<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
COHESION TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
Cohesion Technologies, Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of
Cohesion Technologies, Inc., a Delaware corporation, will be held on Wednesday,
October 27, 1999 at 10:00 a.m., local time, at the Crown Plaza Cabana Palo Alto
Hotel, Portofino Room, 4290 El Camino Real, Palo Alto, California 94306 for the
following purposes:
1. To elect seven directors.
2. To confirm the appointment of Ernst & Young LLP as the company's
independent auditors for the fiscal year ending June 30, 2000.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
These matters are more fully described in the proxy statement accompanying
this notice.
Only stockholders of record at the close of business on September 3, 1999
are entitled to vote at the Annual Meeting. However, all stockholders are
cordially invited to attend the meeting in person. Any stockholder attending the
meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
Michael W. Hall
Secretary
Dated: September 27, 1999
IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU RETURNED
A PROXY.
<PAGE> 3
COHESION TECHNOLOGIES, INC.
------------------------
PROXY STATEMENT
------------------------
1999 ANNUAL MEETING OF STOCKHOLDERS
The enclosed proxy is solicited on behalf of the Board of Directors of
Cohesion Technologies, Inc., a Delaware corporation, for use at the Annual
Meeting of Stockholders to be held Wednesday, October 27, 1999 at 10:00 a.m.,
local time, or at any adjournment thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Stockholders. The annual meeting
will be held at the Crowne Plaza Cabana Palo Alto Hotel, Portofino Room, 4290 El
Camino Real, Palo Alto, CA 94306. The telephone number at that location is (650)
857-0787. Cohesion's principal executive offices are located at 2500 Faber
Place, Palo Alto, California 94303.
This proxy statement is being mailed on or about September 27, 1999 to all
stockholders entitled to vote at the annual meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on September 3, 1999, the
record date, are entitled to notice of and to vote at our annual meeting. We
have one class of shares outstanding, designated common stock. At the record
date, 8,461,477 shares of our common stock, $.001 par value, were issued and
outstanding, net of treasury stock, and held of record by 828 stockholders.
VOTING; QUORUM; ABSTENTIONS; AND BROKER NON-VOTES
Each stockholder is entitled to one vote for each share held as of the
record date. In the election of directors, the nominees receiving the highest
number of affirmative votes cast shall be elected. For all other proposals, the
affirmative vote of the majority of the votes cast is required for approval.
Quorum
The required quorum for the transaction of business at our annual meeting
is a majority of the shares of common stock issued and outstanding on the record
date and entitled to vote at our annual meeting. Shares that are voted "FOR,"
"AGAINST" or "ABSTAIN" from a matter are treated as being present at our annual
meeting for purposes of establishing a quorum and determining the total number
of eligible votes. If a quorum is not present or represented, then either the
chairman of our annual meeting or the stockholders entitled to vote at our
annual meeting, present in person or represented by proxy, will have the power
to adjourn our annual meeting from time to time, without notice other than an
announcement at our annual meeting, until a quorum is present. At any adjourned
annual meeting at which a quorum is present, any business may be transacted that
might have been transacted at the annual meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned annual meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
adjourned annual meeting.
Abstentions
Although there is no definitive statutory or case law authority in Delaware
as to the proper treatment of abstentions, Cohesion believes that abstentions
should be counted for purposes of determining both the presence or absence of a
quorum for the transaction of business and the total number of votes cast with
respect to a particular matter. Therefore, in the absence of controlling
precedent to the contrary, we intend to treat abstentions in this manner.
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<PAGE> 4
Broker Non-Votes
Broker non-votes, however, shall be treated differently. Broker non-votes
may be counted for purposes of determining the presence or absence of a quorum
for the transaction of business, but broker non-votes shall not be counted for
purposes of determining the number of votes cast with respect to the particular
proposal on which the broker has expressly not voted. Consequently, broker
non-votes with respect to proposals set forth in this proxy statement will not
be considered votes cast and will not affect the determination as to whether the
requisite majority of votes cast has been obtained with respect to a particular
matter.
Therefore, for purposes of the election of directors, neither abstentions
nor broker non-votes will have any effect on the outcome of the vote. For all
other proposals, abstentions will have the same effect as votes against these
proposals and broker non-votes will not have any effect on the outcome of the
vote.
