<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as Permitted
by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BENTHOS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
BENTHOS, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
BENTHOS, INC.
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
APRIL 3, 1998
This proxy statement and the accompanying Notice of Special Meeting of
Stockholders is furnished to stockholders of Benthos, Inc., a Massachusetts
corporation (the "Company"), in connection with the solicitation by the Board
of Directors of proxies to be used at the Special Meeting in Lieu of the
Annual Meeting of Stockholders of the Company to be held on April 3, 1998 at
the time and place set forth in the accompanying notice and at any and all
adjournments thereof. The approximate date on which this proxy statement and
accompanying proxy form are being sent to stockholders is February 27, 1998.
INFORMATION AS TO VOTING SECURITIES
Only stockholders of record at the close of business on February 20, 1998
(the "record date") will be entitled to vote at the meeting. On that date the
Company had outstanding and entitled to vote 1,317,490 shares of Common Stock.
Each share of Common Stock outstanding on the record date is entitled to one
vote. Under the Company's By-Laws, the presence in person or by proxy of a
majority in interest of all shares of Common Stock issued, outstanding and
entitled to vote at the meeting shall constitute a quorum. When a quorum is
present, a director may be elected by a plurality of the votes properly cast.
The approval of the auditors and the approval of the Benthos, Inc. 1998 Non-
Employee Directors' Stock Option Plan will require the favorable vote of a
majority of the votes properly cast and the approval of the amendment to the
articles of organization will require the favorable vote of a majority of the
issued and outstanding shares of Common Stock. Votes withheld from any nominee
for election as a director, abstentions and broker "non-votes" are counted as
present or represented for purposes of determining the presence of a quorum
for the meeting. Therefore, abstentions and broker "non-votes" will have the
effect of "against" votes. Broker "non-votes" occur when a nominee holding
shares for a beneficial owner votes on one proposal, but does not vote on
another proposal because the nominee does not have discretionary voting power
and has not received instructions from the beneficial owner. Usually, this
would occur when brokers holding stock in "street name" have not received any
instructions from clients, in which case the brokers (as holders of record)
are permitted to vote on "routine" proposals but not on non-routine matters.
The election of directors and auditors are considered routine matters. The
approval of the 1998 Non-Employee Directors' Stock Option Plan and the
amendment of the articles of organization to create a class of preferred stock
are considered non-routine matters. Missing votes on non-routine matters are
"broker non-votes."
PROXY SOLICITATION
The expenses of solicitation of proxies will be borne by the Company. It is
expected that the solicitation will be made primarily by mail, but officers
and employees of the Company may also solicit proxies by telephone, fax and in
person.
The Company's principal executive offices are at 49 Edgerton Drive, North
Falmouth, Massachusetts 02556-2826.
Any person giving a proxy in the form accompanying this statement has the
power to revoke it at any time before its exercise. It may be revoked by
filing with the Clerk of the Company an instrument of revocation or a duly
executed proxy bearing a later date. It may also be revoked by attendance at
the meeting and election to vote in person.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Samuel O. Raymond.............. 69 Chairman Emeritus of the Board of Directors
and Director of Research
John L. Coughlin............... 46 President and Chief Executive Officer and
Director
Stephen D. Fantone............. 44 Chairman of the Board of Directors
A. Theodore Mollegen, Jr....... 60 Director
Thurman F. Naylor.............. 78 Director
Gary K. Willis................. 52 Director
Francis E. Dunne, Jr. ......... 51 Treasurer and Chief Financial Officer
</TABLE>
The Company's board of directors is classified into three classes, with the
members of the respective classes serving for staggered three-year terms. The
first class, consisting of Messrs. Coughlin and Willis, is eligible for re-
election at the 2000 annual meeting; the second class, consisting of Mr.
Mollegen and Dr. Fantone, is eligible for re-election at the 1998 annual
meeting; the third class, consisting of Messrs. Raymond and Naylor, is
eligible for re-election at the 1999 annual meeting. Officers of the Company
serve at the pleasure of the Board of Directors.
The following information is provided with respect to the business
experience of each director and executive officer of the Company:
Mr. Raymond founded the Company in 1962 and served as its President for
twenty years. He previously served as Chairman of the Board from 1965-1982 and
from 1989 to January 1997. Mr. Raymond most recently served as the President
and Chief Executive Officer of the Company from June 1995 to April 1996. Mr.
Raymond has served as a director of the Company since 1965. In January 1997,
Mr. Raymond was elected as Chairman Emeritus of the Board of Directors and
Director of Research of the Company. Mr. Raymond has a B.S. in Mechanical
Engineering from M.I.T. and was instrumental in the development and marketing
of many of the Company's original products in both the Company's Undersea
Systems Division and the Container Inspection Systems Division.
Mr. Coughlin has served as President, Chief Executive Officer and a director
of the Company since April 1996 and as Treasurer from October 1996 to February
1997. Prior to joining the Company, he was President (1993-1996) and Vice
President of Sales and Marketing (1990-1993) of Dynisco Instruments, an
operating division of Dynisco, Inc., a wholly-owned subsidiary of Berwind
Industries. Dynisco Instruments is a manufacturer of pressure and temperature
measurement products for the plastics industry. He holds a B.S. in Physics
from Georgetown University and an M.S. in Physics from Northeastern
University.
Dr. Fantone became a director of the Company in March 1995 and was elected
Chairman of the Board of Directors in January 1997. Since 1982, he has been
President and Chief Executive Officer of Optikos Corporation, an optical
engineering firm which he founded and which specializes in the design and
manufacture of optical products and instrumentation and optical test
equipment. He has B.S. degrees in Electrical Engineering and Management from
M.I.T. and a Ph.D. in optics from the Institute of Optics at the University of
Rochester. Dr. Fantone has been awarded 36 patents and is the author of
numerous technical papers and articles on optical technology. He is also
currently a Senior Lecturer in the Mechanical Engineering Department at M.I.T
and Treasurer of the Optical Society of America.
Mr. Mollegen has served as a director of the Company since 1985. He is the
President and Chief Executive Officer of Allied Resources Corporation, a
company which provides technical training, engineering, health management, and
safety management services to industrial firms. Prior to joining Allied
Resources in 1993, Mr. Mollegen was Chairman and Chief Executive Officer of
Analysis & Technology, Inc., a provider of engineering and technical services
to the U.S. Navy. Mr. Mollegen has a B.E. in Electrical Engineering from
2
<PAGE>
Yale University and is the author of over 90 technical papers and reports on
undersea topics. He is a member of the board of Technology for Connecticut
(TECHCONN), Inc. and of Southeast Area Regional Economic Development (SEA-
RED). He is also a member of the Advisory Committee of the University of New
Haven Southeast Branch.
Mr. Naylor is President of Cameras and Images International, Inc. (a dealer
in photographic images and equipment), is the owner and founder of the Naylor
Museum of Photography in Brookline, Massachusetts, and has served as a
director of the Company since 1987. Mr. Naylor is an internationally
recognized authority on photographic history, processes, and technology. Mr.
