<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
VIVID TECHNOLOGIES, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
VIVID TECHNOLOGIES, INC.
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
VIVID TECHNOLOGIES, INC.
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 24, 1999
TO THE STOCKHOLDERS OF VIVID TECHNOLOGIES, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of Vivid
Technologies, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, February 24, 1999 at 9:00 a.m., local time, at the offices of the
Company, 10E Commerce Way, Woburn, Massachusetts 01801 for the following
purposes:
1. To elect two Class II directors, each to hold office until the
2002 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified.
2. To consider and vote upon the adoption of the Vivid Technologies,
Inc., 1999 Equity Incentive Plan, a copy of which is annexed to
this proxy statement.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on January 4, 1999 are
entitled to notice of and to vote at the meeting and any continuation or
adjournment thereof. All stockholders are cordially invited to attend the
Annual Meeting. However, to assure your representation at the meeting, you are
urged to mark, sign, date and return the enclosed proxy as promptly as possible
in the postage-paid envelope enclosed for that purpose. Any stockholder
attending the meeting may vote in person even if he or she returned a proxy.
By order of the Board of Directors
Lawrence M. Levy, Secretary
Woburn, Massachusetts
January 20, 1999
- --------------------------------------------------------------------------------
IMPORTANT
---------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE
OF RE-ISSUING THESE PROXY MATERIALS. EVEN IF YOU HAVE GIVEN YOUR PROXY, THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE BY FILING WITH THE SECRETARY
OF THE COMPANY A WRITTEN REVOCATION, BY EXECUTING A PROXY WITH A LATER DATE, OR
BY ATTENDING AND VOTING AT THE MEETING.
THANK YOU FOR ACTING PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE>
VIVID TECHNOLOGIES, INC.
-----------------
PROXY STATEMENT
1999 ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 24, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Vivid Technologies, Inc. (the "Company"), for use at the Annual Meeting of
Stockholders to be held on Wednesday, February 24, 1999, at 9:00 a.m., local
time (the "Annual Meeting"), or at any continuation or adjournment thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting
of Stockholders. The Annual Meeting will be held at the offices of the Company,
10E Commerce Way, Woburn, Massachusetts 01801. This proxy statement, the
accompanying proxy card and the annual report to stockholders are first being
mailed to stockholders on or about January 20, 1999.
Record Date and Stock Ownership
Only stockholders of record at the close of business on January 4, 1999 are
entitled to receive notice of and to vote at the Annual Meeting. At the close of
business on January 4, 1999, there were outstanding and entitled to vote
9,908,116 shares of common stock of the Company, par value $.01 per share
("Common Stock"). Each stockholder is entitled to one vote for each share of
Common Stock.
Revocability of Proxies
Any person giving a proxy in the form accompanying this statement has the
power to revoke it at any time before it is voted. It may be revoked by filing
with the Secretary of the Company at the Company's principal executive office,
10E Commerce Way, Woburn, Massachusetts 01801, written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
Annual Meeting and voting in person.
Voting and Solicitation
The affirmative vote of the holders of a plurality of the shares of Common
Stock present or represented by proxy at the Annual Meeting is required for the
election of directors. A majority of the shares of Common Stock outstanding is
required to be present or represented by proxy at the Annual Meeting in order to
constitute the quorum necessary to take action at the Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector of elections appointed for the Annual Meeting. Proposal No. 2
requires the affirmative vote of a majority of shares of Common Stock present in
person or by proxy at the Annual Meeting and entitled to be voted, provided a
quorum is present. Shares of Common Stock held of record by brokers who return
a signed and dated proxy but who fail to grant authority to vote on one or more
of the proposals will count toward the quorum but will have no effect on the
outcome of the proposal not voted. Abstentions will have no effect on the
outcome of the vote for the election of directors, but will have the effect of a
vote against Proposal No. 2.
<PAGE>
All costs of this solicitation of proxies will be borne by the Company. The
Company has retained American Stock Transfer & Trust Company to aid in the
solicitation of proxies from stockholders, banks and other institutional
nominees. The Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their reasonable expenses incurred
in forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram, or
personal solicitations by directors, officers, or employees of the Company. No
additional compensation will be paid for any such services.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company which comply with Rule 14a-8 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and which
are intended to be presented by such stockholders at the Company's 2000 Annual
Meeting of Stockholders must be received by the Company no later than September
22, 1999, in order to be considered for inclusion in the proxy statement and
form of proxy relating to that meeting. Stockholder proposals submitted outside
the processes of Exchange Act Rule 14a-8 will be considered untimely if received
after December 6, 1999. The proxy solicited by the Board of Directors with
respect to that meeting may confer discretionary authority to vote on matters
submitted in untimely proposals.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, two Class II directors are to be elected to serve for a
term of three years, until the 2002 Annual Meeting of Stockholders, and until
their respective successors have been elected and qualified. Ambassador L. Paul
Bremer and Mr. Gerald Segel have been nominated by the Board of Directors for
election as directors. Both of these nominees are currently serving as directors
of the Company.
In the event that any nominee is unable or declines to serve as a director
at the time of the Annual Meeting, the proxies will be voted for the nominee, if
any, who shall be designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as director. The proposed nominees are not being nominated pursuant to any
arrangement or understanding with any person.
Set forth below is certain biographical information with respect to the
nominees, including the year in which the nominees term would expire, if
elected, and with respect to each of the Class I and Class III directors whose
terms will continue after the Meeting. The nominees for Class II director are
indicated by an asterisk.
<TABLE>
<CAPTION>
Year Term Expires
Director If Elected,
Name Age Position Since and Class
---- --- -------- -------- -----------------
<S> <C> <C> <C> <C>
S. David Ellenbogen 60 Chairman of the Board and
Chief Executive Officer 1989 2001-Class I
Jay A. Stein 56 Senior Vice President, Technical
Director and Director 1989 2001-Class I
*L. Paul Bremer III 57 Director 1996 2002-Class II
*Gerald Segel 76 Director 1996 2002-Class II
Frank Kenny 54 Director 1989 2003-Class III
Glenn P. Muir 39 Director 1996 2003-Class III
</TABLE>
2
<PAGE>
Mr. Ellenbogen, a co-founder of the Company, has served as its Chief
Executive Officer and a director since its organization in June 1989 and served
as its President from June 1989 until February 1997. Mr. Ellenbogen is also a
co-founder of Hologic, Inc. ("Hologic"), a developer, manufacturer and seller of
X-ray and other bone densitometers, served as its President from October 1985
until May 1994, and is currently its Chairman of the Board and Chief Executive
Officer. Prior to founding Hologic, Mr. Ellenbogen served as President,
Treasurer and a director of Diagnostic Technology, Inc. ("DTI"), which he co-
founded in 1981. DTI, which developed an X-ray product for digital angiography,
was acquired in 1982 by Advanced Technology Laboratories, Inc. ("ATL"), a
wholly-owned subsidiary of Squibb Corporation. Mr. Ellenbogen was involved in
the management of the digital angiography group of ATL from 1982 to 1985. Mr.
Ellenbogen is employed by Hologic and performs part-time management services for
the Company pursuant to a management agreement between the Company and Hologic.
See "Certain Transactions."
Dr. Stein, a co-founder of the Company and Hologic, has served as its
Senior Vice President, Technical Director and a director since their
organization. Dr. Stein co-founded DTI with Mr. Ellenbogen in 1981, served as
Vice President and Technical Director of DTI and was Technical Director of the
digital angiography group of its successor, ATL, from 1982 to 1985. Dr. Stein
received a Ph.D. in Physics from The Massachusetts Institute of Technology. He
is the principal author of fifteen patents involving X-ray technology. Dr. Stein
is employed by Hologic and performs part-time management services for the
Company pursuant to a management agreement between the Company and Hologic. See
"Certain Transactions."
Ambassador Bremer has been a director of the Company since July 1996.
Ambassador Bremer has served as a Managing Director of Kissinger Associates,
Inc., a strategic consulting firm headed by former Secretary of State Henry
Kissinger, since 1989. Prior to joining Kissinger Associates, Ambassador Bremer
held numerous positions in the United States Diplomatic Service, including as
the United States Ambassador to the Netherlands from 1983 to 1986, and as
Ambassador-at-Large for Counter-Terrorism responsible for developing and
implementing America's global policies to combat terrorism, from 1986 to 1989.
Ambassador Bremer is a Trustee of the Economic Club of New York, serves on the
Board of Advisors of the Russian-American Press and Information Center, and is a
member of the International Institute for Strategic Studies and the Council of
Foreign Relations. Ambassador Bremer also serves as a director of Air Products
and Chemicals, Inc. See "Certain Transactions."
Mr. Kenny has been a director of the Company since 1989. Mr. Kenny has
served as Managing Director of Delta Partners Ltd., a venture capital company
since June 1994. Mr. Kenny has also served as Managing Partner of Beta Partners,
a venture capital company, since 1987. Mr. Kenny is also a director of Abacus
Direct Corporation.
Mr. Muir has been a director of the Company since October 1996. Mr. Muir, a
Certified Public Accountant, served as Treasurer of the Company from August 1993
until October 1996 and served as Controller of the Company from the Company's
inception until August 1993, under the Company's management agreement with
Hologic. Mr. Muir has been the Vice President of Finance and Treasurer of
Hologic since February 1992. Mr. Muir joined Hologic as its Controller in
October 1988 and served in that capacity until February 1992.
