QuickLinks-- Click here to rapidly navigate through this documentSCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 OF THE SECURITIES EXCHANGE ACT OF 1934 FILED BY THE REGISTRANT |X| FILED BY A PARTY OTHER THAN THE REGISTRANT | | Check the appropriate box: |_| PreliminaryProxy Statement
|X| Definitive Proxy Statement |_| Definitive Additional Materials |_| Soliciting MaterialPursuant to Section240.14a-11(c) or Section 240.14a-12 |_| Confidential, for Use14 of
theCommission Only (as permitted by Rule 14a-6(e)(2))Securities Exchange Act of 1934
Filed by the Registrantý
Filed by a Party other than the Registranto
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-11(c) or §240.14a-12
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):
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No fee required
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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:
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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: 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:22 PRECISION OPTICS CORPORATION, INC.EAST BROADWAY GARDNER, MASSACHUSETTSEast Broadway
Gardner, Massachusetts 01440October 15,
20022003To the Shareholders:
The Board of Directors and Officers of Precision Optics Corporation, Inc. invite you to attend the
20022003 Annual Meeting of Stockholders to be held Tuesday, November12, 2002,11, 2003, at 10:00 a.m. at theFour Points Sheraton Hotel, 99 Erdman Way, Leominster,offices of Ropes & Gray LLP, One International Place, Boston, Massachusetts.At the Meeting you are being asked to elect one Class III director to serve for a three-year term and to approve an amendment to the Company's Articles of Organization, to be filed at the discretion of the Board of Directors, to effect a reverse stock split at a ratio in a range between and including one-for-three and one-for-six to be determined by the Board.A copy of the Proxy Statement and the Company's
20022003 Annual Report to Stockholders are enclosed.If you cannot be present at the meeting, please mark, date, and sign the enclosed proxy card and return it as soon as possible in the enclosed envelope.
Very truly yours,
RICHARD E. FORKEY
PRESIDENTPresident PRECISION OPTICS CORPORATION, INC.
22EAST BROADWAY GARDNER, MASSACHUSETTSEast Broadway
Gardner, Massachusetts 01440NOTICE OF
20022003 ANNUAL MEETING OF STOCKHOLDERSNOVEMBER 12, 2002
November 11, 2003The
20022003 Annual Meeting of Stockholders of Precision Optics Corporation, Inc. (the "Company") will be held on Tuesday, November12, 2002,11, 2003, at 10:00 a.m. at theFour Points Sheraton Hotel, 99 Erdman Way, Leominster,offices of Ropes & Gray LLP, Boston, Massachusetts, for the following purposes:
1. To elect
onetwo ClassIII directorI directors to hold office for a three-year term and untilhis successortheir respective successors shall have been duly elected and qualified.2. To consider and act on a proposal to approve an
amendment to the Company's Articles of Organization, to be filed at the discretionAmended and Restated 1997 Incentive Plan of theBoard of Directors, to effect a reverse stock split at a ratio in a range between and including one-for-three and one-for-six to be determined by the Board.Company.3. To transact any and all other business that may properly come before the meeting or any adjournment thereof.
All stockholders of record at the close of business on
Monday,Tuesday, September 30,2002,2003, are entitled to notice of and to vote at the meeting.Stockholders 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
JACK P. DREIMILLER
CLERK
ClerkOctober 15,
20022003 PRECISION OPTICS CORPORATION, INC.
------------------ ANNUAL MEETING OF STOCKHOLDERS NOVEMBER 12, 2002Annual Meeting of Stockholders
November 11, 2003PROXY STATEMENT
------------------------INFORMATION CONCERNING SOLICITATION AND VOTING
GENERALGeneral
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
20022003 Annual Meeting of Stockholders of the Company to be held on November12, 2002,11, 2003, at 10:00 a.m. at theFour Points Sheraton Hotel, 99 Erdman Way, Leominster,offices of Ropes & Gray LLP, One International Place, Boston, Massachusetts, 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 stockholders on or about October 15,2002. STOCKHOLDERS ENTITLED TO VOTE2003.Stockholders Entitled to Vote
As of September 30,
2002,2003, the Company had outstanding10,503,9081,752,052 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 30,20022003 to one vote in person or by proxy on the matters to be voted upon at the meeting.VOTING PROCEDURESVoting Procedures
Consistent with Massachusetts law and the Company's by-laws, the holders 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 stockholder specifies in the proxy how the shares are to be voted, they will be voted as specified. If the stockholder does not specify how the shares are to be voted, such shares will be voted in favor of the proposals described in Proposal
NumbersNumber 1 and Proposal Number 2describedbelow.Any stockholder has the right to revoke his or her proxy at any time before it is voted by: (1) attending the meeting and voting in person, (2) by filing with the Clerk of the Company a written instrument revoking the proxy or (3) delivering to the Clerk another newly executed proxy bearing a later date.
REQUIRED VOTERequired Vote
The election of the Class
III directorI directors described in Proposal Number 1 requires a plurality of votes cast. Shouldtheeither person so named below as nominee for the Board of Directors 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 or may vote to fix the number of directors at such number less than five, as the Board of Directors may recommend.
The approval of the Amended and Restated 1997 Incentive Plan of the Company described in Proposal Number 2 requires the affirmative vote of a majority of
allthe sharesoutstanding.represented and entitled to vote at the meeting. Abstentions and broker "non-votes" are counted as present and entitled to vote for purposes of determining a
quorum.quorum, but will not be counted as votes properly cast for purposes of determining the outcome of voting on any matter. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner. Under the rules of the New York Stock Exchange applicablerules,to member firms, brokers (i) will have discretionary authority to vote shares held in their name for the election of directorsand the reverse stock spliteven if they do not receive instructions from the beneficialowners. Thus, thereowners and (ii) willbe no broker non-votes atnot have discretionary authority to vote shares held in their name for themeeting. VOTING ON OTHER MATTERSapproval of the Amended and Restated 1997 Incentive Plan.Voting on Other Matters
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 in accordance with their own judgment. 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.
COSTS OF PROXY SOLICITATIONCosts of Proxy Solicitation
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.
PROPOSAL NUMBER 1. ELECTION OFCLASS III DIRECTORDIRECTORSThe Company's Board of Directors is divided into three classes that are as nearly equal in number as possible, with staggered terms of office. Only one class is elected each year. Each director serves a three year term and until his or her successor has been duly elected and qualified.
Dr. Angus Macleod, currently a Class III director, has declined to stand for re-election at the annual meeting. Dr. Macleod's decision to not stand for re-election is not the result of any disagreement with the Company. Effective immediately following the annual meeting, theThe Board of Directors has fixed the number of directors at five.Mr. Robert Shannon,At the annual meeting it is intended that the Company'sother currentClassIII Director, has been nominated for re-electionI directors (Richard E. Forkey and Edward A. Benjamin) be re-elected asaClassIII director andI directors to hold office until the annual meeting of stockholders in20052006 and untilhis successor hastheir respective successors have been duly elected and qualified. The directors in ClassI (Messrs. ForkeyII (Austin W. Marxe andBenjamin) will hold office until the annual meeting of stockholders in 2003, and the directors in Class II (Messrs. Marxe andJoel R. Pitlor) will hold office until the annual meeting of stockholders in 2004, and the director in Class III (Robert R. Shannon) will hold office until the annual meeting of stockholders in 2005 (and in each case, until their respective successors have been duly elected and qualified).2
The names, ages, principal occupations for at least the last five years, and certain other information
with regard toregarding the directors, including thenomineenominees are as follows:
NAME AND YEAR FIRST ELECTED DIRECTOR AGE PRINCIPAL OCCUPATION; DIRECTORSHIPS OF OTHER PUBLIC COMPANIES - ------------------------------------ --- -------------------------------------------------------------Name and Year First Elected Director Age Principal Occupation; Directorships of Other Public Companies Richard E. Forkey (1982) *................. 6263 President, Chief Executive Officer, 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) *................ 6465 Clerk of the Company from June 1990 to January 1998. Mr. Benjamin is a Trustee of the Board of Trustees of New England Zenith Fund, a Member of the Board of Managers of New England Variable Annuity Fund I, a Trustee of the Board of Trustees of CDC Nvest Funds, AEW Real Estate Income Fund, and Loomis Sayles Funds, and a Director of Coal, Energy Investments & Management, LLC. Pending election at a shareholder meeting to be held on October 15, 2002, Mr. Benjamin will also be a Trustee of the Board of Trustees of Loomis Sayles Funds.Mr. Benjamin was a partner in the law firm of Ropes & Gray LLP, Boston, Massachusetts, from 1969 to 1998.Austin W. Marxe (1998)* ................... 6263 Mr. Marxe has been the Managing Director of Special Situations Fund III, L.P., a registered investment company based in New York City, and several other affiliated and predecessor investment funds, since 1990. Joel R. Pitlor (1990)* .................... 6364 Since 1979, Mr. Pitlor has been 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 is also a director of Uroplasty, Inc. , a Minnesota-based medical products supplier.Robert R. Shannon (1990) .................. 70*71 Since 1969, Mr. Shannon has been a Professor at the Optical Sciences Center of the University of Arizona and Director of the Center from 1983 to July 1992. Mr. Shannon is also a Member of the Board of TrusteesDirector of Aerospace Corporation.- ------------------------
- *
- Directors whose terms do not expire this year.
