<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Collagen Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COLLAGEN CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------
<PAGE> 3
COLLAGEN CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 29, 1997
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 29, 1997 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 Company's 1985 Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 100,000 shares to an aggregate of 700,000 shares
and to permit participants to purchase up to 3,000 shares during any
offering period.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending June 30, 1998.
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 5, 1997
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 26, 1997
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> 4
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 29, 1997 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 (650) 856-0200.
These proxy solicitation materials were mailed on or about September 26,
1997 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 5, 1997 are entitled to notice of, and to vote at, the
Annual Meeting. At the September 5, 1997 record date, 8,822,064 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:
Norman L. Halleen, 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 six 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.
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<PAGE> 5
The Inspector will treat abstentions as shares that are present and entitled to
vote for purposes of determining 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 that is returned using the form of proxy
enclosed and that is not marked as to a particular item will be voted for the
election of directors, for approval of the amendments to the Collagen
Corporation 1985 Employee Stock Purchase Plan, 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 1998 ANNUAL MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1998 Annual Meeting must be received by the
Company no later than May 29, 1998 in order that such proposals may be included
in the proxy statement and form of proxy relating to that meeting.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for
Management's six nominees named below, all of whom are currently directors of
the Company. Directors Roger H. Salquist and Dr. Rodney Perkins have indicated
that they will not stand for re-election at the Annual Meeting and, accordingly,
have submitted their resignations from the Board, effective immediately prior to
the Annual Meeting. In light of this, the Board of Directors in September 1997
approved an amendment to the Company's bylaws to decrease the size of the Board
of Directors to six directors effective upon the resignation of directors
Salquist and Perkins from the Board of Directors.
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.
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<PAGE> 6
The names of the nominees, and certain information about them as of
September 5, 1997, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ------------------------- --- ------------------------------------------------ --------
<S> <C> <C> <C>
Gary S. Petersmeyer 50 President and Chief Executive Officer of the 1995
Company
Anne L. Bakar 40 President and Chief Executive Officer of 1993
Telecare Corporation (a provider of in-patient
psychiatric services)
John R. Daniels, M.D. 59 Associate Professor of Medicine, University of 1977
Southern California
William G. Davis 65 Independent business consultant; retired 1984
President of Medical Instrument Systems
Division, Eli Lilly and Company (a diversified
health care company)
Reid W. Dennis 71 General Partner of various partnerships 1975
associated with Institutional Venture Partners
(venture capital partnerships)
Craig W. Johnson 50 Director, Venture Law Group, A Professional 1991
Corporation; Secretary of the Company
</TABLE>
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. Petersmeyer joined the Company as President, Chief Operating Officer
and Director in February 1995. In February 1997, Mr. Petersmeyer became the
Company's Chief Executive Officer. Prior to joining the Company, 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.
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 Therapeutics,
Inc., 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, the Chairman and Chief Financial Officer of
Balance Pharmaceuticals, Inc., a developer of pharmaceutical products, and a
director of Cohesion Corporation, a privately held subsidiary of the Company.
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. and Endosonics, Inc.
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 since February 1995.
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<PAGE> 7
Mr. Johnson has been a Director of Venture Law Group, A Professional
Corporation, principal outside counsel to the Company, 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 the Company during such
period. He was appointed Secretary of the Company in August 1986. Mr. Johnson
served as Assistant Secretary of the Company for ten years prior to his
appointment as Secretary. Mr. Johnson is also a director of Retix.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of nine meetings during
the fiscal year ended June 30, 1997, including meetings held by conference
telephone call. The Board of Directors has an Audit Committee and a Human
Resources 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 Salquist (Chairman), Bakar and Johnson,
held two meetings during fiscal 1997.
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, employee equity plans,
bonus plans and bonus payments. The Human Resources Committee administers the
Company's employee equity plans and approves individual equity grants, including
the terms of such grants. This Committee, which currently consists of directors
Davis (Chairman), Bakar and Dennis, held six meetings during fiscal 1997.
No incumbent director attended fewer than 75% 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 1997.
COMPENSATION OF DIRECTORS
The Company currently pays each director who is not an employee (currently
seven persons) a monthly retainer of $1,000 ($1,500 in the case of the Chairman
Emeritus), a fee of $1,000 ($1,500 in the case of the Chairman Emeritus) 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, 1996, each of the Company's eight nonemployee directors on such date
were granted a 3,000 share option at an exercise price of $19.25 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.
