<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[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))
PRECISION OPTICS CORPORATION, INC.
(Name of Registrant as Specified In Its Charter)
[ ]
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
PRECISION OPTICS CORPORATION, INC.
22 EAST BROADWAY
GARDNER, MASSACHUSETTS 01440
October 14, 1997
To the Shareholders:
The Board of Directors and Officers of Precision Optics Corporation, Inc.
invite you to attend the 1997 Annual Meeting of Shareholders to be held Tuesday,
November 11, 1997, at 10:00 a.m. at the Wachusett Village Inn, Village Inn Road,
Westminster, Massachusetts.
A copy of the Proxy Statement and the Company's 1997 Annual Report to
Shareholders are enclosed.
If you cannot be present at the meeting, please mark, date, and sign the
enclosed proxy and return it as soon as possible in the enclosed envelope.
Very truly yours,
RICHARD E. FORKEY
President
<PAGE> 3
PRECISION OPTICS CORPORATION, INC.
22 EAST BROADWAY
GARDNER, MASSACHUSETTS 01440
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 11, 1997
The 1997 Annual Meeting of Shareholders of Precision Optics Corporation,
Inc. (the "Company") will be held on Tuesday, November 11, 1997, at 10:00 a.m.
at the Wachusett Village Inn, Village Inn Road, Westminster, Massachusetts, for
the following purposes:
1. To elect two directors to hold office for a three-year term and until
their successors shall be elected and shall have been qualified;
2. To consider and act on a proposal to approve the Company's 1997
Incentive Plan and
3. To transact any and all other business that may properly come before
the meeting or any adjournment thereof.
All shareholders of record at the close of business on Tuesday, September
30, 1997, are entitled to notice of and to vote at the meeting.
Shareholders are requested to sign and date the enclosed proxy and return
it in the enclosed envelope. The envelope requires no postage if mailed in the
United States.
By Order of the Board of Directors,
EDWARD A. BENJAMIN
Clerk
October 14, 1997
<PAGE> 4
PRECISION OPTICS CORPORATION, INC.
PROXY STATEMENT
------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement and form of proxy are furnished in connection with the
solicitation of proxies by the Board of Directors of Precision Optics
Corporation, Inc., a Massachusetts corporation (the "Company"), for the 1997
annual meeting of shareholders of the Company to be held November 11, 1997, at
10:00 a.m. and any adjournments thereof, for the purposes set forth in the
notice of meeting. The Company was incorporated in 1982, and its principal
executive offices are at 22 East Broadway, Gardner, Massachusetts 01440
(telephone 978-630-1800). This Proxy Statement and form of proxy are first being
distributed to shareholders on or about October 14, 1997.
VOTING RIGHTS AND OUTSTANDING SHARES
As of September 30, 1997, the Company had outstanding 6,046,502 shares of
Common Stock, $0.01 par value (the "Common Stock"). Each share of Common Stock
entitles the holder of record thereof at the close of business on September 30,
1997 to one vote in person or by proxy on the matters to be voted upon at the
meeting.
The Company will bear all the costs of the solicitation of proxies. The
Board of Directors may arrange with brokerage houses and other custodians,
nominees, and fiduciaries to forward solicitation materials to the beneficial
owners of the stock held of record by such persons, and the Company may
reimburse them for the reasonable out-of-pocket expenses incurred in so doing.
In addition to the solicitation of proxies by use of the mails, the Company may
use the services of some of its directors, officers, and regular employees (who
will receive no compensation therefor in addition to their regular salaries) to
solicit proxies personally or by mail or telephone.
Consistent with Massachusetts law and under the Company's by-laws, the vote
of a majority of the shares entitled to be cast on a particular matter, present
in person or represented by proxy, constitutes a quorum as to such matter. Votes
cast by proxy or in person at the Annual Meeting will be counted by persons
appointed by the Company to act as election inspectors for the meeting.
If the enclosed form of proxy is properly signed and returned and not
revoked, the shares represented thereby will be voted at the Annual Meeting. If
the shareholder specifies in the proxy how the shares are to be voted, they will
be voted as specified. If the shareholder does not specify how the shares are to
be voted, such shares will be voted to elect the nominees for director and to
approve the Company's 1997 Incentive Plan. Shares represented by proxies that
indicate an abstention or a "broker non-vote" (that is, shares represented at
the Meeting held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote and (ii)
the broker or nominee does not have the discretionary voting power on a
particular matter) will be counted as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a quorum. Shares
indicating an abstention will be treated as votes against the proposal; shares
indicating a broker non-vote, however, will not constitute votes cast at the
meeting and thus will have no effect on the outcome. The election of directors
described below requires a plurality of votes cast. Should the person so named
as nominee be unable or unwilling to serve as director, the persons named in the
form of proxy for the annual meeting may, in their discretion, vote for such
other person
<PAGE> 5
or may vote to fix the number of directors at such number less than four, as the
Board of Directors may recommend. Approval of the 1997 Incentive Plan requires
the vote of the majority of shares represented and entitled to vote at the
meeting. Any shareholder has the right to revoke his or her proxy at any time
before it is voted by attending the meeting and voting in person or by filing
with the Clerk of the Company a written instrument revoking the proxy or another
newly executed proxy bearing a later date.
At the date hereof, the Company's management has no knowledge of any
business other than that described in the notice for the annual meeting which
will be presented for consideration at such meeting. If any other business
should come before such meeting, the persons appointed by the enclosed form of
proxy may, in their discretion, vote all such proxies, as the Board of Directors
may recommend. The persons appointed by the enclosed form of proxy also may, in
their discretion, vote all proxies with respect to matters incident to the
conduct of the meeting.
ITEM 1. ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, as nearly
equal in number as reasonably possible, with staggered terms of office. Only one
class is elected each year, and each director serves a three year term and until
his or her successor has been duly elected and qualified. The Board of Directors
has fixed the number of directors at four. At the annual meeting it is intended
that the Company's Class I Directors (Messrs. Forkey and Benjamin) be elected to
hold office until the annual meeting of shareholders in 2000 and until their
respective successors have been duly elected and qualified. The nominees are
currently directors of the Company. The director in Class III (Mr. Shannon) will
hold office until the annual meeting of shareholders in 1999, and the director
in Class II (Mr. Pitlor) will hold office until the annual meeting of
shareholders in 1998 (and in each case, until their respective successors have
been duly elected and qualified). The names, ages, principal occupations for at
least the last five years, and certain other information with regard to the
directors, including the nominees, are as follows:
<TABLE>
<CAPTION>
NAME AND YEAR PRINCIPAL OCCUPATION; DIRECTORSHIPS OF OTHER PUBLIC
FIRST ELECTED DIRECTOR AGE COMPANIES
- ----------------------------------- ---- ---------------------------------------------------
<S> <C> <C>
Richard E. Forkey (1982)........... 57 President, Treasurer, and a director of the Company
since founding the Company in 1982; Clerk of the
Company from May 1983 to June 1990.