Proxy Cards
Proxies in the accompanying form that are properly executed and returned
will be voted at the annual meeting in accordance with the instructions on the
proxy. Any properly executed proxy on which there are no instructions indicated
about a specified proposal will be voted as follows:
(i) FOR the election of the seven persons named in this proxy
statement as the board of directors' nominees for election to the board of
directors; and
(ii) FOR the ratification of the appointment of Ernst & Young LLP as
independent auditors of the company.
No business other than that set forth in the accompanying notice of annual
meeting of stockholders is expected to come before the annual meeting. Should
any other matter requiring a vote of stockholders properly arise, the persons
named in the proxy will vote the shares they represent as the board of directors
may recommend. The persons named in the proxy may also, at their discretion,
vote the proxy to adjourn the annual meeting from time to time.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
company a written notice of revocation or a duly executed proxy bearing a later
date or by attending our annual meeting and voting in person.
SOLICITATION
The cost of soliciting proxies will be borne by Cohesion. We may retain
Corporate Investor Communications, Inc., a proxy solicitation firm, to solicit
proxies in connection with our annual meeting at an estimated cost of $6,000. In
addition, Cohesion may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
our directors, officers and regular employees, without additional compensation,
personally or by telephone, facsimile, e-mail or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders who intend to present a proposal for inclusion in the
company's proxy materials for the 2000 Annual Meeting of Stockholders must
submit the proposal to the company no later than May 28, 2000. Additionally,
stockholders who intend to present a proposal at the 2000 Annual Meeting of
Stockholders without inclusion of such proposal in our proxy materials for the
2000 Annual Meeting must provide notice of such proposal to us no later than
August 11, 2000. 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 and other applicable requirements.
2
<PAGE> 5
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth specified information with respect to the
beneficial ownership of the common stock as of September 3, 1999, by:
(1) each person (or group of affiliated persons) who is known by us to
beneficially own 5% or more of the common stock;
(2) each of our directors;
(3) each of our named executive officers; and
(4) all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. Unless otherwise indicated, the persons named in the table
have sole voting and sole investment control with respect to all shares
beneficially owned. The number and percentage of shares beneficially owned are
based on 8,461,477 shares of common stock outstanding as of September 3, 1999.
The number and percentage of shares beneficially owned also assumes that shares
of common stock subject to options and other rights that are currently
exercisable or exercisable within 60 days of September 3, 1999 are deemed to be
outstanding and beneficially owned. The address for those individuals for which
an address is not otherwise indicated is Cohesion Technologies, Inc., 2500 Faber
Place, Palo Alto, California 94303.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(%)
------------------------------------ --------- ----------
<S> <C> <C>
Wellington Management Company(1)............................ 1,086,200 12.8
75 State Street
Boston, MA 02109
Heartland Advisors, Inc.(2)................................. 760,400 9.0
790 North Milwaukee Street
Milwaukee, WI 53202
Reid W. Dennis(3)........................................... 723,043 8.5
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Dimensional Fund Advisors, Inc.(4).......................... 564,950 6.7
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Vanguard Specialized Funds -- Vanguard Health Care
Fund(5)................................................... 525,800 6.2
P.O. Box 2600
Valley Forge, PA 19482
John R. Daniels, M.D.(6).................................... 289,127 3.4
David J. Foster(7).......................................... 150,915 1.8
Frank A. DeLustro, Ph.D.(8)................................. 107,815 1.3
Craig W. Johnson(9)......................................... 89,000 1.0
Deborah L. Webster(10)...................................... 82,018 *
Ross R. Erickson(11)........................................ 57,880 *
Charles L. Williams(12)..................................... 19,900 *
Craig T. Davenport(13)...................................... 5,300 *
Mark A. Philip, Ph.D.(14)................................... 2,500 *
All directors and executive officers as a group (12
persons)(15).............................................. 1,577,063 17.7
</TABLE>
- ---------------
* Less than one percent of the outstanding shares of common stock.
(1) Wellington Management Company is an investment advisor registered with the
Commission under the Investment Advisors Act of 1940, as amended. WMC may
be deemed to beneficially own the stated
3
<PAGE> 6
shares by virtue of its status as a registered investment advisor to its
various investment advisory clients. Of such amount, Wellington may be
deemed to have shared voting power with respect to 506,300 shares and
shared dispositive power with respect to 1,086,200 shares. Such shares are
owned by numerous investment advisory clients of WMC, of which Vanguard
Health Care Fund is known to have beneficial ownership of more than five
percent of that class of securities of the company.
