<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
GALILEO CORPORATION
(Name of Registrant as Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
GALILEO CORPORATION
GALILEO PARK
P.O. BOX 550
STURBRIDGE, MASSACHUSETTS 01566
TELEPHONE (508) 347-9191
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 22, 1998
The Annual Meeting of Shareholders of Galileo Corporation will be held in
the John Foster Room of the Boston Harbor Hotel, 70 Rowes Wharf, Boston,
Massachusetts, at 10:00 a.m. on Thursday, January 22, 1998, for the following
purposes:
1. To elect five directors of the Company.
2. To vote on a proposed amendment to the Company's 1991 Stock Option Plan
to increase the number of shares of Common Stock available under the
Plan from 550,000 to 750,000 shares.
3. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on November 28, 1997,
will be entitled to vote at the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. THEREFORE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE YOUR PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOUR PROXY
WILL NOT BE USED.
By Order of the Board of Directors,
JOSEF W. ROKUS
Secretary
December 23, 1997
<PAGE> 3
GALILEO CORPORATION
GALILEO PARK
P.O. BOX 550
STURBRIDGE, MASSACHUSETTS 01566
TELEPHONE (508) 347-9191
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JANUARY 22, 1998
------------------------
GENERAL INFORMATION
The enclosed proxy is solicited on behalf of the Board of Directors of
Galileo Corporation (the "Company") for use at the Annual Meeting of
Shareholders of the Company to be held on January 22, 1998 in the John Foster
Room of the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts at 10:00
a.m. and at any adjournments thereof. The Company will bear the cost of this
solicitation of proxies, including, upon request, reimbursement of brokerage
houses and other nominees for their reasonable expenses in forwarding
solicitation material to beneficial owners of stock. In addition to the use of
the mails, employees of the Company may devote part of their time to the
solicitation of proxies by telephone, facsimile or in person, but no additional
compensation will be paid to them.
The authority granted by an executed proxy may be revoked at any time
before its exercise by filing with the Secretary of the Company a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the meeting. Shares represented by valid proxies will be voted in accordance
with the specifications in the proxies. If no specifications are made, the
proxies will be voted to elect the directors nominated by the Board of Directors
and for approval of the proposed amendment to the 1991 Stock Option Plan.
On November 28, 1997, the Company had outstanding 6,874,705 shares of
Common Stock, $.01 par value (the "Common Stock"), which is its only outstanding
class of voting stock. Only shareholders of record at the close of business on
November 28, 1997 will be entitled to vote at the meeting. The holders of Common
Stock are entitled to one vote for each share registered in their names on the
record date with respect to all matters to be acted upon at the meeting. A
majority in interest of the outstanding Common Stock represented at the meeting
in person or by proxy constitutes a quorum for the transaction of business.
Abstentions and broker non-votes will be considered as shares present for
purposes of determining the presence of a quorum.
The approximate date on which this proxy statement and accompanying proxy
are first being sent or given to security holders is December 23, 1997.
<PAGE> 4
SHARE OWNERSHIP
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of November 28, 1997 by (i) persons known by
the Company to be beneficial owners of more than 5% of its Common Stock, (ii)
the directors and nominees for election as directors of the Company, (iii) the
executive officers of the Company named in the Summary Compensation Table, and
(iv) all executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED(1)
-------------------
BENEFICIAL OWNER SHARES PERCENT
---------------- ------ -------
<S> <C> <C>
Eaton Vance Management............................................ 549,100(2) 8.0%
24 Federal Street
Boston, Massachusetts 02110
Dimensional Fund Advisors Inc..................................... 491,500(2) 7.1%
1299 Ocean Avenue
Santa Monica, California 90401
William T. Burgin................................................. 27,499(3) *
Allen E. Busching................................................. 8,000(4) *
Kenneth W. Draeger................................................ 7,500(5) *
William T. Hanley................................................. 73,478(6) 1.1%
Robert D. Happ.................................................... 7,000(7) *
Gregory Riedel.................................................... 6,722(8) *
Josef W. Rokus.................................................... 22,248(9) *
All executive officers and directors as a group (7 persons)....... 152,447(10) 2.2%
</TABLE>
- ---------------
* Indicates less than 1%
(1) Unless otherwise indicated, each beneficial owner has sole voting and
investment power with respect to the shares listed in the table.
(2) Based on information provided by the beneficial owner.
(3) Includes 12,500 shares subject to options granted to Mr. Burgin under the
1996 Director Stock Option Plan.
(4) Includes 7,500 shares subject to options granted to Mr. Busching under the
1996 Director Stock Option Plan.
(5) All shares held by Mr. Draeger are subject to options granted to Mr.
