<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant |X|
Filed by a party other than the registrant | |
Check the appropriate box:
| | Preliminary proxy statement
|X| Definitive proxy statement
| | Definitive addition materials
| | Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
COLLAGEN CORPORATION
(Name of Registrant as Specified in Its Charter)
COLLAGEN CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
| | $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
| | 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 transactions applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
| | 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:
- --------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
COLLAGEN CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 30, 1996
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of COLLAGEN
CORPORATION, a Delaware corporation (the "Company"), will be held on Wednesday,
October 30, 1996 at 10:00 a.m., local time, at the Company's principal offices
located at 2500 Faber Place, Palo Alto, California 94303, for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to the 1994 Stock Option Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by
400,000 shares from 750,000 to 1,150,000 shares.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending June 30, 1997.
4. To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on September 6, 1996
are entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she returned a proxy.
Very truly yours,
Craig W. Johnson
Secretary
Palo Alto, California
September 23, 1996
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF
RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU
MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
<PAGE> 3
COLLAGEN CORPORATION
------------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Collagen Corporation (the "Company" or "Collagen") for use at the Annual Meeting
of Stockholders to be held Wednesday, October 30, 1996 at 10:00 a.m., local
time, or at any postponement or adjournment thereof (the "Annual Meeting"), for
the purposes set forth herein and in the accompanying Notice of Annual Meeting
of Stockholders. The Annual Meeting will be held at the Company's principal
offices located at 2500 Faber Place, Palo Alto, California 94303. The Company's
telephone number at its principal executive offices is (415) 856-0200.
These proxy solicitation materials were mailed on or about September 30,
1996 to all stockholders entitled to vote at the Annual Meeting.
RECORD DATE
Stockholders of record of the Company's Common Stock at the close of
business on September 6, 1996 are entitled to notice of, and to vote at, the
Annual Meeting. At the September 6, 1996 record date, 8,690,110 shares of the
Company's Common Stock were issued and outstanding, exclusive of shares held by
the Company as treasury stock.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before its use by delivering to the Company (Attention: David
J. Foster, Inspector of Elections) a written notice of revocation or a duly
executed proxy bearing a later date or by attending the meeting and voting in
person.
VOTING AND SOLICITATION
Holders of shares of Common Stock are entitled to one vote per share on all
matters, except that all such holders are entitled to cumulate their votes in
the election of directors.
Every stockholder voting for the election of directors may cumulate such
stockholder's votes and give one candidate the number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
stockholder's shares are entitled, or may distribute such stockholder's votes on
the same principle among as many candidates as the stockholder may select,
provided that votes cannot be cast for more than nine candidates. However, no
stockholder shall be entitled to cumulate votes unless the names of the
candidates for which votes are being cumulated have been placed in nomination
prior to the voting and the stockholder, or any other stockholder, has given
notice at the meeting, prior to the voting, of the stockholder's intention to
cumulate the stockholder's votes. On all other matters, each share of Common
Stock has one vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except with respect to the election of directors where
cumulative voting is invoked and except in certain other specific circumstances,
the affirmative vote of a majority of shares present in person or represented by
proxy at a duly held meeting at which a quorum is present is required under
Delaware law for approval of proposals presented to stockholders. In general,
Delaware law also provides that a quorum consists of a majority of the shares
entitled to vote and present in person or represented by proxy. The Inspector
will treat abstentions as shares that are present and entitled to vote for
purposes of determining
<PAGE> 4
the presence of a quorum and as negative votes for purposes of determining the
approval of any matter submitted to the stockholders for a vote. Any proxy which
is returned using the form of proxy enclosed and which is not marked as to a
particular item will be voted for the election of directors, for the approval of
the amendment to the 1994 Stock Option Plan and the reservation of an additional
400,000 shares for issuance thereunder, for ratification of the appointment of
the designated independent auditors and, as the proxy holders deem advisable, on
other matters that may come before the meeting, as the case may be with respect
to the item not marked. If a broker indicates on the enclosed proxy or its
substitute that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company 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
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1997 Annual Meeting must be received by the
Company no later than May 26, 1997 in order that such proposals may be included
in the proxy statement and form of proxy relating to that meeting.
2
<PAGE> 5
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
NOMINEES
A board of nine directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for
Management's nine nominees named below, all of whom are currently directors of
the Company. Mr. Michael Mee, a member of the Company's current Board of
Directors, has indicated that he will not stand for re-election at the Annual
Meeting and, accordingly, has submitted his resignation from the Board effective
immediately prior to the Annual Meeting. In light of this, the Board of
Directors in August 1996 approved an amendment to the Company's By-laws to
decrease the size of the Board of Directors from eleven to nine directors
effective upon the resignation of Mr. Mee from the Board of Directors (and in
light of the resignation of Dr. Terry Knapp from the Board of Directors in
January 1996).
In the event that any nominee of the Company is unable or declines to serve
as a director at the time of the Annual Meeting, the proxies will be voted for
any nominee who shall be designated by the present Board of Directors to fill
the vacancy. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner in accordance with cumulative voting as will assure the election of as
many of the nominees listed below as possible and, in such event, the specific
nominees to be voted for will be determined by the proxy holders. It is expected
that all nominees will be able and willing to serve as directors. The term of
office of each person elected as a director will continue until the next Annual
Meeting of Stockholders or until such director's successor has been elected and
qualified.
The names of the nominees, and certain information about them as of
September 6, 1996, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------------------- --- ---------------------------------------------------- --------
<S> <C> <C> <C>
Howard D. Palefsky......... 49 Chairman of the Board of Directors and Chief 1978
Executive Officer of the Company
Anne L. Bakar.............. 39 President and Chief Executive Officer of Telecare 1993
Corporation (a provider of in-patient psychiatric
services)
John R. Daniels, M.D....... 58 Associate Professor of Medicine, University of 1977
Southern California
William G. Davis........... 64 Independent business consultant; retired President 1984
of Medical Instrument Systems Division, Eli Lilly
and Company (a diversified health care company)
Reid W. Dennis............. 70 General Partner of various partnerships associated 1975
with Institutional Venture Partners (venture capital
partnerships)
Craig W. Johnson........... 49 Director, Venture Law Group, A Professional 1991
Corporation; Secretary of the Company
Rodney Perkins, M.D........ 60 Private ear surgeon; Chairman of the Board of 1975
Directors of ReSound Corporation (a hearing health
care company) and a director of Laserscope (a
manufacturer of medical laser systems)
Gary S. Petersmeyer........ 49 President and Chief Operating Officer of the Company 1995
Roger H. Salquist.......... 54 Director and former Chairman and Chief Executive 1988
Officer of Calgene, Inc. (an agribusiness
biotechnology company)
</TABLE>
3
<PAGE> 6
Except as set forth below, each of the nominees has been engaged in his or
her principal occupation described above during the past five years. There is no
family relationship between any of the directors or executive officers of the
Company.
Mr. Palefsky joined Collagen as President, Chief Executive Officer and
Director in March 1978 and served in such capacities until February 1995, when
he became the Chairman of the Board and Chief Executive Officer. From 1973 to
March 1978, Mr. Palefsky was employed by Alza Corporation where his last
position was Vice President, Marketing. Prior to 1973, Mr. Palefsky was employed
by Whitehall Laboratories as Assistant to the President. Both Alza Corporation
and Whitehall Laboratories are manufacturers of pharmaceutical products. Mr.
Palefsky is also a director of Calgene, Inc., Innovasive Devices, Inc. and
Target Therapeutics, Inc. ("Target"). In addition, he is a director of Cohesion
Corporation ("Cohesion"), CollOptics, Inc. ("CollOptics") and Prograft Medical,
Inc. ("Prograft"), each a privately held subsidiary of or company affiliated
with Collagen.
Ms. Bakar has been President and Chief Executive Officer of Telecare
Corporation, the largest private provider of psychiatric services in the state
of California, since 1987. Previously, Ms. Bakar spent seven years in the
investment banking industry.
Dr. Daniels, a founder of Collagen, was a Vice President of Collagen from
September 1975 to September 1979. He served as President of Target, a
manufacturer of medical devices for minimally invasive, non-surgical treatment
of vascular diseases, from June 1985 to April 1989, and as a director from June
1985 to May 1990. Dr. Daniels is also the President, Chief Executive Officer and
a director of Regional Therapeutics, Inc., a developer of collagen-based medical
products, and the Chairman and Chief Financial Officer of Balance
Pharmaceuticals, Inc., a developer of pharmaceutical products, and a director of
Cohesion.
Mr. Davis was associated with Eli Lilly and Company from 1957 to 1984,
where he served as Executive Vice President, Eli Lilly International
Corporation, from 1972 to 1975, Executive Vice President, Pharmaceutical
Division, from 1975 to 1982 and President, Medical Instrument Systems Division,
from 1982 until his retirement in 1984. Mr. Davis is also a director of Alza
Corporation, CardioVascular Dynamics, Inc., Endosonics, Inc. and Target.
