SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CLOSURE MEDICAL CORPORATION
---------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
--------------
(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 paid previously with preliminary materials.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:__________________________________________________________
(2) Aggregate number of securities to which transaction
applies:__________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
__________________________________________________________________
(4) Proposed maximum aggregate value of
transaction: _____________________________________________________
(5) Total fee paid: ____________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:________________________________________
(2) Form, Schedule or Registration Statement No.:__________________
(3) Filing Party:__________________________________________________
(4) Date Filed:____________________________________________________
[GRAPHIC] CLOSURE
MEDICAL CORPORATION(R)
--------------------------
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 18, 2002
--------------------------
To Our Stockholders:
Notice is hereby given that the 2002 Annual Meeting of Stockholders
(the "Annual Meeting") of CLOSURE MEDICAL CORPORATION (the "Company") will be
held on June 18, 2002 at 9:00 a.m., local time, at the North Raleigh Hilton,
Raleigh, 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 the Company's Amended and Restated 1996 Equity
Compensation Plan, which has been amended to increase the number of
shares authorized for issuance under the Plan and to increase the
number of shares issuable annually to any individual under the Plan;
3. To ratify the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent accountants
for the fiscal year ending December 31, 2002; 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 23,
2002 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 23, 2002 will be available for inspection during normal
business hours for ten days prior to the Annual Meeting at the Company's
executive offices at 5250 Greens Dairy Road, Raleigh, North Carolina.
By Order of the Board of Directors,
/s/Benny Ward
Benny Ward
Secretary
April 30, 2002
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.
[GRAPHIC] CLOSURE
MEDICAL CORPORATION(R)
CLOSURE MEDICAL CORPORATION
5250 Greens Dairy Road
Raleigh, NC 27616
--------------------------
PROXY STATEMENT
FOR
2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 18, 2002
--------------------------
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 18, 2002 and any adjournments or
postponements thereof (the "Annual Meeting"). This Proxy Statement and the
enclosed Proxy Card are being mailed to stockholders on or about May 9, 2002.
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, 2001, 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 23, 2002
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 13,529,248 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
1
Directors, vote for or against or to abstain from voting with respect to the
proposal to approve and adopt the Company's Amended and Restated 1996 Equity
Compensation Plan (the "Amended and Restated Plan") and the ratification of
PricewaterhouseCoopers LLP as independent accountants.
Except for the election of directors, for which a plurality of the
votes cast is required, and except as otherwise required by law or provided in
the Company's Restated Certificate of Incorporation, as amended, and By-Laws,
the affirmative vote of a majority of the shares represented in person or by
proxy at the Annual Meeting and entitled to vote is required to approve and
adopt the Amended and Restated Plan and ratify PricewaterhouseCoopers LLP as
independent accountants or to take action with respect to any other matter that
may properly be brought before the Annual Meeting.
With regard to the election of directors, votes may be cast in favor of
or withheld from any or all nominees. Votes that are withheld will be excluded
entirely from the vote and will have no effect, other than for purposes of
determining the presence of a quorum. Abstentions may be specified on the
proposal to approve and adopt the Amended and Restated Equity Compensation Plan
and to ratify PricewaterhouseCoopers LLP as independent accountants (but not for
the election of directors). An abstention will be considered present and
entitled to vote at the Annual Meeting, but will not be counted as a vote cast
in the affirmative. An abstention on the proposal to approve and adopt the
Amended and Restated Plan and to ratify PricewaterhouseCoopers LLP will have the
effect of a negative vote because this proposal requires the affirmative vote of
a majority of the shares present in person or represented by proxy at the Annual
Meeting and entitled to vote to be approved by the stockholders.
Brokers who hold shares in street name for customers have the authority
under the rules of the various stock exchanges to vote on certain items when
they have not received instructions from beneficial owners. The Company believes
that brokers that do not receive instructions are entitled to vote those shares
with respect to the election of directors and the ratification of the
independent accountants; however, the Company believes that brokers are not
entitled to vote such shares with respect to the proposal to approve and adopt
the Amended and Restated Plan. A failure by brokers to vote these shares will
have no effect on the outcome of the election of directors or the proposal to
approve and adopt the Equity Compensation Plan.
If a signed Proxy Card is returned and the stockholder has given no
direction with respect to a voting matter, the shares will be voted with respect
to that matter by the proxy agents as recommended by the Board of Directors.
Execution and return of the enclosed Proxy Card will not affect a stockholder's
right to attend the Annual Meeting and vote in person. Any stockholder giving a
proxy has the right to revoke it by giving notice of revocation to the Secretary
of the Company at any time before the proxy is voted.
2
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 10, 2002 by (i) each person
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each of the executive officers named in the Summary Compensation
Table, (iii) each of the Company's directors (including the nominees) and (iv)
all directors and executive officers of the Company as a group:
Shares
Beneficially Owned /(1)/
--------------------------------
Name of Beneficial Owner Number Percent
- ------------------------ -------------- -------------
F. William Schmidt /(2)(3)/ 3,188,275 23.6
Rolf D. Schmidt /(3)(4)/ 3,161,375 23.4
Robert V. Toni /(3)(5)/ 836,599 6.2
Jeffrey G. Clark /(3)(6)/ 477,927 3.5
Ronald A. Ahrens /(3)(7)/ 166,988 1.2
Randy H. Thurman /(3)/ 103,044 *
Richard W. Miller /(3)/ 99,512 *
Dennis C. Carey /(3)(8)/ 95,564 *
James E. Niedel /(3)/ 30,000 *
William M. Cotter /(3)/ 85,000 *
Benny Ward /(3)/ 62,068 *
Dennis D. Burns /(3)/ 53,566 *
All directors and executive officers as a group 8,257,028 61.0
(16 persons) /(9)/
* 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 10, 2002.
/(2)/ The address of the stockholder is 534 Ridge Avenue, Ephrata, PA 17522.
Includes (a) 2,236,945 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 is deemed to share voting and investment power.
/(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 10, 2002: F. William Schmidt--
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76,044; Rolf D. Schmidt--76,044; Robert V. Toni--343,599; Jeffrey G.
Clark--75,100; Ronald A. Ahrens--143,988; Randy H. Thurman--97,044;
Richard W. Miller--92,512; Dennis C. Carey--86,044; James E.
Niedel--30,000; William M. Cotter--85,000; Benny Ward--61,868; and
Dennis D. Burns--53,466.
/(4)/ The address of the stockholder is 205 Sweitzer Road, Sinking Spring, PA
19608. Includes (a) 2,225,445 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 69,000 shares owned by Mr. Clark's spouse and 1,273 shares owned
by one of his minor children, for both of which share amounts he
disclaims beneficial ownership.
/(7)/ Includes 800 shares held by Mr. Ahrens' spouse, for which shares he
disclaims beneficial ownership.
/(8)/ Includes 1,500 shares owned jointly by Mr. Carey and his spouse,
for which shares he is deemed to share voting and
investment power.
/(9)/ See footnotes (2) and (4) - (8) above. Includes 1,466,031 shares of
Common Stock issuable upon the exercise of stock options exercisable
within 60 days of April 10, 2002.
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 2005
- ---------------------------------------------------
Randy H. Thurman, age 52, has served as a director of the Company
since May 1996. On April 16, 2001, Mr. Thurman became Chairman, President and
Chief Executive Officer of Viasys Healthcare Inc., a global healthcare
technology company focusing on respiratory and neuro science products. Mr.
Thurman previously was 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 1984 to 1993, Mr. Thurman was
an executive with Rhone-Poulenc Rorer, most recently as President and a
director. Mr. Thurman holds a M.A. degree from Webster University and a B.A.
degree from Virginia Polytechnic Institute. Mr. Thurman serves on the board of
directors of Enzon, Inc.
4
Robert V. Toni, age 61, 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 II--Directors with Terms Continuing until 2004
- ----------------------------------------------------
Ronald A. Ahrens, age 62, has served as a director of the Company
since January 1, 1999 and has served as Chairman of the Board since December
1999. Mr. Ahrens has been an advisor to Merck & Company, Inc. since 1995,
where he retired as President of Merck Consumer Healthcare Group Worldwide in
1995 and previously served as Executive Vice President of Merck Consumer
Healthcare Group International. From 1985 to 1990, Mr. Ahrens was Consumer
Group President, North America of Bristol-Myers Squibb and previously was
President of Bristol Myers Products Division. Prior to 1985, he held senior
management and sales and marketing positions with Richardson Vicks,
Bristol-Myers Squibb and Procter and Gamble. Mr. Ahrens holds a B.A. degree and
a M.A. degree from Concordia College.
Richard W. Miller, age 61, 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 board of directors of SBA
Communications Inc. Mr. Miller holds a M.B.A. from Harvard Business School and
a B.B.A. degree in Economics from Case Western Reserve University.
Rolf D. Schmidt, age 69, a co-founder of the Company in 1990, served
as Chairman of the Board of Directors of the Company from February 1996 to
December 1999, and has been a director of the Company since then. Mr. Schmidt
has served as Chief Executive Officer and Chairman of Performance Sports
Apparel, Inc. since 1995. In 1986, a significant portion of the business of
Sharpoint, Inc., a developer and manufacturer of surgical needles and sutures
co-founded by Mr. Schmidt and his brother, F. William Schmidt, was sold to its
primary distributor, Alcon Laboratories, Inc. In 1991, the remainder of such
business was sold to a management group. Since 1990, Mr. Schmidt has invested
primarily in and devoted substantial time and attention to healthcare-related
entities, including the Company.