Draeger under the 1996 Director Stock Option Plan.
(6) Includes 25,000 shares subject to options granted to Mr. Hanley under the
1981 Employee Stock Option Plan, 25,000 shares granted under the 1991
Employee Stock Option Plan and 2,478 shares owned by Mr. Hanley's spouse.
(7) Includes 5,000 shares subject to options granted to Mr. Happ under the 1996
Director Stock Option Plan.
(8) Includes 722 shares held by Mr. Riedel under the Employee Stock Purchase
Plan and 1,000 shares owned by Mr. Riedel's children.
(9) Includes 12,000 shares subject to options granted to Mr. Rokus under the
1981 Employee Stock Option Plan, 2,500 shares granted under the 1991
Employee Stock Option Plan and 2,948 shares held under the Employee Stock
Purchase Plan.
(10) Includes 97,000 shares subject to options granted to officers and directors
under the 1981 Employee Stock Option Plan, the 1991 Employee Stock Option
Plan and the 1996 Director Stock Option Plan.
2
<PAGE> 5
ELECTION OF DIRECTORS
The Board of Directors has fixed the number of directors at five for the
coming year. The persons named below have been nominated by the Board of
Directors for election at the Annual Meeting as directors of the Company to
serve until the next Annual Meeting and until their respective successors are
duly elected and qualified. Each has consented to being named a nominee in this
proxy statement and has agreed to serve as a director if elected at the Annual
Meeting. Unless otherwise directed, the persons named in the proxy intend to
vote for the election of these nominees, all of whom are members of the present
Board of Directors. If any nominee is unable to serve, proxies will be voted for
such other candidates as may be nominated by the Board of Directors.
The affirmative vote of the holders of a majority of the Common Stock
represented at the meeting in person or by proxy will be required to elect
directors. Abstentions have the effect of negative votes.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING PAST FIVE DIRECTOR
NAME AND AGE YEARS AND OTHER DIRECTORSHIPS SINCE
------------ ------------------------------------ --------
<S> <C> <C>
William T. Burgin........ General Partner of The Deer & Co. Partnerships which are 1979
(54) the sole general partners of The Bessemer Venture
Partnerships, venture capital limited partnerships. Mr.
Burgin is also a director of Fort James Corporation,
formerly James River Corporation, a manufacturer of paper
products and a director/trustee of several mutual funds
managed by Scudder, Stevens & Clark, Inc.
Allen E. Busching........ Principal of B&B Capital, a venture capital firm. Mr. 1989
(65) Busching is also a director of North Shore University
Hospital, Manhasset, NY.
Kenneth W. Draeger....... Chairman and Chief Executive Officer, DecisionOne 1993
(57) Holdings, Inc., formerly Decision Servcom, Inc., a
computer maintenance company.
William T. Hanley........ President and Chief Executive Officer of the Company. Mr. 1984
(50) Hanley is also a director of Incom, Inc., a manufacturer
of fiberoptic products.
Robert D. Happ........... Former regional managing partner of KPMG Peat Marwick LLP, 1995
(57) a public accounting firm, from which he retired in 1994.
Mr. Happ is also a director of CAI Wireless Systems, Inc.,
an owner and operator of wireless cable TV systems.
</TABLE>
The Board of Directors held eleven meetings during the fiscal year ended
September 30, 1997. Each director attended at least 75% of all meetings of the
Board and all meetings of committees of the Board on which he served held during
the last fiscal year.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and a Compensation Committee of the
Board of Directors, each consisting of the four nonemployee directors. The
Company does not have a nominating committee.
The Audit Committee held two meetings during the fiscal year ended
September 30, 1997. The Audit Committee meets periodically with management and
the Company's independent certified public accountants to discuss their
evaluation of internal accounting controls, the quality of financial reporting
and related matters. The independent auditors have free access to the Audit
Committee, without the presence of management, to discuss the results of their
audits. The Board of Directors, upon the Committee's recommendation, approves
the extent of nonaudit services provided by the independent auditors, giving due
consideration to the impact of such services on their independence.
The Compensation Committee held four meetings during the fiscal year ended
September 30, 1997.
3
<PAGE> 6
DIRECTOR COMPENSATION
Director Fees. During fiscal year 1997, the compensation of Board members
(other than full-time employees of the Company) was $10,000 per year plus $1,500
per meeting attended ($250 for meetings attended by conference telephone).
Members of the committees of the Board of Directors receive $1,000 to attend
each committee meeting not held on the same day as a Board of Directors meeting.