All of the stockholders 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
onetwo ClassIII directorI directors at the20022003 Annual Meeting. Ifthea nominee is not available as a candidate when the election occurs, the persons named in the proxy may, in their discretion, vote for the election of such other person as the Board of Directors may designate or to reduce the number of directors correspondingly. The Company has no reason to believe that thenomineenominees will not be available for election.3BOARD OF DIRECTORSBoard of Directors
During the fiscal year ended June 30,
2002,2003, the Company's Board of Directors held fourmeetings and acted by unanimous written consent on four occasions.meetings. The Board of Directors has a standing Audit Committee composed of Messrs. Benjamin and Shannon.Mr. Pitlor served on the Audit Committee until September 2002 when he resigned because he no longer met the requirements for an independent director under the Sarbanes-Oxley Act of 2002. The Company believes Messrs. Benjamin and Shannon meet the independence requirements under NASDAQ rules and the Sarbanes-Oxley Act of 2002.3
The function of the Audit Committee is to provide assistance to the Board of Directors in fulfilling its responsibility to the stockholders, potential stockholders and the investment community in respect of corporate accounting, reporting practices of the Company, and the quality and integrity of the financial reports of the Company. The Audit Committee held
sixfour meetings during the fiscal year ended June 30,2002.2003 and acted by unanimous written consent on one occasion. The Board does not have standing nominating or compensation committees. Each director attended at least 75% of the meetings of the Board ofDirectors.Directors, with the exception of Mr. Marxe. Each of the Audit Committee members attended at least 75% of the meetings of the Audit Committee in the lastyear, with the exception of Mr. Shannon.year.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."
DIRECTOR COMPENSATIONDirector Compensation
The Company pays each director who is not also an employee of the Company $250 per Board or committee meeting that the director attends and reimburses the director for travel expenses.
During the fiscal year ended June 30,
2002,2003, the Company also issued, pursuant to its 1997 Incentive Plan, stock options exercisable for a total of5,000834 shares of the Company's Common Stock to each of Messrs. Benjamin, Pitlor, MarxeShannonandDr. Macleod.Shannon. Each of these options is immediately exercisable at a price per share of$0.76.$1.74.THE BOARD OF DIRECTORS RECOMMENDS
THAT STOCKHOLDERS VOTE FORTHE ELECTION OF THENOMINEENOMINEES DESCRIBED IN PROPOSAL NUMBER 1.
PROPOSAL NUMBER 2.REVERSE STOCK SPLIT SUMMARY In September 2002, theAPPROVAL OF AMENDED AND RESTATED 1997 INCENTIVE PLANThe Board of Directors has approved and
recommendedproposes thatthestockholders approvea proposed amendment (the "Reverse Stock Split Amendment")certain amendments to theCompany's Articles of Organization, as amended, to be filed at the discretion of the Board to effect (or, alternatively, to abandon) a reverse split of the Common StockPrecision Optics Corporation, Inc. 1997 Incentive Plan (the"Reverse Stock Split""1997 Incentive Plan").The form of the proposed Reverse Stock Split Amendment is attached hereto as Appendix A. Under the terms of the Reverse Stock Split, every three to six shares of the outstanding Common Stock of the Company would automatically be converted into one share of Common Stock. The exact ratio will be between and may include one-to-three and one-to-six, to be determined by the Board in its sole discretion, based on what is in the best interests of the Company and its stockholders. The Board believes that approval of the Reverse Stock Split Amendment at a range of ratios rather than at a specific ratio provides the Board with the flexibility necessary to achieve the purposes of the Reverse Stock Split. If implemented, the Reverse Stock Split Amendment would be effective on such date as it is filed with the Massachusetts Secretary of State (the "Effective Date"). On the Effective Date, the Reverse Stock Split will result in the automatic conversion of between and including three and six shares (as determined in the manner described above) of issued and outstanding 4authorized Common Stock into one share of Common Stock. Fractional shares of Common Stock will not be issued as a result of the Reverse Stock Split, but instead, the Company will round up each fractional share to the next whole post-split share. Except for adjustments that may result from the treatment of fractional shares as described above, each stockholder will hold the same percentage of Common Stock outstanding immediately following the Reverse Stock Split as such stockholder held immediately prior to the Reverse Stock Split. The Reverse Stock Split Amendment will not alter the par value of the Common Stock or the number of shares of Common Stock authorized for issuance. If the Reverse Stock Split proposal is approved by the stockholders, the Reverse Stock Split will be effected only upon a determination by the Board that the Reverse Stock Split is in the best interest of the Company and its stockholders at that time. Even if the Reverse Stock Split proposal is approved by the stockholders of the Company, the Board may, in its sole discretion, determine not to effect the Reverse Stock Split or to delay such action based on the then-current trading price of the Common Stock or other factors it determines are important. REASONS FOR THIS PROPOSALThe primary purpose of amending theReverse Stock Split1997 Incentive Plan is toobtain a higher per share trading price for the Company's Common Stock and maintain eligibility for the listing of the Common Stock on the NASDAQ SmallCap Market. Because the Reverse Stock Split combines the outstanding shares of Common Stock into a fewer number of shares, a share of Common Stock outstanding after giving effect to the Reverse Stock Split is likely to trade at a higher price per share than a share of Common Stock outstanding before giving effect to the Reverse Stock Split. In addition to other listing requirements, the Company's Common Stock must maintain a minimum bid price of $1.00 per share in order to remain eligible for continued listing on the NASDAQ SmallCap Market. Because the closing trading price of the Company's Common Stock was below $1.00 for 30 consecutive days, NASDAQ notified the Company of the failure to maintain the minimum bid price requirement. In order to regain compliance, the bid price of the Company's Common Stock must close at $1.00 per share or more for a minimum of 10 consecutive trading days. NASDAQ has advised the Company that it must regain compliance with the minimum bid price requirement by February 10, 2003. If the Company cannot regain compliance by that date, the NASDAQ staff has stated that it will provide written notification that the Company's Common Stock will be delisted. The Company believes, but cannot assure, that a Reverse Stock Split willincrease thechances that the Company's Common Stock will trade at or above the required $1.00 minimum bid price. Further, there can be no assurance that the Company will continue to meet other NASDAQ listing requirements. The Reverse Stock Split will not result in any changes to the NASDAQ listing requirements applicable to the Company. If following the Reverse Stock Split, the trading price of the Company's Common Stock again closes below $1.00 for 30 consecutive days and the closing bid price of the Common Stock is not $1.00 or more for ten consecutive trading days within the prescribed period, the Common Stock of the Company could again be subject to de-listing. The Company believes that maintaining the listing of its Common Stock on NASDAQ is in the best interest of the Company and its stockholders. Inclusion in NASDAQ increases liquidity and may potentially minimize the spread between the "bid" and "asked" prices quoted by market makers. Further, a NASDAQ listing may enhance the Company's access to capital and increase the Company's flexibility in responding to anticipated capital requirements. The Company believes that prospective investors will view an investment in the Company more favorably if its shares qualify for listing on NASDAQ. 