UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number: 0-11635
PHOTOMEDEX, INC.
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(Exact name of registrant as specified in its charter)
Delaware 59-2058100
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
147 Keystone Drive, Montgomeryville, Pennsylvania 18936
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(Address of principal executive offices, including zip code)
(215) 619-3600
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(Issuer's telephone number, including area code)
Five Radnor Corporate Center, Suite 470,
Radnor, Pennsylvania 19087; (610) 971-9292
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(Former address of principal executive offices,
including zip code and telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
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(Title of Class)
Indicate by check mark whether the registrant: (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [__]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [_] No [X]
The number of shares outstanding of our common stock as of March 28, 2003, was
31,439,058 shares. The aggregate market value of the common stock held by
non-affiliates (28,220,883 shares), based on the closing market price ($1.62) of
the common stock as of March 28, 2003 was $45,717,830.
EXPLANATORY NOTE
The registrant amends its Annual Report on Form 10-K for the fiscal
year ended December 31, 2002, filed with the Securities and Exchange Commission
on March 31, 2003, by adding the following Items: (i) Part III, Item 10,
Directors and Executive Officers of the Registrant, (ii) Part III, Item 11,
Executive Compensation, (iii) Part III, Item 12, Security Ownership of Certain
Beneficial Owners and Management, and (iv) Part III, Item 13, Certain
Relationships and Related Transactions. This Form 10-K/A does not reflect events
occurring after the filing of the original Form 10-K, or modify or update the
disclosures therein in any way other than as required to reflect the Amendment
set forth below. All capitalized terms not defined in this Form 10-K/A have the
meanings ascribed to them in the original Form 10-K.
This Form 10-K/A also includes the following exhibits:
99.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
PART III
Item 10. Directors and Executive Officers of Registrant
Our directors currently have terms which will end at our next annual
meeting of the stockholders or until their successors are elected and qualify,
subject to their prior death, resignation or removal. Officers serve at the
discretion of the Board of Directors. There are no family relationships among
any of our directors and executive officers.
The following sets forth certain biographical information concerning
our directors and our current executive officers.
Name Position Age
Richard J. DePiano Non-Executive Chairman of the Board of Directors 61
Jeffrey F. O'Donnell Director, President and Chief Executive Officer 43
Dennis M. McGrath Chief Financial Officer and Vice President -
Finance and Administration 46
Michael R. Stewart Executive Vice President of Corporate Operations 45
John J. McAtee, Jr. Director 66
Alan R. Novak Director 68
Samuel E. Navarro Director 47
Warwick Alex Charlton Director 43
Directors and Executive Officers
Richard J. DePiano was appointed to our Board of Directors in May 2000
and was unanimously elected to serve as Non-Executive Chairman of the Board on
January 31, 2003. Mr. DePiano has been a director of Escalon Medical Corp., a
publicly traded healthcare business specializing in the development and
marketing of ophthalmic devices and pharmaceutical and vascular access products,
since February 1996, and has served as its Chairman and Chief Executive Officer
since March 1997. Mr. DePiano has been the Chief Executive Officer of the
Sandhurst Company, L.P. and Managing Director of the Sandhurst Venture Fund
since 1986. Mr. DePiano was also the Chairman of the Board of Directors of
Surgical Laser Technologies, Inc. ("SLT") prior to its acquisition by
PhotoMedex, Inc.
Jeffrey F. O'Donnell has served as one of our directors and as our
President and Chief Executive Officer since November 1999. Mr. O'Donnell served
as the President of X-SITE Medical from March 1999 to November 1999 and from
1995 to March 1999, he filled several senior positions at Radiance Medical
Systems, Inc., including serving as President and Chief Executive Officer from
October 1997 to March 1999. From January 1994 to May 1995, Mr. O'Donnell was the
President and Chief Executive Officer of Kensey Nash Corporation, a medical
device manufacturer of cardiology products. Mr. O'Donnell is currently a
director of Endologix, Inc. (formerly known as Radiance Medical Systems, Inc.),
Escalon Medical Corp., X-SITE Medical, Inc., and AzurTec, Inc. Mr. O'Donnell
graduated from La Salle University with a B.S. in business administration.
Dennis M. McGrath was appointed Chief Financial Officer and Vice
President-Finance and Administration in January 2000. From September 1999 to
January 2000, Mr. McGrath served as the Chief Financial Officer of the Think New
Ideas division of AnswerThink Consulting Group, Inc., a public company
specializing in installing and managing computer systems and software. From
September 1996 to September 1999, Mr. McGrath was the Chief Financial Officer
and Executive Vice-President-Operations of TriSpan, Inc. an internet commerce
solutions and technology consulting company. Mr. McGrath is a certified public
accountant and graduated with a B.S. in accounting from La Salle University in
1979. Mr. McGrath holds a license from the states of Pennsylvania and New Jersey
as a certified public accountant.
Michael R. Stewart was appointed Executive Vice President of Corporate
Operations on December 27, 2002 immediately following the acquisition of SLT.
From July 1999 to the acquisition, Mr. Stewart was the President and Chief
Executive Officer of SLT, and from October 1990 to July 1999 he served as SLT's
Vice President Finance and Chief Financial Officer. Mr. Stewart graduated from
LaSalle University with a B.S. in accounting and received an M.B.A. from La
Salle University in 1986. Mr. Stewart passed the CPA examination in Pennsylvania
in 1986.
John J. McAtee, Jr., has been a member of our Board of Directors since
March 4, 1998. From March 4, 1998 until March 8, 1999, Mr. McAtee served as the
Non-Executive Chairman of the Board of Directors. From 1990 to 1996, Mr. McAtee
was Vice Chairman of Smith Barney, Inc., now known as Salomon Smith Barney, one
of the world's largest investment banking and brokerage firms. Before that, Mr.
