<PAGE>
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 PART 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))
PHOTOELECTRON 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>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
PHOTOELECTRON CORPORATION
TO BE HELD
MAY 27, 1998
To the Holders of the Common Stock of PHOTOELECTRON CORPORATION:
PLEASE TAKE NOTICE that the Annual Meeting of Stockholders of PHOTOELECTRON
CORPORATION (the "Company") will be held at 5 Forbes Road, Lexington,
Massachusetts 02173, on Wednesday, May 27, 1998 at 4:00 p.m., for the purpose of
considering and acting upon the following matters, all as described in the
accompanying Proxy Statement:
1) To elect a Board of four Directors to hold office until the next annual
meeting and until the election and qualification of their respective successors;
2) To act upon the approval of the designation of Arthur Andersen LLP to
audit the books, records and accounts of the Company;
3) To act upon a proposal to amend the Equity Incentive Plan to increase
the number of shares of Common Stock, par value $.01 per share, of the Company
covered by such plan; and
` 4) To consider and act upon all other matters which may properly come
before the Annual Meeting or any adjournment or adjournments thereof.
The Board of Directors has set the close of business on Tuesday, April 14,
1998, as the record date for the purpose of determining the stockholders
entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof, and only stockholders of record on that date shall be entitled to
notice of and to vote at said meeting.
YOUR PROXY IS ENCLOSED. YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING.
IF YOU DO NOT EXPECT TO BE PRESENT AND WISH YOUR SHARES TO BE VOTED, YOU ARE
REQUESTED TO FILL IN, DATE, SIGN, AND MAIL THE ENCLOSED PROXY PROMPTLY. A
RETURN ENVELOPE WITH PREPAID POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED
FOR YOUR CONVENIENCE. IF YOU ATTEND THE ANNUAL MEETING, YOUR PROXY WILL BE
RETURNED TO YOU UPON REQUEST TO THE CLERK.
By order of the Board of Directors,
/s/ William O. Flannery
William O. Flannery, Esq.
Clerk
Lexington, Massachusetts
April 17, 1998
PHOTOELECTRON CORPORATION
5 Forbes Road
Lexington, MA 02173
(781) 861-2069
<PAGE>
PHOTOELECTRON CORPORATION
5 Forbes Road
LEXINGTON, MASSACHUSETTS 02173
(781) 861-2069
_______________________________
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1998
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of PHOTOELECTRON CORPORATION (the "Company") of proxies
for use at the Annual Meeting of Stockholders of the Company (the "Annual
Meeting") to be held at the Company's offices located at 5 Forbes Road,
Lexington, Massachusetts 02173, on Wednesday, May 27, 1998 at 4:00 p.m. and at
any adjournments thereof. This Proxy Statement and the accompanying Proxy Card
are being mailed to stockholders on or about April 17, 1998.
Unless contrary instructions are indicated on the proxy, all valid proxies
received pursuant to this solicitation (and not revoked before they are voted)
will be voted FOR the election of the nominees for Director named herein. If a
stockholder specifies a different choice on the proxy, such stockholder's shares
of Common Stock will be voted in accordance with such specifications.
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise. A proxy may be revoked
by filing with the Clerk of the Company an instrument revoking it, by presenting
an executed proxy bearing a later date at the Annual Meeting, or by attending
the Annual Meeting and voting in person.
The cost of soliciting proxies will be borne by the Company. Solicitations
may be made by mail, personal interview, telephone and/or telegram by Directors,
officers and employees of the Company, without additional compensation for such
solicitation activities. Arrangements will be made by the Company with its
transfer agent, American Stock Transfer & Trust Co., 6201 15th Avenue, Brooklyn,
New York 11219, to forward solicitation material to the beneficial owners of the
shares held of record. The Company will reimburse banks, brokerage firms, other
custodians, nominees and fiduciaries for reasonable expenses incurred in sending
proxy material to beneficial owners of the Company's Common Stock held in their
respective names.
Copies of the 1997 Annual Report of the Company are being mailed to
stockholders together with this Proxy Statement. The Annual Report contains the
financial statements of the Company for the fiscal years ended January 3, 1998
and December 28, 1996.
-1-
<PAGE>
VOTING SECURITIES
The total number of authorized shares of capital stock of the Company is
22,500,000, of which 15,000,000 are shares of common stock, $.01 par value (the
"Common Stock"), and 7,500,000 are shares of preferred stock, $.01 par value
(the "Preferred Stock"). Of the shares of Common Stock authorized for issuance,
7,368,751 were issued and outstanding at April 14, 1998. Of the shares of
Preferred Stock authorized for issuance, no shares were issued and outstanding
at April 14, 1998.
Only stockholders of record at the close of business on Tuesday, April 14,
1998 have the right to receive notice of and to vote at the Annual Meeting and
any adjournments thereof. Each share of Common Stock entitles the holder
thereof to one vote. Under the Massachusetts Business Corporation Law, the
presence, in person or by proxy, of stockholders holding a majority in interest
of the issued and outstanding shares of Common Stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum. Abstentions and broker non-
votes are each included for purposes of determining the presence or absence of a
sufficient number of shares to constitute a quorum for the transaction of
business. With respect to the approval of any particular proposal, abstentions
and broker non-votes are not counted in determining the number of votes cast.
PROPOSAL I. ELECTION OF DIRECTORS
It is intended that, unless otherwise indicated thereon, the proxies
received will be voted in favor of the election of the four persons named below
to serve as Directors until the next Annual Meeting of Stockholders and until
their successors shall be elected and shall qualify. Although it is expected
that each of the nominees will be available for election, if a nominee is not a
candidate at the time the election occurs, it is intended that such proxies will
be voted for the election of a substitute nominee selected by the Board of
Directors, unless the Board chooses to reduce the number of Directors to the
number of nominees then available for election. In this event, the proxies
would be voted for the reduced number of nominees. Unless otherwise indicated
on the enclosed Proxy Card, the votes represented by any proxy may be voted at
the discretion of the person or persons voting the proxy. The four nominees
receiving a plurality of the votes cast by the stockholders represented at the
meeting, in person or by proxy, will be elected as Directors of the Company.
The following table sets forth the name and age (as of the date of the
Annual Meeting) of the Directors, their principal occupations at present, the
positions and offices, if any, held by each Director with the Company in
addition to the position as a Director, and the period during which each has
served as a Director of the Company.
