders in the
outside firm is Mr. Easton, a current member of our Board of Directors.
-19-
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 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 Statements on Form
S-3 all of the shares of our common stock underlying the shares of Series D
preferred stock and all of the shares of common stock issued as dividends on the
Series D preferred stock to the holders thereof. 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.
-20-
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, 1999 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)
[GRAPHIC REPRESENTATION OF TABLE]
Base
Period
January June December June December June December June December June December
Company/ 1, 30, 31, 30, 31, 30, 31, 30, 31, 30, 31,
Index Name 1999 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
CGPI ......... $100.00 $103.95 $259.88 $97.51 $38.36 $85.24 $84.20 $76.92 $98.65 $137.84 $115.70
NASDAQ ....... $100.00 $122.53 $185.34 $181.14 $111.83 $98.36 $88.71 $67.00 $61.33 $74.39 $91.70
NASDAQ PHAR... $100.00 $111.93 $188.55 $257.04 $235.19 $216.36 $200.44 $127.15 $129.53 $175.86 $189.85
- -----------
(1) Graph assumes $100 invested on January 1, 1999 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.
-21-
Compensation Committee Report on Executive Compensation
- -------------------------------------------------------
The Compensation Committee has furnished the following report:
The Compensation Committee is comprised of three non-employee directors
and currently acts under a charter adopted and approved in January 2004. 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 shall meet as often as it deems necessary in order to
perform its responsibilities. The Compensation Committee meets at least twice
annually to set performance objectives for the Chief Executive Officer and to
determine the annual compensation of the Chief Executive Officer and our other
senior executives. The Chief Executive Officer 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 that 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 that 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 Chief Executive
Officer 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.
-22-
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. As previously discussed, Dr. Gallagher
resigned from his position as President and Chief Executive Officer effective as
of December 8, 2003. In connection with Dr. Gallagher's services during a
transition period during 2003 and in recognition of his historical contributions
to CollaGenex, Dr. Gallagher was paid a lump sum bonus of $150,000. On December
8, 2003, Colin W. Stewart was appointed our President and Chief Executive
Officer. Mr. Stewart's base salary will initially be $350,000. Mr. Stewart was
also awarded an initial $50,000 one-time, sign-on bonus in December 2003. In
establishing Mr. Stewart's compensation, we examined Mr. Stewart's prior
experience and breadth of knowledge, as well as the size, complexity and
historical performance of our business, our position as compared to our peers in
the industry and the specific challenges we face.
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 $1.0 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
-23-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED SHAREHOLDER MATTERS
There were, as of April 1, 2004, approximately 112 holders of record and
approximately 3,972 beneficial holders of our common stock. The following table
sets forth certain information, as of April 1, 2004, 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.
Percent
Amount and Nature of of
Name and Address of Beneficial Owner(1) Beneficial Ownership(1) 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............ 1,852,005(3) 13.1%
Zesiger Capital Group LLC
320 Park Avenue, 30th Floor
New York, New York 10022................. 982,200(4) 7.0%
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109.............. 768,509(5) 5.4%
(ii) Directors (which includes all
nominees) and Named Executives:
Colin W. Stewart......................... -- *
Brian M. Gallagher, Ph.D................. 595,000(6) 4.1%
Robert A. Ashley......................... 254,500(7) 1.8%
Nancy C. Broadbent....................... 200,875(8) 1.4%
David F. Pfeiffer........................ 197,500(9) 1.4%
Peter R. Barnett, D.M.D.................. 34,489(10) *
Robert Black............................. 25,589(11) *
James E. Daverman........................ 85,859(12) *
Robert J. Easton......................... 81,934(13) *
Stephen A. Kaplan........................ 1,880,594(14) 13.3%
W. James O'Shea.......................... 21,214(15) *
(iii) All Directors and executive
officers as a
group (12 persons)................. 3,377,554(16) 22.1%
- -----------
* Less than 1%
-24-
(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 14,131,377
shares of common stock outstanding on April 1, 2004, 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 April 1, 2004.