Naylor is the former Chairman, President and CEO of Standard-Thomson
Corporation, a manufacturer of temperature and pressure controls and
electronic equipment. Mr. Naylor is also the former Chairman, President and
CEO of Thomson International Corporation (1959-1989), a manufacturer of
temperature controls with engineering and manufacturing facilities in twelve
countries. Mr. Naylor has a B.A. in Economics from Fordham University and a
B.S. in Mechanical Engineering from The Johns Hopkins University. Mr. Naylor
is also a member of the Board of Directors of Analysis & Technology, Inc.,
Sandler Productions, Inc. (motion picture and television production) and
Summit Industries, Inc. (a manufacturer of x-ray equipment).
Mr. Willis was elected as a director on January 23, 1998. Since August 1993,
he has been President and Chief Executive Officer and a director of Zygo
Corporation, a supplier of high precision yield improvement and metrology
systems. From February 1992 to August 1993, Mr. Willis was Chief Operating
Officer of Zygo Corporation. Prior to joining Zygo he was the President and
Chief Executive Officer of The Foxboro Company, a manufacturer of process
control instruments and systems. Mr. Willis is also a director of Rofin-Sinar
Technologies, Inc. (industrial laser systems) and Middlesex Health Services,
Inc., a Connecticut-based health care provider. Mr. Willis has a B.S. in
mechanical engineering from Worcester Polytechnical Institute.
Mr. Dunne was appointed Treasurer and Chief Financial Officer of the Company
on February 1, 1997. Prior to joining the Company, he was Chief Financial
Officer of Kinney Vacuum Company, an operating division of General Signal
Corporation (1993-1996). Kinney Vacuum Company is a manufacturer of industrial
vacuum pumps and pump systems for the food packaging, chemical and
pharmaceutical, heat treating, automotive, and other industries. Prior to
joining Kinney, Mr. Dunne was Director of Planning and Analysis at General
Signal Corporation (1990-1993). General Signal Corporation is a manufacturer
of products serving the process controls, electrical controls, and industrial
technology industries. Mr. Dunne has a B.S. degree in Public Accounting from
St. John's University, an M.B.A. in Finance from Long Island University, and
is a Certified Public Accountant.
There are no family relationships among the directors or executive officers
of the Company.
BOARD AND COMMITTEE MEETINGS
Four meetings of the Board of Directors were held during the fiscal year
ended September 30, 1997, and the Board of Directors took action by unanimous
written consent on two occasions during that period. The Board of Directors
serves as the Company's Nominating Committee.
The Audit Committee is a committee of the Board of Directors which reviews
and discusses the plan for and the results of the annual audit with the
Company's independent auditors and approves non-audit services provided by
them. The Audit Committee also reviews the Company's internal auditing,
control and accounting system. In addition, the committee makes
recommendations to the Board concerning the selection of the independent
auditors. The present members of the Committee, which met once during the past
fiscal year, are Messrs. Mollegen, Naylor and Fantone.
The ESOP Committee is appointed by the Board of Directors and administers
the Company's Employee Stock Ownership Plan. Messrs. Coughlin, Naylor and
Fantone are the current members of the ESOP Committee. There were no meetings
of the ESOP Committee during the past fiscal year.
The Compensation and Incentive Stock Option Plan Committee (the
"Compensation Committee") is a committee of the Board of Directors which
establishes salaries of senior officers and issues options under the Company's
employee stock option plan. The current members of the Compensation Committee
are Messrs. Mollegen, Naylor and Fantone. The committee met four times during
the past fiscal year.
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<PAGE>
All directors attended 100% percent of the meetings of the Board of
Directors and the committees of which they were members during the fiscal year
ended September 30, 1997.
PRINCIPAL HOLDERS OF VOTING SECURITIES AND
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished as of February 20, 1998 with respect
to the beneficial ownership of shares of Common Stock of the Company by the
directors and executive officers of the Company, all of the directors and
officers of the Company as a group and all persons known to be the beneficial
owners of more than five percent of such outstanding stock. Unless otherwise
indicated, each of the persons named below held sole voting and investment
power over the shares listed below as of said date.
In accordance with the rules of the Securities and Exchange Commission,
shares which an individual has the right to acquire pursuant to stock options
which are exercisable within sixty days are considered to be beneficially
owned and, for purposes of calculating the percentage ownership of stock for
an individual who holds exercisable stock options, such shares are also
considered to be outstanding. Reference should be made to the footnotes below
for further information as to each individual listed.
<TABLE>
<CAPTION>
SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS (1) BENEFICIALLY OWNED COMMON STOCK
- -------------------- ------------------ ----------------------
<S> <C> <C>
Samuel O. Raymond.................... 195,315(2) 14.8%
Ronald K. Church 1996 Trust.......... 128,250 9.7%
State Street Bank and Trust Company,
Trustee of the Benthos, Inc.
Employee Stock Ownership Plan
("ESOP") (3)........................ 60,505 4.6%
John L. Coughlin..................... 27,082(4) 2.0%
Stephen D. Fantone................... 38,250(5) 2.9%
A. Theodore Mollegen, Jr............. 10,500 0.8%
Thurman F. Naylor.................... 22,500 1.7%
Gary K. Willis....................... 2,500 0.2%
Francis E. Dunne, Jr................. 3,750(6) 0.3%
All directors and officers as a group
(7 persons)......................... 299,897(7) 21.8%
</TABLE>
- --------
(1) Except as set forth below, the address of each of the individuals set
forth in the table is c/o Benthos, Inc., 49 Edgerton Drive, North
Falmouth, Massachusetts 02556. The address of the Ronald K. Church Trust
is 46 Riddle Hill Road, Falmouth, Massachusetts 02540. The address of
State Street Bank and Trust Company is 225 Franklin Street, Boston,
Massachusetts 02110.
(2) Includes 2,889 shares owned by the Company's ESOP, over which Mr. Raymond
has sole voting power. Also includes 55,243 shares owned by Mr. Raymond's
children, as to which shares Mr. Raymond disclaims beneficial ownership.
(3) Pursuant to the terms of the plan, plan participants are entitled to
direct the Trustee as to the manner in which all shares allocated to such
participants' accounts are to be voted.
(4) Consists of 27,000 shares which Mr. Coughlin has the right to acquire
through the exercise of a stock option for 75,000 shares granted April 8,
1996 and 82 shares owned by the Company's ESOP over which Mr. Coughlin has
sole voting power.
(5) Includes 26,250 shares which Dr. Fantone has the right to acquire through
the exercise of a stock option for 22,500 shares granted January 19, 1995
and a stock option for 11,250 shares granted January 24, 1997.
(6) Consists of 3,750 shares which Mr. Dunne has the right to acquire through
the exercise of a stock option for 15,000 shares granted January 24, 1997.
(7) Includes an aggregate of 57,000 shares which the directors and officers
have the right to acquire through the exercise of certain options.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for the
Company's last three fiscal years to the Company's chief executive officer
during the Company's fiscal year ended September 30, 1997 and the only other
executive officer who received an annual salary and bonus exceeding $100,000
during that fiscal year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL -------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------- ------ ---------- --------- ---------------
<S> <C> <C> <C> <C>
John L. Coughlin................... 1997 $ 153,769 $ 53,000 $ 10,879
President and Chief Executive
Officer (2) 1996 66,462 20,000 --
Francis E. Dunne, Jr............... 1997 $ 82,788 $ 30,000 --
Treasurer and Chief Financial
Officer (3)
All directors and officers as a
group (6 in all).................. 1997 $ 321,370 $ 83,000 $ 47,714
1996 236,170 80,620 8,659
1995 273,024 -- 172,772
</TABLE>
- --------
(1) Includes amounts contributed to individual accounts with the Company's
ESOP and 401(k) Retirement Plan. Also includes $171,523 in severance pay
to a former officer incurred with respect to fiscal 1995.
