SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
BIOLASE TECHNOLOGY, INC.
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(Name of Registrant as Specified in Its Charter)
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(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)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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[BIOLASE LOGO]
BIOLASE TECHNOLOGY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 2002
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
BioLase Technology, Inc., a Delaware corporation (the "Company"), will be held
on Thursday, May 23, 2002, at 2:00 p.m. Pacific Time at the Company's offices at
981 Calle Amanecer, San Clemente, California 92673, for the following purposes,
as more fully described in the Proxy Statement accompanying this Notice:
1. To elect four directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected and
qualified or until their earlier resignation or removal;
2. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending
December 31, 2002;
3. To approve the BioLase Technology, Inc. 2002 Stock Incentive Plan
(the "2002 Plan") as a replacement to the BioLase Technology, Inc.
1998 Stock Option Plan (the "1998 Plan"); and
4. To transact such other business as may properly come before the
meeting, or any adjournment or postponement thereof.
Only stockholders of record at the close of business on April 9, 2002
are entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting will
be available for inspection at the executive offices of the Company and at the
Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy as
promptly as possible in the envelope enclosed for your convenience. Should you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be signed and returned to assure that all
your shares will be voted. You may revoke your proxy at any time prior to the
Annual Meeting. If you attend the Annual Meeting and vote by ballot, your proxy
will be revoked automatically and only your vote at the Annual Meeting will be
counted.
Sincerely,
/s/ FEDERICO PIGNATELLI
Federico Pignatelli
Chairman of the Board of Directors
San Clemente, California
April 19, 2002
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
[BIOLASE LOGO]
BIOLASE TECHNOLOGY, INC.
981 Calle Amanecer
San Clemente, California 92673
_________________________
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 23, 2002
_________________________
General
The enclosed proxy (the "Proxy") is solicited on behalf of the Board of
Directors of BioLase Technology, Inc., a Delaware corporation (the "Company"),
for use at the Annual Meeting of Stockholders to be held on Thursday, May 23,
2002 (the "Annual Meeting") and at any adjournment or postponement thereof. The
Annual Meeting will be held at 2:00 p.m. Pacific Time at the Company's offices
at 981 Calle Amanecer, San Clemente, California 92673. These Proxy solicitation
materials were mailed on or about April 25, 2002 to all stockholders entitled to
vote at the Annual Meeting.
Voting; Quorum
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy. On April 9, 2002, the record date (the "Record Date") for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, 19,852,948 shares of the Company's common stock (the "Common Stock")
were outstanding. No shares of the Company's preferred stock are outstanding.
Each stockholder is entitled to one vote for each share of Common Stock held by
such stockholder on the Record Date. Stockholders may not cumulate votes in the
election of directors.
The presence at the Annual Meeting, either in person or by proxy, of
holders of shares of the Company's outstanding stock entitled to vote and
representing a majority of the voting power of all of such shares shall
constitute a quorum for the transaction of business. In the election of
directors, the four nominees receiving the highest number of affirmative votes
will be elected. With regard to Proposals Two and Three, the affirmative vote of
the holders of Common Stock representing a majority of the voting power present
or represented by proxy and voting at the Annual Meeting and entitled to vote on
the subject matter is being sought.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. With regard to Proposal One, broker non-votes and
votes marked "withheld" will not be counted towards the tabulations of votes
cast on such proposal presented to the stockholders. With regard to Proposals
Two and Three, abstentions will be counted towards the tabulations of votes cast
on such proposals presented to the stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether such proposals have been approved.
Proxies
If the enclosed form of Proxy is properly signed and returned to the
Company, the shares represented thereby will be voted at the Annual Meeting in
accordance with the instructions specified thereon. If the Proxy does not
specify how the shares represented thereby are to be voted, the Proxy will be
voted FOR the election of the directors proposed by the Board unless the
authority to vote for the election of such directors is withheld and, if no
contrary instructions are given, the Proxy will be voted FOR the approval of
Proposals Two and Three described in the accompanying Notice and Proxy. You may
revoke or change your Proxy at any time before the Annual Meeting by filing with
the Secretary of the Company at the Company's principal executive offices at 981
Calle Amanecer, San Clemente, California 92673 a notice of revocation or another
signed Proxy with a later date. You may also revoke your Proxy by attending the
Annual Meeting and voting in person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The Company may
retain a proxy solicitor to assist in the distribution of Proxies and Proxy
solicitation materials. Generally, the fee for such services is approximately
$15,000 plus expenses. The original solicitation of proxies by mail may be
supplemented by a solicitation by telephone, facsimile or other means by
directors, officers or employees of the Company. No additional compensation will
be paid to these individuals for any such services. Except as described above,
the Company does not presently intend to solicit proxies other than by mail.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 2003 Annual Meeting of
Stockholders must be received no later than December 24, 2002, in order that
they may be included in the proxy statement and form of proxy relating to that
meeting. In addition, the proxy solicited by the Board of Directors for the 2003
Annual Meeting will confer discretionary authority to vote on any stockholder
proposal presented at that meeting, unless the Company receives notice of such
proposal no later than March 10, 2003.
Note with Respect to Forward-Looking Statements
The Company has made forward-looking statements in this Proxy Statement
that relate to expectations concerning matters that are not historical facts.
Words such as "projects," "believes," anticipates," "plans," "expects,"
"intends" and similar words and expressions are intended to identify
forward-looking statements. Although the Company believes that such
forward-looking statements are reasonable, there can be no assurance that such
expectations will prove to be correct. Forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from such expectations, including risks described in this Proxy Statement. All
forward-looking statements attributable to the Company are expressly qualified
in their entirety by such language. The Company does not undertake any
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
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PROPOSAL ONE:
ELECTION OF DIRECTORS
General
The Board of Directors currently consists of four persons whose term of
office expires at the Annual Meeting. The directors to be elected will serve
until the 2003 Annual Meeting of Stockholders and until their successors have
been duly elected and qualified or until their earlier resignation or removal.
If this proposal is approved, the Board will consist of four persons.
Each nominee for election is currently a director of the Company and
has agreed to serve if elected. Management has no reason to believe that any of
the nominees will be unavailable to serve. In the event any of the nominees
named herein is unable to serve or declines to serve at the time of the Annual
Meeting, the persons named in the enclosed Proxy will exercise discretionary
authority to vote for substitutes. Unless otherwise instructed, the proxy
holders will vote the Proxies received by them FOR the nominees named below.
Nominees for Term Ending Upon the 2003 Annual Meeting of Stockholders
Federico Pignatelli, 49, has served as the Company's Chairman of the
Board since 1994 and as a director of the Company since 1991. He has served as
Chairman of the Board and Chief Executive Officer of Studio Management, Inc. and
as general partner of Pier 59 Studio, L.P., in New York, the world's largest
complex of digital photographic studios, since 1995. Previously, Mr. Pignatelli
was Managing Director at Gruntal & Company, an investment banking and brokerage
firm and was Managing Director of Ladenburg, Thalmann & Co., another investment
banking and brokerage firm.
William A. Owens, 61, has served as a director of the Company since
1998. Admiral Owens has served as Co-Chief Executive Officer since 1999, and
Vice Chairman since 1998, of Teledesic LLC, a developer of satellite
communications networks. He also has served as Chief Executive Officer of
Teledesic Holdings Ltd., an affiliate of Teledesic LLC. From 1996 to 1998,
Admiral Owens was President, Chief Operating Officer and Vice Chairman of
Science Applications International Corporation. Admiral Owens retired from the
U.S. Navy in 1996 after 34 years of service. During his naval career, his
positions included Vice Chairman of the Joint Chiefs of Staff, the nation's
second-highest ranking military officer, from 1993 to 1996; Deputy Chief of
Naval Operations for Resources, Warfare Requirements and Assessments from 1991
to 1993; Commander of the U.S. Sixth Fleet from 1990 to 1991; and senior
military assistant to the Office of the Secretary of State from 1988 to 1991.
Admiral Owens also serves as a director of British American Tobacco Holding
Ltd., Symantec Corporation and Microvision, Inc., as well as other public and
private corporations.
Jeffrey W. Jones, 45, has served as President, Chief Executive Officer
and a director of the Company since 1998. From 1986 to 1998, Mr. Jones served in
various executive capacities, including President and Chief Executive Officer,
at HGM Medical Laser Systems, Inc., a manufacturer of medical lasers used in
ophthalmologic, dental and anesthetic applications.
George V. d'Arbeloff, 57, has served as a director of the Company since
1996. Since 2000, Mr. d'Arbeloff has served as the Chairman of Big Idea Group,
Inc., a company that links inventors with other companies buying innovation.
From 1996 to 2000, Mr. d'Arbeloff served as Chief Executive Officer of Retail
Solutions, Inc., a small early-stage private company which sought protection
under 11 USC Sec. 7.01 et. seq. in June 2000. From 1967 to 1996, he served in
various executive capacities at Teradyne, Inc., a manufacturer of testing
equipment for the semiconductor and electronics industries, including Vice
President of Investor Relations from 1995 to 1996, Vice President and General
Manager of the Semiconductor Test Group from 1992 to 1995 and Vice President and
General Manager of the Industrial/Consumer Division of the Semiconductor Test
Group from 1982 to 1992.
3
Board Committees and Meetings
The Board of Directors held one meeting and acted by written consent
various times during the fiscal year ended December 31, 2001 (the "2001 Fiscal
Year"). The Board has an Audit Committee and a Compensation Committee. Each
director attended or participated in 75% or more of the aggregate of (i) the
total number of meetings of the Board of Directors and (ii) the total number of
meetings held by all committees of the Board on which such director served
during the 2001 Fiscal Year.
Audit Committee. The Audit Committee currently consists of three
directors, Messrs. Pignatelli, Owens and d'Arbeloff, and is primarily
responsible for approving the services performed by the Company's independent
accountants and reviewing their reports regarding the Company's accounting
practices and systems of internal accounting controls. The committee also
reviews the Company's financial reports, its accounting and financial policies
in general, and management's procedures and policies with respect to the
Company's internal accounting controls. The Audit Committee held one meeting
during the 2001 Fiscal Year and did not act by written consent during the 2001
Fiscal Year.
The Board of Directors adopted and approved a written charter for the
Audit Committee on February 26, 2001, a copy of which was attached as Appendix A
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to the Company's Definitive Proxy Statement filed with the Securities and
Exchange Commission on April 9, 2001. The Board has determined that all members
of the Audit Committee are "independent" as that term is defined in Rule 4200 of
the listing standards of the National Association of Securities Dealers.
Compensation Committee. The Compensation Committee currently consists
of two directors, Messrs. Pignatelli and d'Arbeloff, and is primarily
responsible for reviewing and developing the Company's general compensation
policies and making recommendations to the Board of Directors on compensation
levels for the Company's executive officers. The Compensation Committee also
reviews and makes recommendations to the Board of Directors on matters relating
to employee compensation and benefit plans. The Compensation Committee held one
meeting during the 2001 Fiscal Year and did not act by written consent during
the 2001 Fiscal Year.