(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 62,933 shares
of common stock, including shares of common stock issued in payment of
dividends on the Series D preferred stock.
(4) As disclosed on a Schedule 13G filed with the Securities and Exchange
Commission on February 13, 2004, assuming no changes in beneficial
ownership since such filing. According to such Schedule 13G, Zesiger
Capital Group LLC, in its capacity as investment adviser, may be deemed to
beneficially own 982,200 shares of common stock, which shares are held of
record by clients of Zesiger Capital Group LLC. Zesiger Capital Group LLC
reports that it has shared power to vote or direct the vote of 746,500
shares and shared power to dispose or direct the disposition of 982,200
shares.
(5) As disclosed on a Schedule 13G filed with the Securities and Exchange
Commission on February 12, 2004, assuming no changes in beneficial
ownership since such filing. According to such Schedule 13G, Wellington
Management Company, LLP, in its capacity as investment adviser, may be
deemed to beneficially own 768,509 shares of common stock, which shares are
held of record by clients of Wellington Management Company, LLP. Wellington
Management Company, LLP reports that it has shared power to vote or direct
the vote of 725,809 shares and shared power to dispose or direct the
disposition of 768,509 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 395,000 shares of common stock underlying options which are or may
be exercisable as of April 1, 2004 or 60 days after such date.
(7) Includes 244,500 shares of common stock underlying options which are or may
be exercisable as of April 1, 2004 or 60 days after such date.
(8) Includes 150,000 shares of common stock underlying options which are or may
be exercisable as of April 1, 2004 or 60 days after such date. Also
includes 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.
(9) Includes 190,000 shares of common stock underlying options which are
exercisable as of April 1, 2004 or 60 days after such date.
(10) Includes 30,589 shares of common stock underlying options which are
exercisable as of April 1, 2004 or 60 days after such date.
(11) Includes 25,589 shares of common stock underlying options which are
exercisable as of April 1, 2004 or 60 days after such date.
(12) Includes 30,589 shares of common stock underlying options which are
exercisable as of April 1, 2004 or 60 days after such date.
(13) Includes 30,859 shares of common stock underlying options which are
exercisable as of April 1, 2004 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
-25-
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.
(14) 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 25,589 shares of common
stock underlying options which are exercisable as of April 1, 2004 or 60
days after such date.
(15) Includes 21,214 shares of common stock underlying options which are
exercisable as of April 1, 2004 or 60 days after such date.
(16) See Notes 6 through 15.
-26-
Series D Preferred Stock
- ------------------------
There were, as of April 1, 2004, six holders of record of our Series D
preferred stock. The following table sets forth certain information, as of April
1, 2004, 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 executive officers as a group.
Percent
Amount and Nature of of
Name and Address of Beneficial Owner(1) Beneficial Ownership(1) 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 A. Kaplan........................ 177,000(7) 88.5%
(iii) All Directors and executive
officers as a
group (12 persons)................. 179,000(6)(7) 89.5%
- -----------
(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 April 1, 2004.
(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 A. 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.
-27-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For transactions and information relating to (i) an outside consulting
firm that performed services for us and for which Mr. Easton is a primary
stakeholder, and (ii) certain registration rights and rights to participate in
certain future offerings undertaken by us, held by Mr. Easton, who currently
serves, and during 2003 served, as a member of our Compensation Committee,
please see "EXECUTIVE COMPENSATION - Compensation Committee Interlocks and
Insider Participation."
Until October 2003, James E. Daverman, Chairman of our Board of Directors,
served as a managing general partner of Marquette Venture Partners, a venture
capital investment company which he founded in 1987. Additionally, Mr. Daverman
served as 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.
As of April 1, 2004: (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.
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, 2004. KPMG
LLP also served as our independent auditors for 2003.
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, 2004.
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 2005 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 23, 2004.
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 March 7, 2005.