(2) Heartland Advisors, Inc., America's Value Investor, is an investment
advisor registered with the Commission under the 1940 Act. Heartland
Advisors may be deemed to beneficially own the stated shares by virtue of
its status as a registered investment advisor to its various investment
advisory clients. Of such amount, Heartland Advisors may be deemed to have
sole voting power and sole dispositive power with respect to 760,400
shares.
(3) Includes 27,000 shares of our common stock issuable upon exercise of
options within 60 days of September 3,1999; excludes 1,500 shares held by
Mr. Dennis as trustee for Suzanna Weaver Dennis, of which he disclaims any
beneficial ownership.
(4) Dimensional Fund Advisors, Inc. is an investment advisor registered with
the Commission under the 1940 Act. DFA may be deemed to beneficially own
the stated shares by virtue of its status as a registered investment
advisor to various investment advisory clients. Of such amount, DFA may be
deemed to have sole voting power and sole dispositive power with respect to
564,950 shares.
(5) Vanguard Specialized Funds -- Vanguard Health Care Fund is an investment
advisor registered with the Commission under the 1940 Act. Vanguard may be
deemed to beneficially own the stated shares by virtue of its status as a
registered investment advisor to its various investment advisory clients.
Of such amount, Vanguard may be deemed to have sole voting power with
respect to 525,800 shares and shared dispositive power with respect to
525,800 shares. The information presented is based upon information filed
with the Commission on Schedule 13G by the stockholder.
(6) Includes 27,000 shares of our common stock issuable upon exercise of
options within 60 days of September 3, 1999.
(7) Includes 88,060 shares of our common stock issuable upon exercise of
options within 60 days of September 3, 1999.
(8) Includes 81,630 shares of our common stock issuable upon exercise of
options within 60 days of September 3, 1999.
(9) Includes 39,000 shares of our common stock issuable upon exercise of
options within 60 days of September 3, 1999.
(10) Includes 65,540 shares of our common stock issuable upon exercise of
options within 60 days of September 3, 1999.
(11) Includes 47,880 shares of our common stock issuable upon exercise of
options within 60 days of September 3, 1999.
(12) Includes 16,900 shares of our common stock issuable upon exercise of
options within 60 days of September 3, 1999.
(13) Includes 2,500 shares of our common stock issuable upon exercise of options
within 60 days of September 3, 1999.
(14) Represents 2,500 shares of our common stock issuable upon exercise of
options within 60 days of September 3, 1999.
(15) Includes an aggregate of 437,850 shares of our common stock issuable upon
exercise of options within 60 days of September 3, 1999.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
A board of seven directors will be elected at our annual meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the seven nominees named below, all of whom are presently directors of the
company. If any nominee is unable or declines to serve as a director at the time
of our annual
4
<PAGE> 7
meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. We do not expect that any
nominee will be unable or will decline to serve as a director. If stockholders
nominate additional persons for election as directors, the proxy holders will
vote all proxies received by them to assure the election of as many of the Board
of Directors' nominees as possible, with the proxy holders making any required
selection of specific nominees to be voted for. The term of office of each
person elected as a director will continue until the next annual meeting of
stockholders or until that person's successor has been elected.
The names of the nominees and certain information about them, are set forth
below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- --- -------------------- --------------
<S> <C> <C> <C>
John R. Daniels, M.D.(1)(2).......... 61 Associate Professor of Medicine, 1998
University of Southern California
Craig T. Davenport(2)................ 46 Chief Executive Officer, the D.W. 1998
Group, a private investment and
advisory services company
Frank A. DeLustro, Ph.D. ............ 51 President and Chief Operating Officer 1998
Reid W. Dennis(2).................... 73 General Partner of various 1998
partnerships associated with
Institutional Venture Partners
(venture capital partnerships)
David J. Foster...................... 42 Chief Executive Officer 1998
Craig W. Johnson(1).................. 52 Director, Venture Law Group, 1998
A Professional Corporation
Mark A. Philip, Ph.D.(1)............. 44 President and Chief Executive 1998
Officer, Zycos Inc, a biotechnology
company
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Human Resources Committee.
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There are no
family relationships among any directors or executive officers of the company.
John R. Daniels, M.D. has been Chairman of Cohesion's Board of Directors
since January 1998. Dr. Daniels is an Associate Professor of Medicine/Oncology
at the University of Southern California. Dr. Daniels is also Chairman of the
Board and Chief Financial Officer of Balance Pharmaceuticals, Inc., a
pharmaceutical company. Dr. Daniels has a B.S. in biology and an M.D. from
Stanford University.