Edward A. Benjamin (1990).......... 59 Clerk and a director of the Company since June
1990. Mr. Benjamin has been a partner in the law
firm of Ropes & Gray, Boston, Massachusetts, since
1969.
Joel R. Pitlor (1990)*............. 58 Since 1979, president of J.R. Pitlor, a management
consulting firm that provides strategic business
planning, which Mr. Pitlor founded. Mr. Pitlor has
provided business planning consultation to the
Company since 1983. Mr. Pitlor has been a director
of Bioplasty, Inc., a Minnesota-based medical
products supplier, since 1988.
Robert R. Shannon (1990)*.......... 65 Since 1969, professor at the Optical Sciences
Center of the University of Arizona and Director of
the Center from 1983 to July 1992.
</TABLE>
- ---------------
* Directors whose terms do not expire this year.
2
<PAGE> 6
All of the shareholders holding shares of the Company's Common Stock are
entitled to cast one vote in person or by proxy for each share standing in their
names and are entitled to elect two Class 1 directors at the 1997 annual
meeting. If the nominees are not available as candidates when the election
occurs, the persons named in the proxy may, within their discretion, vote for
the election of such other persons as the Board of Directors may designate or to
reduce the number of directors correspondingly. The Company has no reason to
believe that the nominees will not be available for election.
BOARD OF DIRECTORS
During the fiscal year ended June 30, 1997, the Company's Board of
Directors held four meetings. The Option Committee of the Board of Directors,
composed of Messrs. Forkey and Pitlor, acted by unanimous consent on two
occasions during the fiscal year ended June 30, 1997. An Audit Committee of the
Board of Directors, composed of Messrs. Benjamin and Pitlor, was created and
held one meeting during the fiscal year ended June 30, 1997.
Information as to ownership of the Company's securities by the nominee for
director is included under the heading "Security Ownership of Certain Beneficial
Owners and Management."
EXECUTIVE OFFICERS
The Company's executive officers as of June 30, 1997 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- ---- --------------------------------------------------------
<S> <C> <C>
Richard E. Forkey........... 57 President, Treasurer
Jack P. Dreimiller.......... 49 Senior Vice President, Finance, and Chief Financial
Officer
Kumar M. Khajurivala........ 47 Vice President, Operations
</TABLE>
Mr. Forkey has been the President, the Treasurer, and a director of the
Company since he founded the Company in 1982. He was the Clerk of the Company
from May 1983 to June 1990.
Mr. Dreimiller has been Senior Vice President, Finance and Chief Financial
Officer since April 1992.
Mr. Khajurivala has been Vice President, Operations since January 1997.
From March 1986 to January 1997, he was Senior Thin Film Physicist of the
Company.
3
<PAGE> 7
COMPENSATION AND OTHER MATERIAL TRANSACTIONS
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation for the last three
completed fiscal years awarded to, earned by, or paid to the Company's Chief
Executive Officer at June 30, 1997 and the most highly paid executive officers
who served as executive officers at June 30, 1997 whose total annual salary and
bonuses for the fiscal year ended June 30, 1997 exceeded $100,000 for all
services rendered in all capacities to the Company and its subsidiaries (the
"Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION OTHER ANNUAL OPTIONS
AT FISCAL YEAR END YEAR SALARY ($) BONUS ($) COMPENSATION ($) (NUMBER)
- ---------------------------------- ---- ---------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Richard E. Forkey................. 1997 138,412 -0- 20,383(1) -0-
President, Chief Executive Officer 1996 119,600 -0- 23,832(1) -0-
1995 121,413 -0- 18,600(1) -0-
Jack P. Dreimiller................ 1997 116,020 2,000 2,097(2) 25,000
Senior Vice President 1996 109,986 -0- 4,794(2) -0-
Finance and Chief Financial
Officer 1995 101,950 1,000 3,384(2) 75,000
Kumar M. Khajurivala.............. 1997 107,760 2,500 2,091(2) 40,000
Vice President 1996 98,484 15,000 4,907(2) 50,000
Operations 1995 95,008 11,000 3,486(2) 30,000
</TABLE>
- ---------------
(1) Includes $1,131, $5,145 and $3,971 for Company contribution to Profit
Sharing Plan in 1997, 1996 and 1995, respectively, and $11,059, $10,595 and
$6,736 for car expense and $6,692, $6,688 and $6,888 for premiums for a life
insurance policy and a disability insurance policy for 1997, 1996, and 1995,
respectively.
(2) Represents Company contribution to Profit Sharing Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the individual grants of stock options made
by the Company during the fiscal year ended June 30, 1997 to its Named Executive
Officers.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO
UNDERLAYING OPTIONS EMPLOYEES IN EXPIRATION
NAME GRANTED FISCAL YEAR EXERCISE PRICE DATE
- --------------------------------------- -------------------- ------------------ -------------- ----------
<S> <C> <C> <C> <C>
Richard E. Forkey...................... -0- n/a n/a n/a
Jack P. Dreimiller..................... 25,000(1) 13.16% $ 2.1875 5/13/07
Kumar M. Khajurivala................... 40,000(1) 21.05% $ 2.1875 5/13/07
</TABLE>
- ---------------
(1) Options are exercisable as follows: one-fourth immediately and one-fourth on
each of the first, second and third anniversaries of grant.
4
<PAGE> 8
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table summarizes for each of the named executive officers the
total number of unexercised options, if any, held at June 30, 1997 and the value
of unexercised in-the-money options, if any, held at June 30, 1997. In-the-money
options are options where the fair market value of the underlying securities
exceeds the exercise or base price of the option. The value of unexercised,
in-the-money options at fiscal year-end is the difference between the exercise
price of the option and the fair market value of the underlying stock on June
30, 1997, which was $3.53 per share. The underlying options have not been
exercised, and actual gains, if any, on exercise will depend on the value of the
Company's Common Stock on the date of exercise. None of the named executive
officers exercised any stock option during the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
FISCAL-YEAR-END OPTION VALUES
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL-YEAR END IN-THE-MONEY OPTIONS
------------------------------- AT FISCAL YEAR-END ($)
EXERCISABLE UNEXERCISABLE -------------------------------
NAME (NUMBER) (NUMBER) EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard E. Forkey.................... -0- -0- -0- -0-
Jack P. Dreimiller................... 43,750 56,250 89,200 106,000
Kumar M. Khajurivala................. 52,500 67,500 105,000 121,100
</TABLE>
LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The Company has no long term incentive plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
The Company has no employment contracts in place with any named executive
officers. The Company also has no compensatory plan or arrangement with respect
to any named executive officer where such plan or arrangement will result from
the resignation, retirement, or any other termination of such executive
officer's employment with the Company and its subsidiaries or from a change in
control of the Company or a change in the named executive officers'
responsibilities following a change-in-control.
