UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 Registrantx
Filed by a Party other than the Registrant¨
Check the appropriate box:
¨ | Preliminary Proxy Statement |
¨ | Confidential, |
x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to Rule 14a-12 |
BIOLASE TECHNOLOGY, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x | No fee required. |
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BIOLASE TECHNOLOGY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 15, 2005APRIL 20, 2006
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 Tuesday, November 15, 2005,Thursday, April 20, 2006, at 2:00 p.m. local time at the Laguna Cliffs Marriott Resort and Spa, 25135 Park Lantern, Dana Point, CA, 92629, for the following purposes, as more fully described in the Proxy Statement accompanying this Notice:
1. | To elect |
2. |
To ratify the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, |
3. | To |
Stockholders of record at the close of business on October 3, 2005March 9, 2006 are entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof. 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,
Federico Pignatelli
Sincerely, |
Robert E. Grant Acting Chairman of the Board of Directors |
San Clemente, California |
April 5, 2006 |
San Clemente, California
October 17, 2005
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RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 8 | |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 11 | |
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981 Calle Amanecer
San Clemente, California 92673
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 2005APRIL 20, 2006
PROXY STATEMENT
SOLICITATION OF PROXIES
General
The enclosedaccompanying proxy (the “Proxy”) is solicited on behalf of the Board of Directors (the “Board”) of BIOLASE Technology, Inc., a Delaware corporation (the “Company”), for use at the Annual Meeting of Stockholders to be held on Tuesday, November 15, 2005Thursday, April 20, 2006 (the “Annual Meeting”) and at any adjournment or postponement thereof. The Annual Meeting will be held at 2:00 p.m. local time at the Laguna Cliffs Marriott Resort and Spa, 25135 Park Lantern, Dana Point, CA, 92629. These Proxyproxy solicitation materials were mailed on or about October 17, 2005April 5, 2006 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 Statement. On October 3, 2005, the record date (the “Record Date”) for determination of stockholders entitled to notice of and to vote at the Annual Meeting, 23,249,277 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 five nominees receiving the highest number of affirmative votes will be elected. With regard to Proposals Two, Three and Four, 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 required for approval.
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 tabulation of votes cast on such Proposal. With regard to Proposals Two, Three and Four, abstentions will be counted towards the tabulation of votes cast on such Proposals 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 FOR:
the election of the directorsseven nominees for election to the Board listed in the Proxy and proposed by the Board unless Board; and
the authorityratification of the appointment of BDO Seidman, LLP, as the Company’s independent registered public accounting firm for its fiscal year ending December 31, 2006.
Any stockholder has the power 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, Three and Four. You may revoke his or change your Proxyher proxy at any time before the Annual Meetingit is voted. A proxy may be revoked by filing witha stockholder of record by:
delivering a written notice of revocation to the Secretary
1
of the Company atbefore the Company’s principal executive offices at 981 Calle Amanecer, San Clemente, California 92673Annual Meeting
presenting a notice of revocation or another signed Proxynew proxy with a later date. You may also revoke your Proxy by later-date; or
attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not, by itself, revoke a proxy. If your shares are held in the name of a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your bank, broker or other record holder. Please note that if your shares are held of record by a broker, bank or other nominee, and you decide to attend and vote at the Annual Meeting, your vote in person at the Annual Meeting will not be effective unless you present a legal proxy, issued in your name from the record holder, your broker.
Voting; Quorum
On March 9, 2006, the record date (the “Record Date”) for determination of stockholders entitled to notice of and to vote at the Annual Meeting, 23,289,037 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), were outstanding. No shares of the Company’s preferred stock were outstanding on the Record Date. Only stockholders of record of the Common Stock on March 9, 2006 will be entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof. 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 Common 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 five nominees receiving the
highest number of “FOR” votes will be elected. With regard to the other proposal, 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 required for approval.
Abstentions may be specified on all proposals (except the election of directors), and will be counted as present for purposes of determining the existence of a quorum regarding the item on which the abstention is noted and will also be counted as a vote against such item for purposes of determining whether stockholder approval of that item has been obtained. Shares that are not voted by the broker who is the record holder of the shares because the broker is not instructed to vote such shares by the beneficial owner and does not have discretionary authority to vote such shares (i.e., Broker Non-Votes) and shares that are not voted in other circumstances in which proxy authority is defective or has been withheld, will be counted for purposes of establishing a quorum. Broker Non-Votes and other non-voted shares will not be deemed to be entitled to vote for purposes of determining whether stockholder approval of that matter has been obtained and thus will have no effect on the outcome of such matter.
The persons named as attorneys-in-fact in the form of the accompanying proxy, Robert E. Grant and Richard L. Harrison, were selected by the Board and are officers of the Company. All properly executed proxies returned in time to be counted at the Annual Meeting will be voted by such persons at the Annual Meeting. Aside from the election of the named directors and the ratification of the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm, the Board knows of no other matter to be presented at the Annual Meeting. If any other matters should be presented at the Annual Meeting upon which a vote properly may be taken, shares represented by all proxies received by the Company will be voted with respect thereto in accordance with the judgment of the persons named as attorneys-in-fact in the proxies.
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 In accordance with Delaware law, a list of stockholders of the Company that are intendedentitled to be presented by such stockholdersvote at the Company’s 2006 Annual Meeting will be available at the Annual Meeting, and for 10 days prior to the Annual Meeting at BIOLASE Technology, Inc., 981 Calle Amanecer, San Clemente, California 92673 between the hours of Stockholders must8:00 a.m. and 5:00 p.m. Pacific Time.
Stockholder Proposals for 2007 Annual Meeting
It is currently contemplated that the Company’s 2007 annual meeting of stockholders will be received no later than January 10, 2006 in orderheld on or about April 19, 2007. In the event that they may be includeda stockholder desires to have a proposal considered for presentation at the 2007 annual meeting of stockholders, and inclusion in the proxy statement and form of proxy relating to that meeting. In addition,used in connection with such meeting, the proposal must be received at the Company’s principal executive offices by December 6, 2006. Any such proposal must comply with the requirements of the Company’s Bylaws and Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended.
If a stockholder, rather than including a proposal in the Company’s proxy solicited by the Board of Directorsstatement as discussed above, commences his or her own proxy solicitation for the 2006 Annual Meeting will confer discretionary authority2007 annual meeting of stockholders or seeks to vote on any stockholder proposal presentednominate a candidate for election or propose business for consideration at thatsuch meeting, unless the Company receivesmust receive notice of such proposal or nomination no later than March 26, 2006.6, 2007. If the notice is not received by such date, it will be considered untimely, and the Company will have discretionary voting authority under proxies solicited for the 2007 annual meeting of stockholders with respect to such proposal, if presented at the meeting. All notices must comply with the requirements of the Company’s Bylaws.
2Proposals and notices should be directed to the attention of the Secretary, BIOLASE Technology, Inc., 981 Calle Amanecer, San Clemente, California 92673.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE
General
ThePrior to March 29, 2006, the Board consisted of Directorsfive directors. On March 29, 2006, the number of directors on our Board was expanded to seven and, upon the recommendation of the Nominating and Corporate Governance Committee, the Board elected Dr. Daniel S. Durrie and Neil J. Laird to fill the newly created vacancies. As a result, the Board currently consists of fiveseven persons whose term of office expires at the Annual Meeting. The directors to be elected at the Annual Meeting will serve until the 2006 Annual Meeting2007 annual meeting of Stockholdersstockholders and until their successors have been duly elected and qualified or until their earlier resignation, removal or death. If this Proposal is approved, the Board will consist of fiveseven persons.
The Company’s current Board members are also its nominees for the upcoming election of directors. Each of the director nominees 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 hereinAlthough it is unableanticipated that each nominee will be able to serve or declinesas a director, should any nominee become unavailable to serve, at the time ofproxies will be voted for such other person or persons as may be designated by the Annual Meeting, the persons named in the enclosed Proxy will exercise discretionary authority to vote for substitutes.
Board.