McAtee was a partner in the New York law firm of Davis Polk & Wardwell for more
than 20 years. Mr. McAtee is a graduate of Princeton University and Yale Law
School. Mr. McAtee is also a director of U.S. Industries, Inc., a diversified
industrial corporation. Mr. McAtee has also served on the Investment Advisory
Board of True North Capital, Ltd.
Alan R. Novak was appointed to our Board of Directors in October 1997.
Mr. Novak is Chairman of Infra Group, L.L.C., an international project finance
and development company. He is also Chairman of Lano International, Inc., a real
estate development company. Mr. Novak is a graduate of Yale University, Yale Law
School, and Oxford University as a Marshall Scholar. Mr. Novak practiced law at
Cravath, Swaine & Moore and Swidler & Berlin, Chartered. His public service
includes three years as an officer in the United States Marine Corps, a U.S.
Supreme Court clerkship with Justice Potter Stewart, Senior Counsel to Senator
Edward M. Kennedy, Senior Executive Assistant to Undersecretary of State, Eugene
Rostow, and the Executive Director of President Johnson's Telecommunications
Task Force. Mr. Novak was appointed by President Carter and served for five
years as Federal Fine Arts Commissioner.
Samuel E. Navarro was appointed to our Board of Directors in January
2000. Mr. Navarro is an acknowledged authority on the medical device and health
care business and since March 2001 has served as the Managing Director of the
Galleon Group, a $5 billion hedge fund based in New York City. Prior to joining
Galleon, Mr. Navarro was the Global Head of Health Care Corporate Finance at ING
Barings. Prior to joining ING Barings in1998, Mr. Navarro was managing director
of equity research for the medical technology sector for Union Bank of
Switzerland. Mr. Navarro holds a B.S. in engineering from the University of
Texas, an M.S. degree in engineering from Stanford University and an M.B.A. from
the Wharton School.
Warwick Alex Charlton was appointed to the Board of Directors and
served as the Non-Executive Chairman of the Board of Directors from March 8,
1999 to January 31, 2003. Mr. Charlton is the Managing Director of True North
Partners L.L.C., a venture capital firm with a specialty in the healthcare
field. Mr. Charlton has 20 years of business experience, consisting of ten years
of line management experience and nine years in the consulting profession
(previously with Booz Allen & Hamilton and the Wilkerson Group). Mr. Charlton
received an honors degree in Marketing from the University of Newcastle and an
M.B.A. from Cranfield Institute of Technology. Mr. Charlton was formerly a Vice
President of CSC Healthcare, Inc. and serves as a member of the Board of
Directors of Intercure, Inc. and as an advisor to the Board of Directors of
Balance Pharmaceuticals, Inc.
Director Compensation
Directors who are also our employees receive no separate compensation
for serving as directors or as members of Board committees. Directors who are
not our employees are compensated under the 2000 Non-Employee Director Stock
Option Plan. As discussed below, each outside director was granted in 2002 a
non-qualified option on 20,000 shares of common stock, and in 2003 has been
granted a non-qualified option on 35,000 shares of common stock. Starting in
2003, each outside director will receive an annual retainer of $20,000 and will
also be paid $1,000 for personal attendance at each meeting of the Board and
each committee meeting held not in conjunction with meetings of the Board
itself, and $500 for telephonic attendance at each Board or committee meeting,
excluding meetings of limited scope and duration.
Compensation, Nominations and Audit Committees; Committee Interlocks and Insider
Participation
The Board of Directors has a Compensation Committee. In the year ended
December 31, 2002, the members of the Committee were Messrs. Charlton, McAtee
and Novak. The Committee reviews executive compensation from time to time and
reports to the Board of Directors, which makes all decisions. The Compensation
Committee adheres to several guidelines in carrying out its responsibilities,
including performance by the employees, performance by the Company, enhancement
of stockholder value, growth of new businesses and new markets and competitive
levels of fixed and variable compensation. The Compensation Committee reviews
and approves the annual salary and bonus for each executive officer (consistent
with the terms of any applicable employment agreement), reviews, approves and
recommends terms and conditions for all employee benefit plans (and changes
thereto) and administers our stock option plans and such other employee benefit
plans as may be adopted by us from time to time.
The Board of Directors has a Nominations Committee. In the year ended
December 31, 2002, the members of the Committee were Messrs. O'Donnell, Charlton
and McAtee. For 2003, Messrs. DePiano and McAtee will serve in lieu of Messrs.
O'Donnell and Charlton.
Finally, the Board of Directors has an Audit Committee. In the year
ended December 31, 2002, Messrs. DePiano and McAtee served throughout the year.
Mr. Navarro and Mr. Charlton also served at various times on the Committee
during the year. For 2003, Mr. Novak will serve on the Committee with Messrs.
DePiano and McAtee. The Committee reports to the Board of Directors regarding
the appointment of our independent auditors, the scope and fees of the
prospective annual audit and the results thereof, compliance with our accounting
and financial policies and management's procedures and policies relative to the
adequacy of our system of internal accounting controls.
