SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Closure Medical Corporation
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO]
-------------------------------
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 3, 1998
-------------------------------
To Our Stockholders:
Notice is hereby given that the 1998 Annual Meeting of stockholders
(the "Annual Meeting") of CLOSURE MEDICAL CORPORATION (the "Company") will be
held on June 3, 1998 at 9:00 a.m., local time, at the Crabtree Valley Marriott,
4500 Marriott Drive, Raleigh, North Carolina, for the following purposes:
1. To elect two Class II directors to the Board of Directors,
each to serve a three-year term or until the election and
qualification of his successor;
2. To approve and adopt an amendment to the Company's Amended and
Restated 1996 Equity Compensation Plan (the "Plan") to
increase the number of shares authorized for issuance under
the Plan; and
3. To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements
thereof.
Only stockholders of record as of the close of business on April 27,
1998 will be entitled to vote at the Annual Meeting and any adjournments or
postponements thereof. A list of stockholders of the Company as of the close of
business on April 27, 1998 will be available for inspection during normal
business hours for ten days prior to the Annual Meeting at the Company's
executive offices at 5250 Greens Dairy Road, Raleigh, North Carolina.
By Order of the Board of Directors,
J. Blount Swain
Secretary
May 5, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN
AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
CLOSURE MEDICAL CORPORATION
5250 Greens Dairy Road
Raleigh, NC 27616
-------------------------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 3, 1998
-------------------------------
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 3, 1998 and any adjournments or
postponements thereof (the "Annual Meeting"). This Proxy Statement and the
enclosed Proxy Card are being mailed to stockholders on or about May 5, 1998.
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, 1997, including financial statements and other information with respect to
the Company, is being mailed to stockholders with this Proxy Statement but does
not constitute a part of this Proxy Statement.
VOTING AT THE MEETING
Record Date; Vote Required; Proxies
Only stockholders of record at the close of business on April 27, 1998
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 13,257,660 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 withhold authority to vote for either nominee for the Board of
Directors and to vote for or against or to abstain from voting with respect to
the proposal to approve and adopt the amendment to the Company's Amended and
Restated 1996 Equity Compensation Plan (the "Plan") to increase the number of
shares authorized for issuance under the Plan (the "Plan Amendment").
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 Plan Amendment or to take action with respect to any other matter that
may properly be brought before the Annual Meeting.
<PAGE>
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 Plan Amendment (but not for the election of
directors). Abstentions will be considered present and entitled to vote at the
Annual Meeting, but will not be counted as votes cast in the affirmative.
Abstentions on the proposal to approve and adopt the Plan Amendment 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.
Brokers who hold shares in street name for customers have the authority
under the rules of the various stock exchanges to vote on certain items when
they have not received instructions from beneficial owners. The Company believes
that brokers that do not receive instructions are entitled to vote those shares
with respect to the election of directors; however, the Company believes that
brokers are not entitled to vote such shares with respect to the proposal to
approve and adopt the Plan Amendment. A failure by brokers to vote these shares
will have no effect on the outcome of the election of directors or on the
proposal to approve and adopt the Plan Amendment.
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
<PAGE>
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 14, 1998 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:
<TABLE>
<CAPTION>
<S> <C>
Shares
Beneficially Owned(1)
---------------------
Name of Beneficial Owner Number Percent
------------------------ ------ -------
Rolf D. Schmidt (2)(3).................................. 3,174,910 23.9%
F. William Schmidt (3)(4)............................... 3,134,910 23.6%
Robert V. Toni (3)(5)................................... 699,600 5.3%
J. Blount Swain (3)..................................... 468,180 3.5%
Jeffrey G. Clark (3).................................... 468,160 3.5%
Joe B. Barefoot (3)(6).................................. 355,041 2.7%
Dennis C. Carey (3)..................................... 42,599 *
Randy H. Thurman (3).................................... 35,079 *
Richard W. Miller (3)................................... 15,620 *
William M. Cotter (3)................................... -- --
All directors and executive officers as a group (12
persons) (7)............................................ 7,803,457 57.9%
</TABLE>
- -------------------------
* 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 14, 1998.
(2)The address of the stockholder is 205 Sweitzer Road, Sinking Spring, PA
19608. Includes (a) 2,246,945 shares held by Cacoosing Partners, L.P., a
limited partnership of which Rolf D. Schmidt is the sole general partner,
for which shares he is deemed to have sole voting and investing power; (b)
599,912 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.
(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 14,
1998: Rolf D. Schmidt--8,079; F. William Schmidt--8,079; Robert V.
Toni--39,960; J. Blount Swain--25,830; Jeffrey G. Clark--24,060; Joe B.
Barefoot--18,276; Dennis C. Carey--33,079; Randy H. Thurman--33,079; and
Richard W. Miller--13,620.
(4)The address of the stockholder is 534 Ridge Avenue, Ephrata, PA 17522.