If we do not receive notice of a stockholder proposal within this
timeframe, our management will use their discretionary authority to vote the
shares they represent, as our Board of Directors may recommend. We reserve the
right to reject, rule out of order, or take other appropriate action with
respect to any proposal that does not comply with these other applicable
requirements.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of our Proxy Statement or Annual Report may have been
sent to multiple stockholders in your household. We will promptly deliver a
separate copy of either document to you if you write to us at 41 University
Drive, Newtown, Pennsylvania 18940, or call us
-28-
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, 2003, INCLUDING CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF OUR STOCKHOLDERS OF
RECORD ON APRIL 14, 2004, 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, 2004
-29-
APPENDIX A
COLLAGENEX PHARMACEUTICALS, INC.
AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
A. PURPOSE
The purpose of the Audit Committee is to assist the Board of Directors'
oversight of the Company's accounting and financial reporting processes
and the audits of the Company's financial statements.
B. STRUCTURE AND MEMBERSHIP
1. NUMBER. The Audit Committee shall consist of at least three members
of the Board of Directors.
2. INDEPENDENCE. Except as otherwise permitted by the applicable
NASDAQ rules, each member of the Audit Committee shall be
independent as defined by NASDAQ rules, meet the criteria for
independence set forth in Rule 10A-3(b)(1) under the Exchange Act
(subject to the exemptions provided in Rule 10A-3(c)), and not
have participated in the preparation of the financial statements
of the Company or any current subsidiary of the Company at any
time during the past three years.
3. FINANCIAL LITERACY. Each member of the Audit Committee must be
able to read and understand fundamental financial statements,
including the Company's balance sheet, income statement, and cash
flow statement, at the time of his or her appointment to the
Audit Committee. In addition, at least one member must have past
employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable
experience or background which results in the individual's
financial sophistication, including being or having been a chief
executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. Unless
otherwise determined by the Board of Directors (in which case
disclosure of such determination shall be made in the Company's
annual report filed with the SEC), at least one member of the
Audit Committee shall be an "audit committee financial expert"
(as defined by applicable SEC rules).
4. CHAIR. Unless the Board of Directors elects a Chair of the Audit
Committee, the Audit Committee shall elect a Chair by majority vote.
5. COMPENSATION. The compensation of Audit Committee members shall be
as determined by the Board of Directors. No member of the Audit
Committee may receive, directly or indirectly, any consulting,
advisory or other compensatory fee from the Company or any of its
subsidiaries, other than fees paid in his or her capacity as a
member of the Board of Directors or a committee of the Board.
6. SELECTION AND REMOVAL. Members of the Audit Committee shall be
appointed by the Board of Directors, upon the recommendation of the
Nominations Committee. The Board of Directors may remove members of
the Audit Committee from such committee, with or without cause.
C. AUTHORITY AND RESPONSIBILITIES
General
-------
The Audit Committee shall discharge its responsibilities, and shall assess
the information provided by the Company's management and the independent
auditor, in accordance with its business judgment. Management is
responsible for the preparation, presentation, and integrity of the
Company's financial statements and for the appropriateness of the
accounting principles and reporting policies that are used by the Company.
The independent auditors are responsible for auditing the Company's
financial statements and for reviewing the Company's unaudited interim
financial statements. The authority and responsibilities set forth in this
Charter do not reflect or create any duty or obligation of the Audit
Committee to plan or conduct any audit, to determine or certify that the
Company's financial statements are complete, accurate, fairly presented,
or in accordance with generally accepted accounting principles or
applicable law, or to guarantee the independent auditor's report.
Oversight of Independent Auditors
---------------------------------
1. SELECTION. The Audit Committee shall be solely and directly
responsible for appointing, evaluating, retaining and, when
necessary, terminating the engagement of the independent auditor.
The Audit Committee may, in its discretion, seek stockholder
ratification of the independent auditor it appoints.