1996 Director Stock Option Plan. Under the 1996 Director Stock Option Plan
(the "1996 Plan"), nonstatutory options to purchase 2,500 shares of the
Company's Common Stock are granted to each nonemployee director on the
director's election at each annual meeting of shareholders. Options become
exercisable one year after grant or earlier upon the death or disability of the
director and upon a change in control of the Company, as defined in the Plan. No
option may be exercised more than one year after the director's termination as a
director for any reason. The option exercise price is the fair market value of
the Common Stock on the date of grant. The option exercise price may be paid in
cash, in shares of Common Stock having a fair market value equal to the exercise
price at the time of exercise, or a combination of cash and Common Stock.
Pursuant to the 1996 Plan and a superseded prior plan, the Company's
directors have been granted options to purchase the following number of shares
at the indicated prices per share:
<TABLE>
<CAPTION>
NUMBER PRICE PER
NAME OF SHARES SHARE
---- --------- ---------
<S> <C> <C>
William T. Burgin.......................... 10,000 $ 9.0000
2,500 11.6250
2,500 25.7500
Allen E. Busching.......................... 5,000 8.5000
2,500 11.6250
2,500 25.7500
Kenneth W. Draeger......................... 5,000 5.2500
2,500 11.6250
2,500 25.7500
Robert D. Happ............................. 5,000 8.1875
2,500 11.6250
2,500 25.7500
</TABLE>
Indemnification Agreements. The Company has entered into an
Indemnification Agreement with each director who is not an officer of the
Company providing for indemnification by the Company for liabilities and
expenses incurred by reason of service to or at the request of the Company in
connection with any threatened or pending legal proceeding. The Indemnification
Agreements, among other things, provide procedures and remedies applicable to
the determination of the right to indemnification, particularly in the event of
a change in control of the Company, as defined.
EXECUTIVE COMPENSATION
The Compensation Committee Report on Executive Compensation set forth below
describes the Company's compensation policies applicable to executive officers
and the Committee's basis for Mr. Hanley's compensation as Chief Executive
Officer for the fiscal year ended September 30, 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which consists of the
nonemployee directors, determines the compensation of all executive officers of
the Company and administers the Company's Stock Option Plan, including the grant
of stock options thereunder.
The Committee reviews the compensation of all executive officers at least
once a year. The Company's executive compensation contains the following three
elements: base salary, bonus earned under the Company's
4
<PAGE> 7
Variable Pay Plan and periodic stock option grants. In setting base salary
compensation for executive officers, the Committee reviews publicly available
executive compensation surveys of technology oriented manufacturing companies
with annual sales comparable to those of the Company. In 1997, these surveys
were "Executive Compensation Survey for Electronics, Software and Information
Technology Companies" (American Electronics Association), "1997 Officer
Compensation Report - The Executive Compensation Survey for Small to
Medium-Sized Businesses" (Aspen Publishers, Inc.) and "Executive Compensation:
The Middle Market Survey" (Ernst & Young). Executive compensation information
for the companies included in the Standard & Poor's Technology Sector Index
shown in the Performance Graph below as a group is not available to the Company.
The Committee considers making an adjustment to the base salary of each
executive officer based upon the relationship of current compensation to the
comparable compensation levels reported in the surveys and a subjective judgment
on the officer's performance during the last year. In 1997, the compensation and
benefits of the Chief Executive Officer and the other executive officers were at
the lower end of the range of comparably sized companies in the surveys.
In fiscal year 1997, the Committee increased Mr. Hanley's base salary from
$180,000 to $220,000 and Mr. Rokus' base salary from $100,000 to $120,000 per
year. In making these salary changes, the Committee took note of the fact that
the base salaries of these officers had not been increased since 1990.
The Variable Pay Plan for executive officers is part of a variable pay plan
in effect for all of the Company's employees. Under this plan, executive
officers are compensated based on the earnings per share results of the Company
versus the earnings per share goal in the Company's Operating Plan for the
fiscal year. Specifically, the Chief Executive Officer's variable pay bonus is
determined by multiplying his base salary by the following two factors: first,
his participation rate percentage, which was 50% of his base salary for 1997,
and second, the pay-out percentage, which is determined by a formula specified
in the Plan based on the Company's actual earnings per share versus the earnings
per share in the Company's Operating Plan for fiscal year 1997. The
participation rate times the pay-out percentage times base compensation equals
the Variable Pay Plan bonus. For fiscal year 1997, because the Company did not
meet the earnings per share objective contained in its 1997 Operating Plan, Mr.
Hanley did not receive a variable pay bonus.