Class I--Directors with Terms Continuing until 2003
- ---------------------------------------------------
Dennis C. Carey, Ph.D., age 52, 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. Mr. Carey serves on the
board of directors of AirClic Inc., For CEO's Only Inc. and 3rdWire Inc.
James E. Niedel, M.D., PhD., age 58, has served as a director of the
Company since October 2001. He has recently joined the Sprout Group as a venture
partner. Prior to that appointment, he was Chief Science and Technology Officer
of GlaxoSmithKline plc. From 1988 to 2000, Dr. Niedel served as Vice President
of Research and Senior Vice President for Research and Development at Glaxo Inc.
and as a member of the Board of Directors of Glaxo Wellcome plc with
responsibility for worldwide Research and Development, Information Systems and
Product Strategy. Before joining the pharmaceutical industry he was Professor of
Medicine and Chief of Clinical Pharmacology at Duke University Medical School.
Dr. Niedel holds a bachelor's degree in psychology from the University of
Wisconsin and doctorates of medicine and biochemistry from the University of
Miami. He is a Fellow of the Royal College of Physicians (London) and a member
of the board of directors of CRF Box.
5
F. William Schmidt, age 62, 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.
GENERAL INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has standing Executive, Audit and Compensation
Committees. During fiscal year 2001, the Board of Directors held 4 meetings, the
Audit Committee held 2 meetings and the Compensation Committee held 2 meetings.
There were no meetings held by the Executive Committee during 2001. 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 compensation arrangements for the
officers of the Company and other compensation matters generally, for
recommending to the Board of Directors the compensation of the Company's chief
executive officer and non-employee directors, for establishing incentive
compensation or bonus plans and for evaluating board performance and
recommending nominees for election as directors. The Stock Option Subcommittee
of the Compensation Committee determines grants under and administers the Equity
Compensation Plan, subject, in certain instances, to approval by the Board of
Directors.
The current members of the Executive Committee are Messrs. Ahrens,
Rolf D. Schmidt (Chair), Miller and Toni; of the Audit Committee, Messrs.
Carey, Miller (Chair), Niedel and Thurman; and of the Compensation Committee,
Messrs. Ahrens, Carey (Chair), Thurman and F. William Schmidt. Messrs.
Ahrens, Carey (Chair) and Thurman comprise the Stock Option Subcommittee of the
Compensation Committee.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Each non-employee director receives $1,500
per day for each meeting of the Board of Directors attended either in person or
participated in telephonically. Non-employee directors of the Company do not
receive annual compensation, except in the case of the Chairman, Mr. Ahrens, who
receives $150,000. The Chairman may elect to receive options in lieu of all or
part of the annual compensation. Further, each non-employee director receives a
one-time grant of options to purchase 60,000 shares of Common Stock upon
election or appointment to the Board of Directors, with 50% of the options
vesting immediately and 25% vesting on each of the next two anniversaries of the
grant date. Any director may receive additional options as determined by the
Compensation Committee and subject to the approval of the Board.
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. Ronald A. Ahrens, a member of the Compensation Committee, received
$150,000 during 2001 in the form of stock options as compensation for his
service during 2002 as Chairman of the Board of Directors. Mr. Ahrens is a
member of the Stock Option Subcommittee of the Compensation Committee.
6
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 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.
7
APPROVAL AND ADOPTION OF THE AMENDED AND RESTATED
1996 EQUITY COMPENSATION PLAN
PROPOSAL
At the Annual Meeting, there will be presented to stockholders a
proposal to approve and adopt the Amended and Restated 1996 Equity Compensation
Plan, the form of which is attached hereto as Appendix A. The effect of the
Amended and Restated Plan would be to increase the number of shares authorized
for issuance under the Plan from 4,500,000 to 6,000,000 shares of Common Stock
and to increase the number of shares issuable annually to any individual under
the Plan from 300,000 to 500,000 shares. At its March 19, 2002 and April 26,
2002 meetings, the Board of Directors unanimously approved the proposed Amended
and Restated Plan subject to stockholder approval at the Annual Meeting. The
Amended and Restated Plan will not be effective unless and until stockholder
approval is obtained.
The Board of Directors believes that the Company's ability to grant
options and other awards under the Plan is, and under the Amended and Restated
Plan will be, a valuable and necessary compensation tool that aligns the
long-term financial interests of employees, officers and directors with the
financial interests of the Company's stockholders. The Board of Directors
believes that the Plan helps, and the Amended and Restated Plan will help, the
Company attract, retain and motivate employees, officers and directors and
encourages these individuals to devote their best efforts to the business and
financial success of the Company. As of April 10, 2002, options to purchase
3,437,779 shares of Common Stock were outstanding under the Plan and options to
purchase 779,087 remain available for future grants. An increase in the number
of shares available for issuance is necessary to meet the above objectives. In
connection with such increase, the Board of Directors believes that an increase
in the number of shares issuable annually to any individual is appropriate. The
Board of Directors believes that it is in the best interests of the Company and
its stockholders to incorporate these changes into the Plan.
The principal terms of the Plan are discussed below and, except where
noted, the terms of the Plan and the Amended and Restated Plan are the same.
VOTE REQUIRED FOR APPROVAL
Approval of the proposal to approve and adopt the Amended and Restated
Plan requires the affirmative vote of the holders of a majority of shares
present in person or represented by proxy at the Annual Meeting and entitled to
vote. Abstentions may be specified on the proposal and will be considered
present at the meeting, but will not be counted as affirmative votes.
Abstentions, therefore, will have the practical effect of voting against the
proposal because the affirmative vote of a majority of the shares present at the
meeting and entitled to vote with respect to this matter is required to approve
the proposal. Broker non-votes are considered not present at the meeting with
respect to this matter and, therefore, will not be voted or have any effect on
the proposal. The Board of Directors unanimously recommends a vote FOR the
proposal.
DESCRIPTION OF THE AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
The Plan was adopted by the Board of Directors on May 28, 1996 (the
"effective date") and was amended and restated most recently as of June 13,
2000. The Plan provides for grants of stock options to selected officers
(including officers who are also directors) of the Company or its subsidiaries,
other employees of the Company or its subsidiaries and independent contractors
and consultants who perform valuable services for the Company or its
subsidiaries. Non-employee directors of the Company are currently entitled to
receive stock option grants under the Plan. In addition, the Plan provides for
grants of restricted stock and stock appreciation rights ("SARs") (herein,
together with grants of stock options, collectively, "Grants") to participants
other than non-employee directors of the Company. Shares of Common Stock issued
or to be issued under the Plan are covered by registration statements on Form
S-8 filed with the SEC on December 12, 1996, February 25, 1999 and April 6,
2001. The Company intends to file an additional registration statement on Form
S-8 with the SEC to register the additional 1,500,000 shares of Common Stock if
the Amended and Restated Plan is approved by the stockholders. The last reported
sale price of the Company's Common Stock reported on the Nasdaq National Market
on April 23, 2002 was $15.98.
8
Subject to adjustment in certain circumstances as discussed below, the
Plan currently authorizes up to 4,500,000 shares of Common Stock for issuance
pursuant to the terms of the Plan. The proposed Amended and Restated Plan would
increase the number of authorized shares of Common Stock from 4,500,000 to
6,000,000. If and to the extent Grants under the Plan expire or are terminated
for any reason without being exercised, or the shares subject to a Grant are
forfeited, the shares of Common Stock subject to such Grant will again be
available for grant under the Plan.
The Plan is administered and interpreted by a committee (the
"Committee") of the Board of Directors consisting of not fewer than two persons
appointed by the Board of Directors from among its members, each of whom may be
a "non-employee director" as defined in Rule 16b-3 under the Exchange Act and an
"outside director" as defined by Section 162(m) of the Internal Revenue Code
(the "Code"). The Committee currently has the sole authority to determine (i)
persons to whom Grants may be made under the Plan, (ii) the type, size and other
terms and conditions of each Grant, (iii) the time when the Grants will be made
and the duration of any applicable exercise or restriction period, including the
criteria for vesting and the acceleration of vesting, and (iv) any other matters
arising under the Plan. The Committee has full power and authority to administer
and interpret the Plan, to make factual determinations and to adopt or amend
such rules, regulations, agreements and instruments for implementing the Plan,
and for conduct of its business as it deems necessary or advisable, in its sole
discretion. The Board of Directors has appointed a subcommittee of the
Compensation Committee, the Stock Option Subcommittee, to serve as this
Committee. Under the Plan, all grants of stock options to non-employee directors
shall be subject to the approval of the Board.
Grants under the Plan may consist of (i) options intended to qualify as
incentive stock options ("ISOs") within the meaning of section 422 of the Code,
(ii) "nonqualified stock options" that are not intended to so qualify ("NQSOs"),
(iii) restricted stock or (iv) SARs. Grants may be made to any employee
(including officers and directors) of, or independent contractors and
consultants to, the Company or its subsidiaries. Independent contractors or
consultants to the Company are not eligible to receive ISOs under the Plan. As
of April 10, 2002, 89 employees and eight directors (including seven
non-employee directors) were eligible for Grants under the Plan. During any
calendar year, no participants presently may receive Grants under the Plan for
more than 300,000 shares of Common Stock. The proposed Amended and Restated
Plan, if approved, would increase this amount to 500,000 shares of Common Stock.