Mr. Segel has been a director of the Company since October 1996. Mr. Segel,
currently retired, was Chairman of the Board of Tucker Anthony Incorporated from
January 1987 to May 1990. From 1983 through January 1987 he served as President
of Tucker Anthony Incorporated. Mr. Segel also serves as a director of
Litchfield Financial, Inc., Boston Communications Group, Inc. and Hologic.
3
<PAGE>
Board of Directors' Meetings and Committees
The Board of Directors met five times during the fiscal year ended
September 30, 1998. Each director attended at least 75% of the meetings of the
Board of Directors and each of its Committees on which they served.
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing a similar function.
Messrs. Bremer, Kenny, Muir and Segel are currently the members of the
Audit Committee. During fiscal 1998, the Audit Committee met one time with the
Company's independent auditors. The Audit Committee reviews with the Company's
independent auditors the scope of the audit for the year, the results of the
audit when completed, the adequacy of the Company's internal control systems and
financial reporting procedures.
Messrs. Bremer, Kenny, Muir and Segel are currently the members of the
Company's Compensation Committee. During fiscal 1998, the Compensation
Committee met two times. The Compensation Committee determines the compensation
to executive officers of the Company and issuance of stock options to the Board
of Directors, officers, employees and affiliates, and administers the Company's
1989 Combination Stock Option Plan, 1996 Equity Incentive Plan, Employee Bonus
Program, including profit sharing, and 401(k) Plan.
Compensation of Directors
Each non-employee director receives (i) an annual retainer of $5,000,
payable $1,250 per quarter, (ii) a director's meeting fee of $1,000 for each
meeting of the Board of Directors at which the director was physically present
and $500 for each meeting at which the director participated by telephone and
(iii) a committee meeting fee for each meeting of a committee of the Board of
Directors at which the director was physically present, in the amount of $1,000
if the meeting was held on a day other than the day of a meeting of the Board of
Directors and $500 if held on the same day as a meeting of the Board of
Directors, but no fee if the committee meeting was held at the same time or
immediately in conjunction with the meeting of the Board of Directors.
Non-employee directors are also eligible to receive stock options pursuant
to the Company's 1996 Non-Employee Director Stock Option Plan (the "Directors
Plan"). The Directors Plan provides that each eligible non-employee director
will be granted an option to acquire 10,000 shares, effective upon the date he
is first elected to the Board of Directors. Each eligible director will also
receive an option to acquire 2,500 shares each year. The initial grant of
options to eligible directors under the Directors Plan vest at the rate of 20%
per year, with the first installment vesting one year from the date of grant.
The annual grant of options under the Directors Plan vest six months after the
date of grant. The exercise price for all options granted under the Directors
Plan is the fair market value of the shares of Common Stock at the time the
option is granted. No option under the Directors Plan may be exercised
subsequent to ten years from the date of grant. On June 30, 1998, the Company
granted options to purchase 2,500 shares of Common Stock at an exercise price of
$11.50 per share to each of Messrs. Stein, Bremer, Segel, Kenny and Muir for
issuance under the Directors Plan.
If the 1999 Equity Incentive Plan is approved, the 1996 Directors Plan will
be terminated. Under the 1996 Directors Plan there were a total of 125,000
options available, 45,000 shares were issued and 80,000 remain available for
grant.
4
<PAGE>
PROPOSAL 2
APPROVAL OF THE COMPANY'S 1999 EQUITY INCENTIVE PLAN
In December, 1998, the Board of Directors adopted, subject to shareholder
approval, the Company's 1999 Equity Incentive Plan (the "1999 Plan"). The
purposes of the 1999 Plan are to attract and retain employees, directors,
advisors and consultants, to provide an incentive for them to assist the Company
to achieve long-range performance goals and to enable them to participate in the
long-term growth of the Company. The following is a summary description of the
1999 Plan and is qualified in its entirety by reference to the full text of the
1999 Plan, which is attached hereto as Exhibit A.
Under the 1999 Plan, the Company may grant (i) incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) options that are not qualified as incentive stock
options ("nonqualified stock options"), (iii) stock appreciation rights either
in tandem with an option or alone and unrelated to an option ("SARs"), (iv)
shares of Common Stock awarded based on achieving certain performance goals
("performance shares"), (v) awards of Common Stock, including shares of Common
Stock awarded without payment therefor ("award shares"), or Common Stock and
other rights granted as units that are valued in whole or in part by reference
to the value of the Common Stock ("stock awards") and (vi) restricted shares of
Common Stock ("restricted stock").
All employees, and in the case of awards other than incentive stock
options, directors, advisors and consultants of the Company or any affiliate (as
that term is defined in the 1999 Plan) capable of contributing significantly to
the successful performance of the Company, other than a person who has
irrevocably elected not to be eligible, are eligible to participate in the 1999
Plan.
The 1999 Plan is administered by the Board of Directors of the Company, or
if the Board determines, by the Compensation Committee of the Board of Directors
(the "Committee"). The Committee will serve at the pleasure of the Board of
Directors which can, at its sole discretion, discharge any member of the
Committee, appoint additional new members in substitution for those previously
appointed and/or fill vacancies regardless of how they are caused. The Board of
Directors of the Company has the authority to adopt, alter and repeal
administrative rules, guidelines and practices governing the operation of the
1999 Plan and to interpret provisions of the Plan. The Board of Directors may
delegate, to the extent permitted by applicable law, to the Committee the power
to make awards to participants and all determinations under the 1999 Plan with
respect thereto.
The maximum aggregate number of shares of Common Stock available for
issuance under the 1999 Plan is 300,000 shares, plus an annual increase to be
made on the first day of each fiscal year equal to the lesser of (i) 2-1/2% of
the Issued Shares (as defined below) on the last day of the immediately
preceding fiscal year, (ii) 300,000 shares, or (iii) an amount determined by the
Board of Directors. "Issued Shares" means the number of shares of the Company's
Common Stock outstanding on the last day of the immediately preceding fiscal
year, plus any shares reacquired by the Company during the fiscal year that ends
on that date. The shares of Common Stock available for issuance under the 1999
Plan are subject to adjustment for any stock dividend, recapitalization, stock
split, stock combination or certain other corporate reorganizations. Shares
issued may consist in whole or in part of authorized but unissued shares or
treasury shares. Shares subject to an award that expires or is terminated
unexercised or is forfeited for any reason or settled in a manner that results
in fewer shares outstanding than were initially awarded will again be available
for award under the 1999 Plan. The closing price of the Company's Common Stock
on January 4, 1999 was $6.19.
5
<PAGE>
Stock Options
Subject to the provisions of the 1999 Plan, the Board may award incentive
stock options and nonqualified stock options and determine the number of shares
to be covered by each option, the option price therefor and the conditions and
limitations applicable to the exercise of the option. Each option shall be
exercisable at such times and subject to such terms and conditions as the Board
may specify in the applicable award or thereafter. The Board may provide for
the automatic award of an option upon the delivery of shares to the Company in
payment of an option for up to the number of shares so delivered.
The terms and conditions of incentive stock options shall be subject to and
comply with Section 422 of the Code and any regulations thereunder. No
incentive stock option granted under the 1999 Plan may be granted more than ten
years after the effective date of the 1999 Plan and no such grant may be
exercisable more than ten years from the date of grant (five years after the
date of grant for incentive stock options granted to holders of more than ten
percent of the Common Stock). Incentive stock options shall be granted only to
employees of the Company and shall be transferable by the optionee only by the
laws of descent and distribution, and shall be exercisable only by the employee
during his or her lifetime.
Nonqualified stock options may be granted at an exercise price equal to,
greater than or lesser than the fair market value of the Common Stock on the
date of grant, in the discretion of the Board. Incentive stock options,
however, may not be granted at less than the fair market value of the Common
Stock and may be granted to holders of more than ten percent of the Common Stock
only at an exercise price of at least 110% of the fair market value of the
Common Stock on the date of the grant.
Options Granted to Non-Employee Directors
The 1999 Plan provides that, unless otherwise determined by the Board of
Directors, each director of the Company who is not an employee of the Company
shall automatically be granted a nonqualified option to acquire 10,000 shares of
Common Stock as of the date he or she is first elected to the Board or, with
respect to such directors serving on the Board as of the effective date of the
1999 Plan, as of the date of the Company's 1999 Annual Meeting. In each case,
the option price will be the fair market value of the Common Stock on such date
and the expiration date will be the tenth anniversary thereof. Each such
nonqualified option will become exercisable in 20% installments beginning on
January 1 of the first year after the grant date, and on January 1 of each year
thereafter, until such option is fully exercisable on January 1 of the fifth
year following the grant date.
Furthermore, unless otherwise determined by the Board of Directors, each
director of the Company who is not an employee of the Company and who has served
as a director for six months shall automatically be granted a nonqualified
option to acquire 2,500 shares of Common Stock as of January 1 of each year,
beginning with a Nonqualified Option granted as of the date of the 1999 Annual
Meeting. The option price will be the fair market value of the Common Stock on
such date and the expiration date will be the tenth anniversary thereof. These
options are exercisable on and after the date that is six months after the date
of grant.
In addition, the Board may provide for such other terms and conditions of
these options as it may determine, as shall be set forth in the applicable
option agreements, including, without limitation, acceleration of exercise upon
a change of control of the Company.
Stock Appreciation Rights
Subject to the provisions of the 1999 Plan, the Board of Directors may
award SARs in tandem with an option (at or after the award of the option) or
alone and unrelated to an option. An SAR entitles the holder to receive from the
Company an amount equal to the excess, if any, of the fair market value of the
Common Stock over the reference price. SARs granted in tandem with an option
will terminate to the extent that the related option is exercised, and the
related option will terminate to the extent that the tandem SARs are exercised.
