311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 17, 2004
To the Stockholders of Integra LifeSciences Holdings Corporation:
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting (the "Meeting") of
the Stockholders of Integra LifeSciences Holdings Corporation (the "Company")
will be held as, and for the purposes, set forth below:
TIME 9:00 a.m. on Monday, May 17, 2004
PLACE Radisson Hotel, Princeton
4355 Route 1 at Ridge Road
Princeton, New Jersey 08540
ITEMS OF BUSINESS 1. To elect six directors of the Company to hold
office as specified in the accompanying
Proxy Statement.
2. To consider and vote upon a proposal to
increase the number of shares authorized for
issuance under the Company's 1998 Employee
Stock Purchase Plan.
3. To ratify the appointment of
PricewaterhouseCoopers LLP as the Company's
auditors for the current fiscal year.
4. To act upon any other matters properly coming
before the meeting or any adjournment or
postponement thereof.
RECORD DATE Holders of record of the Company's common stock at
the close of business on April 5, 2004
are entitled to notice of, and to vote at, the
Meeting and any adjournment or postponement
thereof. A complete list of stockholders entitled
to vote at the Meeting will be available for
inspection by any stockholder for any purpose
germane to the Meeting for ten days prior to the
Meeting during ordinary business hours at the
Company's headquarters located at 311 Enterprise
Drive, Plainsboro, New Jersey.
ANNUAL REPORT The 2003 Annual Report of Integra
LifeSciences Holdings Corporation is being mailed
simultaneously herewith. The Annual Report is not
to be considered part of the proxy solicitation
materials.
IMPORTANT In order to avoid additional soliciting expense to
the Company, please MARK, SIGN, DATE and MAIL your
proxy PROMPTLY in the return envelope provided,
even if you plan to attend the Meeting. If you
attend the Meeting and wish to vote your shares in
person, arrangements will be made for you to do so.
By order of the Board of Directors,
Plainsboro, New Jersey
April 12, 2004
John B. Henneman, III
Secretary
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
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PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2004
PURPOSE OF MEETING
We are providing this Proxy Statement to holders of our common stock in
connection with the solicitation by the Board of Directors of Integra
LifeSciences Holdings Corporation of proxies to be voted at the Company's 2004
annual meeting of stockholders (the "Meeting") and at any adjournments or
postponements thereof. The Meeting will begin at 9:00 a.m. local time on Monday,
May 17, 2004 at the Radisson Hotel Princeton, 4355 Route 1 at Ridge Road,
Princeton, New Jersey. We are first mailing this Proxy Statement, the enclosed
Notice of Annual Meeting of Stockholders, and the form of proxy to stockholders
of the Company on or about April 12, 2004.
At the Meeting, we will ask the stockholders of the Company to consider
and vote upon:
(i) the election of six directors to serve until the next annual
meeting of stockholders and until their successors are duly
elected and qualified (see "Proposal 1. Election of Directors");
(ii) a proposal to increase by 1,000,000 the number of shares
authorized for issuance under the Company's 1998 Employee Stock
Purchase Plan (see "Proposal 2. Amendment to 1998 Employee Stock
Purchase Plan"); and
(iii) the ratification of the appointment of PricewaterhouseCoopers LLP
as the Company's auditors for the current fiscal year (see
"Proposal 3. Ratification of Auditors").
We know of no other matters that will be presented for consideration at
the Meeting. If any other matters are properly presented at the Meeting or any
postponement or adjournment thereof, the persons named in the enclosed proxy
will have authority to vote on such matters in accordance with their best
judgment.
RECORD DATE
As of April 5, 2004, the record date for the Meeting, 28,517,161 shares
of our common stock were outstanding. Only persons who hold of record our common
stock as of the close of business on the record date are entitled to notice of,
and to vote at, the Meeting or at any adjournment or postponement thereof.
VOTING AND REVOCABILITY OF PROXIES
Holders of common stock will vote together as a single class on each
matter voted upon at the Meeting and any adjournment or postponement thereof.
Each share of our common stock entitles the holder of record thereof to
one vote. Each stockholder may vote in person or by properly executed proxy on
all matters that properly come before the Meeting and any adjournment or
postponement thereof. The presence, in person or by proxy, of stockholders
entitled to vote a majority of the shares of common stock outstanding on the
Record Date will constitute a quorum for purposes of voting at the Meeting.
2
Directors are to be elected by the affirmative vote of the holders of a
plurality of the issued and outstanding shares of common stock present, in
person or by proxy, at the Meeting and entitled to vote. Cumulative voting in
the election of directors is not permitted. The affirmative vote of the holders
of a majority of the issued and outstanding shares of common stock present, in
person or by proxy, at the Meeting and entitled to vote is required to approve
and adopt the proposed amendment to our Employee Stock Purchase Plan and to
ratify the appointment of PricewaterhouseCoopers LLP as the Company's auditors
for the current fiscal year.
The Board of Directors is soliciting the enclosed proxy for use in
connection with the Meeting and any postponement or adjournment thereof. All
properly executed proxies received prior to or at the Meeting or any
postponement or adjournment thereof and not revoked in the manner described
below will be voted in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted "FOR" the
approval and adoption of each of the proposals set forth herein.
If a proxy is marked as "Withhold Authority" or "Abstain" on any
matter, or if specific instructions are given that no vote be cast on any
specific matter (a "Specified Non-Vote"), the shares represented by such proxy
will not be voted on such matter. Abstentions will be included within the number
of shares present at the Meeting and entitled to vote for purposes of
determining whether such matter has been authorized, but nominee and other
Specified Non-Votes will not be so included.
If we fail to obtain a quorum for the Meeting or a sufficient number of
votes to approve a proposal, we may adjourn the Meeting for the purpose of
obtaining additional proxies or votes or for any other purpose. At any
subsequent reconvening of the Meeting, all proxies will be voted in the same
manner as they would have been voted at the original Meeting (except for any
proxies that have theretofore effectively been revoked or withdrawn). Proxies
voting against a Proposal set forth herein will not be used to adjourn the
Meeting to obtain additional proxies or votes with respect to such proposal.
You may revoke your proxy by (a) delivering to the Secretary of the
Company at or before the Meeting a written notice of revocation bearing a later
date than the proxy, (b) duly executing a subsequent proxy relating to the same
shares of common stock and delivering it to the Secretary of the Company at or
before the Meeting or (c) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be delivered at or prior to
the Meeting to: Integra LifeSciences Holdings Corporation, 311 Enterprise Drive,
Plainsboro, New Jersey 08536, Attention: Executive Vice President, Chief
Administrative Officer and Secretary.
We will bear all expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement. In addition to solicitation by use
of the mail, proxies may be solicited by telephone, telegraph or personally by
our directors, officers and employees, who will receive no extra compensation
for their services. We will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy soliciting materials to beneficial owners of shares of common
stock.
3
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors has nominated six persons for election as
directors whose terms will expire at the 2005 Annual Meeting of Stockholders, or
when their successors are elected and qualified. The proxies cannot be voted for
a greater number of persons than the following nominees: David C. Auth, Ph.D.,
Keith Bradley, Ph.D., Richard E. Caruso, Ph.D., Stuart M. Essig, Neal Moszkowski
and James M. Sullivan, each of whom are currently directors of the Company.
If any nominee should be unable to serve as director, an event not now
anticipated, the shares of common stock represented by proxies would be voted
for the election of such substitute as the Board of Directors may nominate. Set
forth below is certain information with respect to the persons nominated as
directors of the Company. See "Additional Information - Principal Stockholders"
for information regarding the security holdings of our director nominees.
DAVID C. AUTH, PH.D. has been a director of the Company since
2002. Dr. Auth is an independent investor. From 1989 to 1995, Dr. Auth
served as Chief Executive Officer of Heart Technology, Inc., a company
that Dr. Auth founded and that was later acquired by Boston Scientific
Corporation. Dr. Auth served as Director, Biophysics International, a
division of E.R. Squibb and Sons, Inc. from 1985 to 1989 and as Director, New
Product Ventures, of Squibb Medical Products from 1982 to 1985. Dr. Auth
was a Professor of Electrical Engineering at the University of Washington
from 1969 to 1982. He holds a Ph.D. degree from Georgetown University and
is a registered professional electrical engineer in the State of Washington.
Dr. Auth is 63 years old.
KEITH BRADLEY, PH.D. has been a director of the Company since 1992.
He has been a director of Highway Insurance plc, a London Stock Exchange
corporation, since 1996 and has been a consultant to a number of business,
government and international organizations. Dr. Bradley has held visiting
professorships at the Harvard Business School, Wharton, UCLA, and has been a
visiting fellow at Harvard's Center for Business and Government. Recently
he was professor of international management and management strategy at the
Open University and City University, London Business Schools. Dr. Bradley
has taught at the London School of Economics and was the director of the
school's Business Performance Group for more than six years. He received
B.A., M.A. and Ph.D. degrees from British universities. Dr. Bradley is
59 years old.
RICHARD E. CARUSO, PH.D. has served as the Company's Chairman since
March 1992. Dr. Caruso is currently a member of The Provco Group, a venture
and real estate investment company, and an advisor to Quaker BioVentures,
a medical venture capital financial investor. Dr. Caruso served as the
Company's Chief Executive Officer from March 1992 to December 1997 and also as
the Company's President from September 1995 to December 1997. From 1969
to 1992, Dr. Caruso was a principal of LFC Financial Corporation, a project
finance company, where he was also a director and Executive Vice President.
Dr. Caruso is on the Board of Susquehanna University, The Baum School of
Art and The Uncommon Individual Foundation (Founder). He received a B.S.
degree from Susquehanna University, an M.S.B.A. degree from Bucknell
University and a Ph.D. degree from the London School of Economics,
University of London (United Kingdom). Dr. Caruso is 60 years old.
STUART M. ESSIG has served as President and Chief Executive Officer
and as a director of the Company since December 1997. Prior to joining the
Company, Mr. Essig supervised the medical technology practice at Goldman,
Sachs & Co. as a managing director. Mr. Essig had ten years of experience at
Goldman Sachs serving as a senior merger and acquisitions advisor to a
broad range of domestic and international medical technology,
pharmaceutical and biotechnology clients. Mr. Essig received an A.B.
degree from the Woodrow Wilson School of Public and International Affairs at
Princeton University and an M.B.A. and a Ph.D. degree in Financial Economics
from the University of Chicago, Graduate School of Business. Mr. Essig
also serves as a director of St. Jude Medical Corporation and ADVAMED,
the Advanced Medical Technology Association. Mr. Essig is 42 years old.
4
NEAL MOSZKOWSKI has been a director of the Company since March 1999.
Mr. Moszkowski currently serves as co-Chief Executive Officer of Soros
Private Equity, and he is a Managing Director of Soros Fund Management LLC.
He has been with Soros since 1998. Prior thereto, Mr. Moszkowski was an
Executive Director of Goldman Sachs International and a Vice President of
Goldman, Sachs & Co. in its Principal Investment Area, which he joined in
August 1993. He received a B.A. degree from Amherst College and an M.B.A.
degree from Stanford University. Mr. Moszkowski also serves as a director
of JetBlue Airways, Bluefly, Inc. and Day International Group, Inc.
Mr. Moszkowski is 38 years old.
JAMES M. SULLIVAN has been a director of the Company since 1992.
Since 1986, he has held several positions with Marriott International, Inc.
(and its predecessor, Marriott Corp.), including Vice President of
Mergers and Acquisitions, and his current position as Executive Vice President
of Lodging Development. From 1983 to 1986, Mr. Sullivan was Chairman,
President and Chief Executive Officer of Tenly Enterprises, Inc., a privately
held company operating 105 restaurants. Prior to 1983, he held senior
management positions with Marriott Corp., Harrah's Entertainment, Inc.,
Holiday Inns, Inc., Kentucky Fried Chicken Corp. and Heublein, Inc. He also
was employed as a senior auditor with Arthur Andersen & Co. and served as a
director of Classic Vacation Group, Inc. until its acquisition by Expedia,
Inc. in March 2002. Mr. Sullivan received a B.S. degree in Accounting from
Boston College and an M.B.A. degree from the University of Connecticut. Mr.
Sullivan is 60 years old.
THE BOARD OF DIRECTORS HEREBY RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY VOTE "FOR" THE ELECTION OF EACH NOMINEE FOR DIRECTOR.