The exercise price of any ISO granted under the Plan will not be less
than the fair market value of the underlying shares of Common Stock on the date
of grant, except that the exercise price of an ISO granted to an employee who
owns more than 10% of the total combined voting power of all classes of stock of
the Company or its subsidiaries may not be less than 110% of the fair market
value of the underlying shares of Common Stock on the date of grant. The
exercise price of an NQSO may be greater than, equal to or less than the fair
market value of the underlying shares of Common Stock on the date of grant. The
Committee will determine the term of each option; provided, however, that the
exercise period may not exceed ten years from the date of grant, and the
exercise period of an ISO granted to an employee who owns more than 10% of the
total combined voting power of all classes of stock of the Company or its
subsidiaries may not exceed five years from the date of grant. A participant may
pay the exercise price (i) in cash, (ii) with the approval of the Committee, by
delivering shares of Common Stock owned by the participant and having a fair
market value on the date of exercise equal to the exercise price or (iii) by a
combination of the foregoing. The participant may instruct the Company to
deliver the shares of Common Stock due upon the exercise to a designated broker
instead of to the participant. Under the Plan, the terms of any option grants to
non-employee directors shall be determined by the Committee, subject to approval
by the Board.
Non-employee directors of the Company are currently entitled to receive
NQSOs grants determined by the Committee and subject to approval by the Board.
However, each non-employee director will receive a one-time grant of an NQSO to
purchase 60,000 shares of Common Stock as of the date the non-employee director
became a member of the Board of Directors, subject to approval by the Board. The
exercise price of an NQSO granted would be the fair market value of a share of
Common Stock on the date of grant. The term of each such option would be ten
years, and the options would be exercisable with respect to 50% of the shares on
the date of grant and an additional 25% on each of the first two anniversaries
of the date of the grant, if the non-employee director continued to be a member
of the Board of Directors.
9
The Committee may also issue shares of Common Stock to participants
other than non-employee directors of the Company pursuant to the Plan. Shares
may be issued for cash consideration or for no cash consideration, as the
Committee determines. The number of shares of Common Stock granted to each
participant shall be determined by the Committee. Grants of restricted stock
will be made subject to such performance requirements, vesting provisions,
transfer restrictions or other restrictions and conditions as the Committee may
determine in its sole discretion. The Committee also may grant SARs to
participants other than non-employee directors of the Company in tandem with any
stock option pursuant to the Plan. Unless the Committee determines otherwise,
the exercise price of an SAR will be the greater of (i) the exercise price of
the related stock option or (ii) the fair market value of a share of Common
Stock on the date of grant of the SAR. When the participant exercises an SAR,
the participant will receive the amount by which the fair market value of the
Common Stock on the date of exercise exceeds the exercise price of the SAR. The
participant may elect to have such amount paid in cash or in shares of Common
Stock, subject to Committee approval. To the extent a participant exercises a
SAR, the related option shall terminate. Similarly, upon exercise of a stock
option, the related SAR, if any, shall terminate.
The Board of Directors may amend or terminate the Plan at any time;
provided, however, that, the Board of Directors may not, without stockholder
approval, amend the Plan to (i) increase (except for increases due to the
adjustments discussed below) the aggregate number of shares of Common Stock for
which Grants may be made thereunder, (ii) modify the requirements as to
eligibility to participate in the Plan or (iii) make any amendment that requires
stockholder approval pursuant to Section 162(m) of the Code. The Plan will
terminate on the day immediately preceding the tenth anniversary of its
effective date, unless terminated earlier by the Board of Directors or extended
by the Board of Directors with approval of the stockholders.
Subject to the change of control provisions described below, in the
event of certain transactions identified in the Plan, the Committee may
appropriately adjust (i) the number of shares of Common Stock (and the exercise
price per share) subject to the unexercised portion of any outstanding options
or SARs, (ii) the number of shares of Common Stock covered by outstanding Grants
and (iii) the number of shares of Common Stock for which Grants may be made
under the Plan, and such adjustments shall be effective and binding for all
purposes of the Plan. In the event of a change of control, 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 determined by the Committee, in an amount equal to the excess
of the then fair market value of the shares of Common Stock over the exercise
price. Any options or SARs not timely exercised or surrendered will terminate
unless exchanged or substituted with options or SARs of the successor
corporation. A change of control is defined as (i) a tender offer, merger or
other transaction as a result of which any person or group (other than Rolf D.
Schmidt, F. William Schmidt or any entity controlled by either or both of them)
becomes the owner, directly or indirectly, of more than 50.1% of the Common
Stock or the combined voting power of the Company's then outstanding securities,
(ii) a liquidation or a sale of substantially all of the Company's assets, or
(iii) if, during any period of two consecutive years, the individuals who, at
the beginning of such period, constituted the Board of Directors cease to
constitute a majority of the Board of Directors, except as otherwise provided in
the Plan.
Option grants to purchase the following number of shares of Common
Stock have been made under the Plan from inception of the Plan through April 10,
2002: Dennis D. Burns--101,000, Jeffrey G. Clark--120,100; William M.
Cotter--151,000; Robert V. Toni--561,600; Benny Ward--129,478; current executive
officers as a group--1,451,636; non-employee directors as a group--774,085; and
all other grants--1,802,305. Because options are granted from time to time by
the Committee to those persons whom the Committee determines in its discretion
should receive options, the benefits and amounts that may be received in the
future by persons eligible to participate in the Plan are not presently
determinable.
Under Section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated officers in any one year. Total remuneration includes amounts
received upon the exercise of stock options granted under the Plan and the value
of shares received when shares of restricted stock become vested (or such other
time when income is recognized). An exception does exist, however, for
10
"performance-based compensation," including amounts received upon the exercise
of stock options pursuant to a plan approved by stockholders that meets certain
requirements. The Plan is intended to allow grants of options thereunder to meet
the requirements of "performance-based compensation." Grants of restricted stock
generally will not qualify as "performance-based compensation."
There are no federal income tax consequences to a participant or to the
Company upon the grant of an NQSO under the Plan. Upon the exercise of an NQSO,
a participant will recognize ordinary compensation income in an amount equal to
the excess of the fair market value of the shares at the time of exercise over
the exercise price of the NQSO, and the Company generally will be entitled to a
corresponding federal income tax deduction. Upon the sale of shares acquired by
the exercise of an NQSO, a participant will have a capital gain or loss
(long-term or short-term depending upon the length of time the shares were held)
in an amount equal to the difference between the amount realized upon the sale
and the participant's adjusted tax basis in the shares (the exercise price plus
the amount of ordinary income recognized by the participant at the time of
exercise of the NQSO).
A participant who is granted an ISO will not recognize taxable income
for purposes of the regular income tax, upon either the grant or exercise of the
ISO. However, for purposes of the alternative minimum tax imposed under the
Code, in the year in which an ISO is exercised, the amount by which the fair
market value of the shares acquired upon exercise exceeds the exercise price
will be treated as an item of adjustment and included in the computation of the
recipient's alternative minimum taxable income. A participant who disposes of
the shares acquired upon exercise of an ISO after two years from the date the
ISO was granted and after one year from the date such shares were transferred to
him or her upon exercise of the ISO will recognize long-term capital gain or
loss in the amount of the difference between the amount realized on the sale and
the exercise price (or the participant's other tax basis in the shares), and the
Company will not be entitled to any tax deduction by reason of the grant or
exercise of the ISO. As a general rule, if a participant disposes of the shares
acquired upon exercise of an ISO before satisfying both holding period
requirements (a "disqualifying disposition"), his or her gain recognized on such
a disposition will be taxed as ordinary income to the extent of the difference
between the fair market value of such shares on the date of exercise and the
exercise price, and the Company will be entitled to a deduction in that amount.
The gain, if any, in excess of the amount recognized as ordinary income on such
a disqualifying disposition will be long-term or short-term capital gain,
depending upon the length of time the participant held his or her shares prior
to the disposition.
A participant normally will not recognize taxable income upon receiving
a grant of restricted stock, and the Company will not be entitled to a
deduction, until such stock is transferable by the participant or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the stock is either transferable or is no longer subject to
a substantial risk of forfeiture, the participant will recognize ordinary
compensation income in an amount equal to the fair market value of the shares
(less any amounts paid for such shares) at that time, and the Company will be
entitled to a deduction in the same amount. A participant may, however, elect to
recognize ordinary compensation income in the year the restricted stock Grant is
awarded in an amount equal to the fair market value of the shares subject to the
restricted stock Grant (less any amounts paid for such shares) at that time,
determined without regard to the restrictions. In such event, the Company
generally will be entitled to a corresponding deduction in the same year. Any
gain or loss recognized by the participant upon subsequent disposition of the
shares will be capital gain or loss. If, after making the election, any shares
subject to a restricted stock Grant are forfeited, or if the market value
declines during the restriction period, the participant will not be entitled to
any tax deduction or tax refund.
There are no federal income tax consequences to a participant or to the
Company upon the grant of an SAR under the Plan. Upon the exercise of an SAR, if
the participant receives the appreciation inherent in the SAR in cash, the
participant will recognize ordinary compensation income in an amount equal to
the cash received. If the participant receives the appreciation in shares, the
participant will recognize ordinary compensation income in an amount equal to
the fair market value of the shares received. The Company generally will be
entitled to a corresponding federal income tax deduction at the time of the
exercise of the SAR. Upon the sale of any shares acquired by the exercise of an
SAR, a participant will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the amount of ordinary income recognized by
the participant at the time of exercise of the SAR).
11
Because grants are to be made from time to time by the Committee to
persons whom the Committee determines in its discretion should receive grants,
the benefits and amounts that may be received in the future by persons eligible
to participate in the Plan are not presently determinable.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has approved the recommendation
of the Audit Committee for the appointment of PricewaterhouseCoopers LLP,
Raleigh, North Carolina, as independent public accountants to audit the
financial statements of the Company for the year 2002. PricewaterhouseCoopers
LLP has audited the Company's financial statements since 1992. There have been
no disagreements between the Company and PricewaterhouseCoopers LLP concerning
the Company's financial statements. It is intended that, unless otherwise
specified by the stockholders, votes will be cast pursuant to the proxy hereby
solicited in favor of the appointment of PricewaterhouseCoopers LLP.