5The Company also believes that the current per share price level of the Common Stock has reduced the effective marketability of the Company's shares of Common Stock because of the reluctance of many leading brokerage firms to maintain active analyst coverage of low-priced stocks or to recommend low-priced stocks to their clients. Some investors may view low-priced stock as speculative and unattractive, although some other investors may be attracted to low-priced stock because of the greater trading volatility sometimes associated with such securities. Such a limited stockholder base may have the undesirable effect of artificially limiting demand for the Common Stock, thus depressing the stock price. The Company believes that some brokerage houses may have policies and practices that tend to discourage individual brokers within those firms from dealing in low-priced stock. Those policies and practices pertain to the payment of brokers commissions and to time-consuming procedures that function to make the handling of low-priced stocks unattractive to brokers from an economic standpoint. The Company also believes that, because brokerage commissions on low-priced stock may represent a higher percentage of the stock price than commissions on higher-priced stock, the current share price of the Common Stock can result in individual stockholders paying transaction costs (commission, markups or markdowns) that represent a higher percentage of theirtotalshare value than would be the case if the share price were substantially higher. If the Common Stock is not listed on NASDAQ and the trading price of the Common Stock were to remain below $1.00 per share, trading in the Common Stock would also be subject to the requirements of rules promulgated under the Exchange Act that require additional disclosures by broker-dealers in connection with any trades involving a stock defined as a "penny stock" (generally, a non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions). In such event, the additional burdens imposed upon broker-dealers to effect transactions in the Common Stock could further limit the market liquidity of the Common Stock and the ability of investors to trade the Common Stock. In the event that the Common Stock is delisted from NASDAQ, sales of the Common Stock would likely be conducted only in the over-the-counter bulletin board or potentially in regional exchanges. This may have a negative impact on the liquidity and price of the Common Stock and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, the Common Stock. For all of the above reasons, management believes that the Reverse Stock Split is in the best interests of the Company and its stockholders. There can be no assurance, however, that the Reverse Stock Split will have the desired consequences. Specifically, there can be no assurance that, after the Reverse Stock Split, the market price of the Common Stock will not decrease to a level that causes the Company to again face de-listing, or that the market capitalization of the Company after the proposed Reverse Stock Split will not be less than the Company's market capitalization before the proposed Reverse Stock Split. POTENTIAL EFFECTS OF THIS PROPOSAL Although the Company expects to file the Reverse Stock Split Amendment in November, 2002, the actual timing of the filing will be determined by the Board based upon its evaluation as to when such action is most advantageous to the Company and its stockholders. Further, even if this proposal is approved by the stockholders of the Company, the Board may elect not to file the Reverse Stock Split Amendment at all if it believes it is in the best interests of the Company and its stockholders not to do so. After the Effective Date of the Reverse Stock Split, each stockholder will own a reduced number of shares of Common Stock but will hold the same percentage of the outstanding shares (subject to 6adjustments for fractional interests resulting from the Reverse Stock Split) as the stockholder held prior to the Effective Date. Thenumber of shares of Common Stock that may bepurchased uponissued under theexercise1997 Incentive Plan from 200,000 to 300,000. The proposed Amended and Restated 1997 Incentive Plan also contains certain other changes intended to provide clarification or eliminate unnecessary language. The Board ofoutstanding options, warrants,Directors believes that approval of the Amended andother securities convertible into, or exercisable or exchangeable for,Restated 1997 Incentive Plan will advance the interests of the Company by continuing to provide eligible participants the opportunity to receive a broad variety of equity-based and cash incentives ("Awards"). As of September 30, 2003, 84,004 shares of Common Stockandremained available for future Awards under theper share exercise or conversion prices thereof, will be adjusted appropriately1997 Incentive Plan.Participation in Plan.
The grant of Awards under the 1997 Incentive Plan to eligible participants is subject to the discretion of the plan Administrator, which is currently the Board of Directors. As of the date of this proxy statement, there has been no determination by the Administrator with respect to future awards under the 1997 Incentive Plan, except for the
Reverse Stock Split in accordance with their terms asgrant to each non-employee director on the date ofthe Effective Date. Each fractional shareeach annual meeting ofCommon Stock that results from the Reverse Stock Split will be rounded up toshareholders of awhole share. Because no beneficial owners will be cashed out in the Reverse Stock Split, the Company does not believe that the Reverse Stock Split will lead to a reduction in the number of beneficial owners. The Reverse Stock Split may also result in some stockholders owning "odd lots" of less than 100stock option exercisable for 834 shares of CommonStock receivedStock. Accordingly, future Awards are not determinable. The following table sets forth information with respect to the grant of stock options to the executive officers named in the Summary Compensation Table, to all current executive officers as aresult4
group, to all non-executive directors as a group, and to all other employees as a group during the last fiscal year:
Amended Plan Benefits
1997 Incentive Plan
Name and Position Securities
Underlying
Options Granted($)Weighted Average
Exercise Price Per
Share ($/share)Richard E. Forkey, President and Chief Executive Officer 0 n/a Jack P. Dreimiller, Senior Vice President, Finance, Chief Financial Officer and Clerk 0 n/a All current executive officers as a group 0 n/a All non-executive directors as a group 3,336 $ 1.74 All non-executive officer employees as a group 0 n/a Summary of the
Reverse Stock Split. Brokerage commissions1997 Incentive Plan.The following summary is a description of the 1997 Incentive Plan, as proposed to be amended, and is qualified in its entirety by reference to the full text of the 1997 Incentive Plan attached to this proxy statement asAppendix A. Terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the 1997 Incentive Plan.
Administration. The 1997 Incentive Plan is administered by the Administrator, which may be the Board of Directors or a committee thereof (the "Committee"). The Board is currently the plan's Administrator. Subject to the terms of the 1997 Incentive Plan, the Administrator 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 Administrator shall exercise its discretion consistent with qualifying the Award for such exception.
Eligibility and Participation. In general, the Administrator will select participants in the 1997 Incentive Plan from among key employees of the Company and its affiliates who, in the opinion of the Administrator, are in a position to make a significant contribution to the success of the Company or its affiliates. The Administrator also has discretion to include as participants in the 1997 Incentive Plan members of the Company's Board of Directors and other
costs of transactions in odd lots may be higher, particularly on a per-share basis, thanpersons who provide services to thecost of transactions in even multiples of 100 shares. Based on the 10,503,908 shares Common Stock outstanding asCompany or its affiliates. As of September 30,2002,2003, approximately 40 persons were eligible to receive Awards under theapproximate1997 Incentive Plan, including the Company's two executive officers and four non-employee directors. 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 ofCommonStock which may be delivered to any person pursuant to Awards thatwould be outstanding as a resultare not stock options or stock appreciation rights are each limited to 100,000 over the life of theReverse Stock Split using the following examples of exchange ratios are as follows (without giving effect1997 Incentive Plan. In addition, no more than $2 million may be paid tothe rounding up of fractional shares):
EXCHANGE RATIO SHARES OUTSTANDING - -------------- ------------------1-for-3 3,501,303 1-for-4 2,625,977 1-for-5 2,100,782 1-for-6 1,750,651The Reverse Stock Split will affect all stockholders equally and will not affectanystockholder's proportionate equity interest in the Company (exceptindividual with respect toadjustments for fractional interests). Noneany 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 therights currently accruing to holdersInternal Revenue Code (an "ISO") may be5
granted under the 1997 Incentive Plan after September 15, 2007, but ISO Awards previously granted may extend beyond such date.