Includes (a) 2,246,945 shares held by Triangle Partners, L.P., a limited
partnership of which F. William Schmidt is the sole general partner, for
which shares he is deemed to have sole voting and investing power; (b)
599,912 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
3
<PAGE>
shares they are deemed to share voting and investment power; and (c) 50,000
shares held by F. William Schmidt's spouse, for which shares he disclaims
beneficial ownership.
(5)Includes 20,000 shares held by Mr. Toni's spouse, for which shares he
disclaims beneficial ownership.
(6)Includes 3,465 shares of Common Stock issuable upon the exercise of stock
options exercisable within 60 days of April 14, 1998 by Debra
Genovese-Barefoot. Ms. Genovese-Barefoot is the spouse of Joe B. Barefoot.
Mr. Barefoot disclaims beneficial ownership of such shares.
(7)See footnotes (2), (4), (5) and (6) above. Includes 215,527 shares of
Common Stock issuable upon the exercise of stock options exercisable within
60 days of April 14, 1998.
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 Richard W. Miller and Rolf D.
Schmidt for election as Class II 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 II--Nominees for Terms Continuing until 2001
Richard W. Miller. Mr. Miller has served as a director of the Company
since August 1997. From 1993 to 1997, he served as Senior Executive Vice
President and Chief Financial Officer of AT&T. Previously, he was Chief
Executive Officer of Wang Laboratories from 1989 to 1993, and prior to that, he
held executive positions at General Electric Company and RCA. Currently, Mr.
Miller advises companies and serves on the boards of directors of Avalon
Properties, Inc. and SBA, Inc. Mr. Miller holds a B.B.A. degree in Economics
from Case Western Reserve University and an M.B.A. from Harvard Business School.
Mr. Miller is 57 years of age.
Rolf D. Schmidt. Mr. Schmidt, a co-founder of the Company in 1990, has
served as Chairman of the Board of Directors of the Company since February 1996.
Mr. Schmidt has served as Chief Executive Officer and Chairman of Performance
Sports Apparel, Inc. since 1995. In 1986, a significant portion of the business
of Sharpoint, Inc., a developer and manufacturer of surgical needles and sutures
co-founded by Mr. Schmidt and his brother, F. William Schmidt, was sold to its
primary distributor, Alcon Laboratories, Inc. In 1991, the remainder of such
business was sold to a management group. Since 1990, Mr. Schmidt has invested
primarily in and devoted substantial time and attention to healthcare-related
entities, including the Company. Mr. Schmidt is 65 years of age.
Class I--Directors with Terms Continuing until 2000
Dennis C. Carey, Ph.D. Mr. Carey 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
4
<PAGE>
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. He is
also a director of the Jackson Laboratory. Mr. Carey is 48 years of age.
F. William Schmidt. Mr. Schmidt, 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. Mr. Schmidt is
58 years of age.
Class III--Directors with Terms Continuing until 1999
Randy H. Thurman. Mr. Thurman has served as a director of the Company
since May 1996. Mr. Thurman is the Chief Executive Officer of Health Care
Strategies 2000, a health care consulting firm that he founded in 1995, and he
also serves as a Director of Spencer Stuart in their worldwide healthcare search
practice. From 1993 to 1995, Mr. Thurman held a number of executive positions
with Corning Incorporated, most recently as Chairman and Chief Executive Officer
of Corning Life Sciences, Inc., a company engaged in providing clinical testing
and pharmaceutical services, laboratory products and disease state management.
From 1985 to 1993, he held a number of executive positions with Rhone-Poulenc
Rorer, Inc., most recently as President of Rhone-Poulenc Rorer Pharmaceuticals,
Inc. Mr. Thurman received his M.A. from Webster University and his B.A. from
Virginia Polytechnic Institute. Mr. Thurman is also a director of Enzon, Inc.
and ONYX Pharmaceuticals, Inc. He is 48 years of age.
Robert V. Toni. Mr. Toni 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. Mr. Toni is 57 years of age.
General Information Concerning the Board of Directors and its Committees
The Board of Directors has standing Executive, Audit and Compensation
Committees. During fiscal year 1997, the Board of Directors held five meetings,
the Audit Committee held one meeting and the Compensation Committee held three
meetings. There were no meetings held by the Executive Committee during 1997.
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.
5
<PAGE>
On February 26, 1998, the Board of Directors of the Company established
a Stock Option Subcommittee of the Compensation Committee to determine grants
under and administer the Plan. Prior to that time, the Compensation Committee
was responsible for determining grants under and administering the Plan.
The current members of the Executive Committee are Messrs. Rolf D.
Schmidt (Chair), Thurman and Toni; of the Audit Committee, Messrs. Miller and
Thurman (Chair); and of the Compensation Committee, Messrs. Carey (Chair),
Thurman and F. William Schmidt. Messrs. Thurman and Carey comprise the Stock
Option Subcommittee of the Compensation Committee.