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<PAGE> 8
PROPOSAL NO. 2:
APPROVAL OF AMENDMENTS
TO THE 1985 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, stockholders are being asked to approve amendments
to the 1985 Employee Stock Purchase Plan (the "Purchase Plan") to increase the
number of shares of Common Stock reserved for issuance thereunder by 100,000
shares to an aggregate of 700,000 shares and to permit participants to purchase
up to 3,000 shares during any offering period beginning on or after January 1,
1998. The Purchase Plan provides for employee purchases of the Company's Common
Stock through accumulated payroll deductions. Employees make such purchases by
participation in regular offering periods from which they may withdraw at any
time. The amendments, which were adopted by the Board of Directors in August
1997, will provide sufficient additional stock to continue the Company's policy
of equity ownership by employees as an incentive for employees to exert maximum
efforts for the success of the Company.
GENERAL AND PURPOSE
The Purchase Plan was adopted by the Board of Directors in July 1985 and
was approved by the stockholders in October 1985. The Plan was previously
amended by the Board of Directors in August 1992 and by the stockholders in
October 1992 to increase the number of shares reserved for issuance thereunder
by 150,000 shares to an aggregate total of 600,000 shares and to increase the
maximum payroll deduction from 10% to 15% of aggregate eligible compensation.
The Purchase Plan is implemented by a series of offering periods, each of which
continues for a period of 12 months commencing on the first day of January of
each year (each an "Offering Period"), or at such other time or times as may be
determined by the Board of Directors. The Purchase Plan is intended to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
The Purchase Plan is further deemed to contain, and options granted thereunder
shall contain, and the shares issued upon exercise thereof shall be subject to,
any additional conditions and restrictions as may be required by Rule 16b-3 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Purchase Plan transactions. The Purchase 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 5, 1997, a total of 566,860 shares had been issued to the
Company's employees under the Purchase Plan and 33,140 shares remain available
for future issuance, without giving effect to the proposed amendment. The
average per share issuance price for shares purchased by employees under the
Purchase Plan to date was approximately $10.73 and the total net value realized
by employees as a group from the purchase of such shares was $2,732,020. As of
September 5, 1997, approximately 378 employees were eligible to participate in
the Purchase Plan, of which 88 were participating.
PURPOSE
The purpose of the Purchase Plan is to provide employees of the Company and
its designated subsidiaries with an opportunity to purchase Common Stock of the
Company through payroll deductions.
ADMINISTRATION
The 1985 Purchase Plan is administered by the Board of Directors of the
Company or a committee appointed by the Board (the "Administrator"). At the
present time, the Purchase Plan is administered by the Human Resources
Committee. All questions of interpretation or application of the Purchase Plan
are determined by the Administrator.
ELIGIBILITY AND PARTICIPATION
Employees (including officers and employee directors) who are employed for
at least 20 hours per week and are employed by the Company as of the first
business day of each Offering Period of the plan (the
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<PAGE> 9
"Offering Date") are eligible to participate in an Offering Period under the
Purchase Plan, subject to certain limitations imposed by Section 423(b) of the
Code and limitations on stock ownership as set forth in the Purchase Plan. No
employee shall be granted an option under the Purchase Plan if (i) immediately
after the grant such employee would own stock and/or hold outstanding options to
purchase stock possessing 5% or more of the total voting power or value of all
classes of stock of the Company or its subsidiaries or (ii) such option would
permit such employee to purchase stock under all employee stock purchase plans
of the Company and its subsidiaries at a rate which exceeds $25,000 of fair
market value of such stock for each calendar year in which such option is
outstanding at any time. In addition, the Purchase Plan previously provided that
an employee may not be granted an option to purchase in excess of 1,700 shares
of Common Stock during any Offering Period under the Purchase Plan. As amended,
employees would be permitted to purchase up to 3,000 shares (subject to the
other limitations described in this Proxy Statement) during any Offering Period
commencing on or after January 1, 1998.
Eligible employees become participants in the Purchase Plan by filing with
the payroll office of the Company a subscription agreement authorizing payroll
deductions prior to the applicable Offering Date, unless a later time for filing
the subscription agreement has been set by the Administrator. Payroll deductions
shall commence on the first payroll following the Offering Date and shall end on
the last payroll paid on or prior to the last day of the Offering Period to
which the subscription agreement is applicable, unless sooner terminated by the
participant.