(2) Mr. Coughlin has served as President and Chief Executive Officer since
April 8, 1996.
(3) Mr. Dunne has served as Treasurer and Chief Financial Officer since
February 1, 1997.
On January 24, 1997, the Company granted to Francis E. Dunne, Jr. an option
to purchase 15,000 shares of the Company's Common Stock, expiring January 23,
2007, at an exercise price of $11.50 per share, vesting in four annual
installments commencing on the first anniversary of the date of grant. This
option represented 51.3% of the number of shares subject to stock options
granted to all employees during the 1997 fiscal year.
STOCK OPTION TABLE
The following table sets forth information concerning each exercise of stock
options during the Company's fiscal year ended September 30, 1997 by the
executive officers named in the table above and the number and value of shares
underlying those stock options at that date.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED SECURITIES IN-THE-MONEY
SHARES ACQUIRED VALUE UNDERLYING OPTIONS OPTIONS AT
NAME AND PRINCIPAL POSITION ON EXERCISE REALIZED(1) AT FISCAL YEAR END FISCAL YEAR END(1)
- --------------------------- --------------- ----------- ---------------------- ------------------
<S> <C> <C> <C> <C>
John L. Coughlin,
President and Chief
Executive Officer..... 10,500 $83,584 8,250(2) $113,438(2)
-- -- 56,250(3) 773,438(3)
Francis E. Dunne, Jr.,
Treasurer and Chief
Financial Officer..... -- -- 15,000(3) 98,750(3)
</TABLE>
- --------
(1) Based upon the difference between the option exercise price and the
closing price of the Company's Common Stock on the Nasdaq SmallCap Market
on the date of exercise or September 30, 1997, as appropriate.
(2) Shares underlying options exercisable as of September 30, 1997.
(3) Shares underlying options not exercisable as of September 30, 1997.
5
<PAGE>
DIRECTORS' COMPENSATION
On January 23, 1998, the Board of Directors adopted a new compensation
policy, effective April 3, 1998, under which each of its non-employee
directors will receive a fee of $6,000 per year plus $1,000 for each
directors' meeting attended and reimbursement for reasonable travel and other
expenses when incurred. Stephen D. Fantone also receives additional
compensation of $2,500 per month for his services as Chairman of the Board of
Directors. The Company intends to continue these policies in the future.
EMPLOYMENT CONTRACTS
In 1990, the Company entered into an employment agreement with Samuel O.
Raymond. Under this agreement, as amended, Mr. Raymond will be employed as the
Director of Research of the Company at a salary of $72,000 per year and will
serve as the Chairman Emeritus of the Board of Directors for as long as he is
elected to that position. This agreement commenced on August 1, 1990 and will
expire on July 31, 2005. After the expiration of the initial term, the
agreement will automatically be renewed annually as of August 1, 2005 and each
August 1 thereafter. The agreement also provides that if a change in control
of the Company should occur during the first, second or last five years of the
initial term of the agreement, Mr. Raymond is entitled to receive $427,974,
$335,504, or $199,636, respectively, from the Company. The Company has also
agreed to pay the premiums on a $1,500,000 life insurance policy on Mr.
Raymond's life under a split dollar plan.
The Company has entered into an employment agreement with John L. Coughlin,
effective April 8, 1996, pursuant to which Mr. Coughlin agrees to serve as the
President and Chief Executive Officer of the Company. The agreement provides
for an initial base salary of $144,000 and an initial minimum bonus of $20,000
payable October 1, 1996. In accordance with the agreement, the Board of
Directors has adjusted Mr. Coughlin's base salary to $168,000 per year,
effective October 1, 1997 and has adopted an annual incentive compensation
program for Mr. Coughlin based upon the attainment of quantitative and
qualitative objectives to be set by the Compensation Committee at the
beginning of each fiscal year. In addition, pursuant to the agreement, Mr.
Coughlin was granted an incentive stock option to purchase 75,000 shares of
the Company's Common Stock at an exercise price of $4.33 per share, vesting in
four equal annual installments commencing on the first anniversary of the date
of grant.
CERTAIN TRANSACTIONS
On July 29, 1997, the Company entered into a License Agreement with a
corporation wholly-owned by Dr. Stephen D. Fantone, Chairman of the Board of
Directors of the Company, with respect to the concept of utilizing optical
technology, for which Dr. Fantone's corporation possesses technical expertise,
for application to certain products currently under development by the
Company. Under the agreement, the Company will pay the development costs to
Dr. Fantone's corporation. During the fiscal year ended September 30, 1997,
the Company paid Dr. Fantone's corporation $314,000 for services and materials
provided under this contract. The proprietary rights to the technology will be
owned by Dr. Fantone's corporation, which has granted an exclusive license to
the Company for the use of the technology in certain specified fields of use
upon the terms and conditions set forth in the agreement. The Company's policy
with respect to business relationships with officers, directors, or affiliates
is that any such relationships must be fully disclosed to the Board of
Directors and must be upon terms not less favorable to the Company than those
available from third parties dealing at arm's length.
ELECTION OF DIRECTORS
The Board of Directors of the Company is classified into three classes, each
of which consists of two directors. One class of directors is elected each
year for a term of three years. The terms of the Class II directors, Stephen
D. Fantone and A. Theodore Mollegen, Jr., expire at the 1998 annual meeting.
The Board of Directors has nominated Dr. Fantone and Mr. Mollegen to continue
to serve as Class II directors for a term expiring at the 2001 annual meeting.
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<PAGE>
Unless otherwise specified therein, shares represented by the enclosed proxy
will be voted at the stockholders meeting to elect Stephen D. Fantone and A.
Theodore Mollegen, Jr., as Class II directors for a three-year term until the
2001 annual meeting of stockholders and until their successors shall be duly
elected. In the event that either Dr. Fantone or Mr. Mollegen is unable to
stand for election (which event is not now contemplated), the holders of the
enclosed proxy will vote for the election of a nominee or nominees acceptable
to the remaining members of the Company's Board of Directors.
The Board of Directors recommends that stockholders vote "FOR" the proposal
to elect Dr. Fantone and Mr. Mollegen as directors.
APPROVAL OF AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as independent
public accountants to examine the financial statements of the Company and its
subsidiary for the fiscal year ending September 30, 1998. Representatives of
Arthur Andersen LLP are expected to be present at the stockholders meeting,
will have the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
The Board of Directors recommends that stockholders vote "FOR" the proposal
to approve the appointment of Arthur Andersen LLP as independent public
accountants.
APPROVAL OF 1998 NON-EMPLOYEE
DIRECTORS' STOCK OPTION PLAN
On January 23, 1998, the Board of Directors adopted the Benthos, Inc. 1998
Non-Employee Directors' Stock Option Plan (the "Plan") and reserved 150,000
shares of Common Stock for issuance of options under the Plan. The full text
of the Plan is set forth in Exhibit A to this Proxy Statement and the
following discussion is qualified in its entirety by the text of the Plan. The
Plan will replace the Stock Option Plan for Non-Employee Directors approved by
the stockholders in 1994 (the "1994 Plan").