Director Compensation
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors of the Company
currently receive annual compensation of $24,000 and $1,500 for each meeting of
the Board of Directors attended in person or participated in telephonically. In
addition, pursuant to the Plan, each non-employee director receives a one-time
grant of options to purchase 25,000 shares of Common Stock upon election to the
Board of Directors, and each non-employee director in office immediately before
and after the annual election of directors receives options to purchase 7,500
shares of Common Stock. Under the Plan, non-employee directors also may elect to
receive options in lieu of all or part of their annual compensation for serving
on the Board of Directors by making an election at or prior to the annual
meeting.
Compensation Committee Interlocks and Insider Participation
F. William Schmidt, a member of the Compensation Committee, was a party
to certain transactions with the Company. See "Certain Transactions." Mr.
Schmidt is not a member of the Stock Option Subcommittee of the Compensation
Committee.
Share Ownership Guideline
In 1997, the Board of Directors adopted the following guideline for
Company stock ownership by non-employee directors: each non-employee director
should own shares of Common Stock of the Company with a value, at any time
within two years after such director joins the Board of Directors and at the
greater of cost or market value, equal to $100,000.
Requirements for Advance Notification of Nominations
Article Two of the Company's By-Laws provides that no person may be
nominated for election as a director by a stockholder at an annual or special
meeting unless written notice of such stockholder's intent to make such
nomination has been delivered to the Secretary of the Company at the principal
executive offices of the Company (i) with respect to an election to be held at
an annual meeting of stockholders, which meeting is to be held no earlier than
30 days before and no later than 60 days after the first anniversary date of the
previous year's annual meeting, not earlier than 90 days and not later than 60
days in advance of the first anniversary date of the previous year's annual
meeting; (ii) with respect to an election to be held at an annual meeting of
stockholders, which meeting is to be held more than 30 days before or more than
60 days after the first anniversary date of the previous year's annual meeting,
not earlier than 90 days prior to such meeting and not later than the later of
60 days in advance of such meeting or 10 days following the date of the first
public announcement of the date of such meeting; (iii) with respect to an
election to be held at an annual meeting at which a director will be elected to
fill an increase in the number of directors to be elected to the Board of
Directors, which increase has not been publicly announced more than 70 days
prior to the first anniversary date of the previous year's annual meeting, not
later than the close of business on the tenth day after the first public
announcement of such increase; and (iv) with respect to an election to be held
at a special meeting of stockholders for the election of directors, not earlier
than 90 days prior to such meeting and not later than the later of 60 days prior
to such meeting or 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").
6
<PAGE>
A notice from a stockholder shall set forth: (a) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made, the name and address of the stockholder as they
appear on the Company's books, and of such beneficial owner; (b) the number of
shares of the Company which are owned of record and beneficially by such
stockholder and such beneficial owner; (c) such other information regarding each
nominee proposed by such stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC in an election
contest or would otherwise be required pursuant to the Exchange Act and Rule
14a-11 thereunder; and (d) the consent of each nominee to serve as a director of
the Company if so elected. The chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure.
APPROVAL AND ADOPTION OF
AMENDMENT TO 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 Plan Amendment to increase the number of
shares authorized for issuance under the Plan from 1,000,000 to 2,500,000 shares
of Common Stock. At its February 26, 1998 meeting, the Board of Directors
unanimously approved the proposed Plan Amendment subject to stockholder approval
at the Annual Meeting. The Plan Amendment will not be effective unless and until
stockholder approval is obtained.
The Board of Directors believes that the Company's ability to grant
options under the Plan is a valuable and necessary compensation tool that aligns
the long-term financial interests of employees and directors with the financial
interests of the Company's stockholders. The Board of Directors believes that
the Plan helps the Company attract, retain and motivate Plan participants and
encourages such participants to devote their best efforts to the business and
financial success of the Company. As of April 14, 1998, options to purchase
910,340 shares of Common Stock were outstanding under the Plan; options to
purchase 7,480 remain available for future grants. An increase in the number of
shares available for issuance is necessary to meet the above objectives. The
Board of Directors believes that it is in the best interests of the Company and
its stockholders to incorporate this change into the Plan.
The principal terms of the Plan are discussed below.
Vote Required for Approval
Approval of the proposal to approve and adopt the Plan Amendment
requires the affirmative vote of the holders of a majority of shares present in
person or represented by proxy at the Annual Meeting and entitled to vote.
Abstentions may be specified on the proposal and will be considered present at
the meeting, but will not be counted as affirmative votes. Abstentions,
therefore, will have the practical effect of voting against the proposal because
the affirmative vote of a majority of the shares present at the meeting and
entitled to vote with respect to this matter is required to approve the
proposal. Broker non-votes are considered not present at the meeting with
respect to this matter and, therefore, will not be voted or have any effect on
the proposal.
The Board of Directors unanimously recommends a vote FOR the proposal.
