SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[X] 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
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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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 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 1999
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To Our Stockholders:
Notice is hereby given that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of CLOSURE MEDICAL CORPORATION (the "Company") will be held on
June 8, 1999 at 9:00 a.m., local time, at the Holiday Inn at Raleigh-Durham
Airport, I-40 and New Page Road, Research Triangle Park, North Carolina, for the
following purposes:
1. To elect two Class III 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 an amendment to the Company's Amended and
Restated 1996 Equity Compensation Plan (the "Equity Compensation
Plan") to increase the amount of shares issuable annually to any
individual under the Equity Compensation Plan;
3. To approve and adopt the Closure Medical Corporation 1999
Employee Stock Purchase Plan; and
4. 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,
1999 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, 1999 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,
J. Blount Swain
Secretary
April 30, 1999
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
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 1999
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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 8, 1999 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 April 30, 1999.
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,
1998, 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, 1999
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 13,309,809 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 amendment to the Company's
Amended and Restated 1996 Equity Compensation Plan (the "Equity Compensation
Plan") to increase the amount of shares issuable annually to any individual
under the Equity Compensation Plan (the "Equity Compensation Plan Amendment")
and the proposal to approve and adopt the Company's 1999 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan").
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
Equity Compensation Plan Amendment and to approve and adopt the Employee Stock
Purchase 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
proposals to approve and adopt the Equity Compensation Plan Amendment and the
Employee Stock Purchase 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 Equity Compensation Plan
Amendment or the proposal to approve and adopt the Employee Stock Purchase Plan
will have the effect of a negative vote because each of these proposals 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 Equity Compensation Plan Amendment and the proposal to
approve and adopt the Employee Stock Purchase Plan. A failure by brokers to vote
these shares will have no effect on the outcome of the election of directors,
the proposal to approve and adopt the Equity Compensation Plan Amendment or the
proposal to approve and adopt the Employee Stock Purchase 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 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 7, 1999 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:
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SHARES
BENEFICIALLY OWNED (1)
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NAME OF BENEFICIAL OWNER NUMBER PERCENT
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F. William Schmidt (2)(3)..................... 3,134,326 23.5%
Rolf D. Schmidt (3)(4)........................ 3,107,426 23.3%
Robert V. Toni (3)(5)......................... 702,920 5.3%
Jeffrey G. Clark (3).......................... 476,180 3.6%
J. Blount Swain (3)........................... 464,540 3.5%
Joe B. Barefoot (3)(6)........................ 353,632 2.7%
Dennis C. Carey (3)(7)........................ 53,115 *
Randy H. Thurman (3).......................... 45,595 *
Richard W. Miller (3)......................... 28,253 *
Ronald A. Ahrens (3)......................... 13,032 *
William M. Cotter (3)......................... 8,000 *
All directors and executive officers as a
group (13 persons) (8)........................ 7,872,207 57.7%
* 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 7, 1999.
(2) The address of the stockholder is 534 Ridge Avenue, Ephrata, PA 17522.
Includes (a) 2,246,945 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 7,
1999: F. William Schmidt--18,595; Rolf D. Schmidt--18,595; Robert V.
Toni--53,280; Jeffrey G. Clark--32,080; J. Blount Swain--34,440; Joe B.
Barefoot--24,368; Dennis C. Carey--43,595; Randy H. Thurman--43,595;
Richard W. Miller--28,253; Ronald A. Ahrens--13,032; and William M.
Cotter--8,000.
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(4) The address of the stockholder is 205 Sweitzer Road, Sinking Spring, PA
19608. Includes (a) 2,228,945 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 3,464 shares held by Mr. Barefoot's spouse, for which shares he
disclaims beneficial ownership.
(7) Includes 1,500 shares owned jointly by Mr. Carey and his spouse, for which
shares he is deemed to share voting and investment power.
(8) See footnotes (2), (4), (5), (6) and (7) above. Includes 341,833 shares of
Common Stock issuable upon the exercise of stock options exercisable within
60 days of April 7, 1999.
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 Randy H. Thurman and Robert V. Toni
for election as Class III 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 III--Nominees for Terms Continuing until 2002
RANDY H. THURMAN, age 49, 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 board of Delta Food Group.
ROBERT V. TONI, age 58, 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.
Class I--Directors with Terms Continuing until 2000
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DENNIS C. CAREY, PH.D., age 49, 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 59, 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.
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 59, has served as a director of the Company since
January 1, 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 58, 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 Avalon Properties, Inc. and
SBA Communications Corporation. 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 66, a co-founder of the Company in 1990, has served
as Chairman of the Board of Directors of the Company since February 1996. 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.
GENERAL INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has standing Executive, Audit and Compensation
Committees. During fiscal year 1998, the Board of Directors held six meetings,
the Audit Committee held two meetings and the Compensation Committee held one
meeting. There were no meetings held by the Executive Committee during 1998.
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.
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
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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.
On February 26, 1998, the Board of Directors of the Company established
a Stock Option Subcommittee of the Compensation Committee to determine grants
under and administer the Equity Compensation Plan. Prior to that time, the
Compensation Committee was responsible for determining grants under and
administering the Equity Compensation Plan.
The current members of the Executive Committee are Messrs. Rolf D.
Schmidt (Chair), Thurman and Toni; of the Audit Committee, Messrs. Miller and
Thurman (Chair); and of the Compensation Committee, Messrs. Carey (Chair),
Thurman and F. William Schmidt. Messrs. Thurman and Carey 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
currently receive annual compensation of $24,000 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
receives 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 elect 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.