-2-
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation - Served as
Name Age Position Held Director Since
- ---------------------------------- --- ------------------------------------- --------------
<S> <C> <C> <C>
Peter M. Nomikos................. 66 Chairman of the Board, President, 1989
Chief Executive Officer and Treasurer
Peter E. Oettinger, Ph.D......... 61 Vice President and Chief Operating 1989
Officer
George N. Hatsopoulos, Ph.D...... 71 Chairman of the Board and Chief 1989
Executive Officer of Thermo Electron
Corporation
Roger D. Wellington.............. 70 President and Chief Executive Officer 1989
of Wellington Consultants, Inc. and
Wellington Associates, Inc.
</TABLE>
BACKGROUND OF NOMINEES FOR ELECTION AS DIRECTORS
Peter M. Nomikos has served as Chairman of the Board, President, Chief
Executive Officer and Treasurer of the Company since its founding in 1989. Mr.
Nomikos was co-founder of Thermo Electron Corporation (''Thermo Electron'')
where he was a director until 1976. For the past 30 years, Mr. Nomikos has
resided in London and has been involved in maritime shipping as Managing
Director of Nomikos (London) Ltd. He devotes on average approximately 150 hours
per month (or roughly two-thirds of his professional time) to directing the
overall business activities of the Company in the U.S. and abroad.
Approximately one-third of Mr. Nomikos' professional time is devoted to his
other professional activities, including those relating to PYC Corporation.
Peter E. Oettinger, Ph.D. has served as Vice President, Chief
Operating Officer and a Director of the Company since its founding in 1989.
From 1978 to 1988, Dr. Oettinger, was Manager of Research and Development of
Thermo Electron's Direct Energy Conversion Operation, and Thermo Electron's
Laser Laboratory. Dr. Oettinger has a B.S. from Cornell University, an M.S.
from the California Institute of Technology and a Ph.D. from Stanford
University.
George N. Hatsopoulos, Ph.D. has served as a Director of the Company
since its founding in 1989. Dr. Hatsopoulos has been Chairman of the Board and
Chief Executive Officer of Thermo Electron and has served as a director of
Thermo Electron since 1956. Dr. Hatsopoulos is also a director of Thermedics
Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo Instrument Systems
Inc., Thermo Optek Corporation, ThermoQuest Corporation and ThermoTrex
Corporation.
Roger D. Wellington has served as a Director of the Company since its
founding in 1989. Mr. Wellington serves as President and Chief Executive
Officer of Wellington Consultants, Inc. and Wellington Associates, Inc.,
international business consulting firms he founded in 1994 and 1989,
respectively. Prior to 1989, Mr. Wellington served for more than five years as
Chairman
-3-
<PAGE>
of the Board of Augat Inc., a manufacturer of electromechanical
components. Prior to 1988, he also held the positions of President and Chief
Executive Officer of Augat Inc. Mr. Wellington is also a director of Thermo
Electron.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF PETER M. NOMIKOS, PETER E. OETTINGER, PH.D., GEORGE N. HATSOPOULOS,
PH.D. AND ROGER D. WELLINGTON AS DIRECTORS.
GENERAL INFORMATION RELATING TO
THE BOARD OF DIRECTORS
The Board of Directors
The business and affairs of the Company are managed by the Board of
Directors. The Board of Directors held four meetings in the fiscal year ended
January 3, 1998.
It is anticipated that immediately following the Annual Meeting, the
Board of Directors will hold its Annual Meeting of the Board of Directors. At
such meeting, it is anticipated that the current officers of the Company will be
re-elected to serve in their present capacities until the next annual meeting of
the Board of Directors or until their successors are duly elected and qualified.
Committees of the Board of Directors
The Company had no nominating or compensation committees of the Board
of Directors or committees performing similar functions during the year ended
January 3, 1998.
The Board of Directors has an Audit Committee, which has general
responsibility for supervision of financial controls as well as accounting and
audit activities of the Company. The Audit Committee has the responsibility to
review annually the qualifications of the Company's independent certified public
accountants, make recommendations to the Board of Directors concerning the
selection of the accountants and review the planning, fees and results of the
accountants' audit. The current members of the Audit Committee are Messrs.
Hatsopoulos and Wellington. The Audit Committee held one meeting during the
fiscal year ended January 3, 1998.
COMPENSATION OF DIRECTORS
Outside Directors of the Company currently receive an annual stipend
of $2,000, a fee of $1,000 per regular or special meeting of the Board of
Directors attended in person (together with reimbursement of reasonable travel
expenses), a fee of $500 per each such meeting participated in by means of
conference telephone arrangements and a fee of $500 per any regular or special
meeting of any committee of the Board of Directors, whether attended in person
or participated in by conference telephone arrangements (together, in the event
not coincident with a meeting of the Board of Directors, with reimbursement of
reasonable travel expenses). Directors who are employees of the company receive
no compensation as members of the Board of Directors.
-4-
<PAGE>
Indemnification of Officers and Directors
The Articles provide that no Director of the Company shall be liable
to the Company or its stockholders for monetary damages for any breach of
fiduciary duty, except to the extent such exculpation from liability is not
permitted under Massachusetts law. This provision does not prevent stockholders
from obtaining injunctive or other equitable relief against Directors nor does
it shield Directors from liability under federal or state securities laws. The
By-Laws provide that the Company shall indemnify its Directors and officers to
the full extent permitted by law.
The Articles provide that a majority vote of each class of stock
entitled to vote will be required for amendments to the Articles or a merger or
consolidation of the Company.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Under the rules of the Securities and Exchange Commission (the "SEC"),
a person who directly or indirectly has or shares voting power and/or investment
power with respect to a security is considered to be a beneficial owner of the
security. Shares as to which voting power and/or investment power may be
acquired within 60 days are also considered to be beneficially owned under these
rules.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 20, 1998 by (i)
each person (including any "group" as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) known by
the Company to be the beneficial owner of more than 5% of the Company's Common
Stock (assuming conversion of all outstanding warrants and convertible debt),
(ii) each current Director and nominee for election as Director, (iii) each
executive officer who received salary and bonus in excess of $100,000 for all
services rendered during the fiscal year ended January 3, 1998 and (iv) all
current Directors and executive officers of the Company as a group. Except as
otherwise provided in the footnotes to this table, the Company believes that the
persons named in this table have voting and investment power with respect to all
the shares of Common Stock indicated.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership (1) Percent of Class (1)
- --------------------------------------------- ------------------------ --------------------
<S> <C> <C>
Peter M. Nomikos............................. 4,408,093 (2) 47.8%
Peter E. Oettinger, Ph.D..................... 150,200 (3) 2.0
George N. Hatsopoulos, Ph.D.................. 19,500 (4) *
Roger D. Wellington.......................... 19,500 (5) *
Sociedad Internacional De Finanzas SA........ 380,764 5.2
Montevideo, Uruguay
Thermo Electron Corporation.................. 833,861 11.3
81 Wyman Street
Waltham, MA 02254
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C> <C>
PYC Corporation.............................. 3,727,736 (6) 45.0
c/o Aegeus Shipping Co., Ltd.