Description of the 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 effective September 24, 1996,
November 1, 1996 and June 4, 1997. 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 entitled
to receive formula stock option grants under the Plan. In addition, the Plan
provides for grants of restricted stock and stock appreciation rights ("SARs")
(herein, together with grants of stock options, collectively, "Grants") to
participants other than non-
7
<PAGE>
employee directors of the Company. Shares of Common Stock issued or to be issued
under the Plan are covered by a registration statement on Form S-8 which was
filed with the SEC on December 12, 1996. 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 Plan Amendment is approved by
the stockholders. The last reported sale price of the Company's Common Stock
reported on the Nasdaq National Market on April 14, 1998 was $19.625.
Subject to adjustment in certain circumstances as discussed below, the
Plan currently authorizes up to 1,000,000 shares of Common Stock for issuance
pursuant to the terms of the Plan. The proposed Plan Amendment would increase
the number of authorized shares of Common Stock from 1,000,000 to 2,500,000. 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 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.
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. Non-employee directors of the
Company are entitled only to formula grants of NQSOs. Independent contractors or
consultants to the Company are not eligible to receive ISOs under the Plan. As
of April 14, 1998, 62 employees and six directors (including five non-employee
directors) were eligible for Grants under the Plan. During any calendar year, no
participant may receive Grants under the Plan for more than 75,000 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.
Non-employee directors are entitled to receive NQSOs pursuant to the
formula grants under the Plan. According to the formula grants, each
non-employee director who first becomes a member of the Board of Directors will
receive a grant of an NQSO to purchase 25,000 shares of Common Stock as of the
date the non-employee director becomes a member of the Board of Directors.
Thereafter, on each date on which the Company holds its annual meeting of
stockholders, each non-employee director in office immediately before and after
the annual election of directors will receive a grant of an NQSO to purchase
7,500 shares of Common Stock. The exercise price of an NQSO granted pursuant to
a formula grant will be the fair market value of a share of Common Stock on the
date of grant. The term
8
<PAGE>
of each such option will be ten years, and the options will be exercisable with
respect to 50% of the shares on the date of grant and an additional 25% on each
of the first two anniversaries of the date of the grant, if the non-employee
director continues to be a member of the Board of Directors. Non-employee
directors can elect to receive options in lieu of all or a portion of their
annual compensation (presently $24,000) for serving on the Board of Directors by
making an election at or immediately prior to the annual meeting. Non-employee
directors will receive that number of options determined by multiplying the
portion of their annual compensation they elect not to receive in cash by three
and dividing the resulting product by the closing sale price of the Company's
Common Stock on the Nasdaq National Market on the date of the annual meeting.
The exercise price will be the market price on the date of grant, and the
options will have a term of ten years. The options will vest 50% as of the date
of grant and will vest thereafter in 25% increments on each of the first two
anniversaries of the date of grant, if the non-employee director continues to be
a member of the Board of Directors.
The Committee may issue shares of Common Stock to participants other
than non-employee directors of the Company pursuant to the Plan. Shares may be
issued for cash consideration or for no cash consideration, as the Committee
determines. The number of shares of Common Stock granted to each participant
shall be determined by the Committee, subject to the maximum limit described
above. Grants of restricted stock will be made subject to such performance
requirements, vesting provisions, transfer restrictions or other restrictions
and conditions as the Committee may determine in its sole discretion. The
Committee also may grant SARs to participants other than non-employee directors
of the Company in tandem with any stock option pursuant to the Plan. Unless the
Committee determines otherwise, the exercise price of an SAR will be the greater
of (i) the exercise price of the related stock option or (ii) the fair market
value of a share of Common Stock on the date of grant of the SAR. When the
participant exercises an SAR, the participant will receive the amount by which
the fair market value of the Common Stock on the date of exercise exceeds the
exercise price of the SAR. The participant may elect to have such amount paid in
cash or in shares of Common Stock, subject to Committee approval. To the extent
a participant exercises a SAR, the related option shall terminate. Similarly,
upon exercise of a stock option, the related SAR, if any, shall terminate.
The Board of Directors may amend or terminate the Plan at any time;
provided, however, that, the Board of Directors may not, without stockholder
approval, amend the Plan to (i) increase (except for increases due to the
adjustments discussed below) the aggregate number of shares of Common Stock for
which Grants may be made thereunder, or the individual limit of shares of Common
Stock for which Grants may be made to any single individual under the Plan, (ii)
modify the requirements as to eligibility to participate in the Plan or (iii)
make any amendment that requires stockholder approval pursuant to Section 162(m)
of the Code. The Plan will terminate on the day immediately preceding the tenth
anniversary of its effective date, unless terminated earlier by the Board of
Directors or extended by the Board of Directors with approval of the
stockholders.
Subject to the change of control provisions described below, in the
event of certain transactions identified in the Plan, the Committee may
appropriately adjust (i) the number of shares of Common Stock (and the exercise
price per share) subject to the unexercised portion of any outstanding options
or SARs, (ii) the number of shares of Common Stock covered by outstanding
Grants, (iii) the number of shares of Common Stock for which Grants may be made
under the Plan and (iv) the individual limit of shares for which Grants may be
made to any individual under the Plan, and such adjustments shall be effective
and binding for all purposes of the Plan. In the event of a change of control,
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.
