SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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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
Closure Medical Corporation
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[ ] Fee paid previously with preliminary materials.
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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:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 13, 2000
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To Our Stockholders:
Notice is hereby given that the 2000 Annual Meeting of Stockholders
(the "Annual Meeting") of CLOSURE MEDICAL CORPORATION (the "Company") will be
held on June 13, 2000 at 9:00 a.m., local time, at the Raleigh Marriott Crabtree
Valley, Raleigh, North Carolina, for the following purposes:
1. To elect two Class I directors to the Board of Directors, each to
serve a three-year term or until the election and qualification
of his successor;
2. To approve and adopt the Company's Amended and Restated 1996
Equity Compensation Plan, which has been amended to increase the
number of shares authorized for issuance under the Plan and to
provide for flexibility in the granting of options to
non-employee directors; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments or postponements thereof.
Only stockholders of record as of the close of business on April 27,
2000 will be entitled to vote at the Annual Meeting and any adjournments or
postponements thereof. A list of stockholders of the Company as of the close of
business on April 27, 2000 will be available for inspection during normal
business hours for ten days prior to the Annual Meeting at the Company's
executive offices at 5250 Greens Dairy Road, Raleigh, North Carolina.
By Order of the Board of Directors,
/s/ Benny Ward
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Benny Ward
Assistant Secretary
April 28, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
CLOSURE MEDICAL CORPORATION
5250 Greens Dairy Road
Raleigh, NC 27616
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PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 13, 2000
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This Proxy Statement is being furnished to the stockholders of Closure
Medical Corporation (the "Company") in connection with the Annual Meeting of
Stockholders of the Company to be held on June 13, 2000 and any adjournments or
postponements thereof (the "Annual Meeting"). This Proxy Statement and the
enclosed Proxy Card are being mailed to stockholders on or about May 5, 2000.
The enclosed proxy is being solicited by and on behalf of the Board of
Directors of the Company for the purposes set forth in the foregoing notice of
meeting. The costs incidental to the solicitation and obtaining of proxies,
including the cost of reimbursing banks and brokers for forwarding proxy
materials to their principals, will be borne by the Company. Proxies may be
solicited, without extra compensation, by officers and employees of the Company
by mail, telephone, telefax, personal interviews and other methods of
communication.
The Annual Report to Stockholders for the fiscal year ended December
31, 1999, including financial statements and other information with respect to
the Company, is being mailed to stockholders with this Proxy Statement but does
not constitute a part of this Proxy Statement.
VOTING AT THE MEETING
RECORD DATE; VOTE REQUIRED; PROXIES
Only stockholders of record at the close of business on April 27, 2000
are entitled to notice of the Annual Meeting and to vote at the Annual Meeting
and any adjournments or postponements thereof. As of that date, the Company had
outstanding 13,363,005 shares of Common Stock, par value $.01 per share
("Common Stock"). The holders of a majority of the outstanding shares of Common
Stock, represented in person or by proxy, shall constitute a quorum at the
Annual Meeting. A quorum is necessary before business may be transacted at the
Annual Meeting except that, even if a quorum is not present, the stockholders
present in person or by proxy shall have the power to adjourn the meeting from
time to time until a quorum is present. Each stockholder entitled to vote shall
have the right to one vote for each share of Common Stock outstanding in such
stockholder's name.
The shares of Common Stock represented by each properly executed Proxy
Card will be voted at the Annual Meeting in the manner directed therein by the
stockholder signing such Proxy Card. The Proxy Card provides spaces for a
stockholder to vote in favor of or withhold authority to vote for each nominee
for the Board of Directors, and to vote for or against or to abstain from voting
with respect to the proposal to approve and adopt the Company's Amended and
Restated 1996 Equity Compensation Plan (the "Amended and Restated Plan"), which
has been amended to increase the total number of shares authorized to be issued
and to provide for flexibility in the granting of options to non-employee
directors.
Except for the election of directors, for which a plurality of the
votes cast is required, and except as otherwise required by law or provided in
the Company's Restated Certificate of Incorporation, as amended, and By-Laws,
the affirmative vote of a majority of the shares represented in person or by
proxy at the Annual Meeting and entitled to vote is required to approve and
adopt the Amended and Restated Plan or to take action with respect to any other
matter that may properly be brought before the Annual Meeting.
With regard to the election of directors, votes may be cast in favor of
or withheld from any or all nominees. Votes that are withheld will be excluded
entirely from the vote and will have no effect, other than for purposes of
determining the presence of a quorum. Abstentions may be specified on the
proposal to approve and adopt the Amended and Restated Plan (but not for the
election of directors). An abstention will be considered present and entitled to
vote at the Annual Meeting, but will not be counted as a vote cast in the
affirmative. An abstention on the proposal to approve and adopt the Amended and
Restated Plan will have the effect of a negative vote because this proposal
requires the affirmative vote of a majority of the shares present in person or
represented by proxy at the Annual Meeting and entitled to vote to be approved
by the stockholders.
Brokers who hold shares in street name for customers have the authority
under the rules of the various stock exchanges to vote on certain items when
they have not received instructions from beneficial owners. The Company believes
that brokers that do not receive instructions are entitled to vote those shares
with respect to the election of directors; however, the Company believes that
brokers are not entitled to vote such shares with respect to the proposal to
approve and adopt the Amended and Restated Plan. A failure by brokers to vote
these shares will have no effect on the outcome of the election of directors or
the proposal to approve and adopt the Equity Compensation Plan.
If a signed Proxy Card is returned and the stockholder has
given no direction with respect to a voting matter, the shares will be voted
with respect to that matter by the proxy agents as recommended by the Board of
Directors. Execution and return of the enclosed Proxy Card will not affect a
stockholder's right to attend the Annual Meeting and vote in person. Any
stockholder giving a proxy has the right to revoke it by giving notice of
revocation to the Assistant Secretary of the Company at any time before the
proxy is voted.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of April 4, 2000 by (i) each person
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each of the executive officers named in the Summary Compensation
Table, (iii) each of the Company's directors (including the nominees) and (iv)
all directors and executive officers of the Company as a group:
SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1)
- ------------------------ ------------------------------------
NUMBER PERCENT
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F. William Schmidt (2)(3) 3,138,355 23.5%
Rolf D. Schmidt (3)(4) 3,111,455 23.3%
Robert V. Toni (3)(5) 798,573 6.0%
Jeffrey G. Clark (3)(7) 485,927 3.6%
J. Blount Swain (3) 463,650 3.5%
Dennis D. Burns (3) 17,700 *
Dennis C. Carey (3)(6) 60,644 *
Randy H. Thurman (3) 49,124 *
Richard W. Miller (3) 49,592 *
Ronald A. Ahrens (3) 42,600 *
William M. Cotter (3) 22,600 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP 8,091,230 60.6%
(14 PERSONS) (8)
* Less than 1%.
(1) Nature of ownership consists of sole voting and investment power unless
otherwise indicated. Includes shares of Common Stock issuable upon the
exercise of stock options exercisable within 60 days of April 4, 2000.
(2) The address of the stockholder is 534 Ridge Avenue, Ephrata, PA 17522.
Includes (a) 2,206,945 shares held by Triangle Partners, L.P., a limited
partnership of which F. William Schmidt is the sole general partner, for
which shares he is deemed to have sole voting and investment power; (b)
539,912 shares held by OMI Partners, L.P., a limited partnership of which
F. William Schmidt and Rolf D. Schmidt are the sole general partners, for
which shares they are deemed to share voting and investment power; and (c)
50,000 shares held by F. William Schmidt's spouse, for which shares he
disclaims beneficial ownership.
(3) Except as otherwise noted in footnote (2) or footnote (4), the address of
the stockholder is c/o Closure Medical Corporation, 5250 Greens Dairy Road,
Raleigh, NC 27616. Includes the following shares of Common Stock issuable
upon the exercise of stock options exercisable within 60 days of April 4,
2000: F. William Schmidt--26,124; Rolf D. Schmidt--26,124; Robert V.
Toni--158,933; Jeffrey G. Clark--43,100; J. Blount Swain--46,050; Dennis D.
Burns--17,600; Dennis C. Carey--51,124; Randy H. Thurman--47,124; Richard
W. Miller--42,592; Ronald A. Ahrens--35,100; and William M. Cotter--22,600.
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(4) The address of the stockholder is 205 Sweitzer Road, Sinking Spring, PA
19608. Includes (a) 2,188,945 shares held by Cacoosing Partners, L.P., a
limited partnership of which Rolf D. Schmidt is the sole general partner,
for which shares he is deemed to have sole voting and investment power; (b)
539,912 shares held by OMI Partners, L.P., a limited partnership of which
Rolf D. Schmidt and F. William Schmidt are the sole general partners, for
which shares they are deemed to share voting and investment power; and (c)
140,000 shares owned jointly by Rolf D. Schmidt and his spouse, for which
shares he is deemed to share voting and investment power.
(5) Includes 20,000 shares held by Mr. Toni's spouse, for which shares he
disclaims beneficial ownership.
(6) Includes 1,500 shares owned jointly by Mr. Carey and his spouse, for which
shares he is deemed to share voting and investment power.
(7) Includes 69,000 owned by Mr. Clark's spouse, and 1,273 owned by one of his
minor children, for both of which share amounts he disclaims beneficial
ownership.
(8) See footnotes (2) and (4)-(7) above. Includes 597,129 shares of Common
Stock issuable upon the exercise of stock options exercisable within 60
days of April 4, 2000.
MATTERS CONCERNING DIRECTORS
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three
classes. Members of one class are elected each year to serve a three-year term
until their successors have been elected and qualified or until their earlier
resignation or removal.
The Board of Directors has nominated Dennis C. Carey and F.
William Schmidt for election as Class I directors. The nominees are presently
directors of the Company whose terms expire at the Annual Meeting.
The nominees have consented to be named and to serve if
elected. Unless otherwise instructed by the stockholders, the persons named in
the proxies will vote the shares represented thereby for the election of such
nominees. The Board of Directors believes each nominee will be able to serve as
a director; if this should not be the case, however, the proxies may be voted
for one or more substitute nominees to be designated by the Board of Directors,
or the Board of Directors may decide to reduce the number of directors. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
Set forth below is certain information with respect to each
nominee for director and each other person currently serving as a director of
the Company whose term of office will continue after the Annual Meeting,
including the class and term of office of each such person. This information has
been provided by each director at the request of the Company.
