<PAGE> 1
SCHEDULE 14A INFORMATION
(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 sec.240.14a-11(c) or 240.14a-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)(4) 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, 2000
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Cohesion Technologies, Inc., a Delaware corporation, will be held on Friday,
October 27, 2000 at 10:00 a.m., local time, at the Crowne 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 approve an amendment to the Cohesion Technologies, Inc. 1998 Stock
Option Plan that increases the number of shares of the company's common
stock authorized for issuance thereunder by 400,000 shares.
3. To ratify the appointment of Ernst & Young LLP as the company's
independent auditors for the fiscal year ending June 30, 2001.
4. 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 8, 2000
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 28, 2000
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
------------------------
2000 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 on Friday, October 27, 2000 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, California 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 28, 2000 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 8, 2000, the
record date, are entitled to notice of and to vote at our annual meeting. We
have one class of shares outstanding, designated as common stock. At the record
date, 9,284,752 shares of our common stock, $.001 par value, were issued and
outstanding, net of treasury stock, and held of record by 881 stockholders.
VOTING; QUORUM; ABSTENTIONS AND BROKER NON-VOTES
VOTING
In the election of directors, the seven nominees receiving the highest
number of affirmative votes cast shall be elected. For all other proposals, each
stockholder is entitled to one vote for each share held as of the record date
and the affirmative vote of the majority of the votes cast is required for
approval. Stockholders are not permitted to cumulate their votes for the
election of directors or any other purpose.
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 AND BROKER NON-VOTES
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
<PAGE> 4
to a particular matter. Therefore, in the absence of controlling precedent to
the contrary, Cohesion intends to treat abstentions in this manner.
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;
(ii) FOR approval of an amendment to the Cohesion Technologies, Inc.
1998 Stock Option Plan that increases the number of shares of the company's
common stock authorized for issuance thereunder by 400,000 shares; and
(iii) FOR ratification of the appointment of Ernst & Young LLP as the
company's independent auditors for the fiscal year ending June 30, 2001.
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 2001 Annual Meeting of Stockholders must
submit the proposal to the company no later than May 28, 2001. Additionally,
stockholders who intend to present a proposal at the 2001 Annual Meeting of
Stockholders without inclusion of such proposal in our proxy materials for the
2001 Annual Meeting must provide notice of such proposal to us no later than
August 28, 2001. We reserve the right to reject, rule out of order, or take
2
<PAGE> 5
other appropriate action with respect to any proposal that does not comply with
these and other applicable requirements.
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 8, 2000, 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 (the "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 9,284,752 shares of common stock outstanding as of September
8, 2000. 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 8, 2000 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.
3
<PAGE> 6
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT (%)
------------------------------------ ---------- ------------
<S> <C> <C>
Reid W. Dennis(1).................................... 725,043 7.8
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Wellington Management Company, LLP(2)................ 681,600 7.3
75 State Street
Boston, MA 02109
Dimensional Fund Advisors, Inc.(3)................... 578,450 6.2
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
John R. Daniels, M.D.(4)............................. 295,627 3.2
Craig T. Davenport(5)................................ 12,800 *
Craig W. Johnson (6)................................. 94,000 1.0
Mark A. Philip, Ph.D.(7)............................. 10,000 *
Thomas M. Prescott................................... 0 *
Robert C. Robbins, M.D............................... 0 *
David J. Foster(8)................................... 196,812 2.1
Frank A. DeLustro, Ph.D.(9).......................... 146,748 1.6
Ross R. Erickson(10)................................. 78,987 *
Russell W. McDaniell(11)............................. 15,765 *
Deborah L. Webster(12)............................... 105,125 1.1
All directors and executive officers as a group (13
persons)(13)....................................... 1,730,418 17.8
</TABLE>
---------------
* Less than one percent of the outstanding shares of common stock.
(1) Includes 29,000 shares of our common stock issuable upon exercise of options
within 60 days of September 8, 2000; excludes 1,500 shares held by Mr.
Dennis as trustee for Suzanna Weaver Dennis, of which he disclaims any
beneficial ownership.