Mr. Dennis served as President of Collagen from February 1976 to March
1978, as Chairman of the Board from March 1978 to February 1995, and has served
as Chairman Emeritus of the Board and Chairman of the Executive Committee since
February 1995.
Mr. Johnson has been a Director in Venture Law Group, A Professional
Corporation, principal outside counsel to Collagen, and a Partner in 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, principal outside counsel to Collagen during such
period. He was appointed Secretary of Collagen in August 1986. Mr. Johnson
served as Assistant Secretary of Collagen for ten years prior to his appointment
as Secretary. Mr. Johnson is also a director of Retix and Fractal Design
Corporation.
Dr. Perkins, a founder of Collagen, served as President of Collagen from
September 1975 to November 1975. He is a Clinical Professor of Surgery at the
Stanford University Medical Center and President of the California Ear Institute
at Stanford. Dr. Perkins is also the Chairman of the Board of Directors of
Cohesion.
Mr. Petersmeyer joined Collagen as President, Chief Operating Officer and
Director in February 1995. Prior to joining Collagen, Mr. Petersmeyer was
employed by Syntex Corporation, a manufacturer of pharmaceutical products, from
1991 to January 1995, where he served as Vice President of Managed Health Care
from March 1993 to January 1995, as well as serving at various times as National
Sales Director and Director of Corporate Development. From 1986 to 1990, he
served as President and Chief Executive Officer of Beta Phase, Inc., a medical
device manufacturer, and from 1982 to 1986 he was the Executive Vice President
and General Manager, Ophthalmic Products Division, of CooperVision, Inc., a
manufacturer and distributor of ophthalmic products. Mr. Petersmeyer is also a
director of Cardiometrics, Inc.
Mr. Salquist served as Chief Executive Officer and a director of Calgene,
Inc., from November 1985 to August 1996, and is currently a member of the Board
of Directors of that company. He is also a trustee of the Fidelity Investments
Charitable Gift Fund.
4
<PAGE> 7
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings during
the fiscal year ended June 30, 1996, including meetings held by conference
telephone call. The Board of Directors has an Audit Committee and a Human
Resources Committee (formerly the Compensation Committee). There is no committee
performing the functions of a nominating committee.
The Audit Committee recommends engagement of the Company's independent
auditors, reviews the scope of the audit, considers comments made by the
independent auditors with respect to the Company's internal control structure,
including systems, procedures and internal accounting controls and the
consideration given thereto by Management, and reviews the Company's internal
control structure, including systems, procedures and internal accounting
controls, with the Company's financial and accounting staff. This Committee,
which currently consists of directors Mee (Chairman), Johnson and Salquist, held
two meetings during fiscal 1996.
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 Company's compensation of its officers, all employee equity plans
and individual equity grants and bonus plans and bonus payments. This Committee,
which currently consists of directors Davis (Chairman), Bakar and Dennis, held
four meetings during fiscal 1996.
No incumbent director attended fewer than 75 percent of the aggregate
number of meetings (held while such director was a member) of the Board of
Directors and of the committees, if any, upon which such director served during
fiscal 1996.
COMPENSATION OF DIRECTORS
The Company currently pays each director who is not an employee (currently
ten persons) a monthly retainer of $1,000, a fee of $1,000 for each meeting of
the Board attended by such director, a fee of $250 for each telephonic meeting
of the Board in which such director participates and a fee of $500 for each
committee meeting attended by such director on a date not coinciding with a
meeting of the Board. Each nonemployee director participates in the Company's
1990 Directors' Stock Option Plan, pursuant to which nonemployee directors are
automatically granted options to purchase shares of Common Stock of the Company
on the terms and conditions set forth in such plan. On July 1, 1995, each of the
Company's ten nonemployee directors on such date were granted a 3,000 share
option at an exercise price of $17.125 per share, all pursuant to the terms of
the Company's 1990 Directors' Stock Option Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE.
PROPOSAL NO. 2:
AMENDMENT TO THE 1994 STOCK OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve an amendment to the 1994 Stock Option Plan (the "1994 Option Plan") to
increase the number of shares of Common Stock reserved for issuance thereunder
by 400,000 shares.
GENERAL
The 1994 Option Plan was adopted by the Board of Directors in May 1994 to
replace the 1984 Incentive Stock Option Plan which expired in accordance with
its terms in August 1994. The Board of Directors initially reserved 750,000
shares of Common Stock for issuance under the 1994 Option Plan. The 1994 Option
Plan was approved by the Company's stockholders at the Company's 1994 Annual
Meeting of Stockholders held in October 1994. In August 1996, the Board of
Directors amended the 1994 Option Plan to increase the number
5
<PAGE> 8
of shares reserved for issuance thereunder by 400,000 shares to an aggregate of
1,150,000 shares that have been reserved for issuance from time to time under
such Plan.
The Board of Directors believes that, in order to attract qualified
employees to the Company and to provide incentive to its current employees, it
is necessary to grant options or rights to purchase Common Stock to such
employees pursuant to the 1994 Option Plan. Accordingly, stockholders are being
asked to approve the amendment to the 1994 Option Plan at the Annual Meeting.
Options granted under the 1994 Option Plan may be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or nonstatutory stock options at the discretion of the
Board of Directors and as reflected in the terms of the written option
agreement. The Board of Directors, at its discretion, may also grant rights to
purchase Common Stock directly, rather than pursuant to stock options, subject
to certain restrictions discussed below.
The 1994 Option Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
As of September 6, 1996 options for 657,912 shares were outstanding under
the 1994 Option Plan, 1,460 shares had been issued pursuant to the exercise of
options granted under such plan and 90,628 shares remained available for future
grants. No stock purchase rights have been granted under the 1994 Option Plan.
Shares not purchased under an option prior to its expiration will be available
for future option grants under the 1994 Option Plan. As of September 6, 1996,
the aggregate fair market value of shares subject to outstanding options under
the 1994 Option Plan was $12,829,284, based upon the closing price of the Common
Stock as reported on The Nasdaq Stock Market on such date. The actual benefits,
if any, to the holders of stock options issued under the 1994 Option 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, as set forth below. Grant information with
respect to options to purchase Common Stock of the Company granted in the fiscal
year ended June 30, 1996 under the Company's 1994 Stock Option Plan to all
employees and certain of the Company's executive officers whose annual salary
and bonus exceeded $100,000 for fiscal 1996 is set forth under "COMPENSATION OF
EXECUTIVE OFFICERS -- STOCK OPTION GRANTS IN FISCAL 1996." Options to purchase
136,000 shares of Common Stock were granted during the fiscal year ended June
30, 1996 under the Company's 1994 Stock Option Plan to the Company's executive
officers as a group.
PURPOSE
The purposes of the 1994 Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business.
ADMINISTRATION
The 1994 Option Plan may be administered by the Board of Directors or by a
committee (or subcommittee in certain instances) of the Board of Directors. The
1994 Option Plan is currently being administered by the Board of Directors and
the Human Resources Committee of the Board of Directors. If all members of the
Human Resources Committee do not meet the definition of "outside directors"
under Code Section 162(m), a subcommittee of the Human Resources Committee
consisting of such "outside directors" will have the exclusive authority to
grant stock options and purchase rights and otherwise administer the 1994 Option
Plan with respect to "covered employees" described in Code Section 162(m)
(generally the Company's highest paid executive officers). Members of the Board
of Directors receive no additional compensation for their services in connection
with the administration of the 1994 Option Plan. All questions of interpretation
of the 1994 Option Plan are determined by the Board of Directors or its
committee and its decisions are final and binding upon all participants.
6
<PAGE> 9
ELIGIBILITY
The 1994 Option Plan provides that either incentive stock options or
nonstatutory stock options may be granted to employees (including officers and
directors who are also employees) of the Company or any of its subsidiaries. In
addition, the 1994 Option Plan provides that nonstatutory stock options may be
granted to consultants (not including directors who are not compensated for
their services or are paid only a director's fee by the Company) of the Company
or any of its subsidiaries. The Board of Directors or its committee selects the
optionees and determines the number of shares to be subject to each option. In
making such determination, certain factors are taken into account, including the
duties and responsibilities of the optionee, the value of the optionee's
services, the optionee's present and potential contribution to the success of
the Company, and other relevant factors.
The 1994 Option Plan provides that the maximum number of shares of Common
Stock which may be granted under options to any one employee during any fiscal
year shall be 150,000, subject to adjustment as provided in the 1994 Option
Plan. There is also a limit on the aggregate market value of shares subject to
all incentive stock options that may be granted to an optionee during any
calendar year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company
and the optionee. Each option is subject to the following additional terms and
conditions:
(a) Exercise of the Option. The Board of Directors or its committee
determines when options may be exercised. An option is exercised by giving
written notice of exercise to the Company specifying the number of full
shares of Common Stock to be purchased and by tendering payment of the
purchase price. The purchase price of the shares purchased upon exercise of
an option shall be paid in consideration of such form as is determined by
the Board of Directors or its committee and specified in the option
agreement, and such form of consideration may vary for each option.