Audit fees are approved by the Company's Audit Committee and all
professional services to be rendered by PricewaterhouseCoopers LLP are approved
by the Board of Directors. The Board considers the possible effect on auditors'
independence of providing nonaudit services prior to the service being rendered,
but the Board does not anticipate significant non-audit services will be
rendered during 2002 other than tax advisory services.
Fees for audit services include the examination of financial
statements, assistance with the preparation of the Annual Report to Stockholders
and the Annual Report on Form 10-K to the Securities and Exchange Commission,
tax computation assistance, and consultation in connection with various
accounting and tax related matters.
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting. Therefore, such representatives will have an
opportunity to make a statement or be available to respond to any questions from
stockholders.
Adoption of this proposal requires the affirmative vote of a majority
of the votes cast by all stockholders entitled to vote at the Annual Meeting.
The Board of Directors unanimously recommends a vote FOR this proposal.
It is understood that even if the selection of PricewaterhouseCoopers LLP
is ratified, the Board, at its discretion, may direct the appointment of a new
independent auditing firm at any time during the year if the Board determines
that such a change would be in the best interests of the Company and its
stockholders.
12
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, 2001 (the "Named
Officers").
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- ------------
Number of
Securities
Underlying
Other Annual Options All Other
Name and Principal Position Compensation Awarded Compensation
- ---------------------------- Year Salary($) Bonus($)/(1)/ ($) (#)/(1)/ ($)/(2)/
------ ---------- ----------- ---------- -------- --------
Robert V. Toni 2001 313,915 157,000 -- -- 14,643
President and Chief Executive 2000 289,127 -- -- 100,000 14,082
Officer 1999 274,039 135,000 -- 295,000 13,814
William M. Cotter 2001 195,927 80,000 -- -- 5,584
Vice President of Manufacturing and 2000 184,754 -- -- 30,000 7,518
Operations 1999 164,808 86,500 -- 41,000 6,957
Jeffrey G. Clark 2001 179,802 72,000 -- -- 6,277
Vice President of Research and 2000 164,840 -- -- 30,000 7,254
Development 1999 151,769 78,850 -- 30,000 6,387
Benny Ward 2001 159,862 65,000 -- -- 6,180
Vice President of Finance and 2000 144,174 -- -- 25,000 5,330
Chief Financial Officer 1999 /(3)/ -- -- -- -- --
Dennis D. Burns /(4)/ 2001 158,248 66,000 -- -- 9,414
Vice President/General Manager, 2000 152,123 -- -- 25,000 9,979
Internal Adhesives Division 1999 144,808 59,500 -- 36,000 4,084
/(1)/ Cash bonuses and stock option awards are reflected in the year of
payment or grant.
/(2)/ Represents Company-paid life and disability insurance premiums and
401(k) retirement plan matching contributions.
/(3)/ Mr. Ward was not an executive officer of the Company during 1999.
/(4)/ Mr. Burns ceased to be employed by the Company as of February 18, 2002.
13
STOCK OPTION INFORMATION
The following table sets forth information concerning stock option
exercises during 2001 as well as options outstanding as of December 31, 2001.
Aggregated Option Exercises in 2001 and 2001 Year-End Option Values
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Fiscal Year-End (#) at Fiscal Year-End ($) /(1)/
Acquired ---------------------- ----------------------------
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------- -------- -------- ----------- ------------- ----------- -------------
(#) ($)
Robert V. Toni -- -- 284,599 177,001 1,455,107 116,169
William M. Cotter -- -- 83,400 52,600 349,380 249,970
Jeffrey G. Clark -- -- 72,100 28,000 858,736 114,050
Benny Ward -- -- 50,423 58,055 445,848 355,917
Dennis D. Burns 11,200 111,328 43,866 45,934 93,721 200,644
/(1)/ Calculated on the basis of the closing sale price of $23.36 per share
of Common Stock on December 31, 2001 as quoted on the Nasdaq National
Market.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information regarding our compensation plans
under which our equity securities are authorized for issuance. The information
provided is as of December 31, 2001.
Weighted average
Number of securities to exercise price of Number of securities
be issued upon exercise outstanding options and remaining available
of outstanding options rights compensation for future issuance
Plan Category (a) plans (b) under equity (c)
- -------------------------------- ------------------------ -- ---------------------- ---------------------
Equity compensation plans 3,139,054 $20.51 2,539,546*
approved by security holders
Equity compensation plans not -- -- --
approved by security holders
* This number includes 1,454,759 shares reserved for issuance under the
Company's 1999 Employee Stock Purchase Plan.
14
EMPLOYMENT AGREEMENTS
Robert V. Toni and Jeffrey G. Clark each entered into an employment
agreement with the Company in May 1996. William M. Cotter, Benny Ward and Dennis
D. Burns entered into employment agreements with the Company commencing in June
1997, May 2000 and February 1998, respectively. The term of the employment
agreements of Messrs. Toni and Clark is from May 1, 1996 to May 31, 1999.
Messrs. Cotter's, Ward's and Burns' employment agreements have a two-year term
beginning on their commencement. Each of the employment agreements provides for
automatic one-year extensions unless 60 days' prior notice is given by either
party, except for Mr. Toni's agreement, which, pursuant to an amendment dated
March 27, 2002, requires 30 days' prior notice. Mr. Burns' employment agreement
was not renewed and expired as of February 18, 2002. The agreements provide for
annual base salaries for Messrs. Toni, Clark, Cotter, Ward and Burns of not less
than $215,000, $127,200, $150,000, $150,000 and $140,000, respectively, which
salaries may be increased as determined by the Compensation Committee or the
Board of Directors. Each agreement also provides for an annual bonus ranging
from 20% to 60% of base salary to be awarded based on performance milestones to
be established for each calendar year by the Compensation Committee based on the
recommendation of the Chief Executive Officer. In connection with the expiration
of his employment agreement as discussed above, Mr. Burns entered into a
Severance and Release Agreement with the Company in March 2002 pursuant to which
the Company will pay Mr. Burns six months' salary and benefits, and Mr. Burns
released the Company from all claims and waived all rights against the Company.
In connection with their employment agreements, in May 1996 the Company
granted to Messrs. Toni and Clark, respectively, options to purchase 66,600 and
40,100 shares of Common Stock under the Equity Compensation Plan at an exercise
price of $5.00 per share. Such options have a term of ten years and, provided
employment has not been terminated for "cause" (as defined in the employment
agreements), vest in five equal annual installments, commencing as of the date
of grant. In connection with their employment agreements, the Company granted to
Messrs. Cotter and Burns options to purchase 40,000 shares each of Common Stock
under the Equity Compensation Plan at an exercise price of $18.25 and $21.88 per
share, respectively. Mr. Ward was granted 50,000 shares of Common Stock under
the Equity Compensation Plan at an exercise price of $16.63. Messrs. Cotter's,
Ward's and Burns' options have a term of ten years and, provided employment has
not been terminated for "cause" (as defined in the Employment Agreements), vest
in five equal annual installments, commencing on the first anniversary of the
date of grant.
If, following a "change in control" (as defined in each agreement), any
of Messrs. Toni, Clark 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. If, following a "change in control" (as defined in
each agreement), Messrs. Ward or Burns is terminated other than for "cause" (as
defined in each agreement) or terminates his employment for "good reason" (as
defined in each agreement), he will be entitled to receive all accrued and any
pro rata incentive compensation to the date of termination and a continuation of
his then current annual salary, incentive compensation and benefits for one year
after such termination. In the event of termination for "cause," each of Messrs.
Clark, Cotter, Ward and Burns is entitled to a continuation of base salary,
incentive compensation and benefits for a period of one year. Mr. Toni is
entitled to such continuation for a period of 18 months. Pursuant to the
employment agreements, the Company has agreed to indemnify such executive
officers to the maximum extent permitted by applicable law against all costs,
charges and expenses incurred by each in connection with any action, suit or
proceeding to which he may be a party or in which he may be a witness by reason
of his being an officer, director or employee of the Company or any subsidiary
or affiliate of the Company. Each of the foregoing executive officers has agreed
not to compete with the Company for two years after termination of his
employment with the Company.
15
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.
16
THE MATERIAL IN THE FOLLOWING REPORT OF THE COMPENSATION
COMMITTEE AND THE PERFORMANCE GRAPH ON PAGE 21 IS NOT
SOLICITING MATERIAL, IS NOT DEEMED FILED WITH THE SEC UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE EXCHANGE
ACT, AND IS NOT INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO
ANY FILING OF THE COMPANY UNDER SUCH ACTS WHETHER MADE BEFORE
OR AFTER THE DATE OF THIS PROXY STATEMENT.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors consists of four
outside, non-employee directors. It is responsible for executive compensation,
including the review and approval of salaries and other compensation of
management employees, as well as the approval of all policies and plans under
which compensation is paid or awarded to management employees. A subcommittee of
the Compensation Committee, the Stock Option Subcommittee, administers the
Equity Compensation Plan and is responsible for grants of incentive compensation
under the Equity Compensation Plan. See "Matters Concerning Directors--General
Information Concerning the Board of Directors and its Committees."
General Compensation Philosophy
-------------------------------
The Company's basic compensation policy is that total cash compensation
should vary depending upon the Company's success in achieving specific financial
and non-financial goals and that long-term incentive compensation should be tied
to the creation of stockholder value. The Committee has considered the
interrelationship of the three elements of its compensation - salary, bonus and
incentive - to determine how they can be used to accomplish the Company's goals.