In fiscal year 1997, the Committee granted stock options to purchase shares
of Common Stock of the Company as follows: 60,000 shares to Mr. Hanley, 30,000
shares to Mr. Riedel and 10,000 shares to Mr. Rokus. In granting these stock
options, the Committee took into account the level of the officers' base
salaries and the number of stock options previously granted and currently held
by the officers. The Company has no specific plan or formula for determining the
frequency of grants or number of options granted. The Committee also revised the
term of all employees' outstanding stock options, including those of the
officers, from seven years to ten years. This change was made to preserve the
incentive value of the outstanding options.
By the Compensation Committee,
William T. Burgin
Allen E. Busching
Kenneth W. Draeger
Robert D. Happ
5
<PAGE> 8
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information for the
Chief Executive Officer of the Company and each of the other executive officers
of the Company whose salary and bonus exceeded $100,000 for the fiscal year
ended September 30, 1997:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS COMPENSATION(1)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
------------------ ---- ------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William T. Hanley.................... 1997 189,252 -- 60,000 14,130
President and Chief Executive 1996 180,000 113,400 25,000 13,686
Officer 1995 183,462(2) 45,000 25,000 15,571
Gregory Riedel(3).................... 1997 118,285 17,000 30,000 2,700
Vice President, Finance and
Chief Financial Officer
Josef W. Rokus....................... 1997 104,619 18,000 10,000 13,821
Vice President, Corporate 1996 100,000 37,800 -- 12,051
Development and Secretary 1995 101,923(2) 15,000 5,000 11,257
</TABLE>
- ---------------
(1) All Other Compensation in 1997 includes Company matching funds under the
Company's 401(k) Plan and Employee Stock Purchase Plan, vacation and paid
absence allowance pay-outs and the Company portion of split dollar life
insurance premiums as follows:
<TABLE>
<CAPTION>
EMPLOYEE
STOCK PURCHASE VACATION AND LIFE
401(k) PLAN PLAN PAID ABSENCE INSURANCE
NAME OF CONTRIBUTIONS CONTRIBUTIONS ALLOWANCES PREMIUMS
OFFICER ($) ($) ($) ($)
------- ------------- -------------- ------------ --------
<S> <C> <C> <C> <C>
William T. Hanley...................... 4,075 -- 4,154 5,901
Gregory Riedel......................... 2,700 -- -- --
Josef W. Rokus......................... 3,802 681 2,308 7,030
</TABLE>
(2) The annual rates of compensation of Mr. Hanley and Mr. Rokus were unchanged
from 1995 to 1996. The change in compensation shown was due to a change in
payroll processing periods from monthly to biweekly.
(3) Mr. Riedel joined the Company on December 9, 1996.
6
<PAGE> 9
OPTION GRANTS IN FISCAL YEAR 1997
The following table sets forth certain information concerning options
granted to executive officers of the Company in fiscal year 1997:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES OR BASE ---------------------------
GRANTED IN FISCAL PRICE EXPIRATION 0% 5% 10%
NAME (#)(1) YEAR 1997 ($/SHARE) DATE ($) ($) ($)
---- ---------- ---------- --------- ---------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
William T. Hanley......... 20,000 7.5% 5.750 07/17/07 0 72,400(3) 183,200(3)
40,000 15.0% 10.000 08/11/07 0 251,600(4) 637,600(4)
Gregory Riedel............ 30,000 11.2% 7.250 03/10/07 0 136,800(5) 346,500(5)
Josef W. Rokus............ 10,000 3.7% 5.750 07/17/07 0 36,200(6) 91,600(6)
</TABLE>
- ---------------
(1) Grants were made as follows: Mr. Hanley: 20,000 shares on July 17, 1997 and
40,000 shares on August 11, 1997; Mr. Riedel: 30,000 shares on March 10,
1997; and Mr. Rokus: 10,000 shares on July 17, 1997. Options become
exercisable as to 25% of the shares annually beginning one year after grant.
(2) Based upon the last trading price ($12.375) of the Company's Common Stock on
September 30, 1997, the dollar amounts under these columns are the result of
calculations at the 5% and 10% rates prescribed by the rules of the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future appreciation, if any, in the price of the Common
Stock. No gain to the optionee is possible without an increase in the price
of the Common Stock, which will benefit all shareholders proportionately.
(3) In order to realize the potential values set forth in the 5% and 10% columns
of this table, the per share price of the Common Stock would be $9.37 and
$14.91, or 63% and 159% above the exercise price, respectively.