(b) Exercise Price. The exercise price under the 1994 Option Plan is
determined by the Board of Directors or its committee and may not be less
than 100 percent of the fair market value of the Common Stock on the date
the option is granted, or 85 percent in the case of optionees who are not
"covered employees" under Code Section 162(m). The fair market value per
share is equal to the closing price on The Nasdaq Stock Market on the date
of grant. In the case of an option granted to an optionee who owns more
than ten percent of the voting power of all classes of stock of the Company
or any of its subsidiaries, the exercise price must not be less than 110
percent of the fair market value on the date of grant.
(c) Termination of Employment. If the optionee's employment or
consulting relationship terminates for any reason other than disability or
death, options under the 1994 Option Plan may be exercised not later than
thirty days (or such other period of time not exceeding three months in the
case of an incentive stock option or six months in the case of a
nonstatutory stock option as is determined by the Board of Directors or its
committee at the time of grant) after such termination and may be exercised
only to the extent the option was exercisable on the date of termination.
In no event may an option be exercised by any person after the expiration
of its term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his
total and permanent disability, options may be exercised within six months
(or such other period of time not exceeding twelve months as is determined
by the Board of Directors or its committee at the time of grant) of
termination and may be exercised only to the extent the option was
exercisable on the date of termination, but in no event may the option be
exercised after the expiration of its term.
(e) Death. Under the 1994 Option Plan, if an optionee should die
while employed or retained by the Company or during the thirty day period
(or such other period of time not exceeding three months as is determined
by the Board of Directors or its committee at the time of grant) following
termination of the optionee's employment or consulting relationship,
options may be exercised within six months after the date of death to the
extent the options would have been exercisable (i) on the date of death, in
the
7
<PAGE> 10
case of an optionee who dies while employed or retained by the Company, or
(ii) on the date of termination of employment or consulting relationship,
in the case of an optionee who dies within thirty days after termination of
employment or consulting relationship.
(f) Termination of Options. The 1994 Option Plan provides that
options granted under the 1994 Option Plan have the term provided in the
option agreement. In general, these agreements currently provide for a term
of ten years. Incentive stock options granted to an optionee who,
immediately before the grant of such option, owned more than ten percent of
the total combined voting power of all classes of stock of the Company or
any of its subsidiaries, may not in any case have a term of more than five
years. No option may be exercised by any person after its expiration.
(g) Option Not Transferable. An option is nontransferable by the
optionee other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime or, in the
event of the optionee's death, by a person who acquires the right to
exercise the option by bequest or inheritance or by reason of the death.
(h) Acceleration of Options. In the event of a merger or
consolidation in which the Company is not the surviving entity, the Board
of Directors is obligated to either accomplish a substitution or assumption
of options or give thirty days' notice of the acceleration of the
optionee's right to exercise his or her outstanding options as to some or
all of the optioned stock at any time within thirty days of such notice.
(i) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1994 Option Plan
as may be determined by the Board of Directors or its committee.
RESTRICTED STOCK PURCHASE RIGHTS
The 1994 Stock Option Plan permits the granting of rights to purchase
Common Stock of the Company either alone, in addition to, or in tandem with
other awards made by the Company. Upon the granting of a stock purchase right
under the 1994 Stock Option Plan, the offeree is advised in writing of the
terms, conditions and restrictions related to the offer, including the number of
shares of Common Stock that such person is entitled to purchase, the price to be
paid and the time in which such person must accept such offer. The purchase
price for stock purchased pursuant to such rights shall not be less than 85
percent of the fair market value of such shares on the date of grant. Stock
purchase rights granted to persons subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), will be subject to any
restrictions necessary to comply with Rule 16b-3.
Unless the Administrator of the 1994 Stock Option Plan determines
otherwise, the underlying stock purchase agreement for stock purchased pursuant
to a stock purchase right granted under the 1994 Stock Option Plan will grant
the Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or disability). The purchase price for shares repurchased shall
be the higher of the fair market value of the shares at the time of repurchase
or the original purchase price paid by the purchaser.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization that results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option, the number of shares subject to each option, the annual
limitation on grants to employees, as well as the number of shares available for
issuance under the 1994 Option Plan. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise provided
by the Board of Directors or its committee.
8
<PAGE> 11
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1994 Option Plan at any time or from
time to time or may terminate it without approval of the stockholders; provided,
however, that stockholder approval is required for any amendment to the 1994
Option Plan that increases the number of shares that may be issued under the
1994 Option Plan, modifies the standards of eligibility, modifies the limitation
on grants to employees described in the 1994 Option Plan or results in other
changes which would require stockholder approval to qualify options granted
under the 1994 Option Plan as performance-based compensation under Section
162(m) of the Code, or, so long as the Company has a class of equity securities
registered under Section 12 of the Exchange Act, materially increases the
benefits to participants that may accrue under the 1994 Option Plan. However, no
action by the Board of Directors or stockholders may alter or impair any option
previously granted under the 1994 Option Plan. The 1994 Option Plan shall
terminate in May 2004, provided that any options then outstanding under the 1994
Option Plan shall remain outstanding until they expire by their terms.
FEDERAL INCOME TAX ASPECTS OF THE 1994 OPTION PLAN
Options granted under the 1994 Option Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the 1994 Option Plan is an incentive stock
option, under Federal tax laws the optionee will recognize no income upon grant
of the incentive stock option and incur no tax liability due to the exercise
unless the optionee is subject to the alternative minimum tax. The Company will
not be allowed a deduction for Federal income tax purposes as a result of the
exercise of an incentive stock option regardless of the applicability of the
alternative minimum tax. Upon the sale or exchange of the shares at least two
years after grant of the option and one year after receipt of the shares by the
optionee, any gain will be treated as long-term capital gain under Federal tax
laws. If these holding periods are not satisfied, the optionee will recognize
ordinary income under Federal tax laws equal to the difference between the
exercise price and the lower of the fair market value of the stock at the date
of the option exercise or the sale price of the stock. A different rule for
measuring ordinary income upon such a premature disposition may apply if the
optionee is also an officer, director, or ten percent 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 recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income will be characterized under Federal tax laws as long-term capital gain if
the sale occurs more than one year after exercise of the option or as short-term
capital gain if the sale is made earlier. The current Federal tax rate on
long-term capital gains is capped at 28 percent. Capital losses are allowed
under Federal tax laws in full against capital gains plus $3,000 of other
income.
All other options which do not qualify as incentive stock options 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, under Federal tax laws
the optionee will recognize ordinary income for tax purposes measured by the
excess of the then fair market value of the shares over the exercise price. In
certain circumstances, where the shares are subject to a substantial risk of
forfeiture when acquired or where the optionee is an officer, director or ten
percent stockholder of the Company, the date of taxation under Federal tax laws
may be deferred unless the optionee files an election with the Internal Revenue
Service under Section 83(b) of the Code. The income recognized by an optionee
who is also an employee of the Company will be subject to tax withholding by the
Company by payment in cash or out of the current earnings paid to the optionee.
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) will be treated under Federal tax laws 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.
Stock purchases under the 1994 Option Plan will generally be taxed in the
same manner as the exercise of a nonstatutory stock option.
9
<PAGE> 12
REQUIRED VOTE
The approval of the amendment to the 1994 Option Plan to increase the
number of shares reserved for issuance thereunder by 400,000 shares requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present at the Annual Meeting in person or by proxy and entitled to
vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE 1994 OPTION PLAN AND THE RESERVATION OF SHARES FOR ISSUANCE THEREUNDER.
THE EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE APPROVAL
OF THE ADOPTION OF THE AMENDMENT TO THE 1994 OPTION PLAN.
PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending June 30, 1997, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Ernst & Young LLP has audited the Company's financial statements annually
since fiscal 1978. Representatives of Ernst & Young LLP are expected to be
present at the meeting, with the opportunity to make a statement if they desire
to do so, and to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY. THE
EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE PROPOSAL.
10
<PAGE> 13
OTHER INFORMATION
COMMON STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of September 6, 1996 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table beginning on page 13, and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
5% STOCKHOLDERS, DIRECTORS, ----------------------
NAMED EXECUTIVE OFFICERS, AND DIRECTORS PERCENT OF
AND EXECUTIVE OFFICERS AS A GROUP NUMBER TOTAL(2)
------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Wellington Management Company (3)............................ 1,243,200 14.3%
75 State Street
Boston, MA 02109
Reid W. Dennis (4)........................................... 697,043 8.0%
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Howard D. Palefsky (5)....................................... 224,608 2.5%
Anne L. Bakar (6)............................................ 13,500 *
John R. Daniels, M.D. (7).................................... 140,327 1.6%
William G. Davis (8)......................................... 28,000 *
Craig W. Johnson (9)......................................... 80,000 *
Michael F. Mee (6)........................................... 39,000 *
Rodney Perkins, M.D. (6)..................................... 15,000 *
Gary S. Petersmeyer (10)..................................... 32,229 *
Roger H. Salquist (11)....................................... 33,150 *
Pierre Comte, Ph.D. (6)...................................... 5,700 *
Michael Levitt (12).......................................... 17,726 *
A. Neville H. Pelletier (13)................................. 36,515 *
All directors and executive officers as a group
(16 persons) (14).......................................... 1,444,382 15.6%
</TABLE>
- ---------------
* Less than 1 percent.