Director Compensation
Directors who are not employees of the Company or any of its
subsidiaries do not currently receive any cash compensation from the Company for
their service as members of the Board of Directors or any Board committee.
However, directors are reimbursed for all reasonable travel and lodging expenses
incurred by them in attending Board and committee meetings.
Under the formula option grant program in effect under the 1998 Plan,
each individual who is elected to the Board as a non-employee director, at an
annual meeting of stockholders or at a special meeting at which directors are
elected, automatically is granted, on the date of such election, a non-statutory
option to purchase 30,000 shares of Common Stock. Each grant under the formula
option grant program has an exercise price per share equal to the fair market
value of the Common Stock on the grant date, and will have a maximum term of ten
years, subject to earlier termination should the optionee cease to serve as a
Board member. Each option vests at a rate of 7,500 shares per quarter,
commencing three months after the date of grant. If no meetings are held at
which directors are elected in a particular calendar year, then each
non-employee director receives the automatic stock option grant on December 31
of that year. If a non-employee director becomes a director for the first time
on a date other than the date of a meeting at which all directors are elected,
he or she automatically is granted a non-statutory option to purchase the number
of shares equal to 2,500 multiplied by the number of months from the grant date
until June 1 of the next calendar year, vesting at a rate of 2,500 shares per
month.
Each automatic grant under the 1998 Plan has an exercise price per
share equal to the fair market value per share of Common Stock on the grant date
and has a maximum term of ten years, subject to earlier termination following
the optionee's cessation of Board service for any reason.
Under this formula option grant program, Messrs. Pignatelli, Owens and
d'Arbeloff each received an automatic option grant on May 3, 2001 to purchase
30,000 shares of Common Stock at an exercise price of $2.22 per share.
4
On May 3, 2001, the Company also granted Mr. Pignatelli a separate
fully vested option to purchase an additional 50,000 shares of Common Stock at
an exercise price of $2.22 per share.
If approved at the Annual Meeting, the 2002 Plan will provide that the
Company's non-employee directors will receive automatic option grants, similar
to those granted under the 1998 Plan, and will be eligible to receive
discretionary option grants under such plan. See page 9 for more details.
Required Vote
The four nominees receiving the highest number of affirmative votes of
the outstanding shares of the Common Stock present or represented by proxy and
entitled to be voted for them, shall be elected as directors. Each Proxy cannot
be voted for a greater number of persons than four.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
election of the nominees listed above.
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PROPOSAL TWO:
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the firm of PricewaterhouseCoopers
LLP, independent public accountants for the Company during the 2001 Fiscal Year,
to serve in the same capacity for the year ending December 31, 2002, and is
asking the stockholders to ratify this appointment. Stockholder ratification of
such selection is not required by the Company's Bylaws or other applicable legal
requirement. However, the Board of Directors is submitting the selection of
PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of
good corporate practice. In the event the stockholders fail to ratify the
selection, the Audit Committee and the Board of Directors will reconsider
whether or not to retain that firm. Even if the selection is ratified, the Board
of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of PricewaterhouseCoopers LLP is expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
he or she desires to do so, and will be available to respond to appropriate
questions.
Fees Billed to Company by PricewaterhouseCoopers LLP during 2001 Fiscal Year:
Audit Fees
Audit fees billed to the Company by PricewaterhouseCoopers LLP during
the Company's 2001 Fiscal Year for the audit of the Company's annual
consolidated financial statements and a review of those consolidated financial
statements included in the Company's Quarterly Reports on Form 10-Q totaled
$77,000.
Financial Information Systems Design and Implementation Fees
The Company did not engage PricewaterhouseCoopers LLP to provide advice
to the Company regarding financial information systems design and implementation
during the 2001 Fiscal Year.
All Other Fees
Fees billed to the Company by PricewaterhouseCoopers LLP during the
Company's 2001 Fiscal Year for all other non-audit services rendered to the
Company, including tax related services, totaled $15,000.
Determination of Independence
The Company's Audit Committee has determined that the fees received by
PricewaterhouseCoopers LLP for the non-audit related services listed above are
compatible with maintaining PricewaterhouseCoopers LLP's independence.
Vote
The affirmative vote of the holders of a majority of the shares present
or represented and entitled to vote at the meeting is being sought to ratify the
selection of PricewaterhouseCoopers LLP as the Company's independent public
accountants for the fiscal year ending December 31, 2002.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of PricewaterhouseCoopers LLP to serve as the
Company's independent accountants for the fiscal year ending December 31, 2002.
6
PROPOSAL THREE:
APPROVAL OF THE BIOLASE TECHNOLOGY, INC. 2002 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve the implementation of
the 2002 Plan as the successor to the 1998 Plan. The 2002 Plan will become
effective immediately upon stockholder approval, and all outstanding options and
the remaining share reserve under the 1998 Plan will be transferred to the new
2002 Plan at that time. Once the 2002 Plan is effective, the 1998 Plan will
terminate and no further option grants or stock issuances will be made under
that plan.
2002 Plan
The following is a summary of the principal features of the 2002 Plan. Any
Company stockholder who wishes to obtain a copy of the actual plan document may
do so upon written request to the Company at 981 Calle Amanecer, San Clemente,
California 92673.
Purpose
The 2002 Plan is designed to serve as a comprehensive equity incentive
program to attract and retain the services of individuals essential to the
Company's long-term growth and financial success. Accordingly, the Company's
officers and other employees, the non-employee directors and independent
contractors will have the opportunity to acquire a meaningful equity interest in
the Company through their participation in the 2002 Plan.
Equity Incentive Programs
The 2002 Plan will consist of three equity incentive programs: (1) the
discretionary option grant program, (2) the stock issuance program, and (3) the
automatic option grant program for the Company's non-employee directors. The
principal features of each program are described below.
Administration
Both the Board of Directors and the Compensation Committee have the
authority to administer the discretionary option grant and stock issuance
programs with respect to option grants and stock issuances made to the Company's
executive officers and non-employee directors and will also have the authority
to make option grants and stock issuances under those programs to all other
eligible individuals. The Board of Directors may at any time appoint a secondary
committee comprised of one or more directors to have concurrent authority to
make option grants and stock issuances under those two programs to individuals
other than executive officers and non-employee directors. Neither the Board of
Directors nor any committee of the Board of Directors will exercise any
administrative discretion under the automatic option grant program. All grants
under that program will be made in strict compliance with the express provisions
of such program.
The term "Plan Administrator," as used in this summary, will mean the Board
of Directors, Compensation Committee and any secondary committee, to the extent
each such entity is acting within the scope of its administrative authority
under the 2002 Plan.
Share Reserve
The share reserve will consist of (a) the shares of the Common Stock which
will be transferred from the 1998 Plan, including the shares subject to the
outstanding options under that plan plus (b) an increase of 1,000,000 shares. As
of April 1, 2002, options to purchase 1,492,000 shares of Common Stock were
outstanding under the 1998 Plan, and another 508,000 shares of Common Stock
remained available for future grant under that plan. The total number of shares
authorized for issuance under the 1998 Plan was previously approved by the
Company's stockholders.
No participant in the 2002 Plan will be able to receive option grants or
direct stock issuances for more than 1,500,000 shares of Common Stock in total
in a single calendar year, subject to adjustment for subsequent stock
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splits, stock dividends and similar transactions. Stockholder approval of this
Proposal will also constitute approval of that 1,500,000-share limitation for
purposes of Internal Revenue Code Section 162(m).
The shares of Common Stock issuable under the 2002 Plan will be drawn from
shares of authorized but unissued Common Stock or from shares of Common Stock
which the Company acquires, including shares purchased on the open market or in
private transactions.
Shares subject to any outstanding options under the 2002 Plan (including
options transferred from the 1998 Plan) which expire or otherwise terminate
prior to exercise will be available for subsequent issuance. Unvested shares
issued under the 2002 Plan which the Company subsequently purchases, at a price
not greater than the option exercise or direct issue price paid per share,
pursuant to the Company's purchase rights under the 2002 Plan will be added back
to the number of shares reserved for issuance under the 2002 Plan and will
accordingly be available for subsequent issuance.
Changes in Capitalization
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
2002 Plan, (ii) the maximum number and/or class of securities for which any one
person may be granted stock options and direct stock issuances under the 2002
Plan in a single calendar year, (iii) the number and/or class of securities for
which grants are to be made subsequently under the automatic option grant
program to new and continuing non-employee directors, (iv) the number and/or
class of securities and the exercise price per share in effect under each
outstanding option and (v) the number and/or class of securities and the
exercise price per share in effect under each outstanding option transferred
from the 1998 Plan to the 2002 Plan. Such adjustments will be designed to
preclude any dilution or enlargement of benefits under the 2002 Plan or the
outstanding options thereunder.
Eligibility
Officers and employees, non-employee directors and independent contractors
in the Company's service or in the service of its parent or subsidiary companies
(whether now existing or subsequently established) will be eligible to
participate in the discretionary option grant and stock issuance programs.
Participation in the automatic option grant program will be limited to the
non-employee members of the Board of Directors.
As of April 1, 2002, approximately 110 employees, including four executive
officers, and three non-employee directors, would have been eligible to
participate in the discretionary option grant and stock issuance programs if the
2002 Plan were in effect at that time. The three non-employee directors would
have also been eligible to participate in the automatic option grant program had
the 2002 Plan been in effect at that time.
Discretionary Option Grant Program
The Plan Administrator will have complete discretion under the
discretionary option grant program to determine which eligible individuals are
to receive option grants, the time or times when those grants are to be made,
the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule (if any) to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.
Each granted option will have an exercise price per share determined by the
Plan Administrator, but the exercise price will not be less than 100% of the
fair market value of the option shares on the grant date. No granted option will
have a term in excess of ten years. The shares subject to each option will
generally vest in one or more installments over a specified period of service
measured from the grant date.
However, one or more options may be structured so that they will be
immediately exercisable for any or all of the option shares. The shares acquired
under such immediately exercisable options will be subject to repurchase by the
Company, at the lower of the exercise price paid per share or the fair market
value per share (determined at the time of repurchase), if the optionee ceases
service prior to vesting in those shares.
8
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options to the extent exercisable
for vested shares. The Plan Administrator will have complete discretion to
extend the period following the optionee's cessation of service during which his
or her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.
Stock Issuance Program
Shares may be issued under the stock issuance program at a price per share
not less than their fair market value, payable in cash or through a
full-recourse, interest-bearing promissory note. Shares may also be issued as a
bonus for past services without any cash outlay required of the recipient.
Shares of Common Stock may also be issued under the program pursuant to share
right awards that entitle the recipients to receive those shares upon the
attainment of designated performance goals. The Plan Administrator will have
complete discretion under the program to determine which eligible individuals
are to receive such stock issuances or share right awards, the time or times
when those issuances or awards are to be made, the number of shares subject to
each such issuance or award and the vesting schedule to be in effect for the
stock issuance or share rights award.