Craig T. Davenport became a director of Cohesion in September 1998. Mr.
Davenport is the Chief Executive Officer of the D.W. Group, a private investment
and advisory services company he founded in 1994. Mr. Davenport was at Tokos
Medical Corporation, a health care service company, from 1985 to 1993, as
President and Chief Operating Officer. Mr. Davenport worked for American
Hospital Supply Corporation, a health care company, from 1974 to 1984, serving
in the capacity of President for both the American Physicians and American
Hospitex divisions as well as various sales positions in the American Hospital
division. He serves on the Board of Directors of several private companies,
including Pointshare Corporation, Clinmark DotCom, Deschutes Medical Products
and Sidelines National Support Network. Mr. Davenport graduated from Ohio
University in 1974 with a B.G.S. degree with majors in marketing and management.
Frank A. DeLustro, Ph.D. has served as President and Chief Operating
Officer of Cohesion since January 1998. He served as President and Chief
Executive Officer of Cohesion Corporation from its inception in 1996 until
December 1997. Prior to joining Cohesion Corporation, Dr. DeLustro served at
Collagen Aesthetics, Inc., a medical device company, for 13 years in positions
of increasing responsibility, most recently as Senior Vice President, Scientific
Affairs. Dr. DeLustro has a B.S. in biology from Fordham University and a Ph.D.
in immunology/microbiology from Upstate Medical School, SUNY (Syracuse). He is
the author of over 40 scientific publications and the holder of 18 U.S. patents.
5
<PAGE> 8
Reid W. Dennis has been a director of Cohesion since January 1998. Mr.
Dennis is a General Partner of various partnerships associated with
Institutional Venture Partners. He serves on the Board of Directors of Aviron, a
biopharmaceutical company. Mr. Dennis has a B.A. in electrical engineering and
an M.A. from Stanford University.
David J. Foster has served as Chief Executive Officer of Cohesion since
January 1998. From February 1997 to December 1997 he served as Senior Vice
President and General Manager of the Collagen Technologies Group, a division of
Collagen Aesthetics, Inc. From May 1992 until February 1997, Mr. Foster served
as Chief Financial Officer of Collagen. Mr. Foster serves on the Board of
Directors of Innovasive Devices, Inc., a medical device company. Mr. Foster has
a B.S. in mechanical engineering and an M.B.A. from the University of California
at Berkeley.
Craig W. Johnson has been a director of Cohesion since January 1988. Mr.
Johnson has been Chairman and a Director of Venture Law Group, A Professional
Corporation, and a partner of its predecessor partnership since February 1993.
From 1980 to February 1993, Mr. Johnson was a member of the law firm of Wilson
Sonsini Goodrich & Rosati, Professional Corporation. He also serves on the Board
of Directors of a number of private companies. Mr. Johnson has a B.A. from Yale
University and a J.D. from Stanford University.
Mark A. Philip, Ph.D. became a director of Cohesion in September 1998. Dr.
Philip has been the President and Chief Executive Officer of Zycos Inc, formerly
known as Pangaea Pharmaceuticals, Inc., a biotechnology company, since 1997.
From 1992 to 1997, Dr. Philip was President and Chief Executive Officer of
Immuno-US, a biological pharmaceutical company, and from 1983 to 1992, he held
regulatory, marketing and general management positions at Baxter International,
Inc., a medical products company. Dr. Philip has a B.S. in biochemistry and
animal physiology and a Ph.D. in hematology and immunology from Trent
Polytechnic/Nottingham City University, and an M.B.A. from Lake Forest Graduate
School of Management.
VOTE REQUIRED
The seven nominees receiving the highest number of affirmative votes of the
votes cast shall be elected as directors of the company for the ensuing year.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE NOMINEES.
BOARD MEETINGS, COMMITTEES
Our Board of Directors held 10 meetings during the last fiscal year. Our
Board of Directors has an Audit Committee and a Human Resources Committee. Our
Board of Directors has no nominating committee or any committee performing such
functions.
During the last fiscal year, the Audit Committee consisted of Dr. Daniels,
Mr. Johnson and Dr. Philip (Chairman). The Audit Committee recommends engagement
of our independent auditors, reviews the scope of the audit, considers comments
made by the independent auditors with respect to our internal control structure,
including systems, procedures and internal accounting controls and the
consideration given thereto by management, and reviews our internal control
structure, including systems, procedures and internal accounting controls, with
our financial and accounting staff. The Audit Committee held two meetings during
the fiscal year ending June 30, 1999.