(2) Wellington Management Company, LLP ("WMC") is an investment advisor
registered with the Commission under the Investment Advisors Act of 1940, as
amended (the "1940 Act"). WMC 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, WMC may be deemed to
have shared voting power with respect to 128,200 shares and shared
dispositive power with respect to 681,600 shares. Such shares are owned by
numerous investment advisory clients of WMC, one of which, Vanguard Health
Care Fund, is known to have beneficial ownership of more than five percent
of our common stock. The information presented is based upon information
provided to the company by WMC as of June 30, 2000. According to a Schedule
13G filed with the Commission by Vanguard Specialized Funds -- Vanguard
Health Care Fund ("Vanguard") on February 4, 2000, Vanguard may be deemed to
have sole voting power and shared dispositive power with respect to 525,800
of the shares deemed to be beneficially owned by WMC.
(3) Dimensional Fund Advisors, Inc. ("DFA") 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 its various investment advisory clients. Of such amount, DFA may
be deemed to have sole voting power and sole dispositive power with respect
to 578,450 shares. The information presented is based upon information
provided to the company by DFA as of June 30, 2000.
(4) Includes 29,000 shares of our common stock issuable upon exercise of
options within 60 days of September 8, 2000.
(5) Includes 10,000 shares of our common stock issuable upon exercise of
options within 60 days of September 8, 2000.
(6) Includes 44,000 shares of our common stock issuable upon exercise of
options within 60 days of September 8, 2000.
4
<PAGE> 7
(7) Represents 10,000 shares of our common stock issuable upon exercise of
options within 60 days of September 8, 2000.
(8) Includes 114,957 shares of our common stock issuable upon exercise of
options within 60 days of September 8, 2000.
(9) Includes 68,752 shares of our common stock issuable upon exercise of
options within 60 days of September 8, 2000.
(10) Includes 4,107 shares of our common stock issuable upon exercise of options
within 60 days of September 8, 2000.
(11) Includes 10,723 shares of our common stock issuable upon exercise of
options within 60 days of September 8, 2000.
(12) Includes 80,647 shares of our common stock issuable upon exercise of
options within 60 days of September 8, 2000.
(13) Includes an aggregate of 427,472 shares of our common stock issuable upon
exercise of options within 60 days of September 8, 2000.
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 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.
Reid W. Dennis and Craig W. Johnson will serve as directors of the company
until the annual meeting, and will not continue to serve as directors after that
date.
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)............... 62 Associate Professor of 1998
Medicine/Oncology, University of
Southern California
Craig T. Davenport(2)..................... 47 Chief Executive Officer, the D.W. Group, 1998
a private investment and advisory
services company
Frank A. DeLustro, Ph.D. ................. 52 President and Chief Operating Officer 1998
David J. Foster........................... 43 Chief Executive Officer 1998
Mark A. Philip, Ph.D.(1).................. 45 President and Chief Executive Officer, 1998
Zycos Inc., a biotechnology company
Thomas M. Prescott(1)..................... 45 President and Chief Executive Officer, 2000
Cardiac Pathways Corporation, a medical
device company
Robert C. Robbins, M.D.(2)................ 42 Assistant Professor of Cardiothoracic 2000
Surgery, Stanford University
</TABLE>
---------------
(1) Member of the Audit Committee.
(2) Member of the Human Resources Committee.
5
<PAGE> 8
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 served as 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 has served as a director of Cohesion since September
1998. Mr. Davenport has served as the Chief Executive Officer of the D.W. Group,
a private investment and advisory services company which he founded in 1994,
since its inception. Mr. Davenport was President and Chief Operating Officer at
Tokos Medical Corporation, a home health care service company, from 1985 to
1993. 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
management positions in the American Hospital Supply Division. He serves on the
Board of Directors of several private companies, including Pointshare
Corporation, Clinmark DotCom, Deschutes Medical Products, Sidelines National
Support Network and ECG Scanning and Medical Services. 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, Chief Operating Officer
and a director 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 Corporation, a medical device company, for 13 years in positions of
increasing responsibility, most recently as Senior Vice President, Scientific
Affairs. He serves on the Board of Directors of NeuColl, Inc., a private
company, of which Cohesion is a minority shareholder. 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 23 U.S. patents.
DAVID J. FOSTER has served as Chief Executive Officer and a director 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 Corporation. From May 1992 until February 1997, Mr. Foster
served as Chief Financial Officer of Collagen Corporation. He serves as Chairman
of the Board of Directors of NeuColl, Inc., a private company, of which Cohesion
is a minority shareholder. Mr. Foster has a B.S. in mechanical engineering and
an M.B.A. from the University of California at Berkeley.