INFORMATION CONCERNING MEETINGS AND CERTAIN COMMITTEES
The Board of Directors held five regularly scheduled and three special
meetings during 2003. The Company's independent directors meet at least twice a
year in executive session without management present. The Board of Directors has
determined that, except for Mr. Essig, all of the Company's directors are
independent as defined by the applicable NASDAQ listing standards.
The Company has standing Audit, Nominating and Compensation Committees
of its Board of Directors. During 2003, each incumbent director attended in
person or by conference telephone at least 75% of the total number of meetings
of the Board of Directors and of each committee of the Board of Directors on
which he served.
Audit Committee. The Audit Committee is comprised of Mr. Moszkowski
(chair), Dr. Bradley and Mr. Sullivan, and it met five times in 2003. The
purpose of the Audit Committee is to oversee the accounting and financial
reporting processes of the Company and the audits of the financial statements of
the Company. The Audit Committee operates under a written charter adopted by the
Board of Directors, a copy of which is attached as Appendix A to this proxy
statement. The Audit Committee is comprised entirely of nonemployee, independent
members of the Board of Directors, each of whom has been determined by the Board
of Directors to be financially literate and independent as required by
applicable listing standards of NASDAQ. The Board of Directors has determined
that Mr. Sullivan and Mr. Moszkowski are "audit committee financial experts," as
defined by the applicable NASDAQ listing standards.
5
Nominating Committee. The Nominating Committee was established on March
2, 2004 and is currently comprised of Dr. Caruso (chair), Dr. Bradley and Mr.
Sullivan. The purpose of the Nominating Committee is to assist the Board of
Directors in the identification of qualified candidates to become directors, the
selection of nominees for election as directors at the stockholders meeting, the
selection of candidates to fill any vacancies on the Board, and the oversight of
the evaluation of the board. The Nominating Committee operates pursuant to a
written charter, a copy of which is available on our website at
www.integra-LS.com through the "Investors Relations" link under the heading
"Corporate Governance." The Board of Directors has determined that all of the
members of the Nominating Committee are independent, as independence for
nominating committee members is defined under the NASDAQ listing standards.
When considering a candidate for nomination as a director, the
Nominating Committee may consider, among other things it deems appropriate, the
candidate's personal and professional integrity, ethics and values, experience
in corporate management, experience in the Company's industry and with relevant
social policy concerns, experience as a board member of another publicly held
company, academic expertise in an area of the Company's operations, and
practical and mature business judgment. The Nominating Committee applies the
same criteria to nominees recommended by stockholders that it does to other new
nominees.
The Nominating Committee will consider stockholder nominated candidates
for director provided that the nominating stockholder identifies the candidate's
principal occupation or employment, the number of shares of the Company
beneficially owned by such candidate, a description of all arrangements or
understandings between the nominating stockholder and such candidate and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, detailed biographical data and
qualifications and information regarding any relationships between the candidate
and the Company within the past three years, and any other information relating
to such nominee that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended.
A stockholder's recommendation must also set forth the name and
address, as they appear on the Company's books, of the stockholder making such
recommendation, the class and number of shares of the Company beneficially owned
by the stockholder and the date the stockholder acquired such shares, any
material interest of the stockholder in such nomination, any other information
that is required to be provided by the stockholder pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, in his capacity as a
proponent of a stockholder proposal, and a statement from the recommending
stockholder in support of the candidate, references for the candidate, and an
indication of the candidate's willingness to serve, if elected. Recommendations
for candidates to the Board of Directors must be submitted in writing on or
before December 16, 2004 to Integra LifeSciences Holdings Corporation, 311
Enterprise Drive, Plainsboro, New Jersey 08536, Attention: Executive Vice
President, Chief Administrative Officer and Secretary.
Compensation Committee. The Compensation Committee is currently
comprised of Dr. Auth (chair), Dr. Bradley and Mr. Moszkowski, and it met twice
in 2003. The Compensation Committee makes decisions concerning salaries and
incentive compensation, including the issuance of stock options and other equity
awards, for employees and consultants of the Company. The Compensation Committee
also administers the Company's 2003, 2001 and 2000 Equity Incentive Plans, the
Company's 1998 and 1999 Stock Option Plans, the Company's 1993 and 1996
Incentive Stock Option and Non-Qualified Stock Option Plans, and the Company's
Employee Stock Purchase Plan (collectively, the "Approved Plans"). The Board of
Directors has determined that each of the members of the Compensation Committee
is independent as required by the applicable listing standards of NASDAQ.
6
Until March 2004, the Board of Directors maintained a separate Equity
Award Committee that made decisions regarding the issuance of stock options and
other equity awards and administered the Approved Plans. In March 2004, the
Board of Directors eliminated the Equity Award Committee and expanded the charge
of the Compensation Committee to include decisions concerning issuance of stock
options and other equity awards to employees and consultants of the Company and
administration of the Company's Approved Plans.
It is our policy to encourage our directors to attend the annual
meeting of stockholders if it is convenient for them to do so. Two of our
directors attended the annual meeting of stockholders in 2003.
Stockholders may communicate with our Board of Directors, any of its
constituent committees or any member thereof by means of a letter addressed to
the Board of Directors, its constituent committees or individual directors and
sent care of Integra LifeSciences Holdings Corporation, 311 Enterprise Drive,
Plainsboro, NJ 08536, attention: Vice President and General Counsel.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
In 2003, we granted Dr. Caruso options to purchase 15,000 shares of
common stock under the 2001 Equity Incentive Plan as compensation for his
service as Chairman of the Board of Directors. Additionally, in 2003 we granted
Dr. Auth, Dr. Bradley, Mr. Moszkowski, and Mr. Sullivan each options to purchase
10,000 shares of common stock under the 2001 Equity Incentive Plan as
compensation for their service on the Board of Directors. We did not pay any
cash compensation to our directors for their service as directors. We pay
reasonable travel and out-of-pocket expenses incurred by non-employee directors
in connection with attendance at meetings to transact business of Integra or
attendance at meetings of the Board of Directors or any committee thereof.
7
PROPOSAL 2. AMENDMENT TO 1998 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has approved and is proposing for stockholder
approval an amendment to the Integra LifeSciences Corporation Employee Stock
Purchase Plan (the "Plan") that would increase the number of shares available
for issuance under the Plan by 1,000,000 from 500,000 to 1,500,000. The Plan
encourages employee ownership of the Company's common stock by enabling eligible
employees of the Company or any participating subsidiary to purchase discounted
shares of the Company's common stock through payroll deductions. The Board of
Directors believes that the employees of the Company and its participating
subsidiaries value the right to participate in the Plan and that the Plan helps
the Company to attract and retain officers and other employees and to motivate
them to exercise their best efforts on behalf of the Company and its
subsidiaries.
As of March 31, 2004, there remained approximately 196,000 shares of
common stock available for issuance under the Plan. Because the plan is open to
most employees of the Company and its participating subsidiaries, the shares now
available for issuance under the Plan may prove insufficient to meet the
Company's needs. Accordingly, the Board of Directors proposes and recommends
that the stockholders approve an amendment to the Plan that would increase the
number of shares available for issuance under the Plan by 1,000,000 from 500,000
to 1,500,000. The Board of Directors has approved the proposed amendment,
subject to stockholder approval.
The text of the Plan is attached as Appendix B to this Proxy Statement.
The following description of the Plan is intended merely as a summary of its
principal features and is qualified in its entirety by reference to the Plan
itself. On April 5, 2004, the closing price of a share of the common stock on
the NASDAQ National Market was $31.90.
Number of Shares. The maximum number of shares of our common stock
which may be issued pursuant to the Plan if the amendment is approved will be
1,500,000 (subject to adjustment to reflect stock dividends, stock splits, share
combinations, and similar changes in the capitalization of the Company). These
shares may be authorized but unissued shares or reacquired shares, and we may
purchase shares required for this purpose, from time to time, if we deem such
purchase to be advisable.
Administration. The Compensation Committee administers the Plan and has
full and final authority, in its discretion but subject to the express
provisions of the Plan, to: o interpret the Plan; o make, amend, and rescind
rules and regulations relating to the Plan; o determine the terms and provisions
of the instruments by which options shall be evidenced; and o make all other
determinations necessary or advisable for the administration of the Plan.
Eligibility. The following employees are not eligible to participate in
the Plan: o those whose customary employment is for less than five months in any
calendar year; o those whose customary employment is 20 hours or less per week;
o 5% or more owners of our stock; and o those who are classified as "temporary"
and who have been employed for less than six months.
All other employees of the Company or certain subsidiary corporations
are eligible to participate in the Plan. The Board may also approve
participation in the Plan by employees of certain related corporations of the
Company.
Option Terms. Options to purchase shares of Common Stock are granted to
participating employees as of the first business day of each Option Term. Option
Terms begin each January 1 and end on the following December 31. Payroll
deductions are accumulated during an Option Term and purchases of shares occur
at the end of each Option Term (from the amounts accumulated during that Option
Term).
8
Participation. An eligible employee may become a participant in the
Plan for an Option Term by authorizing the Company to have deductions of up to
15% made from his or her basic rate of compensation during the Option Term. If
an employee first becomes eligible for the Plan after the beginning of an Option
Term, but before October 1 of that year, then the employee is eligible to
participate by making payroll deductions for the remainder of the Option Term,
commencing on the first business day of the calendar quarter coincident with or
immediately following the date he or she first becomes eligible. Payroll
deduction amounts under the Plan are held as general assets of the Company.
During an Option Term, an employee may not change his or her percentage of
payroll deduction, but may cease payroll deductions for the remainder of the
Option Term. However, an employee may not withdraw any contributed funds other
than by terminating participation in the Plan (as described below).
Purchase Price. The purchase price for each share (the "Purchase
Price") will be equal to the lesser of (i) 85% of the fair market value of our
common stock on the first business day of the applicable Option Term (or, in the
case of an employee who first becomes eligible for the Plan after the beginning
of an Option Term, 85% of the fair market value of our common stock on the first
business day of the applicable calendar quarter), or (ii) 85% of the fair market
value of our common stock on the last business day of the applicable Option
Term. For purposes of the Plan, the per share fair market value of our common
stock on the relevant date is equal to the quoted closing price on the last
business day prior to such date.
Exercise of Option. Subject to the limits of the Plan, on the last
business day of each Option Term, a participating employee's option is
automatically exercised for the number of whole shares of our common stock
purchasable with his or her accumulated payroll deductions under the Plan for
such Option Term. An employee must be employed on the last day of the Option
Term in order to acquire stock for that Option Term under the Plan. In no event
may the number of whole shares of common stock purchased by an employee during
an Option Term exceed 4,000 (subject to adjustment to reflect stock dividends,
stock splits, share combinations and similar changes in the capitalization of
the Company).
Accrual Limitation. No employee may be granted an option under the Plan
which permits his or her rights to purchase stock under the Plan and all other
"employee stock purchase plans" of the Company and any parent or subsidiary to
accrue at a rate that exceeds $25,000, determined as of the first business day
of the Option Term.
Termination of Participation. A participating employee will be refunded
all payroll deductions held on his or her behalf, and his or her participation
in the Plan will be terminated, if:
o the employee elects to terminate participation and withdraw
his or her payroll deductions by providing notice to that
effect to the Company;
o the employee ceases to be employed by the Company or a
participating subsidiary;
o the Board of Directors elects to terminate the Plan; or o the
employee ceases to be eligible to participate in the Plan.
Termination of participation during an Option Term will not affect an
employee's ability to participate in later Option Terms, provided the employee
continues to satisfy the eligibility requirements of the Plan.
9
Nonassignability. No participating employee may assign his or her
payroll deductions or options to purchase shares of our common stock under the
Plan, whether voluntarily, by operation of law or otherwise. However, the right
to receive a return of accumulated payroll deductions (if any) after death of
the employee may be transferred by will or by the laws of descent and
distribution.
Amendment. The Board of Directors may, at any time, amend the Plan in
any respect; provided, however, that without approval of the stockholders of the
Company no amendment shall be made
o increasing the number of shares that may be made available for purchase under
the Plan, o changing the eligibility requirements for participating in the Plan,
or o otherwise causing options issued under the Plan to fail to meet Section 423
of the Code.
Termination. With respect to any shares of our common stock not subject
to options under the Plan, the Board of Directors may terminate the Plan at any
time. In any event, the Plan shall, without further action of the Board of
Directors, terminate when all of our shares of common stock that may be made
available for purchase under the Plan have been issued.
Federal Income Tax Aspects of the Plan. The following is a summary of
the current federal income tax consequences to the Company and the participating
employees receiving options pursuant to the Plan. The following summary is not
intended to be a full discussion of all tax consequences of participation and
does not cover any alternative minimum tax, state or local income or other
taxes.