(4) In order to realize the potential values set forth in the 5% and 10% columns
of this table, the per share price of the Common Stock would be $16.29 and
$25.94, or 63% and 159% above the exercise price, respectively.
(5) In order to realize the potential values set forth in the 5% and 10% columns
of this table, the per share price of the Common Stock would be $11.81 and
$18.80, or 63% and 159% above the exercise price, respectively.
(6) In order to realize the potential values set forth in the 5% and 10% columns
of this table, the per share price of the Common Stock would be $9.37 and
$14.91, or 63% and 159% above the exercise price, respectively.
7
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table provides information as to options exercised by each of
the named executive officers in fiscal year 1997 and the value of the remaining
options held by each such executive officer at year-end, measured using the last
trading price ($12.375) of the Company's Common Stock on September 30, 1997:
<TABLE>
<CAPTION>
NO. OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
SHARES OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
ACQUIRED FISCAL YEAR-END FISCAL YEAR-END
ON VALUE ---------------------------- ----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William T. Hanley............. 10,000 211,250 43,750 91,250 264,063 316,563
Gregory Riedel................ -- -- -- 30,000 -- 153,750
Josef W. Rokus................ 8,000 159,500 14,500 12,500 106,313 76,563
</TABLE>
PENSION PLAN TABLE
The following table shows the estimated annual benefits payable under the
Company's Pension Plan:
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<C> <S> <C> <C> <C> <C> <C>
$125,000 ................. $27,570 $36,760 $45,950 $52,200 $58,450
150,000 ................. 33,570 44,760 55,950 63,450 70,950
175,000 ................. 35,970 47,960 59,950 67,950 75,950
200,000 ................. 35,970 47,960 59,950 67,950 75,950
225,000 ................. 35,970 47,960 59,950 67,950 75,950
250,000 ................. 35,970 47,960 59,950 67,950 75,950
300,000 ................. 35,970 47,960 59,950 67,950 75,950
400,000 ................. 35,970 47,960 59,950 67,950 75,950
450,000 ................. 35,970 47,960 59,950 67,950 75,950
500,000 ................. 35,970 47,960 59,950 67,950 75,950
</TABLE>
All employees who joined the Company prior to January 1, 1995 and who work
at least 1,000 hours per year are eligible for participation in the Company's
Pension Plan. Upon retirement at age 65, the Pension Plan will pay an annual
pension equal to the sum of (a) 1% of the employee's average total salary during
the highest five consecutive years in his last ten years of service multiplied
by credited years of service and (b) 6/10 of 1% of such average total
compensation in excess of the employee's Social Security-covered compensation
multiplied by credited years of service (up to a maximum of 25 years). Only base
salary is covered by the Pension Plan. Years of service for the persons named in
the Summary Compensation Table above and eligible for participation in the
Pension Plan are as follows: Mr. Hanley, 15 and Mr. Rokus, 13.
8
<PAGE> 11
PERFORMANCE GRAPH
The following graph shows the cumulative total shareholder return on the
Company's Common Stock on a yearly basis over the five-year period ended
September 30, 1997, as compared with that of the Nasdaq Stock Market (U.S.)
Index and the Standard & Poor's Technology Sector Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG GALILEO CORPORATION, THE NASDAQ STOCK MARKET (U.S) INDEX
AND THE S & P TECHNOLOGY SECTOR INDEX
[LINE CHART]
9/92 9/93 9/94 9/95 9/96 9/97
GALILEO CORPORATION 100 73 49 109 360 180
NASDAQ STOCK MARKET (U.S.) 100 131 132 182 216 297
S&P TECHNOLOGY SECTOR 100 121 140 222 272 442
- ---------------
* Assumes $100 invested on September 30, 1992 in the Company's Common Stock, the
Nasdaq Stock Market (U.S.) Index and the Standard & Poor's Technology Sector
Index, with all dividends, if any, being reinvested.
9
<PAGE> 12
AMENDMENT TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR GRANTS UNDER THE
1991 STOCK OPTION PLAN
GENERAL
The Company's 1991 Stock Option Plan (the "Plan") provides for the grant of
incentive stock options ("ISOs"), non-qualified stock options and stock
appreciation rights ("SARs") to key employees of the Company. In addition,
non-qualified stock options and SARs may be granted to consultants to the
Company. All employees and consultants capable of contributing significantly to
the successful performance of the Company are eligible to participate.