MARK A. PHILIP, PH.D. has served as a director of Cohesion since September
1998. Dr. Philip has been the President and Chief Executive Officer of Zycos
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 serves as the Chairman of E-Smart, Inc., a private 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.
THOMAS M. PRESCOTT became a director of Cohesion in August 2000. Mr.
Prescott has been the President, Chief Executive Officer and a director of
Cardiac Pathways Corporation since May 1999. From August 1996 to May 1999, Mr.
Prescott served as Vice President and General Manager of a respiratory unit of
Nellcor Puritan Bennett, and from April 1994 to August 1996, he was Senior
Director of Corporate Accounts and Healthcare Systems at Nellcor. Mallincrodt
acquired Nellcor Puritan Bennett in September 1997. Mr. Prescott also held
various positions of increasing responsibility at GE Medical Systems. Mr.
Prescott holds a B.S. in engineering from Arizona State University and an
Executive M.B.A. from Northwestern University's Kellogg Graduate School of
Management.
ROBERT C. ROBBINS, M.D. became a director of Cohesion in April 2000. Dr.
Robbins has been affiliated with the Stanford University School of Medicine
since 1993, where he currently serves as Director of the
6
<PAGE> 9
Heart, Heart-Lung, and Lung Transplant Program and is an Assistant Professor of
Cardiothoracic Surgery and Director of the Cardiothoracic Transplantation
Laboratory. Dr. Robbins completed his residency in Cardiothoracic Surgery at
Stanford University Hospital. Previously, Dr. Robbins was a Pediatric Fellow of
Cardiothoracic Surgery and a Pediatric Fellow of Cardiac Surgery at Emory
University School of Medicine in Atlanta and at Royal Children's Hospital in
Melbourne, Australia, respectively. He was also a Clinical Associate, Surgery
Branch NHLBI at the National Institutes of Health in Bethesda, Maryland.
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 OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE NOMINEES.
BOARD MEETINGS, COMMITTEES
Our Board of Directors held 6 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). In August 2000, Mr. Prescott joined the
committee. 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 3 meetings during the fiscal year
ending June 30, 2000.
During the last fiscal year, the Human Resources Committee consisted of Dr.
Daniels, Mr. Davenport (Chairman), Mr. Dennis and Dr. Robbins, who joined the
committee in April 2000. The Human Resources Committee provides guidance and
commentary for all corporate compensation, benefits, perquisites and employee
(and director) equity programs. It reviews and makes recommendations to the
Board of Directors 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 5 meetings during the fiscal year
ending June 30, 2000.
No director serving in the last fiscal year, other than Dr. DeLustro and
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.
DIRECTOR COMPENSATION
We currently pay each director who is not an employee 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. 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 during the last fiscal year were Dr. Daniels, Mr. Davenport, Mr.
Dennis and Dr. Robbins (since April, 2000), none of whom has been an officer or
employee of the company.
7
<PAGE> 10
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the company's directors and officers and persons who
own more than 10% of a registered class of the company's equity securities to
file reports of ownership and reports of changes in ownership with the
Commission. Such persons are required by regulations of the Commission to
furnish the company with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms submitted to us
during the fiscal year ended June 30, 2000, we believe that, during the last
fiscal year, all filing requirements applicable to our directors, officers and
10% stockholders were complied with.
8
<PAGE> 11
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 fiscal years
ended June 30, 1998, 1999 and 2000. We may refer to these officers as our named
executive officers in other parts of this proxy statement.
Prior to August 18, 1998, Cohesion Technologies, Inc. was a wholly owned
subsidiary of Collagen Corporation, from which we were 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(1)..................................... 2000 194,235 -- 23,100
Chief Executive Officer and Director 1999 193,245 -- 140,000
1998 183,639 64,095 15,000
Frank A. DeLustro, Ph.D................................ 2000 194,235 -- 6,300
President and Chief Operating Officer and 1999 193,245 -- 100,000
Director 1998 187,960 -- --
Ross R. Erickson....................................... 2000 181,731 -- 5,040
Vice President, Regulatory Affairs, Clinical 1999 180,692 -- 65,000
Research and Quality Assurance 1998 176,350 -- --
Russell W. McDaniell(2)................................ 2000 157,566 5,000 41,800
Vice President, Sales
Deborah L. Webster(1).................................. 2000 167,309 -- 5,040
Vice President and Chief Administrative Officer 1999 165,635 -- 65,000
1998 152,931 55,146 6,500
</TABLE>
---------------
(1) Bonuses paid in fiscal 1998 to Mr. Foster and Ms. Webster were pursuant to
Collagen's then-current compensation program.