The shares issued may be fully and immediately vested upon issuance or may
vest upon the completion of a designated service period or the attainment of
pre-established performance goals. The Plan Administrator will, however, have
the discretionary authority at any time to accelerate the vesting of any and all
unvested shares outstanding under the stock issuance program.
Outstanding share right awards under the program will automatically
terminate, and no shares of Common Stock will actually be issued in satisfaction
of those awards, if the performance goals established for such awards are not
attained. The Plan Administrator, however, will have the discretionary authority
to issue shares of Common Stock in satisfaction of one or more outstanding share
right awards as to which the designated performance goals are not attained.
Automatic Option Grant Program
Under the automatic option grant program, eligible non-employee members of
the Board of Directors will receive a series of option grants over their period
of board service.
Each individual who is elected to the Board as a non-employee director, at
an annual meeting of stockholders or at a special meeting at which directors are
elected, automatically will be granted, on the date of such election, a
non-statutory option to purchase 30,000 shares of Common Stock. Each option will
vest at a rate of 7,500 shares per quarter, commencing three months after the
date of grant. If a non-employee director becomes a member of the Board of
Directors for the first time on a date other than the date of a meeting at which
all directors are elected, he or she will automatically be granted a
non-statutory option to purchase the number of shares equal to (a) 2,500
multiplied by (b) the difference between 12 and the number of months since the
last meeting at which directors were elected. This option will vest at a rate of
2,500 shares per month. The shares subject to each initial option grant and each
annual option grant will immediately vest in full if certain changes in control
or ownership occur or if the optionee dies or becomes disabled while serving as
a director.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of Common Stock on the grant date and will have a
maximum term of ten years, subject to earlier termination twelve months after
the date of the optionee's cessation of Board service for any reason. Each
automatic option will be immediately exercisable for all of the option shares.
However, any shares purchased under such option will be subject to repurchase by
the Company, at the lower of the exercise price paid per share or the fair
market value per share (determined at the time of repurchase), should the
optionee cease board service prior to vesting in those shares.
Valuation
The fair market value per share of Common Stock on any relevant date under
the 2002 Plan will be deemed to be equal to the closing selling price per share
on that date on the Nasdaq SmallCap Market. On April 9, 2002, the fair market
value per share of Common Stock determined on such basis was $5.83.
9
Acceleration
In the event the Company should experience a change in control, each
outstanding option under the discretionary option grant program will
automatically accelerate in full, unless assumed or otherwise continued in
effect by the successor corporation or replaced with a cash incentive program
which preserves the spread existing on the unvested option shares (which is the
excess of the fair market value of those shares over the option exercise price
payable for such shares) and provides for subsequent payout of that spread no
later than the time the optionee would have vested in such shares. In addition,
all unvested shares outstanding under the discretionary option grant and stock
issuance programs will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation or otherwise continued in effect.
The Plan Administrator will have complete discretion to grant one or more
options under the discretionary option grant program which will become
exercisable for all the option shares in the event the optionee's service with
the Company or the successor entity is terminated (actually or constructively)
within a designated period following a change in control transaction in which
those options are assumed or otherwise continued in effect. The vesting of
outstanding shares issued under the stock issuance program may also be
structured to accelerate upon similar terms and conditions.
The Plan Administrator will have the discretion to structure one or more
option grants under the discretionary option grant program so that those options
will immediately vest upon the occurrence of certain events, including a change
in control, regardless of whether the options are to be assumed or otherwise
continued in effect. The Plan Administrator may also structure stock issuances
under the stock issuance program so that those issuances will immediately vest
upon the occurrence of certain events, including a change in control. The shares
subject to each option granted under the automatic option grant program will
immediately vest upon any change in control transaction and if a change in the
majority of the Board of Directors effected through one or more contested
elections for board membership occurs.
A change in control will occur if (i) the Company is acquired by merger or
asset sale or (ii) a change in ownership of more than 50% of the Company's
outstanding voting stock occurs.
The acceleration of vesting in the event of a change in the ownership or
control may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
Stockholder Rights and Option Transferability
No optionee will have any stockholder rights with respect to the shares
subject to the option until such optionee has exercised the option and paid the
exercise price for the shares. Incentive options will not be assignable or
transferable other than by will or the laws of inheritance following optionee's
death, and during the optionee's lifetime, the option may only be exercised by
the optionee. However, the Plan Administrator may structure one or more
non-statutory options under the 2002 Plan so that those options will be
transferable during optionee's lifetime to one or more members of the optionee's
family or to a trust established for one or more such family members or to the
optionee's former spouse.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the
discretionary option grant program or the purchase of shares under the stock
issuance program through full-recourse, interest-bearing promissory notes.
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested share issuances under the 2002 Plan with the right to have the Company
withhold a portion of the shares otherwise issuable to such individuals in
satisfaction of the withholding taxes to which they become subject in connection
with the exercise of those options or the vesting of those shares.
Alternatively, the Plan Administrator may allow such individuals to deliver
previously acquired shares of Common Stock in payment of such withholding tax
liability.
10
Amendment and Termination
The Board of Directors may amend or modify the 2002 Plan at any time,
subject to any required stockholder approval pursuant to applicable laws and
regulations. Unless sooner terminated by the Board of Directors, the 2002 Plan
will terminate on April 16, 2012.
1998 Plan
All outstanding options under the 1998 Plan which are transferred to the
2002 Plan will continue to be governed by the terms of the agreements evidencing
those options, and no provision of the 2002 Plan will affect or otherwise modify
the rights or obligations of the holders of the transferred options with respect
to their acquisition of Common Stock. However, the Plan Administrator will have
complete discretion to extend one or more provisions of the 2002 Plan to the
transferred options, to the extent those options do not otherwise contain such
provisions.
Federal Income Tax Consequences
Option Grants
Options granted under the discretionary option grant program may be either
incentive stock options which satisfy the requirements of Section 422 of the
Internal Revenue Code or non-statutory options which are not intended to meet
such requirements. All options granted under the automatic option grant program
will be non-statutory options. The federal income tax treatment for the two
types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
-----------------
time of the option grant, and no taxable income is recognized for regular tax
purposes at the time the option is exercised, although taxable income may arise
at that time for alternative minimum tax purposes. The optionee will recognize
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of a taxable disposition. For federal tax purposes,
dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. A qualifying disposition occurs if the sale or other disposition
is made more than two years after the date the option for the shares involved in
such sale or disposition is granted and more than one year after the date the
option is exercised for those shares. If the sale or disposition occurs before
both of these two periods are satisfied, then a disqualifying disposition will
result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then, in general, the excess of (i) the fair market value of those
shares on the exercise date over (ii) the exercise price paid for the shares
will be taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be recognized as a capital gain or loss by
the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then, in general, the Company will be entitled to an income tax deduction, for
the taxable year in which such disposition occurs, equal to the amount taxable
to the optionee. The Company will not be entitled to any income tax deduction if
the optionee makes a qualifying disposition of the shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
---------------------
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested because they are subject to repurchase by the Company in the event of
the optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the excess of (i) the fair market value of the shares
on the date the repurchase right lapses over (ii) the exercise price paid for
the shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the
11
year of exercise of the option an amount equal to the excess of (i) the fair
market value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the optionee
will not recognize any additional income as and when the repurchase right
lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the Company's
taxable year in which such ordinary income is recognized by the optionee.
Direct Stock Issuances
The tax principles applicable to direct stock issuances under the 2002 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
Deductibility of Executive Compensation
Any compensation deemed paid by the Company in connection with the
disqualifying disposition of incentive stock option shares or the exercise of
non-statutory options with exercise prices equal to the fair market value of the
option shares on the grant date will qualify as performance-based compensation
for purposes of Code Section 162(m) provided the grant was approved by a
committee comprised of two or more "outside directors." Therefore, this
compensation will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company, and accordingly,
should be deductible by the Company without limitation under Code Section
162(m).
Accounting Treatment
Option grants or stock issuances made to employees or directors under the
2002 Plan that have exercise or issue prices that are equal to or greater than
the fair market value per share on the grant or issue date will not result in
any direct charge to the Company's reported earnings. However, the fair value of
those options is required to be disclosed in the notes to the Company's
financial statements, and the Company must also disclose, in footnotes to its
financial statements, the pro-forma impact those options would have upon the
Company's reported earnings were the fair value of those options at the time of
grant treated as a compensation expense.
Option grants or stock issuances made to employees or directors under the
2002 Plan that have exercise or issue prices that are less than the fair market
value per share on the grant or issue date will result in a direct compensation
expense to the Company in an amount equal to the excess of such fair market
value over the exercise or issue price. The expense must be amortized against
the Company's earnings over the period that the option shares or issued shares
are to vest.
Option grants made to non-employee consultants under the 2002 Plan will
result in a direct charge to the Company's reported earnings based upon the fair
value of the option measured initially as of the grant date and then
subsequently on the vesting date of each installment of the underlying option
shares. Such charge will accordingly include the appreciation in the value of
the option shares over the period between the grant date of the option and the
vesting date of each installment of the option shares.
The number of outstanding options will affect the Company's earnings per
share on a fully diluted basis.
Stock Awards
The table below shows, as to the Company's Chief Executive Officer, the
Company's one other most highly compensated executive officers (with base salary
and bonus for the 2001 fiscal year in excess of $100,000) and the other
individuals and groups indicated, the number of shares of Common Stock subject
to option grants made under the Company's option plans from January 1, 2001
through April 1, 2002, together with the weighted average exercise price payable
per share. The Company has not made any direct stock issuances to date under the
Company's option plans.
12
Option Transactions
Weighted Average
Number of Shares Underlying Exercise Price
Name and Position Options Granted (#) per Share ($)
- ------------------------------------------------------- --------------------------------- ------------------------
Jeffrey W. Jones
President, Chief Executive Officer and Director
Nominee ............................................. 300,000 $5.17
Keith G. Bateman
Vice President, Global Sales ........................ 100,000 5.17
All current executive officers as a group (4) .......... 630,000 4.92
Federico Pignatelli
Director Nominee .................................... 80,000 2.22
William A. Owens
Director Nominee .................................... 30,000 2.22
George V. d'Arbeloff
Director Nominee .................................... 30,000 2.22
All current non-employee directors as a group (3) ...... 140,000 2.22
All employees, including current officers who are
not executive officers, as a group (20) ................ 181,000 4.34
New Plan Benefits
No options have been granted to date under the 2002 Plan. However, if
this Proposal is approved by the stockholders, then each of Messrs. Pignatelli,
Owens and d'Arbeloff, the Company's non-employee directors, will receive an
automatic option grant for 30,000 shares of Common Stock at the Annual Meeting
with an exercise price per share equal to the closing selling price per share of
Common Stock on that date. If this Proposal is not approved, then each of the
non-employee directors will receive an automatic option grant for 30,000 shares
under the 1998 Plan.