The Plan provides for issuance of a maximum of 550,000 shares of Common
Stock. The number of shares issuable under the Plan is subject to adjustment for
stock splits, stock dividends and other transactions affecting the Company's
capital stock. If any award expires or is terminated unexercised, the shares
which would otherwise have been issuable are again available for award under the
Plan. The Plan is administered by a Committee of the Board of Directors (the
"Committee"), comprised of at least three disinterested directors appointed by
the Board. The Committee may delegate to one or more executive officers of the
Company the power to make awards to participants who are not subject to Section
16 of the Securities Exchange Act of 1934. The Board of Directors may also
administer the Plan. The exercise price of stock options and SARs may not be
less than the fair market value of the underlying Common Stock on the date of
grant.
As of November 28, 1997, approximately 95 employees were eligible to
participate in the Plan. The closing price of the Company's Common Stock as
reported by the Nasdaq National Market System on November 28, 1997 was $11.00.
As of November 28, 1997, options to purchase an aggregate of 578,600 of the
Company's Common Stock had been granted under the Plan. Of the foregoing,
options to purchase an aggregate of 175,000 shares of Common Stock had been
granted to executive officers and options to purchase an aggregate of 403,600
shares of Common Stock had been granted to all other employees. After taking
into account shares available as a result of expiration or termination of
options granted under the Plan, 51,650 shares of Common Stock remain available
for awards under the Plan. To date, no incentive stock options or stock
appreciation rights have been granted under the Plan.
PROPOSED AMENDMENT TO THE PLAN
The Board of Directors has voted, subject to approval of the shareholders,
to adopt an amendment to the Plan which would increase the aggregate number of
shares of Common Stock that may be subject to grants under the Plan from 550,000
to 750,000, subject to adjustment for stock splits, stock dividends and other
transactions affecting the Company's capital stock. The Board of Directors
believes that this increase is necessary so that the Company can continue to
attract and retain qualified employees and provide an incentive for them to
achieve long-term performance goals.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Generally, neither the grant nor the exercise of
an ISO will result in taxable income to the optionee or a deduction to the
Company. Unless the optionee disposes of such stock within two years after the
grant of the option or within a year after its exercise (a "disqualifying
disposition"), any gain or loss recognized on the disposition of stock will be a
mid or long-term capital gain or loss depending upon the holding period of the
shares. In that case, the Company will not be entitled to a deduction in either
the year of the exercise or the year of the disposition. The exercise of an ISO
may result in alternative minimum tax liability for the optionee unless there is
a disqualifying disposition in the year of exercise.
If an optionee acquiring stock upon the exercise of an ISO disposes of the
stock in a disqualifying disposition, the difference between the fair market
value of the stock at the date of exercise and the exercise price (or the
difference between the net proceeds of sale and the exercise price if that is
less) will be ordinary compensation income in the year of disposition. The
Company will generally be entitled to a deduction at the time of such a
disposition equal in amount to the amount of ordinary compensation income
recognized by the
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<PAGE> 13
optionee. Any further gain realized will be taxed as long, mid or short-term
capital gain and will not result in any deduction by the Company.
Non-qualified Stock Options. The grant of a non-qualified stock option
under the 1991 Plan normally will not, under present federal income tax laws and
regulations, result in taxable income to the optionee or a deduction to the
Company. Upon the exercise of a non-qualified stock option, the optionee will
recognize compensation income, and the Company will become entitled to a
deduction, in the amount by which the market value of the stock at the time of
exercise exceeds its exercise price. If the optionee thereafter sells such
shares, the amount by which the net proceeds of sale exceed or are exceeded by
the market value of such shares at the date of exercise will constitute a
capital gain or loss, which will be long, mid or short-term depending upon the
holding period of the shares.
Stock Appreciation Rights. A grantee will not realize taxable income upon
the grant of an SAR. On the exercise of an SAR, in general, (a) any cash
received and the fair market value of any shares received will constitute
ordinary income to the grantee at the time of exercise, and (b) the Company will
be entitled to deduct such amount.
VOTES REQUIRED
The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the proposed amendment to the Plan. For this purpose,
abstentions will have the effect of negative votes, and broker non-votes will
not be counted as present or represented.
The Directors recommend a vote FOR this proposal.
INFORMATION CONCERNING AUDITORS
On recommendation of the Audit Committee, the Board of Directors has
appointed Ernst & Young, LLP as auditors of the Company for the current year.
Ernst & Young, LLP has served as the Company's auditors since its incorporation
in 1973. No representatives of Ernst & Young, LLP are expected to be present at
the Annual Meeting.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
In order for a shareholder proposal to be considered for inclusion in the
Company's proxy materials for the 1999 Annual Meeting, it must be received by
the Company at Galileo Park, P.O. Box 550, Sturbridge, Massachusetts 01566,
Attention: Josef W. Rokus, Secretary, no later than August 13, 1998.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at the
Annual Meeting other than the matters described in the notice. If other business
is properly presented for consideration at the meeting, the enclosed proxy
authorizes the persons named therein to vote the shares in their discretion.