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 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
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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.
PROPOSAL TO APPROVE AND ADOPT
AMENDMENT TO THE EQUITY COMPENSATION PLAN
PROPOSAL
At the Annual Meeting, there will be presented to stockholders a
proposal to approve and adopt the Equity Compensation Plan Amendment to increase
the amount of shares issuable annually to any individual under the Equity
Compensation Plan from 75,000 to 300,000 shares of Common Stock. At its March
22, 1999 meeting, the Board of Directors unanimously approved the proposed
Equity Compensation Plan Amendment.
The Board of Directors believes that the Company's ability to grant
options and other awards under the Equity Compensation Plan is 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 Equity Compensation Plan
helps 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. The Board of Directors believes that an
increase in the amount of shares issuable annually to individuals under the
Equity Compensation Plan is necessary to meet the above objectives. The Board of
Directors believes that it is in the best interests of the Company and its
stockholders to incorporate this change into the Equity Compensation Plan.
The principal terms of the Equity Compensation Plan are discussed below.
VOTE REQUIRED FOR APPROVAL
Approval of the proposal to approve and adopt the Equity Compensation
Plan Amendment 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 EQUITY COMPENSATION PLAN
The Equity Compensation Plan was adopted by the Board of Directors on
May 28, 1996 (the "effective date") and was most recently amended and restated
on June 3, 1998. The Equity Compensation 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
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for the Company or its subsidiaries. Non-employee directors of the Company are
entitled to receive formula stock option grants under the Equity Compensation
Plan. In addition, the Equity Compensation 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 Equity Compensation Plan are covered by registration statements
on Form S-8 which were filed with the SEC on December 12, 1996 and February 25,
1999. The last reported sale price of the Company's Common Stock reported on the
Nasdaq National Market on April 7, 1999 was $33.8125.
Subject to adjustment in certain circumstances as discussed below, the
Equity Compensation Plan authorizes up to 2,500,000 shares of Common Stock for
issuance pursuant to the terms of the Equity Compensation Plan. As of April 7,
1999, options to purchase 1,735,747 shares of Common Stock were outstanding
under the Equity Compensation Plan; options to purchase 632,317 remain available
for future grants. If and to the extent Grants under the Equity Compensation
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 Equity Compensation Plan.
The Equity Compensation 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 has the sole authority to
determine (i) persons to whom Grants may be made under the Equity Compensation
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 Equity
Compensation Plan. The Committee has full power and authority to administer and
interpret the Equity Compensation Plan, to make factual determinations and to
adopt or amend such rules, regulations, agreements and instruments for
implementing the Equity Compensation 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.
Grants under the Equity Compensation 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. Non-employee
directors of the Company are entitled only to formula grants of NQSOs.
Independent contractors or consultants to the Company are not eligible to
receive ISOs under the Equity Compensation Plan. As of April 7, 1999, 97
employees and seven directors (including six non-employee directors) were
eligible for Grants under the Equity Compensation Plan. During any calendar
year, no participant presently may receive Grants under the Equity Compensation
Plan for more than 75,000 shares of Common Stock. The Equity Compensation Plan
Amendment, if approved, would increase this amount to 300,000 shares of Common
Stock.
The exercise price of any ISO granted under the Equity Compensation Plan
may 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.
8
Non-employee directors are entitled to receive NQSOs pursuant to the
formula grants under the Equity Compensation Plan. According to the formula
grants, each non-employee director who first becomes a member of the Board of
Directors will receive a grant of an NQSO to purchase 25,000 shares of Common
Stock as of the date the non-employee director becomes 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 will 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 will be the fair market value of a share of Common
Stock on the date of grant. The term of each such option will be ten years, and
the options will 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 continues to be a member of the Board
of Directors. Non-employee directors can elect to receive options in lieu of all
or a portion of their annual compensation (presently $24,000) for serving on the
Board of Directors by making an election at or immediately prior to the annual
meeting. Non-employee directors will 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 will be the market price on the date of
grant, and the options will have a term of ten years. The options will vest 50%
as of the date of grant and will 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.
The Committee may issue shares of Common Stock to participants other
than non-employee directors of the Company pursuant to the Equity Compensation
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 Equity Compensation 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 an
SAR, the related option shall terminate. Similarly, upon exercise of a stock
option, the related SAR, if any, shall terminate.
The Board of Directors may amend or terminate the Equity Compensation
Plan at any time; provided, however, that, the Board of Directors may not,
without stockholder approval, amend the Equity Compensation 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 Equity Compensation Plan, (ii) modify the
requirements as to eligibility to participate in the Equity Compensation Plan or
(iii) make any amendment that requires stockholder approval pursuant to Section
162(m) of the Code. The Equity Compensation 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 Equity Compensation 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 Equity Compensation Plan and (iv) the individual
limit of shares for which Grants may be made to any individual under the Equity
Compensation Plan, and such adjustments shall be effective and binding for all
purposes of the Equity Compensation Plan. In the event of a change of control,
unless the Committee determines otherwise, 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
9
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 Equity Compensation
Plan.
Option grants to purchase the following number of shares of Common Stock
have been made under the Equity Compensation Plan from inception of the Equity
Compensation Plan through April 7, 1999: Joe B. Barefoot--45,460; Jeffrey G.