6
<PAGE>
Performance Shares
The 1999 Plan authorizes the Board of Directors to grant performance shares
to participants in the form of grants of shares of Common Stock. Performance
shares are earned over a period of time (a performance cycle) selected by the
Board from time to time. There may be more than one performance cycle in
existence at any one time and the duration of the performance cycles may differ
from each other. Unless otherwise determined by the Board of Directors, the
payment value of the performance shares will be equal to the fair market value
of the Common Stock on the date the performance shares are earned or on the date
the Board determines that the performance shares have been earned. The Board
shall establish performance goals for each cycle for the purpose of determining
the extent to which performance shares awarded for such cycle are earned. As
soon as practicable after the end of a performance cycle, the Board shall
determine the number of performance shares which have been earned on the basis
of performance in relation to the established performance goals. Payment values
of earned performance shares are distributed to the participant or, if the
participant has died, to the beneficiary designated by the participant.
Restricted Stock
Subject to provisions of the 1999 Plan, the Board of Directors may grant
shares of restricted stock to participants, with such restricted periods and
other conditions as the Board may determine and for no cash consideration or
such minimum consideration as may be required by applicable law. During the
restricted period, unless otherwise determined by the Board, stock certificates
evidencing the restricted shares will be held by the Company and may not be
sold, assigned, transferred, pledged or otherwise encumbered, except as
permitted by the Board. At the expiration of the restricted period, the Company
will deliver such certificates to the participant or, if the participant has
died, to the beneficiary designed by the participant.
Stock Awards
Subject to the provisions of the 1999 Plan, the Board of Directors may
award stock awards, which may be designated as award shares by the Board,
subject to such terms, restrictions, conditions, performance criteria, vesting
requirements and payment needs, if any, as the Board shall determine. Shares of
Common Stock or other rights awarded in connection with a stock award shall be
issued for no cash consideration or such minimum consideration as may be
required by law.
General Provisions
Each award shall be evidenced by a written document delivered to the
participant specifying the terms and conditions thereof and containing such
other terms and conditions not inconsistent with the provisions of the 1999 Plan
as the Board considers necessary or advisable. Each type of award may be made
alone, in addition to, or in relation to any other type of award. The terms of
each type of award need not be identical and the Board need not treat
participants uniformly. The Board may amend, modify or terminate any
outstanding award, including substituting therefor another award, changing the
date of exercise or realization and converting an incentive stock option to a
nonqualified stock option, provided that the participant's consent to such
action shall be required unless the Board determines that the action would not
materially and adversely affect the participant.
The Board of Directors will determine whether awards granted pursuant to
the 1999 Plan are settled in whole or in part in cash, Common Stock, other
securities of the Company, other property or such other methods as the Board of
Directors may deem appropriate. The Board may permit a participant to defer all
or any portion of a payment under the 1999 Plan. In the Board's discretion, tax
obligations required
7
<PAGE>
to be withheld in respect of an award may be paid in whole or in part in shares
of common stock, including shares retained from such award. The Board will
determine the effect on an award of the death, disability, retirement or other
termination of employment of a participant and the extent to which and period
during which the participant's legal representative, guardian or designated
beneficiary may receive payment of an award or exercise rights thereunder.
Except as otherwise provided by the Board, awards under the 1999 Plan are not
transferable other than as designated by the participant by will or by the laws
of descent and distribution.
The Board in its discretion may take certain actions in order to preserve a
participant's rights under an award in the event of a change in control of the
Company, including providing for the acceleration of any time period relating to
the exercise or realization of the award, providing for the cash purchase of the
award or adjusting the terms of the award in order to reflect the change in
control.
The Board of Directors of the Company may amend, suspend or terminate the
1999 Plan or any portion thereof at any time; provided that no amendment shall
be made without shareholder approval if such approval is necessary to comply
with any applicable law, rules or regulations.
Federal Income Tax Consequences
The following general discussion of the Federal income tax consequences of
awards granted under the 1999 Plan is based upon the provisions of the Internal
Revenue Code as in effect on the date hereof, current regulations thereunder and
existing public and private administrative rulings of the Internal Revenue
Service. This discussion is not intended to be a complete discussion of all of
the Federal income tax consequences of the 1999 Plan or of all of the
requirements that must be met in order to qualify for the tax treatment
described herein. Changes in the law and regulations may modify the discussion,
and in some cases the changes may be retroactive. No information is provided as
to state tax laws. The 1999 Plan is not qualified under Section 401 of the
Code, nor is it subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended. The tax treatment of each kind of award under
the 1999 Plan is as follows:
Nonqualified Stock Options. An option holder will not recognize any taxable
income upon the grant of a nonqualified option under the 1999 Plan. Generally,
an option holder recognizes ordinary taxable income at the time a nonqualified
option is exercised in an amount equal to the excess of the fair market value of
the shares of Common Stock on the date of exercise over the exercise price.
However, if (a) the Company imposes restrictions on the shares which do not
permit the recipient to transfer the shares to others and which require the
recipient to return the shares to the Company at less than fair market value
upon termination of employment (a "risk of forfeiture"), or (b) the recipient is
an officer or director of the Company subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended ("Section 16(b)") then, upon their sale of
shares of Common Stock, the date on which taxable income (if any) is recognized
(the "Recognition Date") will be the date on which the stock becomes "freely
transferable" or not subject to risk of forfeiture. In this circumstance, the
option holder will generally recognize ordinary taxable income on the
Recognition Date in an amount equal to the excess of the fair market value of
the shares at that time over the exercise price.
Despite this general rule, if the Recognition Date is after the date of
exercise, then the option holder may make an election pursuant to Section 83(b)
of the Code. In this case, the option holder will recognize ordinary taxable
income at the time the option is exercised and not on the later date. In order
to be effective, the Section 83(b) election must be filed with the Company and
the Internal Revenue Service within 30 days of exercise.
The Company will generally be entitled to a compensation deduction for
Federal income tax purposes in an amount equal to the taxable income recognized
by the option holder, provided the Company reports the income on a form W-2 or
1099, whichever is applicable, that is timely provided to the option holder and
filed with the IRS.
8
<PAGE>
When an option holder subsequently disposes of the shares of Common Stock
received upon exercise of a nonqualified option, he or she will recognize long-
term or short-term capital gain or loss (depending upon the holding period), in
an amount equal to the difference between the sale price and the fair market
value on the date on which the option holder recognized ordinary taxable income
as a result of the exercise of the nonqualified option.
An option holder who pays the exercise price for a nonqualified option, in
whole or in part, by delivering shares of Common Stock already owned by him or
her will recognize no gain or loss for Federal income tax purposes on the shares
surrendered, but otherwise will be taxed according to the rules described above.
Incentive Stock Options. An option holder generally will not recognize
taxable income upon either the grant or the exercise of an incentive stock
option. However, under certain circumstances, there may be alternative minimum
tax or other tax consequences, as discussed below.
An option holder will recognize taxable income upon the disposition of the
shares received upon exercise of an incentive stock option. Any gain recognized
upon a disposition that is not a "disqualifying disposition" will be taxable as
long-term capital gain. A "disqualifying disposition" means any disposition of
shares acquired on the exercise of an incentive stock option within two years of
the date the option was granted or within one year of the date the shares were
issued to the option holder. The use of shares acquired pursuant to the exercise
of an incentive stock option to pay the option price under another incentive
stock option is treated as a disposition for this purpose. In general, if an
option holder makes a disqualifying disposition, an amount equal to the excess
of (a) the lesser of (i) the fair market value of the shares on the date of
exercise or (ii) the amount actually realized over (b) the option exercise
price, will be taxable as ordinary income and the balance of the gain
recognized, if any, will be taxable as either long-term or short-term capital
gain, depending on the optionee's holding period for the shares. In the case of
a gift or certain other transfers, the amount of ordinary income taxable to the
optionee is not limited to the amount of gain which would be recognized in the
case of a sale. Instead, it is equal to the excess of the fair market value of
the shares on the date of exercise over the option exercise price.
As noted previously, the tax result may change if (a) the Company imposes
restrictions on the shares which do not permit the recipient to transfer the
shares to others and which require the recipient to return the shares to the
Company at less than fair market value upon termination of employment, or (b)
the recipient is an officer or director of the Company subject to Section 16(b).
In the case of a disqualifying disposition of shares acquired pursuant to the
exercise of such an incentive stock option, the date on which the fair market
value of the shares is determined will be postponed, and the tax consequences
will be similar to the treatment that applies to shares acquired pursuant to
options granted under the 1999 Plan, including the ability to make a Section
83(b) election.
In general, in the year an incentive stock option is exercised, the holder
must include the excess of the fair market value of the shares issued upon
exercise over the exercise price in the calculation of alternative minimum
taxable income. The application of the alternative minimum tax rules for an
option holder subject to Section 16(b) or who receives shares that are not
"substantially vested" are more complex and may depend upon whether the holder
makes a Section 83(b) election, as described above.
The Company will not be entitled to any deduction with respect to the grant
or exercise of an incentive stock option provided the holder does not make a
disqualifying disposition. If the option holder does make a disqualifying
disposition, the Company will generally be entitled to a deduction for Federal
income tax purposes in an amount equal to the taxable income recognized by the
holder, provided the Company reports the income on a form W-2 that is timely
provided to the option holder and filed with the IRS.