GRANT AND EXERCISE OF OPTION
At the beginning of an Offering Period, each participant is granted an
option to purchase up to that number of shares determined by dividing such
employee's payroll deductions accumulated prior to the end of the offering
period and retained in the participant's account as of the end of the Offering
Period by the lower of (i) 85% of the fair market value of a share of the
Company's Common Stock at the beginning of the Offering Period or (ii) 85% of
the fair market value of a share of the Company's Common Stock at the end of the
Offering Period; provided that in no event shall a participant be permitted to
purchase during each Offering Period more than that number of shares determined
by dividing $25,000 by the fair market value of a share of the Company's Common
Stock at the beginning of the Offering Period, and provided further that such
purchases shall be subject to the limitations set forth below. The Company may
make a pro rata reduction in the number of shares subject to options if the
total number of shares which would otherwise be subject to options granted at
the beginning of an Offering Period exceeds the number of remaining available
shares in the Purchase Plan. Unless an employee withdraws his or her
participation in the Purchase Plan by giving written notice to the Company of
his or her election to withdraw all accumulated payroll deductions prior to the
end of an Offering Period, the employee's option for the purchase of shares will
be exercised automatically at the end of the Offering Period, and the maximum
number of full shares subject to option which are purchasable with the
accumulated payroll deductions in his or her account will be purchased at the
applicable purchase price determined as provided below.
During his or her lifetime, a participant's option to purchase shares under
the Purchase Plan is exercisable only by him or her. However, a participant may
file a written designation of a beneficiary who is (i) to receive any shares and
cash, if any, from the participant's account under the Purchase Plan in the
event of such participant's death subsequent to the end of an Offering Period
but prior to delivery to him or her of such shares and cash and (ii) to receive
any cash from the participant's account under the Purchase Plan in the event of
such participant's death prior to the end of the Offering Period.
PURCHASE PRICE
The purchase price per share at which shares are sold to participating
employees under the Purchase Plan is the lower of (i) 85% of the fair market
value per share of the Common Stock at the time the option is granted at the
commencement of the Offering Period or (ii) 85% of the fair market value per
share of the Common Stock at the time the option is exercised on the last day of
the Offering Period. The fair market value of the Common Stock on a given date
shall be the closing price of the Common Stock on the Nasdaq National Market.
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<PAGE> 10
PAYROLL DEDUCTIONS
The purchase price of the shares to be acquired under the Purchase Plan is
accumulated by payroll deductions over the twelve-month Offering Period. The
deductions may not be less than 2% or more than 15% of a participant's aggregate
eligible compensation during the Offering Period. A participant may discontinue
his or her participation in the Purchase Plan or may decrease, but not increase,
his or her rate of payroll deductions during an Offering Period. Payroll
deductions for a participant shall commence on the first payroll following the
Offering Date and shall continue until his or her participation is terminated as
provided in the Purchase Plan.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company for at least 20 hours per week during the
applicable Offering Period, cancels his or her option and his or her
participation in the Purchase Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to him or her
or, in the case of death, to the person or persons entitled thereto as provided
in the Purchase Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization in the
middle of an Offering Period, such as a stock split, stock dividend, combination
or reclassification, that results in an increase or decrease in the number of
shares of Common Stock outstanding without receipt of consideration by the
Company, appropriate adjustment shall be made in the purchase price and in the
number of shares subject to options under the Purchase Plan.
In the event of a proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Administrator. 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, each option under the
Purchase Plan 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 a participant
shall have the right to exercise the option as to all of the optioned stock and
notifies each participant of the new exercise date.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time amend or terminate the Purchase Plan
without the approval of the stockholders, except that such termination cannot
affect options previously granted nor may an amendment make any change in an
option granted prior thereto which adversely affects the rights of any
participant. No amendment may be made to the Purchase Plan without approval of
the stockholders of the Company if such amendment would increase the number of
shares reserved for issuance under the Purchase Plan, permit payroll deductions
at a rate in excess of 15% of a participant's aggregate eligible compensation,
change the designation of employees eligible for participation in the Purchase
Plan or materially increase the benefits accruing to participants in the
Purchase Plan.
The Purchase Plan shall expire in 2005 unless sooner terminated by the
Administrator, provided that any options then outstanding under the Purchase
Plan shall remain outstanding until they expire by their terms.
TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the
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<PAGE> 11
first day of the Offering Period and more than one year from the exercise date
of the Offering Period, the participant will recognize ordinary income measured
as the lesser of (a) the excess of the fair market value of the shares at the
time of such sale or disposition over the purchase price or (b) an amount equal
to 15% of the fair market value of the shares as of the first day of the
Offering Period. Any additional gain will be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income recognized by participants upon a sale or disposition
of shares prior to the expiration of the holding periods described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENTS
TO THE 1985 EMPLOYEE STOCK PURCHASE PLAN TO RESERVE AN ADDITIONAL 100,000 SHARES
OF COMMON STOCK FOR ISSUANCE THEREUNDER AND TO PERMIT PARTICIPANTS TO PURCHASE
UP TO 3,000 SHARES DURING ANY OFFERING PERIOD. THE EFFECT OF AN ABSTENTION IS
THE SAME AS THAT OF A VOTE AGAINST THE APPROVAL OF THE AMENDMENTS TO THE 1985
EMPLOYEE STOCK PURCHASE 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, 1998, 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.
8
<PAGE> 12
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 5, 1997 as to (i) each person who is known by the
Company to beneficially own more than 5% 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 12 and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
5% STOCKHOLDERS, DIRECTORS, ------------------------
NAMED EXECUTIVE OFFICERS, AND DIRECTORS AND PERCENT OF
EXECUTIVE OFFICERS AS A GROUP NUMBER TOTAL(2)
- ----------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Wellington Management Company(3)....................................... 1,190,100 13.5%
75 State Street
Boston, MA 02109
Heartland Advisors, Inc.(4)............................................ 1,050,400 11.9%
790 North Milwaukee Street
Milwaukee, WI 53202
T. Rowe Price Associates, Inc.(5)...................................... 717,000 8.1%
100 East Pratt Street
Baltimore, MD 21202
Reid W. Dennis(6)...................................................... 700,043 7.9%
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Anne L. Bakar(7)....................................................... 20,250 *
John R. Daniels, M.D.(8)............................................... 143,327 1.6%
William G. Davis(8).................................................... 31,000 *
Craig W. Johnson(9).................................................... 83,000 *
Rodney Perkins, M.D.(7)................................................ 44,350 *
Roger H. Salquist(10).................................................. 36,150 *
Gary S. Petersmeyer(11)................................................ 79,245 *
Deborah Webster Berard(12)............................................. 47,736 *
David J. Foster(13).................................................... 45,340 *
Michael I. Levitt(14).................................................. 27,806 *
Rebecca A. Stirn(15)................................................... 12,242 *
Howard D. Palefsky(16)................................................. 240,932 2.7%
All directors and executive officers as a group (17 persons)(17)....... 1,292,829 14.7%
</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 5, 1997, 8,822,064 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 641,300 shares and shared
dispositive power with respect to 1,190,100 shares. The information
presented is based upon information provided to the Company by the
stockholder.
9
<PAGE> 13
(4) Heartland Advisors, Inc., America's Value Investor(R) ("Heartland
Advisors") is an investment advisor registered with the Securities and
Exchange Commission under the Investment Advisors Act of 1940, as amended.
Heartland Advisors may be deemed to beneficially own the stated shares by
virtue of its status as a registered investment advisor to its various
investment advisory clients. Of such amount, Heartland Advisors may be
deemed to have shared voting power with respect to 1,039,900 shares and
shared dispositive power with respect to 1,050,400 shares. The information
presented is based upon information provided to the Company by the
stockholder.
(5) T. Rowe Price Associates, Inc. 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, T. Rowe Price
Associates, Inc. may be deemed to have sole voting power with respect to
245,500 shares and sole dispositive power with respect to 717,000 shares.
The information presented is based upon information provided to the Company
by the stockholder.
(6) Includes 52,000 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997; excludes 1,500 shares held by Mr. Dennis as
trustee for Suzanna Weaver Dennis, in which he disclaims any beneficial
ownership.
(7) Represents shares issuable upon exercise of options exercisable within 60
days of September 5, 1997.
(8) Includes 27,000 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997.
(9) Includes 33,000 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997.
(10) Includes 24,000 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997.
(11) Includes 77,800 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997.
(12) Includes 41,440 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997.
(13) Includes 38,330 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997.
(14) Includes 27,600 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997.
(15) Includes 10,840 shares issuable upon exercise of options exercisable within
60 days of September 5, 1997.
(16) Includes 174,000 shares issuable upon exercise of options exercisable
within 60 days of September 5, 1997.
(17) Includes 445,950 shares issuable upon exercise of options exercisable
within 60 days of September 5, 1997.