Clark--55,100; William M. Cotter--73,000; J. Blount Swain--58,050; Robert V.
Toni--361,600; current executive officers as a group--689,210; non-employee
directors as a group--198,546; and all other employees as a group--979,531.
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 Equity
Compensation 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 Equity Compensation 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 Equity Compensation 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).
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
10
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 Equity Compensation 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 Equity Compensation Plan are not presently determinable,
except as to those future formula grants to be awarded to non-employee
directors.
PROPOSAL TO APPROVE AND ADOPT THE
1999 EMPLOYEE STOCK PURCHASE PLAN
PROPOSAL
In order to encourage employee ownership of the Company, on December 6,
1998, the Board of Directors of the Company unanimously adopted the Employee
Stock Purchase Plan subject to stockholder approval at the Annual Meeting. The
Board reserved 1,500,000 shares of Common Stock for issuance under the Employee
Stock Purchase Plan, subject to adjustment in the event of stock splits, stock
dividends, recapitalization or other changes in the outstanding Common Stock.
The Employee Stock Purchase Plan provides eligible employees of the Company with
a means to purchase, through payroll deductions, shares of Common Stock at a
discount, consistent with the provisions of the Code. At the Annual Meeting,
there will be presented to stockholders a proposal to approve and adopt the
Employee Stock Purchase Plan.
The material features of the Employee Stock Purchase Plan are discussed
below.
VOTE REQUIRED FOR APPROVAL
Approval of the proposal to approve and adopt the Employee Stock
Purchase 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.
11
THE EMPLOYEE STOCK PURCHASE PLAN IS SET FORTH IN EXHIBIT A TO THIS PROXY
STATEMENT. THE FOLLOWING DESCRIPTION OF THE EMPLOYEE STOCK PURCHASE PLAN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO EXHIBIT A.
ELIGIBLE PARTICIPANTS
Regular employees of the Company are eligible to participate in the
Employee Stock Purchase Plan, on a purely voluntary basis, if they meet certain
conditions. To be eligible, an employee's customary employment must be greater
than both 20 hours per week and more than five months in any calendar year. An
employee who owns 5% or more of the total combined voting power or value of all
classes of stock of the Company will not be eligible to participate in the
Employee Stock Purchase Plan.
MATERIAL FEATURES OF THE EMPLOYEE STOCK PURCHASE PLAN
Eligible employees participate in the Employee Stock Purchase Plan by
electing to participate as of the first day of any offering period by completing
a subscription agreement and filing it with the Company's payroll office before
the beginning of the offering period. An eligible employee who elects to
participate will be granted options to purchase shares of Common Stock. An
eligible employee participates through exercising those options to purchase
Common Stock. Options may be granted for each purchase period to eligible
employees. Each 24-month period commencing on the first trading day on or after
each August 1 and February 1 will be an offering period, unless otherwise
established by the Board. Within each offering period are four six-month
purchase periods. The last day of each purchase period is an exercise date.
Common Stock will be purchased through a participant's payroll deductions from
1% to 15% of his or her compensation. Common Stock will be purchased in whole
shares at a price equal to the lower of 85% of the fair market value of the
Common Stock as of the first day of each offering period or 85% of the fair
market value of the Common Stock on the exercise date. The fair market value of
the Common Stock will be determined by reference to the closing sale price of
the Common Stock on the Nasdaq National Market or the Nasdaq SmallCap Market of
The Nasdaq Stock Market as reported in the Wall Street Journal on each relevant
date. No employee will be permitted to purchase more than $25,000 of Common
Stock under the Employee Stock Purchase Plan during any calendar year. In
addition, no employee may purchase more than 1,500 shares of Common Stock on any
exercise date, unless the committee of the Board of Directors administering the
Employee Stock Purchase Plan sets another limit. Shares of Common Stock to be
issued under the Employee Stock Purchase Plan are covered by a registration
statement on Form S-8 which was filed with the SEC on February 12, 1999.
Each eligible employee who elects to participate in the Employee Stock
Purchase Plan will, without any action on his or her part, automatically be
deemed to have exercised his or her option on the last day of each purchase
period if he or she is then employed, to the extent that the amount withheld
through payroll deduction throughout the purchase period is sufficient to
purchase, at the option price, one or more whole shares of Common Stock. A
participant will receive a stock certificate evidencing shares acquired under
the Employee Stock Purchase Plan as soon as practicable after each exercise date
on which a purchase of shares occurs. All funds received or held by the Company
under the Employee Stock Purchase Plan are general assets of the Company, free
of any trust or other restriction, and may be used for any corporate purpose. No
interest on such funds will be credited to or paid to any participant under the
Employee Stock Purchase Plan.
An option granted under the Employee Stock Purchase Plan will not be
transferable by an employee, other than by will or by the laws of descent and
distribution, and is exercisable during his or her lifetime only by the
employee.
A participant may voluntarily suspend his or her payroll deductions at
any time before the last day of the offering period. A participant may also
change the rate of his or her payroll deductions at any time during an offering
period; however, the Board of Directors may limit the number of changes an
employee can make during any one offering period. If a participant terminates
his or her employment with the Company, his or her participation in the Employee
Stock Purchase Plan will be automatically terminated as of the date of
termination of employment, and the shares held in his or her account will either
be sold as directed by the terminated participant, or distributed to the
terminated participant, in which case, the Common Stock purchased through the
Employee Stock Purchase Plan as of the date of termination will be distributed
to the participant, together with amounts withheld through payroll deduction
that had not been applied to purchase Common Stock under the Employee Stock
Purchase Plan, without interest.