Class I--Directors with Terms Continuing until 2003
DENNIS C. CAREY, PH.D., age 50, has served as a director of
the Company since May 1996. Mr. Carey serves as Vice Chairman of Spencer Stuart
US, an executive search firm, and has overseen the firm's board consulting
practice since 1988. Prior to joining Spencer Stuart, he served as a National
Practice Director for The Hay Group, a global compensation firm, and was
Secretary of Labor to former Governor Pierre S. duPont, IV of Delaware. Mr.
Carey holds a Ph.D. in finance and administration from the University of
Maryland. He was a co-founder of The Director's Institute at The Wharton School
of the University of Pennsylvania and serves on its board of directors.
F. WILLIAM SCHMIDT, age 60, a co-founder of the Company in
1990, has served as a director of the Company since February 1996. Mr. Schmidt
co-founded Sharpoint, Inc. with his brother, Rolf D. Schmidt, and completed the
design work on production and manufacturing equipment that led to product
development within that company. In 1986, a significant portion of the business
of Sharpoint, Inc. was sold to its primary distributor, Alcon Laboratories, Inc.
In 1991, the remainder of such business was sold to a management group. Since
1990, Mr.
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Schmidt has primarily invested in and devoted substantial time and attention to
healthcare-related entities, including the Company.
Class II--Directors with Terms Continuing until 2001
RONALD A. AHRENS, age 60, has served as a director of the
Company since January 1, 1999 and has served as Chairman of the Board since
December 1999. Mr. Ahrens has been an advisor to Merck & Company, Inc. since
1995, where he retired as President of Merck Consumer Healthcare Group Worldwide
in 1995 and previously served as Executive Vice President of Merck Consumer
Healthcare Group International. From 1985 to 1990, Mr. Ahrens was Consumer Group
President, North America of Bristol-Myers Squibb and previously was President of
Bristol Myers Products Division. Prior to 1985, he held senior management and
sales and marketing positions with Richardson Vicks, Bristol-Myers Squibb and
Procter and Gamble. Mr. Ahrens has a B.A. degree and an M.A. degree from
Concordia College.
RICHARD W. MILLER, age 59, has served as a director of the
Company since August 1997. From 1993 to 1997, he served as Senior Executive Vice
President and Chief Financial Officer of AT&T. Previously, he was Chief
Executive Officer of Wang Laboratories from 1989 to 1993, and prior to that, he
held executive positions at General Electric Company and RCA. Currently, Mr.
Miller advises companies and serves on the boards of directors of AvalonBay
Communities, Inc., SBA Communications Inc. and MPower Communications Inc. Mr.
Miller holds an M.B.A. from Harvard Business School and a B.B.A. degree in
Economics from Case Western Reserve University.
ROLF D. SCHMIDT, age 67, a co-founder of the Company in 1990,
served as Chairman of the Board of Directors of the Company from February 1996
to December 1999, and has been a director of the Company since then. Mr. Schmidt
has served as Chief Executive Officer and Chairman of Performance Sports
Apparel, Inc. since 1995. In 1986, a significant portion of the business of
Sharpoint, Inc., a developer and manufacturer of surgical needles and sutures
co-founded by Mr. Schmidt and his brother, F. William Schmidt, was sold to its
primary distributor, Alcon Laboratories, Inc. In 1991, the remainder of such
business was sold to a management group. Since 1990, Mr. Schmidt has invested
primarily in and devoted substantial time and attention to healthcare-related
entities, including the Company.
Class III--Nominees for Terms Continuing until 2002
RANDY H. THURMAN, age 50, has served as a director of the
Company since May 1996. Mr. Thurman is founder and Chief Executive Officer of
Strategic Reserves, LLC(TM), a healthcare technology consulting and investment
company. From 1993 to 1996, Mr. Thurman was Chairman and CEO of Corning Life
Sciences, a wholly-owned subsidiary of Corning Inc. which specialized in
pharmaceutical testing, clinical diagnostics and disease state management. From
1985 to 1993, Mr. Thurman was an executive with Rhone-Poulenc Rorer, most
recently as President and a director. Mr. Thurman has an M.A. degree from
Webster University and a B.A. degree from Virginia Polytechnic Institute. Mr.
Thurman serves as Chairman of the board of directors of both Enzon, Inc. and
UCTi, Inc. and is on the boards of Delta Food Group and Curagen Corporation.
ROBERT V. TONI, age 59, has served as President and Chief
Executive Officer of the Company since June 1994 and as a director of the
Company since February 1996. From 1989 to 1994, Mr. Toni was General Manager and
Vice President of Sales and Marketing for IOLAB Corporation, a Johnson & Johnson
company that marketed and manufactured surgical devices, equipment and
pharmaceuticals for the ophthalmic market. From 1987 to 1989, he served as
President of Cooper Vision-CILCO, and also served as its Executive Vice
President of Operations and Chief Financial Officer from 1984 to 1987. Mr. Toni
holds a B.S. degree in Finance from Iona College.
GENERAL INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has standing Executive, Audit and
Compensation Committees. During fiscal year 1999, the Board of Directors held 4
meetings, the Audit Committee held 1 meeting and the Compensation Committee held
1 meeting. There were no meetings held by the Executive Committee during 1999.
Each director attended at least 75% of the aggregate of the meetings of the
Board of Directors held during the period for which he was a director and the
meetings of the committee or committees on which he served during such period.
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The Executive Committee, to the extent permitted under
Delaware law, may exercise, with certain exceptions, all of the power and
authority of the Board of Directors in the management of the business and
affairs of the Company. The Executive Committee is intended to serve in the
event action must be taken by the board at a time when convening the entire
board is not feasible. The Audit Committee is responsible for recommending to
the Board of Directors the engagement of the independent auditors of the
Company, for reviewing with the independent auditors the scope and results of
the audits, and for reviewing the accounting controls, operating, capital and
research and development budgets and other financial matters of the Company. The
Compensation Committee is responsible for reviewing and approving compensation
arrangements for the officers of the Company and other compensation matters
generally, for recommending to the Board of Directors the compensation of the
Company's chief executive officer and non-employee directors, for establishing
incentive compensation or bonus plans and for evaluating board performance and
recommending nominees for election as directors. The Stock Option Subcommittee
of the Compensation Committee determines grants under and administers the Equity
Compensation Plan.
The current members of the Executive Committee are Messrs.
Ahrens, Rolf D. Schmidt (Chair), Thurman and Toni; of the Audit
Committee, Messrs. Carey, Miller and Thurman (Chair); and of the Compensation
Committee, Messrs. Ahrens, Carey (Chair), Thurman and F. William Schmidt.
Messrs. Ahrens, Carey and Thurman comprise the Stock Option Subcommittee of the
Compensation Committee.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no
compensation for serving on the Board of Directors. Non-employee directors of
the Company have received annual compensation of $24,000, except in the case of
the Chairman who receives $150,000, and $1,500 for each meeting of the Board of
Directors attended in person or participated in telephonically. In addition,
pursuant to the Equity Compensation Plan, each non-employee director received a
one-time grant of options to purchase 25,000 shares of Common Stock upon
election to the Board of Directors, and each non-employee director in office
immediately before and after the annual election of directors receives options
to purchase 7,500 shares of Common Stock. Under the Equity Compensation Plan,
non-employee directors also may have elected to receive options in lieu of all
or part of their annual compensation for serving on the Board of Directors by
making an election at or prior to the annual meeting. In the future, should the
Amended and Restated Plan be approved and adopted, the Compensation Committee
would determine, subject to the approval of the Board, the amount and terms of
options to be granted to non-employee directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
F. William Schmidt, a member of the Compensation Committee,
was a party to a transaction with the Company in 1998. See "Certain
Transactions." Mr. Schmidt is not a member of the Stock Option Subcommittee of
the Compensation Committee.
SHARE OWNERSHIP GUIDELINE
In 1997, the Board of Directors adopted the following
guideline for Company stock ownership by non-employee directors: each
non-employee director should own shares of Common Stock of the Company with a
value, at any time within two years after such director joins the Board of
Directors and at the greater of cost or market value, equal to $100,000.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF NOMINATIONS
Article Two of the Company's By-Laws provides that no person
may be nominated for election as a director by a stockholder at an annual or
special meeting unless written notice of such stockholder's intent to make such
nomination has been delivered to the Secretary of the Company at the principal
executive offices of the Company (i) with respect to an election to be held at
an annual meeting of stockholders, which meeting is to be held no earlier than
30 days before and no later than 60 days after the first anniversary date of the
previous year's annual meeting, not earlier than 90 days and not later than 60
days in advance of the first anniversary date of the previous year's annual
meeting; (ii) with respect to an election to be held at an annual meeting of
stockholders, which meeting is to be held more than 30 days before or more than
60 days after the first anniversary date of the previous
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year's annual meeting, not earlier than 90 days prior to such meeting and not
later than the later of 60 days in advance of such meeting or 10 days following
the date of the first public announcement of the date of such meeting; (iii)
with respect to an election to be held at an annual meeting at which a director
will be elected to fill an increase in the number of directors to be elected to
the Board of Directors, which increase has not been publicly announced more than
70 days prior to the first anniversary date of the previous year's annual
meeting, not later than the close of business on the tenth day after the first
public announcement of such increase; and (iv) with respect to an election to be
held at a special meeting of stockholders for the election of directors, not
earlier than 90 days prior to such meeting and not later than the later of 60
days prior to such meeting or the tenth day following the date on which public
announcement of the date of such meeting and of the nominees for the Board of
Directors is first made. The By-Laws define a "public announcement" as a press
release reported by the Dow Jones News Service, the Associated Press or a
comparable national news service or disclosure in a document publicly filed by
the Company with the Securities and Exchange Commission (the "SEC") pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
A notice from a stockholder shall set forth: (a) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, the name and address of the stockholder as
they appear on the Company's books, and of such beneficial owner; (b) the number
of shares of the Company which are owned of record and beneficially by such
stockholder and such beneficial owner; (c) such other information regarding each
nominee proposed by such stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC in an election
contest or would otherwise be required pursuant to the Exchange Act and Rule
14a-11 thereunder; and (d) the consent of each nominee to serve as a director of
the Company if so elected. The chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure.