Compliance with Section 16 of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires our directors and executive officers and beneficial
holders of more than 10% of our common stock to file with the Commission initial
reports of ownership and reports of changes in ownership of our equity
securities. As of the date of this Amendment, we believe that all reports needed
to be filed have been filed in a timely manner for the year ended December 31,
2002.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth certain information concerning
compensation of our executive officers, including our Chief Executive Officer,
Chief Financial Officer and Executive Vice President of Corporate Operations,
for the years ended December 31, 2002, 2001 and 2000:
Annual Compensation Long Term Compensation Awards
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Other Securities Payouts
Annual Restricted Underlying All other
Compensation Stock Options/ LTIP Compensation
Name Year Salary($) Bonus ($) ($) Awards ($) SARs (#) Payouts ($) ($)
Jeffrey F. O'Donnell (CEO) 2002 350,000 100,000 12,000 0 0 0 0
2001 350,000 140,000 12,000 0 125,000 0 0
2000 285,697 126,500 12,000 0 125,000 0 0
Dennis M. McGrath 2002 285,000 79,800 12,000 0 0 0 0
2001 285,000 114,000 12,000 0 110,000 0 0
2000 205,961 82,500 12,000 0 125,000 0 0
Michael R. Stewart 2002 1,808 0 0 0 150,000 0 0
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Employment Agreement with Jeffrey F. O'Donnell. In November 1999, we
entered into a three-year employment agreement with Jeffrey F. O'Donnell to
serve as our President and Chief Executive Officer. We amended and restated that
agreement on August 1, 2002. This Agreement runs until December 31, 2003 and
will expire then if due notice is given. If due notice is not given by December
1, 2003, then the Agreement will renew for an additional year and so on. Mr.
O'Donnell's current base salary is $350,000 per year. If we terminate Mr.
O'Donnell other than for "cause" (which definition includes nonperformance of
duties or competition of the employee with our business), then he will receive
severance pay equal to $350,000, payable over 12 months. But if on or after a
change of control, Mr. O'Donnell becomes entitled to severance pay by virtue of
provisions related to the change of control, then he may become entitled to
severance equal to 200% of his then base salary in a lump sum.
Employment Agreement with Dennis M. McGrath. In November 1999, we
entered into a three-year employment agreement with Dennis M. McGrath to serve
as our Chief Financial Officer and Vice President-Finance and Administration. We
amended and restated that agreement on August 1, 2002. This Agreement runs until
December 31, 2003 and will expire then if due notice is given. If due notice is
not given by December 1, 2003, then the Agreement will renew for an additional
year and so on. Mr. McGrath's current base salary is $285,000 per year. If we
terminate Mr. McGrath other than for "cause" (which definition includes
nonperformance of duties or competition of the employee with our business), then
he will receive severance pay equal to $285,000, payable over 12 months. But if
on or after a change of control, Mr. McGrath becomes entitled to severance pay
by virtue of provisions related to the change of control, then he may become
entitled to severance equal to 200% of his then base salary in a lump sum.
Employment Agreement with Michael R. Stewart. Effective December 27,
2002, Michael R. Stewart became the Company's Executive Vice President of
Corporate Operations, pursuant to a written employment agreement. Mr. Stewart's
current base salary is $235,000 per year. The agreement runs until December 31,
2003 and will expire then if due notice is given. If due notice is not given by
December 1, 2003, then the agreement will renew for an additional year and so
on. If we terminate Mr. Stewart other than for "cause" (which definition
includes nonperformance of duties or competition of the employee with our
business), then he will receive severance pay equal to $235,000, payable over 12
months. But if on or after a change of control, Mr. Stewart becomes entitled to
severance pay by virtue of provisions related to the change of control, then he
may become entitled to severance equal to 200% of his then base salary, payable
over 12 months. As part of his agreement, Mr. Stewart was granted in the year
ended December 31, 2002 stock options on 150,000 shares of the Company's common
stock and was further granted under the agreement stock options on 75,000 shares
of the Company's common stock in January 2003.
Option/SAR Grants Table
The following table sets forth certain information concerning grants of
stock options to our executive officers for the year ended December 31, 2002:
Potential Realizable Value at
Assumed Annual Rate of Stock
Price Appreciation
Individual Grants For Option Term (1)
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(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise Or
Options/SARs Employees In Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) (1) Date (1) 5% ($) 10% ($)
Michael R. Stewart 150,000 41.96% 1.85 12/27/07 90,000 186,000
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1. This chart assumes a market price of $1.92 for the common stock, the
closing sale price for our common stock in the Nasdaq National Market System
as of December 31, 2002, as the assumed market price for the common stock
with respect to determining the "potential realizable value" of the shares of
common stock underlying the options described in the chart, as reduced by any
lesser exercise price for such options. Further, the chart assumes the annual
compounding of such assumed market price over the relevant periods, without
giving effect to commissions or other costs or expenses relating to potential
sales of such securities. Our common stock has a very limited trading
history. These values are not intended to forecast the possible future
appreciation, if any, price or value of the common stock.
Option Exercises and Year-End Values
The following table sets forth information with respect to the
exercised and unexercised options to purchase shares of common stock for our
executive officers held by them at December 31, 2002:
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In the Money Options
Name on Exercise Realized(1) Options at December 31, 2002 at December 31,2002(2)
Exercisable Unexercisable Exercisable Unexercisable
Jeffrey F. O'Donnell 0 0 621,354 153,646 $27,188 $81,563
Dennis M. McGrath 0 0 442,604 142,396 23,925 71,775
Michael R. Stewart 0 0 37,500 112,500 2,625 7,875
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Represents an amount equal to the number of options multiplied by the
difference between the closing price for the common stock in the Nasdaq
National Market System on the date of exercise and any lesser exercise
price.
(2) Represents an amount equal to the number of options multiplied by the
difference between the closing price for the common stock in the Nasdaq
National Market System on December 31, 2002 ($1.92 per share) and any
lesser exercise price.