DIRECTOR COMPENSATION
The Company pays each director who is not also an employee of the Company
$250.00 per meeting which the director attends and reimburses the director for
travel expenses.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an arrangement with J.R. Pitlor ("J.R. Pitlor"), a company
wholly owned by Mr. Pitlor, a director of the Company, under which Mr. Pitlor
provides consulting services to the Company for a fee not to exceed $5,000 a
month. Either party may terminate this arrangement at will. The Company paid
J.R. Pitlor for consulting services aggregate fees of approximately $180,000
from July 1, 1994 to June 30, 1997.
The Company leases its facility in Gardner, Massachusetts from Equity
Assets, Inc. ("Equity"), a company wholly owned by Mr. Forkey, the President and
Treasurer and a director of the Company, under a Lease Agreement dated January
2, 1989, at an annual base rent of $108,000. The Company pays Equity in monthly
installments of $9,000. The lease expires December 31, 1999.
The Company has paid legal fees to Ropes & Gray, a law firm of which Mr.
Benjamin, the Clerk and a director of the Company, is a partner, of
approximately $34,478 for fiscal year 1995, $29,510 for fiscal year 1996, and
$35,255 for fiscal year 1997.
5
<PAGE> 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the Company's Common
Stock owned as of the close of business on September 30, 1997, the record date
for the 1997 Annual Meeting, by the following persons: (i) each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock (of which, as of September 30, 1997, none were known to the Company), (ii)
each of the Company's directors and nominees for director who beneficially owns
the Company's or its subsidiaries' Common Stock, other than directors'
qualifying shares, (iii) each of the Company's most highly paid executive
officers whose cash compensation exceeds $100,000 who beneficially owns the
Company's or its subsidiaries' Common Stock, and (iv) all executive officers and
directors, as a group, who beneficially own the Company's or its subsidiaries'
Common Stock. The information on beneficial ownership in the table and footnotes
thereto is based upon data furnished to the Company by, or on behalf of, the
person listed in the table.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL
OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT(2)
- ----------------------------------------------------------------- ------------ ----------
<S> <C> <C>
DIRECTORS AND OFFICERS
Edward A. Benjamin*.............................................. 16,250(3) **
c/o Ropes & Gray
One International Place
Boston, MA 02110
Richard E. Forkey*............................................... 1,786,017 29.53%
c/o Precision Optics Corporation, Inc.
22 East Broadway
Gardner, MA 01440
Joel R. Pitlor*.................................................. 100,117(4) 1.64%
c/o J.R. Pitlor
19 Chalk Street
Cambridge, MA 02139
Robert R. Shannon*............................................... 32,750(6) **
7040 E. Taos Place
Tucson, AZ 85715
Jack P. Dreimiller............................................... 43,750(6) **
c/o Precision Optics Corporation, Inc.
22 East Broadway
Gardner, MA 01440
Kumar M. Khajurivala............................................. 110,000(5) 1.81%
c/o Precision Optics Corporation, Inc.
22 East Broadway
Gardner, MA 01440
All officers and directors as a group, including those named
above (6 persons).............................................. 2,088,884(7) 33.43%
</TABLE>
- ---------------
* Director
** The percentage of shares beneficially owned by such person does not exceed
one percent of the Company's Common Stock.
6
<PAGE> 10
(1) Represents shares with respect to which each beneficial owner listed has or
will have, upon acquisition of such shares, sole voting power and investment
power.
(2) Percentages are calculated on the basis of the amount of outstanding Common
Stock plus, for each person or group, any securities that person or group
has the right to acquire within sixty days pursuant to options, warrants,
conversion privileges, or other rights.
(3) Includes 11,250 shares which may be acquired within sixty days upon the
exercise of outstanding stock options.
(4) Includes 75,117 shares which may be acquired within sixty days upon the
exercise of outstanding stock options.
(5) Includes 40,000 shares which may be acquired within sixty days upon the
exercise of outstanding stock options.
(6) Represents shares which may be acquired within sixty days upon the exercise
of outstanding stock options.
(7) Includes 170,367 shares which may be acquired within sixty days upon the
exercise of outstanding stock options.
ITEM 2. PROPOSAL TO APPROVE THE COMPANY'S 1997 INCENTIVE PLAN.
The Board of Directors has adopted, subject to stockholder approval, the
Precision Optics Corporation, Inc. 1997 Incentive Plan (the "1997 Incentive
Plan"). The Board of Directors believes that approval of the 1997 Incentive Plan
will advance the interests of the Company by providing eligible participants the
opportunity to receive a broad variety of equity-based and cash incentives
("Awards"). A total of 1,200,000 shares of Common Stock have been reserved for
issuance under the 1997 Incentive Plan, subject to adjustment as provided in the
1997 Incentive Plan. If the 1997 Incentive Plan is approved by the stockholders,
the Company will not grant any new awards under the 1989 Stock Option Plan.
SUMMARY OF THE 1997 INCENTIVE PLAN
The following summary description of the 1997 Incentive Plan is qualified
in its entirety by reference to the full text of the 1997 Incentive Plan
attached to this proxy statement as Exhibit A. Terms used but not otherwise
defined herein shall have the meanings ascribed to such terms in the 1997
Incentive Plan.
Deductibility of Performance Awards. If the 1997 Incentive Plan is
approved by the stockholders, certain payments to executive officers under the
1997 Incentive Plan may be eligible for treatment as "performance based"
compensation under Section 162(m) of the Internal Revenue Code ("Section
162(m)"). Section 162(m) generally limits to $1 million the annual corporate
income tax deduction for compensation paid to the chief executive officer or any
of the four other highest paid executive officers of a publicly-held corporation
which is not "performance-based" compensation. The 1997 Incentive Plan is
intended to enable the Company to comply with Section 162(m) by allowing Awards
granted under the 1997 Incentive Plan to qualify as performance-based
compensation. (See "Certain Federal Income Tax Consequences"). Under current
regulations, in those cases where an Award under the 1997 Incentive Plan would
qualify for the Section 162(m) performance-based exception in part by reason of
being conditioned upon one or more of the specific performance criteria
described below (see "Performance Criteria"), continued availability of the
exception will depend upon reapproval by stockholders of the material terms of
the performance criteria not later than the first stockholder meeting that
occurs in the fifth year following the year in which the stockholders previously
approved such terms.