APPROVAL AND ADOPTION OF THE AMENDED AND RESTATED 1996
EQUITY COMPENSATION PLAN
PROPOSAL
At the Annual Meeting, there will be presented to stockholders
a proposal to approve and adopt the Amended and Restated Plan, the effect of
which would be to increase the number of shares authorized for issuance under
the Company's 1996 Equity Compensation Plan (the "Plan") from 2,500,000 to
4,500,000 shares of Common Stock and to provide for flexibility in the granting
of options to non-employee directors. At its March 20, 2000 meeting, the Board
of Directors unanimously approved the proposed Amended and Restated Plan subject
to stockholder approval at the Annual Meeting. The Amended and Restated Plan
will not be effective unless and until stockholder approval is obtained.
The Board of Directors believes that the Company's ability to grant
options and other awards under the Plan is, and under the Amended and Restated
Plan will be, a valuable and necessary compensation tool that aligns the
long-term financial interests of employees, officers and directors with the
financial interests of the Company's stockholders. The Board of Directors
believes that the Plan helps, and the Amended and Restated Plan will help, the
Company attract, retain and motivate employees, officers and directors and
encourages these individuals to devote their best efforts to the business and
financial success of the Company. As of April 4, 2000, options to purchase
2,180,395 shares of Common Stock were outstanding under the Plan and options to
purchase 152,196 remain available for future grants. An increase in the number
of shares available for issuance is necessary to meet the above objectives.
Additionally, in order to continue to retain and attract qualified non-employee
directors to the Board of Directors, the Board believes the Plan should provide
for flexibility in granting options to non-employee directors. The Board of
Directors believes that it is in the best interests of the Company and its
stockholders to incorporate these changes into the Plan.
The principal terms of the Plan and the provisions regarding
flexibility in grants to non-employee directors are discussed below. Except
where noted, the terms of the Plan and the Amended and Restated Plan are the
same.
VOTE REQUIRED FOR APPROVAL
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Approval of the proposal to approve and adopt the Amended and Restated
Plan requires the affirmative vote of the holders of a majority of shares
present in person or represented by proxy at the Annual Meeting and entitled to
vote. Abstentions may be specified on the proposal and will be considered
present at the meeting, but will not be counted as affirmative votes.
Abstentions, therefore, will have the practical effect of voting against the
proposal because the affirmative vote of a majority of the shares present at the
meeting and entitled to vote with respect to this matter is required to approve
the proposal. Broker non-votes are considered not present at the meeting with
respect to this matter and, therefore, will not be voted or have any effect on
the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL.
DESCRIPTION OF THE AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
The Plan was adopted by the Board of Directors on May 28, 1996 (the
"effective date") and was amended and restated most recently as of June 8, 1999.
The Plan provides for grants of stock options to selected officers (including
officers who are also directors) of the Company or its subsidiaries, other
employees of the Company or its subsidiaries and independent contractors and
consultants who perform valuable services for the Company or its subsidiaries.
Non-employee directors of the Company are currently entitled to receive formula
stock option grants under the Plan. In addition, the Plan provides for grants of
restricted stock and stock appreciation rights ("SARs") (herein, together with
grants of stock options, collectively, "Grants") to participants other than
non-employee directors of the Company. Shares of Common Stock issued or to be
issued under the Plan are covered by registration statements on Form S-8 filed
with the SEC on December 12, 1996 and February 25, 1999. The Company intends to
file an additional registration statement on Form S-8 with the SEC to register
the additional 2,000,000 shares of Common Stock if the Amended and Restated Plan
is approved by the stockholders. The last reported sale price of the Company's
Common Stock reported on the Nasdaq National Market on April 27, 2000 was
$18.00.
Subject to adjustment in certain circumstances as discussed below, the
Plan currently authorizes up to 2,500,000 shares of Common Stock for issuance
pursuant to the terms of the Plan. The proposed Amended and Restated Plan would
increase the number of authorized shares of Common Stock from 2,500,000 to
4,500,000 and to provide for flexibility in the granting of options to
non-employee directors. If and to the extent Grants under the Plan expire or are
terminated for any reason without being exercised, or the shares subject to a
Grant are forfeited, the shares of Common Stock subject to such Grant will again
be available for grant under the Plan.
The Plan is administered and interpreted by a committee (the
"Committee") of the Board of Directors consisting of not fewer than two persons
appointed by the Board of Directors from among its members, each of whom may be
a "non-employee director" as defined in Rule 16b-3 under the Exchange Act and an
"outside director" as defined by Section 162(m) of the Internal Revenue Code
(the "Code"). The Committee currently has the sole authority to determine (i)
persons to whom Grants may be made under the Plan, (ii) the type, size and other
terms and conditions of each Grant, (iii) the time when the Grants will be made
and the duration of any applicable exercise or restriction period, including the
criteria for vesting and the acceleration of vesting, and (iv) any other matters
arising under the Plan. The Committee has full power and authority to administer
and interpret the Plan, to make factual determinations and to adopt or amend
such rules, regulations, agreements and instruments for implementing the Plan,
and for conduct of its business as it deems necessary or advisable, in its sole
discretion. The Board of Directors has appointed a subcommittee of the
Compensation Committee, the Stock Option Subcommittee, to serve as this
Committee. Under the proposed Amended and Restated Plan, all grants of stock
options to non-employee directors shall be subject to the approval of the Board.
Grants under the Plan may consist of (i) options intended to qualify as
incentive stock options ("ISOs") within the meaning of section 422 of the Code,
(ii) "nonqualified stock options" that are not intended to so qualify ("NQSOs"),
(iii) restricted stock or (iv) SARs. Grants may be made to any employee
(including officers and directors) of, or independent contractors and
consultants to, the Company or its subsidiaries. Grants of NQSO's to
Non-employee directors of the Company are currently based upon a fixed formula.
Independent contractors or consultants to the Company are not eligible to
receive ISOs under the Plan. As of April 4, 2000, 76 employees and seven
directors (including six non-employee directors) were eligible for Grants under
the Plan. During any calendar year, no participant may receive Grants under the
Plan for more than 300,000 shares of Common Stock. Under the
8
proposed Amended and Restated Plan, non-employee directors would be entitled to
grants of NQSOs as determined by the Committee, subject to approval by the
Board.
The exercise price of any ISO granted under the Plan will not be less
than the fair market value of the underlying shares of Common Stock on the date
of grant, except that the exercise price of an ISO granted to an employee who
owns more than 10% of the total combined voting power of all classes of stock of
the Company or its subsidiaries may not be less than 110% of the fair market
value of the underlying shares of Common Stock on the date of grant. The
exercise price of an NQSO may be greater than, equal to or less than the fair
market value of the underlying shares of Common Stock on the date of grant. The
Committee will determine the term of each option; provided, however, that the
exercise period may not exceed ten years from the date of grant, and the
exercise period of an ISO granted to an employee who owns more than 10% of the
total combined voting power of all classes of stock of the Company or its
subsidiaries may not exceed five years from the date of grant. A participant may
pay the exercise price (i) in cash, (ii) with the approval of the Committee, by
delivering shares of Common Stock owned by the participant and having a fair
market value on the date of exercise equal to the exercise price or (iii) by a
combination of the foregoing. The participant may instruct the Company to
deliver the shares of Common Stock due upon the exercise to a designated broker
instead of to the participant. Under the proposed Amended and Restated Plan, the
terms of any option grants to non-employee directors shall be determined by the
Committee, subject to approval by the Board.
Non-employee directors of the Company are currently entitled to receive
NQSOs pursuant to the formula grants under the Plan. According to the formula
grants, each non-employee director who first became a member of the Board of
Directors would receive a grant of an NQSO to purchase 25,000 shares of Common
Stock as of the date the non-employee director became a member of the Board of
Directors. Thereafter, on each date on which the Company holds its annual
meeting of stockholders, each non-employee director in office immediately before
and after the annual election of directors would receive a grant of an NQSO to
purchase 7,500 shares of Common Stock. The exercise price of an NQSO granted
pursuant to a formula grant would be the fair market value of a share of Common
Stock on the date of grant. The term of each such option would be ten years, and
the options would be exercisable with respect to 50% of the shares on the date
of grant and an additional 25% on each of the first two anniversaries of the
date of the grant, if the non-employee director continued to be a member of the
Board of Directors. Non-employee directors could elect to receive options in
lieu of all or a portion of their annual compensation for serving on the Board
of Directors by making an election at or immediately prior to the annual
meeting. Non-employee directors would receive that number of options determined
by multiplying the portion of their annual compensation they elect not to
receive in cash by three and dividing the resulting product by the closing sale
price of the Company's Common Stock on the Nasdaq National Market on the date of
the annual meeting. The exercise price would be the market price on the date of
grant, and the options will have a term of ten years. The options would vest 50%
as of the date of grant and would vest thereafter in 25% increments on each of
the first two anniversaries of the date of grant, if the non-employee director
continues to be a member of the Board of Directors. Under the proposed Amended
and Restated Plan, if approved, non-employee directors will no longer receive
formula grants. Instead, any NQSO grants to non-employee directors would be
determined by the Committee, subject to approval by the Board.
The Committee may also issue shares of Common Stock to participants
other than non-employee directors of the Company pursuant to the Plan. Shares
may be issued for cash consideration or for no cash consideration, as the
Committee determines. The number of shares of Common Stock granted to each
participant shall be determined by the Committee, subject to the maximum limit
described above. Grants of restricted stock will be made subject to such
performance requirements, vesting provisions, transfer restrictions or other
restrictions and conditions as the Committee may determine in its sole
discretion. The Committee also may grant SARs to participants other than
non-employee directors of the Company in tandem with any stock option pursuant
to the Plan. Unless the Committee determines otherwise, the exercise price of an
SAR will be the greater of (i) the exercise price of the related stock option or
(ii) the fair market value of a share of Common Stock on the date of grant of
the SAR. When the participant exercises an SAR, the participant will receive the
amount by which the fair market value of the Common Stock on the date of
exercise exceeds the exercise price of the SAR. The participant may elect to
have such amount paid in cash or in shares of Common Stock, subject to Committee
approval. To the extent a participant exercises a SAR, the related option shall
terminate. Similarly, upon exercise of a stock option, the related SAR, if any,
shall terminate.