2000 Stock Option Plan
General. The 2000 Stock Option Plan was adopted by the Board of
Directors on May 15, 2000, and was approved by our stockholders on July 18,
2000. We initially reserved for issuance thereunder an aggregate of 1,000,000
shares of common stock and increased this to 2,000,000 shares of common stock,
pursuant to the affirmative vote of the stockholders on June 10, 2002. The 2000
Stock Option Plan provides for the grant to our employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, or the Code, and for the grant to employees and consultants of
non-statutory stock options.
A description of the 2000 Stock Option Plan is set forth below. The
description is intended to be a summary of the material provisions of the 2000
Stock Option Plan and does not purport to be complete.
The general purposes of the 2000 Stock Option Plan are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to our employees and consultants and to promote
the success of our business. It is intended that these purposes will be effected
through the granting of stock options, which may be either "incentive stock
options" as defined in Section 422 of the Code or "non-qualified stock options."
The 2000 Stock Option Plan provides that options may be granted to our
employees (including officers and directors who are employees) and consultants,
or of any of our parents or subsidiaries. Incentive stock options may be granted
only to employees. An employee or consultant who has been granted an option may,
if otherwise eligible, be granted additional options.
Administration of and Eligibility under the 2000 Stock Option Plan. The
2000 Stock Option Plan, as adopted, provides for the issuance of options to
purchase shares of common stock to our officers, directors, employees,
independent contractors and consultants and those of our subsidiaries as an
incentive to remain in the employ of or to provide services to us. The 2000
Stock Option Plan authorizes the issuance of incentive stock options, or ISOs,
non-qualified stock options, or NSOs, and stock appreciation rights, or SARs, to
be granted by a committee to be established by the Board of Directors, to
administer the 2000 Stock Option Plan, or if no such committee is established,
then by the Board of Directors, either of which will consist of at least two
non-employee directors, as such term is defined under Rule 16b-3 of the Exchange
Act, and shall qualify as outside directors, for purposes of Section 162(m) of
the Code. The Compensation Committee has been charged by the Board of Directors
to administer all option plans.
Subject to the terms and conditions of the 2000 Stock Option Plan, the
committee will have the sole authority to: (a) determine the persons, or
optionees, to whom options to purchase shares of common stock and SARs will be
granted, (b) determine the number of options and SARs to be granted to each such
optionee, (c) determine the price to be paid for each share of common stock upon
the exercise of each option and the manner in which each option may be
exercised, (d) determine the period within which each option and SAR will be
exercised and any extensions thereof, (e) determine the type of stock options to
grant, (f) interpret the 2000 Stock Option Plan and award agreements under the
2000 Stock Option Plan, and (g) determine the terms and conditions of each such
stock option agreement and SAR agreement which may be entered into between us
and any such optionee.
All of our officers, directors and employees, and those of our
subsidiaries and certain of our consultants and other persons providing
significant services to us will be eligible to receive grants of options and
SARs under the 2000 Stock Option Plan. However, only our employees are eligible
to be granted ISOs.
Stock Option Agreements. All options granted under the 2000 Stock
Option Plan will be evidenced by an option agreement or SAR agreement between us
and the optionee receiving such option or SAR. Provisions of such agreements
entered into under the 2000 Stock Option Plan need not be identical and may
include any term or condition which is not inconsistent with the 2000 Stock
Option Plan and which the committee deems appropriate for inclusion.
Incentive Stock Options. Except for ISOs granted to stockholders
possessing more than ten percent (10%) of the total combined voting power of all
classes of our securities to whom such ownership is attributed on the date of
grant, or Ten Percent Stockholders, the exercise price of each ISO must be at
least 100% of the fair market value of our common stock, based on the closing
sales price of our common stock, as determined on the date of grant. ISOs
granted to Ten Percent Stockholders must be at an exercise price of not less
than 110% of such fair market value.
Each ISO must be exercised, if at all, within 10 years from the date of
grant or such lesser period as the Committee may determine, but, within 5 years
of the date of grant in the case of ISO's granted to Ten Percent Stockholders.
The aggregate fair market value (determined as of time of the grant of
the ISO) of the common stock with respect to which the ISOs are exercisable for
the first time by the optionee during any calendar year shall not exceed
$100,000.
Non-Qualified Stock Options. The exercise price of each NSO will be
determined by the committee on the date of grant. We have undertaken not to
grant any non-qualified stock options under the 2000 Stock Option Plan at an
exercise price less than 85% of the fair market value, based on the closing
sales price of the common stock on the date of grant of any non-qualified stock
option under the 2000 Stock Option Plan.
The exercise period for each NSO will be determined by the committee at
the time such option is granted, but in no event will such exercise period
exceed 10 years from the date of grant.
Stock Appreciation Rights. Each SAR granted under the 2000 Stock Option
Plan will entitle the holder thereof, upon the exercise of the SAR, to receive
from us, in exchange therefor an amount equal in value to the excess of the fair
market value of the common stock on the date of exercise of one share of common
stock over its fair market value on the date of grant (or in the case of a SAR
granted in connection with an option, the excess of the fair market of one share
of common stock at the time of exercise over the option exercise price per share
under the option to which the SAR relates), multiplied by the number of shares
of common stock covered by the SAR or the option, or portion thereof, that is
surrendered.
SARs will be exercisable only at the time or times established by the
committee. If a SAR is granted in connection with an option, the SAR will be
exercisable only to the extent and on the same conditions that the related
option could be exercised. The committee may withdraw any SAR granted under the
2000 Stock Option Plan at any time and may impose any conditions upon the
exercise of a SAR or adopt rules and regulations from time to time affecting the
rights of holders of SARs.