(2) Mr. McDaniell joined the company in July 1999 and received a sign-on bonus
of $5,000.
OPTION GRANTS DURING THE FISCAL YEAR ENDED JUNE 30, 2000
The following table provides information regarding stock option grants made
during the fiscal year ended June 30, 2000 to the named executive officers. No
stock appreciation rights were granted.
The stock options were granted under our 1998 Stock Option Plan. The
maximum term of each option granted is ten years from the date of grant. The
exercise price is equal to the fair market value of our common stock on the date
of grant.
The percentage of total options granted to employees in the last fiscal
year is based on an aggregate of 251,659 options granted in the last fiscal year
to our employees and non-employee directors, and consultants, including options
granted to the named executive officers.
Potential realizable value amounts represent certain assumed rates of
appreciation in stock price for a given exercise price only and assume the
conversion or exchange of all options to purchase common stock. Actual gains, if
any, on stock option exercises and holdings of the common stock are dependent on
the future performance of such stock. There is no assurance that the amounts
reflected will be realized. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by the rules of the Commission and do not
represent our estimate or projection of future stock prices. Unless the market
price of the
9
<PAGE> 12
applicable shares of the common stock appreciates over the option term, no value
will be realized from the stock option grants made to the named executive
officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERMS ($)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED YEAR (%) ($/SHARE) DATE 5% 10%
---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David J. Foster............ 8,100 3.2 9.375 2/4/10 47,757 121,025
15,000 6.0 11.875 4/12/10 112,022 283,886
Frank A. DeLustro, Ph.D.... 6,300 2.5 9.375 2/4/10 37,144 94,130
Ross R. Erickson........... 5,040 2.0 9.375 2/4/10 29,715 75,304
Russell W. McDaniell....... 20,000 7.9 6.00 8/12/09 75,467 191,249
1,800 0.7 9.375 2/4/10 10,613 26,894
20,000 7.9 9.75 2/14/10 122,634 310,780
Deborah L. Webster......... 5,040 2.0 9.375 2/4/10 29,715 75,304
</TABLE>
AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED JUNE 30, 2000 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, 2000 and the number and value of such officer's unexercised
options at June 30, 2000. No stock appreciation rights were exercised.
The fair market value of our common stock at the close of business on June
30, 2000 was $11.81 per share.
The "Value Realized" or the unrealized "Value of Unexercised In-the-Money
Options at June 30, 2000" represent the aggregate difference between the market
value on the date of exercise or at June 30, 2000, in the case of unrealized
values, and the applicable exercise price.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT JUNE 30, 2000 (#) AT JUNE 30, 2000 ($)
ACQUIRED ON REALIZED ----------------------------- ---------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Foster.......... 16,000 46,940 99,068 108,332 687,881 682,645
Frank A. DeLustro,
Ph.D. ................. 38,811 164,275 59,323 63,796 364,714 463,599
Ross R. Erickson......... 50,980 267,935 7,703 42,337 57,554 303,459
Russell W. McDaniell..... 0 0 1,744 40,056 3,651 158,237
Deborah L. Webster....... 5,000 24,965 73,343 44,897 488,340 320,612
</TABLE>
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
We do not have employment agreements or change of control agreements with
any of our executive officers.
REPORT OF THE HUMAN RESOURCES COMMITTEE
The Human Resources Committee of the Board of Directors is comprised of Dr.
Daniels, Mr. Davenport (Chairman), Mr. Dennis and Dr. Robbins, all independent
nonemployee directors who are not eligible to participate in any of the
executive compensation programs. The committee oversees the administration of
10
<PAGE> 13
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 2000.
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. The committee reviews and approves annual
employee stock grant recommendations. 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 (the "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
11
<PAGE> 14
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 2000 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.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation for David J. Foster, the company's Chief Executive
Officer, is determined based on a number of factors, including comparative
salaries of chief executive officers of companies in the company's peer group,
Mr. Foster's individual performance and the company's performance as measured
against stated objectives. Mr. Foster's compensation for the fiscal year ended
June 30, 2000, which consisted of base salary and incentive stock options, is
set forth in the Summary Compensation Table appearing on page 9.