9
<PAGE>
Stock Appreciation Rights. A recipient of an SAR will not be considered to
receive any income at the time an SAR is granted, nor will the Company be
entitled to a deduction at that time. Upon the exercise of an SAR, the holder
will have ordinary income equal to the cash received upon the exercise. At that
time, the Company will be entitled to a tax deduction equal to the amount of
ordinary income realized by the holder.
Restricted Stock and Performance Shares. The recipient of restricted stock
or performance shares will be treated in the same manner as a person who has
exercised a nonqualified stock option, as described above, for which the Company
has imposed restrictions on the shares received, and for which the exercise
price is either zero or a nominal amount. In general, this means that the holder
may either wait until the restrictions have elapsed (or the performance goals
have been met), and then pay tax at ordinary income tax rates, based upon the
fair market value of the shares at that time, or he or she can file a Section
83(b) election, and pay tax based on the fair market value of the shares at the
time they are received. Again, the Company will get a deduction that corresponds
to the income recognized by the recipient. If a recipient makes a Section 83(b)
election but later forfeits some or all of the shares as to which the election
was made, he or she will not be entitled to a deduction or other reduction
related to the income previously recognized.
Stock Awards. A person who receives a stock award that includes Common
Stock will be treated, with regard to such Common Stock, in the same manner as a
person who has exercised a nonqualified stock option, as described above. In
general, this means that the holder will have taxable income at the time the
shares are received if they are not subject to restrictions, or as described in
the preceding paragraph for restricted stock, if they are subject to
restrictions. The tax treatment of a stock award that consists of other rights
will depend on the provisions of the award. It may be immediately taxable if
there are no restrictions on the receipt of the cash or other property that the
stock award represents, or the tax consequences may be deferred if the receipt
of cash or other property for the stock award is restricted, or subject to
vesting or performance goals. In those situations in which a participant
receives property subject to restrictions, the participant may wish to make a
Section 83(b) election, as described above. At the time that the holder of the
stock award has ordinary income, the Company will be entitled to a tax deduction
equal to the amount of ordinary income realized by the holder.
An affirmative vote by the holders of a majority of the issued and
outstanding shares of Common Stock entitled to vote on the matter represented in
person or by proxy at the Annual Meeting is required to approve the 1999 Plan.
The Board of Directors recommends that shareholders vote "FOR" this proposal.
10
<PAGE>
OTHER INFORMATION
SHARE OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of January 4, 1999
with respect to the beneficial ownership of the Company's Common Stock of each
director, each nominee for director, each named executive officer in the Summary
Compensation Table under "Executive Compensation," below, all executive officers
and directors as a group, and each person known by the Company to be the
beneficial owner of 5% or more of the Company's Common Stock. This information
is based upon information received from or on behalf of the named individuals.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
-----------------------------------------
Name and Address of Number of Percent of
Beneficial Owners Shares Common Shares
-------------------- -----------------------------------------
<S> <C> <C>
Jay A. Stein(3) 767,000 7.7%
Vivid Technologies, Inc.
10E Commerce Way
Woburn, Massachusetts 01801
Massachussets Capital Resource Company 746,284 7.5%
420 Boylston Street
Boston, Massachusetts 02116
Charles T. O'Neill, as Trustee(2) 709,823 7.2%
O'Neill & Neylon
950 Winter Street
Waltham, Massachusetts 02154
Pioneer Capital Corporation(7) 614,729 6.2%
60 State Street
Boston, Massachusetts 02109
S. David Ellenbogen(4) 438,500 4.4%
Frank Kenny(5) 128,395 1.3%
James J. Aldo(6) 40,500 *
Daniel J. Silva(6) 82,000 *
William J. Frain(6) 30,800 *
L. Paul Bremer III(6) 9,000 *
Gerald Segel(6) 14,000 *
Glenn P. Muir(6) 46,250 *
All directors and executive officers as a group (6) 1,556,445 15.7%
(9 persons)
_____________________
* Less than one percent.
</TABLE>
(1) Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to the shares listed.
(2) Includes (i) 242,500 shares held by Mr. O'Neill as Trustee of the
Ellenbogen Family Irrevocable Trust of 1996; (ii) 296,899 shares held by Mr.
O'Neill as Trustee of the S. David Ellenbogen 1996
11
<PAGE>
Retained Annuity Trust; and (iii) 170,424 shares held by Mr. O'Neill as Trustee
of the Jay A. Stein 1996 Retained Annuity Trust. Mr. O'Neill disclaims
beneficial ownership of all such shares.
(3) Includes 72,000 shares held by Dr. Stein as Trustee. Also includes 170,424
shares held in trust by Mr. O'Neill as Trustee of the Jay A. Stein 1996 Retained
Annuity Trust and 5,000 shares subject to options which are exercisable within
60 days after January 4, 1999. Dr. Stein disclaims beneficial ownership of the
shares held by Dr. Stein as Trustee.
(4) Includes 60,000 shares held by Mr. Ellenbogen as Trustee. Also includes
296,899 shares held in trust by Mr. O'Neill as Trustee of the S. David
Ellenbogen 1996 Retained Annuity Trust and 3,000 shares subject to options which
are exercisable within 60 days after January 4, 1999. Excludes 242,500 shares
held in trust by Mr. O'Neill, as Trustee of the Ellenbogen Family Irrevocable
Trust of 1996. Mr. Ellenbogen disclaims beneficial ownership of shares held by
Mr. Ellenbogen as Trustee and shares held in trust by Mr. O'Neill as Trustee of
the Ellenbogen Family Irrevocable Trust of 1996.
(5) Includes (i) 5,000 shares of Common Stock issuable pursuant to presently
exercisable stock options, (ii) 117,860 shares beneficially owned by Mr. Kenny
and (iii) 5,535 shares owned by Beta Partners Profit Sharing Trust for the
benefit of Mr. Kenny.
(6) Includes shares subject to options which are exercisable within 60 days
after January 4, 1999: Mr. Aldo 33,500; Mr. Silva 21,000; Mr. Frain 24,800; Mr.
Bremer 9,000; Mr. Segel 9,000; Mr. Muir 32,000; and all directors and executive
officers as a group 142,300.
(7) Comprised of 561,049 shares and 53,680 shares issuable pursuant to
presently exercisable warrants.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth information concerning the compensation
during the periods presented of the Company's Chief Executive Officer and the
four other most highly compensated executive officers whose annual salary and
bonus exceeded $100,000 for services in all capacities to the Company during the
last fiscal year (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation (1) Compensation
Name and Fiscal ------------------------- Securities Underlying All Other
Principal Position Year Salary ($) Bonus ($) Options (#) (2) Compensation ($)(5)
- ------------------ ------ ------------------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
S. David Ellenbogen (3) 1998 $ 79,380 $ 50,000 15,000 --
Chairman and CEO 1997 $ 72,000 $ 76,000 -- --
1996 $ 71,000 $ 25,000 -- --
Stephen A. Reber (4) 1998 $187,975 -- 20,000 --
Former President 1997 $110,125 $ 45,000 100,000 $52,285
and COO
James J. Aldo 1998 $153,460 $ 50,000 15,000 $ 3,000
Vice President of 1997 $139,350 $100,000 30,000 $ 2,850
Marketing and Sales 1996 $114,916 $ 93,750 20,000 $ 2,375
Daniel J. Silva 1998 $153,460 $ 50,000 15,000 $ 2,802
Vice President of 1997 $136,650 $ 75,000 30,000 $ 2,850
Operations 1996 $112,900 $ 68,750 20,000 $ 2,140
William J. Frain 1998 $106,075 $ 50,000 15,000 $ 2,543
Treasurer and 1997 $ 89,850 $ 35,000 20,000 $ 2,132
Chief Financial Officer
</TABLE>
__________________
(1) In accordance with the rules of the Securities and Exchange Commission the
compensation described in the tables does not include medical, group life
insurance or other benefits received by the executive officers named in the
above table which are available to all salaried employees of the Company, and
certain perquisites and other personal benefits, securities or property received
by the executive officers which do not exceed, in the aggregate, the lesser of
$50,000 or 10% of any such officer's salary and bonus described in this table.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during fiscal 1996,
1997 and 1998.
(3) Represents Mr. Ellenbogen's compensation paid by the Company to Hologic
pursuant to a management agreement between the Company and Hologic. The Company
pays to Hologic its proportionate share of Hologic's overhead, including the
salary of Hologic's employees rendering services to the Company. See "Certain
Transactions."
(4) Mr. Reber left the employ of the Company in July 1998.
13
<PAGE>
(5) The amounts reported in this column consist of the Company's matching
contribution under the 401(k) profit sharing plan. The amount for Stephen Reber
includes $50,000 for relocation expenses reimbursed during fiscal 1997.
Option Grants in 1998
The following table contains information concerning grants of stock options
under the 1989 Combination Stock Option Plan and 1996 Equity Incentive Plan to
each of the Named Executive Officers during the fiscal year ended September 30,
1998:
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to Or Base Grant
Options Employees in Price Expiration Date Present
Name Granted (#)(1) Fiscal 1998(2) ($/Share) Date Value ($)(3)
- ---- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S.David Ellenbogen 15,000 6.7% $13.88 10/09/2007 $123,968
Stephen A. Reber (4) 20,000 8.7% $13.88 10/09/2007 $165,291
James J. Aldo 15,000 6.7% $13.88 10/09/2007 $123,968
Daniel J. Silva 15,000 6.7% $13.88 10/09/2007 $123,968
William J. Frain 15,000 6.7% $13.88 10/09/2007 $123,968
</TABLE>
_____________
(1) All options shown in the table were granted under either the 1996 Equity
Incentive Plan, carry an exercise price of 100% of the fair market value on the
date of grant, become exercisable at a rate of 20% per year beginning on the
first anniversary date of the grant, provided the optionee is continuously
employed from the date of grant to the date of exercise and expire on the tenth
anniversary of the date of grant.