Limit to Options Granted under the 2000 Stock Option Plan. Under
Section 162(m) of the Code, which was enacted in 1993, the deductibility for
federal income tax purposes of compensation paid to our Chief Executive Officer
and the four other most highly compensated executive officers who receive salary
and bonus in excess of $100,000 in a particular year is limited to $1,000,000
per year per individual. For purposes of this legislation, compensation expense
attributable to stock options and SARs would be subject to this limitation
unless, among other things, the option plan under which the options and SARs is
granted includes a limit on the number of shares with respect to which awards
may be made to any one employee in a fiscal year. Such a potential compensation
expense deduction could arise, for example, upon the exercise by one of these
executives of a non-statutory option, i.e., an option that is not an incentive
stock option qualifying for favorable tax treatment, or upon a disqualifying
disposition of stock received upon exercise of an incentive stock option.
In order to exclude compensation resulting from options granted under
the 2000 Stock Option Plan from the $1,000,000 limit on deductibility, the Board
of Directors has approved a provision in the 2000 Stock Option Plan which will
place a 150,000 share limit on the number of options that may be granted under
the 2000 Stock Option Plan to an employee in any fiscal year. This limit is
subject to appropriate adjustment in the case of stock splits, reverse stock
splits and the like. The purpose of this provision, which is intended to comply
with Section 162(m) of the Code and the regulations thereunder, is to preserve
our ability to deduct in full any compensation expense related to stock options.
Termination of Options and Transferability. In general, any unexpired
options and SARs granted under the 2000 Stock Option Plan will terminate: (a) in
the event of death or disability, pursuant to the terms of the option agreement
or SAR agreement, but not less than 6 months or more than 12 months after the
applicable date of such event, (b) in the event of retirement, pursuant to the
terms of the option agreement or SAR agreement, but not less than 30 days or
more than 3 months after such retirement date, or (c) in the event of
termination of such person other than for death, disability or retirement, until
30 days after the date of such termination. However, the committee may in its
sole discretion accelerate or extend the exercisability of any or all options or
SARs upon termination of employment or cessation of services.
The options and SARs granted under the 2000 Stock Option Plan generally
will be non-transferable, except by will or the laws of descent and
distribution, except that the Plan committee may permit additional transfers, on
a general or specific basis, and may impose conditions and limitations on any
such transfers.
Adjustments Resulting from Changes in Capitalization. The number of
shares of common stock reserved under the 2000 Stock Option Plan and the number
and price of shares of common stock covered by each outstanding option or SAR
under the 2000 Stock Option Plan will be proportionately adjusted by the
committee for any increase or decrease in the number of issued and outstanding
shares of common stock resulting from any stock dividends, split-ups,
consolidations, recapitalizations, reorganizations or like events.
Termination of Options and SARs on Merger, Reorganization or
Liquidation. In the event of our merger, consolidation or other reorganization,
in which we are not the surviving or continuing corporation (as determined by
the committee) or in the event of our liquidation or dissolution, all options
and SARs granted under the 2000 Stock Option Plan will terminate on the
effective date of the merger, consolidation, reorganization, liquidation or
dissolution, unless there is an agreement with respect to such transition which
expressly provides for the assumption of such options and SARs by the continuing
or surviving corporation.
Amendment or Discontinuance of Stock Option Plan. The Board of
Directors has the right to amend, suspend or terminate the 2000 Stock Option
Plan at any time. Unless sooner terminated by the Board of Directors, the 2000
Stock Option Plan will terminate on May 14, 2010, the 10th anniversary date of
the effectiveness of the 2000 Stock Option Plan.
2000 Non-Employee Director Stock Option Plan
General. The 2000 Non-Employee Director Stock Option Plan, or the
Non-Employee Director Plan, was adopted by the Board of Directors on May 15,
2000, to be effective as of June 1, 2000, and was approved by our stockholders
on July 18, 2000.
A description of the Non-Employee Director Plan is set forth below. The
description is intended to be a summary of the material provisions of the
Non-Employee Director Plan and does not purport to be complete.
Purpose of the Plan. The purposes of the Non-Employee Director Plan are
to enable us to attract, retain, and motivate our non-employee directors and to
create a long-term mutuality of interest between the non-employee directors and
our stockholders by granting options to purchase common stock.
Administration. The Non-Employee Director Plan will be administered by
a committee of the Board of Directors, appointed from time to time by the Board
of Directors. The committee is intended to consist of two or more directors,
each of whom will be non-employee directors as defined in Rule 16b-3 under
Section 16(b) of the Exchange Act. If no committee exists which has the
authority to administer the Non-Employee Director Plan, the functions of the
committee will be exercised by the Board of Directors. The committee has full
authority to interpret the Non-Employee Director Plan and decide any questions
under the Non-Employee Director Plan and to make such rules and regulations and
establish such processes for administration of the Non-Employee Director Plan as
it deems appropriate subject to the provisions of the Non-Employee Director
Plan.
Available Shares. The Non-Employee Director Plan initially authorized
the issuance of up to 250,000 shares of common stock upon the exercise of
non-qualified stock options granted to our non-employee directors. The
stockholders increased this amount to 650,000 shares on June 10, 2002. In
general, if options are for any reason canceled, or expire or terminate
unexercised, the shares covered by such options will again be available for the
grant of options.
The Non-Employee Director Plan provides that appropriate adjustments
will be made in the number and kind of securities receivable upon the exercise
of options in the event of a stock split, stock dividend, merger, consolidation
or reorganization.
Eligibility. All of our non-employee directors are eligible to be
granted options under the Non-Employee Director Plan. A non-employee director is
a director serving on the Board of Directors who is not then one of our current
employees, as defined in Sections 424(e) and 424(f) of the Code.