10
<PAGE> 14
Information with respect to the beneficial ownership of securities as of
September 5, 1997 by 5% stockholders, 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)
----------------------
5% STOCKHOLDERS, DIRECTORS, NAMED EXECUTIVE OFFICERS, PERCENT OF
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER CLASS
---------------------------------------------------------------- ------- ----------
<S> <C> <C>
Cohesion Corporation(2)
Rodney Perkins, M.D.(3)....................................... 314,050 34.9%
Craig W. Johnson(4)........................................... 17,500 1.9%
7,500 *
All Collagen directors and executive officers as a group (17
persons)(5)................................................ 331,550 36.8%
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 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 82.7% of the aggregate
outstanding capital stock of Cohesion Corporation as of September 5, 1997.
(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 (331,550 shares) and
Preferred Stock (7,500 shares).
11
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation received by (i) the two
individuals who served as Chief Executive Officer of the Company during the
fiscal year ended June 30, 1997 and (ii) the four other most highly compensated
executive officers of the Company serving at the end of the fiscal year ended
June 30, 1997, and the compensation received by each such individual for the
Company's two prior fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------ ALL
------------------------------------- SECURITIES OTHER
OTHER ANNUAL UNDERLYING COMPEN-
NAME AND FISCAL COMPENSATION OPTIONS SATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (#)(2) ($)(3)
- ----------------------------- ------ --------- -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Petersmeyer(4)....... 1997 $ 262,777 $108,000 -- 150,000 $ 2,238
President, Chief Executive 1996 $ 213,956 $ 29,025 -- 25,000 $ 36,301
Officer and director 1995 $ 83,335 -- -- 60,000 $ 508
Deborah Webster Berard....... 1997 $ 148,187 $ 41,620 -- 6,000 $ 4,608
Vice President, Human 1996 $ 139,600 $ 18,842 -- 8,000 $ 301
Resources and 1995 $ 135,650 $ 18,293 -- -- $ 291
Administrative Services
David J. Foster.............. 1997 $ 160,263 $ 47,600 -- 6,000 $ 453
Senior Vice President and 1996 $ 144,306 $ 24,575 -- 10,000 $ 314
General Manager, 1995 $ 136,650 $ 18,227 -- -- $ 288
Collagen Technologies Group
Michael I. Levitt............ 1997 $ 163,248 $ 57,313 -- 6,000 $ 19,243
Vice President, Operations 1996 $ 153,878 $ 20,757 -- 6,000 $ 20,084
1995 $ 143,750 $ 20,250 -- 30,000 $139,876
Rebecca A. Stirn(5).......... 1997 $ 149,484 $ 42,014 -- 3,000 $ 505
Vice President, 1996 $ 95,053 $ 8,550 -- 25,000 $ 74,990
Global Marketing Strategy 1995 -- -- -- -- $ 3,000
Howard D. Palefsky(6)........ 1997 $ 231,819 $650,000 -- 15,000 $ 1,769
Former Chairman and 1996 $ 309,103 $ 41,817 -- 20,000 $ 1,935
Chief Executive Officer 1995 $ 294,270 $ 39,826 -- -- $ 1,862
</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 $50,000 or ten percent of total salary and bonus
reported for such individual in the Summary Compensation Table.
(2) This table does not reflect options granted subsequent to the close of
fiscal 1997, which may represent grants partially in recognition of fiscal
1997 performance.
(3) Stated amounts represent (a) a hiring bonus to Mr. Petersmeyer, (b) a
15-year service award to Ms. Berard, (c) a mortgage assistance payment, a
goods and services allowance and a discretionary bonus paid to Mr. Levitt in
fiscal 1997, a mortgage assistance payment to Mr. Levitt in fiscal 1996 and
payments for a hiring bonus, mortgage assistance and the reimbursement of
relocation expenses to Mr. Levitt in fiscal 1995 and (d) fees for consulting
services provided by Ms. Stirn in fiscal 1996 and fiscal 1995, prior to her
commencement of employment with the Company. Remaining amounts represent
insurance premiums paid by the Company for term life insurance under the
Company's group life insurance employee benefit.
(4) Mr. Petersmeyer commenced employment with the Company in February 1995.
(5) Ms. Stirn commenced employment with the Company in January 1996.
(6) Mr. Palefsky resigned as Chief Executive Officer of the Company in February
1997 and as a director of the Company in June 1997.