9
<PAGE>
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 14,
1998: Robert V. Toni--66,600; J. Blount Swain--43,050; Jeffrey G. Clark--40,100;
Joe B. Barefoot--30,458; William M. Cotter--40,000; current executive officers
as a group--300,208, non-employee directors as a group--120,328; and all other
employees as a group--441,304. Because options are granted from time to time by
the Committee to those persons whom the Committee determines in its discretion
should receive options, the benefits and amounts that may be received in the
future by persons eligible to participate in the Plan are not presently
determinable, except as to those future formula grants to be awarded to
non-employee directors.
Under Section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated officers in any one year. Total remuneration includes amounts
received upon the exercise of stock options granted under the Plan and the value
of shares received when shares of restricted stock become vested (or such other
time when income is recognized). An exception does exist, however, for
"performance-based compensation," including amounts received upon the exercise
of stock options pursuant to a plan approved by stockholders that meets certain
requirements. The Plan is intended to allow grants of options thereunder to meet
the requirements of "performance-based compensation." Grants of restricted stock
generally will not qualify as "performance-based compensation."
There are no federal income tax consequences to a participant or to the
Company upon the grant of an NQSO under the Plan. Upon the exercise of an NQSO,
a participant will recognize ordinary compensation income in an amount equal to
the excess of the fair market value of the shares at the time of exercise over
the exercise price of the NQSO, and the Company generally will be entitled to a
corresponding federal income tax deduction. Upon the sale of shares acquired by
the exercise of an NQSO, a participant will have a capital gain or loss
(long-term or short-term depending upon the length of time the shares were held)
in an amount equal to the difference between the amount realized upon the sale
and the participant's adjusted tax basis in the shares (the exercise price plus
the amount of ordinary income recognized by the participant at the time of
exercise of the NQSO).
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
10
<PAGE>
or loss. If, after making the election, any shares subject to a restricted stock
Grant are forfeited, or if the market value declines during the restriction
period, the participant will not be entitled to any tax deduction or tax refund.
There are no federal income tax consequences to a participant or to the
Company upon the grant of an SAR under the Plan. Upon the exercise of an SAR, if
the participant receives the appreciation inherent in the SAR in cash, the
participant will recognize ordinary compensation income in an amount equal to
the cash received. If the participant receives the appreciation in shares, the
participant will recognize ordinary compensation income in an amount equal to
the fair market value of the shares received. The Company generally will be
entitled to a corresponding federal income tax deduction at the time of the
exercise of the SAR. Upon the sale of any shares acquired by the exercise of an
SAR, a participant will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the amount of ordinary income recognized by
the participant at the time of exercise of the SAR).
New Plan Benefits
Because grants are to be made from time to time by the Committee to
persons whom the Committee determines in its discretion should receive grants,
the benefits and amounts that may be received in the future by persons eligible
to participate in the Plan are not presently determinable, except as to those
future formula grants to be awarded to non-employee directors.
11
<PAGE>
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, 1997 (the "Named
Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C>
Long-Term
Annual Compensation Compensation
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Number of
Securities
Other Annual Underlying All Other
Compensation Options Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) Awarded ($)(2)
- --------------------------- ---- ---------- -------- ------------ ---------- ------------
Robert V. Toni.......................... 1997 237,800 100,000 -- -- 2,841
President and Chief Executive Officer 1996 215,000 130,000 -- 66,600 1,987
1995 198,000 50,000 64,473(3) -- 1,273
J. Blount Swain......................... 1997 152,300 60,000 -- -- 2,352
Vice President of Finance and Chief 1996 138,450 85,000 -- 43,050 1,552
Financial Officer 1995 130,000 -- 14,481 -- 805
Jeffrey G. Clark........................ 1997 142,000 56,000 -- -- 1,960
Vice President of Research and 1996 127,200 80,000 -- 40,100 1,342
Development 1995 120,000 -- 14,481 -- 719
Joe B. Barefoot......................... 1997 122,000 48,000 -- -- 1,974
Vice President of Regulatory Affairs 1996 95,850 60,000 -- 30,458 1,023
and Quality Assurance 1995 90,000 -- 10,861 -- 463
William M. Cotter (4).................... 1997 83,755 30,000 25,200(5) 40,000 102
Vice President of Manufacturing and 1996 -- -- -- -- --
Operations 1995 -- -- -- -- --
</TABLE>
- ----------------
(1) Includes for 1995 the tax value of interests in the Company's predecessor,
Tri-Point Medical L.P. (the "Partnership Interests") granted on December
31, 1995 to Robert V. Toni, J. Blount Swain, Jeffrey G. Clark and Joe B.
Barefoot. The aggregate tax value of the Partnership Interests on the date
of grant to such executive officers totaled $61,545.
(2) Represents Company-paid life insurance premiums and 401(k) retirement plan
matching contributions.
(3) Includes payment for relocation expenses and a payment to cover the related
income tax liability in the aggregate amount of $42,751.
