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:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
AMERICAN ELECTROMEDICS CORP.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
PRELIMINARY
COPIES
AMERICAN ELECTROMEDICS CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 8, 1996
____________
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of American Electromedics Corp., a Delaware corporation (the
"Company"), will be held at Reid & Priest LLP, 40 West 57th Street, New
York, New York, on Tuesday, October 8, 1996, at 10:00 a.m., local time, for
the following purposes:
1. To elect a Board of five Directors to serve for the following
year and until their successors have been elected.
2. To approve the adoption of the 1996 Stock Option Plan.
3. To authorize the Board of Directors to effect a Reverse Stock
Split (any one falling within a range between and including a
one-for-one and one-half and a one-for-five Reverse Stock Split)
of the Company's outstanding Common Stock, depending upon a
determination by the Board that a Reverse Stock Split is in the
best interests of the Company and the stockholders.
4. To act upon such other matters as may properly come before the
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on September
6, 1996 shall be entitled to notice of and to vote at the Meeting or any
adjournments thereof. All stockholders are cordially invited to attend the
Meeting in person.
By order of the Board of Directors
Michael T. Pieniazek
Secretary
September 9, 1996
Amherst, New Hampshire
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WISH YOUR SHARES OF
COMMON STOCK TO BE VOTED, YOU ARE REQUESTED TO SIGN AND MAIL PROMPTLY THE
ENCLOSED PROXY WHICH IS BEING SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS. A RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
<PAGE>
PRELIMINARY
COPIES
AMERICAN ELECTROMEDICS CORP.
_______________
PROXY STATEMENT
________________
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 8, 1996
GENERAL
-------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of American Electromedics Corp., a Delaware
corporation (the "Company"), of proxies for use at the 1996 Annual Meeting
of Stockholders of the Company (the "Meeting") to be held at the offices
Reid & Priest LLP, 40 West 57th Street, New York, New York, on October 0,
1996, at 10:00 a.m., local time, and at any and all adjournments thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders ("Notice of Meeting").
The Proxy Statement, Notice of Meeting and accompanying Proxy are
first being mailed to stockholders on September 10, 1996.
A copy of the Company's Annual Report for the fiscal year ended July
29, 1995 accompanies this Proxy Statement or has previously been sent to
stockholders of record as of September 6, 1996.
VOTING SECURITIES AND VOTE REQUIRED
-----------------------------------
Only stockholders of record at the close of business on September 6,
1996 (the "Record Date") are entitled to notice of and to vote the shares
of common stock, $.10 par value (the "Common Stock"), of the Company held
by them on such date at the Meeting or any and all adjournments thereof.
As of the Record Date, 12,273,333 shares of Common Stock were outstanding.
There was no other class of voting securities outstanding at that date.
Each share of Common Stock held by a stockholder entitles such
stockholder to one vote on each matter that is voted upon at the Meeting or
any adjournments thereof.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock is necessary to constitute a quorum
at the Meeting. Assuming that a quorum is present, (i) a plurality of
votes cast will be required for the election of directors, (ii) the
affirmative vote of the holders of a majority of the shares of Common Stock
voting at the Meeting will be required to approve the 1996 Stock Option
Plan, and (iii) the affirmative vote of the holders of a majority of the
shares of Common Stock outstanding will be required for approval of the
Reverse Stock Split.
With regard to the election of directors, votes may be cast in favor
or withheld; votes that are withheld will be excluded entirely from the
vote and will have no effect except that votes withheld will be counted
toward determining the presence of a quorum for the transaction of
business. Abstentions and broker "non-votes" will be counted toward
determining the presence of a quorum for the transaction of business.
Abstentions may be specified on all proposals except the election of
directors. With respect to all proposals other than the election of
directors, abstentions will have the effect of a negative vote. A broker
"non-vote" will have no effect on the outcome of any of the proposals.
If the accompanying Proxy is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the
instructions contained therein. Unless contrary instructions are given,
the persons designated as proxy holders in the accompanying Proxy will vote
"FOR" the Board of Directors' slate of nominees, "FOR" approval of the 1996
Stock Option Plan and "FOR" approval of the Reverse Stock Split, and as
recommended by the Board of Directors with regard to any other matters or
if no such recommendation is given, in their own discretion. Each Proxy
granted by a stockholder may be revoked by such stockholder at any time
thereafter by writing to the Secretary of the Company prior to the Meeting,
or by execution and delivery of a subsequent Proxy or by attendance and
voting in person at the Meeting, except as to any matter or matters upon
which, prior to such revocation, a vote shall have been cast pursuant to
the authority conferred by such Proxy.
The cost of soliciting these Proxies, consisting of the printing,
handling, and mailing of the Proxy and related material, and the actual
expense incurred by brokerage houses, custodians, nominees and fiduciaries
in forwarding proxy material to the beneficial owners of stock, will be
paid by the Company.
In order to assure that there is a quorum, it may be necessary for
certain officers, directors, regular employees and other representatives of
the Company to solicit Proxies by telephone or telegraph or in person.
These persons will receive no extra compensation for their services.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth information as of the Record Date
concerning (i) persons known to the Company to be the beneficial owners of
more than 5% of the Company's Common Stock, (ii) the ownership interest of
each director and nominee, and (iii) by all directors and executive
officers as a group.
AMOUNT AND NATURE OF PERCENT OF
NAME POSITION BENEFICIAL OWNERSHIP[1] OWNERSHIP
---- -------- -------------------- ---------
Alan Gelband Nominee and 5% 2,745,500 shs[2] 22.1%
30 Lincoln Plaza Beneficial Owner
New York, NY 10023
Noel A. Wren Director, Chief 1,075,000 shs 8.8%
Executive Officer
and President
Martin Bader Director 640,000 shs[3] 4.6%
Kenneth Levy Director 496,400 shs[4] 4.0%
Thomas A. Slamecka Nominee -0- -
Joseph Wear Director 275,000 shs[5] 2.2%
All Executive Officers
and Directors as a
Group (5 persons) 2,561,000 shs[6] 20.4%
--------------------
1. Includes options exercisable within 60 days from the Record Date.
2. Includes (i) options for 150,000 shares, and (ii) the indirect
beneficial ownership of 715,000 shares of the Company's Common Stock,
represented by 500,000 shares through Mr. Gelband's interest in the
Alan Gelband Company, Inc. Defined Contribution Plan and 215,000
shares through his interest in the Alden Foundation.
3. [Includes 590,000 shares owned by a corporation wholly-owned by Mr.
Bader.]
4. Includes (i) 30,000 shares owned by Mr. Levy's wife as to which shares
he disclaims beneficial ownership and (ii) options for 150,000 shares.
5. Includes options for 50,000 shares.
6. Includes options for 350,000 shares.
PROPOSAL 1
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ELECTION OF DIRECTORS
---------------------
At the Meeting five directors will be elected to serve until the
next Annual Meeting and until their successors are elected and qualified.
The Board of Directors will vote all Proxies received by them in the
accompanying form for the nominees listed below. The current size of the
Board of Directors of the Company is four. The size of the Board of
Directors will be increased to five as of the Meeting. Under the Company's
By-Laws, the Board of Directors may increase the number of directors and
elect a person to fill the vacancy created by an increase in the size of
the Board. At the last Annual Meeting of Stockholders, Noel A. Wren and
Martin Bader were elected directors. Martin Bader will not stand for re-
election. Kenneth Levy and Joseph Wear were elected directors in 1995 to
fill vacancies caused by resignations of two directors. In the event any
nominee is unable to or declines to serve at the time of the Meeting, the
Proxies will be voted for an alternative nominee who shall be designated by
the present Board of Directors to fill the vacancy. As of the date of this
Proxy Statement, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as a director.