Types of
the Common Stock,Awards. The Administrator, in its discretion, may award (i) optionsor warrantsto purchase Common Stock, (ii) stock appreciation rights, (iii) restricted or unrestricted Stock, (iv) promises to deliver Common 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.Deductibility of Performance Awards. 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 re-approval 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. By approving the proposed amended 1997 Incentive Plan, stockholders will also be re-approving the material terms of the performance criteria.
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. A Performance Criterion measure and any targets with respect thereto determined by the Administrator need not be based upon an increase, a positive or improved result or avoidance of loss. 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. To date, the Company has not granted any Exempt Awards.
6
Rules Applicable to Awards. Neither ISOs nor, except as the Administrator otherwise expressly provides, other Awards may be transferred other than by will or by the laws of descent and distribution, and during a Participant's lifetime ISOs (and, except as the Administrator otherwise expressly provides, other non-transferable Awards requiring exercise) may be exercised only by the Participant. The Administrator may determine the time or times at which an Award will vest or become exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, immediately upon the cessation of the Participant's Employment, an Award requiring exercise will cease to be exercisable and will terminate, and all other Awards to the extent not already vested will be
affectedforfeited, except that: (a) Stock Options and SARs held by theReverse Stock Split. FollowingParticipant or theReverse Stock Split, each share of the Common Stock resulting from the Reverse Stock Split will entitle the holder thereof to one vote per share and will otherwise be identical to the outstanding Common StockParticipant's permitted transferee, if any, immediately prior to theEffective Date. Additionally each fractional sharecessation of theCommonParticipant's Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of 30 days or (ii) the period ending on the latest date on which such Stockresulting fromOption or SAR could have been exercised, and will thereupon terminate; (b) Stock Options and SARs held by a Participant or theReverseParticipant's permitted transferee, if any, immediately prior to the Participant's death, to the extent then exercisable, will remain exercisable for the lesser of (i) the period ending 90 days after the Participant's death or (ii) the period ending on the latest date on which such StockSplitOption or SAR could have been exercised and will thereupon terminate, and (c) Stock Options and SARs held by a Participant or the Participant's permitted transferee, if any, immediately prior to the cessation of the Participant's Employment will immediately terminate upon such cessation if the Administrator in its sole discretion determines that such cessation of Employment has resulted for reasons which cast such discredit on the Participant as to justify immediate termination of the Award.Stock Options. The Administrator will determine the exercise price, if any, of each Award requiring exercise. Unless the Administrator determines otherwise, each stock option will have an exercise price not less than the fair market value of the Stock subject to the stock option, determined as of the date of grant. 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
rounded up to a whole shareforfeited, as of theCommon Stock. EXCHANGE OF STOCK CERTIFICATES; NO FRACTIONAL SHARES Theeffective 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 Administrator 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 Administrator 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
reclassificationkind of shares of7
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. In connection with the one-for-six reverse split of the Company's Common Stock
pursuantthat was consummated on January 29, 2003, the Administrator made such adjustments accordingly. The Administrator also may make such adjustments to take into account other distributions or events, if the Administrator 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 theReverse Stock Splitmaximum 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.Amendment. Subject to the Administrator'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 Administrator 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,
occur automatically onwithout theEffective Date without any action onapproval of thepart ofstockholders 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
without regardthe grant of Awards will not affect the Company's right to pay other bonuses or compensation in addition to Awards under thedate on which certificates evidencing shares1997 Incentive Plan.Price of Common
Stock prior to the Reverse Stock Split are physically surrendered for new certificates. AsStock. The closing price of theEffective Date, between and including three and six shares ofCompany's Common Stockwill be converted and reclassified into one share of post-split Common Stock. For example, if a 1-for-5 Reverse Stock Split is implemented, a holder of 1,000 shares immediately prior to the Effective Date would hold 200 shares after the Effective Date. Alternatively, if a 1-for-4 Reverse Stock Split is implemented, a holder of 1,000 shares immediately prior to the Effective Date would hold 250 shares after the Effective Date. Fractional shares of Common Stock will not be issued as a result of the Reverse Stock Split, but instead will be rounded up to a whole share of Common Stock.on NASDAQ on October 7,As soon as practicable after the Effective Date, transmittal forms will be mailed to each holder of record of shares of Common Stock, to be used in forwarding such holder's stock certificates for surrender and exchange for certificates evidencing the number of shares of Common Stock such stockholder is entitled to receive as a consequence of the Reverse Stock Split. The transmittal forms will be accompanied by instructions specifying other details of the exchange. Upon receipt of such transmittal form, each stockholder should surrender the certificates evidencing shares of Common Stock prior to the Reverse Stock Split in accordance with the applicable instructions. Each holder who surrenders certificates will receive new certificates evidencing the whole number of shares of Common Stock that such stockholder holds as a result of the Reverse Stock Split. Stockholders will not be required to pay any transfer fee or other fee in connection with the exchange of certificates. The Company estimates that its aggregate expenses relating to the Reverse Stock Split will not be material. STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM THE COMPANY. As of the Effective Date, each certificate representing shares of Common Stock outstanding prior to the Effective Date will be deemed canceled and, for all corporate purposes, will be deemed only to evidence the right to receive the number of shares of Common Stock into which the shares of Common Stock evidenced by such certificate have been converted as a result of the Reverse Stock Split. FEDERAL INCOME TAX CONSEQUENCES2003 was $2.15.Certain Federal Income Tax Consequences.
The following discussion
generally describessummarizes certainUnited Statesfederal income tax consequences of theproposed Reverse Stock Split to stockholdersissuance and exercise of stock options awarded under theCompany. This discussion1997 Incentive Plan and islimited to United States persons who hold their Common Stockbased on the law ascapital stock.in effect on September 30, 2003. Thefollowingsummary does not addressany foreign, state, local tax or alternative minimum income, or otherall 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 an option that does not qualify as an ISO results in ordinary income (generally subject to withholding if the option was awarded to an Employee) equal to the difference (the "Option Spread") between the value of the
proposed Reverse Stock Split.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
actual consequencesexercise 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 foreach stockholder will be governed byat least two years from thespecific facts and circumstances pertaining to such stockholder's acquisition and ownershipdate of theCommon Stock. Thus, the Company makes no representations concerning the tax consequences for any of its stockholdersISO grant andrecommends that each stockholder consult with such stockholder's own tax advisor concerning the tax consequences of the Reverse Stock Split, including federal, state and local, or other income tax. The Company has not sought and will not seek an opinion of counsel or a ruling from the Internal Revenue Service regarding the federal income tax consequences of the proposed Reverse Stock Split. However, the Company believes that, because the Reverse Stock Split is not part of a plan to periodically increase a stockholder's proportionate interest in the assets or earnings and profits of the Company, the proposed Reverse Stock Split will have the following income tax effects: 1. A stockholder will not recognize taxable gain or loss as a result of the Reverse Stock Split. 2. In the aggregate, a stockholder's basis in post-split common stock will equal such stockholder's basis in the shares of pre-split Common Stock exchanged therefor, and such stockholder's holding period for post-split Common Stock will include the holding period for pre-split common stock exchanged therefor. 3. The proposed Reverse Stock Split will constitute a reorganization within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended, and the Company will not recognizeat least one year after exercise, any gain or loss recognized for tax purposes upon a subsequent sale of the shares will be a8
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
resultnonstatutory 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 theReverseCompany and certain affiliates) are also treated as nonstatutory options to the extent that, in the aggregate, they first become exercisable in any calendar year for shares of StockSplit.having a fair market value (determined at time of grant) in excess of $100,000.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
THATSTOCKHOLDERS VOTE FOR THE AMENDED AND RESTATED 1997 INCENTIVE PLAN DESCRIBED IN PROPOSAL NUMBER 2.89
EQUITY COMPENSATION PLAN INFORMATIONThe following table provides information about the Company's Common Stock that may be issued upon the exercise of options, warrants and rights under all of its existing equity compensation plans as of June 30, 2003, including, but not limited to, the 1989 Stock Option Plan and the 1997 Incentive Plan:
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rightsWeighted-average
exercise price of
outstanding options,
warrants and rightsNumber of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in first column)Equity compensation plans approved by shareholders 116,102 $ 13.68 99,004 (1) Equity compensation plans not approved by shareholders 9,168 (2)(3)(4) $ 8.08 n/a Total 125,270 $ 13.27 99,004
- (1)
- Includes 99,004 shares of Common Stock available for future grants under the Company's 1997 Incentive Plan. No shares are available for future grants under the Company's 1989 Stock Option Plan.