12
TAX TREATMENT
The Employee Stock Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Code, an employee who elects to participate in the Employee Stock Purchase Plan
will not realize income at the time the offering commences or when the shares
are actually purchased under the Employee Stock Purchase Plan. If an employee
disposes of such shares after two years from the date the offering of such
shares commences under the Employee Stock Purchase Plan and after one year from
the actual date of purchase of such shares under the Employee Stock Purchase
Plan (collectively the "Holding Period"), the employee will be required to
include in income, as capital gain for the year in which such disposition
occurs, an amount equal to the lesser of (i) the excess of the fair market value
of such shares at the time of disposition over the purchase price and (ii) the
excess of the fair market value of such shares at the time the offering
commenced over the purchase price. If any employee disposes of the shares
purchased under the Employee Stock Purchase Plan during the Holding Period, the
employee will be required to include in income, as compensation for the year in
which such disposition occurs, an amount equal to the excess, if any, of the
fair market value of such shares on the date of purchase over the purchase
price. The employee's basis in such shares disposed of will be increased by an
amount equal to the amount includable in his or her income as compensation, and
any gain or loss computed with reference to such adjusted basis which is
recognized at the time of disposition will be capital gain or loss, either
short-term or long-term, depending on the length of the holding period for such
shares. In the event of a disposition during the Holding Period, the Company (or
the subsidiary by which the employee is employed) will be entitled to a
deduction from income equal to the amount the employee is required to include in
income as a result of such disposition. An employee who is a nonresident of the
United States will generally not be subject to the U.S. federal income tax with
respect to the shares of Common Stock purchased under the Employee Stock
Purchase Plan.
ADMINISTRATION AND TERMINATION
The Employee Stock Purchase Plan provides for its administration by a
committee selected by the Board of Directors. The Board may terminate, suspend
or amend the Employee Stock Purchase Plan in any respect at any time, except
that the approval of the Company's stockholders is required for any amendment to
increase the number of shares available for purchase under the Employee Stock
Purchase Plan. The Employee Stock Purchase Plan will automatically terminate
upon the (i) the dissolution or liquidation of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation, or (iii)
any transaction that results in the Common Stock ceasing to be publicly traded.
Unless earlier terminated, the Employee Stock Purchase Plan will continue in
effect until February 1, 2009, except that, if at the end of any purchase
period, the aggregate funds available for purchase of Common Stock would
purchase a greater number of shares than is available for purchase, the number
of shares that would otherwise be purchased by each participant at the end of
the purchase period will be proportionately reduced in order to eliminate the
excess. The Employee Stock Purchase Plan would then automatically terminate
after such purchase period.
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, 1998 (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 ($)(1)
- ----------------------------------------------------------------------------------------------------------
Robert V. Toni................... 1998 249,827 100,000 -- -- 8,633
13
President and Chief Executive Officer 1997 237,800 100,000 -- -- 2,841
1996 215,000 130,000 -- 66,600 1,987
J. Blount Swain.................. 1998 158,896 60,000 -- -- 5,834
Vice President of Finance and 1997 152,300 60,000 -- -- 2,352
Chief Financial Officer 1996 138,450 85,000 -- 43,050 1,552
William M. Cotter................. 1998 155,538 30,000 -- 25,000 3,355
Vice President of Manufacturing and 1997 83,755 30,000 25,200(2) 40,000 102
Operations 1996 -- -- -- -- --
Jeffrey G. Clark................. 1998 146,392 56,000 -- -- 5,117
Vice President of Research and 1997 142,000 56,000 -- -- 1,960
Development 1996 127,200 80,000 -- 40,100 1,342
Joe B. Barefoot.................. 1998 125,218 48,000 -- -- 5,099
Vice President of Regulatory Affairs 1997 122,000 48,000 -- -- 1,974
and Quality Assurance 1996 95,850 60,000 -- 30,460 1,023
(1) Represents Company-paid life insurance premiums and 401(k) retirement plan
matching contributions.
(2) Represents payment for relocation expenses.
14
STOCK OPTION INFORMATION
The following table sets forth information concerning the grant of stock
options during 1998 to one of the Named Officers. No other Named Officers
received stock option grants during 1998 and no stock appreciation rights were
granted to any Named Officer during 1998.
OPTION GRANTS IN 1998
INDIVIDUAL GRANTS
- ----------------------- ---------------------------------------------------- --------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS EXERCISE STOCK PRICE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERM (3)
GRANTED EMPLOYEES PRICE EXPIRATION --------------------------
NAME (#) (1) IN 1998 (2) ($/SH) DATE 5% ($) 10%($)
- ----------------------- ------------ ------------- ------------ ------------ --------------------------
William M. Cotter 25,000 4.6 24.50 7/1/08 385,198 976,167
- ----------------------- ------------ ------------- ------------ ------------ ------------- ------------
- ------------------
(1) Options have a ten-year term and vest 20% annually on the anniversary of
the grant date and thereafter.
(2) Based on 544,197 options granted to employees in 1998.