TANPY Building
17-19 Akti Miaouli
Piraeus 185 35 Greece
Chancellor LGT Asset Management Inc.......... 485,000 6.6
1166 Avenue of the Americas
New York, NY 10036
All Directors and executive officers
as a group (5 persons)....................... 4,601,293 49.2%
</TABLE>
_____________________
* Less than 1%.
(1) Includes the number of shares and percentage ownership represented by such
shares determined to be beneficially owned by a person in accordance with
the rules of the Securities and Exchange Commission. The number of shares
beneficially owned by a person includes shares of Common Stock subject to
options, convertible debt or warrants held by that person that are currently
exercisable or convertible or exercisable or convertible within 60 days.
Such shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of each other person. No options,
warrants or convertible debt owned by the persons named in this table become
exercisable or convertible within 60 days of March 20, 1998. Shares subject
to exercisable options and shares issuable upon conversion of convertible
debt or exercise of outstanding warrants are shown in the footnotes to this
table, if applicable. The persons named in this table have voting and
investment power with respect to all shares of Common Stock shown as owned
by them, subject to community property laws where applicable and except as
otherwise indicated in the other footnotes to this table.
(2) Includes 23,000 shares subject to exercisable options granted by the
Company, and 401,667 shares issuable upon conversion of convertible debt.
Includes 1,417,334 shares issuable upon exercise of outstanding warrants
owned by PYC Corporation, of which Mr. Nomikos is the President. Mr.
Nomikos has been granted investment power and the authority to vote such
shares by PYC Corporation. Includes 10,300 shares owned by Petronome
Corporation. Mr. Nomikos has been granted investment power and the
authority to vote such shares by Petronome Corporation.
(3) Includes 123,000 shares subject to exercisable options granted by the
Company.
(4) Includes 7,000 shares subject to exercisable options granted by the Company.
Excludes any shares owned by Thermo Electron, as to which Dr. Hatsopoulos
disclaims beneficial ownership.
(5) Includes 7,000 shares subject to exercisable options granted by the Company.
(6) Includes 1,417,334 shares issuable upon exercise of outstanding warrants.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and
executive officers and holders of more than 10% of the Company's Common Stock to
file with the SEC and NASDAQ initial reports of ownership and reports of changes
in ownership of Common Stock and other equity securities of the Company.
Directors, executive officers and holders of more than 10% of the Company's
Common Stock are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of copies of
reports furnished to the Company or written representations that no other
reports were required, the Company believes that during the fiscal year ended
January 3, 1998, its Directors, executive officers and holders of more than 10%
of the Company's Common Stock complied with all applicable Section 16(a)
reporting requirements, except that (i) one report was filed seven days
-6-
<PAGE>
late by each Director covering one transaction for each such Director and (ii)
one report was filed seven days late by each of PYC Corporation and Thermo
Electron covering one transaction for each entity.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or
accrued during the fiscal year ended January 3, 1998 of the Chief Executive
Officer and each other executive officer of the Company whose total annual
salary and bonus exceeded $100,000 for services in all capacities:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Annual Compensation All Other
---------------------------------------------
Principal Position Salary Bonus Other Compensation
- ------------------------------------------------ -------- ------- ------- --------------------
<S> <C> <C> <C> <C>
Peter M. Nomikos (1)
Chairman of the Board, President, Chief
Executive Officer and Treasurer.............. -- -- -- --
Peter E. Oettinger, Ph.D.
Vice President, Chief Operating
Officer and Director......................... $124,346 $5,000 -- $4,078(2)
</TABLE>
_________________________
(1) Mr. Nomikos has elected to waive his compensation during the fiscal year
ended January 3, 1998 to conserve the Company's cash position. Although Mr.
Nomikos devotes substantial time to the business of the Company, he is also
engaged in other business activities through a London based company.
(2) Includes $3,109 paid by the Company to the named executives' 401(k) plan and
$969 paid by the Company for premiums on group term life insurance.
The Company granted no stock options to its executive officers during
the fiscal year ended January 3, 1998.
The following table sets forth certain information regarding stock
option exercises during the fiscal year ended January 3, 1998 and stock options
held at such year end by Mr. Nomikos and Dr. Oettinger:
-7-
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT FISCAL OPTIONS AT FISCAL
NAME EXERCISE RECEIVED(1) YEAR END YEAR END (2)
- ----------------------------- ------------ ------------- ---------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Nomikos........... 12,500 $ 95,000 20,500 27,000 $ 61,875 $28,750
Peter E. Oettinger, Ph.D... 25,000 190,000 119,000 28,500 872,500 38,125
</TABLE>
_________________________
(1) Reflects the difference between the fair market value of the securities
underlying the options and the exercise price of the options at exercise.
(2) Based on the fiscal year ended closing price of the Common Stock of $9.25
per share, less the option exercise price.
The executive officers of the Company are Peter M. Nomikos, Peter E.
Oettinger, Ph.D., and Gerald J. Bojas. For a description of the background of
Mr. Nomikos and Dr. Oettinger, see "Background of Nominees for Election as
Directors." Mr. Bojas has served as the Chief Financial Officer of the Company
since March 1997. Prior to joining the Company, from 1992 to 1996, Mr. Bojas was
Treasurer and Corporate Controller of MediSense, Inc. He also was the Chief
Financial Officer of MediSense, Inc. from 1990 to 1991. From 1981 to 1990, Mr.
Bojas was the Corporate Controller of Compugraphic Corporation.
COMPENSATION AND INSIDER PARTICIPATION
The entire Board of Directors was responsible for determining the
compensation of executive officers during fiscal 1996. Mr. Nomikos and Dr.
Oettinger, the Company's Chairman of the Board, President, Chief Executive
Officer and Treasurer, and Vice President and Chief Operating Officer,
respectively, are Directors and, did not participate in deliberations relating
to their own compensation, except that Mr. Nomikos waived his compensation for
fiscal 1997. Mr. Nomikos participated in deliberations relating to the
compensation of Dr. Oettinger.