The Plan is intended to meet the requirements of Section 423 of the
Code. Under Section 423, no income will be recognized for federal income tax
purposes by participants when they are granted an option under the Plan at the
beginning of an Option Term (or on a delayed grant date) or upon purchase of
shares at the end of an Option Term. The Company receives no deduction at either
the applicable grant date or end of an Option Term.
If the shares acquired by a participant pursuant to the Plan are
disposed of more than two years after the applicable grant date (or if the
participant dies while owning the shares), the participant will recognize
ordinary income to the extent of the lesser of: (a) the purchase price discount
of the shares at the applicable grant date; or (b) the amount by which the fair
market value of the shares at the time of disposition exceeded the price paid
for the shares. Additional gain or loss, if any, will be taxed as capital gain
or loss. The Company receives no deduction if the shares are disposed of more
than two years after the applicable grant date of the Option Term in which they
are acquired.
If the shares are disposed of within two years from the applicable
grant date of an Option Term, the participant will recognize ordinary income in
the year of disposition in the amount by which the fair market value of the
shares on the date of acquisition exceeded the price paid for the shares. Any
additional gain or loss on the disposition of the shares is treated as capital
gain or loss. The Company may take a deduction in the year a participant makes a
disqualifying disposition (i.e., disposes of shares within two years from the
applicable grant date) to the extent the participant recognizes ordinary income
on the disposition, subject to Sections 83 and 162(m) of the Code.
10
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2003 regarding
existing compensation plans (including individual compensation arrangements)
under which equity securities of Integra are authorized for issuance:
Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for
of outstanding options, outstanding options, future issuance under
Plan Category warrants and rights warrants and rights equity compensation plans (1)
- ----------------------------------------- ------------------------- ------------------------- -------------------------------
- ----------------------------------------- ------------------------- ------------------------- -------------------------------
Equity compensation plans approved by
the Company's stockholders 4,133,482 (2) $11.51 (3) 3,631,207 (4)
Equity compensation plans not
approved by the Company's -- -- --
stockholders _________ ________ ________
Total 4,133,482 $11.51 3,631,207
(1) Excludes securities to be issued upon the exercise of outstanding options,
warrants and rights. (2) Includes 1,250,000 Restricted Units issued in December
2000 under the 2000 Equity Incentive Plan. Each
Restricted Unit represents the right to receive one share of our common
stock without payment of any exercise price. The remaining awards are
comprised entirely of stock options under the 1993 Incentive Stock Option
and Non-Qualified Stock Option Plan, the 1996 Incentive Stock Option and
Non-Qualified Stock Option Plan, the 1998 Stock Option Plan, the 1999
Stock Option Plan, the 2000 Equity Incentive Plan, the 2001 Equity
Incentive Plan and the 2003 Equity Incentive Plan.
(3) Excluding the 1,250,000 Restricted Units, the weighted average exercise
price was $16.49. (4) Includes 195,473 shares of common stock which remain
available for issuance under the Employee Stock
Purchase Plan and 3,435,734 shares which remain subject to awards under
the 1996 Incentive Stock Option and Non-Qualified Stock Option Plan, the
1998 Stock Option Plan, the 1999 Stock Option Plan, the 2000 Equity
Incentive Plan, the 2001 Equity Incentive Plan, and the 2003 Equity
Incentive Plan.
NEW PLAN BENEFITS
The amount of benefits available under the Plan is based on discretionary
elections of employees to participate. Accordingly, it is not possible to
determine the benefits that will be received in the future by participants in
the Plan. The table below sets forth the amount of common stock that the Named
Officers (as defined within the "Executive Compensation" section) and other
groups purchased during 2003 pursuant to the Plan.
Number of Shares
Under the 1998
Employee Stock
Name and Position Purchase Plan
---------------------------------------------------------- --------------------
---------------------------------------------------------- --------------------
1,416
Stuart M. Essig
President and Chief Executive Officer
John B. Henneman, III
Executive Vice President, Chief Administrative
Officer and Secretary 1,416
Robert D. Paltridge
Senior Vice President, Worldwide Sales 966
11
David B. Holtz
Senior Vice President, Finance and Treasurer 377
Donald R. Nociolo
Senior Vice President, Operations 0
All Current Executive Officers as a Group 5,926
All Current Directors Who are Not Executive Officers as
a Group 0
All Employees, Including All Current Officers Who are
Not Executive Officers, as a Group 46,149
THE BOARD OF DIRECTORS HAS ADOPTED A RESOLUTION APPROVING THE AMENDENT TO
THE 1998 EMPLOYEE STOCK PURCHASE PLAN AND HEREBY RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO THE
1998 EMPLOYEE STOCK PURCHASE PLAN.
12
PROPOSAL 3. RATIFICATION OF AUDITORS
The firm of PricewaterhouseCoopers LLP served as our independent
accountants for 2003 and has been selected by the Board of Directors to serve in
the same capacity for 2004. The stockholders will be asked to ratify this
appointment at the Meeting. The ratification of independent accountants by the
stockholders is not required by law or our By-laws. We have traditionally
submitted this matter to the stockholders and believe that it is good practice
to continue to do so.
Ratification of PricewaterhouseCoopers LLP as our auditors requires the
affirmative vote of the holders of at least a majority of the issued and
outstanding shares of common stock present, in person or by proxy, at the
Meeting and entitled to vote. If a majority of the votes cast on this matter are
not cast in favor of the ratification of PricewaterhouseCoopers LLP, we will
appoint other independent accountants as soon as practicable and before the
close of the 2004 year.
During fiscal year 2003, PricewaterhouseCoopers LLP not only acted as
our independent auditors, but also rendered other services, including tax and
acquisition-related due diligence services.
The following table sets forth the aggregate fees billed or expected to
be billed by PricewaterhouseCoopers LLP and affiliated entities (collectively,
"PricewaterhouseCoopers") for audit and non-audit services (as well as all
"out-of-pocket" costs incurred in connection with these services) and are
categorized as Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees. The
nature of the services provided in each such category is described following the
table.
Actual Fees (in thousands)
2003 2002
Audit Fees................................................................ $ 520 $ 375
Audit-Related Fees...................................................... 188 155
Total Audit and Audit-Related Fees............................ $ 708 $ 530
Tax Fees.................................................................. 228 190
All Other Fees............................................................ -- 8
Total Fees................................................................. $ 936 $ 728
The nature of the services provided in each of the categories listed
above is described below:
Audit Fees -- Consists of professional services rendered for the audits
of the consolidated financial statements of the Company, quarterly reviews,
statutory audits, consents, and assistance with and review of documents filed
with the Securities and Exchange Commission (the "Commission").
Audit-Related Fees -- Consists of services related to an employee
benefits plan audit, financial due diligence and accounting consultations in
connection with proposed acquisitions, and consultations concerning financial
accounting and reporting standards.
Tax Fees -- In 2003, approximately 39% of Tax Fees were related to tax
compliance (review and preparation of corporate tax returns, assistance with tax
audits, review of the tax treatment for certain expenses, extra-territorial
income analysis, transfer pricing documentation for compliance purposes and tax
due diligence relating to acquisitions). Other tax services included state and
local tax planning and consultations with respect to various domestic and
international tax planning matters.
All Other Fees -- Consists of advice rendered in connection with a
distribution expense reduction program.
All fees described above were approved by the Audit Committee.
13
Pre-Approval of Audit and Non-Audit Services
Under the Audit Committee Charter, the Audit Committee must pre-approve
all audit and non-audit services provided by the independent auditors. The
policy, as described below, sets forth the procedures and conditions for such
pre-approval of services to be performed by the independent auditor.
Management submits requests for approval in writing to the Committee,
which meets to discuss such requests and to approve or decline to approve the
requests. Committee pre-approval of audit and non-audit services is not required
if the engagement for the services is entered into pursuant to pre-approval
policies and procedures established by the Committee regarding the Company's
engagement of the independent auditor, provided the policies and procedures are
detailed as to the particular service, the Committee is informed of each service
provided and such policies and procedures do not include delegation of the
Committee's responsibilities under the Exchange Act to the Company's management.
The Committee may delegate to one or more designated members of the
Committee the authority to grant pre-approvals, provided such approvals are
presented to the Committee at a subsequent meeting. If the Committee elects to
establish pre-approval policies and procedures regarding non-audit services, the
Committee must be informed of each non-audit service provided by the independent
auditor. Committee pre-approval of non-audit services (other than review and
attest services) also will not be required if such services fall within
available exceptions established by the SEC.
The Committee has determined that the rendering of the services other
than audit services by PricewaterhouseCoopers LLP is compatible with maintaining
the principal accountant's independence.
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting of Stockholders and will be allowed to make a
statement if they wish. Additionally, they will be available to respond to
appropriate questions from stockholders during the meeting.
THE BOARD OF DIRECTORS HAS ADOPTED A RESOLUTION APPROVING THE APPOINTMENT OF
AUDITORS AND HEREBY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S AUDITORS
FOR 2004.
14
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's
last three fiscal years concerning the annual, long-term and other compensation
of the chief executive officer of the Company and each of the Company's four
highest paid executive officers as of December 31, 2003 whose total annual
salary and bonus during 2003 exceeded $100,000 (collectively, the "Named
Officers"):
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
-------------------------------------- ----------------------------------
Name and Principal Position Year Salary Other Annual Restricted Securities Other
Compensation Stock Awards Underlying Compensation
(1) (2) Options (3) (4)
- ------------------------------------------ --------- ----------- ---------------- ---------------- ----------------- ---------------
--
Stuart M. Essig 2003 $402,821 -- -- -- $2,400
President and Chief Executive 2002 $362,500$325,000 -- -- 36,208 $2,200
Officer 2001 -- 31,565 $1,575
John B. Henneman, III 2003 $297,132 -- -- 45,000 $2,400
Executive Vice President, Chief 2002 $257,500 -- -- 35,062 $2,200
Administrative Officer and Secretary 2001 $240,000 -- -- 152,000 $1,575
Donald R. Nociolo 2003 $185,308 -- -- 1,000 $2,400
Senior Vice President, Operations 2002 $170,000 -- -- 12,875 $2,200
2001 $160,000 -- -- 60,000 $1,440
Robert D. Paltridge 2003 $181,270 $79,416 -- 20,000 $2,400
Senior Vice President, Worldwide 2002 $172,500 $55,127 -- 15,125 $2,200
Sales 2001 $165,000 $34,302 -- 10,000 $1,575
David B. Holtz 2003 $188,998 $40,000 -- 7,000 $2,268
Senior Vice President, Finance and 2002 $180,000 $30,000 -- 20,583 $2,170
Treasurer 2001 $175,000 -- -- 70,000 $1,313
(1) The amounts reported in this column for Mr. Paltridge represent contingent
compensation that is based upon the achievement of sales targets for
certain products. The amount reported in this column in 2003 and 2002 for
Mr. Holtz represents compensation associated with his assumption of
responsibility for the Company's European operations.
(2) The terms of Mr. Essig's Restricted Units are described herein under the
heading "Employment Agreements." As of December 31, 2003, Mr. Essig held
Restricted Units that entitled him to receive an aggregate of 1,250,000
shares of common stock. Based on the closing price of the Company's common
stock of $28.66 per share on December 31, 2003, Mr. Essig's Restricted
Units had an aggregate value of $35,825,000 as of December 31, 2003.
Dividends will be paid on Mr. Essig's Restricted Units to the extent they
are paid on the common stock. Mr. Essig was granted these Restricted Units
in 2000.
(3) The amounts reported in this column for 2003 exclude the securities
underlying annual option grants approved by the Board of Directors in
December 2003 and made in January 2004. Such grants have historically been
made in the year in which they are approved. The number of securities
underlying such grants for each of the named officers was 25,000 for Mr.
Essig, 25,000 for Mr. Henneman, 15,000 for Mr. Nociolo, 15,000 for Mr.
Paltridge and 20,000 for Mr. Holtz.
(4) The amounts reported in this column consist of the Company's matching
contributions to its 401(k)Plan.