Vote Required
The affirmative vote of at least a majority of the shares of Common
Stock present in person or by proxy at the Annual Meeting and entitled to vote
on this matter is required for approval of the 2002 Plan. Should such
stockholder approval not be obtained, then the 2002 Plan will not be
implemented. The 1998 Plan will, however, continue in effect, and option grants
and stock issuances may continue to be made under the 1998 Plan until all the
shares of Common Stock available for issuance under that plan have been issued.
Recommendation of the Board of Directors
The Board of Directors deems this Proposal to be in the best interests
of the Company and its stockholders and recommends a vote FOR approval of such
Proposal.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is granted
by the execution of the enclosed Proxy.
13
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Common Stock as of April 9, 2002
by (i) all persons who are known to the Company to be beneficial owners of five
percent (5%) or more of the Common Stock, (ii) each director and nominee for
director, (iii) the executive officers named in the Summary Compensation Table
of the Executive Compensation and Related Information section of this Proxy
Statement and (iv) all current directors and executive officers as a group.
Percentage
Shares of Shares
Beneficially Beneficially
Beneficial Owner Owned Owned (1)
- ------------------------------------------------------------------------------- -------------- ----------------
Federico Pignatelli (2) ........................................................ 698,750 3.45%
William A. Owens (3) ........................................................... 112,500 *
Jeffrey W. Jones (4) ........................................................... 578,200 2.83%
George V. d'Arbeloff (5) ....................................................... 166,517 *
Keith G. Bateman (6) ........................................................... 141,350 *
All current directors and executive officers as a group (5 persons) (7) ........ 1,697,317 8.00%
__________________
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment
power with respect to the securities. Common Stock subject to options
or warrants that are currently exercisable or exercisable within 60
days of April 9, 2002 are deemed to be outstanding and to be
beneficially owned by the person or group holding such options or
warrants for the purpose of computing the percentage ownership of such
person or group but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person or group. Unless
otherwise indicated, the address for each of the individuals listed in
the table is care of BioLase Technology, Inc., 981 Calle Amanecer, San
Clemente, California 92673. Unless otherwise indicated by footnote, the
persons named in the table have sole voting and sole investment power
with respect to all shares of Common Stock shown as beneficially owned
by them, subject to applicable community property laws. Percentage of
beneficial ownership is based on 19,852,948 shares of Common Stock
outstanding as of April 9, 2002.
(2) Includes 391,250 shares subject to options, all of which are
exercisable within 60 days of April 9, 2002.
(3) Consists of 112,500 shares subject to options, all of which are
exercisable within 60 days of April 9, 2002.
(4) Includes 569,500 shares subject to options, all of which are
exercisable within 60 days of April 9, 2002.
(5) Includes 148,335 shares subject to options, all of which are
exercisable within 60 days of April 9, 2002.
(6) Includes 137,500 shares subject to options, all of which are
exercisable within 60 days of April 9, 2002.
(7) Includes 1,359,085 shares subject to options, all of which are
exercisable within 60 days of April 9, 2002.
14
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Directors, Executive Officers and Key Employees of the Company
The following table sets forth certain information regarding the
directors, executive officers and certain key employees of the Company as of
April 9, 2002:
Name Age Positions with the Company
- ---- --- --------------------------
Federico Pignatelli (1)(2) ................... 49 Chairman of the Board
William A. Owens (1) ......................... 61 Director
Jeffrey W. Jones ............................. 45 President, Chief Executive Officer and Director
George V. d'Arbeloff (1)(2) .................. 57 Director
Keith G. Bateman ............................. 48 Vice President, Global Sales
Edson J. Rood ................................ 58 Vice President, Chief Financial Officer and Secretary
Ioana Rizoiu ................................. 37 Vice President, Research and Development
(1) Member of Audit Committee
(2) Member of Compensation Committee
The following is a brief description of the capacities in which each of
the Company's directors, executive officers and key employees has served during
the past five years. The biographies of Federico Pignatelli, William A. Owens,
Jeffrey W. Jones and George V. d'Arbeloff appear earlier in this Proxy
Statement. See "Proposal One: Election of Directors."
Keith G. Bateman, 48, has served as Vice President of Global Sales
since 1999. From 1994 to 1998, Mr. Bateman held key executive positions with the
international and domestic divisions of HGM Medical Laser Systems, Inc., a
manufacturer of medical lasers used in ophthalmologic, dental and anesthetic
applications. Prior to that, he held several positions in sales, marketing and
management at various companies in the computer industry.
Edson J. Rood, 58, has served as Vice President, Chief Financial
Officer and Secretary since July 2001. From 1990 to 2001, Mr. Rood served as
Chief Financial Officer for Scripps Health. Prior to that, Mr. Rood served as
Vice President of Finance for Scripps Hospitals, and he served with the
accounting firm of Arthur Young & Company.
Ioana Rizoiu, 37, has served as Vice President of Research and
Development since 1997. From 1995 to 1997, Ms. Rizoiu served as Director of
Research and Development and from 1992 to 1995, she was a physicist at the
Company.
The Company's executive officers are elected by the Board of Directors
on an annual basis and serve at the discretion of the Board of Directors,
subject to the terms of any employment agreements with the Company, until their
successors have been duly elected and qualified or until their earlier
resignation or removal. There are no family relationships among any of the
directors or executive officers of the Company.
15
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
executive officers of the Company whose salary and bonus for the 2001 Fiscal
Year was in excess of $100,000, for services rendered in all capacities to the
Company and its subsidiaries for the fiscal years ended December 31, 1999, 2000
and 2001. The listed individuals shall be hereinafter referred to as the "named
executive officers." No other executive officers who would have otherwise been
includable in such table on the basis of salary and bonus earned for the 2001
Fiscal Year have been excluded by reason of their termination of employment or
change in executive status during that year.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation
Awards
-----------------
Securities
Underlying
Name and Principal Positions Year Salary ($) Bonus ($) Options (#)
- -------------------------------- -------- ---------------- --------------- ------------------
Jeffrey W. Jones 2001 $240,000 -- 300,000
President and Chief 2000 240,000 -- --
Executive Officer 1999 220,000 $40,000(1) 100,000(3)
Keith G. Bateman 2001 110,000 69,019(2) 100,000
Vice President, Global Sales 2000 110,000 27,442(2) --
1999 123,400 1,668(2) 125,000(4)
______________________
(1) Represents bonus earned in 1999.
(2) Represents commissions earned during fiscal year.
(3) An option to purchase 100,000 shares (which was granted in 1998) was
cancelled on 12/15/99 and, in exchange, an option to purchase
100,000 shares was granted on that same date.
(4) Options to purchase 175,000 were granted during 1999 and an option to
purchase 50,000 shares was cancelled during that same year.
Stock Options and Stock Appreciation Rights
The following table contains information concerning the stock options
granted to the named executive officers during the 2001 Fiscal Year. All grants
were made under the 1998 Plan. No stock appreciation rights were granted to the
named executive officers during the 2001 Fiscal Year.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value At
Assumed Annual Rates Of Stock
Price Appreciation For Option
Individual Grants Term (1)
----------------------------------------------------------- -----------------------------------
Number of Percent Of
Securities Total Options
Underling Granted To Exercise
Option Employees In Price Per Expiration
Nmae Granted (#)(2) Fiscal Year(3) Share($)(4) Date 5% ($) 10% ($)
- ------------------ --------------- --------------- ------------ -------------- -------------- ------------------
Jeffrey W. Jones 300,000(5) 36.99% $5.17 12/20/11 $975,415.57 $2,471,894.56
Keith G. Bateman 100,000(6) 12.33% 5.17 12/20/11 325,138.52 823,964.85
____________________
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of its future Common Stock
prices. Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
amounts represent assumed rates of appreciation in the value of the Common
Stock from the fair market value on the date of grant. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Company's Common Stock and overall stock market conditions. The
16
amounts reflected in the table may not necessarily be achieved. Potential
realizable values are net of exercise price, but before the payment of
taxes associated with exercise.
(2) Each option has a ten year term, subject to earlier termination upon the
optionee's termination of service. In the event of the dissolution or
liquidation of the Company or any reorganization, merger or consolidation
with one or more corporations or entities as a result of which the Company
is not the surviving corporation, or any sale of all or substantially all
of the assets of the Company, or the sale (by merger or otherwise) of more
than 80% of the then outstanding Common Stock, each option must be assumed
or an equivalent award substituted by the surviving or acquiring
corporation. The vesting of these options may also be accelerated in full
in connection with such a transaction.
(3) During the fiscal year ended December 31, 2001, the Company granted options
to its employees to purchase 811,000 shares of Common Stock.
(4) All options were granted at an exercise price equal to the fair market
value of the Common Stock on the date of grant.
(5) Option vests in equal monthly installments over a two-year period following
the grant date.
(6) Option vests in equal quarterly installments over a two-year period
following the grant date.
Aggregated Option\Fiscal Year-End Value
The following table provides information, with respect to the named
executive officers, concerning unexercised options held by them at the end
of the 2001 Fiscal Year. None of the named executive officers exercised any
stock options during the 2001 Fiscal Year and no stock appreciation rights
were held by the named executive officers at the end of such year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
Name Number Of Securities Underlying Value Of Unexercised In-The-Money
Unexercised Options At Options At
Fiscal Year End (#) Fiscal Year End ($) (1)
---------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------
Jeffrey W. Jones 507,000 300,000 1,807,445 156,000
Keith G. Bateman 125,000 100,000 441,719 52,000
________________________
(1) Based upon the market price of $5.69 per share, determined on the basis
of the closing sale price per share of Common Stock on the Nasdaq
SmallCap Market on the last day of the fiscal year ended December 31,
2001, less the option exercise price payable per share, multiplied by
the number of shares underlying the options.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
In January 2002, the Company entered into an employment agreement and a
stock option agreement with Jeffrey W. Jones, its President and Chief
Executive Officer. Under the terms of the employment agreement, Mr. Jones
receives a base annual salary of $240,000, an annual bonus equal to 0.5% of
all sales in excess of $10,000,000 for the fiscal years 2002 and 2003, and
a monthly housing allowance of $3,500 for the fiscal year 2002 for expenses
incurred in maintaining a residence in California in connection with his
employment with the Company. Mr. Jones also is entitled to receive an
automobile allowance, four weeks' paid vacation per year, reimbursement of
reasonable periodic travel expenses for traveling to and from his permanent
residence in Wyoming, and other executive benefits. The term of Mr. Jones'
agreement ends on December 31, 2003, but his employment will continue on a
calendar quarter to calendar quarter basis on the terms existing at that
time until terminated on at least 90 days prior notice by either party, or
until the employment agreement is amended, renewed or extended. The Company
may immediately terminate the employment agreement at any time for cause as
defined in the employment agreement. If the Company terminates Mr. Jones'
employment prior to January 1, 2003 other than for cause, Mr. Jones will be
entitled to receive severance pay in an amount equal to twelve times his
base monthly salary. If the Company
17
terminates Mr. Jones' employment subsequent to January 1, 2003 other than for
cause, Mr. Jones will be entitled to receive salary and bonus payments for at
least an additional six months, and severance pay in an amount equal to at least
six times his base monthly salary.