-8-
<PAGE>
[PERFORMANCE GRAPH APPEARS HERE]
COMPARISION OF 11 MONTH CUMULATIVE TOTAL RETURN*
AMONG PHOTOELECTRON CORPORATION, THE NASDAQ STOCK MARKET (U.S.)
INDEX AND THE NASDAQ HEALTH SERVICES INDEX
<TABLE>
<CAPTION>
1/29/97* 12/31/97
----------------------------------------------------------------
<S> <C> <C>
Photoelectron Corporation 100 113
----------------------------------------------------------------
Nasdaq Stock Market (U.S.) Index 100 123
----------------------------------------------------------------
Nasdaq Health Services Index 100 102
----------------------------------------------------------------
</TABLE>
____________________
*The performance graph above compares the percentage change in the Company's
total shareholder return on its Common Stock from January 29, 1997, the
effective date of the Company's initial public offering, with the cumulative
total return of the Nasdaq Stock Market-US Index and the Nasdaq Services Index
from December 31, 1996 through December 31, 1997, based upon an assumed $100
investment in the Company's Common Stock and in the stocks comprising each such
index as of December 31, 1996 and reinvestment of all dividends. The stock
prices on the performance graph above are not necessarily indicative of future
stock price performance.
-9-
<PAGE>
BOARD OF DIRECTORS REPORT ON
EXECUTIVE COMPENSATION
Decisions regarding cash compensation paid and stock options granted
to the Company's executive officers were made by the full Board of Directors.
EXECUTIVE COMPENSATION POLICY
The Company's compensation program is designed to attract, motivate,
reward and retain executive personnel capable of making significant
contributions to the long-term success of the Company. During fiscal 1997, the
Company's compensation program consisted of base salary and incentive bonuses.
Base salary provides the foundation for the Company's executive pay; its purpose
is to compensate the executive for performing his or her basic duties.
Base Salary. Base salaries for the Company's executive officers are
set annually. During fiscal 1997, the Company did not employ a formula approach
that links cash compensation to corporate performance nor did it utilize any
formal survey or other compilation of empirical data on executive compensation
paid by other companies. Instead, executive compensation was determined based on
a number of subjective factors, including individual responsibilities,
performance, contribution and experience, the Company's financial performance as
compared with the prior year; and general economic factors.
Stock Options. The Company's compensation program also utilizes stock
option awards, which are intended to provide additional incentive to increase
shareholder value. However, no stock options were granted to the executive
officers of the Company during fiscal 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company utilizes certain administrative resources of Thermo
Electron on an as-needed basis without a formal contract and is charged at
actual cost for such services. The Company paid $3,253 in 1997 for these
services. George N. Hatsopoulos, Ph.D., a Director of the Company, is Chairman
of the Board and Chief Executive Officer of Thermo Electron. Roger D. Wellington
is also a director of Thermo Electron.
The Company is provided with certain services by Thermo Power
Corporation, a majority-owned subsidiary of Thermo Electron. These services
include data processing services, administrative services and machine shop
services, which are charged to the Company at actual cost. The Company paid
$113,582 in 1997 for these services. As of January 3, 1998, $15,599 was payable
to Thermo Power Corporation and was included in accounts payable in the
accompanying consolidated balance sheets.
The Company entered into a Convertible Note and Warrant Purchase
Agreement dated as of May 13, 1992, as amended (the "1992 Debt Agreement"),
pursuant to which the Company sold a 4,500,000 8% Convertible Demand Note (the
"1992 Note") to Peter M. Nomikos, Chairman of the Board, President, Chief
Executive Officer and Treasurer of the Company. As of March 29, 1997, the
Company entered into a letter agreement with respect to the forbearance by Mr.
Nomikos of the right to conversion of the principal and accrued interest under
the 1992 Note until May 13, 1999. The principal amount of the 1992 Note is
convertible into Common Stock at
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<PAGE>
$3.00 per share. Currently, the aggregate principal amount outstanding under the
1992 Note is $705,000.
The Company entered into the Amended and Restated Convertible Note
Purchase Agreement (originally dated July 11, 1991) dated as of August 8, 1996,
pursuant to which the Company sold a $500,000 8% Subordinated Convertible Note
(the "1991 Note") due 1998 to Peter M. Nomikos, Chairman of the Board,
President, Chief Executive Officer and Treasurer of the Company. As of March 29,
1997, the Company entered into a letter agreement providing that accrued
interest on such note is convertible on July 31, 1998. The principal amount of
the 1991 Note is convertible into Common Stock at $3.00 per share. Currently,
the aggregate principal amount outstanding under the 1991 Note is $500,000.
The warrant purchase rights under the 1992 Debt Agreement entitle Mr.
Nomikos to acquire warrants for $0.20, pursuant to which he may purchase shares
of Common Stock at $3.00 per share. Mr. Nomikos (or his assignee) acquired
warrants to purchase 1,417,334 shares of Common Stock in 1996. At December 28,
1996, warrants to purchase an aggregate of 1,417,334 shares of Common Stock were
outstanding. All warrants issued to date are now held by PYC Corporation.
On February 4, 1997, the Company completed an initial public offering
of 2,000,000 shares of its Common Stock at a price of $8.50 per share. Pursuant
to an option to purchase additional shares of Common Stock to cover over-
allotments, Needham and Company, Inc. and Dain Bosworth Incorporated purchased
an additional 275,000 shares of Common Stock on March 4, 1997. The shares were
registered with the Securities and Exchange Commission pursuant to a
registration statement on Form S-1 (No. 333-14541), which was declared effective
on January 23,1997. The public offering was underwritten by a syndicate of
underwriters led by Needham and Company, Inc. and Dain Bosworth Incorporated.
After deducting underwriting discounts and commissions of $1,353,625 and
expenses of $1,165,021, the Company received net proceeds of $16,818,854.
Pursuant to a promissory note dated February 21, 1997 (the "Note"),
the Company loaned $80,211.26 to Peter E. Oettinger, Ph.D., Vice President,
Chief Operating Officer and Director of the Company at an interest rate of 5%
per annum. Such promissory note was secured by a pledge of 25,000 shares of the
Company's Common Stock owned by Mr. Oettinger, pursuant to a Pledge Agreement
with the Company dated as of February 21, 1997 (the "Pledge Agreement"). On
February 21, 1998, the Note was renewed for a period of one year at an interest
rate of 6% per annum.