12
<PAGE> 16
The following table sets forth information for the named executive officers
with respect to grants of options to purchase Common Stock of the Company made
during the fiscal year ended June 30, 1997.
STOCK OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL
----------------------------------------------------- REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE 10-YEAR OPTION TERM($)(2)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------------
GRANTEE NAME GRANTED(#) YEAR $/SH. DATE 5% 10%
- ----------------------------- ---------- ---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Petersmeyer.......... 20,000 4.62% $16.75 08/09/06 $ 210,680 $ 533,904
130,000 30.04% $19.50 02/07/07 $ 1,594,248 $ 4,040,137
Deborah Webster Berard....... 6,000 1.39% $16.75 08/09/06 $ 63,204 $ 160,171
David J. Foster.............. 6,000 1.39% $16.75 08/09/06 $ 63,204 $ 160,171
Michael I. Levitt............ 6,000 1.39% $16.75 08/09/06 $ 63,204 $ 160,171
Rebecca A. Stirn............. 3,000 0.69% $16.75 08/09/06 $ 31,602 $ 80,086
Howard D. Palefsky........... 15,000 3.47% $16.75 08/09/06 $ 158,010 $ 400,428
All Stockholders(3).......... -- -- -- -- $96,949,209 $245,688,329
All Employee Optionees....... 432,750 100% $18.39(4) (4) $ 5,004,915 $ 12,683,437
% of Total Stockholder
Value...................... -- -- -- -- 5.34% 5.34%
</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 8,809,035 shares of Common Stock outstanding as of
June 30, 1997, excluding shares held as treasury stock, and a price per
share of $17.50, the fair market value of the Company's Common Stock at the
close of business on such date.
(4) Represents the weighted average exercise price of options granted during
fiscal 1997. Options granted during fiscal 1997 will generally expire on the
date in fiscal 2007 equal to ten years from the date of grant.
The following table sets forth information for the named executive officers
with respect to exercises of options to purchase Common Stock of the Company in
the fiscal year ended June 30, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR-END
SHARES YEAR- ($)(1)
ACQUIRED ON VALUE END(#)(EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE) UNEXERCISABLE)
- ---------------------------- ----------- ----------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Gary S. Petersmeyer......... -- -- 57,800 / 177,200 $ 8,500 / $19,000
Deborah Webster Berard...... 41 $ 400 41,610 / 11,340 $ 44,491 / $ 5,840
David J. Foster............. -- -- 36,340 / 12,460 $ 3,100 / $ 6,400
Michael I. Levitt........... -- -- 24,240 / 17,760 $ 2,220 / $ 5,280
Rebecca A. Stirn............ -- -- 8,600 / 19,400 $ 450 / $ 1,800
Howard D. Palefsky.......... 54,000 $ 535,250 169,300 / 28,700 $688,400 / $14,600
</TABLE>
- ---------------
(1) The fair market value of Collagen's Common Stock at the close of business on
June 30, 1997 was $17.50 per share.
13
<PAGE> 17
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 17 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 1997.
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 Committee evaluates the performance and sets the salary of the
Company's Chief Executive Officer, Gary S. Petersmeyer, on an annual basis. Mr.
Petersmeyer evaluates the performance of all other executive officers and
recommends salary adjustments which are reviewed and approved by the Committee.
Survey data is drawn from comparable companies participating in medical device,
biotechnology, and/or pharmaceutical executive compensation surveys, several of
which are included in the peer group index in the Company's Performance Graph at
page 17. Within this framework, executive salaries are determined based on
individual performance, level of responsibility, the Company's overall salary
structure and the financial condition of the Company. 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
Committee and the full Board.
Both the target amount and potential range of bonuses available to
executive officers are set annually by the 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 targets.
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
14
<PAGE> 18
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, the Company 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.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1997, the compensation of Gary S. Petersmeyer, the Chief
Executive Officer of the Company, consisted of base salary and a bonus. Mr.
Petersmeyer did not participate in any decisions related to his compensation.
When Mr. Petersmeyer, who previously served as the Company's President and
Chief Operating Officer, assumed the position of Chief Executive Officer in
February 1997, his annual base salary was increased from $250,000 to $300,000
and he was granted an option to purchase 130,000 shares of Common Stock at an
exercise price of $19.50 per share, the fair market value of the Company's
Common Stock on the date of grant. See "Compensation of Executive
Officers -- Stock Option Grants in Fiscal 1997."