9
The Board of Directors may amend or terminate the Plan at any time;
provided, however, that, the Board of Directors may not, without stockholder
approval, amend the Plan to (i) increase (except for increases due to the
adjustments discussed below) the aggregate number of shares of Common Stock for
which Grants may be made thereunder, or the individual limit of shares of Common
Stock for which Grants may be made to any single individual under the Plan, (ii)
modify the requirements as to eligibility to participate in the Plan or (iii)
make any amendment that requires stockholder approval pursuant to Section 162(m)
of the Code. The Plan will terminate on the day immediately preceding the tenth
anniversary of its effective date, unless terminated earlier by the Board of
Directors or extended by the Board of Directors with approval of the
stockholders.
Subject to the change of control provisions described below, in the
event of certain transactions identified in the Plan, the Committee may
appropriately adjust (i) the number of shares of Common Stock (and the exercise
price per share) subject to the unexercised portion of any outstanding options
or SARs, (ii) the number of shares of Common Stock covered by outstanding
Grants, (iii) the number of shares of Common Stock for which Grants may be made
under the Plan and (iv) the individual limit of shares for which Grants may be
made to any individual under the Plan, and such adjustments shall be effective
and binding for all purposes of the Plan. In the event of a change of control
all options, restricted stock and SARs will become fully vested. Unless the
Committee determines otherwise, each participant will be provided with advance
written notice by the Company prior to the change of control (to the extent
possible) and will have the right, within a designated period after such notice,
to exercise the options and SARs in full or to surrender the options and SARs in
exchange for a payment by the Company, in cash or Common Stock as determined by
the Committee, in an amount equal to the excess of the then fair market value of
the shares of Common Stock over the exercise price. Any options or SARs not
timely exercised or surrendered will terminate unless exchanged or substituted
with options or SARs of the successor corporation. A change of control is
defined as (i) a tender offer, merger or other transaction as a result of which
any person or group (other than Rolf D. Schmidt, F. William Schmidt or any
entity controlled by either or both of them) becomes the owner, directly or
indirectly, of more than 50.1% of the Common Stock or the combined voting power
of the Company's then outstanding securities, (ii) a liquidation or a sale of
substantially all of the Company's assets, or (iii) if, during any period of two
consecutive years, the individuals who, at the beginning of such period,
constituted the Board of Directors cease to constitute a majority of the Board
of Directors, except as otherwise provided in the Plan.
Option grants to purchase the following number of shares of Common
Stock have been made under the Plan from inception of the Plan through April 4,
2000: Dennis D. Burns--76,000, Jeffrey G. Clark--70,100; William M.
Cotter--106,000; J. Blount Swain--73,050; Robert V. Toni--361,600; current
executive officers as a group--914,208; non-employee directors as a
group--279,386; and all other employees as a group--1,154,210. Because options
are granted from time to time by the Committee to those persons whom the
Committee determines in its discretion should receive options, the benefits and
amounts that may be received in the future by persons eligible to participate in
the Plan are not presently determinable, except as to those future formula
grants that may be awarded to non-employee directors.
Under Section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated officers in any one year. Total remuneration includes amounts
received upon the exercise of stock options granted under the Plan and the value
of shares received when shares of restricted stock become vested (or such other
time when income is recognized). An exception does exist, however, for
"performance-based compensation," including amounts received upon the exercise
of stock options pursuant to a plan approved by stockholders that meets certain
requirements. The Plan is intended to allow grants of options thereunder to meet
the requirements of "performance-based compensation." Grants of restricted stock
generally will not qualify as "performance-based compensation."
There are no federal income tax consequences to a participant or to the
Company upon the grant of an NQSO under the Plan. Upon the exercise of an NQSO,
a participant will recognize ordinary compensation income in an amount equal to
the excess of the fair market value of the shares at the time of exercise over
the exercise price of the NQSO, and the Company generally will be entitled to a
corresponding federal income tax deduction. Upon the sale of shares acquired by
the exercise of an NQSO, a participant will have a capital gain or loss
(long-term or short-term depending upon the length of time the shares were held)
in an amount equal to the difference between the amount realized upon the sale
and the participant's adjusted tax basis in the shares (the exercise price plus
the amount of ordinary income recognized by the participant at the time of
exercise of the NQSO).
10
A participant who is granted an ISO will not recognize taxable income
for purposes of the regular income tax, upon either the grant or exercise of the
ISO. However, for purposes of the alternative minimum tax imposed under the
Code, in the year in which an ISO is exercised, the amount by which the fair
market value of the shares acquired upon exercise exceeds the exercise price
will be treated as an item of adjustment and included in the computation of the
recipient's alternative minimum taxable income. A participant who disposes of
the shares acquired upon exercise of an ISO after two years from the date the
ISO was granted and after one year from the date such shares were transferred to
him or her upon exercise of the ISO will recognize long-term capital gain or
loss in the amount of the difference between the amount realized on the sale and
the exercise price (or the participant's other tax basis in the shares), and the
Company will not be entitled to any tax deduction by reason of the grant or
exercise of the ISO. As a general rule, if a participant disposes of the shares
acquired upon exercise of an ISO before satisfying both holding period
requirements (a "disqualifying disposition"), his or her gain recognized on such
a disposition will be taxed as ordinary income to the extent of the difference
between the fair market value of such shares on the date of exercise and the
exercise price, and the Company will be entitled to a deduction in that amount.
The gain, if any, in excess of the amount recognized as ordinary income on such
a disqualifying disposition will be long-term or short-term capital gain,
depending upon the length of time the participant held his or her shares prior
to the disposition.
A participant normally will not recognize taxable income upon receiving
a grant of restricted stock, and the Company will not be entitled to a
deduction, until such stock is transferable by the participant or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the stock is either transferable or is no longer subject to
a substantial risk of forfeiture, the participant will recognize ordinary
compensation income in an amount equal to the fair market value of the shares
(less any amounts paid for such shares) at that time, and the Company will be
entitled to a deduction in the same amount. A participant may, however, elect to
recognize ordinary compensation income in the year the restricted stock Grant is
awarded in an amount equal to the fair market value of the shares subject to the
restricted stock Grant (less any amounts paid for such shares) at that time,
determined without regard to the restrictions. In such event, the Company
generally will be entitled to a corresponding deduction in the same year. Any
gain or loss recognized by the participant upon subsequent disposition of the
shares will be capital gain or loss. If, after making the election, any shares
subject to a restricted stock Grant are forfeited, or if the market value
declines during the restriction period, the participant will not be entitled to
any tax deduction or tax refund.
There are no federal income tax consequences to a participant or to the
Company upon the grant of an SAR under the Plan. Upon the exercise of an SAR, if
the participant receives the appreciation inherent in the SAR in cash, the
participant will recognize ordinary compensation income in an amount equal to
the cash received. If the participant receives the appreciation in shares, the
participant will recognize ordinary compensation income in an amount equal to
the fair market value of the shares received. The Company generally will be
entitled to a corresponding federal income tax deduction at the time of the
exercise of the SAR. Upon the sale of any shares acquired by the exercise of an
SAR, a participant will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the amount of ordinary income recognized by
the participant at the time of exercise of the SAR).
NEW PLAN BENEFITS
Because grants are to be made from time to time by the Committee to persons
whom the Committee determines in its discretion should receive grants, the
benefits and amounts that may be received in the future by persons eligible to
participate in the Plan are not presently determinable, except as to those
future formula grants that may be awarded to non-employee directors.
11
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and
long-term compensation of the Company's Chief Executive Officer and the four
most highly compensated executive officers other than the Chief Executive
Officer who were executive officers as of December 31, 1999 (the "Named
Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- -------------
NUMBER OF
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) AWARDED ($)(1)
--------------------------- ------- ---------- -------- ------------- -------- ------
Robert V. Toni 1999 274,039 135,000 -- 295,000 13,814
President and Chief Executive Officer 1998 249,827 100,000 -- -- 8,633
1997 237,800 100,000 -- -- 2,841
J. Blount Swain 1999 166,692 85,860 -- 30,000 7,293
Vice President of Finance and Chief 1998 158,896 60,000 -- -- 5,834
Financial Officer 1997 152,300 60,000 -- 2,352
--
William M. Cotter 1999 164,808 86,500 -- 41,000 6,957
Vice President of Manufacturing and 1998 155,538 30,000 -- 25,000 3,355
Operations 1997 83,755 30,000 25,200(2) 40,000 102
Jeffrey G. Clark 1999 151,769 78,850 -- 30,000 6,387
Vice President of Research and 1998 146,392 56,000 -- -- 5,117
Development 1997 142,000 56,000 -- -- 1,960
Dennis D. Burns 1999 144,808 59,500 -- 36,000 4,084
Vice President/General Manager, 1998 120,077 -- -- 40,000 969
Absorbable Cohesive Division 1997 -- -- -- -- --
(1) Represents Company-paid life insurance premiums and 401(k) retirement plan
matching contributions.
(2) Represents payment for relocation expenses.
12
STOCK OPTION INFORMATION
The following table sets forth information concerning the grant of
stock options during 1999 to the Named Officers.
OPTION GRANTS IN 1999
Individual Grants
-----------------------------------------------------------
Potential Realizable Value
Number of At Assumed Annual Rates of
Securities % of Total Stock Price Appreciation
Underlying Options/SARs Exercise for Option Term (4)
Options Granted to Or Base -------------------
Granted Employees Price Expiration
Name (#) (1) In 1999 (3) ($/Sh) Date 5% ($) 10% ($)
- ---- ------- ----------- ------ ---- ------ -------
Robert V. Toni 45,000 4.1 29.81 1/1/09 843,814 2,138,218
250,000(2) 22.6 29.81 1/1/09 4,687,230 11,878,362
J. Blount Swain 15,000 1.4 29.81 1/1/09 281,271 712,739
15,000 1.4 14.56 9/15/09 137,424 348,190
Jeffrey G. Clark 15,000 1.4 29.81 1/1/09 281,271 712,739
15,000 1.4 14.56 9/15/09 137,424 348,190
Dennis D. Burns 8,000 0.7 29.81 1/1/09 150,011 380,128
28,000 2.5 14.56 9/15/09 256,525 649,955
William M. Cotter 8,000 0.7 29.81 1/1/09 150,011 380,128
33,000 3.0 14.56 9/15/09 302,333 766,018
(1) In general, options have a ten-year term and vest 20% annually on the
anniversary of the grant date and thereafter.