The following sets forth information about each nominee for
election to the Board of Directors:
Year Became
Name Age Position with the Company Director
---- --- ------------------------- --------
Noel A. Wren 46 President, Chief Executive 1989
Officer, and Director
Alan Gelband 51 Nominee --
Kenneth Levy 49 Director 1995
Thomas A. Slamecka 55 Nominee --
Joseph Wear 61 Director 1995
=========================================================================
The terms of the Directors will expire at the next annual meeting of
stockholders. The Company's officers are elected by the Board of Directors
and hold office at the will of the Board.
Noel A. Wren has been President and Chief Executive Officer of the
------------
Company since November 1988 and October 1992, respectively, having served
as Chief Operating Officer and Chief Financial Officer of the Company from
November 1988 to October 1992. He had been founder and President of Red
Line Research Laboratories, Inc., manufacturer of rechargeable battery
packs for the consumer electronics industry, from 1982 to 1988. Prior to
founding Red Line, Mr. Wren was an executive with Fidelitone, Inc.
Alan Gelband has been for the past 13 years the sole shareholder,
------------
officer and director of Alan Gelband Company, Inc., a New York company
engaged in financial and management consulting and investments.
Kenneth Levy has since 1993 been an investment banker for Marshall,
------------
Alexander & Marshall, Inc. in New York. In 1990, Mr. Levy founded MR
International Enterprises, which owned various Russian companies, and
served as its President from 1990 to 1994. Mr. Levy is also a director of
DSI Industries, Inc., a company engaged in oil drilling.
Thomas A. Slamecka has been President of the ConAgra Poultry Company,
------------------
Inc., Duluth, Georgia since 1995. From 1990 to 1994, he was President and
Chief Executive Officer of GEEC Poultry Inc., Atlanta, Georgia.
Joseph Wear has since 1987 been a partner in Philadelphia
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Entrepreneurial Partners, which is engaged in management consulting to
small and medium business. From 1970 to 1987, Mr. Wear was President and
Chief Executive Officer of Summit Airlines.
BOARD MEETINGS AND COMMITTEES
-----------------------------
The Board of Directors of the Company held a total of six
meetings during the fiscal year ended July 29, 1995, including actions by
unanimous written action. No director attended fewer than 75% of the
aggregate of all meetings of the Board of Directors.
The Board of Directors has the following Committees: Executive
Committee, Audit Committee and Compensation Committee. The Executive
Committee consists of Messrs., Levy and Wren initiates corporate strategy.
The Audit Committee consists of Messrs. Bader and Wear reviews the
accounting policies of the Company. The Compensation and Option Committee
consists of Messrs. Levy and Wear recommends executive compensation and
administers the Company's option plans. This Committee will administer
the Company's 1996 Stock Option Plan, if the plan is approved by the
stockholders of the Company at the Meeting.
COMPENSATION OF DIRECTORS
-------------------------
The Company pays $1,000 a quarter to Mr. Wear for serving as a
director. Upon becoming a director in March 1995, Mr. Wear was granted an
option to purchase 50,000 shares of the Company's Common Stock at an
exercise price of $.125 per share for two years, exercisable as to 50% of
the options after six months and the balance after 12 months. The exercise
price was equal to the fair market value of the Common Stock at the date of
grant.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
------------------------------------------------
The following table sets forth all cash compensation for the
fiscal year ended July 29, 1995 of the executive officers whose
compensation exceeded $100,000 for services rendered to the Company.
SUMMARY COMPENSATION TABLE
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NAME AND YEAR SALARY BONUS # OPTIONS LONG
PRINCIPAL GRANTED TERM
POSITION AWARDS
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Noel A. Wren, 1995 $97,500 -- -- --
President and 1994 95,000 $3,500 -- --
Chief Executive 1993 83,750 -- 100,000 --
Officer
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Mr. Wren is furnished with an automobile for business and
personal use. The compensation specified in the preceding table does not
include the value of non-business use as the amounts were not material.
As of July 31, 1995, the Company entered into an Employment
Agreement with Noel Wren to serve as President and Chief Executive Officer
of the Company for a term of three years terminating on July 31, 1998.
Under the Agreement, Mr. Wren receives an annual base salary of $105,000,
reviewable each year by the Board of Directors with a view toward
increases, plus cash bonuses ranging from three percent to ten percent of
the Company's annual net pre-tax profits for each fiscal year above
$180,000, as well as additional bonuses awarded by the Compensation
Committee of the Board of Directors based upon factors other than the
Company's profits. Mr. Wren has a severance package which includes his
then annual base salary payable for 12 months, accrued bonus and
continuation of all health benefits for one year from the date of his
termination. The Employment Agreement includes a "Change of Control"
provision which provides that Mr. Wren shall receive the above described
severance package in the event of a material change in the composition of
the Board of Directors.
AGGREGATED OPTION EXERCISES FOR THE FISCAL YEAR ENDED JULY 29, 1995
AND FY-END OPTION VALUES
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VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
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NAME SHARES VALUE EXERCISABLE/ EXERCISABLE/
ACQUIRED REALIZED UNEXERCISABLE UNEXERCISABLE
ON EXERCISE ($)
(#)
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Noel A. Wren 1,100,000 $27,500 50,000/-0- $15,625/-0-
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
---------------------------------------------
On March 24, 1995, Alan Gelband Company, Inc., which is owned by
Alan Gelband entered into an Agreement with the Company to provide general
advice regarding the Company's finances, including assistance in the
raising of capital and evaluation of potential acquisitions. Under the
terms of the Agreement, the Company pays to Mr. Gelband a base fee of
$2,500 per month. Mr. Gelband is also entitled to a finder's fee in the
event that he brings a potential acquisition to the Company and such
acquisition is ultimately consummated. The finder's fee is a percentage of
the aggregate amount of consideration paid by the Company for such
acquisition, and would be reduced by the amount of the base fee previously
paid. The Agreement is on a month-to-month basis, terminable on 15 days
notice.
On March 24, 1995, Kenneth Levy, a director of the Company,
entered into an Agreement with the Company to provide general advice
regarding the Company's finances, including assistance in the raising of
capital and evaluation of potential acquisitions. Under the terms of the
Agreement, the Company pays to Mr. Levy a base fee of $2,500 per month.
The Agreement is on a month-to-month basis, terminable on 15 days notice.
Upon entry into the Agreements with Messrs. Gelband and Levy, the
Company granted options to each of them for 150,000 shares of the Company's
Common Stock at an exercise price of $.125 per share for a period of two
years, exercisable as to 50% of the options after six months and the
balance after 12 months. The exercise price was equal to the fair market
value of the Common Stock at the date of grant.