(2) Based on options to purchase an aggregate of 225,950 shares granted during
fiscal 1998 to all employees.
(3) These values were calculated using the Black-Scholes option pricing model,
a formula widely used and accepted for valuing traded stock options. The model
is based on immediate exercisability and transferability which are not features
of the options shown in the table. Any ultimate value will depend on the market
value of the Company's stock at a future date. The following assumptions were
used to calculate the values shown: no estimated future dividend yield; expected
price volatility of .67; risk-free rate of return of 5.53%; and option holding
period of 5 years.
(4) Mr. Reber left the employ of the Company in July 1998 and therefore the
shares granted above were cancelled prior to September 30, 1998.
14
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth certain information regarding the exercise
of stock options during the fiscal year ended September 30, 1998 and the fiscal
year-end value of unexercised options for the Company's Named Executive
Officers.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares Acquired Value at Fiscal Year End (#) at Fiscal Year End ($)(2)
Name on Exercise (#) Realized ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- --------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
S. D. Ellenbogen --- --- --- / 15,000 --- / ---
S. Reber --- --- --- / --- --- / ---
J. Aldo --- --- 18,500 / 56,000 $76,125 / $93,530
D. Silva 20,000 $249,840 8,000 / 59,000 $ 8,180 / $ 111,800
W. Frain 6,000 $ 84,360 16,700 / 42,800 $ 71,093 / $ 60,112
- -------------------
</TABLE>
(1) The amount "realized" reflects the appreciation on the date of exercise
(based on the excess of the fair market value of the shares on the date of
exercise over the exercise price). However, because the executive officers may
keep the shares they acquired upon the exercise of the options (or sell them at
a different price), these amounts do not necessarily reflect cash realized upon
the sale of those shares.
(2) Based upon the $7.09 closing market price of the Company's Common Stock as
reported on the Nasdaq National Market System on September 30, 1998 minus the
respective option exercise price.
Executive Bonus Program
The Compensation Committee of the Board of Directors approved an Executive
and Key Employee Bonus Program for fiscal 1999 under which executive officers,
senior management and key contributors selected by the Compensation Committee
may be eligible for cash bonuses, awarded at the discretion of the Compensation
Committee, to be paid in the first quarter of fiscal 2000. Under this program,
if pre-tax profits exceed $8,000,000, a bonus pool is expected to be created
equal to up to 6% of the Company's pre-tax profits. No bonus pool is expected to
be created if the Company's pre-tax profits do not exceed $8,000,000. For fiscal
1998, bonuses of $480,000 were granted under a similar program approved for that
year. The 1998 program was based upon pre-tax profits exceeding $3,000,000, with
up to 6% of the operating profits available to fund the bonus pool.
Compensation Committee Interlocks and Insider Participation
Messrs. Bremer, Kenny, Segel, and Muir served as members of the
Compensation Committee of the Board of Directors during the Company's fiscal
year ended September 30, 1998. Neither Ambassador Bremer, Mr. Kenny nor Mr.
Segel has been an officer or employee of the Company or any of its subsidiaries.
From August 1993 until October 1996, Mr. Muir served as an officer of the
Company. During fiscal 1998, Mr. Muir served as Treasurer and Vice President of
Finance of Hologic. Mr. Ellenbogen, the Company's Chairman and Chief Executive
Officer, is a director of Hologic.
Ambassador Bremer is a Managing Director of Kissinger Associates, Inc., a
strategic consulting firm. In April 1996, the Company retained the services of
Kissinger Associates to provide advice and assistance in connection with the
Company's efforts to expand the market for its products and technology outside
of the United States. The Company pays Kissinger Associates an annual retainer
fee of $50,000, and will be required in certain instances to pay an additional
fee based upon the value of each sale of equipment to a customer for which
Kissinger Associates' assistance has been requested. In April 1998, the Company
renewed the services of Kissinger Associates through April 1999.
15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, consisting entirely
of non-management directors, approves all policies under which compensation is
paid or awarded to the Company's executive officers. The Committee is comprised
of Messrs. Bremer, Kenny, Segel and Muir.
Vivid's Compensation Philosophy and Plan
The Company's executive compensation program is designed to attract and
retain superior executive talent, to provide incentives and rewards to executive
officers who will contribute to the long-term success of Vivid and to closely
align the interests of executives with those of Vivid's stockholders.
The Committee reviews the Company's executive compensation program through
the application of the subjective business judgment of each of its members and
through an informal survey of executive compensation programs of peer companies.
The Compensation Committee does not use a quantitative method or use a
mathematical formula to set any element of compensation for a particular
executive officer. The Compensation Committee uses discretion and considers all
elements of an executive's compensation package when setting each portion of
compensation which is based upon corporate performance and individual
initiatives and performance. The principle elements of the Company's executive
compensation program consist of: (i) base annual salary, (ii) executive bonus
program and (iii) stock options.
Base Annual Salaries. Base annual salaries for executive officers are proposed
by the Chief Executive Officer and are evaluated by the Compensation Committee
based upon the responsibilities of the position and the experience and knowledge
of the individual. Also taken into consideration is the competitiveness of the
marketplace for executive talent, including a comparison of base annual salaries
for comparable positions at peer companies. Individual adjustments are made at
the discretion of the Compensation Committee, taking into consideration factors
such as the Company's performance and the Compensation Committee's subjective
perception of the individual's performance.
Executive Bonus Program. The Company maintains an Executive Bonus Program which
provides for a bonus pool to be established for executive officers, senior
management and key contributors of the Company based upon the amount by which
the Company's pre-tax profits exceed certain specified targets for a fiscal
year. Bonuses from this pool are allocated among the executive officers and
other eligible employees at the discretion of the Compensation Committee, based
upon the recommendations of the Chief Executive Officer and the Compensation
Committee's subjective determination of the participant's performance during the
year. For fiscal 1998, bonuses aggregating $480,000 were granted under the
Executive Bonus Program. The 1998 program was based upon pre-tax profits
exceeding $3,000,000, with up to 6% of the operating profits available to fund
the bonus pool. See "Compensation of Executive Officers -- Summary
Compensation Table" and "Executive Bonus Program."
Stock Options. The third component of executive officers' compensation is the
Company's 1989 Combination Stock Option Plan and 1996 Equity Incentive Plan
pursuant to which the Company has granted to executive officers options to
purchase shares of Common Stock.
Stock options are designed to align the interests of the executive with
those of the stockholders. Stock options are granted at an exercise price equal
to the fair market value of the Common Stock on the date of grant. These options
generally vest at the rate of 20% per year, with the first installment vesting
at the
16
<PAGE>
end of one year from the date of employment (for options granted upon initial
employment) or the date of grant and are exercisable within ten years from the
date of grant. This plan is designed to provide incentives for the creation of
long-term value for the Company's stockholders as the full benefit of the
compensation package cannot be realized unless stock price appreciation occurs
over a number of years. The size of individual stock grants are based upon the
recommendations of the Chief Executive Officer and the Committee's subjective
review of the job responsibility and individual contribution to the Company's
success. Previous stock option grants are considered when awards are determined.
Compensation of the Chief Executive Officer
Under a management agreement, Hologic provided the Company with part-time
management services of Mr. Ellenbogen. Under this arrangement, the Company was
required to pay Hologic its proportionate share of Mr. Ellenbogen's salary. In
addition, the Company paid Hologic a $50,000 discretionary bonus for Mr.
Ellenbogen's management services provided in fiscal 1998. The amount of the
bonus reflected the Compensation Committee's desire to reward Mr. Ellenbogen for
the strong financial performance of the Company during the year and the
extraordinary services performed by Mr. Ellenbogen throughout. See "Certain
Transactions Hologic, Inc."
Conclusion
Through these programs, a significant portion of the Company's executive
compensation is linked directly to individual and Company performance in
pursuance of strategic goals as well as stock price appreciation.
The Compensation Committee
L. Paul Bremer
Frank Kenny
Glenn Muir
Gerald Segel
17
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the yearly percentage change in the
Company's cumulative total shareholder return on the Company's Common Stock for
the period from December 11, 1996 (the date trading in the Company's Common
Stock commenced) through September 30, 1998, based upon the market price of the
Company's Common Stock, with the cumulative total return on the Nasdaq Composite
Index ("Nasdaq") and the SIC Code Index ("SIC Index") calculated by The Nasdaq
Stock Market, Inc. for NYSE/Amex/Nasdaq companies (SIC 3844) X-ray apparatus and
tubes, for that period. The Performance Graph assumes the investment of $100 on
December 11, 1996 in the Company's Common Stock, the Nasdaq and the SIC Index,
and the reinvestment of any and all dividends.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Cumulative Total Return
December 11, September 30, September 30,
1996 1997 1998
--------------------------------------------------------------------------
<S> <C> <C> <C>
Vivid Technologies, Inc. $ 100 $129.17 $ 59.11
Nasdaq $ 100 $128.77 $129.39
SIC Index $ 100 $ 97.05 $ 71.95
-------------------------------------------------------------------------
</TABLE>
18
<PAGE>
CERTAIN TRANSACTIONS
For the fiscal year ended September 30, 1998, the following transactions
occurred which involved more than $60,000 between the Company and any director,
executive officer, five percent (5%) beneficial owner of the Company's Common
Stock or any member of the immediate family of any of the foregoing persons.