PROPOSAL II. AMENDMENT OF EQUITY INCENTIVE PLAN
The Board of Directors has adopted an amendment to the Equity
Incentive Plan (the "Equity Incentive Plan"), subject to approval by the
stockholders, to increase the number of shares of Common Stock covered by the
Equity Incentive Plan to an aggregate of 541,775 shares. The following is a
summary of the material provisions of the Plan.
On July 17, 1996, the Board of Directors of the Company adopted the
Equity Incentive Plan for employees, officers, Directors and consultants of the
Company and its subsidiaries, and recommended approval of the plan by the
stockholders. The Equity Incentive Plan provides for
-11-
<PAGE>
grants of incentive stock options to employees (including officers) of the
Company, and for grants of non-qualified stock options to such employees as well
as to Directors and consultants of the Company and its subsidiaries. In
addition, persons eligible to receive non-qualified stock options can be awarded
shares of Common Stock and given the opportunity to purchase shares of Common
Stock. A total of 266,775 shares of Common Stock may be issued under the current
Equity Incentive Plan. As of January 3, 1998, 151,167 stock options have been
granted under the Equity Incentive Plan.
The Equity Incentive Plan is administered by the Board of Directors of
the Company, which may delegate any or all of its responsibilities to a
Committee of two or more Board members who, if the Company registers any class
of any equity security pursuant to Section 12 of the Exchange Act, must qualify
as non-employee directors within the meaning of Rule 16b-3 adopted pursuant to
the Exchange Act. The plan administrator determines the recipients and terms of
all stock rights granted under the plan, including in the case of all options,
the option price. Except in the case of some incentive stock options, as
described below, the term of all options granted under the plan may not exceed
ten years.
Special rules apply to incentive stock options. The exercise price of
all incentive stock options granted under the Equity Incentive Plan must be at
least equal to the fair market value of the Common Stock of the Company on the
date of grant. If an incentive stock option is granted to an optionee who owns
stock representing more than 10% of the voting power of the Company's
outstanding capital stock, the exercise price of the option must equal at least
110% of the fair market value of the Common Stock on the date of grant and the
maximum term of the option cannot exceed five years. No incentive stock option
may be transferred by the optionee other than by will or the laws of descent and
distribution, and should the holder of an incentive stock option cease to be
employed by the Company and any of its subsidiaries, he or she (or his or her
estate, personal representative or beneficiary in the event of death) will no
longer be able to exercise the option to the extent of the shares not
exercisable upon termination of employment, and will have a limited period of
time after termination of employment within which to exercise the option (in
general, three months in the case of termination other than by reason of
disability or death, one year in the event of disability, and 180 days in the
event of death, unless the option expires earlier by its terms).
At the request of an optionee, the plan administrator can take
whatever action is necessary to convert such optionee's incentive stock options
into non-qualified options. Also, an optionee's rights with respect to options
and other rights granted under the Equity Incentive Plan are to be appropriately
adjusted when certain events occur, such as a stock dividend or split, a
recapitalization, or a merger or sale of assets.
The Board of Directors of the Company has the authority to amend or
terminate the Equity Incentive Plan provided that, in general, no amendment may
alter or impair the rights of a grantee under any option previously granted
without the grantee's consent and stockholder approval must be obtained within
12 months before or after the Board adopts a resolution authorizing certain
actions, including the extension of the expiration date of the Equity Incentive
Plan or the increase in the number of shares reserved for issuance under the
Equity Incentive Plan. Unless sooner terminated, the Equity Incentive Plan will
terminate on July 16, 2006.
-12-
<PAGE>
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-8 covering the shares of Common Stock
underlying options granted under the Equity Incentive Plan.
The Board of Directors believes it is in the interest of the Company
and its stockholders to adopt the proposed amendment to the Equity Incentive
Plan. The increase in shares available for issuance under the Equity Incentive
Plan will assist the Company to continue to attract and retain key personnel and
to strengthen the identity of such personnel's interest with those of the
Company's stockholders. A majority of the votes cast by the stockholders
represented at the meeting, in person or by proxy, is required to approve this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE
EQUITY INCENTIVE PLAN.
PROPOSAL III. RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP,
independent certified public accountants, to serve as auditors for the fiscal
year ending January 2, 1999. Arthur Andersen LLP served as the Company's
auditors for fiscal year 1998. A majority of the votes cast by the stockholders
represented at the meeting, in person or by proxy, is required to approve this
proposal. Representatives of Arthur Andersen LLP will be present at the meeting
to respond to appropriate questions, and they will have an opportunity, if they
desire, to make a statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF ARTHUR ANDERSEN LLP AS AUDITORS.
PROPOSAL IV. OTHER MATTERS
The Board of Directors of the Company is not aware of any matter,
other than those described above, that may come before the meeting. However, if
any matters are properly presented to the meeting for action, it is intended
that the persons named in the enclosed proxy will vote on such matters in
accordance with their best judgment.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
In order for a stockholder 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 5 Forbes Road, Lexington, Massachusetts 02173, Attention: John
J. Crowley, no later than December 18, 1998.
-13-
<PAGE>
ANNUAL REPORT
A copy of the Company's 1997 Annual Report to Stockholders is being
mailed with this Proxy Statement to each stockholder entitled to vote at the
Annual Meeting. Stockholders not receiving a copy of such Annual Report may
obtain one, without charge, by writing or calling John J. Crowley at 5 Forbes
Road, Lexington, Massachusetts 02173, telephone (781) 861-0269, or by e-mail at
[email protected].
OTHER BUSINESS
The Board of Directors is not aware of any matters to come before the
Annual Meeting. However, it is intended that the proxy solicited herein will be
voted on any other matters that may properly come before the meeting in the
discretion of the person or persons named in the enclosed form of proxy.
By order of the Board of Directors
Lexington, Massachusetts
April 17, 1998
-14-
<PAGE>
A [X] Please mark your
votes as in this
example using
dark ink only.
Vote FOR all nominees
at right
(except as withheld in Vote WITHHELD
the space below) from all nominees
ITEM 1. Election of [_] [_]
Directors
NOMINEES: Peter Nomikos
Peter E. Oettinger, Ph.D.
George N. Hatsopoulos, Ph.D.
Roger D. Wellington
WITHHELD FOR: (Write that nominee's name in the
space provided below)
- ------------------------------------------------
FOR AGAINST ABSTAIN
ITEM 2. APPROVAL OF AMENDMENT TO THE
EQUITY INCENTIVE PLAN. [_] [_] [_]
ITEM 3. APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS. [_] [_] [_]
ITEM 4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
Signature(s) Date: , 1998
---------------------- ----------------------- ---------
(Additional Signature
if held jointly)
NOTE: Please sign as your name(s) is (are) shown on the certificates to which
the Proxy applies. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation,
please sign in full corporate name by president or other authorized
officer. If a partnership or limited liability company, please sign in
partnership or limited liability company name by authorized person.