The Board, upon recommendation from its Nominating and Corporate Governance Committee, has nominated the persons listed below to serve as directors for the term beginning at the Annual Meeting of Stockholders on November 15, 2005.April 20, 2006. Unless otherwise instructed, the proxy holders will vote the Proxies received by them FOR the nominees named below.
Nominees for Term Ending Upon the 20062007 Annual Meeting of Stockholders
Federico Pignatelli, 52, has served as the Chairman of the Board since 1994 and as a director since 1991. He is the Founder and President of Art & Fashion Group since 1992. Art & Fashion Group is a holding company of an array of businesses providing services to the advertising industry, including the world’s largest complex of digital and film still photography studios for production and post-production. Previously, Mr. Pignatelli was a Managing Director at Gruntal & Company, an investment banking and brokerage firm, and was a Managing Director of Ladenburg, Thalmann & Co., another investment banking and brokerage firm.
Robert M. Anderton, DDS, 68,69, has served as a director since May 2004. From 1999 to 2001, Dr. Anderton served as the President of the American Dental Association (ADA) as well as holding many official roles with the ADA, including Trustee, Liaison to the Commissions on Dental Accreditation, Council on Education, Government and Legislative Affairs. Dr. Anderton has practiced general dentistry since 1961 and has held several dental society positions, including past President of the Texas Dental Association and Dallas County Dental Society. At various times, Dr. Anderton has published a number of articles in medical and trade journals, including the Journal of the American Society of Preventive Dentistry and Journal of Modern Dental Practice. Dr. Anderton received his DDS degree from Baylor University—College of Dentistry and his J.D. degree from Southern Methodist University—School of Law.
George V. d’Arbeloff, 60,61, has served as a director since 1996.1996, and as lead independent director since March 2006. Since 2003, Mr. d’Arbeloff has served as Managing Member of Opus Venture Group, LLC, a company dedicated to providing innovative products for television-based home shopping retailers. Since 2000, Mr. d’Arbeloff has served and continues to serve as Chairman of the Board 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. 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.
3Daniel S. Durrie, M.D., 56, has served as a director since March 2006. Since 2001, Dr. Durrie has served on the Eye Surgery Education Committee of the American Society of Cataract and Refractive Surgeons. Since 1996, Dr. Durrie has served on the Board of Directors of the Society of Refractive Surgery, a position he also held from 1988 to 1990. From 1998 to 2000, Dr. Durrie served on the Board of Directors of the American College of Eye Surgeons.
Dr. Durrie is currently a Clinical Associate Professor of Ophthalmology at the University of Kansas Medical Center. He has also served as Clinical Assistant Professor of Ophthalmology at the University of Missouri at Kansas City and as Adjunct Faculty Member at the Pennsylvania College of Optometry. Dr. Durrie has more than 20 years experience in refractive and corneal surgery. He serves on the editorial board forOcular Surgery News, The Journal of Corneal and Refractive Surgery, Review of Ophthalmology andRefractive Eyecare for Ophthalmologists. Dr. Durrie received his medical doctorate and completed his residency at the University of Nebraska. He completed a fellowship in corneal surgery at the Filkins Eye Clinic in Omaha. Dr. Durrie is a board-certified ophthalmologist.
Robert E. Grant, 36, has served as a director and as President and Chief Executive Officer since October 2004. Recently he became the Company’s Acting Chairman of the Board as well. He joined the Company in 2003 and served as Chief Operating Officer until October 2004. From 2002 to 2003, Mr. Grant served as Executive Vice President and General Manager of the Medical Business of Lumenis in Santa Clara, California. In 2002, he served as Executive Vice President and General Manager of the Surgical and Ophthalmic Business of Lumenis. In 2001, Mr. Grant served as Vice President of the Surgical Business of the Coherent Medical Group, a subsidiary of Coherent, Inc. and a manufacturer of laser equipment that was later acquired by Lumenis. Between 2000 and 2001, he also served as Vice President of Business Development of the Coherent Medical Group. From 1998 to 2001, Mr. Grant served as the Managing Director of European Operations for the Coherent Medical Group, based in Dieburg, Germany. From 1997 to 1998, he served as Director of Business Development for HGM Medical Laser Systems, Inc., a manufacturer of medical lasers used in ophthalmic, dental and aesthetic applications, which also was later acquired by Lumenis. Before 1997, Mr. Grant held several positions in management at other companies in the medical device industry.
Jeffrey W. Jones, 47,48, has served as a director since 1998, and as Vice Chairman of the Board and Chief Technology Officer since October 2004. He served as President and Chief Executive Officer from 1998 to 2004, and as Managing Director of BIOLASE Europe GmbH, a wholly owned subsidiary, from 2001 to 2004.since 2001. From 1998 through October 2004, Mr. Jones served as Chief Executive Officer. From 1986 to 1998, Mr. Jones served in various executive capacities for a group of privately held companies, including the McMahan Enterprise Groupcompanies and HGM Medical Laser Systems, a manufacturer of medical lasers used in ophthalmologic, dental and anestheticaesthetic applications. At various times during the above-mentioned period, he served as President and Chief Executive Officer of these companies.
Neil J. Laird, 53, has served as a director since March 2006. Since 2004, Mr. Laird has served as Executive Vice President and Chief Financial Officer of SumTotal Systems, Inc., a provider of integrated software applications, services and content to drive business performance through learning. Mr. Laird was Senior Vice President and Chief Financial Officer from SumTotal Systems, Inc.’s inception in March 2004 until October 2004. Mr. Laird served as Senior Vice President and Chief Financial Officer of Docent from August 2002 until March 2004. From April until June 2002, Mr. Laird was Chief Financial Officer of Novasonics, Inc., a privately held medical products company. From 1999 to 2001, Mr. Laird was Senior Vice President and Chief Financial Officer of ADAC Laboratories. From 1998 to 1999, Mr. Laird held various executive positions at Coherent Medical Group, a medical laser company. From 1997 to 1998, Mr. Laird was an independent consultant. From 1980 to 1997, Mr. Laird held various executive and managerial financial positions at Measurex Corporation, including Vice President-Corporate Controller. Mr. Laird holds an M.A. degree in economics from Cambridge University and is a United Kingdom Chartered Accountant.
Federico Pignatelli, 53, served as our Chairman of the Board from 1994 until 2006, at which point he resigned as Chairman of the Board and received the title Chairman Emeritus. He has served as a director since 1991. He is the Founder and has served as President of Art & Fashion Group since 1992. Art & Fashion Group is a holding company of an array of businesses providing services to the advertising industry, including the world’s largest complex of digital and film still photography studios for production and post-production. Previously, Mr. Pignatelli was a Managing Director at Gruntal & Company, an investment banking and brokerage firm, and was a Managing Director of Ladenburg, Thalmann & Co., another investment banking and brokerage firm.
Required Vote for Approval
Directors are elected by an affirmative vote of a plurality of the shares of voting stock present and entitled to vote, in person or by proxy, at the Annual Meeting. Abstentions as to the election or directors will not affect the election of the candidates receiving the plurality of votes. Brokers have discretionary authority to vote on the election of directors, thus Broker Non-Votes will not result.
Unless instructed to the contrary, the shares represented by the proxies will be voted FOR the election of the seven nominees named above as directors. Although it is anticipated that each nominee will be able to serve as a director, should any nominee become unavailable to serve, the proxies will be voted for such other person or persons as may be designated by the Company’s Board.
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH NOMINEE NAMED ABOVE.
Independent Directors
The Board believes that a majority of the Board members should be independent directors. The Board also believes that it is useful and appropriate to have members of management, including the Chief Executive Officer, as directors. The Board has determined that each of Messrs. d’Arbeloff, Laird and Pignatelli and d’ArbeloffDrs. Anderton and Dr. AndertonDurrie are independent directors as defined by the listing standards of the NASDAQ Marketplace Rules (“NASDAQ Rules”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Board Committees and Meetings
The Board of Directors held seven31 regularly scheduled and special meetings and acted by unanimous written consent various times during the year ended December 31, 2004. The Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.2005. Each director then in office attended or participated inat least 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 2004.2005. In addition, the Board encouragesit is expected that each of the directors towill attend the Annual Meeting; provided, however, that members may attend the Annual Meeting by telephone or video conference, if necessary, to mitigate conflicts. At the 2005 Annual Meeting of Stockholders our Board consisted of only five members, all of whom attended the meeting.