PROPOSAL 2
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ADOPTION OF THE COMPANY'S 1996 STOCK OPTION PLAN
-------------------------------------------------
General
-------
On August 12, 1996, the Board of Directors of the Company adopted
the Company's 1996 Stock Option Plan (the "1996 Plan"), subject to approval
by the Company's stockholders. The Board of Directors proposes the
adoption of the 1996 Plan to provide a means whereby certain employees,
directors and other persons who perform services for or on behalf of the
Company, any subsidiaries and certain other entities, or who are deemed to
be in a position to perform such services in the future, may develop a
sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing
the interests of the Company and its stockholders.
The full text of the 1996 Plan is attached hereto as Exhibit A to
this Proxy Statement, and the following description of the 1996 Plan is
qualified by reference to the text thereof.
Prior Plans
-----------
In 1984, the Company had adopted the 1983 Incentive Stock Option
Plan and the 1983 Non-Qualified Stock Option Plan. Both plans expired in
1993. The Incentive Plan provided for the issuance of up to 300,000 shares
of Common Stock, of which options for 55,000 shares had been exercised and
no options are outstanding thereunder. The Non-Qualified Plan provided for
the issuance of up to 150,000 shares of Common Stock, of no options
thereunder were ever exercised or are now outstanding.
In 1988, the Company had adopted the 1987 Non-qualified Stock
Option Plan. This Plan provides for the issuance of up to 1,000,000
shares of Common Stock and terminates in 1997. Under this Plan, options
for 600,000 shares have been exercised, options for 350,000 shares are
outstanding at an exercise price of $.12-1/2 per share expiring in 1997 and
options for 50,000 shares are available for grant.
Administration
--------------
The 1996 Plan will be administered by the Compensation and Option
Committee (the "Option Committee") which shall consist of two members of
the Board of Directors who are not also employees of the Company. Members
of the Option Committee must consist of directors who are, and shall
continue to be "Non-Employee directors" within the meaning of Rule 16b-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Option
Committee shall have sole authority to select the individuals who are to be
granted Options from among those eligible to participate in the 1996 Plan
and to establish the number of shares which may be issued under each
Option.
Eligibility
-----------
Options may be granted only to (i) individuals who are employees
of the Company and its subsidiaries, including officers and directors who
are also employees at the time the Option is granted, (ii) individuals who
are directors but not also employees of the Company and its subsidiaries
("Non-Employee Directors"), and (iii) any other persons who perform
services for or on behalf of the Company and its subsidiaries, affiliates
or any entity in which the Company has an interest, or who are deemed by
the Option Committee to be in a position to perform such services in the
future. Options that constitute incentive stock option ("ISOs") may only
be granted to employees described in clause (i) above, and Non-Employee
Directors shall only be granted non-qualified stock options ("NQSOs"). No
Options may be granted under the 1996 Plan after August 9, 2006.
Shares Subject to the 1996 Plan
-------------------------------
A maximum of 1,500,000 shares of Common Stock may be issued under
the 1996 Plan. Either treasury shares or shares which are authorized but
unissued may be utilized under the 1996 Plan. The number of shares is
subject to adjustments for changes in capitalization or in connection with
certain corporate transactions, such as the Reverse Stock Split which is
Proposal 3 herein. Any shares subject to Options which expire or terminate
prior to being exercised in full may again be used for an Option under the
1996 Plan. The Company intends to register the shares of Common Stock
under the 1996 Plan on Form S-8 under the Securities Act of 1933 as soon as
practicable after necessary stockholder approval.
Options
-------
Options granted under the 1996 Plan may be either ISOs or NQSOs.
See "Federal Income Tax Consequences" below. The option price of each
share of Common Stock subject to an Option will be fixed by the Option
Committee but shall not be less than the fair market value of the Common
Stock on the date of grant of the Option. Under the 1996 Plan, the fair
market value with respect to such shares be equal to the last reported
sales prices of the Common Stock on the NASDAQ Electronic Bulletin Board
(or other interdealer quotation system or exchange) on the day on which an
Option is granted. An Option designated as an ISO is intended to qualify
as such under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). Thus, the aggregate fair market value, determined at the
time of grant, of the shares with respect to which ISO's are exercisable
for the first time by an individual during any calendar year may not exceed
$100,000. NQSOs are not subject to this requirement. Certain adjustments
in the option price may be made for extraordinary dividend distributions.
The Option Committee shall determine the option period, provided
it is not longer than five years, in the case of ISOs, or 10 years, in the
case of NQSOs, subject to earlier termination, the vesting period and the
payment terms. In the event of termination of employment, the Optionee may
exercise his Options at any time within one year of the termination, but in
no event later than the expiration date of the Option; however, if the
employee is terminated "for cause," the Option expires immediately. All
options vest upon a "change of control" of the Company.
Upon exercise of an Option, payment for shares may be made in
cash, or, if the option agreement so provides, in shares of Common Stock
calculated based upon their fair market value as of the date of their
delivery or, a combination of stock and cash.
Transferability
---------------
Options granted under the 1996 Plan are not transferable by the
Optionee otherwise than by will or the laws of descent and distribution, to
the Optionee's spouse or his children, grandchildren or parents. Options
are exercisable during the lifetime of the optionee only by the Optionee or
by the Optionee's guardian or legal representative.
Stockholder Status
------------------
Recipients of Options under the 1996 Plan will not have any
rights as stockholders by virtue of the grant of an Option except with
respect to shares of Common Stock actually issued or delivered to such
recipient.
Termination. Suspension or Modification of the 1996 Plan
---------------------------------------------------------
The Board of Directors may terminate, suspend, or modify the 1996
Plan at any time but may not, without authorization of the Company's
stockholders, effect any change which under Section 16(b) of the Exchange
Act, applicable Delaware law or tax law, or the rules of any national
securities exchange or national quotation system on which the Common Stock
is then listed or traded requires the prior approval of stockholders.
Federal Income Tax Consequences
-------------------------------
A participant under the 1996 Plan does not realize income for
federal income tax purposes as a result of (i) the grant of an ISO under
the 1996 Plan or (ii) the exercise of an ISO under the 1996 Plan. The
Company is not entitled to a federal income tax deduction upon the grant or
exercise of an ISO. Long-term capital gains tax rates will apply to the
gain (excess of the amount received for the shares over the amount paid for
the shares) at the time that the participant disposes of the shares
provided that certain holding requirements discussed below are met. The
spread between the exercise price and the fair market value of the
transferred shares at the time of the exercise of an ISO is included in
alterative minimum taxable income subject to the alterative minimum tax for
the taxable year in which such transfer occurs. If the shares are disposed
of in the same taxable year and the amount realized is less than that fair
market value at the time of exercise, the amount included in the alterative
minimum taxable income will not exceed the amount realized over the
adjusted basis of the shares.
The availability of the income tax treatment discussed in the
foregoing paragraph is subject to two conditions. First, the participant
must continue to be an employee of the Company or a parent or subsidiary of
the Company at all times during the period beginning on the date that the
ISO was granted and ending (with exceptions for disability and death) on
the date three months before the option is exercised. Second, such income
tax treatment is available only if the participant does not dispose of the
shares acquired pursuant to the exercise of the ISO (i) within two years
from the date of granting of the Option nor (ii) within one year after the
shares were issued pursuant to the exercise of the Option. If the
participant disposes of the shares prior to the expiration of the required
holding period, the participant realizes ordinary income in the year of
disposition and the same amount is then deductible by the Company.