<PAGE>
PHOTOELECTRON CORPORATION
5 FORBES ROAD, LEXINGTON, MASSACHUSETTS 02173
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 27, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John J. Crowley and William O. Flannery,
Esq. and each of them, as proxy of proxies for the undersigned, with full power
of substitution, who may act by unanimous vote of said proxies or their
substitutes as shall be present at the meeting, or, if only one be present, then
the one shall have all the powers hereunder, to represent and to vote, as
designated on the other side (if no direction is made, this Proxy will be voted
FOR Proposals 1, 2 and 3), all of the shares of Common Stock, par value $.01 per
share, of Photoelectron Corporation standing in the name of the undersigned on
April 14, 1998, at the Annual Meeting of Stockholders of Photoelectron
Corporation to be held on Wednesday May 27, 1998 at 4:00 p.m., and any
adjournment thereof. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the meeting.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE>
EXHIBIT 10.30
PHOTOELECTRON CORPORATION
1996 EQUITY INCENTIVE PLAN
--------------------------
1. Purpose. This 1996 Equity Incentive Plan (the "Plan") is intended
-------
to provide incentives:
(a) to the officers and other employees of Photoelectron Corporation,
a Massachusetts corporation (the "Company"), and any present or future
subsidiaries of the Company (collectively, "Related Corporations"), by
providing them with opportunities to purchase stock in the Company pursuant
to options granted hereunder which qualify as "incentive stock options"
under Section 422(b) of the Internal Revenue Code of 1986 (the "Code")
("ISO" or "ISO's");
(b) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with opportunities to purchase
stock in the Company pursuant to options granted hereunder which do not
qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options");
(c) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with awards of stock in the
Company ("Awards"); and
(d) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with opportunities to make
direct purchases of stock in the Company ("Purchases").
Both ISOs and Non-Qualified Options are referred to hereafter individually as an
"Option" and collectively as "Options". Options, Awards and authorizations to
make Purchases are referred to hereafter collectively as "Stock Rights". As
used herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation", respectively, as those terms are defined in Section
424 of the Code.
2. Administration of the Plan.
--------------------------
A. Board or Committee Administration. The Plan shall be administered by
---------------------------------
the Board of Directors of the Company (the "Board"). The Board may delegate any
or all of its responsibilities under the Plan to a Committee of two (2) or more
of its members who, if the Company is then a Public Company (as defined below),
qualify as "Non-Employee Directors" within the meaning of Rule 16b-3 adopted
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), to
administer the Plan; provided such Committee is delegated such powers in
accordance with state law, and provided further that grants of Stock Rights to
Board members shall be made by the Board in
1
<PAGE>
accordance with state law. (All references in this Plan to the "Committee" shall
mean the Board (i) if no Committee has been so appointed, or (ii) even if a
Committee has been appointed, with respect to Stock Rights granted to Board
members). The Company shall be a "Public Company" at such time as it registers
any class of any equity security pursuant to Section 12 of the Exchange Act.
B. Authority of Committee. Subject to the terms of the Plan, the
----------------------
Committee shall have the authority to:
(i) determine the employees of the Company and Related Corporations
(from among the class of employees eligible under paragraph 3 to receive
ISOs) to whom ISOs may be granted, and to determine (from among the class
of individuals and entities eligible under paragraph 3 to receive
Non-Qualified Options and Awards and to make Purchases) to whom
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted;
(ii) determine the time or times at which Options and Awards may be
granted and Purchases made;
(iii) determine the option price of shares subject to each Option,
which price in the case of an ISO shall not be less than the minimum price
specified in paragraph 6, and the purchase price of shares subject to each
Purchase;
(iv) determine whether each Option granted shall be an ISO or a Non-
Qualified Option;
(v) determine (subject to paragraph 7) the time or times when each
Option shall become exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase options are to
be imposed on shares subject to Options, Awards and Purchases and the
nature of such restrictions, if any;
(vii) pre-establish objective performance goals with respect to Stock
Rights (other than ISOs and Non-Qualified Options with an exercise price
not less than the fair market value per share of Common Stock on the date
of grant) to be provided to "covered employees" within the meaning of
Section 162(m) of the Code but only if necessary to preclude the
applicability of said Section 162(m);
(viii) impose such other terms and conditions with respect to Stock
Rights not inconsistent with the terms of this Plan as it deems necessary
or desirable; and
(ix) interpret the Plan and prescribe and rescind rules and
regulations relating to it.
2
<PAGE>
If the Committee determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO.
The interpretation and construction by the Committee of any provisions of
the Plan or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Stock Right granted under it.
C. Committee Actions. The Committee may select one of its members as its
-----------------
chairman, and shall hold meetings at such time and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused,
or remove all members of the Committee and thereafter directly administer the
Plan.
3. Eligible Employees and Others. ISOs may be granted to any employee of
-----------------------------
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any employee, or officer or director (whether or not also an
employee), or consultant of the Company or any Related Corporation. The
Committee may take into consideration a recipient's individual circumstances in
determining whether to grant a Stock Right. Granting a Stock Right to any
individual or entity shall neither entitle that individual or entity to
participate in, nor disqualify that individual or entity from participation in,
any other grant of Stock Rights.
4. Stock. The stock subject to Options and which may be issued as Awards
-----
and to persons making Purchases shall be authorized but unissued shares of
common stock of the Company, $.01 par value (the "Common Stock"), or shares of
Common Stock reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is five hundred forty one
thousand seven hundred and seventy five (541,775), subject to adjustment as
provided in paragraph 10. Any such shares may be issued upon the exercise of
ISOs or Non-Qualified Options, or as Awards or Purchases, so long as the
aggregate number of shares so issued does not exceed such maximum number, as
adjusted. If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject to such Options
and any unvested shares reacquired by the Company shall again be available for
grants of Stock Rights under the Plan.
3
<PAGE>
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
------------------------
at any time after August 15, 1996 and prior to July 17, 2006. The date of grant
of a Stock Right under the Plan will be the date specified by the Committee at
the time it grants the Stock Right; provided, however, that such date shall not
be prior to the date on which the Committee acts to approve the grant. The
Committee shall have the right, with the consent of the optionee, to convert an
ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 14.