PURPOSE
The purpose of the Plan is to promote the long-term success of the Company
by creating a long-term mutuality of interest between the non-employee
directors and stockholders of the Company, to provide an inducement for such
directors to remain with the Company and to provide a means through which the
Company may attract able persons to serve as directors of the Company.
ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") consisting
of not less than two members of the Board of Directors. At all times, the
membership of the Committee shall satisfy the requirements of Rule 16b-3 under
the Securities Exchange Act of 1934 or any successor rule. Notwithstanding the
foregoing, the selection of directors to whom stock options are to be granted,
the timing of such grants, the number of shares subject to any stock option,
the exercise price of any stock option, the periods during which any stock
option may be exercised and the term of any stock option shall be determined
by the Board of Directors and the Committee shall have no discretion as to
such matters.
ELIGIBILITY
Under the Plan, each director who is not an employee of the Company will be
entitled to receive (when he initially assumes office) an option for the
purchase of 15,000 shares of the Company's Common Stock. In
7
<PAGE>
addition, the Board of Directors may grant additional options under the Plan
to non-employee directors from time to time.
There are presently four non-employee directors of the Company. The only
non- employee director currently participating in the Plan is Gary K. Willis,
who was granted an option to purchase 15,000 shares of Common Stock at an
exercise price of $14.25 per share in connection with his election as a
director on January 23, 1998. Each of the other non-employee directors (Dr.
Fantone and Messrs. Mollegen and Naylor) were previously granted options to
purchase 22,500 shares of Common Stock under either the 1994 Plan or
predecessor arrangements. In addition, Dr. Fantone was granted an option to
purchase 11,250 shares of Common Stock at an exercise price of $11.50 per
share in connection with his election as Chairman of the Board of Directors on
January 24, 1997.
TERMS OF OPTIONS
Each option granted under the Plan will have an exercise price equal to fair
market value as of the date of the grant of the option. The option will not be
exercisable during the first twelve months after the date of the grant. After
twelve months, the option will be exercisable as to one-third of the shares
covered thereby. After twenty-four months from the date of grant, the option
will be exercisable as to two-thirds of the shares covered thereby and after
thirty-six months from the date of grant, the option will be exercisable as to
all of the shares covered thereby. The options expire ten years from the date
of grant and are not transferable other than by will or by the laws of descent
and distribution. In the event the director ceases to serve as a director of
the Company, the option may be exercised only to the extent that the option is
exercisable and is in effect on the day such service ceases, except that in
the case of death, the option may be exercised by the director's legal
representative to the extent that the option is exercisable on the next
subsequent anniversary date of the option following the date of death.
CHANGE OF CONTROL
In the event of certain changes in the ownership of the voting securities of
the Company or certain tender offers, proxy contests, mergers or acquisitions
(as described in the Plan) the options granted thereunder will become
exercisable in full, notwithstanding the exercise schedule.
ADJUSTMENTS TO SHARES
The Plan provides that the number of shares issuable thereunder shall be
adjusted to prevent dilution in the event of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares or stock dividend.
AMENDMENT AND TERMINATION
The Plan may be amended or terminated at any time by the Board of Directors
and will terminate in any event on December 31, 2007.
TAX CONSEQUENCES
All options granted under the Plan will be non-qualified stock options (as
contrasted with incentive stock options) for Federal income tax purposes. For
Federal income tax purposes, no income will be recognized by the optionee on
the grant of a non-qualified stock option. On the exercise by any optionee of
a non-qualified stock option, the excess of the fair market value of the stock
when the option is exercised over its cost to the optionee will be taxable to
the optionee and generally deductible by the Company for Federal income tax
purposes.
The optionee's tax basis in his stock will equal his cost for the stock plus
the amount of ordinary income he had to recognize with respect to the non-
qualified stock option. Accordingly, upon a subsequent disposition of
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<PAGE>
stock acquired upon the exercise of a non-qualified option, the optionee will
recognize short-term or long-term capital gain or loss, depending upon the
holding period of the stock, equal to the difference between the amount
realized upon disposition of the stock by the optionee and his basis in the
stock. Stock acquired on the exercise of a non-qualified stock option does not
give rise to an item of tax preference for alternative minimum tax purposes.
The Board of Directors recommends that stockholders vote "FOR" the proposal
to approve the adoption of the Plan.
INCREASE IN AUTHORIZED CAPITAL STOCK
The Company is presently authorized under its articles of organization to
issue up to 2,500,000 shares of Common Stock, par value $0.06 2/3 per share.
As of the record date, 1,317,490 shares of Common Stock were issued and
outstanding and an additional 182,814 shares were reserved for issuance
pursuant to the exercise of stock options. As described below, the Board of
Directors believes that the current number of shares of capital stock
available for issuance in the future is inadequate. Accordingly, the Board of
Directors proposes to amend the articles of organization to increase the
number of authorized shares of Common Stock from 2,500,000 to 7,500,000 and to
authorize a new class consisting of 250,000 shares of Preferred Stock, par
value $.01 per share. The text of the proposed amendment is annexed hereto as
Exhibit B.
Under the terms of the amended articles of organization, the Board of
Directors is authorized subject to any limitations prescribed by law, to issue
such shares of Preferred Stock in one or more series. Each such series shall
have such rights, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the Board of Directors.
This proposal is intended to increase the Company's flexibility by
increasing the number of shares of capital stock that can be issued without
further stockholder approval. The Board of Directors believes that the
adoption of this proposal will enable the Company to respond to business
opportunities, such as opportunities to raise additional capital or to finance
business acquisitions with capital stock, and to issue additional shares in
connection with stock splits, stock dividends and employee benefit plans.
Given the limited number of shares of Common Stock currently available for
issuance, the Company may not be able in the future to effect certain of these
transactions without obtaining stockholder approval for an increase in capital
stock. The cost, notice requirements and delay involved in obtaining
stockholder approval at the time that corporate action becomes desirable could
potentially eliminate the Company's opportunity to effect a desirable
transaction or could reduce the benefits to the Company of such a transaction.
Although the Company is continually reviewing various potential acquisitions
and other transactions that could result in the issuance of shares of the
Company's capital stock, the Board of Directors has no present plans to issue
additional shares of capital stock except for shares of Common Stock issuable
in connection with the exercise of stock options and contributions to the
Company's employee stock ownership plan. Although the Company has no current
plans to declare a stock split or stock dividend, the Company recently
declared a three for two stock split (effected as a stock dividend) and may
from time to time consider additional splits or dividends if the circumstances
warrant.
The additional shares of capital stock proposed to be authorized, together
with existing authorized and unissued shares, generally will be available for
issuance without any requirement for further stockholder approval, unless
shareholder action is required by applicable law or by the requirements of the
Nasdaq SmallCap Market or the rules of any stock exchange on which the Common
Stock may then be listed. Although the Board of Directors will authorize the
issuance of additional shares only when it considers doing so to be in the
best interest of stockholders, the issuance of additional Common Stock may,
among other things, have a dilutive effect on earnings per share of Common
Stock and on the voting rights of holders of Common Stock. Furthermore, the
rights of the holders of Common Stock will be subject to the rights of the
holders of any shares
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of Preferred Stock issued in the future. Stockholders of the Company do not
have any preemptive rights to subscribe for additional shares of Common Stock
or Preferred Stock that may be issued. In addition, although the Board of
Directors has no current plans to do so, shares of Common Stock or Preferred
Stock could be issued in various transactions that would make a change in
control of the Company more difficult or costly and, therefore, less likely.