(3) 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 1998 AND 1998 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 ($)(1)
ACQUIRED VALUE --------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- --------------- ------------ ------------ ------------- ----------- -------------
Robert V. Toni -- -- 39,960 26,640 991,527 661,018
J. Blount Swain -- -- 25,830 17,220 640,920 427,280
William M. Cotter -- -- 8,000 57,000 88,504 486,841
Jeffrey G. Clark -- -- 24,060 16,040 597,001 348,001
Joe B. Barefoot -- -- 18,276 12,184 453,453 302,302
- --------------
(1) Calculated on the basis of the closing sale price of $29.81 per share of
Common Stock on December 31, 1998 as quoted on the Nasdaq National Market.
15
EMPLOYMENT AGREEMENTS
Robert V. Toni, J. Blount Swain, Jeffrey G. Clark and Joe B. Barefoot
each entered into an employment agreement with the Company in May 1996. William
M. Cotter entered into an employment agreement with the Company commencing in
June 1997. The term of the employment agreements of Messrs. Toni, Swain, Clark
and Barefoot is from May 1, 1996 to May 31, 1999. Mr. Cotter's employment
agreement has a two-year term beginning on its 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, Barefoot and Cotter of not less than
$215,000, $138,450, $127,200, $95,850 and $150,000, 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,
Clark and Barefoot, respectively, options to purchase 66,600, 43,050, 40,100 and
30,460 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 his employment agreement, the Company granted to
Mr. Cotter options to purchase 40,000 shares of Common Stock under the Equity
Compensation Plan at an exercise price of $18.25 per share. Mr. Cotter's options
have a term of ten years and, provided employment has not been terminated for
"cause" (as defined in the Equity Compensation Plan), 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, Barefoot or Cotter 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, Barefoot and Cotter 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.
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.
16
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors consists of three
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
this change 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
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 1999, Mr. Toni's base salary was
increased by 10%, from $249,827 to $275,000.
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 1999, the payment of any bonus will
be
17
conditioned upon the achievement of earnings per share of $.20. 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 1998,
the Compensation Committee reviewed the percentage of completion of each of the
1998 performance milestones and multiplied such percentage by the weight
assigned to each of the milestones, which included specific operating and
regulatory goals.
Mr. Toni was awarded a cash bonus of $135,000 for 1998. In arriving at
this award, the Committee considered the achievement of the 1998 performance
milestones as well as Mr. Toni's achievement of his individual performance
objectives.
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 approved stock option grants to all employees based on employee
grade level, effective January 1, 1999, approved additional grants to twelve
employees for special performance recognition, and approved grants to officers
in amounts based on the analysis of the independent compensation consulting firm
hired by the Company, including the grant to Mr. Toni of an option to purchase
45,000 shares of Common Stock. The Stock Option Subcommittee also approved a
grant to Mr. Toni of an option to purchase 250,000 shares of Common Stock,
subject to stockholder approval at the Annual Meeting of the Equity Compensation
Plan Amendment. These options will vest in five equal installments when each of
five, increasing stock market prices is achieved. In any event, the options will
vest in five equal installments beginning on the first anniversary of the date
of grant.
APPLICATION OF SECTION 162(m)
Payments during 1998 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
Dennis C. Carey, Ph.D.
Randy H. Thurman
F. William Schmidt
April 15, 1999
18
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 ("Health Care Index"),
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.
[PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
Index 9/25/96 12/31/96 12/31/97 12/31/98
Company 100.0 184.4 323.4 372.6
NASDAQ-US Index 100.0 105.1 129.0 181.3
Medical Devices Index 100.0 99.7 114.2 129.1
Health Care Index 100.0 103.2 127.5 176.9
19
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 and written representations that no Forms 5 were
required to be filed, the Company believes that during the year ended December
31, 1998 all filing requirements applicable to its directors, officers and
greater-than-ten-percent stockholders were satisfied, with the following
exceptions: Joe B. Barefoot, an executive officer, filed a late Form 4 for four
transactions in October and November 1998; and Anthony J. Sherbondy filed a late
Form 3 upon his election as an executive officer in January 1998 and a late Form
4 for one transaction in March 1998.
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 2000 annual meeting, such proposals must be received by the Company no later
than December 31, 1999. Proposals should be directed to the attention of the
Secretary of the Company.
By Order of the Board of Directors,
J. Blount Swain
Secretary
April 30, 1999
20
EXHIBIT A
CLOSURE MEDICAL CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of CLOSURE MEDICAL CORPORATION (the "Company").
1. PURPOSE. The purpose of the Plan is to provide employees of the Company and
its Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code. The Plan shall be effective as of February 1, 1999.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean CLOSURE MEDICAL CORPORATION and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings and
commissions, but exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of the Company
for tax purposes and whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds ninety (90)
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering Period.
(i) "Exercise Date" shall mean the last day of each Purchase Period.
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(j) "Fair Market Value" shall mean, as of any date, the value of Common Stock
determined as follows:
(1) If the Common Stock is listed on any established stock exchange or
a national market system, including, without limitation, the Nasdaq National
Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean of the closing bid and asked prices for the Common Stock on the date of
such determination, as reported in The Wall Street Journal or such other source
as the Board deems reliable, or;
(3) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the Board.
(k) "Offering Period" shall mean the period of approximately twenty-four
(24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after February 1 and August
1 of each year and terminating on the last Trading Day in the period ending
twenty-four (24) months later. The duration and timing of Offering Periods may
be changed pursuant to Section 4 of this Plan. The first Offering Period shall
begin on February 1, 1999.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately six (6)-month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean an amount equal to 85% of the Fair Market
Value of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower.
(o) "Reserves" shall mean the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges and the
Nasdaq National Market are open for trading.