The Board has established three committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each Committee has a charter that has been approved by the Board. Each of the charters was included as an appendix to the Company’s proxy statement for the 2005 annual meeting of stockholders, and four of the five directors attended the 2004 annual meeting of stockholders.
Audit Committee. ThePrior to March 29, 2006, the Audit Committee currently consistsconsisted of three directors,directors: Messrs. d’Arbeloff and Pignatelli and Dr. Anderton,Anderton. As part of the Company’s recent Board expansion, the Audit Committee was reconstituted on March 29, 2006 to consist of four members: Messrs. d’Arbeloff, Laird and is primarily responsible for approvingPignatelli, and Dr. Anderton. Each member of the services performed byAudit Committee qualifies as an independent director under the NASDAQ Rules and the SEC rules and regulations. The Board has determined that Mr. Laird qualifies as the “audit committee financial expert” under the SEC rules and meets the financial sophistication requirements of the NASDAQ rules. Mr. d’Arbeloff serves as the Audit Committee chair.
The primary responsibilities of the Audit Committee include, but are not limited to: (i) the appointment, compensation and oversight of the work of the Company’s independent auditor andauditor; (ii) reviewing theirthe reports of the independent auditors regarding the Company’s accounting practices and systems of internal accounting controls. The committee also reviewscontrols; (iii) reviewing 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.controls; and (iv) reviewing the independence qualifications and quality controls of the independent auditor. The Audit Committee held ten10 meetings during 20042005 and acted by unanimous written consent various times during 2004.
The Board has determined that all members of the Audit Committee are “independent” as that term is defined in the NASDAQ Rules and according to the standards established by the rules and regulations of the SEC. The Board has determined that Mr. d’Arbeloff qualifies as the “audit committee financial expert” under the SEC rules, by means of his experience identified in this Proxy Statement under “Nominees for Term Ending Upon the 2006 Annual Meeting of Stockholders.”
4
The Board of Directors adopted and approved a written charter for the Audit Committee. A copy of the Audit Committee Charter is attached to this Proxy Statement asAppendix A.
2005.
Compensation Committee. ThePrior to March 29, 2006, the Compensation Committee currently consistsconsisted of three directors,directors: Messrs. Pignatelli and d’Arbeloff and Dr. Anderton. As part of the Company’s recent Board expansion, the Compensation Committee was reconstituted on March 29, 2006 to consist of four members: Messrs. d’Arbeloff and Laird, and Drs. Anderton 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.Durrie. Each of the members of the Compensation Committee qualifies as an independent director under the NASDAQ Rules and SEC rules and regulations, and as a non-employee director under the Internal Revenue code. Mr. Laird serves as the Compensation Committee chair. The Compensation Committee’s primary responsibilities include, but are not limited to: (i) reviewing and developing the Company’s general compensation policies; (ii) reviewing and approving the compensation of the Company’s Chief Executive Officer and other executive officers, including salary, bonus, long-term incentive and equity compensation, and any
other perquisites or special benefits; (iii) making awards under and acting as administrator of the Company’s equity incentive plans, (iv) overseeing administration of the Company’s other employee benefit plans; (v) making recommendations to the Board regarding director compensation; and (vi) producing an annual report on executive compensation for inclusion in the Company’s annual proxy statement. The Compensation Committee held one meetingfour meetings during 2004.
2005 and acted by unanimous written consent at various times.
Special Stock Option Committee.In addition to the above, in September 2003, the Board granted the Chief Executive Officer separate but concurrent authority with the Compensation Committee to make discretionary option grants to eligible individuals, other than executive officers and Board members, subject to a limitation of 20,000 shares per individual employee grant, that shall comply with the express terms and conditions of the Company’s 2002 Stock Option Plan under which such grants are made. The Board of Directors has adopted and approved a written charter forChief Executive Officer must review these grants at least semiannually with the Compensation Committee. A copy of the Compensation Committee Charter is attached toMr. Grant acted under this Proxy Statement asAppendix B.authority on ten occasions during 2005.
Nominating and Corporate Governance Committee. ThePrior to March 29, 2006, the Nominating and Corporate Governance Committee currently consistsconsisted of three directors,directors: Messrs. Pignatelli and d’Arbeloff and Dr. Anderton, and is primarily responsible for recommending to the Board of Directors criteria for membership on the Board of Directors, identifying individuals qualified to serve on the Board of Directors and recommending individuals for selection by the Board of Directors as director nominees for election at each annual meetingAnderton. As part of the Company’s stockholders. The Nominating and Corporate Governance Committee is also responsible for developing and recommending to therecent Board of Directors corporate governance guidelines applicable to the Company. The Nominating and Corporate Governance Committee has a policy that it will review and evaluate the qualifications of any director candidates who have been recommended by stockholders of the Company. A stockholder who wishes to suggest a prospective nominee for the Board should notify any member ofexpansion, the Nominating and Corporate Governance Committee in writing with any supporting material the stockholder considers appropriate.was reconstituted on March 29, 2006 to consist of four members: Messrs. d’Arbeloff and Pignatelli, and Drs. Anderton and Durrie. Each of the membersmember of the Nominating and Corporate Governance Committee qualifies as an independent director under the NASDAQ Rules and the SEC rules and regulations. Dr. Anderton serves as the Nominating and Corporate Governance Committee chair. The Nominating and Corporate Governance Committee is responsible for, among other things: (i) identifying individuals who are qualified to be members of the Board and selecting or recommending that the board select the nominees for directorships; (ii) to the extent deemed appropriate by the committee, developing and recommending to the Board a set of corporate governance principles applicable to the Company; (iii) establishing the criteria and procedures for selecting new directors; (iv) overseeing the process for evaluating the Board and management; and (v) reviewing and reassessing, at least annually, the adequacy of the Nominating and Corporate Governance Committee, including the compliance of the committee with its charter.
The Nominating and Corporate Governance Committee considers candidates for Board membership suggested by its members and other Board members, as well as by management and stockholders. The Nominating and Corporate Governance Committee may also retain a third-party executive search firm to identify candidates. All recommendations submitted by stockholders should be submitted to the Nominating and Corporate Governance Committee to the attention of the Corporate Secretary. The stockholder must submit a detailed resume of the candidate and an explanation of the reasons why the stockholder believes this candidate is qualified for service on the Company’s Board. The stockholder must also provide such other information about the candidate that would be required by the SEC rules to be included in a proxy statement. In addition, the stockholder must include the consent of the candidate and describe any relationships, arrangements or undertakings between the stockholder and the candidate regarding the nomination or otherwise. The stockholder must also submit proof of Company stockholdings. All communications are to be directed to the Chairperson of the Nominating and Corporate Governance Committee, to the attention of the Corporate Secretary, BIOLASE Technology, Inc., 981 Calle Amancer, San Clemente, California 92673.
The Nominating and Corporate Governance Committee focuses on the following criteria in determining whether a candidate is qualified to serve on the Board: (i) roles and contributions valuable to the business community; (ii) personal qualities of leadership, character and judgment, and whether the candidate possesses and maintains a reputation in the community at large of integrity, trust, respect, competence and adherence to high ethical standards; (iii) relevant knowledge and diversity of the candidate’s background and experience in areas such as business, finance and accounting, marketing, international business and other similar areas; (iv) whether the candidate has the time required for preparation, participation and attendance at meetings; and (v) requirements relating to Board and Board committee composition under applicable law and NASDAQ Rules.
The Nominating and Corporate Governance Committee reviews each existing director whose term is set to expire and considers the following in determining whether to recommend the re-election of that director: (i) occupation or business association changes; and (ii) whether circumstances have arisen that may raise questions about a director’s continuing qualifications in relation to the Board’s membership criteria. The Nominating and Corporate Governance Committee applies the same criteria to nominees recommended by stockholders as to new candidates recommended by the Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee held two meetingsone meeting during 2004.2005.