For example, shares of Common Stock or Preferred Stock could be sold privately
to purchasers who might support the Board of Directors in a contest for
control or to dilute the voting or other rights of a person seeking to obtain
control. However, as indicated above, the Company is not aware of any effort
by anyone to obtain control of the Company and the Company has no present
intention to use the increased shares of authorized capital stock for any such
purposes.
The Board of Directors unanimously recommends that stockholders vote "FOR"
the proposal to increase the authorized capital stock of the Company.
OTHER MATTERS COMING BEFORE THE MEETING
As of the date of this Proxy Statement, management does not know of any
matters to be presented to the meeting other than the matters set forth in the
attached Notice of Special Meeting of Stockholders. If any other matters
properly come before the meeting, the persons named in the enclosed proxy will
vote thereon according to their best judgment.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than
10% of a registered class of the Company's equity securities, to file reports
of ownership and changes of ownership with the Securities and Exchange
Commission. Copies of those reports are to be furnished to the Company.
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company under Rule 16a-3(d) during the fiscal year ended
September 30, 1997, no director, officer, or beneficial owner of more than 10%
of the Company's equity securities failed to file on a timely basis, any
reports required by Section 16(a) of the Securities Exchange Act of 1934,
except that Samuel O. Raymond was late on one occasion in filing a Form 4
reporting the sale of 7,100 shares of Common Stock.
STOCKHOLDER PROPOSALS
Under the By-laws of the Company, written notice to the Clerk stating the
business to be brought by stockholders before an annual meeting of
stockholders or a special meeting in lieu of the annual meeting shall be given
sixty days prior to the anniversary date of the immediately preceding annual
meeting and within ten days of the written notice of any special meeting of
stockholders not in lieu of the annual meeting. Similar written notice to the
Clerk stating stockholder nominations for the election of directors, other
than those recommended by the Board of Directors, shall be given sixty days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders and within ten days of the written notice of any special meeting
of stockholders to elect directors. Proposals which stockholders intend to
present at the 1999 annual meeting must be received by the Company for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting no later than February 2, 1999.
AMENDMENTS TO BY-LAWS
Article 10 of the By-Laws of the Company provides that not later than the
time of the notice of the meeting of stockholders next following the amending
or repealing by the directors of any By-Law, notice thereof stating
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the substance of such change shall be given to all stockholders entitled to
vote on amending the By-Laws. On January 23, 1998, the Board of Directors
amended the By-Laws of the Company in several respects in order to conform to
certain provisions of the Massachusetts Business Corporation Law relating to
corporations with voting securities registered under the Securities Exchange
Act of 1934.
In particular, Article 3, Section 3.2 of the By-Laws was amended to provide,
as required by Section 34(b) of the Massachusetts Business Corporation Law,
that so long as the Company has a class of voting stock registered under the
Securities Exchange Act of 1934, special meetings of stockholders may be
called by the President or a majority of the Board of Directors or upon
application of stockholders owning at least 40% in interest of the capital
stock entitled to vote at the meeting.
In addition, Article 4, Section 4.1 of the By-Laws was amended to provide,
as required by Section 50A of the Massachusetts Business Corporation Law, for
the classification of the Board of Directors as described under "Directors and
Executive Officers of the Company" herein. Article 6, Sections 6.2 and 6.3
were also amended to provide, as required by said Section 50A, that a director
may be removed from office only for cause (defined, as provided in said
Section 50A, as conviction of a felony, declaration of unsound mind by a
court, gross dereliction of duty, commission of an act of moral turpitude or
intentional misconduct or a knowing violation of law resulting in both an
improper substantial personal benefit and a material injury to the Company)
and that any vacancy at any time existing in the Board of Directors shall be
filled only by the majority of the remaining directors then in office.
OTHER MATTERS
THE COMPANY FILES AN ANNUAL REPORT WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-KSB WHICH INCLUDES ADDITIONAL INFORMATION ABOUT THE
COMPANY. A COPY OF THE FORM 10-KSB, INCLUDING THE FINANCIAL STATEMENTS, MAY BE
OBTAINED WITHOUT CHARGE, AND COPIES OF THE EXHIBITS WHICH ARE LISTED THEREIN
WILL BE FURNISHED UPON PAYMENT OF THE COMPANY'S COSTS OF REPRODUCTION AND
MAILING OF SUCH EXHIBITS. ALL SUCH REQUESTS SHOULD BE DIRECTED TO FRANCIS E.
DUNNE, JR., CHIEF FINANCIAL OFFICER, 49 EDGERTON DRIVE, NORTH FALMOUTH,
MASSACHUSETTS 02556 (TEL: 508-563-1000).
By Order of the Board of Directors
John T. Lynch, Clerk
North Falmouth, Massachusetts
February 27, 1998
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EXHIBIT A
BENTHOS, INC.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purposes of the Benthos, Inc. 1998 Non-Employee Directors' Stock Option
Plan (the "Plan") are to promote the long-term success of Benthos, Inc.
("Benthos") by creating a long-term mutuality of interests between the non-
employee Directors and stockholders of Benthos, to provide an additional
inducement for such directors to remain with Benthos and to provide a means
through which Benthos may attract able persons to serve as directors of
Benthos.
SECTION 1
ADMINISTRATION
The Plan shall be administered by a Committee (the "Committee") appointed by
the Board of Directors of Benthos (the "Board") and consisting of not less
than two members of the Board. The Committee shall keep records of action
taken at its meetings. A majority of the Committee shall constitute a quorum
at any meeting, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all the
members of the Committee, shall be the acts of the Committee. At all times
this membership of the Committee shall always satisfy the requirements of Rule
16b-3 under the Securities Exchange Act of 1934 (the "1934 Act") or any
successor rule.
The Committee shall interpret the Plan and prescribe such rules, regulations
and procedures in connection with the operations of the Plan as it shall deem
to be necessary and advisable for the administration of the Plan consistent
with the purposes of the Plan. All questions of interpretation and application
of the Plan, or as to stock options granted under the Plan, shall be subject
to the determination of the Committee, which shall be final and binding.
Notwithstanding the above, the selection of the directors to whom stock
options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the
periods during which any stock option may be exercised and the term of any
stock option shall be determined by the Board as hereinafter provided, and the
Committee shall have no discretion as to such matters.
SECTION 2
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares which may be issued and as to which grants of
stock options may be made under the Plan is 150,000 shares of the common
stock, par value $.06 2/3 per share, of Benthos (the "Common Stock"), subject
to adjustment and substitution as set forth in Section 5. If any stock option
granted under the Plan is canceled by mutual consent or terminates or expires
for any reason without having been exercised in full, the number of shares
subject thereto shall again be available for purposes of the Plan. The shares
which may be issued under the Plan may be either authorized but unissued
shares or treasury shares or partly each.
SECTION 3
GRANT OF STOCK OPTIONS
Options to purchase shares of Common Stock shall be granted under the Plan
as follows: (i) immediately following the initial election of any new director
of Benthos who is not otherwise an employee of Benthos, or any subsidiary of
Benthos (a "non-employee Director"), an option shall be granted to such new
non-employee Director for the purchase of Fifteen Thousand (15,000) shares of
Common Stock, and (ii) from time to time thereafter such additional options to
purchase shares of Common Stock as the Board in its sole discretion shall
determine, shall be granted to non-employee Directors. All options granted
pursuant to this Plan shall be "nonstatutory stock options" (i.e., stock
options which do not qualify under Sections 422 or 423 of the Internal Revenue
Code of 1986, as amended (the "Code").