3. ELIGIBILITY.
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(a) Any Employee who shall be employed by the Company on a given Enrollment
Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) to the extent that, immediately
after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company and/or hold outstanding options to purchase such
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of the capital stock of the Company or of any Subsidiary,
or (ii) to the extent that his or her right to purchase stock under all employee
stock purchase plans of the Company and its Subsidiaries accrues at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the
fair market value of the shares at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive, overlapping
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after February 1 and August 1 each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions in the form of Exhibit A
to this Plan and filing it with the Company's payroll office prior to the
applicable Enrollment Date for which the participant's election is to be
effective. A participant may only participate in one Offering Period at a time.
(b) Payroll deductions for a participant shall commence on the first payroll
following the Enrollment Date and shall end on the last payroll in the Offering
Period to which such authorization is applicable, unless sooner terminated by
the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement, he or
she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding 15% of the Compensation which he or
she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited to his
or her account under the Plan and shall be withheld in whole percentages only. A
participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period
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by completing or filing with the Company a new subscription agreement
authorizing a change in payroll deduction rate. The Board may, in its
discretion, limit the number of participation rate changes during any Offering
Period. The change in rate shall be effective with the first full payroll period
following five (5) business days after the Company's receipt of the new
subscription agreement unless the Company elects to process a given change in
participation more quickly. A participant's subscription agreement shall remain
in effect for successive Offering Periods unless terminated as provided in
Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll
deductions may be decreased to zero percent (0%) at any time during a Purchase
Period. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the time
some or all of the Company's Common Stock issued under the Plan is disposed of,
the participant must make adequate provision for the Company's federal, state,
or other tax withholding obligations, if any, which arise upon the exercise of
the option or the disposition of the Common Stock. At any time, the Company may,
but shall not be obligated to, withhold from the participant's compensation the
amount necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common Stock
by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that, effective as of
each Enrollment Date, in no event shall an Employee be permitted to purchase
during each Purchase Period more than 1,500 shares of the Company's Common Stock
(subject to any adjustment pursuant to Section 19), and provided further that
such purchase shall be subject to the limitations set forth in Sections 3(b) and
13 hereof. Notwithstanding the foregoing, the Committee may increase or decrease
the 1,500 share limit for any Purchase Period before the beginning of the
Purchase Period. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
option shall expire on the last day of the Offering Period.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as provided
in Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as
A-4
provided in Section 10 hereof. Any other monies left over in a participant's
account after the Exercise Date shall be returned to the participant. During a
participant's lifetime, a participant's option to purchase shares hereunder is
exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option. As an alternative, the Company may make
arrangements with a brokerage firm to establish a brokerage account for each
participant, to which shares purchased for the participant under the Plan on
each Exercise Date shall be credited and held for the participant.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have any
effect upon his or her eligibility to participate in any similar plan which may
hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the participant's withdrawal.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an Employee,
for any reason, he or she shall be deemed to have elected to withdraw from the
Plan and the payroll deductions credited to such participant's account during
the Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the Company as
provided in Section 19 hereof, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan shall be
1,500,000 shares. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available
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under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable. Such number shall be subject to
adjustments affected in accordance with Section 19 of this Plan.
(b) The participant shall have no interest or voting right in shares covered
by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a committee
of members of the Board appointed by the Board. The Board or its committee shall
have full and exclusive discretionary authority to construe, interpret and apply
the terms of the Plan, to determine eligibility and to adjudicate all disputed
claims filed under the Plan. Every finding, decision and determination made by
the Board or its committee shall, to the full extent permitted by law, be final
and binding upon all parties.
15. DESIGNATION OF BENEFICIARY. A participant may file a written designation of
a beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death.
Such designation of beneficiary may be changed by the participant at any time by
written notice. In the event of the death of a participant and in the absence of
a beneficiary validly designated under the Plan who is living at the time of
such participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant in the
Plan. Statements of account shall be given to participating Employees at least
annually, which statements shall set forth the amounts of payroll deductions,
the Purchase Price, the number of shares purchased and the remaining cash
balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION, MERGER
OR ASSET SALE.
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(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date"), and shall
terminate immediately prior to the consummation of such proposed dissolution or
liquidation, unless provided otherwise by the Board. The New Exercise Date shall
be before the date of the Company's proposed dissolution or liquidation. The
Board shall notify each participant in writing, at least ten (10) business days
prior to the New Exercise Date, that the Exercise Date for the participant's
option has been changed to the New Exercise Date and that the participant's
option shall be exercised automatically on the New Exercise Date, unless prior
to such date the participant has withdrawn from the Offering Period as provided
in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 19 hereof, no such
termination shall affect options previously granted, provided that an Offering
Period may be terminated by the Board of Directors on any Exercise Date if the
Board determines that the termination of the Plan is in the best interests of
the Company and its stockholders. Except as provided in Section 19 and this
Section 20, no amendment
A-7
may make any change in any option theretofore granted which adversely affects
the rights of any participant. To the extent necessary to comply with Section
423 of the Code (or any successor rule or provision or any other applicable law,
regulation or stock exchange rule), the Company shall obtain stockholder
approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. NOTICES. All notices or other communications by a participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued with respect to an option unless the exercise
of such option and the issuance and delivery of such shares pursuant thereto
shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of
its adoption by the Board of Directors or its approval by the stockholders of
the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent permitted by
any applicable laws, regulations, or stock exchange rules, if the Fair Market
Value of the Common Stock on any Exercise Date in an Offering Period is lower
than the Fair Market Value of the Common Stock on the Enrollment Date of such
Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on
A-8
such Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
A-9
********************************************************************************
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 J. Blount Swain, 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 8, 1999 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 8, 1999
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- -------------------------------------------------------------------------------
A |X| PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR WITHHELD
1. Election of [ ] [ ] Nominees: Randy H. Thurman
Directors Class III Robert V. Toni
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 issuable
annually to any individual under the Plan.