The Compensation Committee recognizes that, in the short-term, the
market value of the Company will be affected by many factors, some of which are
beyond the control of the Company's executives. In order to attract and retain
qualified executives, the Compensation Committee attempts to create a balanced
compensation package by combining components based upon the achievement of
long-term value to stockholders with components based upon the achievement of
annual performance milestones. These milestones are approved each year by the
Compensation Committee after recommendation by and discussion with the Chief
Executive Officer. They reflect financial and other specific goals to be
achieved in the coming year. The milestones for the Chief Executive Officer are
set by the Compensation Committee after discussion with the Chief Executive
Officer, and include additional goals. The Compensation Committee expects that
the achievement of these shorter-term goals will contribute to the long-term
success of the Company.
The Company competes with both medical device companies and
pharmaceutical companies in the hiring and retention of qualified personnel. The
Company uses long-term compensation, principally the grant of stock options, to
offset the advantages such companies may offer, such as less risk, higher cash
compensation and better retirement benefits.
The Company's compensation program for executive officers comprises
base salary, performance bonuses, longer-term incentive compensation in the form
of stock options, and benefits available generally to all of the Company's
employees. In 1998, the Company adopted an Employee Stock Purchase Plan to
permit investment in Company stock. The Compensation Committee believes that
such a plan will enhance stockholder value.
Compensation Components
-----------------------
Base Salary. Base salary levels for the Company's management employees
are reviewed on an annual basis by the Compensation Committee. In conducting
this review, the Compensation Committee considers competitive factors and
industry trends, as well as performance within the Company and changes in job
responsibility. The Committee considers the Company's guidelines for pay
increases based on level of performance. The Committee
17
also reviews certain compensation information publicly available and gathered
informally, and considers salary history at the Company. In setting the base
salaries for 2001, 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 2002
service, Mr. Toni's base salary was increased by 11.5%, from $314,000 to
$350,000.
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. The payment of any bonus will be
conditioned upon the achievement of budgeted earnings per share. In addition,
50% of an officer's bonus will be based on performance milestones tied to the
achievement of corporate goals and 50% will be based on the officer's
departmental goals. The granting of other bonuses is discretionary.
In determining the bonuses to the Company's executive officers for
2001, the Compensation Committee reviewed the percentage of completion of each
of the 2001 performance milestones and multiplied such percentage by the weight
assigned to each of the milestones, which included specific operating and
regulatory goals.
Stock Option Grants. The Equity Compensation Plan is the Company's
long-term equity incentive plan for employees. The objective of the Equity
Compensation Plan is to align the long-term financial interests of the option
holder with the financial interests of the Company's stockholders. Annual stock
option grants for management employees are an important element of competitive
compensation. Based on the recommendation of management, the Stock Option
Subcommittee may approve stock option grants to all employees based on employee
grade level and approved additional grants for special performance recognition.
Application of Section 162(m)
- -----------------------------
Payments during 2001 to the Company's executives under the
various programs discussed above were made with regard to the provisions of
Section 162(m) of the Internal Revenue Code. Section 162(m) limits the deduction
that may be claimed by a "public company" for compensation paid to certain
individuals to $1 million except to the extent that any excess compensation is
"performance-based compensation." It is intended that, in accordance with
current regulations, the amounts received upon the exercise of stock options
under the Equity Compensation Plan qualify as "performance-based compensation."
COMPENSATION COMMITTEE
Ronald A. Ahrens
Dennis C. Carey, Ph.D. (Chair)
Randy H. Thurman
F. William Schmidt
April 30, 2002
18
REPORT OF THE AUDIT COMMITTEE
The Company's Audit Committee (the "Committee") consists of four
non-employee directors that are considered independent according to the
guidelines set forth by the National Association of Securities Dealers. The
Board of Directors has adopted an amended and restated written charter for the
Audit Committee, which is included as Appendix B to this Proxy statement.
The Audit Committee reviews the Company's financial reporting process
on behalf of the Board. In addition, the Committee recommends to the Board,
subject to stockholder ratification, the selection of the Company's independent
public accountants.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent public accountants are responsible
for performing an independent audit of the Company's financial statements in
accordance with generally accepted auditing standards and to issue a report
thereon. The Committee's responsibility is to monitor and oversee these
processes.
In this context, the Committee has met and held discussions with
management and the independent public accountants. Management represented to the
Committee that the Company's audited financial statements were prepared in
accordance with generally accepted accounting principles, and the Committee has
reviewed and discussed the financial statements with management and the
independent public accountants. The Committee discussed with the independent
public accountants the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
In addition, the Committee has discussed with the independent public
accountants the auditor's independence from the Company and its management,
including the matters in the written disclosures required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
The Committee discussed with the Company's independent public
accountants the overall scope and plans for their audits. The Committee meets
with the independent public accountants, with and without management present, to
discuss the results of their examinations, the evaluations of the Company's
internal controls, and the overall quality of the Company's financial reporting.
Based upon the Committee's discussions with management and the
independent public accountants and the Committee's review of the representations
of management and the report of the independent public accountants to the
Committee, the Committee recommended that the Board include the audited
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the SEC.
THE AUDIT COMMITTEE
Dennis C. Carey
Richard W. Miller (Chair)
James E. Niedel, M.D., Ph.D.
Randy H. Thurman
April 30, 2002
19
PRICEWATERHOUSECOOPERS LLP FEES RELATED TO FISCAL 2001
Audit Fees:
The aggregate audit fees billed, or to be billed, by the Company's
independent auditors for professional services in connection with the audit of
the Company's annual financial statements for the fiscal year ended December 31,
2001 and the reviews conducted by the independent auditors of the financial
statements included in the Company's quarterly reports on Form 10-Q required to
be filed by the Company during fiscal 2001 totaled $68,750 which has been billed
through April 10, 2002.
Financial Information Systems Design and Implementation Fees:
The Company did not engage PricewaterhouseCoopers LLP to provide advice
to the Company regarding financial information systems design and implementation
during the fiscal year ended December 31, 2001.
All Other Fees:
The aggregate of all other fees by PricewaterhouseCoopers LLP for the
Company's 2001 fiscal year for all other non-audit services rendered to the
Company, primarily for tax related services, is approximately $12,350, of which
$5,850 has been billed.
The Audit Committee has considered whether the provision of non-audit
services by PricewaterhouseCoopers LLP is compatible with maintaining the
independence of PricewaterhouseCoopers LLP.
20
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 Stock Market- US Index"), (ii) the
Nasdaq Stock Market - Medical Devices, Instruments and Supplies Index ("Nasdaq
Medical Devices Index"), and (iii) the S&P Health Care Equipment and Supplies
Index ("S&P Equipment and Supplies"), assuming an investment of $100 on December
31, 1996 in each of the Common Stock of the Company, the stocks comprising the
Nasdaq - US Index, the stocks comprising the Nasdaq Medical Devices Index and
the stocks comprising the S&P Equipment and Supplies Index, and further assuming
reinvestment of dividends.
[GRAPHIC]
Closure Medical Corporation 100 175 202 87 244 158
Nasdaq Stock Market (U.S. Companies) 100 123 173 321 193 153
Nasdaq Medical Devices 100 114 127 154 159 174
S&P Equipment & Supplies Index 100 121 171 157 229 216
21
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP served as the Company's independent accountants
since 1992 and upon its merger with Coopers & Lybrand LLP in 1998, the Company
retained PricewaterhouseCoopers LLP as its independent accountants.
PricewaterhouseCoopers LLP has been selected to continue in such capacity for
the current year. The Company has requested that a representative of
PricewaterhouseCoopers LLP attend the Annual Meeting. Such representative will
have an opportunity to make a statement, if he or she desires, and will be
available to respond to appropriate questions of stockholders.
OTHER MATTERS
The Board of Directors is not aware of any matters not set forth herein
that may come before the Annual Meeting. If, however, further business properly
comes before the Annual Meeting, the persons named in the proxies will vote the
shares represented thereby in accordance with their judgment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
officers and persons who own more than ten percent of a registered class of the
Company's equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Directors, officers and greater-than-ten-percent stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file. Based solely on its review of the copies of such
reports received by the Company, the Company believes that during the year ended
December 31, 2001 all filing requirements applicable to its directors, officers
and greater-than-ten-percent stockholders were satisfied, with the following
exceptions: Jeffrey G. Clark and Joe B. Barefoot each filed one late Form 4 with
respect to one transaction.
STOCKHOLDER PROPOSALS FOR THE 2003 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 2003 annual meeting, such proposals must be received by the
Company no later than December 31, 2002. Proposals should be directed to the
attention of the Secretary of the Company.
By Order of the Board of Directors,
/s/Benny Ward
Benny Ward
Secretary
April 30, 2002
22
APPENDIX A
CLOSURE MEDICAL CORPORATION
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
As Amended Effective as of ,2002
------------------------------------
The purpose of the Closure Medical Corporation 1996 Equity
Compensation Plan (the "Plan") is to provide (i) designated officers and other
employees of Closure Medical Corporation (the "Company") and its subsidiaries,
(ii) non-employee members of the board of directors of the Company (the
"Board"), and (iii) independent contractors and consultants who perform
valuable services for the Company or its subsidiaries, with the opportunity to
receive grants of incentive stock options, nonqualified stock options, stock
appreciation rights and restricted stock. The Company believes that the Plan
will cause the participants to contribute materially to the growth of the
Company, thereby benefiting the Company's stockholders, and will align the
economic interests of the participants with those of the stockholders.
1. Administration
--------------
The Plan shall be administered and interpreted by a committee (the
"Committee"), which shall consist of two or more persons appointed by the
Board. The Committee may consist of "outside directors" as defined under
section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
and related Treasury regulations, and may be "non-employee directors" as
defined under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act").