The Board of Directors has adopted and approved a written charter for the Nominating and Corporate Governance Committee. A copy of the Nominating and Corporate Governance Committee Charter is attached to this Proxy Statement asAppendix C.
Compensation Committee Interlocks and Insider Participation
During 2004, the Compensation Committee consisted of Messrs. Pignatelli and d’Arbeloff and Dr. Anderton. No member of the Compensation Committee was an officer or employee at any time during the 2004 fiscal year or at any other time. The Board of Directors as a whole, including the Chief Executive Officer, made all compensation decisions with respect to the executive officers during 2004. No current executive officer 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.
Stockholder Communications
Any stockholder who wishes to communicate with the Board may send his or her communication in writing to: Robert E. Grant, President, Chief Executive Officer and Board member,Corporate Secretary, BIOLASE Technology, Inc., 981 Calle Amanecer, San Clemente, California 92673. The communication must include the stockholder’s name, address and an indication that the person is a stockholder of the Company. Mr. GrantThe Secretary will review any
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communications received from stockholders, and all material communications from stockholders will be forwarded to the appropriate director or directors, or committee of the Board, based on the subject matter.
Director CompensationThe following table sets forth all compensation paid to our non-employee directors during the year ended December 31, 2005.
Name | Total ($) | Fees earned or paid in cash($) | Stock Awards ($) | Option Awards ($)(1) | Non-Stock Incentive Plan Compensation ($) | All Other Compensation ($) | |||||||||||||
Robert M. Anderton | $ | 89,406 | $ | 0 | $ | 0 | $ | 89,406 | $ | 0 | $ | 0 | |||||||
George V. d’Arbeloff | 179,406 | 90,000 | (2) | 0 | 89,406 | 0 | 0 | ||||||||||||
Daniel S. Durrie | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||
Neil J. Laird | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||
Federico Pignatelli | 104,406 | 15,000 | (3) | 0 | 89,406 | 0 | 0 |
(1) | Represents, for each director, an option for 30,000 shares of Common Stock exercisable at $5.81 per share, the fair market value of the Common Stock on the date of grant. |
Non-employee directors did not receive any cash compensation from
(2) | In June 2005, the Board resolved to make a one-time payment of $90,000 to Mr. d’Arbeloff in connection with his service as the Chairman of the Audit Committee and his extraordinary efforts in connection with the 2004 fiscal year-end audit. |
(3) | Represents a quarterly payment of $7,500 for the first two quarters in 2005, which was intended to approximate Mr. Pignatelli’s actual expenses incurred in connection with his service on the Company’s Board. Effective July 1, 2005, Mr. Pignatelli is reimbursed for reasonable travel and lodging expenses incurred by him in attending Board and committee meetings. |
In addition to the Company for their service as members ofamounts described in the Board of Directors or any Board committee in 2004. However,table above, all directors are reimbursed for all reasonable travel and lodging expenses incurred by them in attending Board and committee meetings. As Chairman of
Option awards identified in the Board, Mr. Pignatelli receives a quarterly payment of $7,500 which approximates his actual expenses incurred in connection with his service ontable above are granted pursuant to the Company’s Board of Directors. In addition, in June 2005, the Board of Directors resolved to make a one-time payment of $90,000 to Mr. d’Arbeloff in connection with his service as Audit Committee chair and the extraordinary efforts he contributed in connection with the 2004 fiscal year-end audit.
Under the automatic option grant program in effect under theits 2002 Stock Incentive Plan (the “2002 Plan”). Pursuant to the 2002 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 option vests at a rate of 7,500 shares per quarter, with the first vesting date occurring three months after the date of grant. 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 (a) 2,500 multiplied by (b) the difference between 12 and the number of months since the last meeting at which directors were elected, vesting at a rate of 2,500 shares per month.
Each automatic grant under the 2002 Stock Incentive 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 12 months after the date of the optionee’s cessation of Board service for any reason. Each automatic option is immediately exercisable for all of the option shares. However, any shares purchased under such option are 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 of those shares. 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.
Under the automatic option grant program, Messrs. Pignatelli and d’Arbeloff and Dr. Anderton each received an automatic option grant on May 26, 2004 to purchase 30,000 shares of Common Stock at an exercise price of $11.96 per share.
Required Vote
The five nominees receiving the highest number of affirmative votes of the outstanding shares of Common Stock present or represented by proxy and entitled to be voted for them shall be elected as directors. Broker non-votes and votes marked “withheld” will not be counted towards the tabulations of votes cast for the election of directors. Each Proxy cannot be voted for a greater number of persons than five.
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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RATIFICATION OF FORM OF INDEMNIFICATION AGREEMENT
General
The Board has directed the submission to a vote of the stockholders of a Proposal to ratify the form of indemnification agreement which may be made between the Company and its present and future directors, officers and key employees, as may be determined from time to time by the Board, in substantially the form attached to this Proxy Statement asAppendix D. The Board of Directors approved, and the Company entered into, such indemnification agreements with its directors, officers and certain key employees (the “Indemnified Parties”) on July 26, 2005. Pursuant to the terms and conditions of the indemnification agreements, the Indemnified Parties are indemnified by the Company against certain liabilities arising out of their service to the Company.
Prior to entry into these indemnification agreements, the Company did not have indemnification agreements with its directors and officers, except pursuant to the provisions contained in the employment agreements of Messrs. Grant, Hohener, and Jones. The Board believes that such agreements should be adopted for all directors and officers in response to the increasing hazard, and related expense, of unfounded litigation directed against directors and officers, the difficulty of obtaining broad directors’ and officers’ liability insurance and significant limitations in amounts and breadth of coverage, dramatic increases in premiums for that coverage, and the potential inability to continue to attract and retain qualified directors and executive officers in light of these circumstances.
Although neither stockholder approval nor ratification of the form of indemnification agreement is required by law, the Board believes it is appropriate to submit the form of indemnification agreement to the Company’s stockholders for ratification because the members of the Board are parties to, and the beneficiaries of, the rights contained in the indemnification agreements.
The Board believes the indemnification agreements serve the best interests of the Company and its stockholders by strengthening its ability to attract and retain the services of knowledgeable and experienced persons as directors and officers who, through their efforts and expertise, can make a significant contribution to the Company’s success. The indemnification agreements are intended to complement the indemnity protection available under applicable law, the Company’s certificate of incorporation and bylaws and any policies of insurance it may maintain.
In the event the stockholders fail to ratify the form of indemnification agreement, the Board will consider whether or not to seek a modification or termination of the agreements. Even if the form of indemnification agreement is ratified, the Board of Directors in its discretion may amend the indemnification agreements at any future time if the Board believes that such an amendment would be in the best interests of the Company and its stockholders.
Delaware Law
Under the Delaware General Corporation Law (“DGCL”), a Delaware corporation is obligated to indemnify officers and directors in connection with liabilities arising from legal proceedings resulting from that person’s service to the corporation in certain circumstances. A Delaware corporation may also voluntarily undertake to indemnify certain persons acting on its behalf in certain circumstances.
The DGCL authorizes corporations to indemnify any director or officer against liability incurred in a proceeding to which he or she was a party if his or her conduct was in good faith and he or she
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Summary of Indemnification Agreements
Under the indemnification agreements, the Company agrees to indemnify its directors, officers and agents, or Indemnified Parties, to the fullest extent permitted by law against all expenses and liabilities actually and reasonably incurred by reason of such Indemnified Party becoming, or being threatened to be made, a party to any action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative, investigative or other. Such expenses will be advanced by the Company upon written request by an Indemnified Party.
The Company has no obligation to provide indemnification if the party selected by the Board of Directors (such party being either the stockholders, a majority of disinterested directors, independent legal counsel or a panel of arbitrators) to review the Indemnified Party��s request for indemnification (the “Reviewing Party”) determines that the Indemnified Party would not be permitted to be indemnified. Additionally, if the Company has advanced expenses to the Indemnified Party and the Reviewing Party subsequently determines the Indemnified Party is not permitted to be indemnified under applicable law, the advanced expenses must be reimbursed by the Indemnified Party to the Company.