3. Approval and adoption of the Company's [ ] [ ] [ ]
1999 Employee Stock Purchase Plan.
4. 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 III DIRECTORS, FOR PROPOSAL NUMBER 2
AND FOR PROPOSAL NUMBER 3. 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:__________,1999
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.
CLOSURE MEDICAL CORPORATION
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
AS AMENDED EFFECTIVE AS OF ____________, 1999
The purpose of the Closure Medical Corporation 1996 Equity Compensation
Plan (the "Plan") is to provide (i) designated officers (including officers who
are also directors) 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 benefitting 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").
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, 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"). 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 2,500,000 shares in the 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. All members of the
2
Board who are not employees of the Company or any of its subsidiaries
("Non-Employee Directors") shall be eligible only to receive nonqualified stock
options pursuant to Section 6. Any independent contractors or consultants who
perform valuable services to the Company or any of its subsidiaries
("Consultants") 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. Employees,
Consultants, and Non-Employee Directors who receive Grants under this Plan shall
hereinafter be referred to as "Grantees". Non-Employee Directors shall receive
Grants only in accordance with the terms of Section 6.
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.
(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.
The purchase price of Company Stock subject to a Stock Option shall be
determined by the Committee 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
3
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. 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. Subject to Section 6, Stock Options shall
become exercisable in accordance 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. 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 11, unless in cases not covered by Section 11(f), the
Committee in its sole discretion determines not to accelerate such Stock Options
upon a Change of Control. The Committee may make such determination prior to the
Change of Control or, if the Committee making such determination following a
Change of Control is comprised of the same members as served on the Committee
immediately prior to such Change of Control, within five days following such
Change of Control.
(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 shall terminate as of such date.
4
(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 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 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 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.
5
(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. Option Grants to Non-Employee Directors
A Non-Employee Director shall be entitled to receive Nonqualified Stock
Options in accordance with this Section 6.
(a) Initial Grant. Each Non-Employee Director who first becomes a member
of the Board on or after the initial effective date of this Plan (as specified
in Section 19) will receive a grant of a Nonqualified Stock Option to purchase
25,000 shares of Company Stock immediately upon the date he or she becomes a
member of the Board, except as provided in Section 6(b) below.
(b) Pre-IPO Initial Grants. An initial grant made pursuant to Section
6(a) to a Non-Employee Director who first becomes a member of the Board on or
after the initial effective date of this Plan and before the consummation of the
Company's initial public offering of Common Stock (a "Pre-IPO Initial Grant")
shall be made as of the date the Non-Employee Director first becomes a member of
the Board on or after the effective date of this Plan (which is the date of
grant) and shall become effective as of the Effective Time as defined in the
Contribution and Exchange Agreement dated as of May 30, 1996 by and among (1)
Sharpoint Development Corporation, (2) Robert V. Toni, J. Blount Swain, Jeffrey
G. Clark, Joe B. Barefoot, Jeffery C. Basham, Jeffrey C. Leung and Anthony V.
Seaber, (3) Caratec, L.L.C., (4) Cacoosing Partners, L.P., OMI Partners, L.P.,
Triangle Partners, L.P., F. W. Schmidt and Rolf D. Schmidt, and (5) the Company;
and provided, further, that if such Effective Time has not occurred on or prior
to September 30, 1996, any Pre-IPO Initial Grants shall be null, void and of no
further effect without any additional action required pursuant to the terms of
this Plan. The purchase price per share of Company Stock subject to a Stock
Option granted by a Pre-IPO Initial Grant shall be $1 less than the offering
price to the public in the Company's initial public offering.
(c) Annual Grants. On each date on which the Company holds its annual
meeting of stockholders, commencing with the 1997 calendar year, each
Non-Employee Director in office immediately after the annual election of
directors (other than directors first elected at such meeting) will receive a
grant of a Nonqualified Stock Option to purchase 7,500 shares of Company Stock.
The date of grant of such annual Grants shall be the date of such annual meeting
of stockholders.
(d) Election to Receive Annual Retainer in the Form of Stock Options.
(i) Before the beginning of each Plan Year (as defined below)
that commences on or after June 4, 1997, each Non-Employee Director may elect to
receive part or all of his or her Annual Retainer (as defined below) for the
Plan Year in the form of Nonqualified Stock Options.
6
The election shall be made by filing a written election with the Secretary of
the Company before the beginning of the Plan Year. The election shall be
irrevocable as of the first day of the Plan Year. If a Non-Employee Director
makes no election under this Section 6(d) for a Plan Year, the Non-Employee
Director's Annual Retainer shall be paid in cash.
(ii) The term "Annual Retainer" shall mean the annual retainer
fee paid by the Company to a Non-Employee Director for his or her services as a
director, and shall not include meeting fees. The term "Plan Year" shall mean
the approximately 12-month period beginning on the day after each annual meeting
of the Company's stockholders and ending on the date of the next following
annual meeting of the Company's stockholders.