15
The following tables set forth certain information concerning stock options
granted to Named Officers during 2003 and the unexercised options held by them
at December 31, 2003.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
--------------------------------------------------------------------------- ------------------------------
% of Total
Number of Securities Options Granted Exercise
Underlying Options to Employees in Price Per
Name Granted (1) Fiscal Year (2) Share Expiration Date 5% 10%
- ------------------------ ---------------------- ------------------- -------------- ----------------- ------------- ----------------
Stuart M. Essig -- 0.0% -- -- -- --
John B. Henneman, III 20,000 5.3% $18.63 02/24/09 $126,719 $287,484
20,000 5.3% $22.78 04/07/09 $154,948 $351,523
5,000 1.3% $32.39 11/03/09 $55,078 $124,954
Donald R. Nociolo 1,000 0.3% $22.78 04/07/09 $7,747 $17,516
Robert D. Paltridge 20,000 5.3% $18.63 02/24/09 $126,720 $287,484
David B. Holtz 6,000 1.6% $22.78 04/07/09 $46,484 $105,457
1,000 0.3% $32.39 11/03/09 $11,016 $24,991
(1) Such options were granted with an exercise price equal to the fair market
value of the Company's common stock on the grant date, are nontransferable
and vest over a period of four years commencing with the date of grant. The
data presented in this table excludes the effect of the securities
underlying annual option grants approved by the Board of Directors in
December 2003 and made in January 2004. Such grants have historically been
made in the year in which they are approved. The number of securities
underlying such grants for each of the named officers was 25,000 for Mr.
Essig, 25,000 for Mr. Henneman, 15,000 for Mr. Nociolo, 15,000 for Mr.
Paltridge and 20,000 for Mr. Holtz
(2) The Company granted options to employees to purchase an aggregate of
374,275 shares of common stock during 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Shares Number of Securities Underlying Value of Unexercised In-the-Money
Acquired Value Unexercised Options At Fiscal Year Options At
On Realized End Fiscal Year End (2)
------------------------------------- --------------------------------------
Name Exercise (1) Exercisable Nonexercisable Exercisable Nonexercisable
- ------------------------ ------------ --------------- ----------------- ------------------- ------------------- ------------------
Stuart M. Essig 823,278 $17,454,443 62,099 297,939 $804,768 $4,825,779
John B. Henneman, III 58,091 $1,261,848 208,868 150,633 $3,047,013 $839,564
Donald R. Nociolo 25,458 $533,730 45,201 42,710 $373,745 $208,483
Robert D. Paltridge 0 0 50,489 38,456 $977,265 $373,970
David B. Holtz 38,200 $904,472 59,995 60,877 $437,736 $356,415
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
16
(2) In-the-money options are those in which the fair market value of the
underlying securities exceeds the exercise price of the option. The closing
price of the Company's common stock on December 31, 2003 was $28.66 per
share. Value is calculated on the basis of the fair market value of the
underlying securities on December 31, 2003 minus the exercise price.
EMPLOYMENT AGREEMENTS
Stuart M. Essig, Integra's current President and Chief Executive
Officer, entered into an Amended and Restated Employment Agreement with the
Company in December 2000 that extended the term of his employment with the
Company as its President and Chief Executive Officer through December 31, 2005.
The Amended Employment Agreement supersedes Mr. Essig's prior employment
agreement with the Company dated December 1997.
Under the Amended Employment Agreement, the Company will pay Mr. Essig
an annual base salary in 2004 of $400,000 plus such increases, if any, as may be
established by the Company's Board of Directors. Mr. Essig is eligible to
receive a performance bonus of up to fifty percent (50%) of his base salary,
based upon the satisfaction of certain performance goals established by the
Company's Board of Directors. Mr. Essig is also entitled to life insurance equal
to the lesser of (a) a $3,000,000 four-year minimum renewable term life
insurance policy and (b) the four-year minimum renewable term life policy
purchasable by the Company by paying premium payments of $5,000 per year for
such policy. Mr. Essig is also entitled to participate in the Company's medical,
disability, pension and other employee benefit plans and programs maintained
from time to time by the Company for the benefit of its senior executives. The
Amended Employment Agreement is for an initial term through December 31, 2005
and shall automatically extend on December 31, 2005 and on each subsequent
one-year anniversary thereof for one year unless the Company or Mr. Essig
provides written notice of termination at least six months prior to the
expiration of the then-current term.
The Amended Employment Agreement further provides that the Company
generally will reimburse, or "gross-up," Mr. Essig on an after-tax basis for any
excise tax liability he may incur by reason of any "excess parachute payments"
he receives from the Company. Section 280G of the Internal Revenue Code of 1986,
as amended, provides that if payments of compensation that are contingent on a
change in control exceed three times an employee's "base amount" (his average
annual compensation during certain prior years), they will constitute "parachute
payments," and the excess of such parachute payments over such base amount
generally will constitute "excess parachute payments." Such excess parachute
payments are nondeductible by the employer and are subject to a 20% excise tax
payable by the employee.
In connection with the extension of the term of Mr. Essig's employment
pursuant to the Amended Employment Agreement in 2000, the Company granted Mr.
Essig (i) a non-qualified stock option to purchase 250,000 shares of the
Company's common stock under Integra's 1999 Stock Option Plan, (ii) a
non-qualified stock option to purchase 250,000 shares of the Company's common
stock under Integra's 2000 Equity Incentive Plan and (iii) 1,250,000 "Restricted
Units" under Integra's 2000 Equity Incentive Plan. Each stock option (each, an
"Option") expires on December 21, 2010 and has an exercise price equal to $11.00
per share (the closing price of the Company's common stock on The NASDAQ
National Market on December 21, 2000). Each Option vested and became exercisable
with respect to 62,500 shares on December 22, 2001 and, assuming the
continuation of Mr. Essig's employment with the Company, each Option will vest
and become exercisable with respect to 1/36th of the remaining shares on the
first business day of each following month. In the event of a (i) "change in
control" of the Company (as defined in the Amended Employment Agreement) or (ii)
the termination of Mr. Essig's employment with the Company (a) by Integra
without "cause" (as defined in the Amended Employment Agreement) or (b) by Mr.
Essig for "good reasons" (as defined in the Amended Employment Agreement), the
Options shall vest and become exercisable immediately. The Option granted
pursuant to Integra's 1999 Stock Option Plan may be transferred by Mr. Essig to
members of his immediate family, to trusts established for the benefit of his
immediate family or to partnerships or limited liability companies of which the
partners or members are members of his immediate family. Otherwise, the Options
may not be transferred by Mr. Essig other than by will or by the laws of descent
and distribution.
17
Under a Restricted Units Agreement, the Company issued to Mr. Essig a
fully vested equity-based signing award bonus in the form of 1,250,000
restricted units (the "Restricted Units") in 2000. Each Restricted Unit
represents the right to receive one share of the Company's common stock. The
shares of the Company's common stock underlying the Restricted Units ("Unit
Shares") shall be delivered to Mr. Essig on January 1, 2006 if Mr. Essig is
employed by the Company on December 31, 2005 or on such earlier date as a change
in control of the Company occurs; provided, however, that Mr. Essig has the
right to defer the delivery of the Unit Shares on as many occasions prior to the
date Mr. Essig becomes entitled to delivery of the Unit Shares as Mr. Essig
determines from time to time through, but not beyond, June 30, 2025. The Unit
Shares may be delivered to Mr. Essig prior to January 1, 2006 in the event of a
termination of Mr. Essig's employment with the Company other than (a) for cause
or (b) due to his voluntary departure (other than for good reasons or due to
disability). If, prior to December 31, 2005 and prior to a change of control of
the Company, (i) Mr. Essig's employment with Integra is terminated for cause or
(ii) Mr. Essig voluntarily leaves his employment with the Company (other than
for good reasons or due to disability), the Unit Shares will be distributed to
Mr. Essig on January 1, 2010.
The Company has also granted Mr. Essig registration rights requiring
the Company to file a "shelf" registration statement at Mr. Essig's request that
will provide for the registration and sale on a continuous or delayed basis of
the shares of Integra common stock underlying the Options and the Restricted
Units.
Gerard S. Carlozzi, Integra's Executive Vice President and Chief
Operating Officer, entered into an Employment Agreement with the Company in
October 2003. The employment agreement provides for an annual base salary of
$300,000. The employment agreement also provides for a grant of 100,000
nonqualified stock options to Mr. Carlozzi within one year of his entering into
the employment agreement. Mr. Carlozzi is entitled to participate and receive
benefits under any employee benefit plan or stock-based plan of the Company and
shall be eligible for any medical, disability and other plans and benefits
covering executives of the Company. The employment agreement has an initial term
through December 31, 2004 that will automatically extend on December 31, 2004
and each one-year anniversary thereof for one year unless the Company or Mr.
Carlozzi provides written notice at least 30 days prior to the expiration of the
then-current term. Mr. Carlozzi shall be entitled to a severance payment equal
to 2.99 times his then-current annual base salary, if within twelve months of a
change of control of the Company, (a) Mr. Carlozzi terminates his employment
agreement for good reason or for the failure of the ultimate parent of the
surviving entity or the surviving entity, as applicable, to grant Mr. Carlozzi
the title and responsibility he now has with Integra, or (b) the Company
terminates or fails to extend the employment agreement of Mr. Carlozzi for
reasons other than cause, retirement, disability or death. In addition, the
Company will reimburse, or "gross-up," Mr. Carlozzi on an after-tax basis for
any excise tax liability he may incur by reason of any "excess parachute
payments" he receives from the Company following a change of control. Mr.
Carlozzi shall be entitled to a severance payment equal to his then-current base
salary if, in the absence of a change of control, (a) he terminates his
employment agreement for good reason or (b) the Company terminates or fails to
extend his employment agreement for reasons other than cause, retirement,
disability or death.
John B. Henneman, III, Integra's Executive Vice President and Chief
Administrative Officer, entered into an Employment Agreement with the Company in
October 2003 that replaced his September 2002 employment agreement.
18
The employment agreement provides for an annual base salary of $350,000. Mr.
Henneman is entitled to participate and receive benefits under any employee
benefit plan or stock-based plan of the Company and shall be eligible for any
medical, disability and other plans and benefits covering executives of the
Company. The employment agreement has an initial term through December 31, 2003.
On December 31, 2003, Mr. Henneman's term of employment automatically extended
to December 31, 2004 and will automatically extend on each December 31st for one
year unless the Company or Mr. Henneman provides written notice at least 30 days
prior to the expiration of the then-current term. Mr. Henneman shall be entitled
to a severance payment equal to 2.99 times his then-current annual base salary,
if within twelve months of a change of control of the Company, (a) Mr. Henneman
terminates his employment agreement for good reason or for the failure of the
ultimate parent of the surviving entity or the surviving entity, as applicable,
to grant Mr. Henneman the title and responsibility he now has with Integra, or
(b) the Company terminates or fails to extend the employment agreement of Mr.
Henneman for reasons other than cause, retirement, disability or death. In
addition, the Company will reimburse, or "gross-up," Mr. Henneman on an
after-tax basis for any excise tax liability he may incur by reason of any
"excess parachute payments" he receives from the Company following a change of
control. Mr. Henneman shall be entitled to a severance payment equal to his
then-current base salary if, in the absence of a change of control, (a) he
terminates his employment agreement for good reason or (b) the Company
terminates or fails to extend his employment agreement for reasons other than
cause, retirement, disability or death.
Donald R. Nociolo, Integra's Senior Vice President, Operations, entered
in a Retention Agreement with the Company in February 2003. Under that
agreement, Mr. Nociolo shall be entitled to receive a severance amount equal to
his then-current base salary (including commissions) if, within twelve months of
a change of control of the Company, (a) he terminates his employment agreement
for good reason or (b) the Company terminates his employment for reasons other
than cause, retirement, disability or death.
Robert Paltridge, Integra's Senior Vice President, Worldwide Sales,
entered in a Retention Agreement with the Company in February 2003. Under that
agreement, Mr. Paltridge shall be entitled to receive a severance amount equal
to his then-current base salary (including commissions) if, within twelve months
of a change of control of the Company, (a) he terminates his employment
agreement for good reason or (b) the Company terminates his employment for
reasons other than cause, retirement, disability or death.