Hologic, Inc.
In June 1989, the Company obtained an exclusive perpetual license to use
certain patent rights and technology developed by Hologic for the development,
manufacture and sale of X-ray screening security systems for explosives, drugs,
currency and other contraband (subject to termination by either party for
certain defaults). In September 1996, this license was amended to grant the
Company a nonexclusive license to use these patents and technology for the
development, manufacture and sale of X-ray-based products capable of being used
for process control applications in the food and beverage industries. Mr.
Ellenbogen and Dr. Stein are directors of Hologic and hold similar offices in
the Company as they do in Hologic. Mr. Ellenbogen and Dr. Stein collectively
beneficially own approximately 7% of the outstanding voting stock of Hologic.
Under the license agreement with Hologic, the Company is required to pay
Hologic royalties of 5% of the first $50 million of net sales of screening
security systems using Hologic's technology, and 3% of net sales in excess of
$50 million, up to a maximum of $200 million of net sales of these products. The
Company is also required to pay royalties of 3% up to a maximum of $200 million
of net sales of products covered by the nonexclusive license for food and
beverage process control. The maximum aggregate royalties payable by the Company
to Hologic under the exclusive arrangement are $7 million, and under the
nonexclusive arrangement, are $6 million. In fiscal 1998, the Company incurred
royalty expenses of approximately $1,014,000 under the license agreement.
Through the end of fiscal 1998, the Company had incurred royalties on aggregate
sales of approximately $118 million.
Under a management agreement, Hologic provided the Company with part-time
management services of Mr. Ellenbogen and Dr. Stein. Under this arrangement, the
Company was required to pay Hologic its proportionate share of the salary of
Hologic's employees rendering services to Vivid. Currently, the payments made
under this arrangement are the Company's proportionate share of Mr. Ellenbogen's
and Dr. Stein's compensation. Under this arrangement, no compensation is paid by
the Company to any of Hologic's employees. The management agreement may be
terminated by either party on six month's written notice. For the fiscal year
ended September 30, 1998, the Company was charged approximately $140,000 by
Hologic for services rendered under the agreement. In addition, in December
1998, Vivid paid Hologic a $50,000 bonus for the management services provided in
fiscal 1998. The Company estimates that Mr. Ellenbogen and Dr. Stein have
typically devoted approximately twenty and eight hours per week, respectively,
on matters involving the Company.
Consulting Services
Ambassador Bremer is a Managing Director of Kissinger Associates, Inc., a
strategic consulting firm. In April 1996, the Company retained the services of
Kissinger Associates to provide advice and assistance in connection with the
Company's efforts to expand the market for its products and technology outside
of the United States. The Company pays Kissinger Associates an annual retainer
fee of $50,000, and will be required in certain instances to pay an additional
fee based upon the value of each sale of equipment to a customer for which
Kissinger Associates' assistance has been requested. In April 1998, the Company
renewed the services of Kissinger Associates through April 1999.
19
<PAGE>
Indebtedness of Management
In fiscal 1997, Stephen A. Reber, the President and Chief Operating Officer
of the Company, borrowed an aggregate of $157,547 from the Company pursuant to a
bridge loan to assist Mr. Reber in the purchase of a local primary residence in
connection with his relocation to Massachusetts. The loan had no stated annual
interest rate. This bridge loan was repaid to the Company in fiscal 1997.
INDEPENDENT AUDITORS
The Company has appointed Arthur Andersen LLP as the independent auditors
to audit the Company's consolidated financial statements for the fiscal year
ending September 30, 1999. Such firm has served continuously in that capacity
since 1990.
A representative of Arthur Andersen LLP will be at the Meeting and will be
given an opportunity to make a statement, if so desired. The representative
will be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission ("SEC") on SEC forms 3,4, and 5. Specific
filing deadlines of these reports have been established and the Company is
required to disclose in this Proxy Statement any failure to file by these dates
during the fiscal year ended September 30, 1998. Based solely on the Company's
review of written representations of its directors and executive officers and
any ten percent stockholders and copies of the reports that they filed with the
SEC, the Company believes that all of its executive officers, directors and
greater than 10% stockholders complied with all Section 16(a) filing
requirements applicable to them during the company's fiscal year ended September
30, 1998, except as follows:
The executive officers and directors listed in the table below filed late
reports during the Company's most recent fiscal year:
<TABLE>
<CAPTION>
Number of Transactions
Name Type and Date of Report Reported Late
---- ----------------------- -------------
<S> <C> <C>
James J. Aldo Form 4/September 17, 1998 1
William J. Frain Form 4/May 8, 1998 1
Daniel J. Silva Form 4/July 7, 1998 12
Jay A. Stein Form 4/September 30, 1998 1
</TABLE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote the shares represented thereby
on such matters in accordance with their best judgment.
Incorporation by Reference
To the extent that this Proxy Statement has been or will be specifically
incorporated by reference into any filing by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, the
sections of the Proxy Statement entitled "Report of the Compensation Committee
on Executive Compensation" and "Performance Graph" shall not be deemed to be so
incorporated, unless specifically otherwise provided in any such filing.
20
<PAGE>
FINANCIAL MATTERS AND FORM 10-K REPORT
The Company's annual report for the fiscal year ended September 30, 1998,
is being mailed with this proxy statement to stockholders entitled to notice of
the meeting. The consolidated financial statements, unaudited selected
quarterly data and management's discussion and analysis of financial condition
and results of operations included in the annual report are incorporated by
reference herein.
THE COMPANY WILL PROVIDE EACH BENEFICIAL OWNER OF ITS SECURITIES WITH A
COPY OF AN ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE COMPANY'S MOST RECENT FISCAL YEAR, WITHOUT CHARGE, UPON
RECEIPT OF A WRITTEN REQUEST FROM SUCH PERSON. SUCH REQUEST SHOULD BE SENT TO
INVESTOR RELATIONS, VIVID TECHNOLOGIES, INC., 10E COMMERCE WAY, WOBURN,
MASSACHUSETTS 01801.
VOTING PROXIES
The Board of Directors recommends an affirmative vote on all proposals
specified. Proxies will be voted as specified. If signed proxies are returned
without specifying an affirmative or negative vote on any proposal, the shares
represented by such proxies will be voted in favor of the Board of Directors'
recommendations.
By order of the Board of Directors
Lawrence M. Levy, Secretary
Woburn, Massachusetts
January 20, 1999
21
<PAGE>
EXHIBIT A
VIVID TECHNOLOGIES, INC.
1999 EQUITY INCENTIVE PLAN
Section 1. Purpose
-------
The purpose of the Vivid Technologies, Inc. 1998 Equity Incentive Plan (the
"Plan") is to attract and retain employees, directors, advisors and consultants,
to provide an incentive for them to assist Vivid Technologies, Inc. (the
"Corporation") to achieve long-range performance goals, and to enable them to
participate in the long-term growth of the Corporation.
Section 2. Definitions
-----------
(a) "Affiliate" means any business entity in which the Corporation owns
directly or indirectly 50% or more of the total combined voting power or
has a significant financial interest as determined by the Committee.
(b) "Annual Meeting" means the annual meeting of shareholders or special
meeting in lieu of annual meeting of shareholders at which one or more
directors are elected.
(c) "Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock, or Stock Award awarded under the Plan.
(d) "Award Share" means a share of Common Stock awarded to an employee,
director, advisor or consultant without payment therefor.
(e) "Board" means the Board of Directors of the Corporation.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Committee" means the Compensation Committee of the Board, or such other
committee of not less than two members of the Board appointed by the Board
to administer the Plan, provided that the members of such Committee must be
Non-Employee Directors as defined in Rule 16b-3(b) promulgated under the
Securities Exchange Act of 1934, as amended.
(h) "Common Stock" or "Stock" means the Common Stock, par value $.01 per share,
of the Corporation.
(i) "Corporation" means Vivid Technologies, Inc.
(j) "Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Board, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
(k) "Eligible Director" means each director of the Corporation who is not then
an employee of the Corporation or affiliated with any holder of more than
5% of the outstanding voting stock of the Corporation.
22
<PAGE>
(l) "Fair Market Value" means, with respect to Common Stock, the last sale
price of the Common Stock as reported on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or on a national
securities exchange on which the Common Stock may be traded on the date of
the granting of the Award, or if such date is not a business day, the first
business day preceding such grant. If the Common Stock is not publicly
traded, the fair market value shall mean the fair market value of the
Common Stock as determined by the Board of Directors.
(m) "Incentive Stock Option" means an option to purchase shares of Common
Stock, awarded to a Participant under Section 6, which is intended to meet
the requirements of Section 422 of the Code or any successor provision.
(n) "Nonqualified Stock Option" means an option to purchase shares of Common
Stock, awarded to a Participant under Section 6, which is not intended to
be an Incentive Stock Option.
(o) "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
(p) "Participant" means a person selected by the Board to receive an Award
under the Plan.
(q) "Performance Cycle" or "Cycle" means the period of time selected by the
Board during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
(r) "Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals, awarded to a Participant under Section 8.
(s) "Restricted Period" means the period of time selected by the Board during
which an award of Restricted Stock may be forfeited to the Corporation.
(t) "Restricted Stock" means shares of Common Stock subject to forfeiture,
awarded to a Participant under Section 9.