If an Indemnified Party is successful on the merits of an action, the Company is required to indemnify such Indemnified Party against all expenses and liabilities incurred in connection with such action. An Indemnified Party must notify the Company in writing, as soon as practicable, of any claim made against him or her for which indemnification will or could be sought.
To secure the Company’s obligations to indemnify and advance expenses to the Indemnified Parties in the event of a change of control, the Company will secure a surety bond in the amount of not less than $1.0 million, upon which an Indemnified Party may from time to time file a claim for payment. If there is a change in control of the Company (other than a change in control approved by a majority of the Board of Directors who were directors immediately prior to the change in control), then independent legal counsel will act as the Reviewing Party to determine whether the Indemnified Party is entitled to indemnification. The Company agrees to pay the reasonable fees of any independent legal counsel or arbitrators retained to make a determination of entitlement to indemnification pursuant to the indemnification agreement.
The termination of any claim by judgment, order, settlement, conviction, or plea ofnolo contendere, or its equivalent, does not affect the presumption that an Indemnified Party is entitled to indemnification under the indemnification agreement, and the Company shall have the burden of proof to overcome that presumption. Additionally, if the Company is obligated to pay the expenses of any claim, the Company may assume the defense of such claim with counsel approved by such Indemnified Party upon the delivery to such Indemnified Party of written notice of the Company’s election to do so.
The Company shall not be obligated under the indemnification agreement: (i) to make any payment in connection with any claim against an Indemnified Party to the extent such party has otherwise actually received
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payment (under any insurance policy or otherwise) of the amounts indemnifiable under the indemnification agreement; (ii) to indemnify an Indemnified Party for liabilities in connection with a proceeding settled without the Company’s consent; (iii) to indemnify an Indemnified Party for expenses and the payment of profits arising from the purchase and sale by such Indemnified Party of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, or any similar state statute; or (iv) to indemnify an Indemnified Party for acts, omissions or transactions from which such Indemnified Party may not be relieved of liability under applicable law.
The Company agrees to use all reasonable efforts to maintain one or more policies of directors’ and officers’ liability insurance for such period of time as the Indemnified Party shall consent to serve as a director, officer or agent of the Company, as thereafter for so long as the Indemnified Party is subject to any possible proceeding.
The indemnification agreement is governed by Delaware law.
Indemnification for Liabilities Under the Securities Act of 1933
The Securities and Exchange Commission has expressed its opinion that indemnification of directors, officers and controlling persons of the Company against liabilities arising under the Securities Act of 1993, (the “Act”), is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the company of expenses incurred or paid by a director or officer of the Company in the successful defense of the action, suit or proceeding) is asserted by the director or officer in connection with securities which may have been registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court or appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues.
Required Vote
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 Proposal to ratify the form of indemnification agreement. Abstentions will be counted towards the tabulation of votes cast on this Proposal and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether this Proposal has been approved.
Recommendation of the Board of Directors
The Board of Directors believes that the indemnification agreement serves the best interests of the Company and its stockholders by strengthening its ability to attract and retain the services of knowledgeable and experienced persons as directors and officers who, through their efforts and expertise, can make a significant contribution to the Company’s success.
The Board of Directors recommends a vote FOR approval of the Proposal to ratify the form of Indemnification Agreement.
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PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE
BIOLASE TECHNOLOGY, INC. 2002 STOCK INCENTIVE PLAN
General
The stockholders are being asked to vote on an amendment to the Company’s 2002 Stock Incentive Plan (the “2002 Plan”) which was approved by the Board of Directors on September 19, 2005, subject to stockholder approval. The effect of the amendment is to increase the number of shares of Common Stock available for issuance under the 2002 Plan by an additional 950,000 to a total of 4,950,000. The number of shares of Common Stock subject to the 2002 Plan is being increased to provide for awards in future years. The Company intends to award grants to directors, officers and employees in order to provide incentives to such individuals to focus on critical long-range objectives of the Company and to encourage the attraction and retention of such individuals.
Background of the 2002 Plan
The 2002 Plan was approved by the Company’s stockholders on May 23, 2002. The 2002 Plan originally reserved 3,000,000 shares of Common Stock for issuance as stock awards or upon exercise of options granted pursuant to the 2002 Plan and included options outstanding under the predecessor 1998 Stock Option Plan which were transferred to the 2002 Plan. The 2002 Plan was amended in 2004 to increase the shares reserved by an additional 1,000,000 shares, bringing the current total shares of Common Stock reserved for issuance to 4,000,000. The Board of Directors further amended the 2002 Plan in 2005 to restrict the ability of the Company to reprice outstanding stock options or to cancel outstanding stock options in exchange for a regrant of a stock option with a lower exercise price without stockholder approval. The Board also amended the 2002 Plan to provide that (i) the minimum exercise price for stock options would be the fair market value of the Common Stock on the date of grant, (ii) to the extent otherwise required, stockholder approval would be necessary to increase the number of shares reserved under the 2002 Plan, and (iii) any shares issued under the stock issuance program for a purchase price of less than fair market value would generally provide for a minimum of three-year vesting, subject to continued employment or service, or one-year vesting in the case of performance-based awards.
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 have the opportunity to acquire a meaningful equity interest in the Company through their participation in the 2002 Plan.
Shares Subject to the 2002 Plan
As of September 15, 2005, options awarded pursuant to the 2002 Plan for 3,425,952 shares of Common Stock are outstanding and 142,856 shares remain available for issuance. These options were issued at fair market value of the Common Stock on the date of grant. Options expire following termination of the optionee’s service between 90 days and 12 months following termination service and have an exercise term not to exceed ten years from the date of grant. The market value of the securities underlying the options as of September 15, 2005 was $6.05 per share of Common Stock. If the entire amount of 3,568,808 shares that have been authorized under the 2002 Plan were issued thereunder, such shares would constitute 15.4% of the Common Stock outstanding as of September 15, 2005.
The Company plans to file an S-8 Registration Statement to register the additional 950,000 shares being reserved under the 2002 Plan.
Description of the Plan
Both the Board of Directors and the Compensation Committee have the authority to act as the plan administrator of the discretionary option grant and stock issuance programs with respect to option grants and
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stock issuances made to the Company’s executive officers and non-employee directors and 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. All grants under that program will be made in strict compliance with the express provisions of such program. Options granted under the 2002 Plan may be “incentive stock options” as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified options. The 2002 Plan prohibits the repricing of outstanding stock options or the exchange of outstanding stock options for stock options with a lower exercise price, unless stockholder approval is obtained, or if in connection with a change of control of the Company or a change in the common stock of the Company (such as the result of a merger, stock split, stock dividend or recapitalization of the Company).
The 2002 Plan consists 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.
Discretionary Option Grant Program
The plan administrator has 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, which will not be less than the fair market value of the Common Stock on the date of grant. 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.
Stock Issuance Program
Shares may be issued under the stock issuance program at a price per share determined by the plan administrator, payable in cash or for past services rendered to the Company. 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 has 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, and the number of shares subject to each such issuance or award. The plan administrator has discretion over the vesting schedule for shares issued under the stock issuance program. Shares issued at less than fair market value will generally vest over a three-year period, with accelerated vesting permitted only upon a change of control or in other limited circumstances (e.g., death or disability of the recipient, termination without cause or pursuant to a severance agreement or plan under which the recipient provides consideration for accelerated vesting). Shares may also be issued upon attainment of designated performance goals or specified service requirements.
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, with the first vesting date
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occurring 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.
Exercise Provisions, Amendment and Termination of the 2002 Plan
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 has 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.
The Board of Directors may amend or modify the 2002 Plan at any time, subject to any required stockholder approval to increase the number of shares reserved thereunder or pursuant to applicable laws and regulations and the NASDAQ Rules.
Unless sooner terminated by the Board of Directors, the 2002 Plan will terminate on April 16, 2012.