During the last fiscal year, the Human Resources Committee consisted of Dr.
Daniels, Mr. Davenport (Chairman) and Mr. Dennis. The Human Resources Committee
provides guidance and commentary for all corporate compensation, benefits,
perquisite and employee (and director) equity programs. It reviews and makes
recommendations to the Board regarding such matters as the compensation of our
officers, all employee equity plans and individual equity grants and bonus plans
and bonus payments. The Human Resources Committee held five meetings during the
fiscal year ending June 30, 1999.
6
<PAGE> 9
No director serving in the last fiscal year, other than Mr. Dennis,
attended fewer than 75% of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board on which he serves. Mr.
Dennis attended 73% of such meetings.
DIRECTOR COMPENSATION
We currently pay each director who is not an employee (currently five
persons) a monthly retainer of $1,000 ($4,000 in the case of the Chairman of the
Board), a fee of $1,000 for each meeting of the Board attended by such director,
and a fee of $250 for each telephonic meeting of the Board in which such
director participates. There is no fee for committee meetings attended by such
director on a date not coinciding with a meeting of the Board. Each nonemployee
director participates in our 1998 Directors' Stock Option Plan, pursuant to
which nonemployee directors are automatically granted options to purchase shares
of common stock on the terms and conditions set forth in such plan.
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Human Resources Committee of the company's Board of
Directors are currently Dr. Daniels, Mr. Davenport and Mr. Dennis, none of whom
has been an officer or employee of the company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and officers and persons who own more than 10% of a registered
class of our equity securities to file reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission. Such persons
are required by SEC regulations to furnish the company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms submitted to it
during the fiscal year ended June 30, 1999, Cohesion believes that, during the
last fiscal year, all filing requirements applicable to its directors, officers
and 10% stockholders were complied with.
EXECUTIVE OFFICER COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and the four other most highly compensated
officers for services rendered in all capacities to us during the years ended
June 30, 1998 and 1999. We may refer to these officers as our named executive
officers in other parts of this proxy statement.
In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted for the named executive
officers because the aggregate amount of such perquisites and other personal
benefits was less than the lesser of $50,000 or 10% of the total of annual
salary and bonuses for each of the named executive officers during the fiscal
years ended June 30, 1998 and 1999.
7
<PAGE> 10
Prior to August 18, 1998, Cohesion Technologies, Inc. was a wholly owned
subsidiary of Collagen Aesthetics, Inc., from which it was spun off on August
18, 1998. Prior to the spin-off, compensation to the named executive officers
was paid by either Collagen or a company affiliated with Collagen.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
--------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
David J. Foster.................................... 1999 193,245 -- 140,000
Chief Executive Officer and Director 1998 183,639 64,095 15,000
Frank A. DeLustro, Ph.D............................ 1999 193,245 -- 100,000
President and Chief Operating Officer and
Director 1998 187,960 -- --
Ross R. Erickson................................... 1999 180,692 -- 65,000
Vice President, Regulatory Affairs, 1998 176,350 -- --
Clinical Research and Quality Assurance
Deborah L. Webster................................. 1999 165,635 -- 65,000
Vice President and Chief Administrative Officer 1998 152,931 55,146 6,500
Charles L. Williams................................ 1999 166,982 -- 65,000
Vice President, Operations 1998 159,996 -- --
</TABLE>
OPTION GRANTS DURING THE FISCAL YEAR ENDED JUNE 30, 1999
The following table provides information regarding stock option grants made
during the fiscal year ended June 30, 1999 to the named executive officers. No
stock appreciation rights were granted.
The stock options were granted under our 1998 Stock Option Plan. The
maximum term of each option granted is ten years from the date of grant. The
exercise price is equal to the fair market value of the stock on the date of
grant.
The percentage of total options granted to employees in the last fiscal
year is based on an aggregate of 1,196,850 options granted in the last fiscal
year to our employees and non-employee directors, and consultants, including
options granted to the named executive officers. In addition, we also granted an
aggregate of 1,098,810 options to employees and directors of and consultants to
Collagen in connection with the spin-off of our company from Collagen.