(u) "Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the reference price, awarded to a
Participant under Section 7.
(v) "Stock Award" means an award of Common Stock, including an Award Share, or
an award of Common Stock and other rights granted as units that are valued
in whole or in part by reference to, or otherwise based on, the value of
Common Stock, awarded to a Participant under Section 10.
Section 3. Administration
--------------
The Plan shall be administered by the Board, or if the Board so determines,
by the Committee. The Committee shall serve at the pleasure of the Board, which
may from time to time, and in its sole discretion, discharge any member, appoint
additional new members in substitution for those previously appointed and/or
fill vacancies however caused. A majority of the Committee shall constitute a
quorum and the acts of a majority of the members present at any meeting at which
a quorum is present shall be deemed the action of the Committee. The Board,
including the Committee, shall have authority to adopt, alter and repeal such
administrative rules,
23
<PAGE>
guidelines and practices governing the operation of the Plan as it shall from
time to time consider advisable, and to interpret the provisions of the Plan.
The Board's decisions shall be final and binding. To the extent permitted by
applicable law, the Board may delegate to the Committee the power to make Awards
to Participants and all determinations under the Plan with respect thereto.
Section 4. Eligibility
-----------
All employees and, in the case of Awards other than Incentive Stock
Options, directors, advisors and consultants of the Corporation or any Affiliate
capable of contributing significantly to the successful performance of the
Corporation, other than a person who has irrevocably elected not to be eligible,
are eligible to be Participants in the Plan.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b), the maximum aggregate number of
shares of Common Stock available for issuance under the Plan is 300,000
shares. If any Award in respect of shares of Common Stock expires or is
terminated unexercised or is forfeited for any reason or settled in a
manner that results in fewer shares outstanding than were initially
awarded, including without limitation the surrender of shares in payment
for the Award or any tax obligation thereon, the shares subject to such
Award or so surrendered, as the case may be, to the extent of such
expiration, termination, forfeiture or decrease, shall again be available
for award under the Plan, subject, however, in the case of Incentive Stock
Options, to any limitation required under the Code. Common Stock issued
through the assumption or substitution of outstanding grants from an
acquired corporation shall not reduce the shares available for Awards under
the Plan. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) In the event that the Board determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-
off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value, or
other similar transaction affects the Common Stock such that an adjustment
is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Board, subject, in
the case of Incentive Stock Options, to any limitation required under the
Code, shall equitably adjust any or all of (i) the number and kind of
shares in respect of which Awards may be made under the Plan, (ii) the
number and kind of shares subject to outstanding Awards, and (iii) the
award, exercise or conversion price with respect to any of the foregoing,
and if considered appropriate, the Board may make provision for a cash
payment with respect to an outstanding Award, provided that the number of
shares subject to any Award shall always be a whole number.
Section 6. Stock Options
-------------
(a) Subject to the provisions of the Plan, the Board may award Incentive Stock
Options and Nonqualified Stock Options and determine the number of shares
to be covered by each Option, the option price therefor and the conditions
and limitations applicable to the exercise of the Option. The terms and
conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder.
24
<PAGE>
(b) The Board shall establish the option price at the time each Option is
awarded.
(c) Each Option shall be exercisable at such times and subject to such terms
and conditions as the Board may specify in the applicable Award or
thereafter. The Board may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option until
payment in full of the option price therefor is received by the
Corporation. Such payment may be made in whole or in part in cash or, to
the extent permitted by the Board at or after the award of the Option, by
delivery of a note or shares of Common Stock owned by the optionholder,
including Restricted Stock, valued at their Fair Market Value on the date
of delivery, by the reduction of the shares of Common Stock that the
optionholder would be entitled to receive upon exercise of the Option, such
shares to be valued at their Fair Market Value on the date of exercise,
less their option price (a so-called "cashless exercise"), or such other
lawful consideration as the Board may determine. In addition, to the
extent permitted by the Board, an optionholder may engage in a successive
exchange (or series of exchanges) in which the shares of Common Stock that
such optionholder is entitled to receive upon the exercise of an Option may
be simultaneously utilized as payment for the exercise of an additional
Option or Options.
(e) The Board may provide for the automatic award of an Option upon the
delivery of shares to the Corporation in payment of an Option for up to the
number of shares so delivered.
(f) In the case of Incentive Stock Options the following additional conditions
shall apply to the extent required under Section 422 of the Code for the
options to qualify as Incentive Stock Options:
(i) Such options shall be granted only to employees of the Corporation,
and shall not be granted to any person who owns stock that possesses
more than ten percent of the total combined voting power of all
classes of stock of the Corporation or of its parent or subsidiary
corporation (as those terms are defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder), unless, at the time of such grant, the
exercise price of such option is at least 110% of the fair market
value of the stock that is subject to such option and the option
shall not be exercisable more than five years after the date of
grant;
(ii) The option price with respect to Incentive Stock Options shall not
be less than 100% of the Fair Market Value of the Common Stock on
the date of award.
(iii) Such options shall, by their terms, be transferable by the
optionholder only by the laws of descent and distribution, and shall
be exercisable only by such optionholder during his lifetime.
(iv) Such options shall not be granted more than ten years from the
effective date of the Plan and shall not be exercisable more than
ten years from the date of grant.
25
<PAGE>
(v) To the extent that the aggregate Fair Market Value of Common Stock
with respect to which Incentive Stock Options (determined without
regard to this section) are exercisable for the first time by any
employee Participant during any calendar year exceeds $100,000 (or
such other amount as may be proscribed by the Code), such Incentive
Stock Options shall be treated as options which are not Incentive
Stock Options.
Section 7. Stock Appreciation Rights
-------------------------
Subject to the provisions of the Plan, the Board may award SARs in tandem
with an Option (at or after the award of the Option), or alone and unrelated to
an Option. SARs in tandem with an Option shall terminate to the extent that the
related Option is exercised, and the related Option shall terminate to the
extent that the tandem SARs are exercised.
Section 8. Performance Shares
------------------
(a) Subject to the provisions of the Plan, the Board may award Performance
Shares and determine the number of such shares for each Performance Cycle
and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of
Performance Cycles may differ from each other. Unless otherwise determined
by the Board, the payment value of Performance Shares shall be equal to the
Fair Market Value of the Common Stock on the date the Performance Shares
are earned or, in the discretion of the Board, on the date the Board
determines that the Performance Shares have been earned.
(b) The Board shall establish performance goals for each Cycle, for the purpose
of determining the extent to which Performance Shares awarded for such
Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Board may from time to time select. During any Cycle,
the Board may adjust the performance goals for such Cycle as it deems
equitable in recognition of unusual or non-recurring events affecting the
Corporation, changes in applicable tax laws or accounting principles, or
such other factors as the Board may determine.
(c) As soon as practicable after the end of a Performance Cycle, the Board
shall determine the number of Performance Shares which have been earned on
the basis of performance in relation to the established performance goals.
The payment values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's
Designated Beneficiary, as soon as practicable thereafter. The Board shall
determine, at or after the time of award, whether payment values will be
settled in whole or in part in cash or other property, including Common
Stock or Awards.
Section 9. Restricted Stock
----------------
(a) Subject to the provisions of the Plan, the Board may award shares of
Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Corporation and the other terms and conditions of such Awards. Shares of
Restricted Stock may be issued for no cash consideration or such minimum
consideration as may be required by applicable law.
26
<PAGE>
(b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as permitted by the Board, during the
Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Board may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the
Participant and unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the
Corporation. At the expiration of the Restricted Period, if the Corporation
holds such certificates, the Corporation shall deliver such certificates to
the Participant or if the Participant has died, to the Participant's
Designated Beneficiary.
Section 10. Stock Awards
------------
(a) Subject to the provisions of the Plan, the Board may award Stock Awards
subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules, if any, as the Board shall
determine.
(b) Shares of Common Stock awarded in connection with a Stock Award shall be
issued for no cash consideration or such minimum consideration as may be
required by applicable law. Such shares of Common Stock may be designated
as Award Shares by the Board.
Section 11. Options Granted to Non-Employee Directors
-----------------------------------------
(a) Unless otherwise determined by the Board, each Eligible Director shall
automatically be granted a Nonqualified Option to acquire 10,000 shares of
Common Stock effective as of the date he or she is first elected to the
Board or, with respect to Eligible Directors serving on the Board as of the
Effective Date of the Plan, as of the date of the 1999 Annual Meeting of
the Corporation, in each case, the option price for which shall be the Fair
Market Value of the Common Stock on such date and the expiration of which
shall be the tenth anniversary thereof. Each Nonqualified Option issued
pursuant to this Section 11(a) shall become exercisable in 20% installments
beginning on January 1 of the first year after the grant date, and on
January 1 of each year thereafter, until such option is fully exercisable
on January 1 of the fifth year following the grant date.
(b) Unless otherwise determined by the Board, each Eligible Director who has
served as a Director for six months shall automatically be granted a
Nonqualified Option to acquire 2,500 shares of Common Stock as of January 1
of each year, beginning with a Nonqualified Option granted as of the date
of the 1999 Annual Meeting, the option price for which shall be the Fair
Market Value of the Common Stock on such date and the expiration of which
shall be the tenth anniversary thereof. Each Nonqualified Option granted
pursuant to this Section 11(b) may be exercised on and after the date that
is six months after the date of grant.