In addition, Mr. Jones was granted a stock option to purchase up to
300,000 shares of Common Stock at an exercise price of $5.17 per share, which is
equal to the fair market value of the Common Stock on December 20, 2001. The
stock option vests at a rate of 12,500 shares per month and expires ten years
from the date of grant, subject to earlier termination should Mr. Jones cease to
provide service to the Company. If Mr. Jones' employment is terminated by the
Company other than for cause, the stock option will continue to vest for the
longer of the balance of the calendar year in which the termination occurs or
six months following the termination.
In Mr. Jones' employment agreement, the Company agreed to indemnify Mr.
Jones to the maximum extent permitted under Delaware law against any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, threatened
or initiated against Mr. Jones by reason of the fact that he was serving as an
officer, director, employee or agent of the Company or was serving at the
request of the Company as an officer, director, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
In January 1999, the Company entered into an agreement with Keith G.
Bateman, its Vice President, Global Sales. Under the terms of this agreement, in
the event of an acquisition or merger of the Company, the surviving entity
either must offer Mr. Bateman a one-year employment agreement with the same or
better terms of compensation or must pay Mr. Bateman severance in an amount
equal to nine times his monthly base salary, commissions and bonus.
The Company's Plan Administrator has the authority to provide for
accelerated vesting of the shares of Common Stock subject to any outstanding
options held by the Chief Executive Officer or any other executive officer or
any unvested share issuances actually held by such individual, in connection
with certain changes in control of the Company or the subsequent termination of
the officer's employment following the change of control event.
18
AUDIT COMMITTEE REPORT
The information contained in this Report shall not be deemed to be
"soliciting material" or to be "filed" or incorporated by reference into any
future filings with the Securities and Exchange Commission, or subject to the
liabilities of Section 18 of the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates it by reference
into a document filed under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
The following is the Report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2001, included in the Company's Annual Report on Form 10-K for that year, which
include the consolidated balance sheets of the Company as of December 31, 2001,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2001, and the notes thereto.
Review with Management
The audit committee has reviewed and discussed the Company's audited
financial statements with management.
Review and Discussions with Independent Accountants
The audit committee has discussed with the Company's independent
accountants, PricewaterhouseCoopers LLP, the matters required to be discussed by
SAS 61 (Codification of Statements on Auditing Standards, AU Section 380), as
amended, which includes, among other items, matters related to the conduct of
the audit of the Company's financial statements.
The audit committee also has received written disclosures and the
letter from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 ("Independence Discussions with Audit Committees"), as amended,
and has discussed with PricewaterhouseCoopers LLP the independence of
PricewaterhouseCoopers LLP from the Company.
Conclusion
Based on the review and discussions referred to above in this Report,
the audit committee recommended to the Company's Board of Directors that the
Company's audited financial statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2001 for filing with
the Securities and Exchange Commission.
Submitted by the Audit Committee of
the Board of Directors
Federico Pignatelli
William A. Owens
George V. d'Arbeloff
19
Compensation Committee Interlocks and Insider Participation
During 2001, the Compensation Committee consisted of Messrs. Pignatelli
and d'Arbeloff. Except for Mr. Pignatelli, the Company's Chairman, no member of
the Compensation Committee was an officer or employee of the Company at any time
during the 2001 fiscal year or at any other time. The Board of Directors as a
whole, including the Company's Chief Executive Officer, Jeffrey W. Jones, made
all compensation decisions with respect to the Company's executive officers
during 2001. No current executive officer of the Company has ever served as a
member of the board of directors or compensation committee of any other entity
that has or has had one or more executive officers serving as a member of the
Board of Directors or Compensation Committee.
REPORT ON EXECUTIVE COMPENSATION
During 2001, the Compensation Committee's primary responsibility was to
review and develop the Company's general compensation policies and make
recommendations to the Board of Directors on compensation levels for the
Company's executive officers. After receiving and reviewing the Compensation
Committee's recommendations, the Board of Directors decided the overall
compensation packages, including option grants, provided to each of the
executive officers of the Company, including the President and Chief Executive
Officer.
General Compensation Policy. The Board and the Compensation Committee
believe that the compensation programs for the Company's executive officers
should reflect the Company's performance and the value created for the Company's
stockholders. In addition, the Company's compensation programs are meant to
support the short-term and long-term strategic goals and values of the Company
and should reward individual contribution to the Company's success. When
establishing overall compensation, the Board or the Compensation Committee take
into consideration the amounts paid to executive officers of companies with
business structure, size, location and stage of development similar to the
Company.
The goal of the Board and the Compensation Committee is to attract and
retain executive officers who will strive for excellence and to motivate those
individuals to achieve superior performance by providing them with rewards for
assisting the Company in meeting targets regarding revenues, profitability and
technology development. In order to achieve this goal, the policy of the Board
and the Compensation Committee is to provide the Company's Chief Executive
Officer and other executive officers with competitive compensation opportunities
based upon their contribution to the financial success of the Company and their
personal performance. The objective of the Board and the Compensation Committee
is to have a substantial portion of each executive officer's compensation
contingent upon the Company's performance. Accordingly, the compensation package
for the Chief Executive Officer and other executive officers is comprised of
three elements: (1) a base salary, designed to be competitive with salary levels
in the industry and to reflect individual performance; (2) a discretionary
annual incentive bonus payable in cash and tied to the Company's achievement of
annual financial and other performance goals; and (3) where appropriate,
long-term stock-based incentive awards designed strengthen the mutuality of
interests between the executive officer and the Company's stockholders.
The Board or the Compensation Committee periodically reviews total
compensation levels and the distribution of compensation among the three
elements identified above for each of the executive officers in the context of
the compensation policy of the Company and compensation packages awarded to
executive officers in comparable positions at companies within related
industries. The Board and the Compensation Committee believe that the Company's
most direct competitors for executive talent include significantly larger and
better-capitalized companies in the medical device industry, comprising a
broader range of companies than those with which the Company is usually compared
for purposes of stock performance.
Base Salary. During 2001, the Compensation Committee reviewed the base
salary of each executive officer. In assessing appropriately competitive salary
levels, the Compensation Committee considered each officer's position,
experience and tenure with the Company, the duties and changes in duties of each
officer, the past accomplishments and expected future contributions of each
officer, and information on competitive compensation levels for similar
executive positions. Based upon this evaluation, the Board of Directors decided
not to adjust base salaries of the Company's executive officers during 2001.
Discretionary Annual Incentive Bonuses. An executive officer may be
awarded discretionary annual incentive bonuses based on the Company's results of
operations and financial performance, the performance of the
20
executive officer in that officer's area of responsibility and the officer's
contribution to the Company's operating performance. Based on these criteria, no
discretionary bonuses were awarded during 2001.
Long Term Stock-Based Incentives. Stock-based incentives are designed
to align the interests of the Company's executive officer with those of the
Company's stockholders and provide each individual with a significant incentive
to manage the Company from the perspective of an owner with an equity stake in
the business. Options allow the officers to acquire shares of Common Stock at a
fixed price per share (generally the market price on the grant date) over a
specified period of time (up to ten years). Options generally become exercisable
in a series of installments over a two to four-year period, contingent upon the
officer's continued employment with the Company. Accordingly, options provide a
return to the executive officer only if he or she remains employed by the
Company during the vesting period, and then only if the market price of the
shares appreciates over the option term.
The size of the option grant to each executive officer, including any
grant considered for the Chief Executive Officer, is set at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, the individual's personal
performance in recent periods and his or her potential for future responsibility
and promotion over the option term. The Board or the Compensation Committee may
also take into account the number of unvested options held by the executive
officer in order to maintain an appropriate level of equity incentive for that
individual. The relevant weight given to each of these factors varies from
individual to individual. Based on these criteria, option grants to each of the
Company's executive officers were made during 2001.
CEO Compensation. In setting the total compensation payable to the
Company's Chief Executive Officer for 2001, the Board of Directors sought to
provide Mr. Jones with a stable level of cash compensation within the range of
compensation found among competitive companies, and to recognize Mr. Jones'
contributions to the Company's overall performance. It was determined that the
level of Mr. Jones' cash compensation did not require adjustment during the
year. However, Mr. Jones was granted an option to purchase 300,000 shares during
2001. Mr. Jones' employment agreement with the Company expired on December 31,
2001, but the Company and Mr. Jones have entered into a new agreement that
expires December 31, 2003.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code disallows a tax deduction to publicly held companies
for compensation paid to certain of their executive officers to the extent that
such compensation exceeds $1.0 million per covered officer in any fiscal year.
The limitation applies only to compensation that is not considered to be
performance-based. Non-performance-based compensation paid to the Company's
executive officers for the 2001 fiscal year did not exceed the $1.0 million
limit per officer, and the Company does not expect the non-performance-based
compensation to be paid to its executive officers for the 2002 fiscal year to
exceed that limit. Because it is unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1.0 million limit, the Company does not expect to take any action to limit
or restructure the elements of cash compensation payable to the Company's
executive officers so as to qualify that compensation as performance-based
compensation under Section 162(m). The Company will reconsider this decision
should the individual cash compensation of any executive officer ever approach
the $1.0 million level.
Option grants made to date under the 1998 Plan have not met the
requirements necessary to qualify as performance-based compensation because the
1998 Plan did not impose the requisite limitation on the maximum number of
shares for which option grants may be made to any one individual. However, the
Company will be asking its stockholders to approve a new option plan, the 2002
Plan as a replacement to the 1998 Plan. This 2002 Plan will impose the requisite
limitation on the maximum number of shares for which options may be granted per
individual. Therefore, assuming a committee comprised solely of outside
directors as required by Section 162(m) makes all option grants to executive
officers of the Company, any compensation deemed paid in connection with the
exercise of future option grants made to executive officers under the 2002 Plan
with an exercise price equal to the fair market value of the option shares on
the grant date should qualify as performance-based compensation that will not be
subject to the $1.0 million limitation.
21
It is the opinion of the Board of Directors and the Compensation
Committee that the executive compensation policies and plans provide the
necessary total remuneration program to properly align the Company's performance
and the interests of the Company's stockholders through the use of competitive
and equitable executive compensation in a balanced and reasonable manner, for
both the short and long-term.
Submitted by the Board of Directors
Federico Pignatelli
William A. Owens
Jeffrey W. Jones
George V. d'Arbeloff
22
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total
stockholder returns for the Company's Common Stock, the S&P SmallCap 600 Index
and the Nasdaq Medical Devices, Instruments and Supplies, Manufacturers and
Distributors ("Med Devices") Index for the period from December 31, 1996, the
last trading day before the beginning of fiscal year 1997, to December 31, 2001,
the last trading day of the 2001 Fiscal Year.