(4) Mr. Cotter became an employee and executive officer of the Company in June
1997.
(5) Represents payment for relocation expenses.
12
<PAGE>
Stock Option Information
The following table sets forth certain information concerning grants of
stock options made during 1997 to each of the Named Officers. No stock
appreciation rights were granted to any Named Officer during 1997.
<TABLE>
<CAPTION>
Option Grants in 1997
<S> <C>
Individual Grants
Number of % of Total
Securities Options/ Potential Realizable Value
Underlying SARs at Assumed Annual Rates of
Options/ Granted to Exercise Stock Price Appreciation
SARs Employees or Base for Option Term(3)
Granted in Fiscal Price Expiration ----------------------
Name (#)(1) Year(2) ($/Sh) Date 5% ($) 10% ($)
---- ------- ------- ------ ---------- ------ -------
Robert V. Toni -- -- -- -- -- --
J. Blount Swain -- -- -- -- -- --
Jeffrey G. Clark -- -- -- -- -- --
Joe B. Barefoot -- -- -- -- -- --
William M. Cotter 40,000 16.3 18.25 7/1/07 $471,671 $1,195,307
</TABLE>
- --------
(1) Options have a ten-year term and vest 20% annually on the anniversary of
the grant date and thereafter.
(2) Based on 245,600 options granted to employees in 1997.
(3) The potential realizable value is based on the term of the option at its
time of grant (ten years in the case of the options listed above). It is
calculated by assuming that the stock price on the date of grant
appreciates at the indicated annual rate, compounded annually for the
entire term of the option, and that the option is exercised and the
underlying shares sold on the last day of its term for the appreciated
stock price. These amounts represent certain assumed rates of appreciation
only, in accordance with the rules of the SEC, and do not reflect the
Company's estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock, and no gain to the optionee is possible unless the
stock price increases over the option term, which will benefit all
stockholders.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
<S> <C>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs In-the-Money Options/SARs
Shares at Fiscal Year-End (#) at Fiscal Year-End ($)
Acquired Value -----------------------------------------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ----------- ------------- ----------- -------------
Robert V. Toni -- -- 26,640 39,960 556,110(1) 834,165(1)
J. Blount Swain -- -- 17,220 25,830 359,468(1) 539,201(1)
Jeffrey G. Clark -- -- 16,040 24,060 334,835(1) 502,253(1)
Joe B. Barefoot -- -- 12,184 18,275 254,324(1) 381,486(1)
William M. Cotter -- -- -- 40,000 -- 305,000(2)
</TABLE>
- ------------------
(1) Calculated on the basis of the closing sale price of $25.875 per share of
Common Stock on December 31, 1997 as quoted on the Nasdaq National Market,
less the exercise price of $5.00 per share.
(2) Calculated on the basis of the closing sale price of $25.875 per share of
Common Stock on December 31, 1997 as quoted on the Nasdaq National Market,
less the exercise price of $18.25 per share.
13
<PAGE>
Employment Agreements
Robert V. Toni, J. Blount Swain, Jeffrey G. Clark and Joe B. Barefoot
each entered into an employment agreement with the Company in May 1996. William
M. Cotter entered into an employment agreement with the Company commencing in
June 1997. The term of the employment agreements of Messrs. Toni, Swain, Clark
and Barefoot is from May 1, 1996 to May 31, 1999. Mr. Cotter's employment
agreement has a two-year term beginning on its commencement. Each of the
employment agreements provides for automatic one-year extensions unless 60 days'
prior notice is given by either party. The agreements provide for annual base
salaries for Messrs. Toni, Swain, Clark, Barefoot and Cotter of not less than
$215,000, $138,450, $127,200, $95,850 and $150,000, respectively, which salaries
may be increased as determined by the Compensation Committee or the Board of
Directors. Each agreement also provides for an annual bonus ranging from 20% to
60% of base salary to be awarded based on performance milestones to be
established for each calendar year by the Compensation Committee based on the
recommendation of the Chief Executive Officer. In connection with their
employment agreements, in May 1996 the Company granted to Messrs. Toni, Swain,
Clark and Barefoot, respectively, options to purchase 66,600, 43,050, 40,100 and
30,458 shares of Common Stock under the 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), will vest
in five equal annual installments, commencing as of the date of grant. In
connection with his employment agreement, the Company granted to Mr. Cotter
options to purchase 40,000 shares of Common Stock under the Plan at an exercise
price of $18.25 per share. Mr. Cotter's options have a term of ten years and,
provided employment has not been terminated for "cause" (as defined in the
Plan), will vest in five equal annual installments, commencing on the first
anniversary of the date of grant.
If, following a "change in control" (as defined in each agreement), any
of Messrs. Toni, Swain, Clark, Barefoot or Cotter is terminated other than for
"cause" (as defined in each agreement) or terminates his employment for "good
reason" (as defined in each agreement), he will be entitled to receive all
accrued and any pro rata incentive compensation to the date of termination and a
continuation of his then current annual salary, incentive compensation and
benefits for three years after such termination. In the event of termination for
"cause," each of Messrs. Swain, Clark, Barefoot and Cotter is entitled to a
continuation of base salary, incentive compensation and benefits for a period of
one year. Mr. Toni is entitled to such continuation for a period of 18 months.