Potential realizable value amounts represent certain assumed rates of
appreciation in stock price for a given exercise price only and assume the
conversion or exchange of all options to purchase common stock. Actual gains, if
any, on stock option exercises and holdings of the common stock are dependent on
the future performance of such stock. There is no assurance that the amounts
reflected will be realized. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by the rules of the SEC and do not
represent our estimate or projection of future stock prices. Unless the market
price of the applicable shares
8
<PAGE> 11
of the common stock appreciates over the option term, no value will be realized
from the stock option grants made to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------------------------------------- AT ASSUMED ANNUAL RATES
% OF TOTAL OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM($)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR(%) ($/SHARE) DATE 5% 10%
---- ---------- -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David J. Foster............ 140,000 11.7 4.063 9/10/08 357,728 906,553
Frank A. DeLustro, Ph.D.... 100,000 8.4 4.063 9/10/08 255,520 647,538
Ross R. Erickson........... 65,000 5.4 4.063 9/10/08 166,088 420,899
Deborah L. Webster......... 65,000 5.4 4.063 9/10/08 166,088 420,899
Charles L. Williams........ 65,000 5.4 4.063 9/10/08 166,088 420,899
</TABLE>
AGGREGATE OPTION/SAR EXERCISES DURING THE FISCAL YEAR ENDED JUNE 30, 1999 AND
YEAR-END VALUES
The following table provides certain summary information for each named
executive officer with respect to exercise of stock options during the fiscal
year ended June 30, 1999 and the number and value of such officer's unexercised
options at June 30, 1999. No stock appreciation rights were exercised.
The fair market value of our common stock at the close of business on June
30, 1999 was $6.00 per share.
The "Value Realized" or the unrealized "Value of Unexercised In-the-Money
Options at Fiscal Year-End" represent the aggregate difference between the
market value on the date of exercise or at June 30, 1999, in the case of
unrealized values, and the applicable exercise price.
AGGREGATE OPTION EXERCISES AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES VALUE AT JUNE 30, 1999(#) AT JUNE 30, 1999($)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Foster................ -- -- 52,680 151,120 27,163 281,197
Frank A. DeLustro, Ph.D........ 2,550 1,874 55,230 100,400 13,309 194,128
Ross R. Erickson............... -- -- 33,700 65,280 10,438 126,205
Deborah L. Webster............. 2,400 840 47,000 71,200 20,190 131,800
Charles L. Williams............ -- -- -- 65,000 -- 125,905
</TABLE>
REPORT OF THE HUMAN RESOURCES COMMITTEE
The Human Resources Committee of the Board of Directors is comprised of Dr.
Daniels, Mr. Davenport (Chairman) and Mr. Dennis, all independent nonemployee
directors who are not eligible to participate in any of the executive
compensation programs. The committee oversees the administration of Cohesion's
benefits and compensation plans, reviews corporate human resources programs and
establishes policies governing the annual compensation of the executive officers
of the company.
The following is a report submitted by the above listed committee members
in their capacity as the Board's Human Resources Committee, addressing
Cohesion's compensation policy as it related to our executive officers for
fiscal 1999.
9
<PAGE> 12
COMPENSATION POLICY
The goal of Cohesion's executive compensation policy is to ensure that an
appropriate relationship exists between executive pay and the creation of
stockholder value, while at the same time motivating and retaining key
employees. To achieve this goal, our executive compensation policies integrate
annual base compensation and periodic stock option grants. All executive
officers, as well as all other Cohesion employees, are eligible for and do
participate in these compensation plans.
Salary
The committee evaluates the performance and sets the salary of our Chief
Executive Officer, David J. Foster, on an annual basis. Mr. Foster evaluates the
performance of all other executive officers and recommends salary adjustments
which are reviewed and approved by the committee. Survey data is drawn from
comparable companies participating in medical device, biotechnology, and/or
pharmaceutical executive compensation surveys. Within this framework, executive
salaries are determined based on individual performance, level of
responsibility, the company's overall salary structure and the financial
condition of the company.
Bonuses
Cohesion does not currently have a bonus plan in place. We may consider
such a plan in the future, depending on the financial condition of the company.
Stock Options
The committee believes that equity ownership provides significant
additional motivation to all employees to maximize value for the company's
stockholders, and therefore approves periodic grants of stock options under
Cohesion's 1998 Stock Option Plan. Primary option grants to our employees are
generally approved upon the achievement of pre-determined company goals. The
amounts are determined relative to each employee's level of responsibility as
well as the total amount of stock options available for grant under the 1998
Stock Option Plan. In determining individual grants, the committee also
considers individual performance, current stock option holdings and grants to
others within our company. Additional grants may be given during the fiscal year
in recognition of promotions or exemplary performance achievements.