Options Granted Under the 2002 Plan
Because option grants under the 2002 Plan are subject to the discretion of the plan administrator, awards under the 2002 Plan that will be made for the upcoming year are undeterminable. Future option exercise prices under the 2002 Plan are also indeterminable because they will be based upon the fair market value of the Common Stock on the date of grant. As of September 15, 2005, the following persons or groups had in total, received options to purchase shares of Common Stock under the 2002 Plan, each of which had an exercise price per share equal to the fair market value on the date of grant, as follows:
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Certain Federal Income Tax Consequences
Incentive stock options granted under the 2002 Plan will be afforded favorable federal income tax treatment under the Code. If an option is treated as an incentive stock option, the optionee will recognize no income upon grant or exercise of the option unless the alternative minimum tax rules apply. Upon an optionee’s sale of the shares (assuming that the sale occurs more than two years after grant of the option and more than one year after exercise of the option), any gain will be taxed to the optionee as long term capital gain. If the optionee disposes of the shares prior to the expiration of the above holding periods, then the optionee will recognize ordinary income in an amount generally measured as the difference between the exercise price and the lower of the fair market value of the shares at the exercise date or the sale price of the shares. Any gain recognized on such a premature sale of the shares in excess of the amount treated as ordinary income will be characterized as capital gain.
All other options granted under the 2002 Plan will be non-statutory stock options and will not qualify for any special tax benefits to the optionee. An optionee will not recognize any taxable income at the time he or she is granted a non-statutory stock option. However, upon exercise of the non-statutory stock option, the optionee will recognize ordinary income for federal income tax purposes in an amount generally measured as the excess of the then fair market value of each share over its exercise price. Upon an optionee’s resale of such shares, any difference between the sale price and the fair market value of such shares on the date of exercise will be treated as capital gain or loss and will generally qualify for long term capital gain or loss treatment if the shares have been held for more than one year. The Code provides for reduced tax rates for long term capital gains based on the taxpayer’s income and the length of the taxpayer’s holding period.
The recipient of a restricted share award will generally recognize ordinary compensation income when such shares are no longer subject to a substantial risk of forfeiture, based on the excess of the value of the shares at that time over the price, if any, paid for such shares. However, if the recipient makes a timely election under the Code to be subject to tax upon the receipt of the shares, the recipient will recognize ordinary compensation income at that time equal to the fair market value of the shares over the price paid, if any, and no further ordinary compensation income will be recognized when the shares vest.
The Company is generally entitled to a deduction for Federal income tax purposes equal to the amount of ordinary compensation income recognized by the recipient of an option or restricted share award at the time such income is recognized.
The foregoing does not purport to be a complete summary of the federal income tax considerations that may be relevant to holders of options or restricted shares, or to the Company. It also does not reflect provisions of the income tax laws of any municipality, state or foreign country in which an optionee may reside, nor does it reflect the tax consequences of an optionee’s death.
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Required Vote
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 amendment of the 2002 Plan, and the amendment will become effective immediately upon approval. Abstentions will be counted towards the tabulation of votes cast on this Proposal and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether this Proposal has been approved.
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 the amendment to the 2002 Plan.
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PROPOSAL FOUR
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Current Accountants
On August 8, 2005 the Audit Committee and the Board of Directors selected theThe firm of BDO Seidman, LLP (“BDO”), was selected by the Audit Committee to act as the Company’s independent registered public accounting firm for the fiscal year endingended December 31, 2006. BDO was initially engaged by the Company on August 8, 2005 and theserved in that capacity through December 31, 2005. The Board is asking the stockholders to ratify thisBDO’s appointment. Stockholder ratification of such selection is not required by the Company’s bylawsBylaws or other applicable legal requirement. However, the Board of Directors is submitting the selection of BDO to the stockholders for ratification as a matter of good corporate governance. 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 for the 2006 fiscal year. Even if the selection is ratified, the Board of Directors in its discretion may direct the appointment of a different independent registered public 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 BDO 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.
Former Accountants
On August 3, 2005, the Companywe dismissed PricewaterhouseCoopers LLP (“PWC”) as the Company’sour independent registered public accounting firm. The Company’sOur Audit Committee approved the decision to dismiss its independent registered public accounting firm. A representative of PWC is not expected to be at the Annual Meeting.
The reports of PWC on the Company’sour financial statements as of and for the fiscal years ended December 31, 2004 and 2003 contained no adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principle.
During the fiscal years ended December 31, 2004 and 2003 and the subsequent interim period,through August 3, 2005, there were two disagreements with PWC on matters regarding accounting principles and practices, financial statement disclosure, or auditing scope or procedure, which disagreements, although ultimately resolved to the satisfaction of PWC, were reportable events as described in Item 304(a)(1)(iv) of Regulation S-K promulgated by the Securities and Exchange Commission (the “ SEC “) pursuant to the Securities Exchange Act of 1934, as amended. There was a disagreement during the year ended December 31, 2003 related to revenue recognition. There was a disagreement during the year ended December 31, 2004 related to the accounting for penalties and interest on sales tax. The Company’sOur Audit Committee has discussed the foregoing disagreements with PWC and has authorized PWC to respond fully to BDO, the new independent registered public accounting firm for the Company, concerning these disagreements. Except for the disagreements noted above, there were no disagreements with PWC on the matters noted above for the fiscal years ended December 31, 2004 and 2003 and through the subsequent interim periodAugust 3, 2005 that would have caused PWC to make reference thereto in their reports on the Company’s financial statements for such years if such matters were not resolved to the satisfaction of PWC.
The Company refersWe refer to Item 9A of itsour Form 10-K for the fiscal year ended December 31, 2004 which was filed with the SEC on July 19, 2005 with respect to the eleven material weaknesses in the Company’s internal control over financial reporting, which is incorporated herein by reference. The Company refersWe refer to Item 9A of itsour Form 10-K for the fiscal year ended December 31, 2003, which was filed with the SEC on March 3, 2004 with respect to the material weakness in the Company’s internal control over financial reporting, which is incorporated herein by reference. Except for the material weaknesses noted above, there were no other reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K) for the fiscal years ended December 31, 2004 and 2003 and through August 3, 2005.
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The CompanyWe provided PWC with a copy of the disclosure itwe proposed to make in a current report on Form 8-K as required under the federal securities laws,filed on August 8, 2005 and requested that PWC furnish a letter addressed to the SEC stating whether that firm agreed with the statements by the Companyus and, if not, stating the respects in which it did not agree. A copy of PWC’s letter was filed as an exhibit to the Company’s Form 8-K reporting the change in itsour auditors.
During the Company’sour two most recent fiscal years and the subsequent interim period, the Companythrough August 8, 2005, we did not consult with BDO with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’sour financial statements, or any other matters or reportable events listed in Item 304(a)(2)(i) or (ii) of Regulation S-K.
Required Vote for Approval
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 BDO as the Company’s independent registered public accounting firm for the year ending December 31, 2006. Abstentions will be counted towards the tabulations of votes cast on this Proposal and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether this Proposal has been approved.
Fees Billed by PricewaterhouseCoopersRecommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE SELECTION OF BDO SEIDMAN, LLP during 2004 and 2003TO SERVE AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2006.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents fees billed to the Company for professional services rendered by BDO for the fiscal year ended December 31, 2005 and by PWC for the fiscal yearsyear ended December 31, 2004 and 2003.2004.
Fiscal Year Ended December 31, | ||||||
2004 | 2003 | |||||
Audit Fees(1) | $ | 2,697,667 | $ | 817,297 | ||
Audit-Related Fees(2) | 0 | 41,714 | ||||
Tax Fees(3) | 2,000 | 27,068 | ||||
All Other Fees(4) | 0 | 0 | ||||
Total | $ | 2,699,667 | $ | 886,079 | ||
Fiscal Year Ended December 31, 2005 | Fiscal Year Ended December 31, 2004 | |||||||
Audit Fees | $ | 1,144,819 | $ | 2,804,812 | (1) | |||
Audit-Related Fees | 28,037 | (2) | 0 | |||||
Tax Fees | 0 | 2,000 | (3) | |||||
All Other Fees | 0 | 0 | ||||||
Total | $ | 1,172,856 | $ | 2,806,812 | ||||
(1) | Audit fees billed to the Company related to 2004 |
(2) | Audit-related fees |
(3) |
Tax fees for 2004 |
Determination of Independence
The Company’sIn considering the nature of the services provided by the independent registered public accounting firm, the Audit Committee has determined that the fees received by PWC for the non-audit relatedsuch services listed above wereare compatible with maintaining the provision of independent audit services. The Audit Committee discussed these services with the independent registered public accounting firm and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of PWC.2002, as well as the American Institute of Certified Public Accountants.