7
<PAGE> 11
Administration. The 1997 Incentive Plan will be administered by the Board
of Directors or a committee thereof (the "Committee"). Subject to the terms of
the 1997 Incentive Plan, the Committee has authority to interpret the 1997
Incentive Plan; determine eligibility for and grant Awards; determine, modify or
waive the terms and conditions of any Award; and otherwise do all things
necessary to carry out the purposes of the 1997 Incentive Plan. In the case of
any Award intended to be eligible for the performance-based compensation
exception under Section 162(m), the Committee shall exercise its discretion
consistent with qualifying the Award for such exception.
Eligibility and Participation. In general, the Committee will select
participants in the 1997 Incentive Plan from among key employees of the Company
and its affiliates who, in the opinion of the Committee, are in a position to
make a significant contribution to the success of the Company or its affiliates.
The Committee also has discretion to include as participants in the 1997
Incentive Plan members of the Company's Board of Directors and other persons who
provide services to the Company or its affiliates. The maximum number of shares
for which stock options may be granted to any person, the maximum number of
shares subject to stock appreciation rights granted to any person, and the
aggregate maximum number of shares of Stock which may be delivered to any person
pursuant to Awards that are not stock options or stock appreciation rights are
each limited to 600,000 over the life of the 1997 Incentive Plan. In addition,
no more than $2 million may be paid to any individual with respect to any annual
cash performance-based bonuses and no more than $2 million in cash
performance-based bonuses may be paid to any individual with respect to
multi-year performance periods ending in the same year. No Award constituting an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code (an "ISO") may be granted under the 1997 Incentive Plan after September 15,
2007, but ISO Awards previously granted may extend beyond such date.
Types of Awards. The Committee, in its discretion, may award (i) options
to purchase Stock, (ii) stock appreciation rights, (iii) restricted or
unrestricted Stock, (iv) promises to deliver Stock or other securities in the
future, (v) convertible securities, (vi) cash bonuses, and (vii) cash bonuses or
loans to help defray the costs of the foregoing Awards.
Performance Criteria. Awards under the 1997 Incentive Plan may be
conditioned upon satisfaction of specified performance criteria. In the case of
any such Award that is intended to qualify for exemption from the deduction
limitation rules of Section 162(m) (an "Exempt Award"), the criteria used in
connection with the Award shall be one or any combination of the following
(determined either on a consolidated basis or, as the context permits, on a
divisional, subsidiary, line of business or geographical basis or in
combinations thereof): (i) sales; revenues; assets; expenses; earnings before or
after deduction for all or any portion of interest, taxes, depreciation or
amortization, whether or not on a continuing operations or an aggregate or per
share basis; return on equity, investment, capital or assets; gross margin;
inventory level or turns; one or more operating ratios; borrowing levels,
leverage ratios or credit rating; market share; capital expenditures; cash flow;
stock price; stockholder return; or other objective operating contributions; or
(ii) acquisitions or divestitures (in whole or in part); joint ventures and
strategic alliances; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity) and
refinancings; or other transactions that involve a change in the equity
ownership of the Company. In the case of an Exempt Award, the Committee will
preestablish the particular performance goals in writing no later than 90 days
after the commencement of the period of service to which the performance relates
(or earlier if so required under applicable regulations) and will certify prior
to payment whether the performance goal or goals have been attained. If the
performance goal with respect to an Exempt Award is not attained, no other Award
shall be provided in substitution. Where rights under an Award depend in whole
or in part on attainment of performance objectives, actions by the Company that
have an effect, however material, on such performance objectives or on the
likelihood that they will be achieved will not be deemed an amendment or
alteration of the
8
<PAGE> 12
Award unless accomplished by a change in the express terms of the Award or other
action that is without substantial consequence except as it affects the Award.
Rules Applicable to Awards. The Company retains the right at any time to
extinguish rights under an Award in exchange for payment in cash, Stock (subject
to the limitation on the maximum number of shares available with respect to
Awards) or other property on such terms as the Committee determines, provided
the holder of the Award consents to such exchange. Except as the Committee
otherwise expressly provides, Awards (other than an Award in the form of an
outright transfer of cash or unrestricted Stock) may not be transferred other
than by will or by the laws of descent and distribution and, during the lifetime
of a participant, an Award requiring exercise may be exercised only by the
participant. The Committee may determine the time or times at which an Award
will vest or become exercisable. Unless the Committee expressly provides
otherwise, an Award requiring exercise will cease to be exercisable, and all
other Awards to the extent not already fully vested will be forfeited,
immediately upon the cessation (for any reason, including death) of the
participant's employment or other service relationship with the Company and its
affiliates. The Committee may provide that upon the exercise of an Award the
participant will automatically receive a new Award of like kind covering a
number of shares equal to the number of shares for which the first Award was
exercised.
Stock Options. Each stock option (except as otherwise expressly provided
by the Committee consistent with continued qualification of the stock option as
an Exempt Award, or unless the Committee expressly determines that such stock
option is not subject to Section 162(m) or that the stock option is not intended
to qualify as an Exempt Award) will have an exercise price equal to the fair
market value of the Stock subject to the stock option, determined as of the date
of grant, except that a stock option intended to be an ISO granted to a person
who owns (or by application of attribution rules is deemed to own) more than 10%
of the total combined voting power of all classes of stock of the Company will
have an exercise price equal to 110% of such fair market value. Options awarded
under the 1997 Incentive Plan will not be ISOs except as expressly provided
otherwise.
Effect of Certain Transactions. In the event of a consolidation or merger
in which the Company is not the surviving corporation or which results in the
acquisition of a majority of the Company's outstanding Stock by a single person
or entity or by a group of persons and/or entities acting in concert, or in the
event of the sale or transfer of all or substantially all of the Company's
assets or a dissolution or liquidation of the Company, all outstanding Awards
requiring exercise will cease to be exercisable, and all other Awards to the
extent not fully vested (including Awards subject to performance conditions not
yet satisfied or determined) will be forfeited, as of the effective time of such
transaction; provided, however, that immediately prior to the consummation of
such a transaction, the vesting or exercisability of Awards shall be accelerated
unless, in the case of any Award, the Committee provides for one or more
substitute or replacement awards from, or the assumption of existing Awards by,
the acquiring entity (if any) or its affiliates.