[STOCK PERFORMANCE GRAPH]
Company/Index/Market December 31, 1996 December 31, 2001
BioLase Technology, Inc. $100.00 $142.25
Nasdaq Med Devices Index 100.00 174.29
S&P SmallCap 600 Index 100.00 165.94
(1) The graph assumes that $100 was invested in the Company on December 31,
1996, in the Common Stock and in each index, and that all dividends
were reinvested. The Company has not paid or declared any cash
dividends on the Common Stock.
(2) The graph is required to be presented by the Securities and Exchange
Commission. Stockholder returns over the indicated period should not be
considered indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings made under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Report on Executive Compensation is to be incorporated
by reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
23
CERTAIN TRANSACTIONS
Since January 1, 2001, there has not been any transaction or series of
similar transactions to which the Company was or is a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of the Company's voting securities,
or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 which require them to file reports with respect
to their ownership of the Common Stock and their transactions in such Common
Stock. Based upon (i) the copies of Section 16(a) reports which the Company
received from such persons for their 2001 Fiscal Year transactions in the Common
Stock and their Common Stock holdings, and (ii) the written representations
received from one or more of such persons that no annual Form 5 reports were
required to be filed by them for the 2001 Fiscal Year, the Company believes that
all reporting requirements under Section 16(a) for such fiscal year were met in
a timely manner by its directors, executive officers and greater than ten
percent beneficial owners, except as set forth below.
Jeffrey W. Jones, the Company's President and Chief Executive Officer,
filed a delinquent Form 5 with the Securities and Exchange Commission covering
the stock option grant he received on December 20, 2001. Keith G. Bateman, the
Company's Vice President of Global Sales, filed a delinquent Form 5 with the
Securities and Exchange Commission covering the stock option grant he received
on December 20, 2001.
ANNUAL REPORT
The Company filed with the Securities and Exchange Commission an Annual
Report on Form 10-K on April 1, 2002. A copy of the Annual Report on Form 10-K
has been mailed concurrently with this Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual Meeting. No separate annual
report to the stockholders was prepared by the Company. Stockholders may obtain
a copy of the report on Form 10-K, without charge, by writing to BioLase
Technology, Inc., 981 Calle Amanecer, San Clemente, California 92673.
By Order of the Board of Directors
/s/ EDSON J. ROOD
Edson J. Rood
Secretary
Dated: April 19, 2002
24
BIOLASE TECHNOLOGY, INC.
2002 STOCK INCENTIVE PLAN
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
The Plan is intended to promote the interests of the Corporation by
providing eligible persons who are employed by or serve the Corporation or any
Parent or Subsidiary with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity incentive
programs:
1. the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock;
2. the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary); and
3. the Automatic Option Grant Program under which eligible
non-Employee directors shall automatically receive option grants at designated
intervals over their period of continued Board service.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants made under that program.
B. The Primary Committee and the Board shall have concurrent authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. (However, grants made to Section 16 Insiders by
the entire Board will not be exempt from the million-dollar compensation
deduction limitation of Code Section 162(m).) Administration of the
Discretionary Option Grant and Stock Issuance Programs with respect to all other
persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to all such
persons. However, any discretionary option grants or stock issuances for members
of the Primary Committee should be authorized by a disinterested majority of the
Board.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a director, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as directors
for their service on such committee. No member of the Primary Committee or the
Secondary Committee shall be liable for any act or omission made in good faith
with respect to the Plan or any option grants or stock issuances under the Plan.
E. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and procedures as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
1. Employees,
2. non-Employee members of the Board or the board of directors
of any Parent or Subsidiary, and
3. independent contractors who provide services to the
Corporation (or any Parent or Subsidiary).
2
B. Only non-Employee directors shall be eligible to participate in the
Automatic Option Grant Program. A non-Employee director who has previously been
in the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an initial option grant under the Automatic Option Grant
Program at the time he or she first becomes a non-Employee director, but shall
be eligible to receive annual option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-Employee director.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock reserved
for issuance under the Plan shall not exceed (1) the number of shares that
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under the Predecessor Plan plus (2)
1,000,000 shares of Common Stock, subject to the approval of the Corporation's
stockholders at the 2002 Annual Stockholders' Meeting.
B. No one person participating in the Plan may receive stock options
and direct stock issuances for more than 1,500,000 shares of Common Stock
pursuant to the Plan in the aggregate per calendar year.
C. Shares of Common Stock subject to outstanding options (including
options transferred to this Plan from the Predecessor Plan) shall be available
for subsequent issuance under the Plan to the extent (1) those options expire or
terminate for any reason prior to exercise in full or (2) the options are
cancelled in accordance with the cancellation/regrant provisions of the Plan.
Unvested shares issued under the Plan and subsequently cancelled or repurchased
by the Corporation, at a price per share not greater than the original issue
price paid per share, pursuant to the Corporation's repurchase rights under the
Plan shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under the
Plan. However, should the exercise price of an option under the Plan be paid
with shares of Common Stock or should shares of Common Stock otherwise issuable
under the Plan be withheld by the Corporation in satisfaction of the withholding
taxes incurred in connection with the exercise of an option or the vesting of a
stock issuance under the Plan, then the number of shares of Common Stock
available for issuance under the Plan shall be reduced by the gross number of
shares for which the option is exercised or which vest under the stock issuance,
and not by the net number of shares of Common Stock issued to the holder of such
option or stock issuance.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (1) the maximum number and/or class of
securities issuable under the Plan, (2) the maximum number and/or class of
securities for which any one person may be granted options and direct stock
3
issuances under the Plan per calendar year, (3) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan (including the options transferred to this Plan from the
Predecessor Plan), and (4) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program.
Such adjustments to the outstanding options are to be effected in a manner that
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be binding.
4
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator. However, each such document shall comply
with the terms specified below. Each document evidencing an Incentive Option
shall, in addition, be subject to the provisions of the Plan applicable to such
options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Five
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(a) cash or check made payable to the Corporation,
(b) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date, or
(c) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable income
and employment taxes required to be withheld by the Corporation by reason of
such exercise and (b) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the
sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of 10 years measured
from the option grant date.
5
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options granted pursuant to the Discretionary Option Grant Program that are
outstanding at the time of the Optionee's cessation of Service:
(a) Immediately upon the Optionee's cessation of Service,
the option shall terminate with respect to the unvested shares subject to the
option.
(b) Should the Optionee's Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct, then the
option shall terminate immediately with respect to all shares subject to the
option.
(c) Should the Optionee's Service terminate for reasons
other than Misconduct, then the option shall remain exercisable during such
period of time after the Optionee's Service ceases as shall be determined by
the Plan Administrator and set forth in the documents evidencing the option,
but no option shall be exercisable after its Expiration Date. During the
applicable post-Service exercise period, the option may not be exercised in
the aggregate for more than the number of vested shares for which the option
is exercisable on the date of the Optionee's Service ceased. Upon the
expiration of the applicable exercise period or (if earlier) upon the
Expiration Date, the option shall terminate with respect to any vested shares
subject to the options.
2. Among its discretionary powers, the Plan Administrator shall
have complete discretion, exercisable either at the time an option is granted or
at any time while the option remains outstanding, to:
(a) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service, but in no
event beyond the expiration of the option term, and/or
(b) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the number
of vested shares of Common Stock for which such option is exercisable at the
time of the Optionee's cessation of Service but also with respect to one or
more additional installments in which the Optionee would have vested had the
Optionee continued in Service.
The Plan Administrator should consider the tax and accounting
consequences before exercising such discretion.
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
6
E. Repurchase Rights. The Plan Administrator shall have the discretion
-----------------
to grant options that are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while such shares are unvested, the
Corporation shall have the right to repurchase any or all of those unvested
shares at a price per share equal to the lower of (1) the exercise price paid
per share or (2) the Fair Market Value per share of Common Stock at the time of
the repurchase. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except Non-Statutory Options may be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to the Optionee's former spouse. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Five shall be applicable to Incentive Options. Options,
which are specifically designated as Non-Statutory Options when issued under the
Plan, shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Dollar Limitation. The aggregate Fair Market Value of the shares of
-----------------
Common Stock (determined as of the respective date) for which one or more
options granted to any Employee pursuant to the Plan (or any other option plan
of the Corporation or any Parent or Subsidiary) may for the first time become
exercisable as Incentive Options during any one calendar year shall not exceed
$100,000. To the extent that an Optionee's options exceed that limit, they will
be treated as Non-Statutory Options (but all of the other provisions of the
option shall remain applicable), with the first options that were awarded to the
Optionee to be treated as Incentive Options.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than 110% of the Fair Market Value per share of Common Stock on the option
grant date, and the option term shall not exceed five years measured from the
option grant date.
7
III. CHANGE IN CONTROL
A. In the event a Change in Control occurs, the shares of Common Stock
at the time subject to each outstanding option granted pursuant to this
Discretionary Option Grant Program shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. However, an outstanding option shall not
become vested on such an accelerated basis if and to the extent: (1) such option
is to be assumed by the successor corporation (or parent thereof) or is
otherwise to continue in full force pursuant to the terms of transaction or (2)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing at the time of the Change in
Control on any shares for which the option is not otherwise at that time
exercisable and provides for subsequent payout of that spread no later than the
time the Optionee would vest in those option shares or (3) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator.
B. All outstanding repurchase rights under the Discretionary Option
Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, immediately
prior to the occurrence of a Change in Control, except to the extent: (1) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) or are otherwise to continue in full force pursuant to the terms of the
transaction or (2) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator.
C. Immediately following the consummation of the Change in Control, all
outstanding options granted pursuant to the Discretionary Option Grant Program
shall terminate, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the transaction.
D. Each option granted pursuant to the Discretionary Option Grant
Program that is assumed or otherwise continued in effect in connection with a
Change in Control shall be appropriately adjusted, immediately after such Change
in Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments to reflect such Change in Control shall also be made to (1) the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same, (2)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (3) the maximum number and/or class of securities
for which any one person may be granted options and direct stock issuances
pursuant to the Plan per calendar year. To the extent the holders of Common
Stock receive cash consideration for their Common Stock in consummation of the
Change in Control, the successor corporation may, in connection with the
assumption of the outstanding options granted pursuant to the Discretionary
Option Grant Program, substitute one or more shares of its own common stock with
a fair market value equivalent to the cash consideration paid per share of
Common Stock in such transaction.
8
E. Among its discretionary powers, the Plan Administrator shall have
the ability to structure an option (either at the time the option is granted or
at any time while the option remains outstanding) so that the option shall
become immediately exercisable and some or all of the shares subject to that
option shall automatically become vested (and some or all of the repurchase
rights of the Corporation with respect to the unvested shares subject to that
option shall immediately terminate) upon the occurrence of a Change in Control,
a Proxy Contest or any other specified event or the Optionee's Involuntary
Termination within a designated period of time following any of these events. In
addition, the Plan Administrator may provide that one or more of the
Corporation's repurchase rights with respect to some or all of the shares held
by the Optionee at the time of such a Change in Control, a Proxy Contest, or any
other specified event or the Optionee's Involuntary Termination within a
designated period of time following such an event shall immediately terminate
and all of the shares shall become vested.