- (2)
- Includes 2,500 shares of Common Stock issuable upon exercise of outstanding options granted to Mr. Benjamin in connection with his service on the Board of Directors. These options may be exercised at a price of $8.25 per share and expire on December 15, 2004.
- (3)
- Includes 2,500 shares of Common Stock issuable upon exercise of outstanding options granted to Mr. Shannon in connection with his service on the Board of Directors. These options may be exercised at a price of $8.25 per share and expire on December 15, 2004.
- (4)
- Includes 4,168 shares of Common Stock issuable upon exercise of outstanding options granted to Werner Thiel in connection with his service as a consultant to the Company. Options exercisable for 3,334 shares may be exercised at a price of $7.78125 and expire on July 13, 2005. Options exercisable for 834 shares may be exercised at a price of $8.25 and expire on December 14, 2004.
The Company's executive officers as of June 30,
20022003 were as follows:
NAME AND YEAR FIRST ELECTED DIRECTOR AGE PRINCIPAL OCCUPATION; DIRECTORSHIPS OF OTHER PUBLIC COMPANIES - ------------------------------------ -------- -------------------------------------------------------------Name and Year First Elected Director Age Principal Occupation; Directorships of Other Public Companies Richard E. Forkey.................. 62Forkey63 President, Chief Executive Officer, Treasurer Jack P. Dreimiller................. 54Dreimiller55 Senior Vice President, Finance, Chief Financial Officer and Clerk Mr. Forkey has been the President, Chief Executive Officer, 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 and Clerk since January 1998.
10
COMPENSATION AND OTHER MATERIAL TRANSACTIONSEXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLESummary 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,
20022003 and the executive officers during the fiscal year ended June 30,20022003 whose total annual salary and bonuses for the fiscal year ended June 30,20022003 exceeded $100,000 for all services rendered in all capacities to the Company and its subsidiaries (the "Named Executive Officers").
ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------------------------------------- ---------------------------- AWARDS PAYOUTS ---------- --------------- SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION OTHER ANNUAL OPTIONS ALL OTHER AT FISCAL YEAR END YEAR SALARY($Annual Compensation Long Term Compensation Awards Payouts Name and Principal Position
at Fiscal Year EndYear Salary($) BONUS($Bonus($) COMPENSATION($Other Annual
Compensation($)(NUMBER) COMPENSATION($Securities
Underlying
Options
(Number)All Other
Compensation($)--------------------------- -------- --------- -------- --------------- ---------- ---------------Richard E. Forkey................... 2002 195,000 -0- 12,250(1) -0- 6,692(2)Forkey
President, Chief Executive Officer and Treasurer2003
2002
2001195,000
195,000
195,000-0- 11,750(1)
- -0-6,692(2) 2000 174,232
- -0-10,312(1)12,250
12,250
11,750(1)
(1)
(1)-0- 6,692(2)
- -0-
- -0-6,692
6,692
6,692(2)
(2)
(2)
Jack P.Dreimiller.................. 2002 162,499 -0- 3,187(3) 4,000 2,025(4)Dreimiller
Senior Vice President Finance,2001 150,710 -0- 2,705(3) -0- 2,025(4)Chief Financial Officer and Clerk2000 141,252
2003
2002
2001
164,611
162,499
150,710
- -0-2,708(3) 10,000 2,025(4)
- -0-
- -0-
3,166
3,187
2,705
(3)
(3)
(3)
- -0-
667
- -0-
2,025
2,025
2,025
(4)
(4)
(4)- ------------------------
- (1)
- Includes $9,250
$9,250, and $7,812for car expense for each of 2003, 20022001and2000, respectively.2001.- (2)
- Represents premiums for a life insurance policy and a disability insurance policy.
- (3)
- Represents Company's matching contribution to Profit Sharing Plan.
- (4)
- Represents premiums for a life insurance policy.
9OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth theOption Grants in Last Fiscal Year
There were no individual grants of stock options made by the Company during the fiscal year ended June 30,
20022003 to its Named Executive Officers.
PERCENT OF TOTAL NUMBER OF SECURITIES OPTIONS GRANTED TO UNDERLYING OPTIONS EMPLOYEES IN NAME GRANTED FISCAL YEAR EXERCISE PRICE EXPIRATION DATE ---- -------------------- ------------------ -------------- ---------------Richard E. Forkey............... n/a n/a n/a n/a Jack P. Dreimiller.............. 4,000(1) 2.57% $.70 02/01/12- ------------------------ (1) Options are exercisable as follows: one-fourth as of February 1, 2002, the grant date,Aggregated Option Exercises in Last Fiscal Year and
one-fourth on each of the first, second and third anniversaries of the grant date. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUESFiscal Year-End Option ValuesThe following table summarizes for each of the Named Executive Officers (i) the total number of shares received upon exercise of stock options during the fiscal year ended June 30,
2002,2003, (ii) the aggregate dollar value realized upon such exercise, (iii) the total number of unexercised options, if any, held at June 30,20022003 and (iv) the value of unexercised in-the-money options, if any, held at June 30,2002.2003. 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 aggregate value realized upon exercise of a stock option is the difference between the aggregate exercise price of the option and the fair market value of the underlying stock on the date of exercise. 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 30,2002,2003, which was$0.43$2.34 per share. With respect to unexercised, in-the-money options, the11
underlying options have not been exercised, and actual gains, if any, on exercise will depend on the value of the Company's Common Stock on the date of exercise.
FISCAL-YEAR-END OPTION VALUES VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT FISCAL-YEAR END AT FISCAL YEAR-END ($) --------------------------- --------------------------- SHARES ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE NAME EXERCISE (NUMBER) REALIZED($) (NUMBER) (NUMBER) EXERCISABLE UNEXERCISABLE ---- ------------------ ----------- ----------- ------------- ----------- -------------Richard E. Forkey.......... -0- -0- -0- -0- -0- -0- Jack P. Dreimiller......... -0- -0- 98,500 5,500 -0- -0-LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
Fiscal-Year-End Option Values Unexercised Options
at Fiscal-Year-EndValue of Unexercised
In-the-Money Options
at Fiscal-Year-End ($)Name Shares Acquired on
Exercise (Number)Value
Realized($)Exercisable
(Number)Unexercisable
(Number)Exercisable Unexercisable Richard E. Forkey -0- -0- -0- -0- -0- -0- Jack P. Dreimiller -0- -0- 17,001 334 -0- -0- Long Term Incentive Plans—Awards in Last Fiscal Year
The Company made no awards under a long term incentive plan in the fiscal year ended June 30,
2002. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS2003.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 in payments to such Named Executive Officer upon or following his resignation, retirement, or other termination of employment with the Company and its
10subsidiaries, or as a result of a change-in-control of the Company or a change in the Named Executive Officers' responsibilities following a change-in-control. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESection 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company during the fiscal year ended June 30,
20022003 and Forms 5 and amendments thereto furnished to the Company with respect to such fiscal year, no person required to file reports under Section 16(a) of the Securities Exchange Act of 1934 failed to file such reports on a timely basis during or with respect to such fiscal year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSThe 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 currently not to exceed $2,000 a month. These consulting services consist primarily of advice regarding marketing, strategic planning and other general business issues. Either party may terminate this arrangement at will. The Company paid J.R. Pitlor for consulting services aggregate fees of $24,000 for fiscal year
20012002 and $24,000 for fiscal year2002.2003.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 lease expired on December 31, 1999.Company. The Company is currently a tenant-at-will paying rent of $9,000 per month.The Company has paid software and consulting fees of $20,000 for fiscal year 2001 and $19,000 for fiscal year 2002 to Thin Film Center, Inc., a company wholly owned by Dr. Macleod, a Director of the Company, together with his wife.The Company has paid legal fees to Ropes & Gray LLP, a law firm of which Mr. Benjamin, a Director of the Company, is a retired partner, of approximately
$320,000 for fiscal year 2001, and$117,000 for fiscal year2002. 112002, and $144,000 for fiscal year 2003. 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThe following table sets forth information regarding the Company's Common Stock owned as of the close of business on September 30,
2002,2003, the record date for the20022003 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, (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 Named Executive Officers who beneficially own 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 persons listed in the table.