Nothing in the Plan shall be deemed to give any grantee of any Stock Right
the right to be retained in employment or other service by the Company or any
Related Corporation for any period of time.
6. Terms and Conditions of Stock Rights. Stock Rights shall be evidenced
------------------------------------
by instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments may be in the form of agreements to
be executed by both the Company and the individual or entity receiving the Stock
Right, or certificates, letters or similar instruments that need not be executed
by such individual or entity but acceptance of which will evidence agreement to
the terms thereof. Such instruments shall conform to the terms and conditions
set forth in the Plan and may contain such other provisions as the Committee
deems advisable which are not inconsistent with the Plan. Without limiting the
foregoing, such provisions may include such rights of refusal and repurchase
with respect to, and such other restrictions applicable to, shares of Common
Stock issuable upon exercise of Options, Awards and Purchases as the Committee
may deem appropriate. In granting any Non-Qualified Option, the Committee may
specify that such Non-Qualified Option shall be subject to the restrictions set
forth herein with respect to ISOs, or to such termination, cancellation or other
provisions as the Committee may determine.
The Committee may from time to time confer authority and responsibility on
one or more of its own members and/or one or more officers of the Company to
execute and deliver such instruments. The proper officers of the Company are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
7. Option Duration. Subject to earlier termination as provided in
---------------
paragraph 8, each Option shall expire on the date specified by the Committee and
set forth in the original instrument granting such Option, but not more than ten
(10) years from the date of grant. Notwithstanding the foregoing, in the case
of an ISO granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation, such ISO shall expire not more than five (5) years
from the date of grant. A Non-Qualified Option shall expire on the date
specified in the original instrument granting such Non-Qualified Option, subject
to extension as determined by the Committee. ISOs, or any part thereof, that
have been converted into Non-Qualified Options may be extended as provided in
paragraph 14.
4
<PAGE>
8. Special Rules for ISO.
---------------------
A. Price for ISOs. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
B. $100,000 Annual Limitation on ISOs. Each eligible employee may be
----------------------------------
granted ISOs only to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related Corporation, such
ISOs do not become exercisable for the first time by such employee during any
calendar year in a manner which would entitle the employee to purchase more than
$100,000 in fair market value (determined at the time the ISOs were granted) of
Common Stock in that year. Any options granted to an employee in excess of such
amount will be granted as Non-Qualified Options.
C. Determination of Fair Market Value. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the date on which such Option is granted
or, if prices or quotes discussed in this sentence are not available for that
date, as of the last business day for which such prices or quotes are available
immediately prior to the date such Option is granted, and shall mean:
(i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or
(ii) the last reported sale price (on that date) of the Common Stock
on the NASDAQ National Market List, if the Common Stock is not
then traded on a national securities exchange; or
(iii) the closing bid price (or average of bid prices) of the Common
Stock last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common Stock is
not then traded on a national securities exchange or reported on
the NASDAQ National Market List.
However, if the Common Stock is not publicly traded at the time an Option is
granted under the Plan, "fair market value" shall be deemed to be the fair value
of the Common
5
<PAGE>
Stock as determined by the Committee after taking into consideration all factors
in good faith it deems appropriate, including, without limitation, recent sale
and offer prices of the Common Stock in private transactions negotiated at arm's
length.
D. Assignability. No ISO shall be assignable or transferable by the
-------------
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him. No
ISO, nor the right to exercise any portion thereof, shall be subject to
execution, attachment, or similar process, assignment, or any other alienation
or hypothecation. Upon any attempt to transfer, assign, pledge, hypothecate, or
otherwise dispose of any ISO, or of any right or privilege conferred thereby,
contrary to the provisions thereof or hereof or upon the levy of any attachment
or similar process upon any ISO, or any right or privilege conferred thereby,
such Option and such rights and privileges shall immediately become null and
void.
E. Death. If an ISO optionee ceases to be employed by the Company and
-----
all Related Corporations by reason of his death, or if the Employee dies within
the thirty (30) day period after the Employee ceases to be employed by the
Company and all Related Corporations, any ISO of his may be exercised, to the
extent of the number of shares with respect to which he could have exercised it
on the date of his death, by his estate, personal representative or beneficiary
who has acquired the ISO by will or by the laws of descent and distribution, at
any time prior to the earlier of the specified expiration date of the ISO or one
hundred and eighty (180) days from the date of the optionee's death.
F. Disability. If an ISO optionee ceases to be employed by the Company
----------
and all Related Corporations by reason of his disability, he shall have the
right to exercise any ISO held by him on the date of termination of employment,
to the extent of the number of shares with respect to which he could have
exercised it on that date, at any time prior to the earlier of the specified
expiration date of the ISO or one (1) year from the date of the termination of
the optionee's employment. For the purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Code or successor statute.
G. Other Termination of Employment. If an ISO optionee ceases to be
-------------------------------
employed by the Company and all Related Corporations other than by reason of
death or disability as defined in paragraph 8(F), no further installments of his
ISOs shall become exercisable, and his ISOs shall terminate after the passage of
three (3) months from the date of termination of his employment, but in no event
later than on their specified expiration dates, except to the extent that such
ISOs (or unexercised installments thereof) have been converted into Non-
Qualified Options pursuant to paragraph 14.
9. Exercise of Option. Subject to the provisions of paragraphs 6 and 8,
------------------
each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date
-------
of grant or shall become exercisable thereafter in such installments as the
Committee
6
<PAGE>
may specify. The Committee may also specify such other conditions precedent
as it deems appropriate to the exercise of an Option.
B. Full Vesting of Installments. Once an installment becomes
----------------------------
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at
----------------
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable, provided
that the Committee may specify a certain minimum number or percentage of
the shares issuable upon exercise of any Option that must be purchased upon
any exercise.
D. Acceleration of Vesting. The Committee shall have the right to
-----------------------
accelerate the date of exercise of any installment of any Option; provided
that the Committee shall not accelerate the exercise date of any
installment of any Option granted to any employee as an ISO (and not
previously converted into a Non-Qualified Option pursuant to paragraph 14)
if such acceleration would violate the annual vesting limitation contained
in Section 422(d) of the Code, as described in paragraph 8(B).