F. The portion of any Incentive Option accelerated in connection with a
Change in Control or Proxy Contest shall remain exercisable as an Incentive
Option only to the extent the $100,000 limitation described in Section II.B.
above is not exceeded. To the extent such dollar limitation is exceeded, the
accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the federal tax laws.
G. The outstanding options shall in no way affect the right of the
Corporation to undertake any corporate action.
9
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each stock issuance under this program shall be evidenced by a stock
issuance agreement that complies with the terms specified below. Shares of
Common Stock may also be issued under the Stock Issuance Program pursuant to
awards that entitle the recipients to receive those shares upon the attainment
of designated performance goals or the satisfaction of specified Service
requirements.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator.
2. Subject to the provisions of Section I of Article Five,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(a) cash or check made payable to the Corporation, or
(b) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the stock issuance
agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to awards that entitle the recipients to receive those shares
upon the attainment of designated performance goals or the satisfaction of
specified Service requirements.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to such escrow arrangements as
the Plan Administrator shall deem appropriate and shall be vested to the same
extent the Participant's shares of Common Stock are vested.
10
3. The Participant shall have full stockholder rights (other
than transferability) with respect to any shares of Common Stock issued to the
Participant pursuant to the Stock Issuance Program, whether or not the
Participant's interest in those shares is vested. Accordingly, the Participant
shall have the right to vote such shares and to receive any regular cash
dividends paid on such shares. Cash dividends constitute taxable compensation to
the Participant are deductible by the Corporation (unless the Participant has
made an election under Section 83(b) of the Code).
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay the
Participant, without interest, the lower of (a) the cash consideration paid for
the surrendered shares or (b) the Fair Market Value of those shares at the time
of cancellation and/or shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares by the applicable clause (a) or (b) amount.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock that
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals or
Service requirements established for such awards are not attained or satisfied.
The Plan Administrator, however, shall have the discretionary authority to issue
shares of Common Stock under one or more outstanding share right awards as to
which the designated performance goals or Service requirements have not been
attained or satisfied.
II. CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
immediately prior to the occurrence of a Change in Control, except to the extent
(1) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) or are otherwise to continue in full force and effect pursuant
to the terms of the transaction or (2) such accelerated vesting is precluded by
other limitations imposed in the stock issuance agreement.
11
B. The Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and some or all of the shares of Common Stock subject to those
terminated rights shall immediately vest, upon the occurrence of a Change in
Control, a Proxy Contest or any other event, or the Participant's Involuntary
Termination within a designated period of time following any of these events.
12
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Automatic Grants. Option grants shall be made pursuant to the
----------------
Automatic Option Grant Program in effect under this Plan as follows:
1. Initial Grant: Provided the non-Employee director has
not previously been in the employ of the Corporation or any Parent or
Subsidiary, each such individual who is first elected or appointed as a
non-Employee director at any time on or after the Plan Effective Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option. The number of shares of Common Stock subject to the option
shall be equal to the product of (a) 2,500 shares and (b) (i) 12 minus (ii) the
number of whole calendar months that have elapsed since the last Annual
Stockholders' Meeting or Special Meeting in lieu of an Annual Stockholders'
Meeting at which directors are elected.
2. Annual Grants: On the date of each Annual Stockholders'
Meeting (beginning with the 2002 Annual Stockholders' Meeting) or Special
Meeting in lieu of an Annual Stockholders' Meeting at which directors are
elected, each individual who is to continue to serve as a non-Employee director
following an Annual Stockholders' Meeting, whether or not that individual is
standing for re-election to the Board at that particular Annual Stockholders'
Meeting, shall automatically be granted a Non-Statutory Option to purchase
30,000 shares of Common Stock. There shall be no limit on the number of such
annual option grants any one non-Employee director may receive over his or her
period of Board service, and non-Employee directors who have previously been in
the employ of the Corporation (or any Parent or Subsidiary) or who have
otherwise received one or more option grants from the Corporation shall be
eligible to receive one or more such annual option grants over their period of
continued Board service.
B. Exercise Price. The exercise price per share for each option
--------------
grant made under the Automatic Option Grant Program shall be equal to 100% of
the Fair Market Value per share of Common Stock on the option grant date.
C. Option Term. Each option grant under the Automatic Option
-----------
Grant Program shall have a term of 10 years measured from the option grant date.
D. Exercise and Vesting of Options.
-------------------------------
1. Each option under the Automatic Option Grant Program
shall be immediately exercisable for any or all of the option shares. However,
any unvested shares purchased under the option shall be subject to repurchase by
the Corporation, at the lower of (a) the exercise price paid per share or (b)
the Fair Market Value per share of Common Stock at the
13
time of repurchase, should the Optionee cease such Board service prior to
vesting in those shares.
2. The shares subject to each initial option grant shall vest,
and the Corporation's repurchase right shall lapse, in monthly installments upon
the Optionee's completion of each month of service as a non-Employee director
measured from the option grant date.
3. The shares subject to each annual option grant shall vest, and
the Corporation's repurchase right shall lapse, in four successive quarterly
installments upon the Optionee's completion of the each quarter of service as a
non-Employee director measured from the grant date.
E. Termination of Service. The following provisions shall govern the
----------------------
exercise of any options granted to the Optionee pursuant to the Automatic Option
Grant Program that are outstanding at the time the Optionee ceases to serve as a
director:
1. The option shall be exercisable until the earlier to occur of
(a) the Expiration Date or (b) the one-year anniversary of the date the
Optionee's Board service terminated.
2. During the post-Service exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares of Common
Stock for which the option is exercisable at the time of the Optionee's
cessation of Board service.
3. Should the Optionee's Board service cease due to death or
Permanent Disability, then all shares at the time subject to the option shall
immediately vest so that such option may be exercised for any or all of those
shares as fully vested shares of Common Stock.
4. Upon the expiration of the one year exercise period or (if
earlier) upon the Expiration Date, the option shall terminate for any vested
shares for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service for any reason other
than death or Permanent Disability, terminate to the extent the option is not
otherwise at that time exercisable for vested shares.
F. Election to Decline Equity Incentive Grants. Notwithstanding
-------------------------------------------
anything to the contrary set forth in the Plan, each non-Employee director may
elect to decline one or more of the option grants to which he or she may
otherwise be entitled under the Automatic Option Grant Program, provided that
any non-Employee director who elects to decline any such option grant shall not
receive any other compensation in lieu of that option grant. Such election shall
be made pursuant to written notice to the Corporation in which the non-Employee
director specifically declines one or more such option grants and acknowledges
that such director will not receive any other compensation from the Corporation
in lieu of those option grants.
14
II. CHANGE IN CONTROL/PROXY CONTEST
A. In the event a Change in Control occurs while the Optionee
remains a director, the shares of Common Stock at the time subject to each
outstanding option that was granted pursuant to this Automatic Option Grant
Program shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become
exercisable for all the shares subject to the option at that time as fully
vested shares of Common Stock and may be exercised for any or all of those
vested shares. Immediately following the consummation of the Change in Control,
each automatic option grant shall terminate, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise continued in effect
pursuant to the terms of the Change in Control transaction.
B. In the event a Proxy Contest occurs while the Optionee remains
a director, the shares of Common Stock at the time subject to each outstanding
option granted pursuant to this Automatic Option Grant Program shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Proxy Contest, become exercisable for all the option
shares as fully vested shares of Common Stock and may be exercised for any or
all of those vested shares. Such option shall remain exercisable until the
earliest to occur of (1) the Expiration Date, (2) the expiration of the one-year
period measured from the date of the Optionee's cessation of Board service, or
(3) the termination of the option in connection with a Change in Control
transaction.
C. All outstanding repurchase rights under this Automatic Option
Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall vest in full, immediately prior to the
occurrence of a Change in Control or a Proxy Contest that occurs while the
Optionee remains a director.
D. Each option which is assumed or otherwise continued in effect
in connection with a Change in Control shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same. To the extent
the holders of Common Stock receive cash consideration for their Common Stock in
consummation of the Change in Control, the successor corporation may, in
connection with the assumption of the outstanding options granted pursuant to
the Automatic Option Grant Program, substitute one or more shares of its own
common stock with a fair market value equivalent to the cash consideration paid
per share of Common Stock in such transaction.
E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to undertake any corporate
action.
15
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
16
ARTICLE FIVE
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest-bearing promissory note payable in one or
more installments. After considering the tax and accounting consequences, the
Plan Administrator shall establish the terms of any such promissory note
(including the interest rate and the terms of repayment). In no event may the
maximum credit available to the Optionee or Participant exceed the sum of (A)
the aggregate option exercise price or purchase price payable for the purchased
shares (less the par value of such shares) plus (B) any applicable income and
employment tax liability incurred by the Optionee or the Participant in
connection with the option exercise or share purchase. Prior to permitting the
use of promissory notes as payment under the Plan, the Plan Administrator should
consider the restrictions on doing so imposed by Regulation U.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares granted
pursuant to the Plan shall be subject to the satisfaction of all applicable
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock issued
pursuant to the Plan (other than the options granted to non-Employee directors
or independent contractors) with the right to use shares of Common Stock in
satisfaction of all or part of the Withholding Taxes to which such holders may
become subject in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder in either or both
of the following formats:
1. Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares. So as to avoid adverse accounting treatment, the number of shares that
may be withheld for this purpose may not exceed the minimum number needed to
satisfy the applicable income and employment tax withholding rules.
2. Stock Delivery: The election to deliver to the
--------------
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock
17
previously acquired by such holder (other than in connection with the option
exercise or share vesting triggering the Withholding Taxes). So as to avoid
adverse accounting treatment, the number of shares that may be withheld for this
purpose may not exceed the minimum number needed to satisfy the applicable
income and employment tax withholding rules.
III. SHARE ESCROW/LEGENDS
Unvested shares of Common Stock may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Optionee's or the
Participant's interest in such shares vests or may be issued directly to the
Optionee or the Participant with restrictive legends on the certificates
evidencing those unvested shares.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan (including
outstanding options incorporated from the Predecessor Plan) and to grant in
substitution new options covering the same or a different number of shares of
Common Stock.
V. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan
Effective Date. No options may be granted or stock issued under the Plan at any
time before the Plan Effective Date.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be transferred to the Plan
at that time and shall be treated as outstanding options under the Plan.
C. Each outstanding option so transferred shall continue to be
governed by the terms of the documents evidencing such option, and no provision
of the Plan shall be deemed to automatically affect or otherwise modify the
rights or obligations of the holders of such transferred options.