NAME AND ADDRESS AMOUNT AND NATURE OF OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT(2) - ------------------- ----------------------- ----------David M. Greenhouse ........................................ 851,600(3) 8.11% c/o Special Situations Fund III, L.P. 153 East 53rd Street New York, NY 10022 DIRECTORS AND OFFICERS Edward A. Benjamin* ........................................ 62,000(4) ** c/o Ropes & Gray One International Place Boston, MA 02110 Richard E. Forkey* ......................................... 1,772,267 16.87% c/o Precision Optics Corporation, Inc. 22 East Broadway Gardner, MA 01440 H. Angus Macleod* .......................................... 45,000(5) ** c/o Thin Film Center, Inc. 2745 East Via Rotonda Tucson, AZ 85716 Austin W. Marxe* ........................................... 871,600(6) 8.28% c/o Special Situations Funds 153 East 53rd Street New York, NY 10022 Joel R. Pitlor* ............................................ 96,250(7) ** 19 Chalk Street Cambridge, MA 0213912
NAME AND ADDRESS AMOUNT AND NATURE OF OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT(2) - ------------------- ----------------------- ----------Robert R. Shannon* ......................................... 65,000(4) ** 7040 E. Taos Place Tucson, AZ 85715 Jack P. Dreimiller ......................................... 126,000(8) 1.19% c/o Precision Optics Corporation, Inc. 22 East Broadway Gardner, MA 01440 All officers and directors as a group, including those named above (7 persons)......................................... 3,038,117(9) 28.11%- ------------------------
Name and Address
Of Beneficial OwnerAmount and Nature of
Beneficial Ownership(1)Percent of Class(2) David M. Greenhouse
c/o Special Situations Fund III, L.P.
153 East 53rd Street
New York, NY 10022146,002 (3) 8.33 % Directors and Officers Edward A. Benjamin*
c/o Ropes & Gray
One International Place
Boston, MA 0211011,171 (4) ** Richard E. Forkey*
c/o Precision Optics Corporation, Inc.
22 East Broadway
Gardner, MA 01440295,378 16.86 % Austin W. Marxe*
c/o Special Situations Funds
153 East 53rd Street
New York, NY 10022150,172 (5) 8.55 % Joel R. Pitlor*
19 Chalk Street
Cambridge, MA 0213934,260 (6) 1.95 % Robert R. Shannon*
7040 E. Taos Place
Tucson, AZ 8571511,671 (4) ** Jack P. Dreimiller
c/o Precision Optics Corporation, Inc.
22 East Broadway
Gardner, MA 0144021,168 (7) 1.20 % All officers and directors as a group, including those named above (6 persons) 523,820 (8) 29.13 %
- *
- Director
**13
- **
- The percentage of shares beneficially owned by such person does not exceed one percent of the Company's Common Stock.
- (1)
- Represents shares with respect to which each beneficial owner listed has or will have, upon acquisition of such shares upon exercise or conversion of options, warrants, conversion privileges or other rights exercisable within sixty days, sole voting 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 such person or group has the right to acquire within sixty days pursuant to options, warrants, conversion privileges or other rights.
- (3)
- Represents (i)
210,80035,134 shares owned of record by Special Situations Private Equity Fund, L.P. ("SSPEF"); (ii)374,30065,567 shares owned of record by Special Situations Fund III, L.P. ("SSF III"); (iii)149,00024,834 shares owned of record by Special Situations Technology Fund, L.P. ("SSTF"); and (iv)117,50020,467 shares owned of record by Special Situations Cayman Fund, L.P. ("SSCF"). SSPEF, SSF III, SSTF and SSCF are affiliated investment funds. David Greenhouse and Austin Marxe, a director of the Company, are principals of the investment funds and their respective investment advisers, M.G. Advisers, L.L.C., SST Advisers, L.L.C. AWM Investment Company, Inc.- (4)
- Includes
60,00010,837 shares which may be acquired within sixty days upon the exercise of outstanding stock options.- (5)
Represents shares which may be acquired within sixty days upon the exercise of outstanding stock options. (6)- Includes (i)
851,600146,002 shares owned by certain affiliated investment funds of which Mr. Marxe is a principal (see footnote (3) above) and (ii)20,0004,170 shares which may be acquired within sixty days upon exercise of outstanding stock options awarded to Mr. Marxe personally in his capacity as a Director of the Company.(7)- (6)
- Includes
16,2503,544 shares which may be acquired within sixty days upon the exercise of outstanding stock options.(8)- (7)
- Includes
101,00017,001 shares which may be acquired within sixty days upon the exercise of outstanding stock options.(9)- (8)
- Includes
305,25046,389 shares which may be acquired within sixty days upon the exercise of outstanding stock options.13EQUITY COMPENSATION PLAN INFORMATION The following table provides information about the Company's Common Stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of June 30, 2002, including, but not limited to, the 1989 Stock Option Plan and the 1997 Incentive Plan:
NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY NUMBER OF SECURITIES TO WEIGHTED-AVERAGE COMPENSATION PLANS BE ISSUED UPON EXERCISE EXERCISE PRICE OF (EXCLUDING SECURITIES OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REFLECTED IN FIRST WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN) ----------------------- -------------------- ---------------------Equity compensation plans approved by shareholders....................... 688,400 $2.33 614,750(1) Equity compensation plans not approved by shareholders........... 55,000(2)(3)(4) $1.35 n/a ------- ----- ------- Total.............................. 743,400 $2.26 614,750- ------------------------ (1) Includes 614,750 shares of Common Stock available for future grants under the Company's 1997 Incentive Plan. No shares are available for future grants under the Company's 1989 Stock Option Plan. (2) Includes 15,000 shares of Common Stock issuable upon exercise of outstanding options granted to Mr. Benjamin in connection with his service on the Board of Directors. These options may be exercised at a price of $1.375 per share and expire on December 15, 2004. (3) Includes 15,000 shares of Common Stock issuable upon exercise of outstanding options granted to Mr. Shannon issued in connection with his service on the Board of Directors. These options may be exercised at a price of $1.375 per share and expire on December 15, 2004. (4) Includes 25,000 shares of Common Stock issuable upon exercise of outstanding options granted to Werner Thiel in connection with his service as a consultant to the Company. Options exercisable for 20,000 shares may be exercised at a price of $1.296875 and expire on July 13, 2005. Options exercisable for 5,000 share may be exercised at a price of $1.375 and expire on December 14, 2004.
INDEPENDENT PUBLIC ACCOUNTANTSINDEPENDENT PUBLIC ACCOUNTANTSIndependent Public Accountants
KPMG LLP has been selected to serve as independent auditors of the Company for the fiscal year ending June 30,
2003,2004, and also served as the principal accountants of the Company for the fiscal year ended June 30,2002.2003. A representative of KPMG LLP is expected to be present at the annual meeting to respond to appropriate questions and will have the opportunity to make a statement if such representative so desires.CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTSChange in Independent Public Accountants
As previously disclosed on a current report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2002 (the "Form 8-K"), the Company dismissed Arthur Andersen LLP ("Arthur
14
Andersen") as its independent accountants on July 1, 2002. The Company's Audit Committee and Board of Directors approved this action.