2. INDEPENDENCE. The Audit Committee shall take, or recommend that
the full Board of Directors take, appropriate action to oversee
the independence of the independent auditor. In connection with
this responsibility, the Audit Committee shall obtain and review
a formal written statement from the independent auditor
describing all relationships between the auditor and the Company,
including the disclosures required by Independence Standards
Board Standard No. 1. The Audit Committee shall actively engage
in dialogue with the auditor concerning any disclosed
relationships or services that might impact the objectivity and
independence of the auditor.
3. COMPENSATION. The Audit Committee shall have sole and direct
responsibility for setting the compensation of the independent
auditor. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the compensation
of the independent auditor established by the Audit Committee.
4. PREAPPROVAL OF SERVICES. The Audit Committee shall preapprove all
audit services to be provided to the Company, whether provided by
the principal auditor or other firms, and all other services
(review, attest and non-audit) to be provided to the Company by the
independent auditor; provided, however, that de minimis non-audit
services may instead be approved in accordance with applicable SEC
rules.
5. OVERSIGHT. The independent auditor shall report directly to the
Audit Committee, and the Audit Committee shall have sole and
direct responsibility for overseeing the work of the independent
auditor, including resolution of disagreements between Company
management and the independent auditor regarding financial
reporting. In connection with its oversight role, the Audit
Committee shall, from time to time as appropriate, receive and
consider the reports required to be made by the independent
auditor regarding:
o critical accounting policies and practices;
o alternative treatments within generally accepted accounting
principles for policies and practices related to material
items that have been discussed with Company management,
including ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by
the independent auditor; and
o other material written communications between the
independent auditor and Company management.
In connection with its oversight role, the Audit Committee should
also review with the independent auditors, from time to time as
appropriate:
(i) significant risks and uncertainties with respect to the
quality, accuracy or fairness of presentation of the Company's
financial statements;
(ii) recently disclosed problems with respect to the quality,
accuracy or fairness of presentation of the financial
statements of companies similarly situated to the Company and
recommended actions which might be taken to prevent or
mitigate the risk of problems at the Company arising from such
matters;
(iii) any accounting adjustments that were noted or proposed by the
auditor but were "passed" (as immaterial or otherwise);
(iv) any communications between the audit team and the audit firm's
national office respecting auditing or accounting issues
presented by the engagement;
(v) any "management" or "internal control" letter issued, or
proposed to be issued, by the audit firm to the Company;
(vi) accounting for unusual transactions;
(vii) adjustments arising from audits that could have a significant
impact on the Company's financial reporting process; and
(viii)any recent SEC comments on the Company's SEC reports,
including in particular any unresolved or future-compliance
comments.
Audited Financial Statements
----------------------------
6. REVIEW AND DISCUSSION. The Audit Committee shall review and discuss
with the Company's management and independent auditor the Company's
audited financial statements, including the matters about which
Statement on Auditing Standards No. 61 (Codification of Statements
on Auditing Standards, AU ss.380) requires discussion.
7. RECOMMENDATION TO BOARD REGARDING FINANCIAL STATEMENTS. The Audit
Committee shall consider whether it will recommend to the Board of
Directors that the Company's audited financial statements be
included in the Company's Annual Report on Form 10-K.
8. AUDIT COMMITTEE REPORT. The Audit Committee shall prepare an annual
committee report for inclusion where necessary in the proxy
statement of the Company relating to its annual meeting of security
holders.
Review of Other Financial Disclosures
-------------------------------------
9. INDEPENDENT AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS. The
Audit Committee shall direct the independent auditor to use its
best efforts to perform all reviews of interim financial
information prior to disclosure by the Company of such
information and to discuss promptly with the Audit Committee and
the Chief Financial Officer any matters identified in connection
with the auditor's review of interim financial information which
are required to be discussed by applicable auditing standards.
The Audit Committee shall direct management to advise the Audit
Committee in the event that the Company proposes to disclose
interim financial information prior to completion of the
independent auditor's review of interim financial information.