(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the other footnotes to this table.
(2) As of September 6, 1996, 8,690,110 shares were issued and outstanding,
exclusive of shares held by the Company as treasury stock.
(3) Wellington Management Company ("WMI") is an investment advisor registered
with the Securities and Exchange Commission under the Investment Advisors
Act of 1940, as amended. WMI 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, WMI may be deemed to
have shared voting power with respect to 545,800 shares and shared
dispositive power with respect to 1,243,200 shares.
(4) Includes 49,000 shares issuable upon exercise of options exercisable within
60 days of September 6, 1996; excludes 1,500 shares held by Mr. Dennis as
trustee for Suzanna Weaver Dennis, in which he disclaims any beneficial
ownership.
(5) Includes 177,100 shares issuable upon exercise of options exercisable
within 60 days of September 6, 1995.
11
<PAGE> 14
(6) Represents shares issuable upon exercise of options exercisable within 60
days of September 6, 1996.
(7) Includes 39,000 shares issuable upon exercise of options exercisable within
60 days of September 6, 1996.
(8) Includes 24,000 shares issuable upon exercise of options exercisable within
60 days of September 6, 1996.
(9) Includes 30,000 shares issuable upon exercise of options exercisable within
60 days of September 6, 1996.
(10) Includes 31,800 shares issuable upon exercise of options exercisable within
60 days of September 6, 1996.
(11) Includes 27,000 shares issuable upon exercise of options exercisable within
60 days of September 6, 1996.
(12) Includes 17,520 shares issuable upon exercise of options exercisable within
60 days of September 6, 1996.
(13) Includes 33,800 shares issuable upon exercise of options exercisable within
60 days of September 6, 1996. Mr. Pelletier resigned from his position as
Vice President, International and Managing Director, Europe, on September
9, 1996, although he will remain an employee of the Company through
December 1996.
(14) Includes 575,530 shares issuable upon exercise of options exercisable
within 60 days of September 6, 1996.
Information with respect to the beneficial ownership of securities by
directors and executive officers of the Company in certain affiliated companies
that, by virtue of the Company's ownership interests in such companies, the
Company believes may be deemed to be subsidiaries of the Company is set forth in
tabular format below. The presentation of information below does not evidence a
definitive determination of subsidiary status and should not be treated so for
any other purpose.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
----------------------
NAMED EXECUTIVE OFFICERS, AND DIRECTORS PERCENT OF
AND EXECUTIVE OFFICERS AS A GROUP NUMBER CLASS
- ----------------------------------------------------------------------- ------- ----------
<S> <C> <C>
Cohesion Corporation(2)
Rodney Perkins, M.D.(3).............................................. 375,000 42.0%
Craig W. Johnson(4).................................................. 17,500 2.0%
7,500 *
All Collagen directors and executive officers as a group
(16 persons)(5)................................................... 392,500 44.0%
7,500 *
</TABLE>
- ---------------
* Less than 1 percent.
(1) The persons named in this table have sole voting and investment power with
respect to all shares of Preferred Stock and Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the other footnotes to this
table.
(2) Collagen Corporation owns shares of Cohesion Corporation Common Stock and
Preferred Stock that, when taken together, represent 81% of the aggregate
outstanding capital stock of Cohesion Corporation.
(3) Represents shares of Cohesion Corporation Common Stock.
(4) Represents shares of Cohesion Corporation Common Stock (17,500 shares) and
Preferred Stock (7,500 shares). Includes 5,405 shares of Common Stock and
2,317 shares of Preferred Stock held by VLG Investments 1996, an investment
partnership in which Mr. Johnson has a pecuniary interest and shared voting
and dispository power.
(5) Represents shares of Cohesion Corporation Common Stock (392,500 shares) and
Preferred Stock (7,500 shares).
12
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation received by (i) the Company's
Chief Executive Officer, and (ii) the four other most highly compensated
executive officers of the Company serving at the end of the fiscal year ended
June 30, 1996, and the compensation received by each such individual for the
Company's two prior fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#)(2) ($)(3)
- ----------------------------- ------ -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Howard D. Palefsky........... 1996 $309,103 $41,817 -- 20,000 --
Chairman and Chief 1995 $294,270 $39,826 -- -- --
Executive Officer 4,000(4)
1994 $280,020 $35,700 -- 20,000 --
4,000(4)
Gary S. Petersmeyer(5)....... 1996 $213,956 $29,025 -- 25,000 --
President, Chief 1995 $ 83,335 -- -- 60,000 $ 35,000
Operating Officer 1994 -- -- -- -- --
and director
Pierre Comte, Ph.D.(6)....... 1996 $175,817 $20,014 -- 35,000 $ 7,306
Vice President and 1995 -- -- -- -- --
Chief Executive 1994 -- -- -- -- --
Officer, LipoMatrix
Michael Levitt(7)............ 1996 $153,878 $20,757 -- 6,000 $ 19,375
Vice President, Operations 1995 $143,750 $20,250 -- 30,000 $139,387
1994 -- -- -- -- --
A. Neville H. Pelletier(8)... 1996 $175,869 $23,796 $222,112 7,000 --
Vice President,
International, 1995 $171,337 $23,215 $132,457 5,000 --
and Managing Director, 1994 $166,969 $21,293 $132,424 6,000 --
Europe
</TABLE>
- ---------------
(1) The value of perquisites or personal benefits is not included in the amounts
disclosed if, in the aggregate for any named individual, they did not exceed
the lesser of either $50,000 or ten percent of total salary and bonus
reported for such individual in the Summary Compensation Table. The amounts
stated in this column represent compensation for Mr. Pelletier relating to
his overseas assignment in Europe. Of such amounts, $169,949 of the fiscal
1996 amount, $125,656 of the fiscal 1995 amount, and $125,983 of the fiscal
1994 amount represent payments related to a cost of living/housing
allocation.
(2) This table does not reflect options granted subsequent to the close of
fiscal 1996, which may represent grants partially in recognition of fiscal
1996 performance.
(3) Stated amounts represent (a) the reimbursement of relocation expenses of Dr.
Comte, (b) a hiring bonus to Mr. Petersmeyer, (c) a mortgage assistance
payment to Mr. Levitt in fiscal 1996 and payments for a hiring bonus,
mortgage assistance and the reimbursement of relocation expenses to Mr.
Levitt in fiscal 1995.
(4) Amounts represent options to purchase shares of the Common Stock of Target
Therapeutics, Inc. granted to Mr. Palefsky pursuant to his service on the
Board of Directors of that corporation. Amounts have been adjusted for a
two-for-one share stock split effected in December 1995. Target, by virtue
of the Company's ownership position therein, was deemed to be a subsidiary
of the Company for purposes of this table during fiscal 1995 and 1994 but,
due to the reduction in the Company's ownership interest in Target during
fiscal 1996, was not deemed a subsidiary for fiscal 1996.
(5) Mr. Petersmeyer commenced employment with the Company in February 1995.
(6) Amounts stated include compensation paid to Dr. Comte by LipoMatrix,
Incorporated, a subsidiary of the Company ("LipoMatrix"), from September 1,
1995 through January 1996, the month in which the
13
<PAGE> 16
Company closed the acquisition of the outstanding securities. September 1995
represented the first full month following the Company entering into an
agreement to purchase substantially all of the outstanding securities of
LipoMatrix. Dr. Comte was elected an executive officer of the Company in May
1996.
(7) Mr. Levitt commenced employment with the Company in July 1994.
(8) Mr. Pelletier resigned from his position as Vice President, International
and Managing Director, Europe, on September 9, 1996, although he will remain
an employee of the Company through December 1996.
Dr. Comte is currently party to an Employment Agreement with LipoMatrix,
Incorporated, a wholly-owned subsidiary of the Company acquired during fiscal
1996, which provides for, among other things, an annual salary of at least
approximately $201,050, based on current foreign exchange rates. The agreement
also provides for five weeks of paid vacation per year and standard employee
benefits. In addition, if Dr. Comte's employment is terminated by the Company as
a result of Dr. Comte's failure to meet performance criteria, Dr. Comte shall be
entitled to six months' notice or an equivalent severance payment. Otherwise, if
Dr. Comte's employment is terminated for any reason other than for cause, Dr.
Comte will be entitled to severance equal to one year of salary. Dr. Comte has
agreed not to compete with the business of LipoMatrix for one year after the
termination of his employment with the Company or LipoMatrix.
The following table sets forth information for the named executive officers
with respect to grants of options to purchase Common Stock of the Company made
during the fiscal year ended June 30, 1996.