The
reportsreport of Arthur Andersen on the Company's financial statements for thetwofiscalyearsyear ended June 30, 2001,and June 30, 2000,contained no adverse opinion or disclaimer of opinion andwerewas not qualified or modified as to uncertainty, audit scope or accounting principles.During the Company's
twofiscalyearsyear ended June 30,2001 and June 30, 2000,2002 and through July 1, 2002, there were no disagreements, resolved or unresolved, with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make reference thereto in connection with its reports on the financial statements.During the Company's
twofiscalyearsyear ended June 30,2001 and June 30, 2000,2002 and through July 1, 2002, Arthur Andersenhasdid notadvisedadvise the Company as to any of the matters described in Item 304(a)(1)(iv)(B) of Regulation S-B promulgated under the Securities Act of 1933, as amended.The Company has been unable, after reasonable efforts, to have Arthur Andersen review and respond to the above disclosure; however, Arthur Andersen provided a letter dated July 2, 2002 stating that it was in agreement with the disclosure included in paragraphs 2, 3 and 4 of the Form 8-K, which disclosure is substantially the same as the above disclosure.
On July 16, 2002, the Company engaged KPMG LLP as its new independent accountant. The Company's Audit Committee and Board of Directors approved this action. The decision to engage KPMG LLP followed the Company's evaluation of proposals from several accounting firms.
During the Company's
twofiscalyearsyear ended June 30,2001 and June 30, 2000,2002 and through July 16, 2002, neither the Company nor any person on the Company's behalf consulted with KPMG LLP regarding: (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company's financial statements, or (ii) any matter that was the subject of a disagreement or event described in Item 304(a)(1)(iv) of Regulation S-B.AUDIT FEESAudit Fees
The aggregate fees billed or estimated to be billed for professional services rendered by the Company's independent auditors for the audit of the Company's annual financial statements for the fiscal year ended June 30,
20022003 and for the reviews of the financial statements included in the Company's quarterly reports on Form 10-QSB for that fiscal year wereapproximately $79,100. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES$86,240.Financial Information Systems Design and Implementation Fees
The Company's independent auditors did not perform any financial information systems design or implementation work for the Company during the fiscal year ended June 30,
2002. ALL OTHER FEES2003.All Other Fees
The aggregate fees billed for
all other professionalnonaudit-related tax services rendered by the Company's independent auditors for the fiscal year ended June 30,20022003 wereapproximately $20,000.$10,975.15
The Audit Committee is composed of Messrs. Benjamin, and Shannon, each of whom is "independent" as defined in Rule 4200(a)(15) of the National Association of Securities Dealers' listing standards. The Board of Directors has adopted a written charter for the Audit Committee.
The Audit Committee has submitted the following report:
The Audit Committee has reviewed and discussed with management the audited consolidated financial statements for the fiscal year ended June 30,
2002,2003, and has discussed with the Company's independent auditors the matters required to be discussed byStatementsStatement on AuditingStandardStandards No. 61 (SAS 61). SAS 61 requires independent auditors to communicate to the Audit Committee various matters, including, if applicable: (1) methods used to account for certain unusual transactions; (2) the effect of certain accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus; (3) the process used by management in formulating certain accounting estimates and the basis for the auditor's conclusions regarding the reasonableness of those estimates and (4) disagreements with management over the application of accounting principles and certain other matters. The Audit Committee has received the written disclosures and the letter from the Company's independent accountants required by Independence Standards Board Standard No. 1 (requiring auditors to make written disclosures to, and to discuss with, the Audit Committee, various matters relating to the auditor's independence), has discussed with the accountants their independence and has considered whether the provision of non-audit services by the accountants is compatible with maintaining that independence. Based on the foregoing and further review and discussion, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,20022003 for filing with the Securities and Exchange Commission.
Edward A. Benjamin
Robert R. ShannonStockholders may present proposals for inclusion in the
20032004 Proxy Statement and form of proxy relating to that meeting provided they are received by the Clerk of the Company no later than June 17,20032004 and are otherwise in compliance with applicable Securities and Exchange Commission regulations.If a Stockholder who wishes to present a proposal at the Company's
20032004 Annual Meeting that will not be included in the Company's proxy statement for such Annual Meeting fails to notify the Company of his or her desire to do so by August 31,2003,2004, then the proxies that the Board of Directors solicits for the20032004 Annual Meeting will include discretionary authority to vote on the Stockholder's proposal, if such proposal is properly brought before the meeting.16
APPENDIXPRECISION OPTICS CORPORATION, INC.
1997 INCENTIVE PLAN
Amended and Restated as of November 11, 2003
1. DEFINED TERMS
Exhibit A,
FORMwhich is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms.2. PURPOSE
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. 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. LIMITS ON AWARDS UNDER THE PLAN
a. Number of Shares. A maximum of 300,000 shares of Stock may be delivered in satisfaction of Awards under the Plan.
b. Type of Shares. Stock delivered by the Company 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.
c. Section 162(m) Limits. 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 100,000. The maximum number of shares of Stock subject to SARs granted to any person over the life of the Plan shall be 100,000. 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 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 100,000. However, Stock Options and SARs that are granted with an exercise price that is less than the fair market value of the underlying shares on the date of the grant will also be subject to the limits imposed by the preceding sentence. 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. 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
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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.
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key Employees, directors and individuals or entities (other than Employees or directors) 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 limited to Employees of the Company or of a "parent corporation" or "subsidiary corporation" of the Company as those terms are defined in Section 424 of the Code.
6. RULES APPLICABLE TO AWARDS
a.ALL AWARDS
(1) Award Provisions. The Administrator will determine the terms of all Awards, subject to the limitations provided herein.
(2) Transferability Of Awards. Neither ISOs nor, except as the Administrator otherwise expressly provides, other Awards may be transferred other than by will or by the laws of descent and distribution, and during a Participant's lifetime ISOs (and, except as the Administrator otherwise expressly provides, other non-transferable Awards requiring exercise) may be exercised only the Participant.
(3) Vesting, Etc. The Administrator may determine the time or times at which an Award will vest or become exercisable and the terms on which an Award requiring exercise will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, immediately upon the cessation of the Participant's Employment, an Award requiring exercise will cease to be exercisable and will terminate, and all other Awards to the extent not already vested will be forfeited, except that:
(A) subject to (B) and (C) below, all Stock Options and SARs held by the Participant or the Participant's permitted transferee, if any, immediately prior to the cessation of the Participant's Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of 30 days or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6.a.(3), and will thereupon terminate;
(B) all Stock Options and SARs held by a Participant or the Participant's permitted transferee, if any, immediately prior to the Participant's death, to the extent then exercisable, will remain exercisable for the lesser of (i) the period ending 90 days after the Participant's death or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6.a.(3), and will thereupon terminate; and
(C) all Stock Options and SARs held by a Participant or the Participant's permitted transferee, if any, immediately prior to the cessation of the Participant's Employment will immediately terminate upon such cessation if the Administrator in its sole discretion determines
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that such cessation of Employment has resulted for reasons which cast such discredit on the Participant as to justify immediate termination of the Award.
(4) 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 (but not in excess of the minimum withholding required by law).
(5) 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.
(6) 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 stockholder, 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.
(7) Section 162(m). This Section 6.a.(7) applies to any 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. In the case of any Performance Award to which this Section 6.a.(7) applies, the Plan and such Award will be construed to the maximum extent permitted by law in a manner consistent with qualifying the Award for such exception. With respect to such Performance Awards, the Administrator will preestablish, in writing, one or more specific 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)). The Performance Criteria so established shall serve as a condition to the grant, vesting or payment of the Performance Award, as determined by the Administrator. Prior to grant, vesting or payment of the Performance Award, as the case may be, the Administrator will certify whether the Performance Criteria have been attained and such determination will be final and conclusive. If the Performance Criteria with respect to the Award are not attained, no other Award will be provided in substitution of the Performance Award. No Performance Award to which this Section 6.a.(7) applies may be granted after the first meeting of the stockholders of the Company held in 2008 until the Performance Criteria (as originally approved or as subsequently amended) have been resubmitted to and reapproved by the stockholders of the Company in accordance with the requirements of Section 162(m) of the Code, unless such grant is made contingent upon such approval.