Stock options are granted at the prevailing market price and will only have
value if Cohesion's stock price increases over the exercise price. The committee
believes that the performance-based value of stock options serves to align the
interests of executive officers closely with other stockholders. In accordance
with this philosophy, we do not have a discounted option or restricted stock
program for our executive officers.
In addition to providing an opportunity for increased equity ownership,
stock options also create an incentive for officers and employees to remain with
the company for the long term, as such options become exercisable over time for
so long as the officer or employee continues his or her employment relationship
with Cohesion.
Deductibility of Executive Compensation
The committee has considered the impact of Section 162 (m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which
section disallows a deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for the Chief Executive
Officer and the four other most highly compensated executive officers, unless
such compensation meets the requirements for the "performance-based" exception
to the general rule. Since the cash compensation paid by Cohesion to each of its
executive officers is expected to be well below $1 million and the committee
believes that options granted under the 1998 Stock Option Plan prior to the date
of the 1999 Annual Meeting of Stockholders will meet the requirements for
qualifying as performance-based, the Committee believes that this section will
not affect the tax deduction available to our company in the foreseeable future.
10
<PAGE> 13
CHIEF EXECUTIVE OFFICER COMPENSATION
During the fiscal year ended June 30, 1999, the compensation of Mr. Foster
was determined by applying the same criteria discussed at the beginning of this
report used to determine compensation for all executive officers. Mr. Foster's
compensation for the fiscal year ended June 30, 1999 is set forth in the Summary
Compensation Table appearing on page 8.
SUMMARY
The committee believes that Cohesion's compensation policy as practiced to
date by the committee and the board of directors has been successful in
attracting and retaining qualified employees and in tying compensation directly
to corporate performance relative to corporate goals. Our compensation policy
will evolve over time as we attempt to achieve the many short-term goals we face
while maintaining our focus on building long-term stockholder value through
technological leadership and development and expansion of the market for our
products.
Respectfully submitted,
Craig T. Davenport, Chairman
John Daniels, M.D.
Reid W. Dennis
The foregoing Human Resources Committee Report shall not be deemed to be
"soliciting material" or to be "filed" with the SEC, nor shall such information
be incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent Cohesion
specifically incorporates it by reference into such filing.
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph shows a comparison of total stockholder return for
holders of our common stock from August 13, 1998, the date on which our common
stock was first traded on the Nasdaq Stock Market, through June 30, 1999
compared with the Nasdaq Stock Market-US Index and the Hambrecht and Quist
Healthcare-Excluding Biotechnology Index. This graph is presented pursuant to
SEC rules. We believe that while total stockholder return can be an important
indicator of corporate performance, the stock prices of medical device stocks
like that of the company are subject to a number of market-related factors other
than company performance, such as competitive announcements, mergers and
acquisitions in the industry, the general state of the economy and the
performance of other medical device and micro/small-cap stocks.
COMPARISON OF 10 MONTH CUMULATIVE TOTAL RETURN*
AMONG COHESION TECHNOLOGIES, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST HEALTHCARE -- EXCLUDING BIOTECHNOLOGY INDEX
<TABLE>
<CAPTION>
COHESION NASDAQ STOCK HAMBRECHT & QUIST
TECHNOLOGIES, INC. MARKET (U.S.) HEALTHCARE-
------------------ ------------- EXCLUDING
BIOTECHNOLOGY
-----------------
<S> <C> <C> <C>
8/13/98 100 100 100
8/98 44 83 89
9/98 48 95 97
10/98 49 99 102
11/98 57 109 111
12/98 54 123 115
1/99 86 141 110
2/99 76 128 107
3/99 59 137 109
4/99 69 141 106
5/99 81 138 109
6/99 89 150 112
</TABLE>
* $100 INVESTED ON 8/13/98 IN STOCK OR INDEX --
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
We do not have employment agreements or change of control agreements with
any of our executive officers.
12
<PAGE> 15
CERTAIN TRANSACTIONS
COHESION CORPORATION
In September 1998, our board of directors approved a program to cancel
options to purchase shares of the common stock of Cohesion Corporation, a
majority-owned subsidiary of the company that we acquired during fiscal 1998.