Pre-Approval Policy and Procedures
According to policies adopted by the Audit Committee and ratified by the Company’s Board, of Directors, to ensure compliance with the SEC’s rules regarding auditor independence, all audit and non-audit services to be provided by the Company’s independent registered public accounting firm must be pre-approved by the Audit Committee. This policy generally provides that the Company will not engage its independent registered public
16
accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.
Committee.
From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to the Company by its independent registered public accounting firm during the next 12 months. Any such pre-approval will be detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.
In providing any pre-approval, the Audit Committee considers whether the services to be approved are consistent with the SEC’s rules on auditor independence.
All fees paid to PWC and BDO were for servicespursuant to engagements pre-approved by the Audit Committee.
Required Vote
The affirmative voteCommittee, and none of those engagements made use of the holders of a majority of the shares present or represented and entitledexception to vote at the meeting is being sought to ratify the selection of BDO as the Company’s independent registered public accounting firm for the year ending December 31, 2005. Abstentions will be counted towards the tabulations of votes cast on this Proposal and will have the same effect as negative votes. Broker non-votes will not be counted for purposes of determining whether this Proposal has been approved.
Recommendation of the Board of Directors
pre-approval contained in Regulation S-X, Rule 2-01(c)(7)(i)(C).
The Board of Directors recommends that the stockholders vote FOR the ratification of the selection of BDO Seidman, LLP to serve as the Company’s independent registered public accounting firm for the year ending December 31, 2005.
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 intended that shares represented by the intentionProxies will be voted with respect thereto in accordance with the best judgment and in the discretion of the persons named in the enclosed form of Proxy to vote the shares they represent as the Board of Directors may recommend.proxy holders. Discretionary authority with respect to such other matters is granted by the execution of the enclosed Proxy.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of shares of the Company’s Common Stock as of September 15, 2005February 28, 2006 by (i) any stockholder known to the Company whoto beneficially owns more thanown five percent (5%) or more of the outstanding Common Stock, (ii) each director and nominee for director, (iii) each named executive officer shownincluded in the CashSummary Compensation Table that appears below and (iv) theall current directors and executive officers as a group. Options shown in the table were granted pursuant to the 2002 Stock Option Plan and 1993 Stock Option Plan or 1990 Stock Option Plan and represent the shares issuable upon exercise ofpursuant to outstanding options now exercisable or exercisable within sixty (60) days of September 15, 2005.February 28, 2006. Except as otherwise indicated, the address for each beneficial owner listed below is care of BIOLASE Technology, Inc., 981 Calle Amanecer, San Clemente, California 92673. Except as indicated in the footnotes to this table, the persons or entities named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws, where applicable. Percentage ownership is calculated pursuant to SEC Rule 13d-3(d)(1) and is based on 23,246,53623,279,037 shares of Common Stock outstanding at September 15, 2005,February 28, 2006, and excludes shares reserved for 81,037 unexercised warrants.
Beneficial Owner | Shares Beneficially Owned | Number of Shares Underlying Options | Percentage of Shares Beneficially Owned | |||||||||||
FMR Corp. (1) 82 Devonshire Street Boston, MA 02109 | 3,385,100 | 0 | 14.56 | % | ||||||||||
Federico Pignatelli | 554,750 | 320,000 | 3.71 | % | ||||||||||
Shares Beneficially Owned | Number of Shares Underlying Options Exercisable within 60 days of February 28, 2006 | Percentage of Shares Beneficially Owned | ||||||||||||
5% Beneficial Owner | ||||||||||||||
FMR Corp. and related entities (1) 82 Devonshire Street Boston, MA 02109 | 2,880,686 | 0 | 12.4 | % | ||||||||||
Absolute Return Europe Fund (2) c/o Todd M. Ficeto 9300 Wilshire Blvd., Penthouse Suite Beverly Hills, CA 90212 | 1,200,000 | 0 | 5.2 | % | ||||||||||
Directors and Officers | ||||||||||||||
Robert M. Anderton | 0 | 30,000 | * | 0 | 37,500 | * | ||||||||
George V. d’Arbeloff | 38,182 | 218,335 | 1.09 | % | 38,182 | 225,835 | 1.1 | % | ||||||
Keith G. Bateman | 4,050 | 325,000 | 1.4 | % | ||||||||||
Robert E. Grant | 1,000 | 500,000 | 2.1 | % | ||||||||||
James M. Haefner | 0 | 120,000 | * | |||||||||||
Jeffrey W. Jones | 10,700 | 998,663 | 4.16 | % | 11,700 | 1,057,000 | 4.4 | % | ||||||
Robert E. Grant | 1,000 | 210,828 | * | |||||||||||
Keith G. Bateman | 4,050 | 296,873 | 1.28 | % | ||||||||||
Edson J. Rood | 35,535 | 0 | * | |||||||||||
Ioana Rizoiu | 21,976 | 110,000 | * | |||||||||||
Federico Pignatelli | 604,750 | 327,500 | 4.0 | % | ||||||||||
All current directors and executive officers as a group (8 persons) | 608,682 | 2,074,699 | 10.60 | % | 659,682 | 2,842,835 | 13.4 | % |
* | Represents less than 1%. |
(1) | This information is based upon a Schedule |
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Equity Incentive Plans
The Company maintains various equity incentive plans designed to attract and retain the services of individuals essential to its long-term growth and success. These plans consist of the 1990 Stock Option Plan, 1993 Stock Option Plan and 2002 Stock Incentive Plan, as amended (the “2002 Plan”). The 1990 Stock Option Plan and 1993 Stock Option Plan have terminated pursuant to their terms. No new option grants may be issued under the 1990 Stock Option Plan or 1993 Stock Option Plan.
The following table provides information as of December 31, 2004 and September 15, 2005 with respect to the shares of Common Stock that may be issued under existing equity compensation plans.
Plan Category | Number of Securities to be Issued Upon | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Weighted Average Remaining Life (Years) of Options, Warrants and Rights | Number of Under Equity | ||||||||||||||
12-31-04 | 9-15-05 | 12-31-04 | 9-15-05 | 12-31-04 | 9-15-05 | 12-31-04 | 9-15-05 | |||||||||||
Equity Compensation Plans Approved by Stockholders(1) | 4,016,312 | 3,679,000 | $ | 6.83 | $ | 6.85 | 7.43 | 6.73 | 104,856 | 142,856 | ||||||||
Equity Compensation Plans | 53,000 | 3,000 | $ | 1.57 | $ | 2.69 | .77 | 4.76 | 0 | 0 | ||||||||
Total | 4,069,312 | 3,682,000 | $ | 6.76 | $ | 6.85 | 7.34 | 6.73 | 104,856 | 142,856 |
(2) | This information is based upon a Schedule 13D dated December 19, 2005. |
The 1990 Stock Option Plan (the “1990 Plan”) was implemented by the Board on December 15, 1990. The 1990 Plan is a non-stockholder-approved plan under which options were authorized to be granted to directors, officers or employees. The Board authorized 150,000 shares of Common Stock for issuance under the 1990 Plan. Options under this plan were granted with an exercise price per share equal to the fair market value per share of Common Stock on the grant date and vested in installments during the optionee’s period of service with us. The plan administrator (either the Board or a Board committee) may cause options to vest on an accelerated basis in the event the Company is acquired and those options are not assumed or replaced by the acquiring entity. Each option has a maximum term (not to exceed 10 years) set by the plan administrator at the time of grant, subject to earlier termination following the optionee’s termination.
For a description of the 2002 Plan, see the discussion above under “Proposal Three – Approval of Amendment to the BIOLASE Technology, Inc. 2002 Stock Incentive Plan.”