D. Notwithstanding the previous sentence, one or more provisions
of the Plan, including, without limitation, the acceleration provisions of the
Discretionary Option Grant Program relating to Changes in Control and Proxy
Contests, may, in the Plan Administrator's discretion, be extended to one or
more options incorporated from the Predecessor Plans provided that such
provision or provisions do not adversely affect the Optionee's rights and
obligations.
E. Unless terminated by the Board prior to such time, the Plan
shall terminate upon the tenth anniversary of the Plan's adoption by the Board.
Should the Plan terminate when any options or unvested shares are outstanding,
such awards shall continue in effect in accordance with the provisions of the
documents evidencing such grants or issuances.
18
VI. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority
to amend the Plan or any awards made hereunder. However, no such amendment of
the Plan shall adversely affect the rights and obligations with respect to
options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment. In addition,
certain amendments to the Plan shall required approval of the Corporation's
stockholders.
VII. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for any corporate purpose.
VIII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (1) upon
the exercise of any option or (2) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of applicable securities laws, including the filing
and effectiveness of the Form S-8 registration statement for the shares of
Common Stock issuable under the Plan, and all applicable requirements of any
stock exchange or the Nasdaq Stock Market on which Common Stock is then listed
for trading or traded.
IX. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
X. CALIFORNIA BLUE SKY PROVISIONS
If the Corporation is not exempt from California securities laws,
the following provisions shall apply to any sale of Common Stock or any option
grant to an individual who is eligible to receive such grants pursuant to the
Plan who resides in the State of California.
A. Option Grant Program.
--------------------
1. The exercise price per share shall be fixed by the
Plan Administrator in accordance with the following provisions:
19
(a) The exercise price per share applicable to each option
shall not be less than 85% of the Fair Market Value per share of Common
Stock on the date the option is granted.
(b) If the person to whom the option is granted is a 10%
Stockholder, then the exercise price per share shall not be less than 110%
of the Fair Market Value per share of Common Stock on the date the option
is granted.
2. The Plan Administrator may not impose a vesting schedule upon
any option grant or the shares of Common Stock subject to that option which is
more restrictive than 20% per year vesting, with the initial vesting to occur
not later than one year after the option grant date. However, such limitation
shall not be applicable to any option grants made to individuals who are
officers of the Corporation, non-Employee directors or independent contractors.
3. Unless the Optionee's Service is terminated for Misconduct
(in which case the option shall terminate immediately), the option (to the
extent it was vested and exercisable at that the time Optionee's Service ceased)
must remain exercisable, following Optionee's termination of Service, for at
least (a) six months if Optionee's Service terminates due to death or Permanent
Disability or (b) thirty days in all other cases.
B. Stock Issuance Program.
----------------------
1. The purchase price per share for shares issued under the Stock
Issuance Program shall be fixed by the Plan Administrator but shall not be less
than 85% of the Fair Market Value per share of Common Stock on the issue date.
However, the purchase price per share of Common Stock issued to a 10%
Stockholder shall not be less than 100% of such Fair Market Value.
2. The Plan Administrator may not impose a vesting schedule upon
any stock issuance effected under the Stock Issuance Program which is more
restrictive than 20% per year vesting, with initial vesting to occur not later
than one year after the issuance date. Such limitation shall not apply to any
Common Stock issuances made to the officers of the Corporation, non-Employee
directors or independent contractors.
C. Repurchase Rights. To the extent specified in a stock purchase
-----------------
agreement or stock issuance agreement, the Corporation and/or its stockholders
shall have the right to repurchase any or all of the unvested shares of Common
Stock held by an Optionee or Participant when such person's Service ceases.
However, except with respect to grants to officers, directors, and consultants
of the Corporation, the repurchase right must satisfy the following conditions:
1. The Corporation's right to repurchase the unvested shares of
Common Stock must lapse at the rate of at least 20% per year over five years
from the date the option was granted under the Discretionary Option Grant
Program or the shares were issued under the Stock Issuance Program.
20
2. The Corporation's repurchase right must be exercised within
ninety days of the date that Service ceased (or the date the shares were
purchased, if later).
3. The purchase price must be paid in the form of cash or
cancellation of the purchase money indebtedness for the shares of Common Stock.
21
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
------------------------------
grant program in effect under Article Four of the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through any of the following transactions:
(i) a merger, consolidation or other reorganization approved by
the Corporation's stockholders, unless securities representing more than
50% of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned,
directly or indirectly, by the persons who beneficially owned the
Corporation's outstanding voting securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the Exchange Act) of securities possessing more than 50%
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporation shall mean BioLase Technology, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of BioLase Technology, Inc. which adopts the Plan.
G. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under Article Two of the Plan.
H. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
A-1
I. Exchange Act shall mean the Securities Exchange Act of 1934, as
------------
amended.
J. Exercise Date shall mean the date on which the option shall have
-------------
been exercised in accordance with the appropriate option documentation.
K. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq Stock
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq Stock Market
and published in The Wall Street Journal. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any stock
exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the stock exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange and published in The Wall Street Journal. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
stock exchange or the Nasdaq Stock Market, then the Fair Market Value shall
be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
L. Incentive Option shall mean an option that satisfies the
----------------
requirements of Code Section 422.
M. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation (or its Parent or Subsidiary) for reasons other than
Misconduct, or
(ii) such individual's voluntary resignation following (a) a
change in his or her position with the Corporation (or any Parent or
Subsidiary) which materially reduces his or her duties and
responsibilities, (b) a reduction in his or her base salary by more than
15%, unless the base salaries of all similarly situated individuals are
reduced by the Corporation (or any Parent or Subsidiary) employing the
individual or (c) a relocation of such individual's place of
A-2
employment by more than fifty miles, provided and only if such change,
reduction or relocation is effected by the Corporation (or any Parent or
Subsidiary) without the individual's consent.
N. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other
person in the Service of the Corporation (or any Parent or Subsidiary) for any
other acts or omissions, but such other acts or omissions shall not be deemed,
for purposes of the Plan, to constitute grounds for termination for Misconduct.
O. Non-Statutory Option shall mean an option not intended to be an
--------------------
Incentive Option.
P. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant or Automatic Option Grant Program.
Q. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
S. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or has lasted or can be
expected to last for a continuous period of 12 months or more. However, solely
for purposes of the Automatic Option Grant Program, Permanent Disability or
Permanently Disabled shall mean the inability of the non-Employee director to
perform his or her usual duties as a director by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of 12 months or more.
T. Plan shall mean the BioLase Technology, Inc. 2002 Stock Incentive
----
Plan.
U. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
A-3
V. Plan Effective Date shall mean the date the Plan becomes effective
-------------------
and shall be coincidental with the date the Plan is approved by the
Corporation's stockholders. The Plan Effective Date shall accordingly be the
date of the 2002 Annual Stockholders' Meeting, provided the stockholders approve
the Plan at such meeting.
W. Predecessor Plan shall mean the BioLase Technology, Inc. 1998 Stock
----------------
Option Plan.
X. Primary Committee shall mean the committee comprised of one or more
-----------------
directors designated by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders. To obtain the
benefits of Rule 16b-3, there must be at least two members on the Primary
Committee and all of the members must be "non-employee" directors as that term
is defined in the Rule or the entire Board must approve the grant(s). Similarly,
to be exempt from the million dollar compensation deduction limitation of Code
Section 162(m), there must be at least two members on the Primary Committee and
all of the members must be "outside directors" as that term is defined in Code
Section 162(m).
Y. Proxy Contest shall mean a change in ownership or control of the
-------------
Corporation effected through a change in the composition of the Board over a
period of 36 consecutive months or less such that a majority of the directors
ceases, by reason of one or more contested elections for directorship, to be
comprised of individuals who either (i) have been directors continuously since
the beginning of such period or (ii) have been elected or nominated for election
as directors during such period by at least a majority of the directors
described in clause (i) who were still in office at the time the Board approved
such election or nomination.
Z. Secondary Committee shall mean a committee of one or more directors
-------------------
appointed by the Board to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to eligible persons other than Section 16
Insiders.
AA. Section 16 Insider shall mean an executive officer or director of
------------------
the Corporation or the holder of more than 10% of a registered class of the
Corporation's equity securities, in each case subject to the short-swing profit
liabilities of Section 16 of the Exchange Act.
BB. Service shall mean the performance of services for the Corporation
-------
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-Employee member of the board of directors or independent contractor, except
to the extent otherwise specifically provided in the documents evidencing the
option grant or stock issuance.
CC. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under Article Three of the Plan.
DD. Subsidiary shall mean any corporation (other than the Corporation)
----------
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock
A-4
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
EE. 10% Stockholder shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than 10% of the total combined voting power
of all classes of stock of the Corporation (or any Parent or Subsidiary).
FF. Withholding Taxes shall mean the applicable income and employment
-----------------
withholding taxes to which the holder of a Non-Statutory Option or unvested
shares of Common Stock under the Plan may become subject in connection with the
exercise of those options or the vesting of those shares.
A-5
BIOLASE TECHNOLOGY, INC.
PROXY
Annual Meeting of Stockholders, May 23, 2002
This Proxy is Solicited on Behalf of the Board of Directors of
BIOLASE TECHNOLOGY, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held Thursday, May 23, 2002
and the Proxy Statement and appoints Jeffrey W. Jones and Edson J. Rood, and
each of them, the Proxy of the undersigned, with full power of substitution, to
vote all shares of Common Stock of BIOLASE TECHNOLOGY, INC. (the "Company")
which the undersigned is entitled to vote, either on his or her own behalf or on
behalf of any entity or entities, at the 2002 Annual Meeting of Stockholders of
the Company to be held at the Company's offices at 981 Calle Amanecer, San
Clemente, California 92673, on Thursday, May 23, 2002 at 2:00 p.m. Pacific Time
(the "Annual Meeting"), and at any adjournment or postponement thereof, with the
same force and effect as the undersigned might or could do if personally present
thereat. The shares represented by this Proxy shall be voted in the manner set
forth on this proxy card.
1. To elect four directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified
or until their earlier resignation or removal:
FOR WITHHOLD
all nominees listed AUTHORITY TO
(except as VOTE for all
indicated to the nominees listed
contrary hereon)
[_] [_]
Nominees: Federico Pignatelli
William A. Owens
Jeffrey W. Jones
George V. d'Arbeloff
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below:
______________________________________
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2002.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To approve the BioLase Technology, Inc. 2002 Stock Incentive Plan as a
replacement to the BioLase Technology, Inc. 1998 Stock Option Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the meeting and upon other matters as
may properly come before the meeting.
FOR AGAINST ABSTAIN
[_] [_] [_]
The Board of Directors recommends a vote IN FAVOR OF the directors listed
above and a vote IN FAVOR OF each of the listed proposals. This Proxy, when
properly executed, will be voted as specified above. If no specification is
made, this Proxy will be voted IN FAVOR OF the election of the directors listed
above and IN FAVOR OF Proposals Two and Three.
Please sign your
name: ______________________________ Date:_______________
(Authorized Signature(s))