Collagen Aesthetics, Inc. acquired the minority-owned shares of Cohesion
Corporation as part of a plan to create and spin off Cohesion Technologies, Inc.
In connection with the program, we offered to pay each holder of these canceled
options a per share amount equal to the excess of $16.70 over the exercise price
of the canceled option, subject to certain vesting provisions. The following
table sets forth the executive officers and directors who received more than
$60,000 under this program during fiscal 1999.
<TABLE>
<CAPTION>
NAME AMOUNT
---- --------
<S> <C>
Frank A. DeLustro, Ph.D................................... $635,625
Ross R. Erickson.......................................... $420,000
Charles L. Williams....................................... $310,000
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
In December 1997, Charles L. Williams, Vice President, Operations, borrowed
$150,000 from Cohesion Corporation, pursuant to a promissory note bearing an
annual interest rate of 10%, secured by certain real property and other property
owned by Mr. Williams. During the fiscal year ending June 30, 1999, Mr. Williams
paid the company $163,253 in principal and interest, paying the loan in full.
OUTSIDE LEGAL COUNSEL
Craig W. Johnson, one of our directors, is a director of Venture Law Group,
a Professional Corporation. We retained Venture Law Group as our primary outside
legal counsel during a portion of the fiscal year ended June 30, 1999. We no
longer retain Venture Law Group as our primary outside legal counsel.
PROPOSAL NO. 2: CONFIRMATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the company for the fiscal year
ending June 30, 2000, and recommends that stockholders confirm such selection.
This firm has audited the company's financial statements since the company's
inception. In the event of a negative vote, the Board of Directors will
reconsider its selection. Representatives of Ernst & Young LLP are expected to
be present at our annual meeting with the opportunity to make a statement if
they desire to do so, and are expected to be available to respond to appropriate
questions.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the votes cast will be
required to ratify the appointment of Ernst & Young LLP as the company's
independent auditors for the fiscal year ending June 30, 2000.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 2000.
OTHER MATTERS
We know of no other matters to be submitted at our annual meeting. If any
other matters properly come before the meeting, the persons named in the
accompanying form of proxy will vote the shares represented by the proxy as the
Board may recommend or as the proxy holders, acting in their sole discretion,
may determine.
13
<PAGE> 16
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN
REQUEST A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30,
1999, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF EXHIBITS.
REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS, COHESION TECHNOLOGIES, INC., 2500
FABER PLACE, PALO ALTO, CALIFORNIA 94303.
THE BOARD OF DIRECTORS
Dated: September 27, 1999
<PAGE> 17
COHESION TECHNOLOGIES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 27, 1999
The undersigned hereby authorize(s) David J. Foster or Frank A. DeLustro Ph.D.,
or one of them, and each with the power to appoint his substitute, to vote as
Proxy for the undersigned at the Annual Meeting of Stockholders, to be held at
the Crowne Plaza Cabana Palo Alto Hotel, Portofino Room, 4290 El Camino Real,
Palo Alto, California on October 27, 1999 at 10:00 a.m., local time, or any
adjournment or postponement thereof, the number of shares which the undersigned
would be entitled to vote if personally present. The proxies shall vote subject
to the directions indicated on the reverse side of this card, and proxies are
authorized to vote in their discretion upon such other business as may properly
come before the meeting and any adjournments or postponements thereof. The
proxies will vote as the Board of Directors recommends where the undersigned
does not specify a choice.
1. Election of Directors 2. Ratification of the appointment of Ernst
& Young LLP as the company's independent
The Board of Directors unanimously auditors for the fiscal year ending June
recommends a vote "FOR" the 30, 2000.
nominees.
Nominees: The Board of Directors unanimously
recommends a vote "FOR" the ratification
of the appointment of Ernst & Young LLP.
John R. Daniels, M.D. David J. Foster
Craig T. Davenport Craig W. Johnson FOR AGAINST ABSTAIN
Frank A. DeLustro, Ph.D. Mark A. Philip, Ph.D.
Reid W. Dennis
WITHHOLD
AUTHORITY
FOR all to vote for all
nominees listed nominees listed *Exceptions
(INSTRUCTION: To withhold authority for any
individual nominee, mark the "Exceptions" box
and write that nominee's name in the space
provided below.)
Exceptions:
--------------------------------
Please sign name exactly as it appears on this card. Joint owners should each
sign. Attorneys, trustees, executors, administrators, custodians, guardians or
corporate officers should give full title.
SIGNATURE:
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SIGNATURE:
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