In the case of an ISO, the tax consequences to the participant of
the payment of the option price with shares of stock previously acquired
("Previously Acquired Shares") will depend on the nature of the Previously
Acquired Shares. If the Previously Acquired Shares were acquired through
the exercise of an ISO ("Statutory Option") and if such Previously Acquired
Shares are being transferred prior to the expiration of the applicable
minimum statutory period, the transfer is treated as a disqualifying
disposition of the Previously Acquired Shares. If the Previously Acquired
Shares were acquired other than pursuant to the exercise of a Statutory
Option, or were acquired pursuant to the exercise of a Statutory Option but
have not been held for the applicable minimum statutory holding period, no
gain or loss is recognized on the exchange. In either case, (i) the
participant's basis in the number of shares received equal to the
Previously Acquired Shares exchanged is the same as his basis in the
Previously Acquired Shares, increased by any income recognized upon the
disqualifying disposition of the Previously Acquired Shares, and (ii) the
participant's basis in the shares received in excess of the number of
Previously Acquired Shares is zero.
Similarly, a participant realizes no income as a result of the
grant of a NQSO under the 1996 Plan. However, a participant realizes
ordinary income upon the exercise of the NQSO (or at the later date
described below) equal to the excess of the fair market value of the shares
at the time of exercise (or at such later date) over the option exercise
price. The Company is not entitled to a federal income tax deduction upon
the grant of the NQSO, but upon transfer of the shares to such participant
upon its exercise (or at the later date described below) an amount
corresponding to the participant's taxable income becomes deductible by the
Company. The amount of income recognized at the time of exercise is added
to the option price to determine the participant's basis in the shares, and
any further appreciation upon ultimate sale of the shares is taxable as
short- or long-term capital gains (with the holding period measured from
the date of exercise). If the shares received upon exercise are not
transferable and are subject to a substantial risk of forfeiture, the
realization of compensation income is postponed until the earlier of the
lapse of the forfeiture restrictions or the making of an "IRC 83(b)
election." For such purposes, potential liability by Company insiders
under securities laws with respect to short swing trading constitutes a
substantial risk of forfeiture. Where other shares of stock have been
purchased within six months of exercise of the option, recognition of the
compensation attributable to such exercise may be postponed for a period of
six months from the date of purchase of such other shares of stock due to
such liability.
In the case of an NQSO, if the option exercise price is paid by
the delivery of "Previously Acquired Shares" having a fair market value
equal to the option price, gain or loss is not recognized on the exchange.
The participant would recognize ordinary income equal to the fair market
value at date of exercise of shares in excess of the number of Previously
Acquired Shares. The participant's basis in the number of shares received
equal to the number of Previously Acquired Shares exchanged is the same as
his basis in the Previously Acquired Shares. The Participant's basis in
the excess shares is equal to the income recognized at the date of exercise
of the NQSO.
The foregoing is only a summary of the principal tax consequences
to the Company and the participants from the grant and exercise of Options
under the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE 1996 STOCK OPTION PLAN.
PROPOSAL 3
AUTHORIZE THE BOARD OF DIRECTORS TO EFFECT A REVERSE STOCK SPLIT (ANY
ONE FALLING WITHIN A RANGE BETWEEN AND INCLUDING A ONE-FOR-ONE AND
ONE-HALF AND A ONE-FOR-FIVE REVERSE STOCK SPLIT) OF THE COMPANY'S
OUTSTANDING COMMON STOCK, DEPENDING UPON A DETERMINATION BY THE
BOARD THAT A REVERSE STOCK SPLIT IS IN THE BEST INTERESTS OF THE
COMPANY AND THE STOCKHOLDERS.
On August 12, 1996, the Board of Directors authorized, subject to
stockholder approval, a Reverse Stock Split (any one falling within a range
between and including a one-for-one and one-half and a one-for-five Reverse
Stock Split) of the Company's outstanding Common Stock that may be effected
by the Board depending on market conditions. The intent of the Reverse
Stock Split is to increase the marketability and liquidity of the Common
Stock.
If the Reverse Stock Split is approved by the stockholders at the
Meeting, it will be effected only upon a determination by the Board of
Directors that the Reverse Stock Split is in the best interests of the
Company and the stockholders. In connection with any determination by the
Board of Directors to such effect, the Board will select in its discretion
the ratio for the Reverse Stock Split which falls within a range between
and including a one-for-one and one-half and a one-for-five Reverse Stock
Split which, in the Board's judgment, would result in the greatest
marketability and liquidity of the Common Stock, based upon prevailing
market conditions, on the likely effect on the market price of the Common
Stock and other relevant factors.
If approved by the stockholders, the Reverse Stock Split would
become effective on any date (the "Effective Date") selected by the Board
of Directors on or prior to the Company's next Annual Meeting of
Stockholders. If no Reverse Stock Split is effected by such date, the
Board of Directors will take action to abandon the Reverse Stock Split
pursuant to Section 242(c) of the Delaware General Corporation Law (the
"DGCL"). The procedures for consummation of the Reverse Stock Split are
attached hereto as Exhibit B.
Purposes and Effects of a Reverse Stock Split
---------------------------------------------
Consummation of the Reverse Stock Split will not alter the number
of authorized shares of Common Stock, which will remain 20,000,000 shares.
Consummation of the Reverse Stock Split will not have any federal tax
consequences to stockholders.
The Common Stock is listed for trading on the NASDAQ Electronic
Bulletin Board under the symbol AECO. On the Record Date, the reported
closing price of the Common Stock on NASDAQ Electronic Bulletin Board was
$________ per share. One purpose of the Reverse Stock Split is to seek
trading of the Common Stock on the NASDAQ Small Cap System which requires,
among other things, a minimum market price of $_____ per share.
The Board believes that a decrease in the number of shares of
Common Stock outstanding without any material alteration of the
proportionate economic interest in the Company represented by individual
shareholdings may increase the trading price of such shares to a price more
appropriate for the NASDAQ Small Cap System, although no assurance can be
given that the market price of the Common Stock will rise in proportion to
the reduction in the number of outstanding shares resulting from any
Reverse Stock Split or that the Company would meet the other eligibility
standards for such trading market.
Additionally, the Board believes that the current per share price
of the Common Stock may limit the effective marketability of the Common
Stock because of the reluctance of many brokerage firms and institutional
investors to recommend lower-priced stocks to their clients or to hold them
in their own portfolios. Certain policies and practices of the securities
industry may tend to discourage individual brokers within those firms from
dealing in lower-priced stocks. Some of those policies and practices
involve time-consuming procedures that make the handling of lower-priced
stocks economically unattractive. The brokerage commission on a sale of
lower-priced stock may also represent a higher percentage of the sale price
than the brokerage commission on a higher-priced issue. Any reduction in
brokerage commissions resulting from the Reverse Stock Split may be offset,
however, in whole or in part, by increased brokerage commissions required
to be paid by stockholders selling "odd lots" created by such Reverse Stock
Split.
The par value of the Common Stock will remain at $.10 per share
following any Reverse Stock Split, and the number of shares of Common Stock
outstanding will be reduced. As a consequence, the aggregate par value of
the outstanding Common Stock will be reduced while the aggregate capital in
excess of par value attributable to the outstanding Common Stock for
statutory and accounting purposes will be correspondingly increased. The
resolutions approving the Reverse Stock Split provide that this increase in
capital in excess of par value will be treated as capital for statutory
purposes. However, under Delaware law, the Board of Directors of the
Company will have the authority, subject to various limitations, to
transfer some or all of such increased capital in excess of par value from
capital to surplus, which additional surplus could be distributed to
stockholders as dividends or used by the Company to repurchase outstanding
stock. The Company currently has no plans to use any surplus so created to
pay any such dividend or to repurchase stock in the foreseeable future.