Other than grants to Non-Employee Directors (as hereinafter defined),
whose grants shall be determined by the Committee and be subject to the
approval of the Board, the Committee shall have the sole authority to (i)
determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for vesting and the acceleration of vesting and (iv) deal with any
other matters arising under the Plan.
The Committee shall have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and
for the conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interests in the Plan or in
any awards granted hereunder. All powers of the Committee shall be executed in
its sole discretion (except with respect to grants to Non-Employee Directors),
in the best interest of the Company and in keeping with the objectives of the
Plan and need not be uniform as to similarly situated individuals.
2. Grants
------
Incentives under the Plan shall consist of grants of incentive stock
options, nonqualified stock options, stock appreciation rights and restricted
stock (hereinafter collectively referred to as "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to those other terms
and conditions consistent with this Plan as the Committee deems appropriate and
as are specified in writing by the Committee to the individual (the "Grant
Letter"). All Grants to Non-Employee Directors shall be subject to approval of
the Board. The Committee shall approve the form and provisions of each Grant
Letter to an individual. Grants under a particular Section of the Plan need not
be uniform as among the grantees.
3. Shares Subject to the Plan
--------------------------
(a) Subject to the adjustment specified below, the aggregate
number of shares of common stock of the Company (the "Company Stock") that may
be issued or transferred under the Plan is 6,000,000 shares in the
A-1
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 500,000
shares. The shares may be authorized but unissued shares of Company Stock or
reacquired shares of Company Stock, including shares purchased by the Company
on the open market for purposes of the Plan. If and to the extent options or
stock appreciation rights granted under the Plan terminate, expire, or are
canceled, forfeited, exchanged or surrendered without having been exercised or
if any shares of restricted stock are forfeited, the shares subject to such
Grants shall again be available for purposes of the Plan.
(b) If there is any change in the number or kind of shares of
Company Stock outstanding by reason of a stock dividend, recapitalization,
stock split, or combination or exchange of shares, or a merger, reorganization
or consolidation in which the Company is the surviving corporation,
reclassification or change in par value or by reason of any other extraordinary
or unusual events affecting the outstanding Company Stock as a class without
the Company's receipt of consideration, or if the value of outstanding shares
of Company Stock is substantially reduced due to the Company's payment of an
extraordinary dividend or distribution, then (i) the maximum number of shares
of Company Stock available for Grants, (ii) the maximum number of shares of
Company Stock which any one individual participating in the Plan may be granted
during the term of the Plan, (iii) the number of shares covered by outstanding
Grants, and (iv) the price per share or the applicable market value of such
Grants shall be proportionately adjusted by the Committee to reflect any
increase or decrease in the number or kind of issued shares of Company Stock to
preclude the enlargement or dilution of rights and benefits under such Grants;
provided, however, that any fractional shares resulting from such adjustment
shall be eliminated. The adjustments determined by the Committee shall be
final, binding and conclusive. Notwithstanding the foregoing, no adjustment
shall be authorized or made pursuant to this Section to the extent that such
authority or adjustment would cause any incentive stock option to fail to
comply with section 422 of the Code.
4. Eligibility for Participation
-----------------------------
All employees of the Company and its subsidiaries ("Employees"),
including Employees who are officers or members of the Board, shall be eligible
to participate in the Plan. Any independent contractors or consultants who
perform valuable services to the Company or any of its subsidiaries
("Consultants") and Non-Employee Directors shall be eligible to participate in
the Plan, but shall not be eligible to receive incentive stock options.
The Committee shall select the Employees and Consultants to receive
Grants and determine the number of shares of Company Stock subject to a
particular Grant in such manner as the Committee determines. The Committee,
subject to the approval of the Board, shall select the Non-Employee Directors
to receive grants and determine the number of shares of Company Stock subject
to a particular Grant in such manner as the Committee, subject to the approval
of the Board, determines. Employees, Consultants, and Non-Employee Directors
who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".
Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including options
granted to employees thereof who become Employees of the Company, or for other
proper corporate purpose, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan.
5. Granting of Options
-------------------
(a) Number of Shares. The Committee, in its sole discretion, shall
----------------
determine the number of shares of Company Stock that will be subject to each
Grant of stock options to any Employee or Consultant. The Committee, subject to
approval by the Board, shall determine the number of shares of Company Stock
that will be subject to each Grant of stock options to any Non-Employee
Director.
(b) Type of Option and Price. The Committee may grant options
------------------------
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code ("Incentive Stock Options") or options which are not intended
to so qualify ("Nonqualified Stock Options") or any combination of Incentive
Stock Options and
A-2
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, subject to approval by the Board in the case of
Grants to Non-Employee Directors and may be equal to, greater than, or less
than the Fair Market Value (as defined below) of a share of such Stock on the
date such Stock Option is granted; provided, however, that (i) the purchase
price of Company Stock subject to an Incentive Stock Option shall be equal to,
or greater than, the Fair Market Value of a share of such Stock on the date
such Stock Option is granted and (ii) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the option price
per share is not less than 110% of the Fair Market Value of Company Stock on
the date of grant.
If the Company Stock is traded in a public market, then the Fair
Market Value per share shall be (i) if the principal trading market for the
Company Stock is a national securities exchange or the National Market segment
of the Nasdaq Stock Market, the last reported sale price thereof on the
relevant date or (if there were no trades on that date) the latest preceding
date upon which a sale was reported, or (ii) if the Company Stock is not
principally traded on such exchange or market, the mean between the last
reported "bid" and "asked" prices thereof on the relevant date, as reported on
Nasdaq, or, if not so reported, as reported by the National Daily Quotation
Bureau, Inc. or as reported in a customary financial reporting service, as
applicable and as the Committee determines. If the Company Stock is not traded
in a public market or subject to reported transactions or "bid" or "ask"
quotations as set forth above, the Fair Market Value per share shall be as
determined by the Committee.
(c) Option Term. The Committee shall determine the term of each
-----------
Stock Option, subject to approval by the Board in the case of Grants to
Non-Employee Directors. The term of any Stock Option shall not exceed ten years
from the date of grant. Notwithstanding the foregoing, an Incentive Stock
Option may not be granted to an Employee who, at the time of grant, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
unless the option term does not exceed five years from the date of grant.
(d) Exercisability of Options. Stock Options shall become
-------------------------
exercisable in accordance, subject to approval by the Board in the case of
Grants to Non-Employee Directors, with the terms and conditions determined by
the Committee, in its sole discretion, and specified in the Grant Letter. The
Committee, in its sole discretion, may accelerate the exercisability of any or
all outstanding Stock Options at any time for any reason. A Grantee's
outstanding Stock Options shall become fully exercisable if the Grantee dies
while employed by or providing services to the Company. In addition, all
outstanding Stock Options automatically shall become fully and immediately
exercisable upon a Change of Control (as defined herein) in accordance with the
provisions of Section 10.
(e) Manner of Exercise. A Grantee may exercise a Stock Option
------------------
which has become exercisable, in whole or in part, by delivering a notice of
exercise to the Committee with accompanying payment of the option price in
accordance with Subsection (g) below. Such notice may instruct the Company to
deliver shares of Company Stock due upon the exercise of the Stock Option to
any registered broker or dealer designated by the Committee in lieu of delivery
to the Grantee. Such instructions must designate the account into which the
shares are to be deposited.
A-3
(f) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, a Stock Option may only be
exercised while the Grantee is employed by the Company as an Employee,
Consultant or member of the Board. In the event that a Grantee ceases to be
employed by the Company for any reason other than a "disability", death, or
"termination for cause", any Stock Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within 90 days after the date on which
the Grantee ceases to be employed by the Company (or within such other period
of time as may be specified in the Grant Letter), but in any event no later
than the date of expiration of the option term. Any of the Grantee's Stock
Options which are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by the Company as described in this subsection (i) shall
terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the
Company on account of a "termination for cause" by the Company, any Stock
Option held by the Grantee shall terminate as of the date the Grantee ceases to
be employed by the Company.
(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled", any Stock Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified in the Grant Letter), but
in any event no later than the date of expiration of the option term. Any of
the Grantee's Stock Options which are not otherwise exercisable as of the date
on which the Grantee ceases to be employed by the Company as described in this
subsection (iii) shall terminate as of such date.
(iv) If the Grantee dies while employed by the Company or
within 90 days after the date on which the Grantee ceases to be employed by the
Company on account of a termination of employment specified in Section 5(f)(i)
above (or within such other period of time as may be specified in the Grant
Letter), any Stock Option which is otherwise exercisable by the Grantee
(subject to the provisions of Section 5(d)) shall terminate unless exercised
within one year after the date on which the Grantee ceases to be employed by
the Company (or within such other period of time as may be specified in the
Grant Letter), but in any event no later than the date of expiration of the
option term. Except as provided in Section 5(d), any of the Grantee's Stock
Options which are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by the Company shall terminate as of such date.
(v) For purposes of this Section 5(f), the term "Company"
shall include the Company's subsidiaries, and the following terms shall be
defined as follows: (A) "disability" shall mean a Grantee's becoming disabled
within the meaning of section 22(e)(3) of the Code and (B) "termination for
cause" shall mean, except to the extent otherwise provided in a Grantee's Grant
Letter, a finding by the Committee, after full consideration of the facts
presented on behalf of both the Company and the Grantee, that the Grantee has
breached his or her employment or service contract with the Company, or has
been engaged in disloyalty to the Company, including, without limitation,
fraud, embezzlement, theft, commission of a felony or proven dishonesty in the
course of his or her employment or service, or has disclosed trade secrets or
confidential information of the Company to persons not entitled to receive such
information. In such event, in addition to the immediate termination of the
Stock Option, the Grantee shall automatically forfeit all option shares for any
exercised portion of a Stock Option for which the Company has not yet delivered
the share certificates upon refund by the Company of the option price paid by
the Grantee for such shares.