10. Adjustments. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall
--------------------------------
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidations, Mergers or Sales of Assets or Stock. If the Company
---------------------------------------------------
is to be consolidated with or acquired by another person or entity in a merger,
sale of all or substantially all of the Company's assets or stock, or otherwise
(an "Acquisition"), the Committee or the board of directors of any entity
assuming the obligations of the Company hereunder (the "Successor Board") shall,
with respect to outstanding Options, shares acquired upon exercise of any
Option, Awards granted and Purchases made, take one or more of the following
actions:
(i) make appropriate provision for the continuation of such Options
by substituting on an equitable basis for the shares then subject to such
Options the
7
<PAGE>
consideration payable with respect to the outstanding shares of Common
Stock in connection with the Acquisition;
(ii) accelerate the date of exercise of such Options or of any
installment of any such Options;
(iii) upon written notice to the optionees, provide that all Options
must be exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of which period the
Options shall terminate;
(iv) terminate all Options in exchange for a cash payment equal to
the excess of the fair market value of the shares subject to such Options
(to the extent then exercisable) over the exercise price thereof; or
(v) in the event of a stock sale, require that the holder sell to
the purchaser to whom such stock sale is to be made, all shares previously
issued to the holder upon the exercise of any Option, all Awards granted
and all Purchases made, at a price equal to the portion of the net
consideration from such sale which is attributable to such shares.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization or
reorganization and had been the owner of the Common Stock receivable upon such
exercise at such time.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to the foregoing subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code or any
successor thereto) or would cause any adverse tax consequences for the holders
of such ISOs. If the Committee determines that such adjustments made with
respect to ISOs would constitute a modification of such ISOs or would cause any
adverse tax consequences for the holders of such ISOs, it may refrain from
making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, each Option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
8
<PAGE>
F. Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company (and, in the case of securities
of the Company, such adjustments shall be made pursuant to the foregoing
subparagraph A).
G. Fractional Shares. No fractional shares shall be issued under the Plan
-----------------
and an optionee shall receive from the Company cash in lieu of such fractional
shares.
H. Adjustments. Upon the happening of any of the foregoing events
-----------
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 10 and its determination shall be conclusive.
If any person or entity owning Common Stock obtained by exercise of a Stock
Right made hereunder receives shares or securities or cash in connection with a
corporate transaction described in subparagraphs A, B or C above as a result of
owning such Common Stock, such shares or securities or cash shall be subject to
all of the conditions and restrictions applicable to the Common Stock with
respect to which such shares or securities or cash were issued, unless otherwise
determined by the Committee.
11. Means of Exercising Options. A Stock Right (or any part or
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installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price (if any)
therefor either
(a) in United States dollars in cash or by check, or
(b) at the discretion of the Committee, through delivery of shares of
Common Stock having a fair market value equal as of the date of
the exercise to the cash exercise price of the Stock Right, or
(c) at the discretion of the Committee, by delivery of the grantee's
personal recourse note bearing interest payable not less than
annually at no less than one hundred percent (100%) of the lowest
applicable Federal rate, as defined in Section 1274(d) of the
Code, or
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(d) at the discretion of the Committee, by any combination of (a),
(b) and (c) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), or (d) of
the preceding sentence, such discretion shall be exercised in writing at the
time of the grant of the ISO in question.
The holder of a Stock Right shall not have the rights of a shareholder with
respect to the shares covered by his Stock Right until the date of issuance of a
stock certificate to him for such shares. Except as expressly provided above in
paragraph 10 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
12. Conditions on Delivery of Common Stock. The Company will not be
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obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove any restriction from shares previously delivered under the Plan
(a) until all conditions on the grant of a Stock Right have been
satisfied or removed,
(b) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with,
(c) if the outstanding Common Stock is at the time listed on any
stock exchange, until the shares have been listed or authorized
to be listed on any such exchange upon official notice of
issuance, and
(d) until all other legal matters in connection with the issuance and
delivery of such shares have been approved by the Company's
counsel.
If the sale of Common Stock has not been registered under the Securities Act of
1933, as amended, the Company may require, as a condition to exercise of a Stock
Right, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Common Stock bear an appropriate legend restricting
transfer.
13. Term and Amendment of Plan. This Plan was adopted by the Board on
--------------------------
July 17, 1996 and will be presented to the stockholders of the Company for their
approval on or prior to July 16, 1997. If the approval of the stockholders is
not obtained on or prior to July 16, 1997, any grants of ISOs under the Plan
made on or prior to that date will be rescinded. The Plan shall expire on July
16, 2006 (except that Stock Rights granted prior to July 17, 2006 shall continue
in force beyond such expiration date in
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accordance with their terms). Subject to the provisions of paragraph 5 above,
Stock Rights may be granted under the Plan prior to the date of stockholder
approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time,
except that, without the approval of the stockholders obtained within twelve
(12) months before or after the Board adopts a resolution authorizing any of the
following actions:
(a) the total number of shares that may be issued under the Plan may
not be increased (except by adjustment pursuant to paragraph 10);
(b) the provisions of paragraph 3 regarding eligibility for grants of
ISOs may not be modified;
(c) the provisions of paragraph 8(A) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified
(except by adjustment pursuant to paragraph 10); and
(d) the expiration date of the Plan may not be extended.
Except as otherwise provided in this paragraph 13, in no event may action of the
Board, the Committee or stockholders alter or impair the rights of a grantee
under any Option previously granted to him, without his consent.
14. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
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The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Committee takes
appropriate action. The Committee, with the consent of the optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
termination.
15. Application of Funds. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
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16. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
17. Withholding of Income Taxes. Upon the exercise of a Non-Qualified
---------------------------
Option, the grant of an Award, the making of a Purchase of Common Stock for less
than its fair market value, the making of a Disqualifying Disposition (as
defined in paragraph 18) or the vesting of restricted Common Stock acquired on
the exercise of a Stock Right hereunder, the Company may require the optionee,
Award recipient, purchaser or shareholder to pay (through the withholding of a
sufficient number of shares of Common Stock, or otherwise) any federal, state,
local and foreign withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the grant of an
Award, (iii) the making of a Purchase of Common Stock for less than its fair
market value, and (iv) the vesting of restricted Common Stock acquired by
exercising a Stock Right, on such person's payment of such withholding taxes.
18. Notice to Company of Disqualifying Disposition. Each employee who
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receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of
(a) two (2) years after the date the employee was granted the ISO, or
(b) one (1) year after the date the employee acquired Common Stock by
exercising the ISO.
If the employee dies before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
19. Governing Law; Construction. The validity and construction of the
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Plan and the instruments evidencing Options shall be governed by the laws of the
jurisdiction in which the Company or its successors in interest is organized.
In construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
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