(2) Mr. Toni's options will vest in five equal installments when each of five,
increasing stock market prices are achieved. In any event, the options will
vest in five equal installments beginning on the first anniversary of the
date of grant.
(3) Based on 1,106,028 options granted to employees in 1999.
(4) The potential realizable value is based on the term of the option at its
time of grant (ten years in the case of the options listed above). It is
calculated by assuming that the stock price on the date of grant
appreciates at the indicated annual rate, compounded annually for the
entire term of the option, and that the option is exercised and the
underlying shares sold on the last day of its term for the appreciated
stock price. These amounts represent certain assumed rates of appreciation
only, in accordance with the rules of the SEC, and do not reflect the
Company's estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock, and no gain to the optionee is possible unless the
stock price increases over the option term, which will benefit all
stockholders.
AGGREGATED OPTION EXERCISES IN 1999 AND 1999 YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Fiscal Year-End (#) at Fiscal Year-End ($) (1)
Acquired Value ---------------------- --------------------------
on Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
----- ------------ --------- ----------- ------------- ----------- -------------
Robert V. Toni -- -- 136,613 224,987 419,580 104,895
J. Blount Swain -- -- 34,440 38,610 271,215 67,804
William M. Cotter -- -- 21,000 85,000 -- --
Jeffrey G. Clark -- -- 32,080 38,020 252,630 63,157
Dennis D. Burns -- -- 8,000 68,000 -- --
(1) Calculated on the basis of the closing sale price of $12.88 per share of
Common Stock on December 31, 1999 as quoted on the Nasdaq National Market.
13
EMPLOYMENT AGREEMENTS
Robert V. Toni, J. Blount Swain and Jeffrey G. Clark each
entered into an employment agreement with the Company in May 1996. William M.
Cotter and Dennis D. Burns entered into employment agreements with the Company
commencing in June 1997 and February 1998, respectively. The term of the
employment agreements of Messrs. Toni, Swain and Clark is from May 1, 1996 to
May 31, 1999. Messrs. Cotter's and Burns' employment agreements have a two-year
term beginning on their commencement. Each of the employment agreements provides
for automatic one-year extensions unless 60 days' prior notice is given by
either party. The agreements provide for annual base salaries for Messrs. Toni,
Swain, Clark, Cotter and Burns of not less than $215,000, $138,450, $127,200,
$150,000 and $140,000, respectively, which salaries may be increased as
determined by the Compensation Committee or the Board of Directors. Each
agreement also provides for an annual bonus ranging from 20% to 60% of base
salary to be awarded based on performance milestones to be established for each
calendar year by the Compensation Committee based on the recommendation of the
Chief Executive Officer. In connection with their employment agreements, in May
1996 the Company granted to Messrs. Toni, Swain and Clark, respectively, options
to purchase 66,600, 43,050 and 40,100 shares of Common Stock under the Equity
Compensation Plan at an exercise price of $5.00 per share. Such options have a
term of ten years and, provided employment has not been terminated for "cause"
(as defined in the employment agreements), vest in five equal annual
installments, commencing as of the date of grant. In connection with their
employment agreements, the Company granted to Messrs. Cotter and Burns options
to purchase 40,000 shares each of Common Stock under the Equity Compensation
Plan at an exercise price of $18.25 and $21.88 per share, respectively. Messrs.
Cotter's and Burn's options have a term of ten years and, provided employment
has not been terminated for "cause" (as defined in the Employment Agreements),
vest in five equal annual installments, commencing on the first anniversary of
the date of grant.
If, following a "change in control" (as defined in each
agreement), any of Messrs. Toni, Swain, Clark, Cotter or Burns is terminated
other than for "cause" (as defined in each agreement) or terminates his
employment for "good reason" (as defined in each agreement), he will be entitled
to receive all accrued and any pro rata incentive compensation to the date of
termination and a continuation of his then current annual salary, incentive
compensation and benefits for three years after such termination. In the event
of termination for "cause," each of Messrs. Swain, Clark, Cotter and Burns is
entitled to a continuation of base salary, incentive compensation and benefits
for a period of one year. Mr. Toni is entitled to such continuation for a period
of 18 months. Pursuant to the employment agreements, the Company has agreed to
indemnify such executive officers to the maximum extent permitted by applicable
law against all costs, charges and expenses incurred by each in connection with
any action, suit or proceeding to which he may be a party or in which he may be
a witness by reason of his being an officer, director or employee of the Company
or any subsidiary or affiliate of the Company. Each of the foregoing executive
officers has agreed not to compete with the Company for two years after
termination of his employment with the Company.
CERTAIN TRANSACTIONS
On January 1, 1998, the Company entered into a Representative
and Manufacturing Facility Agreement with Innocoll GmbH of Saal-Donau, Germany
("Innocoll"). Rolf D. Schmidt and F. William Schmidt, directors of the Company,
own a majority of the outstanding equity interests in Innocoll. Pursuant to the
agreement, Innocoll acts as the Company's representative in Europe to assist the
Company in complying with various regulatory approvals and clearances required
in connection with the Company's products. Additionally, under the agreement,
Innocoll will provide the Company with up to 20,000 square feet of space at its
facility in Germany for use as an alternative manufacturing facility, including
quality control services, as needed for the Company's products. Pursuant to the
terms of the agreement, the Company will pay to Innocoll $120,000 per year for
acting as the Company's representative in Europe and $60,000 per year for the
manufacturing space. The agreement has a five-year term.
14
THE MATERIAL IN THE FOLLOWING REPORT OF THE COMPENSATION
COMMITTEE AND THE PERFORMANCE GRAPH ON PAGE 19 IS NOT
SOLICITING MATERIAL, IS NOT DEEMED FILED WITH THE SEC UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE EXCHANGE
ACT, AND IS NOT INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO
ANY FILING OF THE COMPANY UNDER SUCH ACTS WHETHER MADE BEFORE
OR AFTER THE DATE OF THIS PROXY STATEMENT.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors consists
of four outside, non-employee directors. It is responsible for executive
compensation, including the review and approval of salaries and other
compensation of management employees, as well as the approval of all policies
and plans under which compensation is paid or awarded to management employees. A
subcommittee of the Compensation Committee, the Stock Option Subcommittee,
administers the Equity Compensation Plan and is responsible for grants of
incentive compensation under the Equity Compensation Plan. See "Matters
Concerning Directors--General Information Concerning the Board of Directors and
its Committees."
GENERAL COMPENSATION PHILOSOPHY
The Company's basic compensation policy is that total cash
compensation should vary depending upon the Company's success in achieving
specific financial and non-financial goals and that long-term incentive
compensation should be tied to the creation of stockholder value. The Committee
has considered the interrelationship of the three elements of its compensation -
salary, bonus and incentive - to determine how they can be used to accomplish
the Company's goals.
The Compensation Committee recognizes that, in the short-term,
the market value of the Company will be affected by many factors, some of which
are beyond the control of the Company's executives. In order to attract and
retain qualified executives, the Compensation Committee attempts to create a
balanced compensation package by combining components based upon the achievement
of long-term value to stockholders with components based upon the achievement of
annual performance milestones. These milestones are approved each year by the
Compensation Committee after recommendation by and discussion with the Chief
Executive Officer. They reflect financial and other specific goals to be
achieved in the coming year. The milestones for the Chief Executive Officer are
set by the Compensation Committee after discussion with the Chief Executive
Officer, and include additional goals. The Compensation Committee expects that
the achievement of these shorter-term goals will contribute to the long-term
success of the Company.
The Company competes against both medical device companies and
pharmaceutical companies in the hiring and retention of qualified personnel. The
Company uses long-term compensation, principally the grant of stock options, to
offset the advantages such companies may offer, such as less risk, higher cash
compensation and better retirement benefits.
The Company's compensation program for executive officers
comprises base salary, performance bonuses, longer-term incentive compensation
in the form of stock options, and benefits available generally to all of the
Company's employees. In 1998, the Company adopted an Employee Stock Purchase
Plan to permit investment in Company stock. The Compensation Committee believes
that such a plan will enhance stockholder value.
COMPENSATION COMPONENTS
BASE SALARY. Base salary levels for the Company's management
employees are reviewed on an annual basis by the Compensation Committee. In
conducting this review, the Compensation Committee considers competitive factors
and industry trends, as well as performance within the Company and changes in
job responsibility. The Committee considers the Company's guidelines for pay
increases based on level of performance. The Committee also reviews certain
compensation information publicly available and gathered informally, and
15
considers salary history at the Company. In setting the base salaries for 1999,
the Committee reviewed and considered an executive compensation analysis
prepared by an independent compensation consulting firm for the Company, and
compared the current base salaries of the Company's management employees with a
competitive market reference in the report. For 2000, Mr. Toni's base salary was
increased by 5%, from $275,000 to $289,000.
PERFORMANCE BONUS COMPENSATION. All management employees of
the Company participate in a bonus plan based on performance milestones adopted
annually by the Committee in order to provide a direct financial incentive to
achieve predefined objectives. The five individuals listed in the Summary
Compensation Table and other officers of the Company may receive as bonuses a
minimum of 20% of base salary and a maximum of 60% of base salary based on the
Committee's evaluation of the achievement of the performance milestones. The
various milestones are weighted and the achievement of one or more milestones
may be a condition to the payment of any bonus. For 2000, the payment of any
bonus will be conditioned upon the achievement of budgeted earnings per share.
In addition, 50% of an officer's bonus will be based on performance milestones
tied to the achievement of corporate goals and 50% will be based on the
officer's departmental goals. The granting of other bonuses is discretionary.
In determining the bonuses to the Company's executive officers
for 1999, the Compensation Committee reviewed the percentage of completion of
each of the 1999 performance milestones and multiplied such percentage by the
weight assigned to each of the milestones, which included specific operating and
regulatory goals.