David B. Holtz, Integra's Senior Vice President, Finance, and
Treasurer, entered into an Employment Agreement with the Company in September
2002 that replaced his December 1998 employment agreement. The employment
agreement provides for an annual base salary of $185,000. Mr. Holtz is entitled
to participate and receive benefits under any employee benefit plan or
stock-based plan of the Company and shall be eligible for any medical,
disability and other plans and benefits covering executives of the Company. The
employment agreement has an initial term through December 31, 2003. On December
31, 2003, Mr. Holtz's term of employment automatically extended to December 31,
2004 and will automatically extend on each December 31st for one year unless the
Company or Mr. Holtz provides written notice at least 30 days prior to the
expiration of the then-current term. Mr. Holtz shall be entitled to receive a
severance amount equal to 2.99 times his then-current annual base salary, if
within twelve months of a change of control of the Company, (a) Mr. Holtz
terminates his employment agreement for good reason or for the failure of the
ultimate parent of the surviving entity or the surviving entity, as applicable,
to grant Mr. Holtz the title and responsibility he now has with Integra, or (b)
the Company terminates or fails to extend the employment agreement of Mr. Holtz
for reasons other than cause, retirement, disability or death. Mr. Holtz shall
be entitled to receive a severance amount equal to his then-current base salary
if, in the absence of a change of control, (a) Mr. Holtz terminates his
employment agreement for good reason or (b) the Company terminates Mr. Holtz or
fails to extend his employment agreement for reasons other than cause,
retirement, disability or death.
19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Caruso, Dr. Bradley and Mr. Moszkowski served as members of the
Compensation Committee in 2003, and the current members of the Compensation
Committee are Dr. Auth, Dr. Bradley and Mr. Moszkowski. Dr. Caruso was the
Company's Chief Executive Officer from March 1992 to December 1997. Dr. Caruso
is the uncle of David Holtz, the Company's Senior Vice President, Finance and
Treasurer.
The Company leases its manufacturing facility in Plainsboro, New Jersey
from Plainsboro Associates, a New Jersey general partnership. Ocirne, Inc., a
subsidiary of Cono Industries ("Cono"), owns a 50% interest in Plainsboro
Associates. Cono is a corporation whose stockholders are trusts whose
beneficiaries include the children of Dr. Caruso, the Chairman and a principal
stockholder of the Company. Dr. Caruso is the President of Cono. The Company
paid $231,000 in rent for this facility during 2003.
The Company leases certain production equipment from Medicus
Corporation. The sole stockholder of Medicus is Trust Partnership, a
Pennsylvania general partnership, of which Dr. Caruso is a partner and the
President. Under the terms of the lease, the Company paid $90,000 to Medicus
Corporation during 2003.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee is required by the
rules of the Commission to be included in this Proxy Statement and addresses the
Company's executive compensation policies for the year ended December 31, 2003.
This report has been prepared by the 2003 Compensation Committee, whose
membership differs from that of the 2004 Compensation Committee. See
"Information Concerning Meetings and Certain Committees." This report shall not
be deemed incorporated by reference into any filing under the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act of 1934, as amended
(the "Exchange Act"), by virtue of any general statement in such filing
incorporating this Proxy Statement by reference, except to the extent that the
Company specifically incorporates the information contained in this section by
reference, and shall not otherwise be deemed filed under either the Securities
Act or the Exchange Act.
GENERAL. The Company's compensation policies for executives are
intended to further the interests of the Company and its stockholders by
encouraging growth of its business through securing, retaining and motivating
management employees of high caliber who possess the skills necessary to the
development and growth of the Company. The Compensation Committee is mindful of
the need to align the interests of management with the interests of the
Company's stockholders. The establishment of the Company's equity-based plans
was designed to permit the Company to attract and retain talented managers and
motivate such managers to enhance profitability and stockholder returns. The
Compensation Committee believes that the utilization of equity-based plans
serves the interests of the stockholders by creating an appropriate incentive
for employees to identify with the stockholders' interests.
The Company's compensation package consists of base compensation,
performance bonuses, and stock options (and, where appropriate, restricted
equity grants). Together these elements comprise total compensation value. The
total compensation paid to the Company's executive officers is influenced
significantly by the need to attract management employees with a high level of
expertise and to motivate and retain key executives for the long-term success of
the Company and its stockholders.
20
BASE COMPENSATION. The Compensation Committee establishes annual base
salary levels for executives based on competitive data, level of experience,
position, responsibility, and individual and Company performance. The Company
has sought to align base compensation levels comparable to its competitors.
PERFORMANCE BONUSES. The Company supplements base compensation with
awards of performance bonuses in the form of cash or equity awards. The
Compensation Committee determined that it was in the Company's best interests to
pay performance bonuses for the year ended December 31, 2003 with equity awards
and not to establish a cash bonus program for its senior executives.
STOCK OPTIONS. The Company has granted stock options to its executive
management under its stock option plans. Option grants are intended to bring the
total compensation to a level that the Company believes is competitive with
amounts paid by the Company's competitors and which will offer significant
returns if the Company is successful and, therefore, provides significant
incentives to devote the effort called for by the Company's strategy. The
Compensation Committee believes that executives' interests are directly tied to
enhanced stockholder value. Thus, stock options have been used to provide the
executive management team with a strong incentive to perform in a manner that
will benefit the long-term success of the Company and its stockholders.
OTHER BENEFITS. The Company makes available health care benefits and a
401(k) plan for executive officers on terms generally available to all Company
employees. The Compensation Committee believes that such benefits are comparable
to those offered by other companies of similar size. The amount of perquisites,
as determined in accordance with the rules of the Commission relating to
executive compensation, did not exceed $50,000 or 10% of the salary of any
executive officer in the last fiscal year.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Essig served as the Company's
President and Chief Executive Officer during 2003 pursuant to an employment
agreement, which provided for a base salary of $400,000. Mr. Essig waived his
right to receive a cash performance bonus. The Board of Directors approved a
grant of options to Mr. Essig to purchase 25,000 shares of the Company's common
stock in December 2003, and Mr. Essig received the grant in January 2004. For a
numerical description of Mr. Essig's compensation in 2003, see "Executive
Compensation." The terms of Mr. Essig's employment agreement are described in
the section entitled "Employment Agreements."
Under Code Section 162(m), in general, income tax deductions of
publicly-traded companies may be limited to the extent total compensation
(including base salary, annual bonus, stock option exercises and nonqualified
benefits paid in 1994 and thereafter) for certain executive officers exceeds $1
million in any one taxable year. However, compensation that qualifies as
"performance-based" is excluded from the $1 million limit if, among other
requirements, the compensation is payable only upon attainment of
pre-established objective performance goals under a plan approved by
stockholders.
The Compensation Committee does not presently expect total cash
compensation payable as salaries and bonuses to exceed the $1 million limit for
any individual executive. Having considered the requirements of Section 162(m),
the Compensation Committee believes that stock option grants to date
21
meet the requirements that such grants be "performance-based" and are,
therefore, exempt from the limitations on deductibility. The Compensation
Committee will continue to monitor the compensation levels potentially payable
under its cash compensation programs, but intends to maintain the flexibility
necessary to provide total cash compensation in line with competitive practices,
the Company's compensation philosophy and the Company's best interests.
The Compensation Committee of the Board of Directors
RICHARD E. CARUSO, PH.D.
KEITH BRADLEY, PH.D.
NEAL MOSZKOWSKI
22
AUDIT COMMITTEE REPORT
The following report of the Audit Committee is required by the rules of
the Commission to be included in this Proxy Statement. This report shall not be
deemed incorporated by reference into any filing under the Securities Act or the
Exchange Act, by virtue of any general statement in such filing incorporating
this Proxy Statement by reference, except to the extent that the Company
specifically incorporates the information contained in this section by
reference, and shall not otherwise be deemed filed under either the Securities
Act or the Exchange Act.
The role of the Audit Committee is to assist the Board of Directors in
its oversight of the Company's financial reporting process. The Committee
operates pursuant to a Charter that the Board amended and restated on March 2,
2004, a copy of which was attached as Exhibit A to this Proxy Statement.
As set forth in the Audit Committee Charter, management of the Company
is responsible for the preparation, presentation and integrity of the Company's
financial statements, the Company's accounting and financial reporting
principles and internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. The independent
auditors are responsible for auditing the Company's financial statements and
expressing an opinion as to their conformity with generally accepted accounting
principles. The Audit Committee's responsibility is to monitor and oversee this
process.
In the performance of its oversight function, the Audit Committee has
considered and discussed the audited financial statements with management and
the independent auditors. The Audit Committee has also discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as currently in
effect. Finally, the Audit Committee has received the written disclosures and
the letter from the independent auditors required by Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees" and has
discussed with PricewaterhouseCoopers LLP their independence in relation to the
Company. Management has represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles.
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements of the Company for the fiscal year ended December 31, 2003 be
included in the Company's Annual Report on Form 10-K for such fiscal year, for
filing with the Commission.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS
JAMES M. SULLIVAN
KEITH BRADLEY
NEAL MOSZKOWSKI
23
STOCK PERFORMANCE GRAPH
The following line graph and table compare, for the period from
December 31, 1998 through December 31, 2003, the yearly percentage change in the
cumulative total stockholder return on the Company's common stock with the
cumulative total return of companies on the NASDAQ Stock Market - U.S. Index and
the NASDAQ Medical Devices, Instruments and Supplies, Manufacturers and
Distributors Index. The graph assumes that the value of the investment in the
Company's common stock and the relevant index was $100 at December 31, 1998 and
that all dividends were reinvested. The closing market price of the Company's
common stock on December 31, 2003 was $28.66 per share.
[OBJECT OMITTED]
Comparison of Cumulative Total Return among Integra LifeSciences Holdings Corporation,
the NASDAQ Medical Devices, Instruments and Supplies, Manufacturers and
Distributors Index, and the NASDAQ Stock Market -- U.S. Index
12/98 12/99 12/00 12/01 12/02 12/03
-------- -------- -------- ------- -------- --------
Integra LifeSciences Holdings Corporation $ 100 $175 $404 $780 $522 $849
NASDAQ Medical Devices, Instruments and Supplies,
Manufacturers and Distributors Index $100 $121 $125 $137 $111 $160
NASDAQ Stock Market - U.S. Index $100 $185 $112 $ 89 $ 61 $ 95
The graph and table above depict the past performance of the Company's
stock price. The Company neither makes nor endorses any predictions as to future
stock performance. The graph and table set forth above shall not be deemed (i)
incorporated by reference into any filing under the Securities Act or the
Exchange Act by virtue of any general statement in such filing incorporating
this Proxy Statement by reference, except to the extent that the Company
specifically incorporates the information contained in this section by
reference, or (ii) filed under either the Securities Act or the Exchange Act.
24
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of common stock as of March 31, 2004 by: (a) each person or
entity known to the Company to own beneficially five percent or more of the
outstanding shares of common stock, based upon Company records or Commission
records; (b) each of the Company's directors; (c) each of the officers named
below; and (d) all executive officers and directors of the Company as a group.
Except as otherwise indicated, each person has sole voting power and sole
investment power with respect to all shares beneficially owned by such person.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES (1) OF CLASS
-------------------------------------------------------------- ---------------- ------------
David Auth, Ph.D. 70,000(2) *
Keith Bradley, Ph.D. 20,000(3) *
Richard E. Caruso, Ph.D. 7,114,543(4) 24.9%
Stuart M. Essig 677,685(5) 2.4%
Neal Moszkowski 50,000(6) *
James M. Sullivan 56,641(7) *
John B. Henneman, III 246,941(8) *
David Holtz 87,248(9) *
Robert D. Paltridge 63,007(10) *
Donald R. Nociolo 22,630(11) *
All directors and executive officers as a group
(13 persons) 8,505,939(12) 29.0%
FMR Corp.
82 Devonshire Street, Boston, MA 02109 2,013,033(13) 7.4%
Quantum Industrial Partners LDC
Kaya Flamboyan 9
Willemsted, Curacao, Netherlands Antilles 2,472,406(14) 8.7%
SFM Domestic Investments LLC
888 Seventh Avenue, 33rd Floor, New York, NY 10106 652,894 (15) 2.3%
Trust Partnership
c/o Richard E. Caruso, Ph.D., 919 Conestoga Road,
Building 2, Suite 106, Rosemont, PA 19010 7,091,205(16) 24.7%
* Represents beneficial ownership of less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual to acquire them within 60 days of March 31, 2004
upon the exercise of an option or other convertible security are
treated as outstanding for purposes of determining beneficial ownership
and the percentage beneficially owned by such individual.
(2) Includes 20,000 shares that Dr. Auth has the right to acquire within
60 days of March 31, 2004 upon the exercise of options held by him.
25
(3) Consists of 20,000 shares that Dr. Bradley has the right to
acquire within 60 days of March 31, 2004 upon the exercise of options
held by him.