The number of record holders of the Common Stock on the Record Date was
______. The Company does not anticipate that any Reverse Stock Split would
result in a significant reduction in the number of such holders, and does
not currently intend to effect any Reverse Stock Split that would result in
a reduction in the number of holders large enough to jeopardize continued
listing of the Common Stock on the NASDAQ Electronic Bulletin Board or
being subject to the periodic reporting requirements of the Securities and
Exchange Commission.
The Reverse Stock Split would have the following effects upon the
number of shares of Common Stock outstanding (12,273,333 shares as of the
Record Date) and the number of authorized and unissued shares of Common
Stock (assuming that no additional shares of Common Stock are issued by the
Company after the Record Date). The following examples are not exhaustive
of all possible Reverse Stock Splits that fall with the Board approved
range, and are only intended for illustrative purposes.
REVERSE COMMON STOCK AUTHORIZED AND
STOCK SPLIT OUTSTANDING UNISSUED COMMON STOCK
----------- ----------- ---------------------
1 for 1-1/2 8,182,222 11,817,778
1 for 3 4,091,111 15,908,889
1 for 5 2,454,667 17,545,333
At the Effective Date, each share of the Common Stock issued and
outstanding immediately prior thereto (the "Old Common Stock"), will be
reclassified as and changed into the appropriate fraction of a share of the
Company's Common Stock, par value $.10 per share (the "New Common Stock"),
subject to the treatment of fractional share interests as described below.
Shortly after the Effective Date, the Company will send transmittal forms
to the holders of the Old Common Stock to be used in forwarding their
certificates formerly representing shares of Old Common Stock for surrender
and exchange for certificates representing whole shares of New Common
Stock. No certificates or scrip representing fractional share interests in
the New Common Stock will be issued, and no such fractional share interest
will entitle the holder thereof to vote, or to any rights of a stockholder
of the Company. Any fractional share interest will result in the
adjustment of the number of shares either upward or downward to the nearest
whole share.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE AUTHORIZATION OF THE BOARD OF DIRECTORS TO EFFECT A REVERSE
STOCK SPLIT
ACCOUNTANTS
-----------
In July 1995, the Company's Board of Directors engaged Ernst &
Young LLP as the independent accountants for the Company for the fiscal
year ended July 29, 1995, because the Company deemed it beneficial to
retain a larger and an international accounting firm. Berry, Dunn, McNeil
& Parker (known as Smith, Batchelder & Rugg prior to a recent merger) had
acted as the principal accountants for the Company for the two fiscal years
ended July 30, 1994. There was no disagreement between the Company and
Berry, Dunn, McNeil & Parker on any matter of accounting principles or
practices or financial statement disclosures, nor did their reports contain
an adverse opinion, disclaimer of opinion or any modification as to
uncertainty, audit scope or accounting principles. After receiving
competitive bids from several firms, the Company selected Ernst & Young
LLP. The Board of Directors of the Company has selected Ernst & Young LLP
as its accountants for the 1996 fiscal year.
A representative of Ernst & Young LLP is expected to be present
at the Meeting and will have the opportunity to make a statement and may be
available to respond to appropriate questions.
MISCELLANEOUS
-------------
All stockholders of record as of September 6, 1996 have or are
currently being sent a copy of the Company's Annual Report for the fiscal
year ended July 29, 1995 (the "Annual Report") which contains audited
financial statements of the Company for the fiscal year ended July 29,
1995, and the Company's 1995 Annual Report on Form 10-KSB as filed with the
SEC. The Annual Report is deemed to be part of the material for the
solicitation of proxies.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH BENEFICIAL HOLDER OF
ITS COMMON STOCK ON SEPTEMBER 6, 1996 WHO DID NOT RECEIVE A COPY OF THE
COMPANY'S ANNUAL REPORT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
JULY 29, 1995 AS FILED WITH THE SEC. ANY SUCH REQUEST SHOULD BE MADE IN
WRITING TO THE SECRETARY, AMERICAN ELECTROMEDICS CORP., 13 COLUMBIA DRIVE,
SUITE 18, AMHERST, NEW HAMPSHIRE 03031.
<PAGE>
OTHER MATTERS
Stockholder proposals must be received by the Secretary of the
Company, for inclusion in the Company's proxy materials relating to the
1997 Annual Meeting of Stockholders, by May 13, 1997.
As of the date of this Proxy Statement, the Company knows of no
business that will be presented for consideration at the Meeting other than
that which has been referred to above. As to other business, if any, that
may come before the Meeting, it is intended that Proxies in the enclosed
form will be voted in respect thereof in accordance with the judgment of
the person or persons voting the Proxies.
By order of the Board of Directors
Michael T. Pieniazek
Secretary
September 9, 1996
STOCKHOLDERS ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE
APPRECIATED.
<PAGE>
PRELIMINARY
COPIES
AMERICAN ELECTROMEDICS CORP.
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 8, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of AMERICAN ELECTROMEDICS CORP., a
Delaware corporation (the "Company"), acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, dated September 9,
1996, and hereby constitutes and appoints Noel A. Wren and Michael T.
Pieniazek to vote all shares of Common Stock of the Company which the
undersigned would be entitled to vote at the 1996 Annual Meeting of
Stockholders, and at any adjournment or adjournments thereof, hereby
revoking any proxy or proxies heretofore given and ratifying and confirming
all that said proxies may do or cause to be done by virtue thereof with
respect to the following matters:
1. The election of five (5) directors nominated by the Board of
Directors:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to
(except as indicated) vote for all nominees
listed below
Alan Gelband, Kenneth Levy,
Thomas A. Slamecka, Joseph Wear and Noel A. Wren
(Instruction: To withhold authority to vote for any individual
nominee or nominees write such nominee's or nominees, names in
the space provided below)
-----------------------------------------------------------------
2. The approval of the 1996 Stock Option Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To authorize the Board of Directors to effect a Reverse Stock
Split (any one falling within a range between and including a
one-for-one and one-half and a one-for-five Reverse Stock Split)
of the Company's outstanding Common Stock, depending upon a
determination by the Board that a Reverse Stock Split is in the
best interests of the Company and the stockholders:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Other matters as may properly come before the meeting or any
adjournment or adjournments thereof.
This Proxy, when properly executed, will be voted as directed. If no
direction is indicated, the Proxy will be voted FOR each of the above
proposals.
Dated:
____________________________, 1996
_____________________________(L.S.)
_____________________________(L.S.)
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. No
postage is required if returned in
the enclosed envelope and mailed in
the United States.
PLEASE SIGN, DATE AND MAIL THIS
PROXY IMMEDIATELY IN THE ENCLOSED
ENVELOPE.
<PAGE>
EXHIBIT A
AMERICAN ELECTROMEDICS CORP.