Pursuant to the employment agreements, the Company has agreed to indemnify such
executive officers to the maximum extent permitted by applicable law against all
costs, charges and expenses incurred by each in connection with any action, suit
or proceeding to which he may be a party or in which he may be a witness by
reason of his being an officer, director or employee of the Company or any
subsidiary or affiliate of the Company. Each of the foregoing executive officers
has agreed not to compete with the Company for two years after termination of
his employment with the Company.
CERTAIN TRANSACTIONS
On January 1, 1998, the Company entered into a Representative and
Manufacturing Facility Agreement with Innocoll GmbH of Saal-Donau, Germany
("Innocoll"). Rolf D. Schmidt and F. William Schmidt, directors of the Company,
own a majority of the outstanding equity interests in Innocoll. Pursuant to the
agreement, Innocoll will act as the Company's representative in Europe to assist
the Company in complying with various regulatory approvals and clearances
required in connection with the Company's products. Additionally, under the
agreement, Innocoll will provide the Company with up to 20,000 square feet of
space at its facility in Germany for use as an alternative manufacturing
facility, including quality control services, as needed for the Company's
products. Pursuant to the terms of the agreement, the Company will pay to
Innocoll $120,000 per year for acting as the Company's representative in Europe
and $60,000 per year for the manufacturing space. The agreement has a five-year
term.
14
<PAGE>
THE MATERIAL IN THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE
AND THE PERFORMANCE GRAPH ON PAGE 17 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 is responsible for the compensation of the
executive officers of the Company. In this respect, the Compensation Committee's
duties are to review the compensation of all executive officers of the Company,
to recommend to the Board the base salary and other compensation of the
Company's chief executive officer, to approve the base salaries of all other
executive officers and to approve all bonuses and other compensation granted to
executive officers. A subcommittee of the Compensation Committee, the Stock
Option Subcommittee, is responsible for the administration of the Plan and
grants of incentive compensation under the Plan. See "Matters Concerning
Directors--General Information Concerning the Board of Directors and its
Committees."
General Compensation Philosophy
It is the goal of the Compensation Committee to have a policy that will
enable the Company to attract, retain and reward executive officers who
contribute to both its short-term and long-term success. 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 Company's executive compensation is based on a
pay-for-performance philosophy. The Committee believes that total cash
compensation should vary with the achievement of specific performance
objectives. The Company's incentive, or long-term, compensation is tied to the
creation of stockholder value.
The Compensation Committee recognizes that, in the short-term, the
market value of the Company will be affected by many factors, some transient in
nature and beyond the control of the Company's executives. This is especially
true in the medical device industry, which is characterized by long product lead
times, highly volatile stock prices and few commercial products. In order to
attract and retain qualified executives in such an environment, 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 shorter-term strategic goals. These
goals, which are set each year, generally include the progress of discovery
research and development programs, adherence to budgets, strengthening of the
Company's financial position and success in entering into appropriate business
collaborations. The Compensation Committee expects that the achievement of these
shorter-term goals will contribute to the long-term success of the Company.
The Company competes against both medical device companies and
pharmaceutical companies in the hiring and retention of qualified personnel. The
Company uses long-term compensation, principally the grant of stock options, to
offset the advantages such companies may offer, such as less risk, higher cash
compensation and better retirement benefits.
The Company's compensation program for executive officers comprises
base salary, performance bonuses, longer-term incentive compensation in the form
of stock options, and benefits available generally to all of the Company's
employees.
Compensation Components
Base Salary. Base salary levels for the Company's executive officers
are reviewed on an annual basis by the Compensation Committee. In conducting
this review, the Compensation Committee considers the various items noted above,
including competitive factors and industry trends, as well as performance within
the Company and changes in
15
<PAGE>
job responsibility. The Committee also reviews certain compensation information
publicly available and gathered informally, and considers salary history at the
Company. In 1997, Mr. Toni's base salary was increased by 10.6%, from $215,000
to $237,800.
Performance Bonus Compensation. All executive officers 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 are entitled to 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 Committee
intends to establish milestones that will be a challenge to achieve. Different
milestones may be applicable to different executive officers. The granting of
other bonuses is discretionary.
In determining the bonuses to the Company's executive officers in 1997,
the Compensation Committee reviewed the percentage of completion of each of the
1997 performance milestones and multiplied such percentage by the weight
assigned to each of the milestones, which included specific operating and
regulatory goals.
Mr. Toni was awarded a cash bonus of $100,000 in 1997. In arriving at
this award, the Committee considered the achievement of the 1997 performance
milestones as well as Mr. Toni's achievement of his individual performance
objectives.