(c) In addition, the Board may provide for such other terms and conditions of
the Options granted pursuant to this Section 11 as it may determine in its
sole discretion and as shall be set forth in the applicable Option
agreements, including, without limitation, acceleration of exercise upon a
change of control, termination of the Options, and the effect on such
Options of the death, retirement or other termination of service as a
director of the option holder. Notwithstanding the foregoing, nothing
herein shall preclude the Board from granting Awards to such non-employee
directors in addition to, or in substitution for, those provided for in
this Section 11.
27
<PAGE>
Section 12. General Provisions Applicable to Awards
---------------------------------------
(a) Documentation. Each Award under the Plan shall be evidenced by a written
-------------
document delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent
with the provisions of the Plan as the Board considers necessary or
advisable to achieve the purposes of the Plan or comply with applicable tax
and regulatory laws and accounting principles.
(b) Securities Laws. The Participant shall make such representations and
---------------
furnish such information as may, in the opinion of counsel for the
Corporation, be appropriate to permit the Corporation to issue or transfer
the Stock in compliance with the provisions of applicable federal or state
securities laws. The Corporation, in its discretion, may postpone the
issuance and delivery of any Stock until completion of such registration or
other qualification of such shares under any federal or state laws, or
stock exchange listing as the Corporation may consider appropriate. The
Corporation may require that prior to the issuance or transfer of Stock,
the Participant enter into a written agreement to comply with any
restrictions on subsequent disposition that the Corporation deems necessary
or advisable under any applicable federal and state securities laws.
Certificates of Stock issued hereunder may be legended to reflect such
restrictions.
(c) Board Discretion. Each type of Award may be made alone, in addition to or
----------------
in relation to any other type of Award. The terms of each type of Award
need not be identical, and the Board need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Board at the time
of award or at any time thereafter. Without limiting the foregoing, an
Award may be made by the Board, in its discretion, to any 401(k), savings,
pension, profit sharing or other similar plan of the Corporation in lieu of
or in addition to any cash or other property contributed or to be
contributed to such plan.
(d) Settlement. The Board shall determine whether Awards are settled in whole
----------
or in part in cash, Common Stock, other securities of the Corporation,
Awards, other property or such other methods as the Board may deem
appropriate. The Board may permit a Participant to defer all or any
portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock. If shares of Common Stock are to be used in
payment pursuant to an Award and such shares were acquired upon the
exercise of a stock option (whether or not granted under this Plan), such
shares must have been held by the Participant for at least six months.
(e) Dividends and Cash Awards. In the discretion of the Board, any Award under
-------------------------
the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and
(ii) cash payments in lieu of or in addition to an Award.
(f) Termination of Employment. The Board shall determine the effect on an
-------------------------
Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
The Board shall have complete discretion, exercisable either at the time
the Award is made or at any time while the Award remains outstanding, to
accelerate the vesting of any Award or any part of any Award remaining
unvested upon the termination of employment of a
28
<PAGE>
Participant or to extend the period of time for which an Option is to
remain exercisable following the termination of employment of a
Participant, provided, however, that in no event shall such Option be
exercisable after the specified expiration date of such Option.
(g) Change in Control. In order to preserve a Participant's rights under an
-----------------
Award in the event of a Change in Control of the Corporation, the Board in
its discretion may, at the time an Award is made or at any time thereafter,
take one or more of the following actions: (i) provide for the acceleration
of any time period relating to the exercise or realization of the Award,
(ii) provide for the purchase of the Award for an amount of cash or other
property that could have been received upon the exercise or realization of
the Award had the Award been currently exercisable or payable, (iii) adjust
the terms of the Award in a manner determined by the Board to reflect the
Change in Control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such other provision
as the Board may consider equitable and in the best interests of the
Corporation, provided that, in the case of an action taken with respect to
an outstanding Award, the Participant's consent to such action shall be
required unless the Board determines that the action, taking into account
any related action, would not materially and adversely affect the
Participant. Unless otherwise provided in any Award, for purposes hereof a
"Change in Control" of the Corporation shall mean: (i) the acquisition by
any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the then outstanding
shares of common stock of the Corporation (the "Outstanding Corporation
Common Stock"); provided, however, that any acquisition by the Corporation
or its subsidiaries, or any employee benefit plan (or related trust) of the
Corporation or its subsidiaries of 20% or more of Outstanding Corporation
Common Stock shall not constitute a Change in Control; and provided,
further, that any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then outstanding shares of
common stock of such corporation, is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Corporation Common Stock
immediately prior to such acquisition in substantially the same proportion
as their ownership, immediately prior to such acquisition, of the
Outstanding Corporation Common Stock, shall not constitute a Change in
Control; or (ii) any transaction which results in the Continuing Directors
(as defined in the Certificate of Incorporation of the Corporation)
constituting less than a majority of the Board; or (iii) consummation by
the Corporation of (i) a reorganization, merger or consolidation, in each
case, with respect to which all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding Corporation
Common Stock immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than 50% of
the then outstanding shares of common stock of the corporation resulting
from such a reorganization, merger or consolidation or (ii) the sale or
other disposition of all or substantially all of the assets of the
Corporation, excluding a sale or other disposition of assets to a
subsidiary of the Corporation.
(h) Withholding. The Corporation shall have the power and the right to deduct
-----------
or withhold, or require a Participant to remit to the Corporation an amount
sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required to be withheld with respect to an
Award or any dividends or other distributions payable with respect thereto.
29
<PAGE>
In the Board's discretion, such tax obligations may be paid in whole or in
part in shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value on the date
of delivery. The Corporation and its Affiliates may, to the extent
permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(i) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including substituting therefor another Award of the
same or a different type, changing the date of exercise or realization and
converting an Incentive Stock Option to a Nonqualified Stock Option,
provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
(j) Awards Not Transferable. Except as otherwise provided by the Board, Awards
-----------------------
under the Plan are not transferable other than as designated by the
participant by will or by the laws of descent and distribution.
Section 13. Miscellaneous
-------------
(a) No Right To Employment. No person shall have any claim or right to be
----------------------
granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to continued employment. The Corporation
expressly reserves the right at any time to dismiss a Participant free from
any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant
to whom Common Stock is awarded shall be considered the holder of the Stock
at the time of the Award except as otherwise provided in the applicable
Award.
(c) Effective Date. Subject to the approval of the shareholders of the
--------------
Corporation, the Plan shall be effective on February 24, 1999 (the
"Effective Date"). Prior to such approval, Awards may be made under the
Plan expressly subject to such approval. Awards under the Plan may be made
for a period of ten years commencing on the Effective Date. The period
during which an Award may be exercise may extend beyond that time as
provided herein.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
-----------------
any portion thereof at any time, provided that no amendment shall be made
without shareholder approval if such approval is necessary to comply with
any applicable requirement of the laws of the jurisdiction of incorporation
of the Corporation, any applicable tax requirement, any applicable rules or
regulation of the Securities and Exchange Commission, including Rule 16(b)-
3 (or any successor rule thereunder), or the rules and regulations of The
Nasdaq Stock Market or any other exchange or stock market over which the
Corporation's securities are listed.
(e) Governing Law. The provisions of the Plan shall be governed by and
-------------
interpreted in accordance with the laws of the jurisdiction of
incorporation of the Corporation.
30
<PAGE>
(f) Indemnity. Neither the Board nor the Committee, nor any members of either,
---------
nor any employees of the Corporation or any parent, subsidiary, or other
affiliate, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with their
responsibilities with respect to this Plan, and the Corporation hereby
agrees to indemnify the members of the Board, the members of the Committee,
and the employees of the Corporation and its parent or subsidiaries in
respect of any claim, loss, damage, or expense (including reasonable
counsel fees) arising from any such act, omission, interpretation,
construction or determination to the full extent permitted by law.
31
<PAGE>
VIVID TECHNOLOGIES, INC. PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
10E Commerce Way FEBRUARY 24, 1999
Woburn, MA 01801
(781) 938-7800
The undersigned stockholder of VIVID TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, dated January 20, 1999, and hereby appoints S.
David Ellenbogen and Jay A. Stein, and each of them acting singly, with full
power of substitution, attorneys and proxies to represent the undersigned at the
Annual Meeting of Stockholders of the Company to be held at the offices of the
Company, 10E Commerce Way, Woburn, Massachusetts 01801, on Wednesday, February
24, 1999, at 9:00 A.M. local time, and at any adjournment or adjournments
thereof, with all power which the undersigned would possess if personally
present, and to vote all shares of stock which the undersigned may be entitled
to vote at said meeting upon the matters set forth in the Notice of Meeting in
accordance with the following instructions and with discretionary authority upon
such other matters as may come before the meeting. All previous proxies are
hereby revoked.
1. The election of two (2) Class II directors nominated by the Board of
Directors each to hold office until the 2002 Annual Meeting of Stockholders
and until their respective successors are duly elected and qualified:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as indicated) to vote for all nominees
listed below
List of Nominees: L. Paul Bremer III, Gerald Segel
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
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2. The adoption the Company's 1999 Equity Incentive Plan (the "1999 Plan") as
approved by the Board of Directors in December 1998.
[_] FOR adoption of the 1999 Plan. [_] AGAINST adoption of the 1999 Plan.
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This proxy is solicited on behalf of the Board of Directors. This proxy will be
voted as specified or, where no direction is given, will be voted for the
proposals in Items 1 and 2.
PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY IN THE ENCLOSED ENVELOPE.
Dated: 1999
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Please sign your name exactly as it appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title as it
appears hereon. When signing as joint tenants, all parties in the joint tenancy
must sign. When a proxy is given by a corporation, it should be signed by an
authorized officer and the corporate seal affixed.