1996 STOCK OPTION PLAN
1. Purpose. This 1996 Stock Option Plan (the "Plan")
-------
of American Electromedics Corp., a Delaware corporation (the
"Company"), is intended to provide incentives: (a) to certain
directors, officers, employees and other persons who perform
services for or on behalf of the Company and any subsidiaries of
the Company (collectively, the "Subsidiaries") by providing them
with opportunities to purchase capital stock in the Company
pursuant to options granted hereunder which qualify as "incentive
stock options" under Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code") ("ISO" or "ISOs") or which do
not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"); and (b) to individuals who are directors but not also
employees of the Company and the Subsidiaries ("Non-Employee
Directors"), by providing them with opportunities to purchase
capital stock in the Company pursuant to Non-Qualified Options.
Both ISOs and Non-Qualified Options are referred to hereinafter
individually as an "Option" and collectively as "Options," and
persons to whom Options are granted are referred to hereinafter
individually as an "Optionee" and collectively as "Optionees."
As used herein, the term "Subsidiary" means "subsidiary
corporation" as that term is defined in Section 424 of the Code.
2. Administration of the Plan. The Plan shall be
--------------------------
administered by the Compensation and Option Committee of the
Board of Directors of the Company (the "Committee"), each member
of which shall be a "Non-Employee Director" within the meaning of
Rule 16b-3 or any successor provision ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Committee shall consist of two members. Subject to the terms
of the Plan, the Committee shall have the authority to (i)
determine the employees of the Company and Subsidiaries (from
among the class of employees eligible under Section 4 hereof to
receive ISOs) to whom ISOs may be granted; (ii) determine the
person and the number of shares which may be issued under each
Option; (iii) determine the time or times at which Options may be
granted; (iv) determine the exercise price of shares subject to
each Option, which price shall not be less than the fair market
value as specified in Section 6; (v) determine (subject to
Sections 7 and 9) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi)
determine whether restrictions are to be imposed on shares
subject to Options and the nature of such restrictions, if any,
and (vi) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue
a Non-Qualified Option, it shall take whatever actions it deems
necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated
as an ISO. The interpretation and construction by the Committee
of any provisions of the Plan or of any Option granted under it
shall be final. The Committee may from time to time adopt such
rules and regulations for carrying out the Plan as it may deem
best. No member of the Committee or of the Board of Directors of
the Company shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted
under it.
3. Stock. The stock delivered under this Plan shall
-----
be the Company's Common Stock, par value $.10 per share (the
"Common Stock"), either authorized and unissued, treasury stock
or shares purchased on the open market. The aggregate number of
shares which may be issued pursuant to the Plan is 1,500,000
subject to adjustment as provided in Section 13. If any Option
granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any
reason to be exercisable in whole or in part, the unpurchased
shares subject to such Option shall again be available for grants
of Options under the Plan.
4. Eligible Employees and Others.
-----------------------------
4.01 Employees. ISOs and Non-Qualified Options may
---------
be granted to (i) individuals who are employees of the Company
and its Subsidiaries, including officers and directors who are
also employees at the time the Option is granted, and (ii) any
other persons who perform services for or on behalf of the
Company and its Subsidiaries, affiliates or any entity in which
the Company has an interest, or who are deemed by the Committee
to be in a position to perform such services in the future.
Granting of any Option to any person shall neither entitle that
person to, nor disqualify him from, participation in any other
Option grant.
4.02 Non-Employee Directors. Non-Qualified Options
----------------------
may be granted to Non-Employee Directors.
5. Term of Plan; Granting of Options. The term of
---------------------------------
the Plan will commence on the date of adoption of the Plan by the
Company's Board of Directors, subject to approval by stockholders
within one year of adoption, and terminate on the day immediately
preceding the tenth anniversary of said adoption, except as to
Options outstanding on that date and subject to earlier
termination as provided in Sections 9 and 10 hereof. Options may
be granted under the Plan at any time during the term of the
Plan. The date of grant of an Option under the Plan shall be the
date specified by the Committee at the time it grants the Option;
provided, however, that such date shall not be prior to the date
on which the Committee acts to approve the grant.
6. Minimum Exercise Price; ISO Limitations.
----------------------------------------
6.01 Price for Non-Qualified Options. The exercise
--------------------------------
price per share for each Non-Qualified Option granted under the
Plan shall not be less than the fair market value of the Common
Stock on the date of grant of the Option, and in no event shall
be less than the minimum legal consideration required therefor
under the laws of the State of Delaware or the laws of any
jurisdiction in which the Company or its successors in interest
may be organized.
6.02 Price for ISOs. The exercise price per share
---------------
for each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning
stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or
any Subsidiary (a "10% Employee"), the price per share for such
ISO shall not be less than one hundred ten percent (110%) of the
fair market value per share of Common Stock on the date of grant.
For purposes of determining stock ownership under this Section,
the rules of Section 424(d) of the Code shall apply.
6.03 $100,000 Annual Limitation on ISO Vesting. To the
-----------------------------------------
extent that, in the aggregate under this Plan and all incentive
stock option plans of the Company and any Subsidiary, ISOs become
exercisable for the first time by an employee during any calendar
year with respect to stock having a fair market value (determined
at the time the ISOs were granted) in excess of $100,000, such
excess amount of stock shall be deemed to have been granted as a
Non-Qualified Option, and not as an ISO.
6.04 Determination of Fair Market Value. If at the
----------------------------------
time an Option is granted under the Plan, the Company's Common
Stock is publicly traded, "fair market value" shall be determined
as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such
Option is granted and shall be (i) the mean (on that date) of the
high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the
Common Stock is then traded on a national securities exchange;
(ii) the last reported sale price (on that date) of the Common
Stock on the NASDAQ Electronic Bulletin Board (or other
interdealer quotation system), if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing
bid price (or average of bid prices) last quoted (on that date)
by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ
Electronic Bulletin Board (or other interdealer quotation
system). However, if the Common Stock is not publicly traded at
the time an Option is granted under the Plan, the "fair market
value" shall be deemed to be the fair value of the Common Stock
as determined by the Committee in good faith after taking into
consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination
----------------
as provided in Sections 9 and 10, each Option shall expire on the
date specified by the Committee, but not more than (i) ten (10)
years from the date of grant in the case of Non-Qualified
Options, (ii) five (5) years from the date of grant in the case
of ISOs generally, and (iii) five (5) years from the date of
grant in the case of ISOs granted to a 10% Employee, as
determined under Section 6.02. Subject to earlier termination as
provided in Sections 9 and 10, the term of each ISO shall be the
term set forth in the original instrument granting such ISO,
except with respect to any part of such ISO that is converted
into a Non-Qualified Option pursuant to Section 16.
8. Exercise of Option. Subject to the provisions of
------------------
Sections 9 through 12, each Option granted under the Plan shall
be exercisable as follows:
8.01 Vesting. The Option shall either be fully
-------
exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify,
provided that an Option granted to a director or officer of the
Company may not vest earlier than six (6) months from the date of
grant.
8.02 Full Vesting of Installments. Once an
----------------------------
installment becomes exercisable it shall remain exercisable until
expiration or termination of the Option, unless otherwise
specified by the Committee.
8.03 Partial Exercise. Each Option or installment
----------------
may be exercised at any time or from time to time, in whole or in
part, for up to the total number of shares with respect to which
it is then exercisable.
8.05 Acceleration of Vesting. The Committee shall
-----------------------
have the right to accelerate the date of exercise of any
installment of any Option, provided that the Committee shall not,
without the consent of an Optionee, accelerate the exercise date
of any installment of any Option granted to any employee as an
ISO if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described
in Section 6.03.