Stock Option Grants. The Plan is the Company's long-term equity
incentive plan for executive officers and other selected employees. The
objective of the Plan is to align the long-term financial interests of the
option holder with the financial interests of the Company's stockholders. Stock
option exercise prices are generally set at the prevailing market price at the
time of grant, and stock options will only have value if the Company's stock
price increases. (Certain stock options granted prior to the Company's initial
public offering were granted at a price below fair market value on the date of
grant.) The Company believes that without such incentives, it would not be
possible to attract and retain qualified managers or scientists. The
Compensation Committee generally considers additional stock option grants on an
annual basis as a means to continue to incentivize the Company's senior officers
to work toward increasing stockholder value.
Options to purchase an aggregate of 40,000 shares of the Company's
Common Stock were awarded in 1997 to one newly-hired executive officer of the
Company. The options have a ten-year term and an exercise price of the fair
market value on the date of grant, and vest and become exercisable in five equal
annual installments commencing on the first anniversary of the grant date.
Payments during 1997 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 Plan qualify as "performance-based compensation."
COMPENSATION COMMITTEE
Dennis C. Carey, Ph.D.
Randy H. Thurman
F. William Schmidt
March 18, 1998
16
<PAGE>
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 (the "Nasdaq - US Index"), and (ii) the S&P
Health Care (Medical Products and Supplies) Index (the "Health Care Index"),
assuming an investment of $100 on September 25, 1996 in each of the Common Stock
of the Company, the stocks comprising the Nasdaq - US Index and the stocks
comprising the Health Care Index, and further assuming reinvestment of
dividends.
[Performance Graph]
<TABLE>
<CAPTION>
<S> <C>
INDEX 9/25/96 12/31/96 12/31/97
COMPANY 100.0 184.4 323.4
NASDAQ - US INDEX 100.0 104.9 128.8
HEALTH CARE INDEX 100.0 103.2 127.5
</TABLE>
17
<PAGE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has served as the Company's independent
accountants since 1992 and has been selected to continue in such capacity for
the current year. The Company has requested that a representative of Price
Waterhouse 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 and
executive 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. Officers, directors and
greater-than-ten-percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
its review of the copies of such reports received by the Company and written
representations that no Forms 5 were required to be filed, the Company believes
that during the year ended December 31, 1997 all filing requirements applicable
to its officers, directors and ten-percent stockholders were satisfied, with the
following exceptions: William M. Cotter filed a late Form 3 upon his election as
an executive officer of the Company; Richard W. Miller filed a late Form 3 upon
his election as a director of the Company; Dennis C. Carey, a director, filed a
late Form 4 with respect to the purchase of 300 shares of Common Stock in the
open market in February 1997 and the purchase of 7,000 shares of Common Stock in
the open market in March 1997; and Rolf D. Schmidt, a director, filed a late
Form 4 with respect to the purchase of 100,000 shares of Common Stock in the
open market in October 1996.
STOCKHOLDER PROPOSALS FOR THE 1999 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 1999 annual meeting, such proposals must be received by the
Company no later than December 31, 1998. Proposals should be directed to the
attention of the Secretary of the Company.
By Order of the Board of Directors,
J. Blount Swain
Secretary
May 5, 1998
18
<PAGE>
********************************************************************************
APPENDIX
PROXY
CLOSURE MEDICAL CORPORATION
5250 Greens Dairy Road
RALEIGH, NORTH CAROLINA 27616
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert V. Toni and J. Blount Swain, or either
of them acting singly in the absence of the other, each with the power to
appoint his substitute, the Proxy Agents of the undersigned to attend the Annual
Meeting of Stockholders of Closure Medical Corporation (the "Company") to be
held June 3, 1998 and any adjournments or postponements thereof, and with all
powers the undersigned would possess if personally present, to vote upon the
following matters as indicated on the reverse.
SEE REVERSE
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) SIDE
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE.
ANNUAL MEETING OF STOCKHOLDERS
CLOSURE MEDICAL CORPORATION
JUNE 3, 1998
(Arrow) Please Detach and Mail in the Envelope Provided (Arrow)
A [X] Please mark your
votes as in this
example.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR WITHHELD
1. Election of [ ] [ ] Nominees: Richard W. Miller 2. Approval and adoption of FOR AGAINST ABSTAIN
Directors Class II Rolf D. Schmidt 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.
FOR, except vote withheld from the following nominees: 3. In their discretion, the Proxy Agents are authorized
to vote upon such other business as may properly
come before the meeting and any adjournments or
postponements thereof.
This proxy when properly executed will be voted
in the manner directed herein by the undersigned
stockholder. If no direction is made, this proxy
will be voted FOR all nominees for election as the
Class II directors and FOR Proposal Number 2. The
undersigned hereby acknowledges receipt of the
Notice of Annual Meeting of Stockholders and the
- - ---------------------------------- related Proxy Statement.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD PROMPTLY
AND RETURN IT USING THE ENCLOSED ENVELOPE.
SIGNATURE(S)__________________________________________________________________________ DATE: __________________________, 1998
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.
</TABLE>