Mr. Toni will not receive a cash bonus in 2000 for achievement
of 1999 performance milestones.
STOCK OPTION GRANTS. The Equity Compensation Plan is the
Company's long-term equity incentive plan for employees. The objective of the
Equity Compensation Plan is to align the long-term financial interests of the
option holder with the financial interests of the Company's stockholders. Annual
stock option grants for management employees are an important element of
competitive compensation. Based on the recommendation of management, the Stock
Option Subcommittee may approve stock option grants to all employees based on
employee grade level and approved additional grants for special performance
recognition.
APPLICATION OF SECTION 162(m)
Payments during 1999 to the Company's executives under the
various programs discussed above were made with regard to the provisions of
Section 162(m) of the Internal Revenue Code. Section 162(m) limits the deduction
that may be claimed by a "public company" for compensation paid to certain
individuals to $1 million except to the extent that any excess compensation is
"performance-based compensation." It is intended that, in accordance with
current regulations, the amounts received upon the exercise of stock options
under the Equity Compensation Plan qualify as "performance-based compensation."
COMPENSATION COMMITTEE
Ronald A. Ahrens
Dennis C. Carey, Ph.D.
Randy H. Thurman
F. William Schmidt
April 28, 2000
16
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder
return on the Company's Common Stock with the cumulative total stockholder
return of (i) the Nasdaq Stock Market - US Index ("Nasdaq - US Index"), (ii) the
Nasdaq Stock Market - Medical Devices Index ("Medical Devices Index"), and (iii)
the S&P Health Care (Medical Products and Supplies) Index ("S&P Medical
Devices"), assuming an investment of $100 on September 25, 1996 in each of the
Common Stock of the Company, the stocks comprising the Nasdaq - US Index, the
stocks comprising the Medical Devices Index and the stocks comprising the Health
Care Index, and further assuming reinvestment of dividends. The Medical Devices
Index, which did not exist in previous years, was added as a performance measure
for 1998. The Company believes that it is the most representative of the
Company's peers.
- -----------------------------------------------------------------------------------------------------------
9/25/96 12/31/96 12/31/97 12/31/98 12/31/99
- -----------------------------------------------------------------------------------------------------------
Closure Medical Corporation 100.00 184.38 323.44 372.63 161.00
- -----------------------------------------------------------------------------------------------------------
Nasdaq Stock Market 100.00 105.13 128.82 181.53 327.95
(US Companies)
- -----------------------------------------------------------------------------------------------------------
Nasdaq Medical 100.00 99.67 114.18 127.91 155.61
Devices
- -----------------------------------------------------------------------------------------------------------
S&P Medical Products 100.00 103.19 127.52 182.50 167.98
& Supplies Index
- -----------------------------------------------------------------------------------------------------------
17
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP served as the Company's independent
accountants since 1992 and upon its merger with Coopers & Lybrand L.L.P. in
1998, the Company retained PricewaterhouseCoopers, LLP as its independent
accountants. PricewaterhouseCoopers, LLP has been selected to continue in such
capacity for the current year. The Company has requested that a representative
of PricewaterhouseCoopers, LLP attend the Annual Meeting. Such representative
will have an opportunity to make a statement, if he or she desires, and will be
available to respond to appropriate questions of stockholders.
OTHER MATTERS
The Board of Directors is not aware of any matters not set
forth herein that may come before the Annual Meeting. If, however, further
business properly comes before the Annual Meeting, the persons named in the
proxies will vote the shares represented thereby in accordance with their
judgment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's
directors, officers and persons who own more than ten percent of a registered
class of the Company's equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Directors, officers and greater-than-ten-percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) reports they file. Based solely on its review of the copies
of such reports received by the Company. The Company believes that during the
year ended December 31, 1999 all filing requirements applicable to its
directors, officers and greater-than-ten-percent stockholders were satisfied,
with the following exceptions: Mr. Clark filed two reports late with respect to
two transactions, and Messrs. Ahrens and Thurman each filed one late report with
respect to two transactions.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for
stockholder action at annual meetings in accordance with regulations adopted by
the SEC. To be considered for inclusion in the proxy statement and form of proxy
relating to the 2001 annual meeting, such proposals must be received by the
Company no later than December 31, 2000. Proposals should be directed to the
attention of the Secretary of the Company.
By Order of the Board of Directors,
/s/ Benny Ward
-------------------
Benny Ward
Assistant Secretary
April 28, 2000
18
APPENDIX A
CLOSURE MEDICAL CORPORATION
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
AS AMENDED EFFECTIVE AS OF __________, 2000
The purpose of the Closure Medical Corporation 1996 Equity Compensation
Plan (the "Plan") is to provide (i) designated officers and other employees of
Closure Medical Corporation (the "Company") and its subsidiaries, (ii)
non-employee members of the board of directors of the Company (the "Board"), and
(iii) independent contractors and consultants who perform valuable services for
the Company or its subsidiaries, with the opportunity to receive grants of
incentive stock options, nonqualified stock options, stock appreciation rights
and restricted stock. The Company believes that the Plan will cause the
participants to contribute materially to the growth of the Company, thereby
benefiting the Company's stockholders, and will align the economic interests of
the participants with those of the stockholders.
1. Administration
The Plan shall be administered and interpreted by a committee (the
"Committee"), which shall consist of two or more persons appointed by the Board.
The Committee may consist of "outside directors" as defined under section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code") and related
Treasury regulations, and may be "non-employee directors" as defined under Rule
16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act").
Other than grants to Non-Employee Directors (as hereinafter defined),
whose grants shall be determined by the Committee and be subject to the approval
of the Board, the Committee shall have the sole authority to (i) determine the
individuals to whom grants shall be made under the Plan, (ii) determine the
type, size and terms of the grants to be made to each such individual, (iii)
determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for vesting
and the acceleration of vesting and (iv) deal with any other matters arising
under the Plan.
The Committee shall have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and for
the conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interests in the Plan or in any
awards granted hereunder. All powers of the Committee shall be executed in its
sole discretion (except with respect to grants to Non-Employee Directors), in
the best interest of the Company and in keeping with the objectives of the Plan
and need not be uniform as to similarly situated individuals.
2. Grants
Incentives under the Plan shall consist of grants of incentive stock
options, nonqualified stock options, stock appreciation rights and restricted
stock (hereinafter collectively referred to as "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to those other terms
and conditions consistent with this Plan as the Committee deems appropriate and
as are specified in writing by the Committee to the individual (the "Grant
Letter"). All Grants to Non-Employee Directors shall be subject to approval of
the Board. The Committee shall approve the form and provisions of each Grant
Letter to an individual. Grants under a particular Section of the Plan need not
be uniform as among the grantees.
3. Shares Subject to the Plan
(a) Subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company (the "Company Stock") that may be issued
or transferred under the Plan is 4,500,000 shares in the
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aggregate. Notwithstanding anything in the Plan to the contrary, the maximum
aggregate number of shares of Company Stock that shall be subject to Grants made
under the Plan to any individual during any calendar year shall be 300,000
shares. The shares may be authorized but unissued shares of Company Stock or
reacquired shares of Company Stock, including shares purchased by the Company on
the open market for purposes of the Plan. If and to the extent options or stock
appreciation rights granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised or if any
shares of restricted stock are forfeited, the shares subject to such Grants
shall again be available for purposes of the Plan.
(b) If there is any change in the number or kind of shares of Company
Stock outstanding by reason of a stock dividend, recapitalization, stock split,
or combination or exchange of shares, or a merger, reorganization or
consolidation in which the Company is the surviving corporation,
reclassification or change in par value or by reason of any other extraordinary
or unusual events affecting the outstanding Company Stock as a class without the
Company's receipt of consideration, or if the value of outstanding shares of
Company Stock is substantially reduced due to the Company's payment of an
extraordinary dividend or distribution, then (i) the maximum number of shares of
Company Stock available for Grants, (ii) the maximum number of shares of Company
Stock which any one individual participating in the Plan may be granted during
the term of the Plan, (iii) the number of shares covered by outstanding Grants,
and (iv) the price per share or the applicable market value of such Grants shall
be proportionately adjusted by the Committee to reflect any increase or decrease
in the number or kind of issued shares of Company Stock to preclude the
enlargement or dilution of rights and benefits under such Grants; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated. The adjustments determined by the Committee shall be final, binding
and conclusive. Notwithstanding the foregoing, no adjustment shall be authorized
or made pursuant to this Section to the extent that such authority or adjustment
would cause any incentive stock option to fail to comply with section 422 of the
Code.
4. Eligibility for Participation
All employees of the Company and its subsidiaries ("Employees"),
including Employees who are officers or members of the Board, shall be eligible
to participate in the Plan. Any independent contractors or consultants who
perform valuable services to the Company or any of its subsidiaries
("Consultants") and Non-Employee Directors shall be eligible to participate in
the Plan, but shall not be eligible to receive incentive stock options.
The Committee shall select the Employees and Consultants to receive
Grants and determine the number of shares of Company Stock subject to a
particular Grant in such manner as the Committee determines. The Committee,
subject to the approval of the Board, shall select the Non-Employee Directors to
receive grants and determine the number of shares of Company Stock subject to a
particular Grant in such manner as the Committee, subject to the approval of the
Board, determines. Employees, Consultants, and Non-Employee Directors who
receive Grants under this Plan shall hereinafter be referred to as "Grantees".
Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including options
granted to employees thereof who become Employees of the Company, or for other
proper corporate purpose, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan.
5. Granting of Options
(a) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Company Stock that will be subject to each
Grant of stock options to any Employee or Consultant. The Committee, subject to
approval by the Board, shall determine the number of shares of Company Stock
that will be subject to each Grant of stock options to any Non-Employee
Director.
(b) Type of Option and Price. The Committee may grant options intended
to qualify as "incentive stock options" within the meaning of section 422 of the
Code ("Incentive Stock Options") or options which are not intended to so qualify
("Nonqualified Stock Options") or any combination of Incentive Stock Options and
Nonqualified Stock Options (hereinafter collectively the "Stock Options"), all
in accordance with the terms and conditions set forth herein.