STOCK OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------
% OF POTENTIAL
TOTAL REALIZABLE VALUE AT
NUMBER OPTIONS ASSUMED ANNUAL
OF GRANTED RATES OF STOCK PRICE
SECURITIES TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE 10-YEAR OPTION TERM($)(2)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
GRANTEE NAME GRANTED(#) YEAR $/SH. DATE 5% 10%
- ----------------------------- ------- --------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Howard D. Palefsky........... 20,000 5.0% $17.00 08/11/05 $ 213,824 $ 541,872
Gary S. Petersmeyer.......... 25,000 6.2% $17.00 08/11/05 $ 267,280 $ 677,341
Pierre Comte, Ph.D........... 35,000 8.7% $20.50 02/09/06 $ 451,232 $ 1,143,510
Michael Levitt............... 6,000 1.5% $17.00 08/11/05 $ 64,147 $ 162,562
A. Neville H. Pelletier...... 7,000 1.7% $17.00 08/11/05 $ 74,838 $ 189,655
All Stockholders(3).......... -- -- -- -- $105,549,660 $267,483,563
All Employee Optionees....... 401,100 100% $18.17(4) (4) $ 4,583,376 $ 11,615,174
% of Total Stockholder
Value.................... -- -- -- -- 4.34% 4.34%
</TABLE>
- ---------------
(1) Consist of stock options granted pursuant to the Company's stock option
plans, which generally become exercisable at a rate of two percent of the
shares subject to the option per month for 50 months as long as the optionee
remains an employee with, consultant to or director of the Company. 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 grant
date.
(2) These amounts represent certain assumed rates of appreciation for a given
exercise price only. Actual gains, if any, on stock option exercises and
Common Stock holdings are dependent on the future performance of the Common
Stock. There is no assurance that the amounts reflected will be realized.
(3) Based on an aggregate of 8,775,614 shares of Common Stock outstanding as of
June 30, 1996, excluding shares held as treasury stock, and a price per
share of $19.125, the fair market value of Collagen's Common Stock at the
close of business on such date.
(4) Represents the weighted average exercise price of options granted during
fiscal 1996. Options granted during fiscal 1996 will generally expire on the
date in fiscal 2006 equal to ten years from the date of grant.
14
<PAGE> 17
The following table sets forth information for the named executive officers
with respect to exercises of options to purchase Common Stock of the Company in
the fiscal year ended June 30, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE (#)(EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE) UNEXERCISABLE)
- ------------------------ ----------- ----------- -------------------- ------------------------
<S> <C> <C> <C> <C>
Howard D. Palefsky...... -- -- 205,500/31,500 $1,446,250/$34,000
Gary S. Petersmeyer..... -- -- 24,200/60,800 $10,625/$42,500
Pierre Comte, Ph.D...... -- -- 2,800/32,200 $0/$0
Michael Levitt.......... -- -- 14,400/21,600 $2,550/$10,200
A. Neville H.
Pelletier............. -- -- 31,280/13,220 $11,100/$11,900
</TABLE>
- ---------------
(1) The fair market value of Collagen's Common Stock at the close of business on
June 30, 1996 was $19.125 per share.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph on page 18 shall not be incorporated by reference into any
such filings.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors (the "Committee")
is comprised of Ms. Anne L. Bakar, Mr. William G. Davis and Mr. Reid W. Dennis,
all independent nonemployee directors who are not eligible to participate in any
of the executive compensation programs. Mr. Davis has served as Chairman of the
Committee since October 1995. The Committee oversees the administration of the
Company'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 the
Company's compensation policy as it related to the Company's executive officers
for fiscal 1996.
COMPENSATION POLICY
The goal of the Company'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, the Company's executive compensation policies
integrate annual base compensation, bonuses based on corporate performance, and
stock option grants. All executive officers as well as senior-level managerial
and technical employees are eligible for and do participate in these
compensation plans.
Salary
The Human Resources Committee evaluates the performance and sets the salary
of the Company's Chief Executive Officer, Howard Palefsky, on an annual basis.
Mr. Palefsky evaluates the performance of all other executive officers and
recommends salary adjustments which are reviewed and approved by the Human
Resources Committee. Survey data is drawn from comparable companies
participating in medical device, biotechnology, and/or pharmaceutical executive
compensation surveys, several of which are included in the peer group index in
the Company's Performance Graph at page 18. Within this framework, executive
salaries are determined based on individual performance, level of
responsibility, the Company's overall salary
15
<PAGE> 18
structure, and the financial condition of the Company. The Company's
compensation policy is designed to maintain executive officer base salaries
within a range approximating the median of such salary data for like
characteristics.
Bonuses
The Company seeks to provide annual incentives and rewards to executives
who make contributions of outstanding value, contingent upon the performance of
the Company as a whole.
The Company's annual bonus program is funded by the attainment of a
specific operating income goal, with individual payouts based on performance
relative to both additional corporate objectives and specific objectives for
each executive's division. The operating income goal and the corporate
objectives are recommended by the Chief Executive Officer and approved by the
Human Resources Committee and the full Board.
Both the target amount and potential range of bonuses available to
executive officers are set annually by the Human Resources Committee. Bonus
awards are weighted so that high-end bonuses are available when the Company's
performance exceeds corporate target, up to a defined maximum, and
proportionally smaller or no awards are made when the Company does not meet
corporate target.
Stock Options
The Committee believes that equity ownership provides significant
additional motivation to executives to maximize value for the Company's
stockholders, and therefore approves both annual and periodic grants of stock
options under the Company's 1994 Stock Option Plan. The Company's primary option
grants are generally approved on an annual basis largely in recognition of
individual performance during the fiscal year. The amounts of the annual grants
are determined relative to guidelines derived from an industry survey of
executive stock compensation provided by an outside consultant. In determining
individual grants, the Committee also considers individual performance, current
stock option holdings, and grants to others within the 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 the Company'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 those of other
stockholders. In accordance with this philosophy, Collagen Corporation does not
have a discounted option or restricted stock program for its executive officers.
In addition to providing an opportunity for increased equity ownership,
stock options also create an incentive for officers and key employees to remain
with the Company for the long term, as such options become exercisable over time
for so long as the officer or key employee continues his or her employment
relationship with the Company.
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 the Company to each of
its executive officers is expected to be well below $1 million and the Committee
believes that options granted under the 1994 Stock Option Plan will meet the
requirements for qualifying as performance-based, the Committee believes that
this section will not affect the tax deductions available to the Company. It
will be the Committee's policy to qualify, to the extent reasonable, the
executive officers' compensation for deductibility under applicable tax law.
16
<PAGE> 19
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1996, the compensation of Howard Palefsky, the Chief
Executive Officer of the Company, consisted of base salary and a bonus. Mr.
Palefsky did not participate in any decisions related to his compensation.
Mr. Palefsky's fiscal 1996 base salary reflected a 5% increase from his
fiscal 1995 base salary.
After careful review of the Company's performance as measured against the
annual corporate goals and objectives for the first and second halves of fiscal
1996, the Committee determined that 100% of all corporate objectives were
realized for the first half of fiscal 1996 and approximately 80% for the second
half, based on revised financial goals resulting from the purchase of
LipoMatrix. The Committee found Mr. Palefsky's target bonus award of 100% for
the first half and 80% for the second half of the fiscal year to be appropriate
relative to his total compensation package and what other executive officers in
related industries can achieve. Accordingly, an incentive bonus of approximately
7.5% of salary, or 100% of target award, was awarded in the amount of $23,232
for the first half of the fiscal year and an incentive bonus of approximately
6.0% of salary, or 80% of target award, was awarded in the amount of $18,585 for
the second half of the fiscal year.
Subsequent to the end of the fiscal year, but in recognition of his
performance during fiscal 1996, the Company granted Mr. Palefsky an option to
purchase 15,000 shares of the Company's Common Stock at an exercise price of
$16.75 per share, the market price at the time of the grant of the stock option.
In determining the size of the grant, the Committee utilized the stock option
grant guidelines described above for all executive officers of the Company.
SUBMITTED BY THE HUMAN RESOURCES
COMMITTEE
OF THE BOARD OF DIRECTORS
Mr. William G. Davis, Chairman
Ms. Anne L. Bakar
Mr. Reid W. Dennis
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Reid W. Dennis, Chairman Emeritus of the Board and a member of the Human
Resources Committee of the Board of Directors, acted in the capacity of
President of the Company from February 1976 to March 1978.
17
<PAGE> 20
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return,
assuming reinvestment of all dividends, for the Company's Common Stock at June
30, 1996 since June 30, 1991 to the cumulative return over such period of (i)
The Nasdaq Stock Market -- US Index and (ii) the S&P Medical Products & Supplies
Index. The graph assumes that $100 was invested on June 30, 1991 in the Common
Stock of the Company and in each of the comparative indices. The graph further
assumes that such amount was initially invested in the Common Stock of the
Company at a price per share of $25.00, the closing price on June 30, 1991. The
stock price performance on the following graph is not necessarily indicative of
future stock price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG COLLAGEN CORPORATION, THE NASDAQ STOCK MARKET -- US INDEX
AND THE S&P MEDICAL PRODUCTS & SUPPLIES INDEX
<TABLE>
<CAPTION>
S&P MEDICAL
MEASUREMENT PERIOD COLLAGEN NASDAQ PRODUCTS &
(FISCAL YEAR COVERED) CORPORATION MARKET- US SUPPLIES
<S> <C> <C> <C>
6/91 100 100 100
6/92 74 120 114
6/93 91 151 94
6/94 75 153 90
6/95 69 204 139
6/96 78 261 182
</TABLE>
* $100 INVESTED ON 6/30/91 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS, FISCAL YEAR ENDING JUNE 30.