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 R. Daniels, M.D.
Reid W. Dennis
Robert C. Robbins, M.D.
The foregoing Human Resources Committee Report shall not be deemed to be
"soliciting material" or to be "filed" with the Commission, 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.
12
<PAGE> 15
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, 2000
compared with the Nasdaq Stock Market-US Index and the Chase H&Q Healthcare-
Excluding Biotechnology Index. The fair market value of our common stock at the
close of business on August 13, 1998 was $6.75 and on June 30, 2000 was $11.81
per share. This graph is presented pursuant to the rules of the Commission. 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 CUMULATIVE TOTAL RETURN*
AMONG COHESION TECHNOLOGIES, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE CHASE H&Q HEALTHCARE -- EXCLUDING BIOTECHNOLOGY INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
8/13/98 9/98 12/98 3/99 6/99 9/99 12/99 3/00 6/00
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COHESION
TECHNOLOGIES,
INC............... 100.00 48.15 53.70 58.80 88.89 88.89 135.19 218.52 175.01
NASDAQ STOCK MARKET
(U.S.) INDEX...... 100.00 94.69 123.05 137.99 151.10 154.77 228.74 256.81 223.21
CHASE H & Q
HEALTHCARE-
EXCLUDING
BIOTECHNOLOGY
INDEX............. 100.00 96.62 114.80 109.37 112.23 96.95 100.30 106.43 129.26
--------------------------------------------------------------------------------------------
</TABLE>
---------------
* $100 invested on August 13, 1998 in stock or index -- including reinvestment
of dividends.
13
<PAGE> 16
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 Corporation 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 the fiscal year ended June 30, 2000.
<TABLE>
<CAPTION>
NAME AMOUNT
---- --------
<S> <C>
Frank A. DeLustro, Ph.D. ................................... $458,114
Ross R. Erickson............................................ $286,875
</TABLE>
PROPOSAL NO. 2: APPROVAL OF AN AMENDMENT TO THE 1998 STOCK
OPTION PLAN TO INCREASE THE NUMBER OF SHARES AUTHORIZED
FOR ISSUANCE THEREUNDER
The company's 1998 Stock Option Plan (the "Stock Plan") was initially
adopted by the Board of Directors and approved by Collagen, as the sole
stockholder, in April 1998. On October 14, 1999, the Board amended the Stock
Plan, without the need for stockholder approval, to provide for accelerated
vesting of stock options granted under the Stock Plan upon or after certain
transactions involving the company. On August 23, 2000, the Board further
amended the Stock Plan, subject to stockholder approval, to increase by 400,000
shares the aggregate number of shares authorized for issuance under the Stock
Plan (from 2,607,000 shares to 3,007,000 shares), which will increase the number
of shares remaining available for future grants as of June 30, 2000, from
616,351 shares to 1,016,351 shares. This amendment was designed to ensure that
the company can continue to grant stock options at levels determined appropriate
by the Board of Directors. The Board of Directors believes that in order to
attract, motivate and retain highly qualified employees and consultants and to
provide such employees and consultants with adequate incentive through their
proprietary interest in the company, it is necessary to increase the number of
shares available for issuance under the Stock Plan. Stock options serve as an
incentive, which rewards employees and consultants for their performance and for
business successes, reflected in stock price appreciation.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the votes cast will be
required to approve the amendment to the Stock Plan to increase the number of
shares authorized for issuance thereunder.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
UNDER THE STOCK PLAN.
The essential features of the Stock Plan are outlined below.
GENERAL
The Stock Plan provides for the grant to employees of the company
(including officers and employee directors) of "incentive stock options" within
the meaning of Section 422 of the Code and for the grant of nonstatutory stock
options to employees and consultants of the company. The purposes of the Stock
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional
14
<PAGE> 17
incentives to the employees and consultants of the company and to promote the
success of the company's business.