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The purchase price of Company Stock subject to a Stock Option shall be
determined by the Committee, subject to approval by the Board in the case of
Grants to Non-Employee Directors, and may be equal to, greater than, or less
than the Fair Market Value (as defined below) of a share of such Stock on the
date such Stock Option is granted; provided, however, that (i) the purchase
price of Company Stock subject to an Incentive Stock Option shall be equal to,
or greater than, the Fair Market Value of a share of such Stock on the date such
Stock Option is granted and (ii) an Incentive Stock Option may not be granted to
an Employee who, at the time of grant, owns stock possessing more than 10
percent of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary of the Company, unless the option price per
share is not less than 110% of the Fair Market Value of Company Stock on the
date of grant.
If the Company Stock is traded in a public market, then the Fair Market
Value per share shall be (i) if the principal trading market for the Company
Stock is a national securities exchange or the National Market segment of the
Nasdaq Stock Market, the last reported sale price thereof on the relevant date
or (if there were no trades on that date) the latest preceding date upon which a
sale was reported, or (ii) if the Company Stock is not principally traded on
such exchange or market, the mean between the last reported "bid" and "asked"
prices thereof on the relevant date, as reported on Nasdaq, or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not traded in a public market or
subject to reported transactions or "bid" or "ask" quotations as set forth
above, the Fair Market Value per share shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of each Stock
Option, subject to approval by the Board in the case of Grants to Non-Employee
Directors. The term of any Stock Option shall not exceed ten years from the date
of grant. Notwithstanding the foregoing, an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the option term
does not exceed five years from the date of grant.
(d) Exercisability of Options. Stock Options shall become exercisable
in accordance, subject to approval by the Board in the case of Grants to
Non-Employee Directors, with the terms and conditions determined by the
Committee, in its sole discretion, and specified in the Grant Letter. The
Committee, in its sole discretion, may accelerate the exercisability of any or
all outstanding Stock Options at any time for any reason. A Grantee's
outstanding Stock Options shall become fully exercisable if the Grantee dies
while employed by or providing services to the Company. In addition, all
outstanding Stock Options automatically shall become fully and immediately
exercisable upon a Change of Control (as defined herein) in accordance with the
provisions of Section 10.
(e) Manner of Exercise. A Grantee may exercise a Stock Option which has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Committee with accompanying payment of the option price in accordance with
Subsection (g) below. Such notice may instruct the Company to deliver shares of
Company Stock due upon the exercise of the Stock Option to any registered broker
or dealer designated by the Committee in lieu of delivery to the Grantee. Such
instructions must designate the account into which the shares are to be
deposited.
(f) Termination of Employment, Disability or Death.
(i) Except as provided below, a Stock Option may only be
exercised while the Grantee is employed by the Company as an Employee,
Consultant or member of the Board. In the event that a Grantee ceases to be
employed by the Company for any reason other than a "disability", death, or
"termination for cause", any Stock Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within 90 days after the date on which
the Grantee ceases to be employed by the Company (or within such other period of
time as may be specified in the Grant Letter), but in any event no later than
the date of expiration of the option term. Any of the Grantee's Stock Options
which are not otherwise exercisable as of the date on which the Grantee ceases
to be employed by the Company as described in this subsection (i) shall
terminate as of such date.
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(ii) In the event the Grantee ceases to be employed by the
Company on account of a "termination for cause" by the Company, any Stock Option
held by the Grantee shall terminate as of the date the Grantee ceases to be
employed by the Company.
(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled", any Stock Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified in the Grant Letter), but
in any event no later than the date of expiration of the option term. Any of the
Grantee's Stock Options which are not otherwise exercisable as of the date on
which the Grantee ceases to be employed by the Company as described in this
subsection (iii) shall terminate as of such date.
(iv) If the Grantee dies while employed by the Company or within
90 days after the date on which the Grantee ceases to be employed by the Company
on account of a termination of employment specified in Section 5(f)(i) above (or
within such other period of time as may be specified in the Grant Letter), any
Stock Option which is otherwise exercisable by the Grantee (subject to the
provisions of Section 5(d)) shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified in the Grant Letter), but
in any event no later than the date of expiration of the option term. Except as
provided in Section 5(d), any of the Grantee's Stock Options which are not
otherwise exercisable as of the date on which the Grantee ceases to be employed
by the Company shall terminate as of such date.
(v) For purposes of this Section 5(f), the term "Company" shall
include the Company's subsidiaries, and the following terms shall be defined as
follows: (A) "disability" shall mean a Grantee's becoming disabled within the
meaning of section 22(e)(3) of the Code and (B) "termination for cause" shall
mean, except to the extent otherwise provided in a Grantee's Grant Letter, a
finding by the Committee, after full consideration of the facts presented on
behalf of both the Company and the Grantee, that the Grantee has breached his or
her employment or service contract with the Company, or has been engaged in
disloyalty to the Company, including, without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company to persons not entitled to receive such information.
In such event, in addition to the immediate termination of the Stock Option, the
Grantee shall automatically forfeit all option shares for any exercised portion
of a Stock Option for which the Company has not yet delivered the share
certificates upon refund by the Company of the option price paid by the Grantee
for such shares.
(g) Satisfaction of Option Price. The Grantee shall pay the option
price specified in the Grant Letter in (i) cash, (ii) with the approval of the
Committee, by delivering shares of Company Stock owned by the Grantee (including
Company Stock acquired in connection with the exercise of a Stock Option,
subject to such restrictions as the Committee deems appropriate) and having a
Fair Market Value on the date of exercise equal to the option price or (iii)
through any combination of (i) and (ii). The Grantee shall pay the option price
and the amount of withholding tax due, if any, at the time of exercise. Shares
of Company Stock shall not be issued or transferred upon exercise of a Stock
Option until the option price is fully paid and any required withholding is
made.
(h) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, to the extent that the aggregate Fair Market Value of the
stock on the date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year under the
Plan or any other stock option plan of the Company or a parent or subsidiary
exceeds $100,000, then such option as to the excess shall be treated as a
Nonqualified Stock Option. An Incentive Stock Option shall not be granted to any
participant who is not an Employee of the Company or any parent or subsidiary
(within the meaning of section 424(f) of the Code).
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to an
Employee or Consultant under a Grant of restricted stock (a "Restricted Stock
Grant"), upon such terms as the Committee deems appropriate. The following
provisions are applicable to Restricted Stock Grants:
A-4
(a) General Requirements. Shares of Company Stock issued pursuant to
Restricted Stock Grants may be issued for consideration or for no consideration,
at the sole discretion of the Committee. The Committee shall establish
conditions under which restrictions on the transfer of shares of Company Stock
shall lapse over a period of time or according to such other criteria as the
Committee deems appropriate. The period of years during which the Restricted
Stock Grant will remain subject to restrictions will be designated in the Grant
Letter as the "Restriction Period."
(b) Number of Shares. The Committee shall grant to each Grantee a
number of shares of Company Stock pursuant to a Restricted Stock Grant in such
manner as the Committee determines.
(c) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as an Employee or Consultant) during a period designated in the
Grant Letter as the Restriction Period, or if other specified conditions are not
met, the Restricted Stock Grant shall terminate as to all shares covered by the
Grant as to which restrictions on transfer have not lapsed and those shares of
Company Stock must be immediately returned to the Company. The Committee may,
however, provide for complete or partial exceptions to this requirement as it
deems equitable.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Company Stock to which such Restriction
Period applies except to a Successor Grantee (as defined below) under Section 9.
Each certificate for a share issued or transferred under a Restricted Stock
Grant shall contain a legend giving appropriate notice of the restrictions in
the Grant. The Grantee shall be entitled to have the legend removed from the
stock certificate covering any of the shares subject to restrictions when all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. During the Restriction
Period, unless the Committee determines otherwise, the Grantee shall have the
right to vote shares subject to the Restricted Stock Grant and to receive any
dividends or other distributions paid on such shares, subject to any
restrictions deemed appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed under the
Restricted Stock Grant shall lapse upon the expiration of the applicable
Restriction Period and the satisfaction of any conditions imposed by the
Committee. The Committee may determine, as to any or all Restricted Stock
Grants, that all the restrictions shall lapse without regard to any Restriction
Period. The restrictions on a Grantee's outstanding Restricted Stock Grants
shall automatically and immediately lapse if the Grantee dies while employed by
or providing services to the Company. All restrictions under all outstanding
Restricted Stock Grants shall automatically and immediately lapse upon a Change
of Control.
7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to any Grantee in tandem with any Stock Option, for all or a
portion of the applicable Stock Option, either at the time the Stock Option is
granted or at any time thereafter while the Stock Option remains outstanding;
provided, however, that in the case of an Incentive Stock Option, such rights
may be granted only at the time of the Grant of such Stock Option. Unless the
Committee determines otherwise, the base price of each SAR shall be equal to the
greater of (i) the exercise price of the related Stock Option or (ii) the Fair
Market Value of a share of Company Stock as of the date of Grant of such SAR.
(b) Number of SARs. The number of SARs granted to a Grantee which shall
be exercisable during any given period of time shall not exceed the number of
shares of Company Stock which the Grantee may purchase upon the exercise of the
related Stock Option during such period of time. Upon the exercise of a Stock
Option, the SARs relating to the Company Stock covered by such Stock Option
shall terminate. Upon the exercise of the SAR's, the related Stock Option shall
terminate to the extent of an equal number of shares of Company Stock.
(c) Value of SARs. Upon a Grantee's exercise of some or all of the
Grantee's SARs, the Grantee shall receive in settlement of such SARs an amount
equal to the value of the stock appreciation for the number of
A-5
SARs exercised, payable in cash, Company Stock or a combination thereof. The
stock appreciation for an SAR is the amount by which the Fair Market Value of
the underlying Company Stock on the date of exercise of the SAR exceeds the base
price of the SAR as described in subsection (a).
(d) Form of Payment. At the time of such exercise, the Grantee shall
have the right to elect the portion of the amount to be received that shall
consist of cash and the portion that shall consist of shares of Company Stock,
which for purposes of calculating the number of shares of Company stock to be
received, shall be valued at their Fair Market Value on the date of exercise of
such SARs. The Committee shall have the right to disapprove a Grantee's election
to receive cash in full or partial settlement of the SARs exercised and to
require that shares of Company Stock be delivered in lieu of cash. If shares of
Company Stock are to be received upon exercise of an SAR, cash shall be
delivered in lieu of any fractional share.