9. Termination of Employment. If an Optionee ceases
-------------------------
his employment with, or service by, the Company and all
Subsidiaries other than by reason of death or disability as
defined in Section 10 or by the Company or any Subsidiary for
cause, no further installments of his Options shall become
exercisable, and his Options shall terminate after the passage of
one (1) year from the date of termination of his employment or
service (or three (3) months as to ISOs), but in no event later
than on their specified expiration dates, during which period he
shall have the right to exercise any Options exercisable by him
on the date of termination of employment, subject to exercise for
such other periods as determined by the Committee at the time of
grant. Options held by an Optionee whose termination of
employment or service is for cause shall terminate upon such
termination. For purposes of this Section 9 only, employment or
service shall be considered as continuing uninterrupted during
any bona fide leave of absence (such as those attributable to
illness, military obligations or governmental service). A bona
fide leave of absence with the written approval of the Committee
shall not be considered an interruption of employment or service
under this Section 9, provided that such written approval
contractually obligates the Company or any Subsidiary to continue
the employment or service of the Optionee after the approved
period of absence. Options granted under the Plan shall not be
affected by any change of employment within or among the Company
and Subsidiaries, so long as the Optionee continues to be an
employee of the Company or any Subsidiary. Nothing in the Plan
shall be deemed to give any Optionee the right to be retained in
employment or other service by the Company or any Subsidiary for
any period of time. The Committee may, in its sole discretion,
change the termination period for any option from the period
provided for in this Section 9 or in Section 10 a period less
than the respective periods specified herein.
10. Death; Disability.
-----------------
10.1 Death. If an Optionee ceases his employment
-----
with or service by the Company and all Subsidiaries by reason of
his death, any Option may be exercised, to the extent of the
number of shares with respect to which he could have exercised it
on the date of his death, by his estate, personal representative
or beneficiary who has acquired the Option by will or by the laws
of descent and distribution at any time within one (1) year from
the date of the Optionee's death or such later date as fixed by
the Committee as to Non-Qualified Options, but in no event later
than on their specified expiration dates.
10.02 Disability. If an Optionee ceases his
----------
employment with or service by the Company and all Subsidiaries by
reason of his disability, he shall have the right to exercise any
Option held by him on the date of termination of employment, to
the extent of the number of shares with respect to which he could
have exercised it on that date, at any time prior to one (1) year
from the date of the termination of the Optionee's employment or
service or such later date as fixed by the Committee as to Non-
Qualified Options, but in no event later than on their specified
expiration dates. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or successor statute.
11. Assignability. No Option shall be assignable
-------------
or transferable by the Optionee except (i) by will or by the laws
of descent and distribution or (ii) with respect to Non-Qualified
Stock Options, to a spouse or lineal descendant or lineal
ascendant of the Optionee, and are exercisable during the
lifetime of the Optionee only by the Optionee or by the
Optionee's guardian or legal representative or permitted
assignee.
12. Terms and Conditions of Options. Options shall be
-------------------------------
evidenced instruments (which need not be identical) in such forms
as the Committee may from time to time approve (the "Option
Agreements"). The Option Agreements shall conform to the terms
and conditions set forth in Sections 6 through 11 hereof and may
contain such other provisions as the Committee deems advisable
which are not inconsistent with the Plan, including restrictions
applicable to shares of Common Stock issuable upon the exercise
of Options. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver the Option
Agreements. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable
from time to time to carry out the terms of the Option
Agreements.
13. Adjustments. Upon the occurrence of any of the
-----------
following events, an Optionee's rights with respect to Options
granted to him hereunder shall be adjusted as hereinafter
provided, unless otherwise specifically provided in the written
agreement between the Optionee and the Company relating to such
Option:
13.01 Stock Dividends and Stock Splits. If the
---------------------------------
shares of Common Stock shall be subdivided or combined into a
smaller or greater number of shares or if the Company shall issue
any shares of Common Stock as a stock dividend on its outstanding
Common Stock, the number of shares of Common Stock deliverable
upon the exercise of Options shall be appropriately decreased or
increased proportionately, and appropriate adjustments shall be
made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
13.02 Consolidations or Mergers. If the Company is
-------------------------
to be consolidated with or acquired by another entity in a
merger, sale of all or substantially all of the Company's assets
or otherwise (an "Acquisition"), the Committee or the board of
directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding
Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable
basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition; (ii) upon
written notice to the Optionees, provide that all Options must be
exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of which
period the Options shall terminate; or (iii) terminate all
Options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such Options (to the
extent then exercisable) over the exercise price thereof.
13.03 Recapitalization or Reorganization. In the
----------------------------------
event of a recapitalization or reorganization of the Company
(other than a transaction described in Section 13.02) pursuant to
which securities of the Company or of another corporation are
issued with respect to the outstanding shares of Common Stock, an
Optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he
would have received if he had exercised his Option prior to such
recapitalization or reorganization.
13.04 Change in Control. In the event of a change
-----------------
in control of the Company, all Options under the Plan which are
not fully vested shall vest 100% and shall be immediately
exercisable. For purposes of this Plan, a "change in control"
shall mean any of the following events: (a) the Company receives
a report on Schedule 13D filed with the Securities and Exchange
Commission pursuant to Section 13(d) of the Exchange Act
disclosing that any person, group, corporation or other entity is
the beneficial owner, directly or indirectly, of twenty percent
(20%) or more of the outstanding Common Stock of the Company; (b)
any person (as such term is defined in Section 13(d) of the
Exchange Act), group, corporation or other entity other than the
Company or any Subsidiary, purchases shares pursuant to a tender
offer or exchange offer to acquire any Common Stock of the
Company for cash, securities or any other consideration, provided
that after consummation of the offer, the person, group,
corporation or other entity in question is the beneficial owner
(as such term is defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of twenty percent (20%) or more of the
outstanding Common Stock of the Company (calculated as provided
in paragraph (d) of Rule 13d-3 under the Exchange Act in the case
of rights to acquire common stock); (c) the stockholders of the
Company approve (i) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation
or pursuant to which shares of Common Stock would be converted
into cash, securities or other property, or (ii) any sale, lease,
exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets
of the Company; or (d) there shall have been a change in a
majority of the members of the Board of Directors of the Company
within a twenty-four (24) month period unless the election or
nomination for election by the Company's stockholders of each new
director was approved by the vote of two-thirds of the directors
then still in office who were in office at the beginning of the
twenty-four (24) month period.
13.05 Modification of ISOs. Notwithstanding the
---------------------
foregoing, any adjustments made pursuant to Section 13.01, 13.02,
13.03 or 13.04 with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section
424 of the Code) or would cause any adverse tax consequences for
the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such
adjustments.
13.06 Dissolution or Liquidation. In the event of
--------------------------
the proposed dissolution or liquidation of the Company, each
Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such
other conditions as shall be determined by the Committee.
13.07 Issuances of Securities. Except as expressly
-----------------------
provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares subject to
Options. No adjustments shall be made for dividends paid in cash
or in property other than securities of the Company.
13.08 Fractional Shares. No fractional shares
-----------------
shall be issued under the Plan and the Optionee shall receive
from the Company cash in lieu of such fractional shares.