Grant of Options. As of each January 1 following the effective date of
the Non-Employee Director Plan, commencing January 1, 2001, or the Initial Grant
Date, each non-employee director was automatically granted an option to purchase
20,000 shares of common stock in respect of services to be rendered to us as a
director during the forthcoming calendar year, subject to the terms of the
Non-Employee Director Plan. Each non-employee director who was first elected to
the Board of Directors after June 1, 2000, but prior to January 1, 2001, was
granted, as of the date of his election, or First Grant Date, an option to
purchase that number of shares equal to the product of (i) 5,000 and (ii) the
number of fiscal quarters remaining in our then current fiscal year (including
the quarter in which the date of such director's election falls), subject to the
terms of the Non-Employee Director Plan. As of January 1, 2002 or the First
Grant Date, as the case may be, each non-employee director was automatically
granted an option to purchase 20,000 shares of common stock, or the Annual
Grant. Commencing January 1, 2003, the annual grant will be a nonqualified stock
option of 35,000 shares of common stock, pursuant to the approval of the
stockholders on June 10, 2002. In other respects the Plan will operate as before
January 1, 2003. As of March 28, 2003, we have granted 217,750 options to our
eligible directors under the Non-Employee Director Plan.
The purchase price per share deliverable upon the exercise of an option
will be 100% of the fair market value of such shares as follows:
(i) For options issued on the Initial Grant Date, the fair market value
will be measured by the closing sales price of the common stock as of the last
trading date of the fiscal quarter prior to the Initial Grant Date;
(ii) For options issued on the First Grant Date, the fair market value
will be measured by the closing sales price of the common stock as of the First
Grant Date; and
(iii) For grants of options issued as of January 1 of any fiscal year,
the fair market value will be measured by the closing sales price of the common
stock as of the last trading date of the prior year.
Vesting of Options. Options granted under the Non-Employee Director
Plan will vest and become exercisable to the extent of 5,000 shares for each
fiscal quarter prior to fiscal 2003, in which such director shall have served at
least one day as our director and 8,750 shares for each quarter in fiscal 2003
and beyond.
Options that are exercisable upon a non-employee director's termination
of directorship for any reason except death, disability or cause (as defined in
the Non-Employee Director Plan), prior to the complete exercise of an option (or
deemed exercise thereof), will remain exercisable following such termination
until the earlier of (i) the expiration of the 90 day period following the
non-employee director's termination of directorship or (ii) the remaining term
of the option.
Options that are exercisable upon a non-employee director's termination
of directorship for disability or death, will remain exercisable by the
non-employee director or, in the case of death, by the non-employee director's
estate or by the person given authority to exercise such options by his or her
will or by operation of law, until the earlier of (i) the first anniversary of
the non-employee director's termination of directorship or (ii) the remaining
term of the option.
If, however, for reasons of "cause" a non-employee director is removed
from the Board of Directors, fails to stand for reelection or fails to be
re-nominated, or if we obtain or discover information after termination of
directorship that such non-employee director had engaged in conduct during such
directorship that would have justified a removal for cause during such
directorship, all outstanding options of such non-employee director will
immediately terminate and will be null and void.
The Non-Employee Director Plan also provides that all outstanding
options will terminate effective upon the consummation of a merger, liquidation
or dissolution, or consolidation in which we are not the surviving entity,
subject to the right of the non-employee director to exercise all outstanding
options prior to the effective date of the merger, liquidation, dissolution or
consolidation.
All options granted to a non-employee director and not previously
exercisable become vested and fully exercisable immediately upon the occurrence
of a change in control (as defined in the Non-Employee Director Plan).
Amendments. The Non-Employee Director Plan provides that it may be
amended by the committee or the Board of Directors at any time, and from time to
time to effect (i) amendments necessary or desirable in order that the
Non-Employee Director Plan and the options granted thereunder conform to all
applicable laws, and (ii) any other amendments deemed appropriate.
Notwithstanding the foregoing, to the extent required by law, no amendment may
be made that would require the approval of our stockholders under applicable law
or under any regulation of a principal national securities exchange or automated
quotation system sponsored by the National Association of Securities Dealers
unless such approval is obtained. The Non-Employee Director Plan may be amended
or terminated at any time by our stockholders.
Miscellaneous. Non-employee directors may be limited under Section
16(b) of the Exchange Act to certain specific exercise, election or holding
periods with respect to the options granted to them under the Non-Employee
Director Plan. Options granted under the Non-Employee Director Plan are subject
to restrictions on transfer and exercise. No option granted under the
Non-Employee Director Plan may be exercised prior to the time period for
exercisability, subject to acceleration in the event of our change in control
(as defined in the Non-Employee Director Plan). Although options will generally
be nontransferable (except by will or the laws of descent and distribution), the
committee may determine at the time of grant or thereafter that an option that
is otherwise nontransferable is transferable in whole or in part and in such
circumstances, and under such conditions, as specified by the committee.
1995 Non-Qualified Option Plan
On January 2, 1996, we adopted our 1995 Non-Qualified Option Plan for
key employees, officers, directors and consultants, and reserved up to 500,000
options to be granted thereunder. The option exercise price is not less than
100% of market value on the date granted; 40% of granted options vest
immediately; 30% vest beginning one year after grant; and the remaining 30% vest
and may be exercised beginning two years from grant.
No options may be exercised more than 10 years after grant, options are
not transferable (other than at death), and in the event of complete termination
for cause (other than death or disability) or voluntary termination, all
unvested options automatically terminate. Options are no longer granted out of
this Plan.
Other Non-Employee Director Stock Option Plan
On April 10, 1998, our Board of Directors adopted a resolution creating
a stock option plan for outside/non-employee members of the Board of Directors.