(4) Includes the 7,091,205 shares held by Trust Partnership L.P., a
Pennsylvania general partnership of which Dr. Caruso is a partner and
the President (also see Note 16 below). Also includes 23,338 shares
held by Provco Leasing Corporation ("Provco") of which Dr. Caruso is
President. Provco is a wholly owned subsidiary of Cono Industries,
Incorporated, a corporation whose stockholders are trusts whose
beneficiaries include Dr. Caruso's children. Also includes 70,625
shares that Dr. Caruso has the right to acquire within 60 days of March
31, 2004 upon the exercise of options held by him. Dr. Caruso's address
is 919 Conestoga Road, Building 2, Suite 106, Rosemont, Pennsylvania
19010.
(5) Includes 121,911 shares that Mr. Essig has the right to acquire within
60 days of March 31, 2004 upon the exercise of options held by him.
Excludes Restricted Units awarded to Mr. Essig in 2000, which entitle
him to receive an aggregate of 1,250,000 shares of common stock. The
Restricted Units held by Mr. Essig do not give him the right to acquire
any shares within 60 days of March 31, 2004.
(6) Consists of 50,000 shares that Mr. Moszkowski has the right to
acquire within 60 days of March 31, 2004 upon the exercise of options
held by him.
(7) Includes 55,000 shares that Mr. Sullivan has the right to acquire
within 60 days of March 31, 2004 upon the exercise of options held by
him.
(8) Includes 216,513 shares that Mr. Henneman has the right to acquire
within 60 days of March 31, 2004 upon the exercise of options held by
him.
(9) Includes 72,708 shares that Mr. Holtz has the right to acquire within
60 days of March 31, 2004 upon the exercise of options held by him.
(10) Includes 58,632 shares that Mr. Paltridge has the right to acquire
within 60 days of March 31, 2004 upon the exercise of options held by
him.
(11) Includes 46,009 shares that Mr. Nociolo has the right to acquire
within 60 days of March 31, 2004 upon the exercise of options held by
him.
(12) See Notes 2 through 11 above. Also includes 97,244 shares held by three
executive officers of the Company and/or its subsidiaries who are not
listed in the table, as well as 68,293 shares that those officers have
the right to acquire within 60 days of March 31, 2004 upon the exercise
of options held by them.
(13) Includes 1,429,878 shares of Common Stock beneficially owned by
Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp. and a registered investment adviser,
213,778 of which are attributable to the assumed conversion into
Common Stock of $7,300,000 in principal amount of the Company's
convertible notes due 2008 held by Fidelity on December 31, 2003.
Also includes 512,555 shares of Common Stock beneficially
owned by Fidelity Management Trust Company, a wholly owned
subsidiary of FMR Corp. and a bank, and 70,600 Fidelity International
Limited, a former subsidiary of FMR Corp. Edward C. Johnson,
Chairman of FMR Corp. and Abigail Johnson, a director of FMR Corp.,
and members of the Johnson family may be deemed to form a controlling
group with respect to FMR Corp. The foregoing information has been
included solely in reliance upon, and without independent investigation
of, the disclosures contained in the Form 13F filed by FMR Corp.
with the Commission on February 17, 2004.
(14) QIH Management Investor, L.P. is a minority shareholder of and is
vested with investment discretion with respect to the portfolio assets
held for the account of Quantum Industrial Partners LDC. The sole
general partner of QIH Management Investor, L.P. is QIH Management LLC.
Soros Private Funds Management LLC is the sole managing member of QIH
Management LLC and Mr. Soros is the sole member of Soros Private Funds
Management LLC. Mr. Soros has entered into an agreement dated as of
January 1, 1997 with Soros Fund Management LLC, pursuant to which Mr.
Soros has, among other things, agreed to use his best efforts to cause
QIH Management LLC to act at the direction of Soros Fund Management
LLC. Accordingly, each of QIH Management Investor, L.P., QIH
Management, LLC, Soros Fund Management and Mr. Soros may be deemed the
beneficial owner of the Quantum Industrial Partners Shares.
26
(15) Mr. Soros is the sole managing member of SFM Domestic Investments LLC
and may be deemed the beneficial owner of the SFM Domestic Investments
LLC Shares.
(16) The partners of Trust Partnership are Athena Venture Partners, L.P.,
Dr. Caruso and Provco, each of which may be deemed to beneficially own
the shares held by Trust Partnership; however, such partners of Trust
Partnership disclaim beneficial ownership of all such shares except to
the extent represented by their respective equity and profit
participation interests in Trust Partnership.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, as well as persons beneficially owning more than 10% of the
Company's outstanding shares of common stock and certain other holders of such
shares (collectively, "Covered Persons"), to file with the Commission and the
NASDAQ Stock Market, within specified time periods, initial reports of
ownership, and subsequent reports of changes in ownership, of common stock and
other equity securities of the Company.
Based solely upon the Company's review of copies of such reports
furnished to it and upon representations of Covered Persons that no other
reports were required, to the Company's knowledge all of the Section 16(a)
filing requirements applicable to Covered Persons were complied with during
2003, except for the following:
a) a statement of changes in beneficial ownership of securities on
Form 4 for the purchase of common stock in September 2003 was
filed late by Dr. Keith Bradley; and
b) the initial statement of beneficial ownership of securities on
Form 3 and a statement of changes in beneficial ownership of
securities on Form 4 for the grant of options in September 2003
were filed late by Gerard Carlozzi, Executive Vice President and
Chief Operating Officer of the Company.
STOCKHOLDER PROPOSALS
The deadline for stockholders to submit proposals pursuant to Rule
14a-8 of the Exchange Act for inclusion in the Company's proxy statement and
form of proxy for the 2005 Annual Meeting of Stockholders (the "Annual Meeting")
is December 16, 2004. The date after which notice of a stockholder Proposal
submitted outside of the processes of Rule 14a-8 of the Exchange Act is
considered untimely is March 2, 2005. If notice of a stockholder Proposal
submitted outside of the processes of Rule 14a-8 of the Exchange Act is received
by the Company after March 2, 2005, then the Company's proxy for the Annual
Meeting may confer discretionary authority to vote on such matter without any
discussion of such matter in the proxy statement for the Annual Meeting.
27
OTHER MATTERS
A copy of the Company's 2003 Annual Report to Stockholders is being mailed
simultaneously herewith to stockholders but is not to be regarded as proxy
solicitation material. In addition, our Code of Conduct, which applies to all of
the Company's directors and officers, and the charters for each of our Audit,
Compensation, and Nominating Committees are accessible via our website at
www.integra-LS.com through the "Investor Relations" link under the heading
"Corporate Governance."
THE COMPANY, UPON REQUEST, WILL FURNISH TO RECORD AND BENEFICIAL
HOLDERS OF ITS COMMON STOCK, FREE OF CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM
10-K (INCLUDING FINANCIAL STATEMENTS AND SCHEDULES BUT WITHOUT EXHIBITS) FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2003. COPIES OF EXHIBITS TO THE FORM 10-K ALSO
WILL BE FURNISHED UPON REQUEST AND THE PAYMENT OF A REASONABLE FEE. ALL REQUESTS
SHOULD BE DIRECTED TO MARIA PLATSIS, DIRECTOR OF CORPORATE DEVELOPMENT AND
INVESTOR RELATIONS, AT THE OFFICES OF THE COMPANY SET FORTH ON PAGE ONE OF THIS
PROXY STATEMENT.
By order of the Board of Directors,
Plainsboro, New Jersey
April 12, 2004
John B. Henneman, III
Secretary
28
APPENDIX A
AUDIT COMMITTEE CHARTER
of the Audit Committee
of Integra LifeSciences Holdings Corporation
I. Purpose
The purpose of the Audit Committee (the "Committee") is to
oversee the accounting and financial reporting processes of the Company and the
audits of the financial statements of the Company.
In addition to the powers and responsibilities expressly
delegated to the Committee in this Charter, the Committee may exercise any other
powers and carry out any other responsibilities delegated to it by the Board
from time to time consistent with the Company's bylaws. The powers and
responsibilities delegated by the Board to the Committee in this Charter or
otherwise shall be exercised and carried out by the Committee as it deems
appropriate without requirement of Board approval, and any decision made by the
Committee (including any decision to exercise or refrain from exercising any of
the powers delegated to the Committee hereunder) shall be at the Committee's
sole discretion. While acting within the scope of the powers and
responsibilities delegated to it, the Committee shall have and may exercise all
the powers and authority of the Board. To the fullest extent permitted by law,
the Committee shall have the power to determine which matters are within the
scope of the powers and responsibilities delegated to it.
Notwithstanding the foregoing, the Committee's
responsibilities are limited to oversight. Management of the Company is
responsible for the preparation, presentation and integrity of the Company's
financial statements as well as the Company's financial reporting process,
accounting policies, internal audit function, internal accounting controls and
disclosure controls and procedures. The independent auditor is responsible for
performing an audit of the Company's annual financial statements, expressing an
opinion as to the conformity of such annual financial statements with generally
accepted accounting principles and reviewing the Company's quarterly financial
statements in accordance with Statement of Accounting Standards No. 100. It is
not the responsibility of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosure are complete
and accurate and in accordance with generally accepted accounting principles and
applicable laws, rules and regulations. Each member of the Committee shall be
entitled to rely on the integrity of those persons within the Company and of the
professionals and experts (including the Company's internal auditor (or others
responsible for the internal audit function, including contracted non-employee
or audit or accounting firms engaged to provide internal audit services) (the
"internal auditor") and the Company's independent auditor) from which the
Committee receives information and, absent actual knowledge to the contrary, the
accuracy of the financial and other information provided to the Committee by
such persons, professionals or experts.
Further, auditing literature, particularly Statement of
Accounting Standards No. 100, defines the term "review" to include a particular
set of required procedures to be undertaken by independent auditors. The members
of the Committee are not independent auditors, and the term "review" as used in
this Charter is not intended to have that meaning and should not be interpreted
to suggest that the Committee members can or should follow the procedures
required of auditors performing reviews of financial statements.
A-1
II. Membership
The Committee shall consist of at least three members of the
Board; provided, that if at any time there is a vacancy on the Committee and the
remaining members meet all membership requirements, then the Committee may
consist of two members until the earlier of the Company's next annual
stockholders meeting or one year from the occurrence of the vacancy. Each
Committee member must be able to read and understand fundamental financial
statements, including a company's balance sheet, income statement and cash flow
statement. Members of the Committee are not required to be engaged in the
accounting and auditing profession and, consequently, some members may not be
expert in financial matters, or in matters involving auditing or accounting.
However, at least one member of the 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
the individual's financial sophistication, including being or having been a
chief executive officer, chief financial officer or other senior officer with
financial oversight responsibilities. In addition, either at least one member of
the Committee shall be an "audit committee financial expert" within the
definition adopted by the Securities and Exchange Commission (the "SEC") or the
Company shall disclosure in its periodic reports required pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") the reasons why
at least one member of the Committee is not an "audit committee financial
expert." Each Committee member shall satisfy the independence requirements of
the Nasdaq Stock Market and Rule 10A-3(b)(1) under the Exchange Act; provided,
that if a member of the Committee ceases to be independent for reasons outside
the member's reasonable control, then the member may remain on the Committee
until the earlier of the Company's next annual stockholders meeting or one year
from the occurrence of the event that caused the member to cease to be
independent.
The members of the Committee, including the Chair of the
Committee, shall be appointed by the Board on the recommendation of the
Nominating Committee. Committee members may be removed from the Committee, with
or without cause, by the Board.
III. Meetings and Procedures
The Chair (or in his or her absence, a member designated by
the Chair) shall preside at each meeting of the Committee and set the agendas
for Committee meetings. The Committee shall have the authority to establish its
own rules and procedures for notice and conduct of its meetings so long as they
are not inconsistent with any provisions of the Company's bylaws that are
applicable to the Committee.
The Committee shall meet at least once during each fiscal
quarter and more frequently as the Committee deems desirable. The Committee
shall meet separately, periodically, with management, with the internal auditor
and with the independent auditor.
A-2
All non-management directors that are not members of the
Committee may attend and observe meetings of the Committee, but shall not
participate in any discussion or deliberation unless invited to do so by the
Committee, and in any event shall not be entitled to vote. The Committee may, at
its discretion, include in its meetings members of the Company's management,
representatives of the independent auditor, the internal auditor, any other
financial personnel employed or retained by the Company or any other persons
whose presence the Committee believes to be necessary or appropriate.
Notwithstanding the foregoing, the Committee may also exclude from its meetings
any persons it deems appropriate, including, but not limited to, any
non-management director that is not a member of the Committee.