(iii) Each Non-Employee Director at the beginning of a Plan Year
who has elected to receive Stock Options for the Plan Year pursuant to
Subsection (d)(i) above shall have his or her Annual Retainer for the Plan Year
converted into a Nonqualified Stock Option to purchase shares of Company Stock
pursuant to the formula described below. The Committee shall grant the Stock
Option on the date of the annual shareholders meeting that immediately precedes
the beginning of the Plan Year. Each Stock Option shall be evidenced by a Grant
Letter in such form as the Committee shall approve. If a Non-Employee Director
elects to have only a portion of his or her Annual Retainer for a Plan Year
converted into a Stock Option, references to the "Annual Retainer" shall be
deemed to refer to the portion of the Annual Retainer that is to be converted
into a Stock Option. The Committee shall determine the number of shares of
Company Stock for which the Non-Employee Director shall receive a Stock Option
for the Plan Year based on the following formula:
The Committee shall multiply the Annual Retainer by three and shall
divide that product by the Fair Market Value of a share of Company Stock
on the date of grant. The number of shares subject to the Stock Option
shall be rounded down to the nearest whole share. Any portion of an
Annual Retainer that is not converted into a Stock Option shall be paid
in cash.
(iv) If an individual becomes a Non-Employee Director during a
Plan Year, the Non-Employee Director may elect to receive his or her Annual
Retainer for the Plan Year in the form of Stock Options by filing a written
election with the Secretary of the Company on or before the date on which the
individual becomes a Non-Employee Director. The election shall be irrevocable as
of the date on which the individual becomes a Non-Employee Director. If the
Non-Employee Director elects to receive a Stock Option, the Non-Employee
Director shall receive such Stock Option as of the first day on which he or she
serves as a Non-Employee Director. The Committee shall grant the Non-Employee
Director a Stock Option based on the Non-Employee Director's Annual Retainer
multiplied by a fraction, the numerator of which is the number of days remaining
in the Plan Year from and after the date the individual becomes a Non-Employee
Director and the denominator of which is the number of days in the Plan Year.
The number of shares subject to the Stock Option shall be computed according to
the formula described in Subsection (d)(iii) above, based on the Fair Market
Value of shares of Company Stock on the date of grant.
(e) Exercisability. Stock Options granted under this Section 6 shall be
exercisable with respect to 50% of the shares on the date of grant, and an
additional 25% on each anniversary of the
7
date of grant until such Stock Option is fully exercisable, if the Non-Employee
Director remains a member of the Board through the applicable vesting date.
(f) Purchase Price. The purchase price per share of Company Stock
subject to a Stock Option granted under this Section 6 shall be equal to the
Fair Market Value of a share of Company Stock on the date of grant, except as
provided in Section 6(b) above.
(g) Option Term. The term of each Stock Option granted pursuant to this
Section 6 shall be ten years.
(h) Applicability of Plan Provisions. Except as otherwise provided in
this Section 6, the Nonqualified Stock Options granted to Non-Employee Directors
shall be subject to the provisions of this Plan applicable to Nonqualified Stock
Options granted to other persons, provided however that (i) with respect to the
termination of Stock Options pursuant to the provisions of Section 5(f), the
Committee shall not have discretion to modify the terms of such provisions in
the Grant Letter and (ii) in the event of a Change of Control (as defined in
Section 10), the provisions of Section 11 shall apply to Stock Options granted
pursuant to this Section 6, except that the Committee shall not have discretion
to modify the automatic acceleration provisions.
7. 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) 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
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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. All
restrictions under all outstanding Restricted Stock Grants shall automatically
and immediately lapse upon a Change of Control, unless, in cases not covered by
Section 10(f), the Committee in its sole discretion determines that the
restrictions shall not lapse upon a Change of Control. The Committee may make
such determination prior to the Change of Control or, if the Committee making
such determination following a Change of Control is comprised of the same
members as served on the Committee immediately prior to such Change of Control,
within five days following such Change of Control.
8. 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 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
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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.
9. 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.
10. 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
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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.
11. Consequences of a Change of Control
(a) Notice. Unless the Committee determines otherwise:
(i) If a Change of Control described in Section 10(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 10(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 10(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, unless the Committee determines
otherwise, 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. The Committee shall determine, in its sole
discretion, whether Grantees will have either or both of the rights described
below. During the Election Period, unless the Committee determines otherwise,
each Grantee shall have the right to elect:
(i) To exercise in full any installments of such Stock Options
not previously exercised, or
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(ii) 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 occurs 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, 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
(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.
(f) Other Limitations. Notwithstanding any other provision of this
Section 11, if a Change of Control described in Section 10(a) will occur, or if
a Change of Control described in Section 10(b) will occur and the Company will
not be the surviving corporation, then (i) all outstanding Stock Options shall
be exercisable, (ii) the restrictions on all outstanding Restricted Stock shall
lapse, (iii) the Committee notice required by Subsection (a) shall be mandatory
and (iv) the Grantee shall have the right to make the election called for in
Subsection (c), subject to the provisions of Subsections (d) and (e) and further
subject to the Committee's right to permit only the election under Subsection
(c)(i).
12. 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
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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.
13. 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.
14. 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.
15. 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.
16. 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
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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.
(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.
17. 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.
18. 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.
19. Effective Date of the Plan.
This Plan shall be effective on May 28, 1996.
20. 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.
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(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.
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