(e) Certain Restrictions. An SAR is exercisable only during the period
when the Stock Option to which it is related is also exercisable.
8. Transferability of Grants
Only the Grantee or his or her authorized representative may exercise
rights under a Grant. Such persons may not transfer those rights except by will
or by the laws of descent and distribution or, with respect to Grants other than
Incentive Stock Options, if permitted in any specific case by the Committee in
its sole discretion pursuant to a qualified domestic relations order (as defined
under the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the regulations thereunder). When a Grantee dies, the
representative or other person entitled to succeed to the rights of the Grantee
("Successor Grantee") may exercise such rights. A Successor Grantee must furnish
proof satisfactory to the Company of his or her right to receive the Grant under
the Grantee's will or under the applicable laws of descent and distribution.
Notwithstanding the foregoing, the Committee may provide, in a Grant
Letter, that a Grantee may transfer Nonqualified Stock Options to his or her
children, grandchildren or spouse or to one or more trusts for the benefit of
such family members or to partnerships in which such family members are the only
partners (a "Family Transfer"), provided that the Grantee receives no
consideration for a Family Transfer and the Grant Letters relating to
Nonqualified Stock Options transferred in a Family Transfer continue to be
subject to the same terms and conditions that were applicable to such
Nonqualified Stock Options immediately prior to the Family Transfer.
9. Change of Control of the Company
As used herein, a "Change of Control" shall be deemed to have occurred
if:
(a) As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, or sale or
transfer of assets, any person or group (as such terms are used in and under
Section 13(d) of the Exchange Act), but excluding Rolf D. Schmidt and F. William
Schmidt or any entity controlled by either or both of them, becomes the
beneficial owner (as defined in Rule 13-d under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50.1% of the
common stock of the Company or the combined voting power of the Company's then
outstanding securities;
(b) A liquidation or dissolution of the Company, or a sale (excluding
transfers to subsidiaries) of all or substantially all of the Company's assets
occurs; or
(c) During any period of two consecutive years, individuals who, at the
beginning of such period, constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company's stockholders, of at least two-thirds of the
directors who were not directors at the beginning of such period was approved by
a vote of at least two-thirds of the directors then still in office who were
either directors at the beginning of the period or who, in connection with their
election or nomination, received the foregoing two-thirds approval.
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10. Consequences of a Change of Control
(a) Notice.
(i) If a Change of Control described in Section 9(a) or (b) will
occur, then, not later than 10 days after the approval by the stockholders of
the Company (or approval by the Board, if stockholder action is not required) of
such Change of Control, the Company shall give each Optionee with any
outstanding Stock Options written notice of such proposed Change of Control.
(ii) If a Change of Control described in Section 9(a) may occur
without approval by the stockholders (or approval by the Board) and does so
occur, or if a Change of Control described in Section 9(c) occurs, then, not
later than 10 days after such Change of Control, the Company shall give each
Optionee with any outstanding Stock Options written notice of the Change of
Control.
(b) Election Period. In connection with the Change of Control and
effective only upon such Change of Control:
(i) All outstanding Stock Options shall be fully exercisable and
the restrictions on all outstanding Restricted Stock shall immediately lapse;
and
(ii) Each Grantee shall thereupon have the right, within 20 days
after such written notice is sent by the Company (the "Election Period"), to
make an election as described in Subsection (c) with respect to all of his or
her outstanding Stock Options (whether the right to exercise such Stock Options
has then accrued or the right to exercise such Stock Options will occur or has
occurred upon the Change of Control).
(c) Election Right. Effective upon a Change of Control, the Grantees
shall have the right to exercise Stock Options as described in Subsection (i)
below, and the Committee may determine, in its sole discretion, that Grantees
will have the right described in Subsection (ii) below. During the Election
Period, subject to the preceding sentence, each Grantee shall have the right to
elect:
(i) To exercise in full any installments of such Stock Options
not previously exercised, or
(ii) If so determined by the Committee, to surrender all or part
of such outstanding Stock Options, in exchange for a payment by the Company, in
cash or Company Stock as determined by the Committee, in an amount equal to the
excess over the purchase price of the then Fair Market Value of the shares of
Company Stock subject to the Grantee's outstanding Stock Options.
(d) Termination of Stock Options. If a Grantee does not make a timely
election in accordance with Subsection (c) in connection with a Change of
Control where the Company is not the surviving corporation (or survives only as
a subsidiary of another corporation), the Grantee's Stock Options shall
terminate as of the Change of Control. Notwithstanding the foregoing, a Stock
Option will not terminate if assumed by the surviving or acquiring corporation,
or its parent, upon a merger or consolidation and, with respect to an Incentive
Stock Option, the assumption of the Option shall occur under circumstances which
are not deemed a modification of the Option within the meaning of sections
424(a) and 424(h)(3)(A) of the Code.
(e) Accounting and Tax Limitations. Notwithstanding the foregoing:
(i) If the right described in Subsection (c)(ii) would make the
applicable Change of Control ineligible for pooling of interests accounting
treatment or make such Change of Control ineligible for desired tax treatment
with respect to such Change of Control and, but for those provisions, the Change
of Control would otherwise qualify for such treatment, and if the Committee
determines that Subsection (c)(ii) shall be effective, the Grantee shall receive
shares of Company Stock with a Fair Market Value equal to the cash that would
otherwise be payable pursuant to Subsection (c)(ii) in substitution for such
cash, and
A-7
(ii) If the termination of the Stock Options described in
Subsection (d) would make the applicable Change of Control ineligible for
pooling of interests accounting treatment and, but for such provision, the
Change of Control would otherwise qualify for such treatment, each affected
Grantee shall receive a replacement or substitute stock option issued by the
surviving or acquiring corporation.
11. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that any amendment that increases the aggregate number (or
individual limit for any single Grantee) of shares of Company Stock that may be
issued or transferred under the Plan (other than by operation of Section 3(b)),
or modifies the requirements as to eligibility for participation in the Plan,
shall be subject to approval by the stockholders of the Company and provided,
further, that the Board shall not amend the Plan without stockholder approval if
such approval is required by section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date unless
terminated earlier by the Board or unless extended by the Board with the
approval of the stockholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 20(b). The termination of the Plan shall not impair
the power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated
or amended under Section 20(b) or may be amended by agreement of the Company and
the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
12. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
13. Rights of Participants
Nothing in this Plan shall entitle any Employee, Consultant or other
person to any claim or right to be granted a Grant under this Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any individual
any rights to be retained by or in the employ of the Company or any other
employment rights.
14. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
15. Withholding of Taxes
(a) Required Withholding. The Company shall have the right to deduct
from all Grants paid in cash, or from other wages paid to the Grantee, any
federal, state or local taxes required by law to be withheld with respect to
such cash awards and, in the case of Grants paid in Company Stock, the Grantee
or other person receiving such shares shall be required to pay to the Company
the amount of any such taxes which the Company is required to withhold with
respect to such Grants or the Company shall have the right to deduct from other
wages paid by the Company the amount of any withholding due with respect to such
Grants.
A-8
(b) Election to Withhold Shares. A Grantee may make an election to
satisfy the Company income tax withholding obligation with respect to a Stock
Option, SAR or Restricted Stock by having shares withheld up to an amount that
does not exceed the Grantee's maximum marginal tax rate for federal (including
FICA), state and local tax liabilities. Such election must be in the form and
manner prescribed by the Committee and is subject to the prior approval of the
Committee.
16. Requirements for Issuance of Shares
No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Grantee hereunder on such Grantee's undertaking in writing
to comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under the
Plan will be subject to such stop-transfer orders and other restrictions as may
be applicable under such laws, regulations and other obligations of the Company,
including any requirement that a legend or legends be placed thereon.
17. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
18. Effective Date of the Plan.
This Plan shall be effective, as amended and restated on [ ].
19. Miscellaneous
(a) Substitute Grants. The Committee may make a Grant to an employee of
another corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant made by such corporation ("Substituted Stock
Incentives"). The terms and conditions of the substitute grant may vary from the
terms and conditions required by the Plan and from those of the Substituted
Stock Incentives. The Committee shall prescribe the provisions of the substitute
grants.
(b) Compliance with Law. The Plan, the exercise of Stock Options and
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a stockholder with respect to any shares of Company Stock covered by a
Grant until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.
(d) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Letters issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the State of Delaware.
A-9
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PROXY
CLOSURE MEDICAL CORPORATION
5250 Greens Dairy Road
Raleigh, North Carolina 27616
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert V. Toni and Benny Ward, or
either of them acting singly in the absence of the other, each with the power to
appoint his substitute, the Proxy Agents of the undersigned to attend the Annual
Meeting of Stockholders of Closure Medical Corporation (the "Company") to be
held June 13, 2000 and any adjournments or postponements thereof, and with all
powers the undersigned would possess if personally present, to vote upon the
following matters as indicated on the reverse.
SEE REVERSE
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) SIDE
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE.
ANNUAL MEETING OF STOCKHOLDERS
CLOSURE MEDICAL CORPORATION
JUNE 13, 2000
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- -------------------------------------------------------------------------------
A |X| PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR WITHHELD
1. Election of [ ] [ ] Nominees: Dennis C. Carey
Directors Class I F. William Schmidt
FOR, except vote withheld from the following nominees:
______________________________________________________
FOR AGAINST ABSTAIN
2. Approval and adoption of amendment to the [ ] [ ] [ ]
Company's Amended and Restated 1996
Equity Compensation Plan (the "Plan") to
increase the amount of shares authorized
for issuance under the Plan and to allow
the Board discretion in granting options to
non-employee directors.
3. In their discretion, the Proxy Agents are authorized to vote upon such
other business as may properly come before the meeting and any
adjournments or postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL NOMINEES FOR ELECTION AS THE CLASS I DIRECTORS AND FOR PROPOSAL NUMBER
2. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS AND THE RELATED PROXY STATEMENT.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD PROMPTLY AND RETURN IT USING THE
ENCLOSED ENVELOPE.
SIGNATURE(S)______________________________________________ DATE:__________,2000
NOTE: Please sign exactly as name appears hereon. 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 the President or
other authorized officer. If a partnership, please sign in the
partnership name by an authorized person.