Controls and Procedures
-----------------------
10. OVERSIGHT. The Audit Committee shall coordinate the Board of
Directors' oversight of the Company's internal control over
financial reporting, disclosure controls and procedures and code
of conduct. The Audit Committee shall receive and review the
reports of the CEO and CFO required by Rule 13a-14 of the
Exchange Act. The Audit Committee shall periodically review the
complaint procedures to confirm that they are effectively
operating.
11. PROCEDURES FOR COMPLAINTS. The Audit Committee shall establish
procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters; and (ii) the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
12. RELATED-PARTY TRANSACTIONS. The Audit Committee shall review all
"related party transactions" (defined as transactions required to be
disclosed pursuant to Item 404 of Regulation S-K) on an ongoing
basis, and all such transactions must be approved by the Audit
Committee.
13. ADDITIONAL POWERS. The Audit Committee shall have such other duties
as may be delegated from time to time by the Board of Directors.
D. PROCEDURES AND ADMINISTRATION
1. MEETINGS. The Audit Committee shall meet as often as it deems
necessary in order to perform its responsibilities. The Audit
Committee may also act by unanimous written consent in lieu of a
meeting. The Audit Committee shall periodically meet separately
with: (i) the independent auditor; (ii) Company management and (iii)
the Company's internal auditors. The Audit Committee shall keep such
records of its meetings as it shall deem appropriate.
2. SUBCOMMITTEES. The Audit Committee may form and delegate authority
to one or more subcommittees (including a subcommittee consisting of
a single member), as it deems appropriate from time to time under
the circumstances.
Any decision of a subcommittee to preapprove audit, review, attest
or non-audit services shall be presented to the full Audit
Committee at its next scheduled meeting.
3. REPORTS TO BOARD. The Audit Committee shall report regularly to the
Board of Directors.
4. CHARTER. At least annually, the Audit Committee shall review and
reassess the adequacy of this Charter and recommend any proposed
changes to the Board of Directors for approval.
5. INDEPENDENT ADVISORS. The Audit Committee is authorized, without
further action by the Board of Directors, to engage such
independent legal, accounting and other advisors as it deems
necessary or appropriate to carry out its responsibilities. Such
independent advisors may be the regular advisors to the Company.
The Audit Committee is empowered, without further action by the
Board of Directors, to cause the Company to pay the compensation
of such advisors as established by the Audit Committee.
6. INVESTIGATIONS. The Audit Committee shall have the authority to
conduct or authorize investigations into any matters within the
scope of its responsibilities as it shall deem appropriate,
including the authority to request any officer, employee or advisor
of the Company to meet with the Audit Committee or any advisors
engaged by the Audit Committee.
7. FUNDING. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the ordinary
administrative expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
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 Colin W. Stewart 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 Marriott Downtown Hotel, 1201 Market Street,
Philadelphia, Pennsylvania 19107 at 8:30 A.M., local time, on Tuesday, May 25, 2004, 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 and 2.
(continued and to be signed on reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
COLLAGENEX PHARMACEUTICALS, INC.
PREFERRED STOCK
May 25, 2004
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 RATIFY THE APPOINTMENT OF FOR AGAINST ABSTAIN
KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY |_| |_| |_|
FOR THE YEAR ENDING DECEMBER 31, 2004.
3. In his or her discretion, the proxy is authorized FOR AGAINST ABSTAIN
to vote upon other matters as may 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 Colin W. Stewart 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 Marriott Downtown Hotel, 1201 Market Street,
Philadelphia, Pennsylvania 19107 at 8:30 A.M., local time, on Tuesday, May 25, 2004, 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 and 2.
(continued and to be signed on reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
COLLAGENEX PHARMACEUTICALS, INC.
COMMON STOCK
May 25, 2004
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 |_| Colin W. Stewart |_| 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
|_| Brian M. Gallagher, Ph.D.
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 RATIFY THE APPOINTMENT OF FOR AGAINST ABSTAIN
KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY |_| |_| |_|
FOR THE YEAR ENDING DECEMBER 31, 2004.
3. In his or her discretion, the proxy is authorized to FOR AGAINST ABSTAIN
vote upon other matters as may 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.