ADMINISTRATION
With respect to grants of options to employees or consultants who are also
officers or directors of the company, grants under the Stock Plan shall be made
by (A) the Board of Directors, if the Board of Directors may make grants under
the Stock Plan in compliance with Rule 16b-3 of the Exchange Act and Section
162(m) of the Code as it applies so as to qualify grants of options to the chief
executive officer of the company or the four other highest compensated officers
of the company (the "Named Officers"), or (B) a committee designated by the
Board of Directors to make grants under the Stock Plan, which committee shall be
constituted in such a manner as to permit grants under the Stock Plan to comply
with Rule 16b-3 of the Exchange Act, to qualify grants of options to Named
Executives as performance-based compensation under Section 162(m) of the Code
and otherwise so as to satisfy the applicable securities laws and the Code.
With respect to grants of options to employees or consultants who are
neither directors nor officers of the company, the Stock Plan shall be
administered by (A) the Board of Directors or (B) a committee designated by the
Board of Directors, which committee shall be constituted in such a manner as to
satisfy the applicable securities laws and the Code.
The Board of Directors or the committee of the Board of Directors
administering the Stock Plan (the "Administrator"), shall have the authority, in
its discretion: (i) to determine the fair market value of the common stock, in
accordance with the Stock Plan; (ii) to select the employees and consultants to
whom options may from time to time be granted under the Stock Plan; (iii) to
determine whether and to what extent options are granted under the Stock Plan;
(iv) to determine the number of shares of common stock to be covered by each
such award granted under the Stock Plan; (v) to approve forms of agreement for
use under the Stock Plan; (vi) to determine the terms and conditions, not
inconsistent with the terms of the Stock Plan, of any award granted under the
Stock Plan (including, but not limited to, the share price and any restriction
or limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any option and/or the shares of common stock relating thereto, based
in each case on such factors as the Administrator shall determine, in its sole
discretion); (vii) to reduce the exercise price of any option to the then
current fair market value if the fair market value of the common stock covered
by such option shall have declined since the date the option was granted.
ELIGIBILITY
Under the Stock Plan, employees (including officers and employee directors)
may be granted incentive stock options within the meaning of Section 422 of the
Code, and employees and consultants may be granted our nonstatutory stock
options. The Stock Plan provides that the maximum number of shares of our common
stock, which may be granted under options to any one employee during any fiscal
year, will be 250,000 shares, subject to adjustment as provided in the Stock
Plan. In addition, to the extent that an optionee would have the right in any
calendar year to exercise for the first time one or more incentive stock options
for shares having an aggregate fair market value (under all plans of the company
or any parent or subsidiary of the company) in excess of $100,000, such excess
options will be treated as nonstatutory stock options. For purposes of making
this determination, incentive stock options are taken into account in the order
in which they were granted, and the fair market value of the shares is
determined as of the time the option with respect to such shares was granted.
EXERCISE PRICE
The exercise price of all incentive stock options granted under the Stock
Plan must be at least equal to 100% of the fair market value of the common stock
of the company on the date of grant. The exercise price of all nonstatutory
stock options granted under the Stock Plan must be equal to at least 85% of the
fair market value of the common stock on the date of grant. To date, all
nonstatutory stock option grants have been at the fair market value. With
respect to any participant who owns stock representing more than 10% of the
voting
15
<PAGE> 18
power of all classes of stock of the company, the exercise price of any stock
option granted must equal at least 110% of the fair market value. With respect
to any nonstatutory stock option granted to certain executive officers of the
company, the exercise price of such option must be at least equal to the fair
market value of the common stock of the company on the date of grant. The fair
market value per share is equal to the closing price on the Nasdaq National
Market on the date of grant. The exercise price may be paid in such
consideration as determined by the Administrator, including, but not limited to
cash, check, promissory notes and shares of the company's common stock.
TERM
The Administrator determines the term of options. If an optionee owns stock
possessing more than 10% of the voting power of the company's outstanding
capital stock, the term of an option may not exceed five years. The term of
incentive stock options may not exceed ten years. The Stock Plan provides that
in the event of the termination of an optionee's employment or consulting
relationship with the company, such optionee may exercise any vested options
within three months following termination (or such other period of time not
exceeding six months, in the case of a nonstatutory stock option following
termination as determined by the Administrator). If the optionee was not
entitled to exercise the option at the date of such termination, or if the
optionee does not exercise such option (which the optionee was entitled to
exercise) within the time specified the option will terminate.
EXERCISABILITY
The Administrator determines when options become exercisable, including any
restrictions or limitations such as those based on continued employment.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION OR MERGER
In the event of a dissolution or liquidation of the company other than in
an Acquisition (as defined below), then each outstanding option shall be
terminated if not exercised prior to such event, unless such outstanding options
are assumed by a subsequent purchaser.