Pursuant to the stock plan, each outside/non-employee director is to receive an
annual grant of options, in addition to any other consideration he or she may
receive, to purchase up to 20,000 shares of common stock as compensation, at an
exercise price equal to the market price of the common stock on the last trading
day of the preceding year. The options granted pursuant to this plan vest at the
rate of 5,000 options per quarter during each quarter in which such person has
served as a member of the Board of Directors. Since we have adopted the 2000
Non-Employee Director Stock Option Plan, we no longer grant options to members
of our Board of Directors under this plan.
Limitation on Directors' Liabilities; Indemnification of Officers and Directors
Our Certificate of Incorporation and Bylaws designate the relative
duties and responsibilities of our officers, establish procedures for actions by
directors and stockholders and other items. Our Certificate of Incorporation and
Bylaws also contain extensive indemnification provisions, which will permit us
to indemnify our officers and directors to the maximum extent, provided by
Delaware law. Pursuant to our Certificate of Incorporation and under Delaware
law, our directors are not liable to us or our stockholders for monetary damages
for breach of fiduciary duty, except for liability in connection with a breach
of duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Delaware law or any transaction in which a
director has derived an improper personal benefit.
We have adopted a form of indemnification agreement, which provides the
indemnitee with the maximum indemnification allowed under applicable law. Since
the Delaware statutes are non-exclusive, it is possible that certain claims
beyond the scope of the statute may be indemnifiable. The indemnification
agreement provides a scheme of indemnification, which may be broader than that
specifically provided by Delaware law. It has not yet been determined, however,
to what extent the indemnification expressly permitted by Delaware law may be
expanded, and therefore the scope of indemnification provided by the
indemnification agreement may be subject to future judicial interpretation.
The indemnification agreement provides that we are to indemnify an
indemnitee, who is or was a party or becomes a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding whether
civil, criminal, administrative or investigative by reason of the fact that the
indemnitee is or was one of our directors, officers, key employees or agents. We
are to advance all expenses, judgments, fines, penalties and amounts paid in
settlement (including taxes imposed on indemnitee on account of receipt of such
payouts) incurred by the indemnitee in connection with the investigation,
defense, settlement or appeal of any civil or criminal action or proceeding as
described above. The indemnitee is to repay such amounts advanced only if it
shall be ultimately determined that he or she is not entitled to be indemnified
by us. The advances paid to the indemnitee by us are to be delivered within 20
days following a written request by the indemnitee. Any award of indemnification
to an indemnitee, if not covered by insurance, would come directly from our
assets, thereby affecting a stockholder's investment.
At present, there is no pending litigation or proceeding involving an
indemnitee where indemnification would be required or permitted under the
indemnification agreements.
Termination of Employment and Change of Control Agreements
We have employment agreements with Messrs. O'Donnell, McGrath and
Stewart. These agreements, as described above in Item 11, "Executive
Compensation", provide for severance upon termination of employment, whether in
context of a change of control or not. We also have arrangements with other key
employees under which we would be obliged to pay compensation upon their
termination outside a context of change of control, and, for a lesser number of
key employees, by virtue of a change of control. Supposing that all such
executive officers and key employees were terminated other than for cause and
not within a change of control, we had an aggregate commitment of approximately
$1,728,000 at December 31, 2002 for severance and related compensation. On the
other hand, the obligation for such compensation that would arise in favor of
the executive officers and certain key employees by virtue of a change of
control was approximately $1,976,000 at December 31, 2002.
Directors' and Officers' Liability Insurance
We have obtained directors' and officers' liability insurance with a
$5,000,000 limit of liability. The policy period began on February 25, 2003 and
will continue for one year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table reflects, as of April 30, 2003 the beneficial
Common Stock ownership of: (a) each of our directors, (b) each executive officer
(See Item 11, "Executive Compensation"), (c) each person known by us to be a
beneficial holder of five percent (5%) or more of our common stock, and (d) all
of our executive officers and directors as a group:
Percentage of
Number of Shares Shares Beneficially
Name and Address Of Beneficial Owner (1) Beneficially Owned Owned (1)
Richard J. DePiano(2) 104,300 *
Jeffrey F. O'Donnell (3) 653,604 2.04
Dennis M. McGrath (4) 474,979 1.49
Michael R. Stewart(5) 57,690 *
Alan R. Novak (6) 126,101 *
John J. McAtee, Jr. (7) 442,500 1.40
Samuel E. Navarro (8) 213,750 *
Warwick Alex Charlton (9) 247,500 *
Joseph E. Gallo, Trustee (10) 1,575,943 5.01
SAFECO Group(11) 3,500,000 10.89
All directors and officers as a group (8 persons) (12) 2,320,424 7.00
- -----------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. Shares of common stock subject to options or warrants currently
exercisable or exercisable within 60 days of April 30, 2003, are deemed
outstanding for computing the percentage ownership of the stockholder
holding the options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other stockholder. Unless
otherwise indicated in the footnotes to this table, we believe
stockholders named in the table have sole voting and sole investment
power with respect to the shares set forth opposite such stockholder's
name. Unless otherwise indicated, the officers, directors and
stockholders can be reached at our principal offices. Percentage of
ownership is based on 31,439,058 shares of common stock outstanding as
of April 30, 2003.
(2) Includes 31,800 shares and options to purchase up to 72,500 shares of
common stock. Does not include options to purchase up to 17,500 shares
of common stock which may vest more than 60 days after April 30, 2003.
Mr. DePiano's address is 351 East Conestoga Road, Wayne, Pennsylvania
19087.
(3) Includes 1,000 shares and options to purchase up to 652,604 shares of
common stock. Does not include options to purchase up to 247,396 shares
of common stock, which may vest more than 60 days after April 30, 2003.