December 23, 1997
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<PAGE> 14
APPENDIX B
AS AMENDED AT THE JANUARY 14, 1997
ANNUAL MEETING OF SHAREHOLDERS
GALILEO CORPORATION
1991 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Galileo Corporation 1991 Stock Option Plan (the "Plan")
is to attract and retain key employees and consultants, to provide an incentive
for them to assist the Company to achieve long-range performance goals and to
enable them to participate in the long-term growth of the Company.
SECTION 2. DEFINITIONS
"Affiliate" means any business entity in which the company owns directly or
indirectly 50% or more of the total combined voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option or Stock Appreciation Right awarded under the
Plan.
"Company" means Galileo Corporation.
"Board" means the Board of Directors of the Company.
"Code" means Internal Revenue Code of 1986, as amended from time to time.
"Committee" means a committee of not fewer than three members of the Board
appointed by the Board to administer the Plan, each of whom is a "disinterested
person" as defined in Rule 16b-3 under Section 16(b).
"Common Stock" or "Stock" means the Common Stock of the Company.
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, Designated Beneficiary
shall mean the Participant's estate.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Non-qualified Stock Option" means an option to purchase shares of Common
Stock under Section 6 that is not intended to be an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Non-qualified Stock Option.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Section 16(b)" means Section 16(b) of the Securities Exchange Act of 1934,
or any successor provision.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
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SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons and all
determinations under the Plan with respect thereto, provided that the Committee
shall fix the maximum amount of such Awards for the group and a maximum for any
one Participant.
Subject to any disinterested administration requirements for exemptive
relief under Section 16(b) with respect to Awards to Reporting Persons, the
Board may also make Awards and exercise administrative authority under the Plan
to the same extent as the Committee.
SECTION 4. ELIGIBILITY
All employees, and in the case of Awards other than Incentive Stock
Options, consultants of the Company or any Affiliate capable of contributing
significantly to the successful performance of the Company, other than any
person who has irrevocably elected not to be eligible, are eligible to be
Participants in the Plan.
SECTION 5. STOCK AVAILABLE FOR AWARDS
(a) Subject to adjustment under subsection (b), Awards may be made under
the Plan for up to 550,000 shares of Common Stock. If any Award in respect to
shares of Common Stock expires or is terminated unexercised or is forfeited for
any reason, the shares subject to such Award, to the extent of such expiration,
termination or forfeiture, shall again be available for award under the Plan,
subject, however, in the case of Incentive Stock Options, to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below market value, or other similar transaction
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available under
the Plan, then the Committee, subject, in the case of Incentive Stock Options,
to any limitation required under the Code, shall equitably adjust any or all of
(i) the number and kind of shares in respect of which Awards may be made under
the Plan, (ii) the number and kind of shares subject to outstanding Awards, and
(iii) the exercise price with respect to any of the foregoing, and if considered
appropriate, the Committee may make provision for a cash payment with respect to
an outstanding Award, provided that the number of shares subject to any Award
shall always be a whole number.
(c) The maximum number of shares of Common Stock subject to Options and
Stock Appreciation Rights that may be granted to any Participant in the
aggregate in any fiscal year of the Company shall not exceed 100,000, subject to
adjustment under subsection (b).
SECTION 6. STOCK OPTIONS
(a) Subject to the provision of the Plan, the Committee may award Incentive
Stock Options and Non-qualified Stock Options and determine the number of shares
to be covered by each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The terms and conditions
of Incentive Stock Options shall be subject to and comply with Section 422 of
the Code, or any successor provision, and any regulations thereunder.
(b) The Committee shall establish the option price at the time each Option
is awarded, which price shall be not less than 100% of the Fair Market Value of
the Common Stock on the date of award.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions
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<PAGE> 16
with respect to the exercise of Options including conditions relating to
applicable federal or state securities laws, as it considers necessary or
advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be in whole or part in cash or, to the extent permitted by the
Committee at or after the award of an Option upon the delivery of shares of
Common Stock owned by the optionee valued at their Fair Market Value on the date
of delivery, or such other lawful consideration as the Committee may determine.
(e) The Committee may provide for the automatic award of an Option upon the
delivery of shares to the Company in payment of an Option for up to the number
of shares so delivered.