Equitable Adjustment. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the Company's capital
structure, the Committee will make appropriate adjustments to the maximum number
of shares that may be delivered under the 1997 Incentive Plan, to the maximum
share limits under the 1997 Incentive Plan, to the number and kind of shares of
stock or securities subject to Awards then outstanding or subsequently granted,
to any exercise prices relating to Awards, and to any other provision of Awards
affected by such change. The Committee also may make such adjustments to take
into account other distributions or events, if the Committee determines that
adjustments are appropriate to avoid distortion in the operation of the 1997
Incentive Plan and to preserve the value of Awards; provided, however, that no
such adjustment shall be made to the maximum share limits, or otherwise to an
Award intended to be eligible for the performance-based exception under Section
162(m), except to the extent consistent with that exception.
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Amendment. Subject to the Committee's obligation to exercise its
discretion consistent with qualifying Awards for the performance-based exception
under Section 162(m) if such Awards are intended to so qualify, the Committee
may at any time or times amend the 1997 Incentive Plan or any outstanding Award
for any purpose which may at the time be permitted by law, or may at any time
terminate the 1997 Incentive Plan as to any further grants of Awards, provided
that, except to the extent expressly required or permitted by the 1997 Incentive
Plan, no such amendment will, without the approval of the stockholders of the
Company, effectuate a change for which stockholder approval is required in order
for the 1997 Incentive Plan to continue to qualify under Section 422 of the
Internal Revenue Code or for Awards to be eligible for the performance-based
exception under Section 162(m).
Other Compensation. The existence of the 1997 Incentive Plan and the grant
of Awards will not affect the Company's right to pay other bonuses or
compensation in addition to Awards under the 1997 Incentive Plan.
PRICE OF COMMON STOCK
The closing price of the Stock on NASDAQ on October 3, 1997 was $4.3125.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
of the issuance and exercise of stock options awarded under the 1997 Incentive
Plan and is based on the law as in effect on October 1, 1997. The summary does
not address all federal tax consequences, nor does it cover state, local or
non-U.S. tax consequences.
In general, a participant realizes no taxable income on either the grant or
the vesting of a stock option. The exercise of a nonstatutory, or non-qualified,
option (i.e., an option that does not qualify as an ISO) results in ordinary
income (generally subject to withholding if the participant is an employee)
equal to the difference (the "Option Spread") between the value of the stock
purchased and the option exercise price. A corresponding deduction is available
to the Company. In general, the ordinary income associated with the exercise is
measured and taken into account at the time of exercise. Any subsequent sale of
stock purchased under a nonstatutory option may result in a capital gain or
loss.
The exercise of an ISO does not produce ordinary taxable income. However,
because the Option Spread constitutes "alternative minimum taxable income"
(measured and taken into account, in general, at the time of exercise), exercise
of an ISO may result in an alternative minimum tax liability. In addition,
shares purchased under an ISO ("ISO Shares") are subject to special tax holding
rules. If a participant holds on to ISO Shares for at least two years from the
date of the ISO grant and at least one year after exercise, any gain or loss
recognized for tax purposes upon a subsequent sale of the shares will be a
long-term capital gain or loss. However, a disposition of ISO Shares by the
participant within either of these special holding periods (a so-called
"disqualifying disposition") results in ordinary compensation income in the year
of the disposition equal, in general, to the Option Spread at the time the
option was exercised. The ordinary income realized upon a disqualifying
disposition of ISO Shares is deductible to the Company but is not subject to
withholding. Any additional gain recognized for tax purposes in a disqualifying
disposition will be taxed as short-term or long-term capital gain.
An ISO that is exercised by the participant more than three months
following termination of employment (one year, if termination occurred by reason
of total and permanent disability) is treated for tax purposes as a nonstatutory
option. ISOs granted to a participant under the 1997 Incentive Plan (together
with ISOs granted to the participant after 1986 under any other plans of the
Company and certain affiliates) are also treated as
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<PAGE> 14
nonstatutory options to the extent that, in the aggregate, they first become
exercisable in any calendar year for shares of Stock having a fair market value
(determined at time of grant) in excess of $100,000.
The Taxpayer Relief Act of 1997 provides, in general, that the gain on sale
of capital assets held for more than eighteen months will be taxed at a lower
rate than long-term capital gains on assets held for eighteen or fewer months
(but more than one year). Other special capital-gains rules may apply in certain
cases.
Under Section 162(m) of the Code, in general, the deduction a public
corporation may claim for remuneration in any year to the corporation's chief
executive officer or any of its other four top officers (ranked by pay) is
limited to $1,000,000. Stock-option related deductions are, in general, subject
to this limit. An exception to the $1,000,000 deduction limit applies to certain
qualified performance-based compensation, including compensation under certain
stock options, but the exception is not available with respect to an award
unless, among other requirements, the award is made by a committee of the board
of directors of the corporation consisting solely of two or more "outside
directors" (as defined). As the Board of Directors of the Company is currently
constituted, awards under the 1997 Incentive Plan would not satisfy this
requirement. The Board of Directors would therefore be required to become
qualified for Section 162(m) purposes before the performance-based exception
would apply to awards made pursuant to the 1997 Incentive Plan.
Under the so-called "golden parachute" provisions of the Code, certain
Awards vested or paid in connection with a change of control of the Company may
also be non-deductible to the Company and may be subject to an additional 20%
federal excise tax. Non-deductible "parachute payments" will in general reduce
the $1 million limit on deductible compensation under Section 162(m) of the
Code, to the extent such limit is applicable to remuneration paid under the 1997
Incentive Plan or otherwise.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO APPROVE THE 1997 INCENTIVE PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The directors have appointed Arthur Andersen LLP to examine the Company's
financial statements for fiscal year 1998. The Company expects that a
representative of Arthur Andersen LLP will be present at the annual meeting and
available to respond to appropriate questions and will have the opportunity to
make a statement if he or she desires to do so.
SHAREHOLDER PROPOSALS
Shareholders may present proposals for inclusion in the 1998 Proxy
Statement and form of proxy relating to that meeting provided they are received
by the Clerk of the Company no later than June 14, 1998 and are otherwise in
compliance with applicable Securities and Exchange Commission regulations.
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<PAGE> 15
EXHIBIT A
PRECISION OPTICS CORPORATION, INC.
1997 INCENTIVE PLAN
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used in
the Plan.
2. IN GENERAL
The Plan has been established to advance the interests of the Company by
giving selected Employees, directors and other persons (including both
individuals and entities) who provide services to the Company or its Affiliates
equity-based or cash incentives through the grant of Awards.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the express
provisions of the Plan, to interpret the Plan; determine eligibility for and
grant Awards; determine, modify or waive the terms and conditions of any Award;
prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once an
Award has been communicated in writing to a Participant, the Administrator may
not, without the Participant's consent, alter the terms of the Award so as to
affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so in writing at the time of
such communication. In the case of any Award intended to be eligible for the
performance-based compensation exception under Section 162(m), the Administrator
shall exercise its discretion consistent with qualifying the Award for such
exception. The Administrator may delegate to senior management the authority to
grant Awards, other than Awards to the President.