The Committee may retain any independent counsel, experts or
advisors (accounting, financial or otherwise) that the Committee believes to be
necessary or appropriate. The Committee may also utilize the services of the
Company's regular legal counsel or other advisors to the Company. The Company
shall provide for appropriate funding, as determined by the Committee, for
payment of compensation to the independent auditor for the purpose of rendering
or issuing an audit report or performing other audit, review or attest services,
for payment of compensation to any advisors employed by the Committee and for
ordinary administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
The Committee may conduct or authorize investigations into any
matters within the scope of the powers and responsibilities delegated to the
Committee.
IV. Powers and Responsibilities
Interaction with the Independent Auditor
1. Appointment and Oversight. The Committee shall be directly responsible for
the appointment, compensation, retention and oversight of the work of the
independent auditor (including resolution of any disagreements between Company
management and the independent auditor regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work or performing
other audit, review or attest services for the Company, and the independent
auditor shall report directly to the Committee.
2. Pre-Approval of Services. Before the independent auditor is engaged by the
Company or its subsidiaries to render audit or non-audit services, the Committee
shall pre-approve the engagement. Management shall submit its requests for
approval in writing to the Committee, and the Committee shall meet to discuss
such requests and to approve or decline to approve the requests. Committee
pre-approval of audit and non-audit services will not be required if the
engagement for the services is entered into pursuant to pre-approval policies
and procedures established by the Committee regarding the Company's engagement
of the independent auditor, provided the policies and procedures are detailed as
to the particular service, the Committee is informed of each service provided
and such policies and procedures do not include delegation of the Committee's
responsibilities under the Exchange Act to the Company's management. The
Committee may delegate to one or more designated members of the Committee the
authority to grant pre-approvals, provided such approvals are presented to the
Committee at a subsequent meeting. If the Committee elects to establish
pre-approval policies and procedures regarding non-audit services, the Committee
must be informed of each non-audit service provided by the independent auditor.
Committee pre-approval of non-audit services (other than review and attest
services) also will not be required if such services fall within available
exceptions established by the SEC.
A-3
3. Independence of Independent Auditor. The Committee shall, at least annually,
review the independence and quality control procedures of the independent
auditor and the experience and qualifications of the independent auditor's
senior personnel, including the independent auditor's lead engagement partner
and concurring review partner, that are providing audit services to the Company.
In conducting its review:
(i) The Committee shall obtain and review a report
prepared by the independent auditor describing (a) the auditing firm's internal
quality-control procedures and (b) any material issues raised by the most recent
internal quality-control review, or peer review, of the auditing firm, or by any
inquiry or investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried out by
the auditing firm, and any steps taken to deal with any such issues.
(ii) The Committee shall ensure that the independent
auditor prepare and deliver, at least annually, a written statement delineating
all relationships between the independent auditor and the Company, consistent
with Independence Standards Board Standard 1. The Committee shall actively
engage in a dialogue with the independent auditor with respect to any disclosed
relationships or services that, in the view of the Committee, may impact the
objectivity and independence of the independent auditor. If the Committee
determines that further inquiry is advisable, the Committee shall take
appropriate action in response to the independent auditor's report to satisfy
itself of the auditor's independence.
(iii) The Committee shall confirm with the
independent auditor that the independent
auditor is in compliance with the partner rotation requirements established by
the SEC.
(iv) The Committee shall, if applicable, consider
whether the independent auditor's
provision of any permitted information technology services or other non-audit
services to the Company is compatible with maintaining the independence of the
independent auditor.
Annual Financial Statements and Annual Audit
4. Meetings with Management and the Independent Auditor.
(i) The Committee shall meet with management and the
independent auditor in connection with each annual audit to discuss the scope
of the audit, the procedures to be followed and the staffing of the audit.
The Committee may also meet with the internal auditor to discuss the annual
audit as well if it so chooses.
(ii) The Committee shall review and discuss with
management and the independent auditor any material off-balance sheet
transactions, arrangements, obligations (including contingent obligations) and
A-4
other relationships of the Company with unconsolidated entities of which the
Committee is made aware that do not appear on the financial statements of the
Company and that may have a material current or future effect on the Company's
financial condition, results of operations, liquidity, capital expenditures,
capital resources or significant components of revenues or expenses.
5. Separate Meetings with the Independent Auditor.
(i) The Committee shall obtain from the auditor
disclosure of any illegal acts committed by management that came to their
attention during the course of the audit.
(ii) The Committee shall discuss with the independent
auditor the report that such auditor is required to make to the Committee
regarding: (A) all accounting policies and practices to be used that the
independent auditor identifies as critical; (B) all alternative treatments
within GAAP for policies and practices related to material items that have been
discussed among management and the independent auditor, including the
ramifications of the use of such alternative disclosures and treatments, and
the treatment preferred by the independent auditor; and (C) all other material
written communications between the independent auditor and management of the
Company, such as any management letter, management representation letter,
reports on observations and recommendations on internal controls, independent
auditor's engagement letter, independent auditor's independence letter,
schedule of unadjusted audit differences and a listing of adjustments and
reclassifications not recorded, if any.
(iii) The Committee shall discuss with the
independent auditor the matters required to be discussed by Statement on
Auditing Standards No. 61, "Communication with Audit Committees," as then in
effect.
6. Recommendation to Include Financial Statements in Annual Report. The
Committee shall, based on the review and discussions in paragraphs 4(iii) and
5(iii) above, and based on the disclosures received from the independent auditor
regarding its independence and discussions with the auditor regarding such
independence pursuant to subparagraph 3(ii) above, determine whether to
recommend to the Board that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year subject to the audit.
Internal Audit
7. Appointment. The Committee shall review the appointment and
replacement of the internal auditor.
8. Separate Meetings with the Internal Auditor. The Committee shall
discuss with the internal auditor any significant reports to management prepared
by the internal auditor and any responses from management.
Other Powers and Responsibilities
9. The Committee shall review all related party transactions on an
ongoing basis, and, all such transactions must be approved by the Committee.
A-5
10. The Committee shall discuss with management and/or the independent
auditor as appropriate, any correspondence from or with regulators or
governmental agencies, any employee complaints or any published reports that
raise material issues regarding the Company's financial statements, financial
reporting process, accounting policies or internal audit function.
11. The Committee shall discuss with the Company's General Counsel or
outside counsel any legal matters brought to the Committee's attention that
could reasonably be expected to have a material impact on the Company's
financial statements.
12. The Committee shall request assurances from management, and the
Company's internal auditors that the Company's foreign subsidiaries and foreign
affiliated entities, if any, are in conformity with applicable legal
requirements, including disclosure of affiliated party transactions.
13. If reported to the Committee by any attorney employed by or
performing legal services for the Company, the Committee shall consider any
evidence of a material violation of securities law or breach of fiduciary duty
or similar violation by the Company or any agent of the Company.
14. The Committee shall establish procedures for the receipt, retention
and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters. The Committee shall also
establish procedures for the confidential and anonymous submission by employees
regarding questionable accounting or auditing matters.
15. The Committee shall provide the Company with the report of the
Committee with respect to the audited financial statements required by Item 306
of Reg. S-K, for inclusion in each of the Company's annual proxy statements.
16. The Committee, through its Chair, shall report regularly to, and
review with, the Board any issues that arise with respect to the quality or
integrity of the Company's financial statements, the Company's compliance with
legal or regulatory requirements, the performance and independence of the
Company's independent auditor, the performance of the Company's internal audit
function or any other matter the Committee determines is necessary or advisable
to report to the Board.
17. The Committee shall at least annually perform an evaluation of the
performance of the Committee and its members, including a review of the
Committee's compliance with this Charter.
18. The Committee shall at least annually review and reassess this
Charter and submit any recommended changes to the Board for its consideration.
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APPENDIX B
INTEGRA LIFESCIENCES CORPORATION EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE This Employee Stock Purchase Plan (the "Plan") is intended
to encourage stock ownership by all eligible employees of Integra LifeSciences
Corporation (the "Company") and of certain of its "subsidiary corporations" (as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code")) so that they may acquire a, or increase their, proprietary interest in
the success of the Company. It is further intended that options issued pursuant
to this Plan shall constitute options issued pursuant to an "employee stock
purchase plan," within the meaning of Section 423 of the Code. The Company's
Board of Directors (the "Board") may, from time to time, approve participation
in the Plan by employees of any subsidiary corporation of the Company and/or of
any "parent corporation" of the Company (as defined in Section 424(e) of the
Code).
2. ADMINISTRATION The Plan shall be administered by the Compensation
Committee (the "Committee") of the Board. Acts approved by a majority of the
Committee at which a quorum is present, or acts without a meeting reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. Each member of the Committee, while serving as
such, shall be deemed to be acting in his or her capacity as a director of the
Company. The Committee shall have full and final authority, in its discretion
but subject to the express provisions of the Plan: (a) to interpret the Plan;
(b) to make, amend, and rescind rules and regulations relating to the Plan; (c)
to determine the terms and provisions of the instruments by which options shall
be evidenced; and (d) to make all other determinations necessary or advisable
for the administration of the Plan. No member of the Board or of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted hereunder. Any and all authority of the
Committee may be delegated by the Committee to a Plan Administrator.
3. ELIGIBILITY (a) General Rule. Except as provided in paragraph (b)
below and subject to Section 9(e), each employee of the Company or a
participating subsidiary corporation shall be eligible for option grants
described in Section 5. (b) Exceptions. An employee will not be eligible to
participate in the Plan if he or she is customarily employed by the Company or a
participating subsidiary corporation for twenty (20) hours or fewer per week or
if he or she is customarily employed by the Company or a participating
subsidiary corporation for not more than five (5) months in any calendar year.
Further, an employee who is classified by the rules of the Committee as a
"temporary employee" and who has been employed for less than six months, will
not be eligible to participate in the Plan. In addition, in no event may an
employee be granted an option if such employee, immediately after the option is
granted would own stock possessing five (5) percent or more of the total
combined voting power or value of all classes of stock of the Company or of its
parent corporation (if any) or of a subsidiary corporation. For purposes of
determining stock ownership under this paragraph, the rules of Section 424(d) of
the Code (relating to attribution of stock ownership) shall apply, and stock
which the employee may purchase under outstanding options shall be treated as
stock owned by the employee.
4. STOCK The stock subject to the options shall be shares of the
Company's authorized but unissued or reacquired as Treasury shares $.01 par
value common stock ("Common Stock"). The aggregate number of shares of Common
Stock which may be issued under options shall not exceed one million
(1,000,000); provided that such number shall be adjusted if required by Section
9(h).
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5. GRANT OF OPTION (a) Grant of Option. Employees shall have the right
to purchase shares of Common Stock through payroll deductions under options
granted as of July 1, 1998 (or, in the Committee's discretion, as soon as
administratively practicable thereafter) and as of the first business day of
each subsequent January (the "Grant Dates"). Each employee who meets the
eligibility requirements of Section 3 shall be granted an option on the first
Grant Date coinciding with or immediately following the date he or she becomes
an eligible employee, and on each succeeding Grant Date, provided he or she
continues to meet the eligibility requirements of Section 3. The term of the
first option term shall be six (6) calendar months (or, in the Committee's
discretion may be fewer than six (6) calendar months); the terms of the second
and succeeding options shall be twelve (12) calendar months (from January 1 to
December 31). If an individual becomes an eligible employee after the
commencement and before October 1 of an Option Term, he or she shall be granted
an option as of the first business day of the first calendar quarter (i.e., the
first business day occurring on or after April 1, July 1, or October 1)
(collectively, the "Delayed Grant Dates") coinciding with or immediately
following his or her eligibility date, provided he or she continues to meet the
eligibility requirements of Section 3. (b) Limit on Number of Shares Purchasable
Under Option. In no event may the number of full shares purchased by an employee
under an option granted pursuant to paragraph (a) above exceed 8,000 for an
Option Term; provided that such number shall be adjusted if required by Section
9(h). The share limit in the preceding sentence shall be prorated in the case of
an employee who is granted an option on a Delayed Grant Date. Further, the
aggregate number of full shares of Common Stock purchasable under an option for
an Option Term shall be subject to the limitations described in Section 9(e) and
Section 9(k).