18
<PAGE> 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Target have entered into certain agreements for the purpose
of defining the ongoing relationship between the two companies. The Company
owned a majority of Target's Common Stock when such agreements were negotiated
and as of June 30, 1996 owned approximately 11% of Target's Common Stock.
Accordingly, these agreements were not the result of arm's-length negotiations
between independent parties.
The Company and Target have entered into a Stockholder Agreement providing
that all transactions between Target and the Company or any affiliate of the
Company must be approved by a special committee of Target's Board of Directors
comprised of three directors who are not officers, directors, employees or
affiliates of the Company. During the effective term of the Agreement, the
Company may not vote to eliminate from Target's Certificate of Incorporation
provisions requiring cumulative voting for the election of directors. In
addition, the Agreement provides that the Company will not sell any of its
Target Common Stock at a premium over the average market price over the three
day period preceding such sale, except for premiums which may be simultaneously
received by all of Target's stockholders in the event of a tender offer, merger
or reorganization. Moreover, the Agreement requires that affiliates of the
Company purchasing Target Common Stock from the Company agree to the preceding
restrictions. The provisions of the Agreement became effective upon the
consummation of Target's initial public offering in January 1992 and terminate
on the earlier of seven years from the date of the Agreement or on the date the
Company beneficially owns less than 5% of Target's Common Stock.
In June 1989, Target sold certain assets relating to Angiostat(R) Collagen
(a form of collagen used for embolization and chemoembolization) to Regional
Therapeutics, Inc. ("RTI"). Dr. John R. Daniels, a director of the Company, is
the President, Chairman of the Board of Directors and sole shareholder of RTI.
In connection with such sale, the Company and RTI entered into an agreement
pursuant to which the Company will supply RTI with Angiostat(R) Collagen. During
the fiscal year ended June 30, 1996, RTI purchased from the Company Angiostat(R)
Collagen with an aggregate purchase price of approximately $31,300.
In February 1992, the Company purchased 1,894,140 shares of Preferred Stock
of LipoMatrix, Incorporated ("LipoMatrix"), a corporation of which Dr. Terry
Knapp, a former director of the Company, was a shareholder and Chairman of the
Board, President and Chief Executive Officer, Dr. Comte was the Chief Operating
Officer and on whose Board of Directors Mr. Palefsky serves, for $464,064. From
February 1993 through September 1995, the Company made additional equity
investments in LipoMatrix totaling approximately $6.1 million and was party to a
License, Supply and Option Agreement and a Distribution Agreement with
LipoMatrix pursuant to which Collagen supplied LipoMatrix with certain
biomaterials and under which Collagen held certain exclusive distribution rights
to LipoMatrix products. In January 1996, the Company completed the purchase of
all of the remaining outstanding securities of LipoMatrix from the other holders
thereof for an aggregate purchase price of approximately $23.7 million. These
purchases raised the Company's equity interest in LipoMatrix from approximately
40% to 100%. In connection with this transaction, Dr. Terry Knapp, a former
director of the Company, owned LipoMatrix securities that were purchased by the
Company for an aggregate of $2,036,780. In addition, Mr. Craig Johnson, a
director of the Company, owned securities that were purchased by the Company for
an aggregate of $24,106 and holds beneficial interests of varying proportions in
certain investment partnerships that held securities that were purchased by the
Company for an aggregate of $390,684, and Dr. Comte owned securities that were
purchased by the Company for an aggregate of $173,654.
In December 1992, the Company purchased 800,000 shares of Preferred Stock
of CollOptics, Inc. ("CollOptics") for an aggregate of $500,000. In addition,
the Company granted to CollOptics a license to use the Company's technology in
the field of refractive surgery for long-term vision correction and entered into
certain other technology-related agreements with CollOptics. In September 1995,
the Company purchased an additional 1,000,000 shares of CollOptics Preferred
Stock for an aggregate of $500,000. Shortly following the end of fiscal 1996,
CollOptics made certain payments to the Company, primarily for research and
development services and the reimbursement of expenses paid by the Company,
totaling $500,000. As of June 30, 1996, the Company held a 47% equity interest
in CollOptics.
19
<PAGE> 22
In July 1993, each of the Company and Target purchased 900,000 shares of
Preferred Stock of Prograft Medical, Inc. ("Prograft"), a corporation on whose
Board of Directors Mr. Palefsky currently serves, in return for payments of
$200,000 by each company to Prograft and the grant of a license to use each
company's technology in the field of vascular prostheses. The Company and Target
were also granted warrants to purchase additional shares of Prograft Preferred
Stock in this transaction. Between November 1993 and March 1994, each of Target
and Collagen purchased an additional 1,200,000 shares of Prograft Preferred
Stock for an aggregate of $300,000 each pursuant to the exercise of certain of
such warrants. In July 1994 and March 1995, each of Target and the Company
purchased an additional aggregate of 1,293,103 shares of Prograft Preferred
Stock for an aggregate of $750,000 each. Furthermore, in July 1994, each of the
Company and Target exercised their remaining warrants for Prograft Preferred
Stock by purchasing an additional 250,000 shares each at an aggregate exercise
price of $62,500 each. During fiscal 1996, Prograft made payments to the
Company, primarily for the rental of office and laboratory space and the supply
of raw materials, totaling $203,763. As of June 30, 1996, both Target and the
Company held a 21% equity interest in Prograft.
In November 1993, the Company purchased, for an aggregate of $65,000,
50,000 shares of Preferred Stock and 200,000 shares of Common Stock of Cohesion
Corporation ("Cohesion"), a corporation formerly known as Otogen of which Dr.
Rodney Perkins, a director of the Company, was the majority shareholder,
Chairman and President and on whose Board of Directors Mr. Palefsky serves. In
addition, the Company granted to Cohesion a license to use the Company's
technology in the fields of otology and neurosurgical applications, in return
for which the Company was granted an additional 50,000 shares of Cohesion Common
Stock. Between April 1994 and May 1996, the Company made an additional equity
investment in Cohesion of $180,000 and loaned to Cohesion an aggregate of
approximately $1,540,000. In May 1996, the Company purchased an additional
aggregate of 875,000 shares of Cohesion Common Stock and Preferred Stock from
Cohesion for an aggregate of approximately $5.1 million (including conversion of
Cohesion's outstanding indebtedness to the Company) and purchased 275,000 shares
of Cohesion Common Stock and Preferred Stock from Dr. Perkins for an aggregate
of $1,452,500. The Company also granted to Cohesion a license to use certain of
the Company's technology in the fields of tissue adhesion and antiadhesion
technology, excluding ophthalmic applications, in return for which the Company
was granted an additional 75,000 shares of Cohesion Preferred Stock. As a result
of these transactions, the Company's ownership interest in Cohesion increased
from approximately 40% to 81% of Cohesion's outstanding capital stock. In
addition, the Company agreed to loan Cohesion up to $5,000,000 in the form of
convertible debt, which loan may be drawn upon at the direction of the President
of Cohesion, will bear an annual interest rate of the greater of the prime
lending rate or 10% and will be due and payable five years after the date of the
first disbursement, subject to acceleration under certain circumstances. As of
the date of this proxy statement, no portion of such loan is outstanding. In
connection with the loan transaction, Dr. Perkins granted the Company an option
to purchase up to 125,000 additional shares of Cohesion Common Stock held by Dr.
Perkins, which option will become exercisable as to 25,000 shares for each
$1,000,000 of the loan commitment that is disbursed. In addition, in connection
with this transaction, the Company agreed to grant Dr. Perkins an option to
purchase up to 77,500 shares of the Company's Common Stock in connection with
his continued participation on the Cohesion Board of Directors. Cohesion pays
Dr. Perkins $25,000 annually to serve as the Chairman of its Board of Directors.
In connection with the May 1996 stock purchase transactions, Mr. Johnson and an
investment partnership in which he holds a beneficial interest purchased an
aggregate of 25,000 shares of Cohesion Common Stock and Preferred Stock for an
aggregate of $127,750. In June 1996, Dr. Daniels was appointed to Cohesion's
Board of Directors.