4. SHARES SUBJECT TO THE PLAN
a. A total of 1,200,000 shares of Stock have been reserved for issuance
under the Plan. The following shares of Stock will also be available for future
grants:
(i) shares of Stock remaining under an Award that terminates without having
been exercised in full (in the case of an Award requiring exercise by a
Participant for delivery of Stock);
(ii) shares of Stock subject to an Award, where cash is delivered to a
Participant in lieu of such shares;
(iii) shares of Restricted Stock that are forfeited to the Company;
(iv) shares of Stock tendered by a Participant to the Company as payment
upon exercise of an Award; and
(v) shares of Stock held back by the Company, or tendered by a Participant
to the Company, in satisfaction of tax withholding requirements.
Stock delivered under the Plan may be authorized but unissued Stock or
previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
b. The maximum number of shares of Stock for which Stock Options may be
granted to any person over the life of the Plan shall be 600,000. The maximum
number of shares of Stock subject to SARs granted to any person over the life of
the Plan shall be 600,000. For purposes of the preceding two sentences, the
repricing of a Stock Option or SAR shall be treated as a new grant to the extent
required under
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Section 162(m). The aggregate maximum number of shares of Stock delivered to any
person over the life of the Plan pursuant to Awards that are not Stock Options
or SARs shall also be 600,000. Subject to these limitations, each person
eligible to participate in the Plan shall be eligible in any year to receive
Awards covering up to the full number of shares of Stock then available for
Awards under the Plan.
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key Employees,
directors and other individuals or entities providing services to the Company or
its Affiliates who, in the opinion of the Administrator, are in a position to
make a significant contribution to the success of the Company and its
Affiliates. Eligibility for ISOs is further limited to those individuals whose
employment status would qualify them for the tax treatment described in Sections
421 and 422 of the Code.
6. RULES APPLICABLE TO AWARDS
a. ALL AWARDS
(1) PERFORMANCE OBJECTIVES. Where rights under an Award depend in
whole or in part on attainment of performance objectives, actions by the
Company that have an effect, however material, on such performance
objectives or on the likelihood that they will be achieved will not be
deemed an amendment or alteration of the Award unless accomplished by a
change in the express terms of the Award or other action that is without
substantial consequence except as it affects the Award.
(2) ALTERNATIVE SETTLEMENT. The Company retains the right at any time
to extinguish rights under an Award in exchange for payment in cash, Stock
(subject to the limitations of Section 4) or other property on such terms
as the Administrator determines, provided the holder of the Award consents
to such exchange.
(3) TRANSFERABILITY OF AWARDS. Except as the Administrator otherwise
expressly provides, Awards (other than an Award in the form of an outright
transfer of cash or Unrestricted Stock) may not be transferred other than
by will or by the laws of descent and distribution. During a Participant's
lifetime an Award requiring exercise may be exercised only by the
Participant (or in the event of the Participant's incapacity, the person or
persons legally appointed to act on the Participant's behalf).
(4) VESTING, ETC. The Administrator may determine the time or times
at which an Award will vest (i.e., become free of forfeiture restrictions)
or become exercisable. Unless the Administrator expressly provides
otherwise, an Award requiring exercise will cease to be exercisable, and
all other Awards to the extent not already fully vested will be forfeited,
immediately upon the cessation (for any reason, including death) of the
Participant's employment or other service relationship with the Company and
its Affiliates.
(5) TAXES. The Administrator will make such provision for the
withholding of taxes as it deems necessary. The Administrator may, but need
not, hold back shares of Stock from an Award or permit a Participant to
tender previously owned shares of Stock in satisfaction of tax withholding
requirements.
(6) DIVIDEND EQUIVALENTS, ETC. The Administrator may provide for the
payment of amounts in lieu of cash dividends or other cash distributions
with respect to Stock subject to an Award.
(7) RIGHTS LIMITED. Nothing in the Plan shall be construed as giving
any person the right to continued employment or service with the Company or
its Affiliates, or any rights as a shareholder except as to shares of Stock
actually issued under the Plan. The loss of existing or potential profit in
Awards will not constitute an element of damages in the event of
termination of employment or service for any reason, even if the
termination is in violation of an obligation of the Company or Affiliate to
the Participant.
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(8) SECTION 162(M). In the case of an Award intended to be eligible
for the performance-based compensation exception under Section 162(m), the
Plan and such Award shall be construed to the maximum extent permitted by
law in a manner consistent with qualifying the Award for such exception.
b. AWARDS REQUIRING EXERCISE
(1) TIME AND MANNER OF EXERCISE. Unless the Administrator expressly
provides otherwise, (a) an Award requiring exercise by the holder will not
be deemed to have been exercised until the Administrator receives a written
notice of exercise (in form acceptable to the Administrator) signed by the
appropriate person and accompanied by any payment required under the Award;
and (b) if the Award is exercised by any person other than the Participant,
the Administrator may require satisfactory evidence that the person
exercising the Award has the right to do so.
(2) PAYMENT OF EXERCISE PRICE, IF ANY. Where the exercise of an Award
is to be accompanied by payment, the Administrator may determine the
required or permitted forms of payment either at or after the time of the
Award, subject to the following: (a) unless the Administrator expressly
provides otherwise, all payments will be by cash or check acceptable to the
Administrator; and (b) where shares of Stock issued under an Award are part
of an original issue of shares, the Award shall require an exercise price
equal to at least the par value of such shares.
(3) RELOAD AWARDS. The Administrator may provide that upon the
exercise of an Award, either by payment of cash or (if permitted under
Section 6.b.(2) above) through the tender of previously owned shares of
Stock, the Participant or other person exercising the Award will
automatically receive a new Award of like kind covering a number of shares
of Stock equal to the number of shares of Stock for which the first Award
was exercised.
(4) ISOS. No ISO may be granted under the Plan after September 15,
2007, but ISOs previously granted may extend beyond that date.
c. AWARDS NOT REQUIRING EXERCISE
Awards of Restricted Stock and Unrestricted Stock may be made in return for
either (i) services determined by the Administrator to have a value not less
than the par value of the awarded shares of Stock, or (ii) cash or other
property having a value not less than the par value of the awarded shares of
Stock plus such additional amounts (if any) as the Administrator may determine
payable in such combination and type of cash, other property (of any kind) or
services as the Administrator may determine.
7. EFFECT OF CERTAIN TRANSACTIONS
a. MERGERS, ETC.