15
<PAGE> 19
After careful review of the Company's performance as measured against the
annual corporate goals and objectives for fiscal 1997, the Committee determined
that approximately 80% of all corporate objectives were realized for fiscal
1997. The Committee found 80% of Mr. Petersmeyer's target bonus award for the
fiscal year to be appropriate relative to his total compensation package and to
the compensation that chief executive officers in related industries can
achieve. Accordingly, in August 1997, Mr. Petersmeyer was awarded an incentive
bonus in the amount of $108,000, which represented approximately 36% of his
annual salary, or 80% of the target award for individual and corporate
performance in fiscal 1997.
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.
16
<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, 1997 since June 30, 1992 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, 1992 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 $18.50, the closing price on June 30, 1992.
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
[ INSERT PERFORMANCE GRAPH ]
<TABLE>
<CAPTION>
Cumulative Total Return
-------------------------------------------------
6/92 6/93 6/94 6/95 6/96 6/97
<S> <C> <C> <C> <C> <C> <C> <C>
COLLAGEN CORP............................. CGEN 100 123 102 94 106 98
NASDAQ STOCK MARKET (U.S.)................ INAS 100 126 127 169 218 265
S&P HLTH CARE (MED PRODS & SUPPLS)........ IMDP 100 82 79 121 159 211
</TABLE>
*$100 INVESTED ON 6/30/92 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS; FISCAL YEAR ENDING JUNE 30.
17
<PAGE> 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. During fiscal 1997, 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,
1997, CollOptics owed the Company $769,981 for research and development services
and the reimbursement of expenses paid by the Company. David J. Foster, Senior
Vice President and General Manager, Collagen Technologies Group, is a director
of CollOptics. As of June 30, 1997, the Company held a 47% equity interest in
CollOptics.
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 stockholder,
Chairman and President. 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 anti-adhesion technology, excluding ophthalmic applications, in
return for which the Company was granted an additional 75,000 shares of Cohesion
Preferred 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. In each of May 1997 and July 1997, the Company loaned $1,000,000
to Cohesion under the loan commitment and purchased 25,000 shares of Cohesion
Common Stock from Dr. Perkins. 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 becomes
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. The Company also anticipated that Cohesion would
draw down an additional $1,000,000 pursuant to the loan transaction, prior to
September 30, 1997. 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, Craig W. Johnson, a director and Secretary of the
Company, 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. John R. Daniels, a
director of the Company, was appointed to Cohesion's Board of Directors. As of
June 30, 1997, the Company held an 82.7% equity interest in Cohesion.
In October 1995, Ross Erickson, then an executive officer of the Company
and currently an executive officer of Cohesion, borrowed $120,000 from the
Company pursuant to a secured promissory note. This debt was 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. In May 1997, all
amounts due to the Company under such loan were repaid and the loan was assumed
by Cohesion.
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
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tissue fixation devices manufactured from collagen-based materials using the
Company's proprietary technology. Shortly following its investment in
Innovasive, the Company purchased from Howard D. Palefsky, the former Chairman
and Chief Executive Officer of the Company, all of his holdings of Innovasive
capital stock (30,303 shares) for an aggregate of $63,552. During fiscal 1997,
pursuant to the terms of the Research and Development Agreement, Innovasive made
payments to the Company totaling $698,665 for research and development services
and reimbursement of expenses paid by the Company. As of June 30, 1997,
Innovasive owed the Company $289,243 for research and development services and
the reimbursement of expenses paid by the Company. 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. Foster is
the Company's current designee on the Innovasive Board of Directors. As of June
30, 1997, 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, and 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. 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.
In March, 1997, Mr. Palefsky entered into an Agreement with the Company
dated March 15, 1997 in connection with the severance of his employment
relationship with the Company; at the same time, Mr. Palefsky entered into a
consulting relationship with the Company. Under the Agreement, the Company
agreed to pay Mr. Palefsky a consulting fee of $29,167 during each of the first
24 months of his consultancy. As additional compensation for services during his
consultancy and for Mr. Palefsky's execution and adherence to a noncompetition
agreement with the Company, the Company agreed to: (i) pay Mr. Palefsky a bonus
of $650,000, (ii) conditioned on completion of the first year of his consultancy
and noncompetition, pay Mr. Palefsky a bonus of $225,000 on the first
anniversary date of the Agreement and forgive $425,000 of the principal and any
accrued interest thereon of outstanding loans totaling $475,000 in principal
amount, made to Mr. Palefsky by the Company and (iii) conditioned on completion
of the second year of Mr. Palefsky's consultancy, the Company agreed to forgive
the balance of the principal and any accrued interest thereon of the above loans
and also to forgive the entire principal balance and any accrued interest
thereon of the loan in the principal amount of $1,080,000 made by the Company in
February 1996 to Mr. Palefsky. During his consultancy, Mr. Palefsky is also
entitled to reimbursement for his reasonable expenses incurred in connection
with rendering consulting services to the Company. Mr. Palefsky's options to
purchase stock of the Company shall continue to vest during his period of
consultancy and shall, in any event, be fully vested on conclusion of the
consultancy, for any reason.