13.09 Adjustments. Upon the happening of any of
-----------
the events described in Section 13.01, 13.02, 13.03 or 13.04
above, the class and aggregate number of shares set forth in
Section 3 hereof that are subject to Options which previously
have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in
such subparagraphs. The Committee or the Successor Board shall
determine the specific adjustments to be made under this Section
13 and, subject to Section 2 hereof, its determination shall be
conclusive.
14. Means of Exercising Options. An Option (or any
---------------------------
installment or portion of an installment thereof) shall be
exercised by giving written notice to the Company at its
principal office address. The notice shall identify the Option
being exercised and specify the number of shares as to which such
Option is being exercised, accompanied by full payment of the
purchase price therefor either: (a) in United States dollars in
cash or by check; (b) at the discretion of the Committee, through
delivery of shares of Common Stock having a fair market value
equal as of the date of the exercise to the cash exercise price
of the Option; or (c) at the discretion of the Committee, by any
combination of (a) and (b) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b) or (c) of the
preceding sentence, such discretion shall be exercised in writing
at the time of the grant of the Option in question. An Optionee
shall not have the rights of a stockholder with respect to the
shares covered by his Option until the date of issuance of a
stock certificate to him for such shares. Except as expressly
provided above in Section 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made
for dividends or similar rights for which the record date is
before the date such stock certificate is issued.
15. Termination or Amendment of Plan. The Board of
--------------------------------
Directors may terminate or amend the Plan in any respect at any
time; however, without the approval of the Company's stockholders
obtained within twelve (12) months before or after the Board of
Directors adopts a resolution authorizing any such termination or
amendment, the Board of Directors may not so terminate or amend
the Plan if prior stockholder approval is then required by
Section 16(b) of the Exchange Act, applicable Delaware law or tax
law, or the rules of any applicable national securities exchange
or national stock quotation system on which the Common Stock may
then be listed or traded. Except as otherwise provided in this
Section 15, in no event may action of the Board of Directors or
stockholders alter or impair the rights of an Optionee, without
his consent, under any Option previously granted to him.
16. Notice to Company of Disqualifying Disposition.
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By accepting an ISO granted under the Plan, each Optionee agrees
to notify the Company in writing immediately after making a
Disqualifying Disposition, as described in Sections 421, 422 and
424 of the Code and regulations thereunder, of any stock acquired
under the Plan (or stock received in a transaction described in
Section 424(b) or 424(c)(1)(B) of the Code, relating to
distributions of stock with respect to stock acquired under the
Plan and certain tax-free exchanges of stock acquired under the
Plan for other stock or securities). A Disqualifying Disposition
(with certain exceptions) is generally any disposition within two
(2) years of the date the ISO was granted or within one (1) year
of the date the ISO was exercised, whichever period ends later.
With respect to stock held jointly with right of survivorship, a
termination of such joint tenancy may constitute a Disqualifying
Disposition. This Section 16 shall be made binding upon the
Optionee and upon any transferee of stock described in this
Section to whom Section 424(c)(4)(B) of the Code applies.
17. Withholding of Additional Income Taxes. Upon the
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exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Section 16), the Company
may withhold taxes in respect of amounts that constitute
compensation includible in gross income, whenever the Company
determines that such withholding is required. The Committee in
its discretion may condition the exercise of an Option on the
Optionee's making satisfactory arrangement for such withholding.
In addition to tax withholding, government regulations may impose
reporting or other obligations on the Company with respect to the
Plan. For example, the Company may be required to send tax
information statements to employees and former employees that
exercise ISOs.
18. Governing Law, Construction. The validity and
---------------------------
construction of the Plan and the agreements evidencing Options
shall be governed by the laws of the State of Delaware, or the
laws of any jurisdiction in which the Company or its successors
in interest may be organized. In construing this Plan, the
singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise
requires.
Adopted by the Board of Directors
on August 12, 1996 and approved by
the stockholders of the Company on
the 10th day of October, 1996.
<PAGE>
EXHIBIT B:
THE REVERSE STOCK SPLIT
RESOLVED, that, prior to the Company's next Annual Meeting of
Stockholders, on the condition that no other amendment to the
Company's Restated Certificate of Incorporation shall have been
filed subsequent to October 8, 1996 effecting a reverse stock
split of the Common Stock, Article ____ of the Company's Restated
Certificate of Incorporation be amended by addition of the
following provision:
Simultaneously with the effective date of this amendment
(the "Effective Date"), each share of the Company's Common
Stock, par value $.10 per share, issued and outstanding
immediately prior to the Effective Date (the "Old Common
Stock") shall automatically and without any action on the
part of the holder thereof be reclassified as and changed,
pursuant to a reverse stock split, into any fraction thereof
falling within a range between and including one-and-one-
half and one-fifth (1/5) of a share of the Company's
outstanding Common Stock, par value $.10 per share (the "New
Common Stock"), depending upon a determination by the Board
that a Reverse Stock Split is in the best interests of the
Company and the stockholders, subject to the treatment of
fractional share interests as described below. Each holder
of a certificate or certificates which immediately prior to
the Effective Date represented outstanding shares of Old
Common Stock (the "Old Certificates," whether one or more)
shall be entitled to receive upon surrender of such Old
Certificates to the Company's Transfer Agent for
cancellation, a certificate or certificates (the "New
Certificates," whether one or more) representing the number
of whole shares of the New Common Stock into which and for
which the shares of the Old Common Stock formerly
represented by such Old Certificates so surrendered, are
reclassified under the terms hereof. From and after the
Effective Date, Old Certificates shall represent only the
right to receive New Certificates pursuant to the provisions
hereof. No certificates or scrip representing fractional
share interests in New Common Stock will be issued, and no
such fractional share interest will entitle the holder
thereof to vote, or to any rights of a shareholder of the
Company. Any fraction of a share of New Common Stock to
which the holder would otherwise be entitled will be
adjusted upward or downward to the nearest whole share. If
more than one Old Certificate shall be surrendered at one
time for the account of the same stockholder, the number of
full shares of New Common Stock for which New Certificates
shall be issued shall be computed on the basis of the
aggregate number of shares represented by the Old
Certificates so surrendered. In the event that the Company's
Transfer Agent determines that a holder of Old Certificates
has not tendered all his certificates for exchange, the
Transfer Agent shall carry forward any fractional share
until all certificates of that holder have been presented
for exchange such that payment for fractional shares to any
one person shall not exceed the value of one share. If any
New Certificate is to be issued in a name other than that in
which the Old Certificates surrendered for exchange are
issued, the Old Certificates so surrendered shall be
properly endorsed and otherwise in proper form for transfer,
and the person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to the Old
Certificates surrendered, or provide funds for their
purchase, or establish to the satisfaction of the Transfer
Agent that such taxes are not payable. From and after the
Effective Date the amount of capital represented by the
shares of the New Common Stock into which and for which the
shares of the Old Common Stock are reclassified under the
terms hereof shall be the same as the amount of capital
represented by the shares of Old Common Stock so
reclassified, until thereafter reduced or increased in
accordance with applicable law.
FURTHER RESOLVED, that at any time prior to the filing of the
foregoing amendment to the Company's Restated Certificate of
Incorporation effecting a Reverse Stock Split, notwithstanding
authorization of the proposed amendment by the stockholders of
the Company, the board of directors may abandon such proposed
amendment without further action by the stockholders.