In the event of (i) a consolidation or merger in which the Company is not
the surviving corporation or which results in the acquisition of a majority of
the Company's then outstanding voting common stock by a single person or entity
or by a group of persons and/or entities acting in concert, (ii) a sale or
transfer of all or substantially all the Company's assets, or (iii) a
dissolution or liquidation of the Company (any of the foregoing, a "covered
transaction"), all outstanding Awards requiring exercise will cease to be
exercisable, and all other Awards to the extent not fully vested (including
Awards subject to performance conditions not yet satisfied or determined) will
be forfeited, as of the effective time of the covered transaction; provided,
however, that immediately prior to the consummation of such covered transaction
the vesting or exercisability of Awards shall be accelerated unless, in the case
of any Award, the Administrator provides for one or more substitute or
replacement awards from, or the assumption of the existing Award by, the
acquiring entity (if any) or its affiliates.
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The Administrator may provide in the case of any Award that the provisions
of the preceding paragraph shall also apply to (i) mergers or consolidations
involving the Company that do not constitute a covered transaction, or (ii)
other transactions, not constituting a covered transaction, that involve the
acquisition of the Company's outstanding Stock.
b. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK
(1) BASIC ADJUSTMENT PROVISIONS. In the event of a stock dividend,
stock split or combination of shares, recapitalization or other change in
the Company's capital structure, the Administrator will make appropriate
adjustments to the maximum number of shares that may be delivered under the
Plan under Section 4.a. and to the maximum share limits described in
Section 4.b., and will also make appropriate adjustments to the number and
kind of shares of stock or securities subject to Awards then outstanding or
subsequently granted, any exercise prices relating to Awards and any other
provision of Awards affected by such change.
(2) CERTAIN OTHER ADJUSTMENTS. The Administrator may also make
adjustments of the type described in paragraph (1) above to take into
account distributions to common stockholders other than stock dividends or
normal cash dividends, mergers, consolidations, acquisitions, dispositions
or similar corporate transactions, or any other event, if the Administrator
determines that adjustments are appropriate to avoid distortion in the
operation of the Plan and to preserve the value of Awards made hereunder;
provided, that no such adjustment shall be made to the maximum share limits
described in Section 4.b., or otherwise to an Award intended to be eligible
for the performance-based exception under Section 162(m), except to the
extent consistent with that exception.
(3) CONTINUING APPLICATION OF PLAN TERMS. References in the Plan to
shares of Stock shall be construed to include any stock or securities
resulting from an adjustment pursuant to Section 7.b.(1) or 7.b.(2) above.
8. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove any restriction from shares of Stock previously
delivered under the Plan until: the Company's counsel has approved all legal
matters in connection with the issuance and delivery of such shares; if the
outstanding Stock is at the time of delivery listed on any stock exchange or
national market system, the shares to be delivered have been listed or
authorized to be listed on such exchange or system upon official notice of
issuance; and all conditions of the Award have been satisfied or waived. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act. The Company may require that
certificates evidencing Stock issued under the Plan bear an appropriate legend
reflecting any restriction on transfer applicable to such Stock.
9. AMENDMENT AND TERMINATION
Subject to the penultimate sentence of Section 3, the Administrator may at
any time or times amend the Plan or any outstanding Award for any purpose which
may at the time be permitted by law, or may at any time terminate the Plan as to
any further grants of Awards; provided, that (except to the extent expressly
required or permitted by the Plan) no such amendment will, without the approval
of the stockholders of the Company, effectuate a change for which stockholder
approval is required in order for the Plan to continue to qualify under Section
422 of the Code and for Awards to be eligible for the performance-based
exception under Section 162(m).
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10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of the Plan or the grant of any Award shall not in any way
affect the Company's right to award a person bonuses or other compensation in
addition to Awards under the Plan.
11. GOVERNING LAW
The Plan shall be construed in accordance with the laws of the Commonwealth
of Massachusetts.
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EXHIBIT A
DEFINITION OF TERMS
The following terms, when used in the Plan, shall have the meanings and be
subject to the provisions set forth below:
"ADMINISTRATOR": The Committee, if one has been appointed; otherwise the
Board.
"AFFILIATE": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which the
Company or any such corporation or other entity owns, directly or indirectly,
50% of the outstanding capital stock (determined by aggregate voting rights) or
other voting interests.
"AWARD": Any of the following:
(i) Options ("Stock Options") entitling the recipient to acquire
shares of Stock upon payment of the exercise price. Each Stock Option
(except as otherwise expressly provided by the Committee consistent with
continued qualification of the Stock Option as a performance-based award
for purposes of Section 162(m), or unless the Committee expressly
determines that such Stock Option is not subject to Section 162(m) or that
the Stock Option is not intended to qualify for the performance-based
exception under Section 162(m)) will have an exercise price equal to the
fair market value of the Stock subject to the option, determined as of the
date of grant, except that an ISO granted to an Employee described in
Section 422(b)(6) of the Code will have an exercise price equal to 110% of
such fair market value. The Administrator will determine the medium in
which the exercise price is to be paid, the duration of the option, the
time or times at which an option will become exercisable, provisions for
continuation (if any) of option rights following termination of the
Participant's employment with the Company and its Affiliates, and all other
terms of the Stock Option. No Stock Option awarded under the Plan will be
an ISO unless the Administrator expressly provides for ISO treatment.
(ii) Rights ("SARs") entitling the holder upon exercise to receive
cash or Stock, as the Administrator determines, equal to a function
(determined by the Administrator using such factors as it deems
appropriate) of the amount by which the Stock has appreciated in value
since the date of the Award.
(iii) Stock subject to restrictions ("Restricted Stock") under the
Plan requiring that such Stock be redelivered to the Company if specified
conditions are not satisfied. The conditions to be satisfied in connection
with any Award of Restricted Stock, the terms on which such Stock must be
redelivered to the Company, the purchase price of such Stock, and all other
terms shall be determined by the Administrator.
(iv) Stock not subject to any restrictions under the Plan
("Unrestricted Stock").
(v) A promise to deliver Stock or other securities in the future on
such terms and conditions as the Administrator determines.
(vi) Securities (other than Stock Options) that are convertible into
or exchangeable for Stock on such terms and conditions as the Administrator
determines.
(vii) Cash bonuses tied to performance criteria as described at (viii)
below ("Cash Performance Awards").