6. PARTICIPATION (a) Payroll Deductions. Subject to rules established
by the Committee from time to time, an eligible employee may elect to
participate in the Plan by making payroll deductions (as a whole percentage of
the employee's basic rate of compensation each pay, subject to the limits set
forth in paragraph (b) below) for each Option Term in which the employee is
eligible to participate. For purposes of this Plan, "basic rate of compensation"
shall mean an employee's basic hourly rate or salary from the Company and its
participating subsidiary corporations, excluding any commissions, bonuses,
overtime, or other extra or incentive pay. (b) Maximum Payroll Deduction. The
maximum total payroll deductions for any employee for an Option Term may not
exceed fifteen (15) percent of the employee's basic rate of compensation (as
defined in paragraph (a) above) for the Option Term (or, if the employee has a
Delayed Grant Date, for the portion of the Option Term during which the employee
is eligible to participate). (c) No Interest on Payroll Deductions. Payroll
deductions made under the Plan will be held as general assets of the Company or
a participating subsidiary, and will not be credited with any interest. (d)
Participation after Surrender or Cessation of Payroll Deductions. Each employee
who has satisfied the eligibility requirements of Section 3 but who has elected
to surrender his or her option or to cease payroll deductions in accordance with
Section 8 (or, as described in paragraph (f) below, is deemed to have
surrendered his or her option) for an Option Term, shall be granted an option in
accordance with Section 5 in subsequent Option Terms, provided the employee
continues to meet the eligibility requirements of Section 3. However, such
employee must submit a new payroll deduction agreement under paragraph (a) above
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in order to begin payroll deductions for a subsequent Option Term. (e) No
Contract to Purchase. Electing to make payroll deductions for any Option Term
will not constitute a contract to purchase any of the Common Stock purchasable
under an option. (f) Waiver of Rights. An employee who fails to elect to
participate in the Plan for an Option Term in the manner and within the time
provided under paragraph (a) above shall be deemed to have surrendered the
option granted to the employee for such Option Term and shall have no further
rights under the Plan with respect to such surrendered option.
7. EXERCISE OF OPTION (a) Method of Exercise. Unless the employee has
surrendered his or her option and withdrawn his or her payroll deductions in
accordance with Section 8(a) (or is deemed to have surrendered his or her option
under Section 6(f)), as of the last business day of each Option Term (the
"Exercise Date"), the employee will be credited for such number of full shares
of Common Stock as his or her accumulated payroll deductions shall be sufficient
to pay for in full, subject to the limitations of Section 5(b). (b) Return of
Excess Payroll Deductions. Any payroll deductions remaining after the employee
exercises an option for an Option Term shall be refunded to the employee.
8. EMPLOYEE'S RIGHT TO SURRENDER OPTION AND/OR CEASE PAYROLL DEDUCTIONS
(a) Surrender of Option and Withdrawal of Payroll Deductions. An employee may
elect to surrender his or her option for any Option Term and withdraw any
payroll deductions already made for the Option Term under the Plan by giving
written notice to the Company. However, in order for such surrender to be
effective for the Option Term, the employee's written notice must be received by
the Company on or before the sixtieth (60th) calendar day prior to the end of
the Option Term. All of such employee's payroll deductions will be refunded to
him or her as soon as practicable after the Company receives the employee's
notice of withdrawal, and no further payroll deductions will be made from the
employee's pay until the employee completes a new payroll deduction agreement in
accordance with Section 6(a) for a subsequent Option Term. As to any option so
surrendered, the employee shall have no further right of any nature at any
subsequent time. (b) Cessation of Payroll Deductions. Without withdrawing any
payroll deductions already made for the Option Term, an employee may elect to
terminate his or her participation in part during an Option Term by ceasing
payroll deductions for the remainder of the Option Term. However, in order for
such election to be effective for the Option Term, the employee must give the
Company written notice of such election in accordance with procedures prescribed
by the Committee. An employee who elects to cease payroll deductions for an
Option Term shall not be eligible to resume payroll deductions during such
Option Term. (c) No Effect on Later Participation. An employee's surrender of an
option and/or cessation of payroll deductions for an Option Term will not have
any effect upon his or her eligibility to participate in the Plan for subsequent
Option Terms. (d) Surrender Upon Termination of Employment. Upon termination of
the employee's employment during an Option Term for any reason, including
retirement, payroll deductions made by the employee for such Option Term will be
refunded to the employee, or, in the case of death, to the person or persons
entitled thereto under Section 9(g).
9. TERMS AND CONDITIONS OF OPTIONS Stock options granted pursuant to
the Plan shall be evidenced by agreements in such form as the Committee shall
prescribe, provided that all employees granted such agreements shall have the
same rights and privileges (except as otherwise required under the Plan), and
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provided further that such agreements shall comply with and be subject to the
terms and conditions set forth below. (a) Number of Shares. Each option shall
state the maximum number of shares to which it pertains. (b) Option Price. The
per share exercise price of an option shall be the lesser of (i) 85% of the per
share fair market value of the Common Stock as of the Grant Date (or the
employee's Delayed Grant Date) for the Option Term, or (ii) 85% of the per share
fair market value of the Common Stock as of the Exercise Date for the Option
Term. In making such determination, during such time as the Common Stock is
listed upon an established stock exchange or exchanges, the per share "fair
market value" shall be deemed to be the quoted closing price on the last
business day before the Grant Date, Delayed Grant Date, or Exercise Date,
whichever is applicable. During such time as the Common Stock is not listed upon
an established stock exchange, the per share fair market value shall be
determined by the Committee by a method sanctioned by the Code, or rules and
regulations thereunder. The fair market value per share is to be determined in
accordance with Treas. Reg. Section 1.421-7(e) and 20.2031-2. Subject to the
foregoing, the Committee in fixing the exercise price shall have full authority
and be fully protected in doing so. (c) Medium and Time of Payment. The exercise
price of an option shall be payable in United States dollars upon the exercise
of the option and shall be payable only by accumulated payroll deductions made
in accordance with Section 6. (d) Term of Option. No option may be exercised
after the end of the Option Term in which the option was granted. (e) Accrual
Limitation. No option shall permit the rights of an employee to purchase stock
under all employee stock purchase plans, intended to qualify under Section 423
of the Code, of the Company and its parent corporation (if any) and subsidiary
corporations to accrue at a rate which exceeds $25,000 in fair market value of
such stock (determined at the time options are granted) for each calendar year
in which the option is outstanding at any time. For purposes of this paragraph
(e) -- (i) the right to purchase Common Stock under an option accrues when the
option (or any portion thereof) first becomes exercisable during the calendar
year; (ii) the right to purchase Common Stock under an option accrues at the
rate provided in the option but in no case may such rate exceed $25,000 of fair
market value of such Common Stock (determined on the Grant Date of such option)
for any one calendar year; and (iii) a right to purchase Common Stock which has
accrued under one option granted pursuant to the Plan may not be carried over to
any other option. (f) Termination of Employment. In the event that an employee
ceases to be employed by the Company and its participating subsidiary
corporations for any reason during the employee's participation in an Option
Term, such individual shall be deemed to have surrendered his or her option for
such Option Term and his or her accumulated payroll deductions shall be refunded
in accordance with Section 8(d). Whether an authorized leave of absence for
military or governmental service shall constitute termination of employment for
the purposes of the Plan shall be determined by the Committee in accordance with
applicable law, which determination, unless modified by the Board (in accordance
with applicable law), shall be final and conclusive. (g) Nontransferability.
Neither payroll deductions made by an employee, nor any rights with regard to
the exercise of an option or to receive stock, nor any rights to a return of
payroll deductions under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way by the employee. Any such attempted assignment,
transfer, pledge or other disposition shall be without effect. Notwithstanding
the foregoing, any rights to a return of payroll deductions under the Plan after
surrender of an option due to an employee's death, as described in Section 8(d),
may be transferred by will or the laws of descent and distribution. An option
may be exercised only by the employee. (h) Recapitalization. Subject to any
required action by the stockholders, the share limits of Section 4 and Section
5(b) and the number of shares of Common Stock covered by each outstanding
option, and the price per share in each such option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock of the Company resulting from a subdivision (stock-split) or consolidation
(reverse-split) of shares or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such shares
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affected, without receipt of consideration by the Company. Subject to any
required action by the stockholders, if the Company shall be the surviving
corporation in any merger or consolidation, each outstanding option shall
pertain and apply to the securities to which a holder of the number of shares of
Common Stock subject to the option would have been entitled. A dissolution or
liquidation of the Company or a merger or consolidation in which the Company is
not the surviving corporation, shall cause each outstanding option to terminate,
provided that each employee granted an option under this Plan shall, in such
event, have the right immediately prior to such dissolution or liquidation, or
merger or consolidation in which the Company is not the surviving corporation,
to exercise his or her option. In the event of a change in the Common Stock of
the Company as presently constituted which is limited to a change of all of its
authorized shares with par value into the same number of shares with a different
par value or without par value, the shares resulting from any such change shall
be deemed to be Common Stock within the meaning of the Plan. To the extent that
the foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive provided that each option granted
pursuant to this Plan shall not be adjusted in a manner that causes the option
to fail to continue to qualify as an option issued pursuant to an "employee
stock purchase plan" within the meaning of Section 423 of the Code. Except as
expressly provided in this paragraph (h), an employee shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend, any other increase or decrease in the number of
shares of stock of any class, or any dissolution, liquidation, merger, or
consolidation or spin-off of assets or stock of another corporation; and any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to the option. The grant of an option pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassification, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets. (i) Rights as a Stockholder.
An employee shall have no rights as a stockholder with respect to any shares of
Common Stock covered by his or her option until the date the option is exercised
in accordance with the terms of the Plan. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in paragraph (h)
above. (j) Investment Purpose. Each option under the Plan shall be granted on
the condition that the purchases of Common Stock thereunder shall be for
investment purposes and not with a view to resale or distribution, except that
in the event the Common Stock subject to such option is registered under the
Securities Act of 1933, as amended (the "Securities Act"), or in the event a
resale of such stock without such registration would otherwise be permissible,
such condition shall be inoperative if in the opinion of counsel for the Company
such condition is not required under the Securities Act or any other applicable
law, regulation or rule of any governmental agency. (k) Adjustment in Number of
Shares Exercisable. If the aggregate number of shares purchased under options
granted under the Plan exceeds the aggregate number of shares of Common Stock
specified in Section 4, the Company shall make a pro rata allocation of the
shares available for distribution so that the limit of Section 4 is not
exceeded, and the balance of payroll deductions made by each participating
employee shall be returned to him or her as promptly as possible. (l) Other
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Provisions. The option agreements authorized under the Plan shall contain such
other provisions as the Committee shall deem advisable, provided that no such
provision may in any way be in conflict with the terms of the Plan.
10. INDEMNIFICATION OF COMMITTEE In addition to such other rights of
indemnification as they may have as directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his or her duties; provided that within sixty (60) days after institution of any
such action, suit or proceeding a Committee member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
11. AMENDMENT OF PLAN The Committee may, to the extent permitted by
law, from time to time, with respect to any shares of Common Stock not subject
to options at the time, suspend, discontinue, revise or amend the Plan in any
respect whatsoever except that no such revision or amendment may permit granting
of options under this Plan to persons other than employees of the Company, its
parent corporation (if any) or a subsidiary corporation, or otherwise cause
options issued under it to fail to meet the requirements of Section 423 of the
Code. Furthermore, the Plan may not, without the approval of a majority of the
votes cast at a duly held stockholders' meeting at which a quorum representing a
majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the Plan, be amended in any manner that will change the
number of shares subject to the Plan.
12. EFFECTIVE DATE OF PLAN The Plan will become effective as of July 1,
1998, or as soon as administratively practicable thereafter, subject, however,
to approval by the holders of at least a majority of the Common Stock present or
represented, and entitled to vote, at a special or annual meeting of the
stockholders at which a quorum is present held within twelve (12) months before
or after February 27, 1998 (the date the Plan was approved by the Board). If the
Plan is not so approved, the Plan shall not become effective.
13. ABSENCE OF RIGHTS The granting of an option to a person shall not
entitle that person to continued employment by the Company or a participating
subsidiary corporation or affect the terms and conditions of such employment.
The Company or any subsidiary corporation shall have the absolute right, in its
discretion, to terminate an employee's employment, whether or not such
termination may result in a partial or total termination of his or her option
under this Plan.
14. APPLICATION OF FUNDS The proceeds received by the Company from the
sale of Common Stock pursuant to options will be used for general corporate
purposes.
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15. MISCELLANEOUS (a) Provisions of Plan Binding. The provisions of the
Plan shall, in accordance with its terms, be binding upon, and inure to the
benefit of, all successors of each employee participating in the Plan,
including, without limitation, such employee's estate and the executors,
administrator or trustees thereof, heirs and legatees, and any receiver, trustee
in bankruptcy or representative of creditors of such employee. (b) Applicable
Law. Delaware law shall govern all matters relating to this Plan except to the
extent it is superseded by federal law.
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