(4) Includes 3,000 shares and options to purchase up to 471,979 shares of
common stock. Does not include options to purchase up to 223,021 shares
of common stock which may vest more than 60 days after April 30, 2003.
(5) Includes 1,440 shares and options to purchase 56,250 shares of common
stock. Does not include options to purchase up to 168,750 shares of
common stock which may vest more than 60 days after April 30, 2003.
(6) Includes 28,601 shares of common stock and options to purchase up to
97,500 shares of common stock. Does not include options to purchase up
to 17,500 shares of common stock which may vest more than 60 days after
April 30, 2003. Mr. Novak's address is 3050 K Street, NW, Suite 105,
Washington, D.C. 20007.
(7) Includes 320,000 shares, warrants to purchase up to 25,000 shares and
options to purchase up to 97,500 shares of common stock. Does not
include options to purchase up to 17,500 shares of common stock which
may vest more than 60 days after April 30, 2003. Mr. McAtee's address
is Two Greenwich Plaza, Greenwich, Connecticut 06830.
(8) Includes 63,334 shares, warrants to purchase up to 6,250 shares and
options to purchase up to 144,166 shares of common stock. Does not
include options to purchase up to 17,500 shares of common stock which
may vest more than 60 days after April 30, 2003. Mr. Navarro's address
is 135 East 57th Street, 16th floor New York, New York 10022.
(9) Includes 170,000 shares of common stock owned by True North Partners,
L.L.C., of which Mr. Charlton holds a 23.125% indirect equity interest
and options to purchase 77,500 shares of common stock. Does not include
options to purchase up to 17,500 shares of common stock which may vest
more than 60 days after April 30, 2003. Mr. Charlton's address is 375
Park Avenue, Suite 2309, New York, New York 10152.
(10) Mr. Gallo has sole voting and dispositive power with respect to
1,575,943 shares of common stock he owns as trustee under certain
trusts. Mr. Gallo's address is 600 Yosemite Blvd., Modesto, California
95354.
(11) Includes 2,800,000 shares of common stock and warrants to purchase up
to 700,000 shares of common stock. SAFECO Common Stock Trust ("SAFECO
CST") and SAFECO Resource Series Trust ("SAFFCO RST") are both
registered investment companies under Section 8 of the Investment
Company Act of 1940, as amended. SAFECO Asset Management Company
("SAM") is a registered investment advisor under Section 203 of the
Investment Advisers Act of 1940, as amended, and serves as the
investment advisor for each of SAFECO CST and SAFECO RST. SAFECO
Corporation is a parent holding company of SAM in accordance with Rule
13d-l(b)(1)(ii)(F) of the Exchange Act. Each of SAFECO Corporation and
SAM may be deemed to have indirect beneficial ownership of the
securities beneficially owned by each of SAFECO CST and SAFECO RST
based on their respective ownership or control of SAFECO CST and SAFECO
RST; however, each of SAFECO Corporation and SAM may disclaim
beneficial ownership of these securities for purposes of Sections 13(d)
or 13(g) under the Exchange Act. The shares underlying the warrants may
be deemed to be beneficially owned by SAFECO CST and SAFECO RST. The
address of SAM, SAFECO CST and SAFECO RST is c/o SAFECO Asset
Management Company, 601 Union Street, Suite 2500, Seattle, Washington
98101.
(12) Includes 619,175 shares, warrants to purchase up to 31,250 shares
and options to purchase 1,669,999 shares of common stock. Does not
include options to purchase up to 726,667 shares of common stock
which may vest more than 60 days after April 30, 2003.
Item 13. Certain Relationships and Related Transactions
In the year ended December 31, 2002, we engaged True North Partners,
L.L.C., or True North Partners, to perform marketing consulting services for us,
and we also engaged a principal of True North Capital Ltd., an affiliate of True
North Partners, to perform financial consulting services for us. We incurred
charges of $57,048 and $25,000 for the marketing and financial services,
respectively. Mr. Charlton is a principal in True North Partners and True North
Capital. Two of our directors, Warwick Alex Charlton and John J. McAtee, Jr.,
hold 23.125% and 0.8% equity interests in True North Partners, respectively. Mr.
McAtee has also served on the Investment Advisory Board of True North Capital.
It may be noted that the aggregate fees paid to True North Partners and True
North Capital in the year ended December 31, 2002 were less than 5% of our
consolidated revenues and of the consolidated revenues of True North Partners
and True North Capital in the same period.
We believe that all transactions with our affiliates have been entered
into on terms no less favorable to us than could have been obtained from
independent third parties. We intend that any transactions with officers,
directors and 5% or greater stockholders, following the date of the Annual
Report, will be on terms no less favorable to us than could be obtained from
independent third parties and will be approved by a majority of our independent,
disinterested directors and will comply with the Sarbanes-Oxley Act of 2002 and
other securities laws and regulations.
DOCUMENTS INCORPORATED BY REFERENCE
We are a reporting company and file annual, quarterly and special
reports, proxy statements and other information with the Commission. You may
inspect and copy these materials at the Public Reference Room maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Commission at 1-800-SEC-0330 for more information on the Public
Reference Room. You can also find our Commission filings at the Commission's
website at www.sec.gov. You may also inspect reports and other information
concerning us at the offices of the Nasdaq Stock Market at 1735 K Street, N.W.,
Washington, D.C. 20006. We intend to furnish our stockholders with annual
reports containing audited financial statements and such other periodic reports
as we may determine to be appropriate or as may be required by law.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
PHOTOMEDEX, INC.
Date: April 30, 2003 By:/s/ Jeffrey F. O'Donnell
---------------------------
Jeffrey F. O'Donnell
President, Chief Executive Officer
and Director