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) Exercise Price. The Administrator will determine the exercise price, if any, of each Award requiring exercise. Unless the Administrator determines otherwise, the exercise price of an Award requiring exercise will not be less than the fair market value of the Stock subject to the Award,
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determined as of the date of grant. 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.
(3) Payment Of Exercise Price. Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment, subject to the following: (a) all payments will be by cash or check acceptable to the Administrator, or, if so permitted by the Administrator and if legally permissible, (i) through the delivery of shares of Stock that have been outstanding for at least six months (unless the Administrator approves a shorter period) and that have a fair market value equal to the exercise price, (ii) by delivery to the Company of a promissory note of the person exercising the Award, payable on such terms as are specified by the Administrator, (iii) through a broker-assisted exercise program acceptable to the Administrator, or (iv) by any combination of the foregoing permissible forms of payment; and (b) where shares of Stock issued under an Award are part of an original issue of shares, the Award will require that at least so much of the exercise price as equals the par value of such shares be paid other than by delivery of a promissory note or its equivalent. The delivery of shares in payment of the exercise price under clause (a)(i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.
(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
REVERSECERTAIN TRANSACTIONSa.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.
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.
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b.CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK
SPLIT AMENDMENT That,
(1) Basic Adjustment Provisions. In the
Corporation's Articlesevent ofOrganization,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.c., 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. To the extent consistent with qualification of ISOs under Section 422 of the Code and with the performance-based compensation rules of Section 162(m), where applicable, the Administrator may also make adjustments of the type described in paragraph (1) above to take into account distributions to stockholders other than those provided for in Section 7.a. and 7.b.(1), 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.
(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 this Section 7.
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, and the Company may hold the certificates pending lapse of the applicable restrictions.
9. AMENDMENT AND TERMINATION
Subject to the last 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
amendedgrants of Awards;provided, that (except to the extent expressly required or permitted byinsertingthefollowingPlan) no such amendment will, without the approval of the stockholders of the Company, effectuate a change for which stockholder approval is required inArticle III: "Uponorder for thefilingPlan to continue to qualify under Section 422 ofthese Articlesthe Code and for Awards to be eligible for the performance-based exception under Section 162(m).10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of
Amendmentthe 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
Massachusetts Secretarylaws of the Commonwealth(the "Effective Time"), each [INSERT APPROPRIATE SPLIT NUMBER, AS DETERMINED IN ACCORDANCE WITH THE PROPOSAL, WHICH SHALL NOT BE MORE THAN 6 AND NOT LESS THAN 3,] issuedof Massachusetts.A-5
Definition of Terms
The following terms, when used in the Plan, shall have the meanings and
outstanding sharesbe subject to the provisions set forth below:"Administrator": The Board or, if one or more has been appointed, the Committee. The Administrator may delegate ministerial tasks to such persons as it deems appropriate.
"Affiliate": Any corporation or other entity owning, directly or indirectly, 50% or more of
authorized Commonthe 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 or a combination of the following:
(i) Options ("Stock Options") entitling the recipient to acquire shares of Stock upon payment of the exercise price. Each Stock Option awarded under the Plan will be deemed to have been designated as a non-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 below ("Cash Performance Awards").
(viii) Performance Awards
(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.
"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,
$.01Inc."Employee": Any person who is employed by the Company or an Affiliate.
"Employment": A Participant's employment or other service relationship with the Company and its Affiliates. Employment will be deemed to continue, unless the Administrator expressly provides otherwise, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 5 to the Company or its Affiliates. If a Participant's employment or other service relationship is with an Affiliate and that entity ceases to be an Affiliate, the Participant's Employment will be deemed to have terminated when the entity ceases to be an Affiliate unless the Participant transfers Employment to the Company or its remaining Affiliates.
"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.
"Performance Award": An Award subject to Performance Criteria. 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.
"Performance Criteria": Specified criteria, the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award. For purposes of Awards that are intended to qualify for the performance-based compensation exception under Section 162(m), a Performance Criterion will mean an objectively determinable measure of performance relating to any or any combination of the following (determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project 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. A Performance Criterion measure and any targets with respect thereto determined by the Administrator need not be based upon an increase, a positive or improved result or avoidance of loss.
"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 shall be reclassified and combined into one (1) share of Common Stock. There shall be no fractional shares issued. Each resulting fractional share shall be rounded up to a wholeshare.The total number of authorized shares of Common Stock immediately after the Effective Time shall continue to be 20,000,000." A-1PRECISION OPTICS CORPORATION C/O EQUISERVE P.O. BOX 43068 PROVIDENCE, RI 02940A-7
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 Stockholders on November
12, 2002.11, 2003.Thank you in advance for your prompt consideration of these matters.
Very truly yours, Precision Optics Corporation, Inc. DETACH HERE ZPOPC1 [X] PLEASE MARK VOTES AS IN THIS EXAMPLE. -------------------------------------------------------------------------------
Very truly yours,
Precision Optics Corporation, Inc.
DETACH HERE ZPOPC2 PRECISION OPTICS CORPORATION, INC.
------------------------------------------------------------------------------- 1. Election of one Class III Director. The nominee for the Board of Directors to serve for a three-year term as Class III Director: NOMINEE: (01) Robert R. Shannon FOR WITHHELD FROM NOMINEE [___] NOMINEE [___] 2. Proposal to approve an amendment to the Articles of Organization, to be filed at the discretion of the Board, to effect a reverse stock split as more fully described in the Proxy Statement.FOR [___] AGAINST [___] ABSTAIN [___] Mark box at right if an address change or comment has / / been noted on the reverse side of this card. Please sign this proxy exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian, please give full title as such. Signature: _________________________________________ Date: ____________________ Signature: _________________________________________ Date: ____________________ DETACH HERE ZPOPC2 PRECISION OPTICS CORPORATION, INC.COMMON STOCK PROXY
The undersigned, revoking any previous instructions, hereby acknowledges receipt of the Notice and Proxy Statement dated October 15,
2002.2003. In connection with the Annual Meeting mentioned below, the undersigned hereby appoint(s) Richard E. Forkey and Jack P. Dreimiller 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 Stockholders of Precision Optics Corporation, Inc. to be held on November12, 2002,11, 2003, at 10:00 A.M. at theFour Points Sheraton Hotel, 99 Erdman Way, Leominster,offices of Ropes & Gray LLP, One International Place, Boston, Massachusetts, and at any adjournments or postponements 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. IF NO DIRECTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE ELECTION OF THE CLASS
IIII DIRECTORNOMINEENOMINEES DESCRIBED IN PROPOSAL NUMBER 1 AND FOR THE AMENDED AND RESTATED 1997 INCENTIVE PLAN DESCRIBED IN PROPOSAL NUMBER 2.-------------------------------------------------------------------------------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? - --------------------------------- ------------------------------------ - --------------------------------- ------------------------------------ - --------------------------------- ------------------------------------
| HAS YOUR ADDRESS CHANGED? | DO YOU HAVE ANY COMMENTS? | |
PRECISION OPTICS CORPORATION
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
| DETACH HERE | ZPOPC2 |
PRECISION OPTICS CORPORATION, INC.
NOMINEES: (01) Richard E. Forkey and (02) Edward A. Benjamin
| FOR NOMINEES o | WITHHELD FROM NOMINEES | o | ||||
| o For all nominees except as written above. | ||||||
| FORo | AGAINSTo | ABSTAINo |
Mark box at right if an address change or comment has been noted on the reverse side of this card. o
Please sign this proxy exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian, please give full title as such.
| Signature: | Date: | |||||
Signature: | Date: | |||||