In June 1995, the Company purchased 869,565 shares of Preferred Stock and
warrants to purchase an additional 869,565 shares of Preferred Stock of Balance
Pharmaceuticals, Inc. ("Balance"), a corporation of which Dr. Daniels is
currently a shareholder, Chairman of the Board and Chief Financial Officer, for
an aggregate of $1,000,869. The warrants were never exercised by the Company and
expired in December 1995. In March 1996, the Company sold all of its Balance
Preferred Stock to the Daniels Family Trust, UAD 7/9/93, a trust for the benefit
of Dr. Daniels and members of his family, in return for an aggregate of
approximately $1,000,000. Mr. Johnson and Mr. Palefsky are also shareholders and
members of the Board of Directors of Balance and Mr. Johnson holds beneficial
interests in an investment partnership that is a
20
<PAGE> 23
shareholder of Balance. Mr. Roger Salquist, a director of the Company, is also a
member of the Board of Directors of Balance.
In October 1995, the Company purchased 1,869,159 shares of Preferred Stock
of Innovasive Devices, Inc. ("Innovasive") for $4,000,000. In connection with
this investment, the Company entered into Research and Development, Distribution
and Manufacturing and Supply Agreements with Innovasive with respect to tissue
fixation devices manufactured from collagen-based materials using the Company's
proprietary technology. Shortly following its investment in Innovasive, the
Company purchased from Mr. Palefsky all of his holdings of Innovasive capital
stock (30,303 shares) for an aggregate of $63,552. The Company is entitled to
elect one member of Innovasive's Board of Directors so long as it holds five
percent of Innovasive's capital stock on a fully diluted basis. Mr. Palefsky is
the Company's current designee on the Innovasive Board of Directors. In May
1996, Innovasive completed its initial public offering of securities and as of
June 30, 1996, the Company held approximately 12% of Innovasive's outstanding
capital stock.
Since February 1993, the Company has retained as its principal outside
legal counsel Venture Law Group, A Professional Corporation, a law firm of which
Mr. Johnson is a director. Prior to such time, the Company had retained Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation ("WSG&R"), as its principal
outside legal counsel since 1977. From 1980 until February 1993, Mr. Johnson was
a member of WSG&R.
In August 1994, June 1995 and December 1995, Mr. Palefsky borrowed an
aggregate of $475,000 from the Company pursuant to promissory notes (the
"Notes") secured by all shares of the Company's capital stock held by Mr.
Palefsky while such debt is outstanding. The Notes bear an annual interest rate
equal to the lesser of 10% or the prime rate at the close of each quarter for
which interest accrues. Fifty percent of Mr. Palefsky's cash bonus for each of
the five fiscal years including and after the year in which the Notes were
issued will be applied toward payment of each Note and all principal and accrued
interest on the Note shall in any event be due and payable five years from the
date of issuance. As of August 31, 1996, all of the principal and $47,345 of
accrued interest on the Notes is outstanding.
In addition, in February 1996, the Company entered into a Cash Bonus
Agreement with Mr. Palefsky pursuant to which the Company agreed to pay to Mr.
Palefsky cash bonuses of $325,000, $305,000, $285,000, $265,000 and $245,000 on
the first five anniversaries of the date of the agreement, respectively,
provided that he continues to be employed with the Company on the applicable
anniversary date. Also in February 1996, Mr. Palefsky borrowed an additional
$1,080,000 from the Company on an unsecured basis pursuant to a promissory note
bearing an annual interest rate equal to the lesser of 10% or the prime rate at
the close of each quarter for which interest accrues. Accrued interest on the
principal balance of this note is payable annually and all principal and accrued
interest will be payable upon the termination of Mr. Palefsky's employment with
the Company. As of August 31, 1996, all of the principal and $46,994 of accrued
interest on this note is outstanding.
In October 1995, Ross Erickson, then an executive officer of the Company
and currently an executive officer of Cohesion Corporation, borrowed $120,000
from the Company pursuant to a secured promissory note. This debt is secured by
real property purchased by Mr. Erickson and all shares of the Company's stock
issued to Mr. Erickson pursuant to the exercise of stock options. The principal
balance and accrued interest on this note are due on the earlier of seven years
from the date of issuance or on the date Mr. Erickson's employment by the
Company terminates. Because Mr. Erickson is employed by 81%-owned Cohesion, his
employment with the Company has been deemed to have not yet terminated. As of
August 31, 1996, all of the principal and $8,875 of accrued interest on this
note is outstanding.
In July 1996, Mr. Dennis borrowed $1,000,000 from the Company on an
unsecured basis pursuant to a promissory note bearing an annual interest rate of
8.25%. Mr. Dennis repaid the entire balance of principal and accrued interest on
this note on September 11, 1996.
21
<PAGE> 24
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission ("SEC"). Specific filing deadlines of these
reports have been established and the Company is required to disclose in this
Proxy Statement any failure to file by these dates during the fiscal year ended
June 30, 1996. To the best of the Company's knowledge, all of these filing
requirements have been satisfied. Mr. Johnson, however, did make a filing during
the fiscal year correcting information with respect to his holdings of an
immaterial amount of shares of the Company's Common Stock that, due to a
clerical error, had been absent from his reports in certain prior fiscal years.
In making these statements, the Company has relied solely on written
representations of its directors and executive officers and any ten percent
holders and copies of the reports that they filed with the SEC.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Craig W. Johnson, Secretary
Dated: September 23, 1996
22
<PAGE> 25
-----------
-----------
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees --- WITHHOLD AUTHORITY to vote --- * EXCEPTIONS ---
listed below X for all nominees listed below X X
--- --- ---
Nominees: ANNE L. BAKAR, JOHN R. DANIELS, M.D., WILLIAM G. DAVIS, REID W. DENNIS, CRAIG W. JOHNSON, HOWARD D. PALEFSKY,
RODNEY PERKINS, M.D., GARY S. PETERSMEYER, ROGER H. SALQUIST.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "EXCEPTIONS" BOX AND STRIKE A LINE
THROUGH THAT NOMINEE'S NAME.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
2. PROPOSAL TO AMEND THE COMPANY'S 1994 STOCK OPTION PLAN TO --- --- ---
INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR X AGAINST X ABSTAIN X
FOR ISSUANCE THEREUNDER BY 400,000 SHARES FROM 750,000 --- --- ---
TO 1,150,000 SHARES.
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP --- --- ---
AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE FOR X AGAINST X ABSTAIN X
CURRENT FISCAL YEAR: --- --- ---
and in their discretion, the proxies are authorized to
vote upon such other matter or matters as may properly
come before the meeting or any adjournment(s) thereof. Change of Address and ---
or Comments Mark Here X
---
Please sign exactly as name appears to the left.
When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
DATED: , 1996
----------------------------------
------------------------------------------------
Signature
------------------------------------------------
Signature if held jointly
-----------
---
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY VOTES MUST BE INDICATED X
USING THE ENCLOSED ENVELOPE. (X) IN BLACK OR BLUE INK. ---
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
COLLAGEN CORPORATION
1996 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints REID W. DENNIS, HOWARD D. PALEFSKY and
RODNEY PERKINS, M.D., and each of them, with full power of substitution, as
proxies, and authorizes them to represent and to vote, as designated below, all
the stock of COLLAGEN CORPORATION that the undersigned is entitled to vote at
the 1996 Annual Meeting of Stockholders of COLLAGEN CORPORATION to be held on
October 30, 1996, at 10:00 a.m., local time, at the Company's principal offices
located at 2500 Faber Place, Palo Alto, California 94303, and at any adjournment
or postponement thereof, as indicated on the reverse side.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S).
If no direction is made, this proxy will be voted in the Election of
Directors in the manner described in the Proxy Statement, FOR the proposal to
amend the Company's 1994 Stock Option Plan to increase the number of shares of
Common Stock authorized for issuance thereunder by 400,000 shares from 750,000
to 1,150,000 shares, and FOR the proposal to ratify the selection of Ernst &
Young LLP as the Company's independent auditors for the current fiscal year. If
this proxy is executed in such manner as not to withhold authority to vote for
the election of any nominee to the Board of Directors, it shall be deemed to
grant such authority.
(Continued, and to be dated and signed on the reverse side.)
COLLAGEN CORPORATION
P.O. BOX 11042
NEW YORK, N.Y. 10203-0042
<PAGE> 26
APPENDIX
COLLAGEN CORPORATION
1994 STOCK OPTION PLAN
(AS AMENDED AUGUST 9, 1996)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock
Options (as defined under Section 422 of the Code) or Nonstatutory Stock
Options, at the discretion of the Board and as reflected in the terms of the
written option agreement. Stock purchase rights may also be granted under the
Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" shall have the meaning set forth in
Section 4(a) below.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if
one is appointed.
(f) "Common Stock" shall mean the Common Stock of the Company.
(g) "Company" shall mean Collagen Corporation, a Delaware
corporation.
(h) "Consultant" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that the term Consultant
shall not include directors who are not compensated for their services or are
paid only a director's fee by the Company.
(i) "Continuous Status as an Employee or Consultant" shall
mean the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is
for a period of not more than 90 days or reemployment upon the expiration of
such leave is
-1-
<PAGE> 27
guaranteed by contract or statute. For purposes of this Plan, a
change in status from an Employee to a Consultant or from a Consultant to an
Employee will not constitute a termination of employment.
(j) "Director" shall mean a member of the Board.