SECTION 7. STOCK APPRECIATION RIGHTS
(a) Subject to the provisions of the Plan, the Committee may award SARs in
tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. SARs shall have an
exercise price of not less than 100% of the Fair Market Value of the Common
Stock on the date of award, or in the case of SARs in tandem with Options, the
exercise price of the related Option.
(b) An SAR related to an Option that can only be exercised during limited
periods following a change in control of the Company may entitle the Participant
to receive an amount based upon the highest price paid or offered for Common
Stock in any transaction relating to the change in control or paid during the
thirty-day period immediately preceding the occurrence of the change in control
in any transaction reported in the stock market in which the Common Stock is
normally traded.
SECTION 8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) Reporting Person Limitations. Notwithstanding any other provision of
the Plan, to the extent required to qualify for the exemption provided by Rule
16b-3 under Section 16(b), any Option or SAR issued under the Plan to a
Reporting Person shall not be transferable other than by will or the laws of
descent and distribution and shall be exercisable during the Participant's
lifetime only by the Participant or the Participant's guardian or legal
representative.
(b) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or comply with applicable tax and regulatory
laws and accounting principles.
(c) Committee Discretion. Each type of Award may be made alone or in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of Award or at any time thereafter.
(d) Settlement. The Committee shall determine whether Awards are settled
in whole or in part in cash, Common Stock, other securities of the Company,
Awards or other property. The Committee may permit a Participant to defer all or
any portion of a payment under the Plan.
(e) Cash Awards. In the discretion of the Committee, any Award under the
Plan may provide cash payments to the Participant in lieu of or in addition to
an Award.
(f) Termination of Employment. The Committee shall determine the effect on
an Award of the disability, death, retirement or other termination of employment
of a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian, or Designated Beneficiary may
receive payment of an Award or exercise rights thereunder.
(g) Change in Control. In order to preserve a Participant's right under an
Award in the event of a change in control of the Company, the Committee in its
discretion may, at the time an Award is made or at
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<PAGE> 17
any time thereafter, take one or more of the following actions: (i) provide for
the acceleration of any time period relating to the exercise or realization of
the Award, (ii) provide for the purchase of the Award upon the Participant's
request for an amount of cash or other property that could have been received
upon the exercise or realization of the Award had the Award been currently
exercisable or payable, (iii) adjust the terms of the Award in a manner
determined by the Committee to reflect the change in control, (iv) cause the
Award to be assumed, or new rights substituted therefor, by another entity, or
(v) make such other provision as the Committee may consider equitable and in the
best interests of the Company.
(h) Withholding. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the participant.
(i) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Non-qualified Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
SECTION 9. MISCELLANEOUS.
(a) No Right To Employment. No persons shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of Common Stock to be distributed or
acquired under the Plan until he or she becomes the holder thereof.
(c) Effective Date. Subject to the approval of the shareholders of the
Company, the Plan shall be effective on October 23, 1991. Awards may be made
before, but expressly subject to, such approval.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that no amendment shall be made
without shareholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement, including any requirement for
exemptive relief under Section 16(b).
(e) Governing Law. The provisions of the Plan shall be governed and
interpreted in accordance with the laws of Massachusetts.
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DETACH HERE GLO 2
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
GALILEO CORPORATION
ANNUAL MEETING OF SHAREHOLDERS JANUARY 22, 1998
P The undersigned hereby appoints William T. Hanley and Josef W. Rokus,
R or either of them, with power of substitution in each, proxies to vote
O all shares of Common Stock of the undersigned in Galileo Corporation at
X the Annual Meeting of Shareholders to be held January 22, 1998, and any
Y adjournments thereof, hereby revoking any proxy heretofore given with
respect to such shares.
-----------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
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<PAGE> 19
DETACH HERE GLO 2
<TABLE>
<S> <C>
[X] Please mark
votes as in
this example.
Shares will be voted as specified by the shareholder. IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR BOTH OF THE
PROPOSALS BELOW. If other matters come before the meeting, the proxies or substitutes may vote upon such matters according to
their best judgment.
1. Proposal to elect Directors 2. Proposal to increase the number of FOR AGAINST ABSTAIN
Nominees: William T. Burgin, Allen E. Busching, shares available under the 1991 stock [ ] [ ] [ ]
Kenneth W. Draeger, William T. Hanley, Option Plan.
Robert D. Happ
FOR WITHHELD
[ ] [ ]
[ ]
--------------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as name(s) appear(s) at left. When signing as
attorney, executor, administrator, trustee or guardian, please
give full title as such. If more than one name is shown, including
the case of joint tenants, each party should sign. Thank you.
Signature:_____________________________ Date:________________ Signature:_____________________________ Date:________________
</TABLE>