In the event of an "Acquisition," which is defined in the Stock Plan as
either a sale of all or substantially all of the company's assets, or a
consolidation or merger of the company with or into any other corporation or
other entity or person in which the stockholders of the company prior to such
consolidation or merger own less than fifty percent (50%) of the company's
voting power immediately after such consolidation or merger, any surviving
corporation or entity or acquiring corporation or entity, or affiliate of such
corporation or entity may assume any options outstanding under the Stock Plan or
substitute similar options (including an option to acquire the same
consideration paid to the stockholders in the Acquisition) for those outstanding
under the Stock Plan.
In the event any surviving corporation or acquiring corporation in an
Acquisition refuses to assume such options or to substitute similar options for
those outstanding under the Stock Plan, then with respect to (1) options held by
optionees whose continuous status as an employee or consultant has not
terminated prior to such event, the vesting of such options (and, if applicable,
the time during which such options may be exercised) shall be accelerated and
made fully exercisable at least thirty (30) days prior to the closing of the
Acquisition (and the options terminated if not exercised prior to the closing of
such Acquisition); and (2) any other options outstanding under the Stock Plan,
such options shall be terminated if not exercised prior to the closing of the
Acquisition.
In the event the company undergoes an Acquisition and the surviving
corporation or entity or acquiring corporation or entity does assume such
options (or substitutes similar options for those outstanding under the Stock
Plan), then, with respect to options held by persons then performing services as
employees or consultants, the vesting of each such option (and, if applicable,
the time during which such options may be exercised) shall be accelerated and
such options shall become fully vested and exercisable, if any of the following
events occurs within twelve (12) months after the effective date of the
Acquisition: (1) the service to the company or an affiliate of the company by
such optionee is terminated without Cause (as defined in the
16
<PAGE> 19
Stock Plan); (2) the optionee holding such option terminates his or her service
to the company or an affiliate of the company due to the fact that the principal
place of the performance of the responsibilities and duties of the optionee is
changed to a location more than fifty (50) miles from such optionee's existing
work location without the optionee's express consent; or (3) the optionee
terminates his or her service to the company or affiliate of the company due to
the fact that there is a material reduction in such optionee's responsibilities
and duties without the optionee's express consent.
TRANSFERABILITY
No option may be sold, pledged, assigned, hypothecated, transferred or
disposed in any manner by the optionee other than by will or the laws of descent
or distribution. Each option may be exercised, during the lifetime of the
optionee, only by such optionee.
AMENDMENT AND TERMINATION OF STOCK PLAN
The Board of Directors may at any time amend or terminate the Stock Plan,
except that such action cannot adversely affect options previously granted
without the agreement of any optionee so affected. The company must obtain
stockholder approval of any Stock Plan amendment that would increase the number
of shares subject to the Stock Plan, that would change the designation of the
class of persons eligible to be granted options or that would require
stockholder approval to qualify the options granted under the plan as
performance based compensation under Section 162(m) of the Code. If not
terminated earlier, the Stock Plan will terminate in 2008.
OPTIONS GRANTED
As of June 30, 2000, options for 1,271,834 shares were outstanding under
the Stock Plan and 616,351 shares remained available for future grants
(excluding the increase in the number of shares authorized for issuance under
the Stock Plan). As of June 30, 2000, the aggregate fair market value of shares
subject to outstanding options under the Stock Plan was $15,020,360, based upon
the closing price of the Common Stock as reported on the Nasdaq National Market
on such date. The actual benefits, if any, to the holders of stock options
issued under the Stock Plan are not determinable prior to exercise, as the
value, if any, of such stock options to their holders is represented by the
difference between the market price of a share of the company's Common Stock on
the date of exercise and the exercise price of a holder's stock option.
TAX INFORMATION
The following is only a brief summary of the Federal income tax
consequences for the optionee and the company with respect to the grant and
exercise of options under the Stock Plan. This summary does not purport to be
complete, and does not discuss the tax consequences of the optionee's death or
the income tax laws of any municipality, state or foreign country in which an
optionee may reside. The company advises all optionees to consult their own tax
advisors with respect to the tax consequences of their participation in the
Stock Plan.