(k) "Employee" shall mean any person, including Named
Executives, Officers and Directors, employed by the Company or any Parent or
Subsidiary of the Company. The payment of a director's fee by the Company shall
not be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(m) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock as quoted on such system on the date of
determination (if for a given day no sales were reported, the closing sales
price for the last trading day immediately preceding the date of determination
shall be used), as such price is reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(n) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(o) "Named Executive" shall mean any individual who, on the
last day of the Company's fiscal year, is the chief executive officer of the
Company (or is acting in that capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
(p) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option.
-2-
<PAGE> 28
(q) "Officer" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" shall mean a stock option granted pursuant to the
Plan.
(s) "Optioned Stock" shall mean the Common Stock subject to an
Option or a Stock Purchase Right.
(t) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(u) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" shall mean this 1994 Stock Option Plan.
(w) "Restricted Stock" shall mean shares of Common Stock
acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act as the same may be amended from time to time, or any successor
provision.
(y) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 15 of the Plan.
(z) "Stock Purchase Right" shall mean the right to purchase
Common Stock pursuant to Section 11 below.
(aa) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 15 of the Plan, the maximum aggregate number of shares that may be
optioned and sold under the Plan is 1,150,000 shares of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
Notwithstanding any other provision of the Plan, shares issued under the Plan
and later repurchased by the Company shall not become available for future grant
or sale under the Plan.
-3-
<PAGE> 29
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by
Rule 16b-3 and by the legal requirements relating to the administration of
incentive stock option plans, if any, of applicable securities laws and the Code
(collectively, the "Applicable Laws"), the Plan may (but need not) be
administered by different administrative bodies with respect to directors,
officers who are not directors and Employees who are neither directors nor
officers.
(ii) Administration with respect to Directors and
Officers. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are also officers or directors of the Company, the
Plan shall be administered by (A) the Board, if the Board may administer the
Plan in compliance with Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary plan, or (B) a Committee designated by the Board
to administer the Plan, which Committee shall be constituted (I) in such a
manner as to permit the Plan to comply with Rule 16b-3 as it applies to a plan
intended to qualify thereunder as a discretionary plan, (II) in such a manner as
to qualify grants of Options to Named Executives as performance-based
compensation under Section 162(m) of the Code and (III) in such a manner as to
satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons.
With respect to grants of Options or Stock Purchase Rights to Employees or
Consultants who are neither directors nor officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to satisfy the
Applicable Laws.
(iv) General. Once a Committee has been appointed
pursuant to subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused)
and remove all members of a Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (ii), to the extent permitted by Rule 16b-3
as it applies to a plan intended to qualify thereunder as a discretionary plan,
and to the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(m) of the Plan;
-4-
<PAGE> 30
(ii) to select the Employees and Consultants to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any Option or Stock Purchase Right and/or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator shall
determine, in its sole discretion);
(vii) to determine whether, to what extent and under
what circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the election
of the participant (including providing for and determining the amount, if any,
of any deemed earnings on any deferred amount during any deferral period);
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; and
(ix) to determine the terms and restrictions
applicable to Stock Purchase Rights and the Restricted Stock purchased by
exercising such Stock Purchase Rights.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Stock Options are exercisable for the first time by an
Optionee during any calendar year (under all plans of the Company or any
-5-
<PAGE> 31
Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 21 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 17 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
in this Plan, the maximum number of Shares which may be granted under options to
any Employee under this Plan for any fiscal year of the Company shall be
150,000.
9. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant;
(B) granted to any Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
-6-
<PAGE> 32
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant;
(B) granted to a person who, at the time of
the grant of such Option, is a Named Executive of the Company, the per share
Exercise Price shall be no less than 100% of the Fair Market Value on the date
of grant;
(C) granted to any person other than a Named
Executive, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
-7-
<PAGE> 33
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 9(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 15 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or six (6) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that 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 he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 10(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of his or her total and
permanent disability (as defined in Section 22(e)(3) of the Code), he or she
may, but only within six (6) months (or such other period of time not exceeding
twelve (12) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) from the date of such termination (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. To the extent that he
or she was not entitled to exercise the Option at the date of termination, or if
he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
-8-
<PAGE> 34
(i) during the term of the Option who is at the time
of his or her death an Employee or Consultant of the Company and who shall have
been in Continuous Status as an Employee or Consultant since the date of grant
of the Option, the Option may be exercised, at any time within six (6) months
(or such other period of time, not exceeding twelve (12) months, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) following
the date of death (but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement), by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination; or
(ii) within thirty (30) days (or such other period of
time not exceeding three (3) months as is determined by the Administrator, with
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within six (6)
months following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement), by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the higher of either the original
purchase price or the Fair Market Value on the date of the repurchase.
-9-
<PAGE> 35
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.
12. Withholding Taxes. As a condition to the exercise of Options and
Stock Purchase Rights granted hereunder, the Optionee shall make such
arrangements as the Administrator may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the exercise, receipt or vesting of such Option. The Company
shall not be required to issue any Shares under the Plan until such obligations
are satisfied.
13. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
Date").
Any surrender by an Officer or Director of previously
owned Shares to satisfy tax withholding obligations arising upon exercise of
this Option must comply with the applicable provisions of Rule 16b-3 and shall
be subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld
to satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
-10-
<PAGE> 36
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator;
(d) if the Optionee is an Officer or Director, the election
must comply with the applicable provisions of Rule 16b-3 and shall be subject to
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
In the event the election to have Shares withheld is
made by an Optionee and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Optionee shall
receive the full number of Shares with respect to which the Option is exercised
but such Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
14. Non-Transferability of Options, Stock Purchase Rights and
Restricted Stock. Options, Stock Purchase Rights and Restricted Stock may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution. The designation of
a beneficiary by an Optionee, Stock Purchase Rights Holder or Restricted Stock
Purchaser will not constitute a transfer. An Option or Stock Purchase Right may
be exercised, during the lifetime of the Optionee, Stock Purchase Rights Holder
or Restricted Stock Purchaser, only by the Optionee, Stock Purchase Rights
Holder or Restricted Stock Purchaser or a transferee permitted by this Section
14.
15. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option or Stock Purchase Right, the
number of shares of Common Stock that have been authorized for issuance under
the Plan but as to which no Options or Stock Purchase Right have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or Stock Purchase Right, the maximum number of shares of Common
Stock for which Options may be granted to any Employee under Section 8 of the
Plan and the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
-11-
<PAGE> 37
In the event of the proposed dissolution or liquidation of the Company,
the Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option or Stock Purchase Right shall terminate
as of a date fixed by the Administrator and give each Optionee or Stock Purchase
Right holder the right to exercise his or her Option or Stock Purchase Right as
to all or any part of the Optioned Stock or Restricted Stock, including Shares
as to which the Option or Stock Purchase Right would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option or Stock Purchase Right shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee or Stock Purchase Right holder
shall have the right to exercise the Option or Stock Purchase Right as to some
or all of the Optioned Stock or Restricted Stock, including Shares as to which
the Option or Stock Purchase Right would not otherwise be exercisable, or that
Restricted Stock held by a purchaser shall be released from the Company's
repurchase option. If the Administrator makes an Option or Stock Purchase Right
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee or Stock Purchase
Right holder that the Option or Stock Purchase Right shall be exercisable for a
period of thirty (30) days from the date of such notice, and the Option or Stock
Purchase Right will terminate upon the expiration of such period.
16. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
17. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
21 of the Plan:
(i) any increase in the number of Shares subject to
the Plan, other than in connection with an adjustment under
Section 15 of the Plan;
(ii) any change in the designation of the class of
persons eligible to be granted Options or Stock Purchase
Rights;
(iii) any change in the limitation on grants to
Employees as described in Section 8 of the Plan or other
changes which would require shareholder approval
-12-
<PAGE> 38
to qualify options granted hereunder as performance-based
compensation under Section 162(m) of the Code; or
(iv) if the Company has a class of equity securities
registered under Section 12 of the Exchange Act at the time of
such revision or amendment, any material increase in the
benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 17(a) of the Plan is made subsequent to the
first registration of any class of equity securities by the Company under
Section 12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 21 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Stock Purchase Right Holder
and the Board, which agreement must be in writing and signed by the Optionee or
Stock Purchase Right Holder and the Company.
18. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
19. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
-13-
<PAGE> 39
20. Agreements. Options and Stock Purchase Rights shall be evidenced by
written option agreements in such form as the Board shall approve from time to
time.
21. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted.
(b) If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 422 of the Code.
(c) In the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(d) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 21(c) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the later
of (1) the first registration of any class of equity securities of the Company
under Section 12 of the Exchange Act or (2) the granting of an Option or Stock
Purchase Right hereunder to an officer or director after such registration, do
the following:
(i) furnish in writing to the holders entitled to
vote for the Plan substantially the same information that would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities
and Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
22. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and Stock Purchase Right holder, during the period for which
such Optionee or holder has one or more Options or Stock Purchase Rights
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company.
-14-