(g) Satisfaction of Option Price. The Grantee shall pay the option
----------------------------
price specified in the Grant Letter in (i) cash, (ii) with the approval of the
Committee, by delivering shares of Company Stock owned by the Grantee
(including Company Stock acquired in connection with the exercise of a Stock
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the option price or
(iii) through any combination of (i) and (ii). The Grantee shall pay the option
price and the amount of withholding tax due, if any, at the time of exercise.
Shares of Company Stock shall not be issued or transferred upon exercise of a
Stock Option until the option price is fully paid and any required withholding
is made.
A-4
(h) Limits on Incentive Stock Options. Each Incentive Stock Option
---------------------------------
shall provide that, to the extent that the aggregate Fair Market Value of the
stock on the date of the grant with respect to which Incentive Stock Options
are exercisable for the first time by a Grantee during any calendar year under
the Plan or any other stock option plan of the Company or a parent or
subsidiary exceeds $100,000, then such option as to the excess shall be treated
as a Nonqualified Stock Option. An Incentive Stock Option shall not be granted
to any participant who is not an Employee of the Company or any parent or
subsidiary (within the meaning of section 424(f) of the Code).
6. Restricted Stock Grants
-----------------------
The Committee may issue or transfer shares of Company Stock to an
Employee or Consultant under a Grant of restricted stock (a "Restricted Stock
Grant"), upon such terms as the Committee deems appropriate. The following
provisions are applicable to Restricted Stock Grants:
(a) General Requirements. Shares of Company Stock issued pursuant
--------------------
to Restricted Stock Grants may be issued for consideration or for no
consideration, at the sole discretion of the Committee. The Committee shall
establish conditions under which restrictions on the transfer of shares of
Company Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of years during which
the Restricted Stock Grant will remain subject to restrictions will be
designated in the Grant Letter as the "Restriction Period."
(b) Number of Shares. The Committee shall grant to each Grantee a
----------------
number of shares of Company Stock pursuant to a Restricted Stock Grant in such
manner as the Committee determines.
(c) Requirement of Employment. If the Grantee ceases to be
-------------------------
employed by the Company (as an Employee or Consultant) during a period
designated in the Grant Letter as the Restriction Period, or if other specified
conditions are not met, the Restricted Stock Grant shall terminate as to all
shares covered by the Grant as to which restrictions on transfer have not
lapsed and those shares of Company Stock must be immediately returned to the
Company. The Committee may, however, provide for complete or partial exceptions
to this requirement as it deems equitable.
(d) Restrictions on Transfer and Legend on Stock Certificate.
--------------------------------------------------------
During the Restriction Period, a Grantee may not sell, assign, transfer, pledge
or otherwise dispose of the shares of Company Stock to which such Restriction
Period applies except to a Successor Grantee (as defined below) under Section
9. Each certificate for a share issued or transferred under a Restricted Stock
Grant shall contain a legend giving appropriate notice of the restrictions in
the Grant. The Grantee shall be entitled to have the legend removed from the
stock certificate covering any of the shares subject to restrictions when all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. During the Restriction
--------------------------------------
Period, unless the Committee determines otherwise, the Grantee shall have the
right to vote shares subject to the Restricted Stock Grant and to receive any
dividends or other distributions paid on such shares, subject to any
restrictions deemed appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed under the
---------------------
Restricted Stock Grant shall lapse upon the expiration of the applicable
Restriction Period and the satisfaction of any conditions imposed by the
Committee. The Committee may determine, as to any or all Restricted Stock
Grants, that all the restrictions shall lapse without regard to any Restriction
Period. The restrictions on a Grantee's outstanding Restricted Stock Grants
shall automatically and immediately lapse if the Grantee dies while employed by
or providing services to the Company. All restrictions under all outstanding
Restricted Stock Grants shall automatically and immediately lapse upon a Change
of Control.
7. Stock Appreciation Rights
-------------------------
(a) General Requirements. The Committee may grant stock
--------------------
appreciation rights ("SARs") to any Grantee in tandem with any Stock Option,
for all or a portion of the applicable Stock Option, either at the time the
Stock Option is granted or at any time thereafter while the Stock Option
remains outstanding; provided, however,
A-5
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 underlying
Company Stock on the date of exercise of the SAR exceeds the base price of the
SAR as described in subsection (a).
(d) Form of Payment. At the time of such exercise, the Grantee
---------------
shall have the right to elect the portion of the amount to be received that
shall consist of cash and the portion that shall consist of shares of Company
Stock, which for purposes of calculating the number of shares of Company stock
to be received, shall be valued at their Fair Market Value on the date of
exercise of such SARs. The Committee shall have the right to disapprove a
Grantee's election to receive cash in full or partial settlement of the SARs
exercised and to require that shares of Company Stock be delivered in lieu of
cash. If shares of Company Stock are to be received upon exercise of an SAR,
cash shall be delivered in lieu of any fractional share.
(e) Certain Restrictions. An SAR is exercisable only during the
--------------------
period when the Stock Option to which it is related is also exercisable.
8. Transferability of Grants
-------------------------
Only the Grantee or his or her authorized representative may exercise
rights under a Grant. Such persons may not transfer those rights except by will
or by the laws of descent and distribution or, with respect to Grants other
than Incentive Stock Options, if permitted in any specific case by the
Committee in its sole discretion pursuant to a qualified domestic relations
order (as defined under the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the representative or other person entitled to succeed to the
rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable
laws of descent and distribution.
Notwithstanding the foregoing, the Committee may provide, in a Grant
Letter, that a Grantee may transfer Nonqualified Stock Options to his or her
children, grandchildren or spouse or to one or more trusts for the benefit of
such family members or to partnerships in which such family members are the
only partners (a "Family Transfer"), provided that the Grantee receives no
consideration for a Family Transfer and the Grant Letters relating to
Nonqualified Stock Options transferred in a Family Transfer continue to be
subject to the same terms and conditions that were applicable to such
Nonqualified Stock Options immediately prior to the Family Transfer.
9. Change of Control of the Company
--------------------------------
As used herein, a "Change of Control" shall be deemed to have occurred
if:
(a) As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, or sale or
transfer of assets, any person or group (as such terms are used in and under
Section 13(d) of the Exchange Act), but excluding Rolf D. Schmidt and F.
William Schmidt or any entity controlled by either or both of them, becomes the
beneficial owner (as defined in Rule 13-d under the Exchange Act), directly
A-6
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.
10. Consequences of a Change of Control
-----------------------------------
(a) Notice.
------
(i) If a Change of Control described in Section 9(a) or
(b) will occur, then, not later than 10 days after the approval by the
stockholders of the Company (or approval by the Board, if stockholder action is
not required) of such Change of Control, the Company shall give each Optionee
with any outstanding Stock Options written notice of such proposed Change of
Control.
(ii) If a Change of Control described in Section 9(a) may
occur without approval by the stockholders (or approval by the Board) and does
so occur, or if a Change of Control described in Section 9(c) occurs, then, not
later than 10 days after such Change of Control, the Company shall give each
Optionee with any outstanding Stock Options written notice of the Change of
Control.
(b) Election Period. In connection with the Change of Control and
---------------
effective only upon such Change of Control:
(i) All outstanding Stock Options shall be fully
exercisable and the restrictions on all outstanding Restricted Stock shall
immediately lapse; and
(ii) Each Grantee shall thereupon have the right, within 20
days after such written notice is sent by the Company (the "Election Period"),
to make an election as described in Subsection (c) with respect to all of his
or her outstanding Stock Options (whether the right to exercise such Stock
Options has then accrued or the right to exercise such Stock Options will occur
or has occurred upon the Change of Control).
(c) Election Right. Effective upon a Change of Control, the
--------------
Grantees shall have the right to exercise Stock Options as described in
Subsection (i) below, and the Committee may determine, in its sole discretion,
that Grantees will have the right described in Subsection (ii) below. During
the Election Period, subject to the preceding sentence, each Grantee shall have
the right to elect:
(i) To exercise in full any installments of such Stock
Options not previously exercised, or
(ii) If so determined by the Committee, to surrender all or
part of such outstanding Stock Options, in exchange for a payment by the
Company, in cash or Company Stock as determined by the Committee, in an amount
equal to the excess over the purchase price of the then Fair Market Value of
the shares of Company Stock subject to the Grantee's outstanding Stock Options.
(d) Termination of Stock Options. If a Grantee does not make a
----------------------------
timely election in accordance with Subsection (c) in connection with a Change
of Control where the Company is not the surviving corporation (or survives only
as a subsidiary of another corporation), the Grantee's Stock Options shall
terminate as of the Change of Control. Notwithstanding the foregoing, a Stock
Option will not terminate if assumed by the surviving or acquiring corporation,
or its parent, upon a merger or consolidation and, with respect to an Incentive
Stock Option, the
A-7
assumption of the Option shall occur under circumstances which are not deemed a
modification of the Option within the meaning of sections 424(a) and
424(h)(3)(A) of the Code.
(e) Tax Limitations. Notwithstanding the foregoing, if the right
---------------
described in Subsection (c)(ii) would make the applicable Change of Control
ineligible for desired tax treatment with respect to such Change of Control
and, but for those provisions, the Change of Control would otherwise qualify
for such treatment, and if the Committee determines that Subsection (c)(ii)
shall be effective, the Grantee shall receive shares of Company Stock with a
Fair Market Value equal to the cash that would otherwise be payable pursuant to
Subsection (c)(ii) in substitution for such cash.
11. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any
---------
time; provided, however, that any amendment that increases the aggregate number
(or individual limit for any single Grantee) of shares of Company Stock that
may be issued or transferred under the Plan (other than by operation of Section
3(b)), or modifies the requirements as to eligibility for participation in the
Plan, shall be subject to approval by the stockholders of the Company and
provided, further, that the Board shall not amend the Plan without stockholder
approval if such approval is required by section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day
-------------------
immediately preceding the tenth anniversary of its effective date unless
terminated earlier by the Board or unless extended by the Board with the
approval of the stockholders.
(c) Termination and Amendment of Outstanding Grants. A
-----------------------------------------------
termination or amendment of the Plan that occurs after a Grant is made shall
not materially impair the rights of a Grantee unless the Grantee consents or
unless the Committee acts under Section 20(b). The termination of the Plan
shall not impair the power and authority of the Committee with respect to an
outstanding Grant. Whether or not the Plan has terminated, an outstanding
Grant may be terminated or amended under Section 20(b) or may be amended by
agreement of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling
------------------
document. No other statements, representations, explanatory materials or
examples, oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and assigns.
12. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
13. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee, Consultant or other
person to any claim or right to be granted a Grant under this Plan. Neither
this Plan nor any action taken hereunder shall be construed as giving any
individual any rights to be retained by or in the employ of the Company or any
other employment rights.
14. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
15. Withholding of Taxes
--------------------
A-8
(a) Required Withholding. The Company shall have the right to
--------------------
deduct from all Grants paid in cash, or from other wages paid to the Grantee,
any federal, state or local taxes required by law to be withheld with respect
to such cash awards and, in the case of Grants paid in Company Stock, the
Grantee or other person receiving such shares shall be required to pay to the
Company the amount of any such taxes which the Company is required to withhold
with respect to such Grants or the Company shall have the right to deduct from
other wages paid by the Company the amount of any withholding due with respect
to such Grants.
(b) Election to Withhold Shares. A Grantee may make an election to
---------------------------
satisfy the Company income tax withholding obligation with respect to a Stock
Option, SAR or Restricted Stock by having shares withheld up to an amount that
does not exceed the Grantee's maximum marginal tax rate for federal (including
FICA), state and local tax liabilities. Such election must be in the form and
manner prescribed by the Committee and is subject to the prior approval of the
Committee.
16. Requirements for Issuance of Shares
-----------------------------------
No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Grantee hereunder on such Grantee's undertaking in
writing to comply with such restrictions on his or her subsequent disposition
of such shares of Company Stock as the Committee shall deem necessary or
advisable as a result of any applicable law, regulation or official
interpretation thereof and certificates representing such shares may be
legended to reflect any such restrictions. Certificates representing shares of
Company Stock issued under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws, regulations
and other obligations of the Company, including any requirement that a legend
or legends be placed thereon.
17. Headings
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
18. Effective Date of the Plan.
--------------------------
This Plan shall be effective, as amended and restated on [ ].
19. Miscellaneous
-------------
(a) Substitute Grants. The Committee may make a Grant to an
-----------------
employee of another corporation who becomes an Employee by reason of a
corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation ("Substituted Stock Incentives"). The terms and conditions of the
substitute grant may vary from the terms and conditions required by the Plan
and from those of the Substituted Stock Incentives. The Committee shall
prescribe the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Stock Options
-------------------
and the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation.
The Committee may also adopt rules regarding the withholding of taxes on
payments to Grantees. The Committee may, in its sole discretion, agree to limit
its authority under this Section.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have
------------------
no rights as a stockholder with respect to any shares of Company Stock covered
by a Grant until the shares are issued or transferred to the Grantee or
Successor Grantee on the stock transfer records of the Company.
A-9
(d) Governing Law. The validity, construction, interpretation and
-------------
effect of the Plan and Grant Letters issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the State of Delaware.
###
A-10
APPENDIX B
AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
--------------------------------------------
ORGANIZATION
There shall be a committee of the board of directors of Closure Medical
Corporation (the "Company") to be known as the Audit Committee (the
"Committee"). The Audit Committee shall be composed of directors who are
independent (as defined in Appendix A) of the management of the Company and are
free of any relationship that, in the opinion of the board of directors, would
interfere with their exercise of independent judgment as a Committee member.
Each member of the Audit Committee shall be able to read and understand
financial statements or will become able to do so within a reasonable period of
time after his or her appointment to the Committee. In addition, at least one
member of the Audit Committee shall have past employment experience in finance
or accounting, requisite professional certification in accounting, or any other
comparable experience or background which results in that member's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.
The members of the Audit Committee shall be elected by the board of directors
at the annual meeting of the board of directors and shall serve until their
successors shall be duly elected and qualified. The Chair of the Committee
shall be elected by the board of directors.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders,
and investment community relating to corporate accounting, reporting practices
of the Company, and the quality and integrity of the financial reports of the
Company. In so doing, it is the responsibility of the Audit Committee to
maintain free and open means of communication between the directors, the
independent auditors and the financial management of the Company.
RESPONSIBILITIES
In carrying out its responsibilities, the Committee believes its policies and
procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the Company are in accordance with all
requirements and are of the highest quality.
The Audit Committee recognizes that financial management and the independent
auditors, have more time, knowledge and more detailed information on the
Company than do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special
assurance as to the Company's financial statements or any professional
certification as to the independent auditors' work.
In carrying out these responsibilities, the Audit Committee will:
... Review the independence and performance of the auditors, annually recommend
to the board of directors the appointment of the independent auditors or
approve any discharge of auditors when circumstances warrant, and approve
the fees and other compensation to be paid to the independent auditors. The
independent auditors are ultimately accountable to the board of directors
and the Audit Committee as representatives for the Company's shareholders.
... Receive from the independent auditors a formal written statement
delineating all relationships between the independent auditors and the
Company, consistent with Independence Standards Board Statement No. 1.
B-1
... Review with the independent auditors and financial management of the
Company the scope of the proposed audit for the current year and the audit
procedures to be utilized, and at the conclusion thereof review such audit,
including any comments or recommendations of the independent auditors.
... Review with the independent auditors, the Company's financial and
accounting personnel and the accounting and financial controls of the
Company. Further, the Committee periodically should review adherence to the
Company's code of conduct.
... Review the financial statements contained in the annual report to
shareholders with management and the independent auditors. Any changes in
accounting principles should be reviewed.
... Provide sufficient opportunity for the independent auditors to meet with
the members of the Audit Committee without members of management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of the Company's financial, accounting, and auditing
personnel, and the cooperation that the independent auditors received
during the course of the audit.
... Submit the minutes of all meetings of the Audit Committee to, or discuss
the matters discussed at each Committee meeting with, the board of
directors.
... Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
... Review with management and the independent auditors the Company's quarterly
financial statements prior to the filing of its reports on Form 10-Q,
including the results of the review by the independent auditors of the
quarterly financial statements.
... Approve the retention of the independent auditors for any non-audit
service, other than tax services, and the fee for such service.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is
the responsibility of management and the independent auditors. Nor is it the
duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditors or to
assure compliance with laws and regulations.
B-2
APPENDIX A
----------
"Independent Director" means a person other than an officer or employee of the
Company or its subsidiaries or any other individual having a relationship that,
in the opinion of the Company's board of directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. The following persons shall not be considered independent:
(a) a director who is employed by the Company or any of its affiliates
for the current year or any of the past three years;
(b) a director who accepts any compensation from the Company or any of its
affiliates in excess of $60,000 during the previous fiscal year, other
than compensation for board service, benefits under a tax-qualified
retirement plan, or non-discretionary compensation;
(c) a director who is a member of the immediate family of an individual
who is, or has been in any of the past three years, employed by the
Company or any of its affiliates as an executive officer. Immediate
family includes a person's spouse, parents, children, siblings,
mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, and anyone who resides in such person's
home;
(d) a director who is a partner in, or controlling shareholder or an
executive officer of any for-profit business organization to which the
Company made, or from which the Company received, payments (other than
those arising solely from investments in the Company's securities)
that exceed five (5%) percent of the Company's or business
organization's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years;
(e) a director, who is employed as an executive of another entity where
any of the Company's executives serve on that entity's compensation
committee.
###
B-3
PROXY
CLOSURE MEDICAL CORPORATION
5250 Greens Dairy Road
Raleigh, North Carolina 27616
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert V. Toni and Benny Ward, or
either of them acting singly in the absence of the other, each with the power to
appoint his substitute, the Proxy Agents of the undersigned to attend the Annual
Meeting of Stockholders of Closure Medical Corporation (the "Company") to be
held June 18, 2002 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.
(Continued and to be signed on reverse side.)
SEE REVERSE
SIDE
Please date, sign and mail your
proxy card back as soon as possible.
Annual Meeting of Stockholders
CLOSURE MEDICAL CORPORATION
June 18, 2002
(arrow) Please Detach and Mail in the Envelope Provided (arrow)
- --------------------------------------------------------------------------------
A [X] Please mark your
votes as in this
example.
FOR WITHHELD
1. Election of [ ] [ ] Nominees: Randy H. Thurman
Directors Robert V. Toni
Class III
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 number of shares
authorized for issuance under the Plan and to
increase the number of shares issuable annually to
any individual under the Plan.
3. Ratification of the selection by the Board of
Directors of PricewaterhouseCoopers LLP as the [ ] [ ] [ ]
Company's independent accountants for the fiscal
year ending December 31, 2002.
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 and FOR Proposal Number
2 and 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:__________________ , 2002
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.
- --------------------------------------------------------------------------------