Options granted under the Stock Plan may be either incentive stock options,
which are intended to qualify for the special tax treatment provided by Section
422 of the Code, or nonstatutory stock options which will not so qualify.
If an option granted under the Stock Plan is an incentive stock option,
under Federal tax law, an optionee will recognize no income upon grant of the
option and have no regular taxable liability due to the exercise. However, the
excess of the value of the stock subject to the option over the exercise price
will be an item of alternative minimum taxable income, which could result in the
optionee being subject to the alternative minimum tax for the year of exercise.
Upon the sale or exchange of the shares more than two years after grant of the
option and more than one year after exercise of the option, any gain will be
treated as long-term capital gain. If both of these holding periods are not
satisfied (a "disqualifying disposition"), the optionee will recognize ordinary
income equal to the difference, if any, between the exercise price and the lower
of (i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. A different
17
<PAGE> 20
rule for measuring ordinary income upon such a disqualifying disposition may
apply if the optionee is also an officer, director, or 10% stockholder of the
company. The company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. Any gain or loss recognized on such
a disqualifying disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain or
loss, depending on whether or not the disposition occurs more than one year
after the exercise date.
All other options, which do not qualify as incentive stock options or are
not designated as such, are referred to as nonstatutory stock options. An
optionee will not recognize any taxable income under Federal tax laws at the
time he or she is granted a nonstatutory stock option. However, upon its
exercise, the optionee will recognize ordinary taxable income measured by the
excess of the then fair market value of the shares over the exercise price. The
company will be entitled to a tax deduction in the same amount as the ordinary
income recognized by the optionee with respect to shares acquired upon exercise
of a nonstatutory stock option. The taxable income recognized by an optionee who
is also an employee of the company will be subject to income and employment tax
withholding by the company by payment in cash by the optionee or out of the
optionee's current earnings. Upon resale of such shares by the optionee, any
difference between the sale price and the optionee's tax basis (exercise price
plus the income recognized upon exercise) is treated as capital gain or loss and
will qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year after the exercise date.
PROPOSAL NO. 3: RATIFICATION 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, 2001, and recommends that stockholders ratify 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, 2001.
RECOMMENDATION OF THE BOARD OF DIRECTORS
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, 2001.
18
<PAGE> 21
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 of Directors may recommend or as the proxy holders, acting in their sole
discretion, may determine.
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,
2000, INCLUDING THE FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES.
REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS, COHESION TECHNOLOGIES, INC., 2500
FABER PLACE, PALO ALTO, CALIFORNIA 94303.
THE BOARD OF DIRECTORS
Dated: September 28, 2000
19
<PAGE> 22
COHESION TECHNOLOGIES, INC.
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS
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 94306 on October 27, 2000 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 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.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE> 23
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF THE STOCKHOLDERS
COHESION TECHNOLOGIES, INC.
OCTOBER 27, 2000
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
1. Election of Directors
The Board of Directors unanimously recommends a FOR ALL
vote "FOR" the nominees. NOMINEES WITHHOLD
(EXCEPT AS AUTHORITY
Nominees: MARKED TO THE TO VOTE FOR
John R. Daniels, M.D. CONTRARY BELOW) ALL NOMINEES
Craig T. Davenport
Frank A. DeLustro, Ph.D. [ ] [ ]
David J. Foster
Mark A. Philip, Ph.D.
Thomas M. Prescott
Robert C. Robbins, M.D.
(INSTRUCTION: To withhold authority for any individual nominee,
mark the "FOR" box and write that nominee's name in the space
provided below.)
Exceptions: __________________________________________________
2. Approval of an amendment to the Cohesion
Technologies, Inc. 1998 Stock Option Plan
to increase the number of shares
authorized for issuance thereunder by
400,000 shares.
The Board of Directors unanimously [ ] FOR [ ] AGAINST [ ] ABSTAIN
recommends a vote "FOR" approval of the
amendment
3. Ratification of the appointment of Ernst
& Young LLP as the company's independent
auditors for the fiscal year ending June
30, 2001.
The Board of Directors unanimously [ ] FOR [ ] AGAINST [ ] ABSTAIN
recommends a vote "FOR" the ratification
of the appointment of Ernst & Young LLP.
SIGNATURE: ____________________ DATED __________, 2000
SIGNATURE: ____________________ DATED __________, 2000
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.