In July 1996, Reid W. Dennis, Chairman Emeritus and a director of the
Company, 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.
In February 1997, the Company entered into an employment agreement with
Gary S. Petersmeyer, the Company's President and Chief Executive Officer,
containing arrangements pursuant to which Mr. Petersmeyer is entitled to
receive, in the event of his involuntary termination (other than for cause) by
the Company (apart from a change of control), a lump sum payment of 12 months
base salary, a lump sum payment equal to Mr. Petersmeyer's scheduled bonus, and
accelerated vesting of any options previously
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granted to and held by Mr. Petersmeyer as of the termination date, to the extent
that such options would have vested during the 12 months following the
termination date. In the event of his involuntary termination (other than for
cause) by the Company within 24 months following a "change of control," Mr.
Petersmeyer is entitled to a lump sum payment of 24 months base salary, a lump
sum payment equal to two times Mr. Petersmeyer's scheduled bonus, and
accelerated vesting of any options previously granted to and held by Mr.
Petersmeyer as of the termination date, to the extent that such options would
have vested during the 24 months following the termination date.
The Company also entered into certain "change of control" arrangements with
certain of its executive officers pursuant to which all options granted to such
executive officers to purchase the Company's Common Stock shall immediately vest
in the event that such officer's employment is involuntarily terminated without
cause within a specified period of time following a change of control. Events
constituting a change of control include (i) any person acquiring 50% or more of
the total voting power represented by the Company's then outstanding voting
securities without the approval of the Company's Board of Directors; (ii) any
merger, sale of assets or liquidation of the Company in which the Company's
outstanding voting securities prior to the transaction cease to represent at
least 50% of the total voting power represented by the voting securities of the
Company or of the surviving entity after the transaction; or (iii) replacing a
majority of the Company's Board of Directors.
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, 1997. To the best of the Company's knowledge, all of these filing
requirements have been satisfied except that Ms. Berard and Mr. Palefsky each
reported a single option exercise approximately two months after such report was
due. 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 26, 1997
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K B
<PAGE> 25
[ ]
1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD AUTHORITY to vote for *EXCEPTIONS
listed below [ ] all nominees listed below [ ] [ ]
Nominees: ANNE L. BAKAR, JOHN R. DANIELS, M.D., WILLIAM G. DAVIS, REID W.
DENNIS, CRAIG W. JOHNSON, GARY S. PETERSMEYER. (INSTRUCTIONS: To Withhold
Authority To Vote For Any Individual Nominee, Mark The "Exceptions" Box And
Strike A Line Through That Nominee's Name.)
2. PROPOSAL TO AMEND THE COMPANY'S 1985 EMPLOYEE FOR AGAINST ABSTAIN
STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF [ ] [ ] [ ]
OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
THEREUNDER BY 100,000 SHARES TO 700,000 SHARES,
AND TO PERMIT PARTICIPANTS TO PURCHASE UP TO
3,000 SHARES DURING ANY OFFERING PERIOD:
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & FOR AGAINST ABSTAIN
YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE [ ] [ ] [ ]
COMPANY FOR THE 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 [ ]
DATED: , 1997 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
Signature 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
Signature if held jointly name by authorized person.
Votes MUST be indicated (X) in Black or Blue ink. [X]
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE> 26
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF COLLAGEN CORPORATION
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints REID W. DENNIS, CRAIG W. JOHNSON, and GARY
S. PETERSMEYER, 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 1997
Annual Meeting of Stockholders of COLLAGEN CORPORATION to be held on October 29,
1997, 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 1995 Employee Stock Purchase Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 100,000 shares to an
aggregate of 700,000 shares, and to permit participants to purchase up to 3,000
shares during any Offering Period, 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