(viii) Awards described in any of (i) through (vii) above where the
right to exercisability, vesting or full enjoyment of the Award is
conditioned in whole or in part on the satisfaction of specified
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performance criteria ("Performance Awards"). The Committee in its
discretion may grant Performance Awards that are intended to qualify for
the performance-based compensation exception under Section 162(m) and
Performance Awards that are not intended so to qualify. No more than
$2,000,000 may be paid to any individual with respect to any Cash
Performance Award. In applying the limitation of the preceding sentence:
(A) multiple Cash Performance Awards to the same individual that are
determined by reference to performance periods of one year or less ending
with or within the same fiscal year of the Company shall be subject in the
aggregate to one $2,000,000 limit, and (B) multiple Cash Performance Awards
to the same individual that are determined by reference to one or more
multi-year performance periods ending in the same fiscal year of the
Company shall be subject in the aggregate to a separate limit of
$2,000,000. With respect to any Performance Award other than a Cash
Performance Award, Stock Option or SAR, the maximum award opportunity shall
be 250,000 shares of Stock or their equivalent value in cash, subject to
the limitations of Section 4.b. For the avoidance of doubt, any Performance
Award of a type described in (i) through (vi) above shall be treated for
purposes of this paragraph as a Performance Award that is not a Cash
Performance Award, even if payment is made in cash.
In the case of a Performance Award intended to qualify as
performance-based for the purposes of Section 162(m) (other than a Stock
Option or SAR with an exercise price at least equal to the fair market
value of the underlying Stock on the date of grant), the Committee shall in
writing preestablish a specific performance goal (based solely on one or
more qualified performance criteria or a combination of qualified
performance criteria) no later than 90 days after the commencement of the
period of service to which the performance relates (or at such earlier time
as is required to qualify the award as performance-based under Section
162(m)). For purposes of the Plan, a qualified performance criterion is any
of the following (determined either on a consolidated basis or, as the
context permits, on a divisional, subsidiary, line of business or
geographical basis or in combinations thereof): (i) sales; revenues;
assets; expenses; earnings before or after deduction for all or any portion
of interest, taxes, depreciation or amortization, whether or not on a
continuing operations or an aggregate or per share basis; return on equity,
investment, capital or assets; gross margin; inventory level or turns; one
or more operating ratios; borrowing levels, leverage ratios or credit
rating; market share; capital expenditures; cash flow; stock price;
stockholder return; or other objective operating contributions; or (ii)
acquisitions and divestitures (in whole or in part); joint ventures and
strategic alliances; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity)
and refinancings; or other transactions that involve a change in the equity
ownership of the Company. Prior to payment of any Performance Award (other
than a Stock Option or SAR with an exercise price at least equal to the
fair market value of the underlying Stock on the date of grant) intended to
qualify as performance-based under Section 162(m), the Committee shall
certify whether the performance goal has been attained and such
determination shall be final and conclusive. If the performance goal with
respect to any such Award is not attained, no other Award shall be provided
in substitution of the Performance Award.
(ix) Grants of cash, or loans, made in connection with other Awards in
order to help defray in whole or in part the economic cost (including tax
cost) of the Award to the Participant. The terms of any such grant or loan
shall be determined by the Administrator.
Awards may be combined in the Administrator's discretion.
"BOARD": The Board of Directors of the Company.
"CODE": The U.S. Internal Revenue Code of 1986 as from time to time amended
and in effect, or any successor statute as from time to time in effect.
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"COMMITTEE": A committee of the Board comprised solely of two or more
outside directors within the meaning of Section 162(m). The Committee may
delegate ministerial tasks to such persons (including Employees) as it deems
appropriate.
"COMPANY": Precision Optics Corporation, Inc.
"EMPLOYEE": Any person who is employed by the Company or an Affiliate.
"ISO": A Stock Option intended to be an "incentive stock option" within the
meaning of Section 422 of the Code.
"PARTICIPANT": An Employee, director or other person providing services to
the Company or its Affiliates who is granted an Award under the Plan.
"PLAN": Precision Optics Corporation, Inc. 1997 Incentive Plan as from time
to time amended and in effect.
"SECTION 162(M)": Section 162(m) of the Code.
"STOCK": Common stock of the Company, par value $.01 per share.
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POPCM-PS-97
<PAGE> 24
PRECISION OPTICS CORPORATION, INC.
COMMON STOCK PROXY
The undersigned, revoking any previous instructions, hereby acknowledges
receipt of the Notice and Proxy Statement dated October 14, 1997. In connection
with the Annual Meeting mentioned below, the undersigned hereby appoint(s)
Richard E. Forkey and Edward A. Benjamin as attorneys of the undersigned, each
with power to act alone and with full power of substitution, to act and to vote
all shares of stock which the undersigned is entitled to vote at the Annual
Meeting of Shareholders of Precision Optics Corporation, Inc. to be held on
November 11, 1997, at 10:00 A.M. at the Wachusett Village Inn, Village Inn
Road, Westminster, Massachusetts, and at any adjournment or postponement
thereof, upon the matters set forth in the proxy statement for such Annual
Meeting. The foregoing attorneys are authorized to vote, in their discretion,
upon such other business as may properly come before the meeting or any
adjournments or postponements thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. WHEN THIS PROXY IS PROPERLY
EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED BY THE
SHAREHOLDER(S) ON THE REVERSE SIDE HEREOF OR, WHERE NO DIRECTION IS GIVEN, WILL
BE VOTED FOR BOTH THE ELECTION OF THE CLASS I DIRECTOR NOMINEES AND APPROVAL OF
THE COMPANY'S 1997 INCENTIVE PLAN.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign exactly as your name appears on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
<PAGE> 25
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
For All With- For All
Nominees hold Except
- ---------------------------------------------------- 1. Election of Class I Directors. The nominees for the
PRECISION OPTICS CORPORATION, INC. Board of Directors to serve for a three-year term as [ ] [ ] [ ]
- ---------------------------------------------------- Class I Directors.
RICHARD E. FORKEY
EDWARD A. BENJAMIN
NOTE: If you do not wish your shares voted "For" a
particular nominee, mark the "For All Except" box and
strike a line through the name of the nominee.
RECORD DATE SHARES: Your shares will be voted for the remaining norminee.
For Against Abstain
2. Approval of the Company's 1997 Incentive Plan [ ] [ ] [ ]
- ----------------------------------------------------
Please be sure to sign
and date this Proxy. Mark box at right if an address change or comment has been noted on [ ]
Date the reverse side of this card.
- ----------------------------------------------------
- ---Shareholder sign here-----Co-owner sign here-----
DETACH CARD DETACH CARD
</TABLE>
PRECISION OPTICS CORPORATION, INC.
Dear Shareholder:
Please take note of the important information enclosed with this Proxy Ballot.
The Proposals which are discussed in detail in the enclosed proxy materials
require your immediate attention and approval.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders on
November 11, 1997.
Thank you in advance for your prompt consideration of these matters.
Very truly yours,
Precision Optics Corporation, Inc.