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SECTION 4
TERMS AND CONDITIONS OF STOCK OPTIONS
Stock options granted under the Plan shall be subject to the following terms
and conditions:
(A) The purchase price at which each stock option may be exercised (the
"option price") shall be one hundred percent (100%) of the fair market value
per share of the Common Stock covered by the stock option on the date of
grant, determined as provided in Section 4(G).
(B) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars (including
check, bank draft or money order); provided, however, that in lieu of such
cash the person exercising the stock option may pay the option price in whole
or in part by delivering to Benthos shares of Common Stock having a fair
market value on the date of exercise of the stock option, determined as
provided in Section 4(G), equal to the option price for the shares being
purchased; except that (i) any portion of the option price representing a
fraction of a share shall in any event be paid in cash and (ii) no shares of
Common Stock which have been held for less than six months may be delivered in
payment of the option price of a stock option. Delivery of shares may also be
accomplished through the effective transfer to Benthos of shares of Common
Stock held by a broker or other agent. Benthos will also cooperate with any
person exercising a stock option who participates in a cashless exercise
program of a broker or other agent under which all or part of the shares
received upon exercise of the stock option are sold through the broker or
other agent or under which the broker or other agent makes a loan to such
person. Notwithstanding the foregoing, the exercise of the stock option shall
not be deemed to occur and no shares of Common Stock will be issued by Benthos
upon exercise of the stock option until Benthos has received payment of the
option price in full. The date of exercise of a stock option shall be
determined under procedures established by the Committee, and as of the date
of exercise the person exercising the stock option shall be considered for all
purposes to be the owner of the shares with respect to which the stock option
has been exercised. Payment of the option price with shares of Benthos shall
not increase the number of shares of the Common Stock which may be issued
under the Plan as provided in Section 2.
(C) No stock option granted hereunder shall be exercisable during the first
year of its term, except in the event of death as provided in Section 4(E) or
in the event of a Section 6 Event as provided in Section 6. Thereafter, the
options shall be exercisable as follows: after one year from the date of
grant, the option may be exercised for one-third of the option shares, after
two years from the date of grant, the option may be exercised for two-thirds
of the option shares, and after three years from the date of grant, the option
may be exercised for all of the option shares. Subject to the preceding
sentence and subject to Section 4(E) which provides for earlier termination of
a stock option under certain circumstances, each stock option shall be
exercisable for ten years from the date of grant. A stock option to the extent
exercisable may be exercised in whole or in part.
(D) No stock option shall be transferable by the grantee otherwise than by
will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death. All
stock options shall be exercisable during the lifetime of the grantee only by
the grantee or the grantee's guardian or legal representative.
(E) If a grantee ceases to be a director of Benthos for any reason, any
outstanding stock options held by the grantee shall be exercisable according
to the following provisions:
(i) If a grantee ceases to be a director of Benthos for any reason
other than resignation, removal for cause or death, any outstanding
stock option held by such grantee shall be exercisable by the
grantee (but only if exercisable by the grantee immediately prior
to ceasing to be a director) at any time prior to the expiration
date of such stock option or within one year after the date the
grantee ceases to be a director, whichever is the shorter period;
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(ii) If during his term of office as a director a grantee resigns from the
Board or is removed from office for cause, any outstanding stock
option held by the grantee which is not exercisable by the grantee
immediately prior to resignation or removal shall terminate as of the
date of resignation or removal, and any outstanding stock option held
by the grantee which is exercisable by the grantee immediately prior
to resignation or removal shall be exercisable by the grantee at any
time prior to the expiration date of such stock option or within three
months after the date of resignation or removal of the grantee,
whichever is the shorter period.
(iii) Following the death of a grantee during service as a director of
Benthos, any outstanding stock option held by the grantee at the
time of death shall be exercisable, to the extent such
outstanding stock option would have been exercisable on the next
subsequent anniversary date of such option after the death of the
grantee, by the person entitled to do so under the will of the
grantee, or, if the grantee shall fail to make testamentary
disposition of the stock option or shall die intestate, by the
legal representative of the grantee at any time prior to the
expiration date of such stock option or within one year after the
date of death of the grantee, whichever is the shorter period;
(iv) Following the death of a grantee after ceasing to be a director and
during a period when a stock option is exercisable under clause (i)
above, the stock option shall be exercisable by such person entitled
to do so under the will of the grantee or by such legal representative
at any time prior to the expiration date of the stock option or within
one year after the date of death, whichever is the shorter period; and
(v) Following the death of a grantee after ceasing to be a director and
during a period when a stock option is exercisable under clause (ii)
above, the stock option shall be exercisable by such person entitled
to do so under the will of the grantee or by such legal representative
at any time during the shorter of the following two periods: (i) until
the expiration date of the stock option or (ii) until three months
after the grantee ceased being a director or one year after the date
of death of the grantee (whichever is longer).
A stock option held by a grantee who has ceased to be a director of Benthos
shall terminate upon the expiration of the applicable exercise period, if any,
specified in this Section 4(E).
(F) All stock options shall be confirmed by an agreement, or an amendment
thereto, which shall be executed on behalf of Benthos by an authorized officer
of Benthos and by the grantee.
(G) Fair market value of the Common Stock shall be the closing price, as
applicable, for the date as of which fair market value is to be determined as
quoted in The Wall Street Journal (or in such other reliable publication as
the Committee, in its discretion, may determine to reply upon): (i) the
closing price per share of Common Stock for such date on (or on any composite
index including) the principal United States securities exchange registered
under the 1934 Act on which the Common Stock is listed, or (ii) if the Common
Stock is not listed on any such exchange, the closing price per share of the
Common Stock for such date on the Nasdaq National Market or SmallCap Market or
any successor system then in use ("Nasdaq"). If there are no such sale price
quotations for the date as of which fair market value is to be determined but
there are such sale price quotations within a reasonable period before such
date, then fair market value shall be the closing price per share of Common
Stock on the closest date prior to the date on which the fair market value is
to be determined. If the fair market value of the Common Stock cannot be
determined on the basis previously set forth in this Section 4(G) for the date
as of which fair market value is to be determined, the Committee shall in good
faith determine the fair market value of the Common Stock on such date. Fair
market value shall be determined without regard to any restriction other than
a restriction which, by its terms, will never lapse.
(H) The obligation of Benthos to issue shares of the Common Stock under the
Plan shall be subject to (i) the effectiveness of a registration statement
under the Securities Act of 1933, as amended, with respect to such shares, if
deemed necessary or appropriate by counsel for Benthos, (ii) the condition
that the shares shall have
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been listed (or authorized for listing upon official notice of issuance) upon
each stock exchange, if any, on which the Common Stock may then be listed and
(iii) all other applicable laws, regulations, rules and orders which may then
be in effect.
Subject to the foregoing provisions of this Section 4 and other provisions
of the Plan, any stock option granted under the Plan shall be subject to such
restrictions and other terms and conditions, if any, as shall be determined,
in its discretion, by the Board and set forth in the agreement referred to in
Section 4(F), or an amendment thereto; except that in no event shall the
Committee or the Board have any power or authority which would case the Plan
to fail to be a plan described in Rule 16b-3(d)(1), or any successor rule.
SECTION 5
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common
Stock set forth in Section 3, the number of shares of the Common Stock then
subject to any outstanding stock options and the number of shares of the
Common Stock which may be issued under the Plan but are not then subject to
outstanding stock options on the date fixed for determining the stockholders
entitled to receive such stock dividend or distribution shall be adjusted by
adding thereto the number of shares of the Common Stock which would have been
distributable thereon if such shares had been outstanding on such date.
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of Benthos or another corporation, whether through reorganization,
reclassification, recapitalization, stock split-up, combination of shares,
merger or consolidation, then there shall be substituted for each share of the
Common Stock set forth in Section 3, for each share of the Common Stock
subject to any then outstanding stock option and for each share of the Common
Stock which may be issued under the Plan but which is not then subject to any
outstanding stock option, the number and kind of shares of stock or other
securities into which each outstanding share of the Common Stock shall be so
changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 5, the aggregate option price for all shares
subject to each then outstanding stock option prior to such adjustment or
substitution shall be the aggregate option price for all shares of stock or
other securities (including any fraction) to which such shares shall have been
adjusted or which shall have been substituted for such shares. Any new option
price per share shall be carried to at least three decimal places with the
last decimal place rounded upwards to the nearest whole number.
If the outstanding shares of the Common Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary
distribution to holders of the Common Stock, the Committee shall make any
adjustments to any then outstanding stock option which it determines are
equitably required to prevent dilution or enlargement of the rights of
grantees which would otherwise result from any such transaction.
No adjustment or substitution provided for in this Section 5 shall require
Benthos to issue or sell a fraction of a share or other security. Accordingly,
all fractional shares or other securities which result from any such
adjustment or substitution shall be eliminated and not carried forward to any
subsequent adjustment or substitution.
Except as provided in this Section 5, grantee shall have no rights by reason
of any issue by Benthos of stock of any class or securities convertible into
stock of any class, any subdivision or consolidation of shares of stock of any
class, the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class.
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SECTION 6
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) DEFINITIONS.
For purposes of this Section 6, the following terms shall have the following
meanings:
(1) The term "Person" shall be used as that term is used in Sections 13(d)
and 14(d) of the 1934 Act as in effect on the effective date of the Plan.
(2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3
under the 1934 Act as in effect on the effective date of the Plan.
(3) A specified percentage of "Voting Power" of a company shall mean such
number of the Voting Shares as shall enable the holders thereof to cast such
percentage of all the votes which could be cast in an annual election of
directors (without consideration of the rights of any class of stock other
than the common stock of the company to elect directors by a separate class
vote); and "Voting Shares" shall mean all securities of a company entitling
the holders thereof to vote in an annual election of directors (without
consideration of the rights of any class of stock other than the common stock
of the company to elect directors by a separate class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to acquire
securities of Benthos (other than such an offer made by Benthos or any
Subsidiary), whether or not such offer is approved or opposed by the Board.
(5) "Continuing Directors" shall mean a director of Benthos who either (a)
was a director of Benthos on the effective date of the Plan or (b) is an
individual whose election, or nomination for election, as a director of
Benthos was approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of Benthos which would
be subject to Rule 14a-11 under the 1934 Act, or any successor Rule).
(6) "Section 6 Event" shall mean the date upon which any of the following
events occurs:
(a) Benthos acquires actual knowledge that any Person other than
Benthos, a Subsidiary or any employee benefit plan(s) sponsored by
Benthos or a Subsidiary has acquired the Beneficial Ownership,
directly or indirectly, of securities of Benthos entitling such
Person to 30% or more of the Voting Power of Benthos;
(b) A Tender Offer is made to acquire securities of Benthos entitling
the holders thereof to 30% or more of the Voting Power of Benthos;
or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any
successor Rule) relating to the election or removal of 50% or more
of the members of the Board or any class of the Board shall be made
by any person other than Benthos or less than 51% of the members of
the Board shall be Continuing Directors; or
(d) The stockholders of Benthos shall approve a merger, consolidation,
share exchange, division or sale or other disposition of assets of
Benthos as a result of which the stockholders of Benthos
immediately prior to such transaction shall not hold, directly or
indirectly, immediately following such transaction a majority of
the Voting Power of (i) in the case of a merger or consolidation,
the surviving or resulting corporation, (ii) in the case of a share
exchange, the acquiring corporation or (iii) in the case of a
division or sale or other disposition of assets, each surviving,
resulting or acquiring corporation which, immediately following the
transaction, holds more than 10% of the consolidated assets of
Benthos immediately prior to the transaction; provided however,
that (i) if securities beneficially owned by a grantee are included
in determining the Beneficial Ownership of a Person referred to in
paragraph 6(a), (ii) a grantee is required to be named
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pursuant to Item 2 of the Schedule 14D-1 (or any similar successor
filing requirement) required to be filed by the bidder making a
Tender Offer referred to in paragraph 6(b) or (iii) if a grantee is a
"participant" as defined in Instruction 3 to Item 4 of Schedule 14A
under the 1934 Act (or any successor Rule) in a solicitation (other
than a solicitation by Benthos) referred to in paragraph 6(c), then
no Section 6 Event with respect to such grantee shall be deemed to
have occurred by reason of such event.
(B) ACCELERATION OF THE EXERCISE DATE OF STOCK OPTIONS.
Notwithstanding any other provision contained in the Plan, in case any
"Section 6 Event" occurs all outstanding stock options (other than those held
by a person referred to in the proviso to Section 6(A)(6)) shall become
immediately and fully exercisable whether or not otherwise exercisable by
their terms.
SECTION 7
EFFECT OF THE PLAN ON THE RIGHTS OF CORPORATION AND STOCKHOLDERS
Nothing in the Plan, in any stock option granted under the Plan, or in any
stock option agreement shall confer any right to any person to continue as a
director of Benthos or interfere in any way with the rights of the
stockholders of Benthos or the Board to elect and remove directors.
SECTION 8
AMENDMENT AND TERMINATION
The right to amend the Plan at any time and from time to time and the right
to terminate the Plan at any time are hereby specifically reserved to the
Board, provided always that no such termination shall terminate any
outstanding stock options granted under the Plan, and provided further that no
amendment of the Plan shall (i) be made without stockholder approval if
stockholder approval of the amendment is at the time required for stock
options under the Plan by Nasdaq or the rules of any stock exchange on which
the Common Stock may then be listed, (ii) amend more than once every six
months the provisions of the Plan relating to the selection of the Directors
to whom stock options are to be granted, the timing of such grants, the number
of shares subject to any stock option, the exercise price of any stock
options, the periods during which any stock option may be exercised and the
term of any stock option other than to comply with changes in the Code or the
rules and regulations thereunder or (iii) otherwise amend the Plan in any
manner that would cause stock options under the Plan not to qualify for the
exemption provided by Rule 16b-3 under the 1934 Act, or any successor rule. No
amendment or termination of the Plan shall, without the written consent of the
holder of a stock option therefore awarded under the Plan, adversely affect
the rights of such holder with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any other
provision of the Plan or any stock option agreement, the Board shall have the
power to amend the Plan in any manner deemed necessary or advisable for stock
options granted under the Plan to qualify for the exemption provided by Rule
16b-3 (or any successor rule relating to exemption from Section 16(b) of the
1934 Act), and any such amendment shall, to the extent deemed necessary or
advisable by the Board, be applicable to any outstanding stock options
theretofore granted under the Plan notwithstanding any contrary provisions
contained in any stock option agreement. In the event of any such amendment to
the Plan, the holder of any stock option outstanding under the Plan shall,
upon request of the Committee and as a condition to the exercisability of such
option, execute a conforming amendment in the form prescribed by the Committee
to the stock option agreement referred to in Section 4(F) within such
reasonable time as the Committee shall specify in such request.
SECTION 9
EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective upon approval by the affirmative vote of the
holders of a majority of the Common Stock present in person or by proxy and
entitled to vote at a duly called and convened meeting of such holders. If
such approval is obtained at the Special Meeting of Stockholders on April 3,
1998, the Plan shall be effective on the date of such meeting. This Plan shall
expire on December 31, 2007. Termination of the Plan shall not, without the
consent of the grantee, affect such grantee's rights under any option
previously granted to such grantee.
A-6
<PAGE>
EXHIBIT B
PROPOSED AMENDMENT TO ARTICLES OF ORGANIZATION
VOTED: that Article 4 of the articles of organization of the Corporation be
and hereby is amended to read in its entirety as follows:
"SECTION 1. General.
The total number of shares of stock which the Corporation shall have the
authority to issue is 7,500,000 shares of Common Stock, par value $.06 2/3 per
share, and 250,000 shares of Preferred Stock, par value $.01 per share.
The shares authorized in this Article 4 may be issued by the Corporation
from time to time as approved by its Board of Directors without the approval
of its stockholders.
The preferences, voting powers, qualifications and special or relative
rights or privileges as to, each class or series of stock now established
shall be as set forth below in Sections 2 and 3 of this Article 4.
SECTION 2. Common Stock.
Except as provided by law or in this Article 4 (or in any certificate of
establishment of any series of Preferred Stock), the holders of the Common
Stock shall exclusively possess all voting power. Each holder of shares of
Common Stock shall be entitled to one vote on all matters for each share held
by such holder.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having
preference over the Common Stock as to the payment of the dividends, the full
amount of dividends and of sinking fund or retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in
preference to the Common Stock, then dividends may be paid on the Common Stock
and on any class or series of stock entitled to participate therewith to
dividends, out of any assets legally available for the payment of dividends,
but only when and as declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the holders
of any class having preferences over the Common Stock in the event of
liquidation, dissolution or winding up the Company the full preferential
amounts to which they are respectively entitled, the holders of the Common
Stock, and of any class or series of stock entitled to participate therewith,
in whole or in part, as to distribution of assets, shall be entitled, after
payment or provision for payment of all debts and liabilities of the
Corporation, to receive the remaining assets of the Corporation available for
distribution, in cash or in kind, in proportion to their holdings.
SECTION 3. Preferred Stock.
The Preferred Stock shall consist of 250,000 shares which shall have the
preferences, voting powers, qualifications, and special or relative rights or
privileges set forth in the following description thereof.
The Preferred Stock may consist of one or more series. The Board of
Directors may, from time to time, establish and designate the different series
and designate variations in the relative rights and preferences between the
different series as provided below, but in all other respects all shares of
the Preferred Stock shall be identical. In the event that at any time the
Board of Directors shall have established and designated one or more series of
Preferred Stock consisting of a number of shares less than all of the
authorized number of shares of Preferred Stock, the remaining authorized
shares of Preferred Stock shall be deemed to be shares of an undesignated
series of Preferred Stock until designated by the Board of Directors as being
a part of a series previously established or a new series then being
established by the Board of Directors.
B-1
<PAGE>
Subject to the provisions hereof, the Board of Directors is authorized to
establish one or more series of Preferred Stock and, to the extent now or
hereafter permitted by the laws of The Commonwealth of Massachusetts, to fix
and determine the preferences, voting powers, qualifications and special or
relative rights or privileges of each series including, but not limited to:
(a) the number of shares to constitute such series and the distinguishing
designation thereof;
(b) the dividend rate on the shares of such series and the preferences, if
any, and the special and relative rights of such shares of such series as to
dividends;
(c) whether or not the shares of such series shall be redeemable, and, if
redeemable, the price, terms and manner of redemption;
(d) the preferences, if any, and the special and relative rights of the
shares of such series upon liquidation of the Corporation;
(e) whether or not the shares of such series shall be subject to the
operation of a sinking or purchase fund and, if so, the terms and provisions
of such fund;
(f) whether or not the shares of such series shall be convertible into
shares of any other class or of any other series of the same or any other
class of stock of the Corporation and, if so, the conversion price or ratio
and other conversion rights;
(g) the conditions under which the shares of such series shall have separate
voting rights or no voting rights; and
(h) such other designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions of such series to the full extent now or hereafter permitted by
the laws of The Commonwealth of Massachusetts.
Notwithstanding the fixing of the number of shares constituting a particular
series, the Board of Directors may at any time authorize the issuance of
additional shares of the same series."
B-2
<PAGE>
BENTHOS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Special Meeting of Stockholders
to be held on April 3, 1998
The undersigned holder of Common Stock of BENTHOS, INC. (the "Corporation")
acknowledges receipt of the Notice of Special Meeting of Stockholders dated
February 27, 1998 and the accompanying Proxy Statement and hereby appoints John
L. Coughlin, Francis E. Dunne, Jr. and John T. Lynch and each of them, proxies,
agents and attorneys-in-fact of the undersigned (with full power of
substitution) to attend the above stockholders meeting and all adjournments
thereof (the "Meeting") and there to vote all shares of Common Stock of the
Corporation that the undersigned would be entitled to vote, if personally
present, in regard to all matters which may come before the Meeting, ratifying
and confirming all that said proxies or their substitutes may lawfully do in
place of the undersigned as indicated on the reverse hereof.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE.
A [x] Please mark your vote as in this example.
1. To elect as Class II directors of the Company: Stephen D. Fantone and
A. Theodore Mollegen, Jr.
[ ] FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY TO
VOTE FOR ALL NOMINEES
INSTRUCTIONS: To withhold authority to vote for election of one of the two
---
nominees listed above, mark FOR above and cross out the name of the person
as to whom authority is withheld.
2. To approve Arthur Andersen LLP as independent public accountants of
the Company for the 1998 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the Benthos, Inc. 1998 Non-Employee Directors' Stock Option
Plan as described in the accompanying proxy statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve the amendment to the Company's articles of organization to
increase the Company's authorized common stock and create a new class
of preferred stock as described in the accompanying proxy statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
The undersigned hereby confers upon the Proxies and each of them,
discretionary authority with respect to other matters properly presented for
consideration at the Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER SPECIFIED HEREIN.
IF NO SPECIFICATION IS MADE, THE PROXIES INTEND TO VOTE FOR THE ELECTION OF THE
LISTED NOMINEES AND FOR EACH OF THE PROPOSALS 2, 3 AND 4 IDENTIFIED ABOVE.
Dated:
-----------------------
-----------------------------
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IF HELD JOINTLY
Note: For shares held jointly, each joint
owner should personally sign. If signing as
executor, or in any other representative
capacity, or as an officer of a corporation,
please indicate your full title as such.