19
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Directors and Executive Officers of the Company
The following table sets forth certain information regarding our current directors and executive officers:officers as of April 1, 2006:
Name | Age | Position | ||
| ||||
George V. | Lead Independent Director | |||
Robert M. Anderton, | Director | |||
Neil J. Laird (1)(3) | 53 | Director | ||
Daniel S. Durrie, M.D. (2)(3) | 56 | Director | ||
Federico Pignatelli (1)(2) | 53 | Director | ||
Jeffrey W. Jones | Vice Chairman of the Board and Chief Technology Officer | |||
Robert E. Grant | 36 | Acting Chairman of the Board, President and Chief Executive Officer | ||
| Executive Vice President, | |||
James M. Haefner | Executive Vice President, Global Sales | |||
| Executive Vice President, |
(1) | Member of Audit |
(2) | Member of Nominating and Corporate Governance Committee |
(3) | Member of Compensation Committee |
The following is a brief description of the present and past business experience of each of the current executive officers. The executive officers are elected by the Board of Directors on an annual basis and serve at the discretion of the Board, subject to the terms of any employment agreement 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. The biographies of Messrs., d’Arbeloff, Grant, Jones, Laird, and Pignatelli d’Arbeloff, Jones and GrantDrs. Anderton and Dr. AndertonDurrie appear earlier in this Proxy Statement under “Proposal One—Election of Directors.”
John W. HohenerKeith G. Bateman joined the Company in November 2004has served as Executive Vice President, Chief Financial OfficerMarketing since January 2005 and Secretary.as Executive Vice President since 2002, previously serving as Vice President of Global Sales from 1999 to 2001. From 1994 to 1998, Mr. Bateman held executive positions with the international and domestic divisions of HGM Medical Laser Systems, a manufacturer of medical lasers used in ophthalmologic, dental and aesthetic applications. Prior to joiningthat, he held several positions in sales, marketing and management at various companies in the Company, Mr. Hohener served as Chief Financial Officer of Netlist, Inc., a manufacturer and designer of high-density memory subsystems, during 2004. From 2002 to 2004, Mr. Hohener served as Senior Vice President and Chief Financial Officer of TRC Companies, Inc., a $350 million public engineering services firm that provides technical, financial, risk management and construction services. He was Chief Financial Officer of Entridia Corporation, a fabless semiconductor company from 2000 to 2001, and from 1988 to 1999, he was Chief Financial Officer and co-founder of Smartflex Systems, Inc., a $180 million public electronics contract manufacturer, which was later sold to Saturn Electronics.computer industry.
James M. Haefner joined the Company as Executive Vice President, Global Sales in January 2005 and is responsible for managing the global sales organization. Prior to joining the Company, and following the acquisition of the Coherent Medical Group by Lumenis Ltd, Mr. Haefner held numerous management positions at Coherent and Lumenis, including Vice President of Sales, Director of Sales & Service, Regional Sales Manager and as a top Sales Representative at the earlier stage of his career. For more than 10 years, he has worked extensively across all of Coherent and Lumenis’ medical laser product lines including surgical, ophthalmic and aesthetic.
Keith G. BatemanRichard L. Harrisonhas served joined the Company in December 2005 as Executive Vice President, Marketing since January 2005Chief Financial Officer and been as Executive Vice President since 2002, previously serving as Vice President of Global SalesSecretary. Prior to joining the Company, Mr. Harrison served from 1999 to 2001. From 1994 to 1998,2004 as Chief Financial Officer of Interpore Cross International, a publicly-traded medical device company. From 1987 to 1994, Mr. Bateman held executive positions with the international and domestic divisions of HGMHarrison worked for Kirschner Medical Laser Systems, Inc.,Corporation, a manufacturer of medical lasers usedorthopedic devices, in ophthalmologic, dental and anesthetic applications. Prior to that, he held severala variety of financial positions, in sales, marketing and management at various companies in the computer industry.including Corporate Controller from 1992 through 1994. Mr. Harrison is a Certified Public Accountant.
Summary of Cash and Certain OtherExecutive Compensation
The following table summarizes the annual and long-term compensation earned for services rendered in all compensation paidcapacities to persons who served asthe Company in each of the last three completed fiscal years (i.e., the years ended December 31, 2005, 2004 and 2003) by the Company’s chief executive officer duringand each of the last fiscal year, theother four most highly compensated executive officers whose total salary and bonus exceeded $100,000, and one other executive officer whosewho no longer served in that capacity at December 31, 2004 and whose
20
total salary and bonus exceeded $100,000, and two other executive officers who no longer serve in that capacity at December 31, 20042005 but whose total salary and bonus exceeded $100,000 (referred to collectively as the named executive officers), for services rendered in all capacities for the fiscal years ended December 31, 2004, 2003 and 2002. Perquisites and other personal benefits paid to the named executive officers are less than the minimum reporting threshold of $50,000 or 10% of the total annual salary plus bonus for the named executive officer, and such amounts paid, if any, are represented in the table by “$—.”
Summary Compensation Table
Annual Compensation | Long-Term
| All Other
| |||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Other
|
| ||||||||||||||||||
Robert E. President and Chief Executive Officer | 2005 2004 2003 | $ | 275,000 195,167 67,203 | $ | 75,000 101,022 16,667 | ||||||||||||||||||
| $ | — — — | 0 | $ | 680 233 6,705 | ||||||||||||||||||
Jeffrey W. Jones Chief Technology Officer | 2005 2004 2003 | | 273,542 240,000 | 67,000 181,500 174,500 | — — — | 50,000 0 | | 233 231 235 | |||||||||||||||
Keith G. Bateman Executive Vice President, Marketing | 2005 2004 2003 | 175,008 148,333 | 69,412 106,349 136,876 | — — — | 0 75,000 | ||||||||||||||||||
James M. Haefner(1) Executive Vice President, Global Sales | 2005 2004 2003 | 180,865 0 0 | 73,412 0 0 | — — — | 0 0 | ||||||||||||||||||
John W. Hohener(2) Executive Vice President and Chief Financial Officer (former) | 2005 2004 2003 | 21,346 0 | 77,044 0 0 | — — — | 0 0 | | 0 0 | ||||||||||||||||
| |||||||||||||||||||||||
|
(1) | Mr. |
(2) |
Mr. |
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(3) | Represents value of company-paid life insurance premiums, and for Mr. Grant in 2003 includes $6,657 in reimbursement of relocation expenses. |
Stock Options
The following table contains information concerning the grant of stock options under the 2002 Stock Option Plan to the named executive officers during the fiscal year ended December 31, 2004.2005. No stock appreciation rights were granted to the named executive officers in 2004. The potential realizable values were determined in accordance with rules promulgated by the SEC and are not intended to forecast the prices at which the Common Stock could trade in the future. The actual realized value will depend on the amount by which the sales price of the shares exceeds the exercise price.
2005.
Option Grants in Last Fiscal Year
Name | Number of Securities Underlying Options/ SARs Granted | Percent of Total Options/SARs Granted to Employees in Fiscal Year | Exercise or Base Price Per Share | Expiration Date | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term | |||||||||||
5% | 10% | |||||||||||||||
Robert E. Grant | 400,000 | 31 | % | $ | 5.98 | 10-25-2014 | $ | 1,504,316 | $ | 3,812,232 | ||||||
Jeffrey W. Jones | 0 | — | — | — | — | — | ||||||||||
Keith G. Bateman | 0 | — | — | — | — | — | ||||||||||
Edson J. Rood | 0 | — | — | — | — | — | ||||||||||
Ioana Rizoiu | 0 | — | — | — | — | — |
Individual Grants | ||||||||||||||||
Name | Number of Securities Underlying Options Granted | Percent of Total Options Granted to Employees in Fiscal Year | Exercise or Base Price Per Share | Expiration Date | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(2) | |||||||||||
5% | 10% | |||||||||||||||
Robert E. Grant | 0 | 0.0 | % | $ | — | $ | — | $ | — | |||||||
Jeffrey W. Jones(1) | 50,000 | 5.1 | 8.11 | 12/29/2015 | 255,017 | 646,263 | ||||||||||
Keith G. Bateman(1) | 25,000 | 2.6 | 6.66 | 12/2/2015 | 104,711 | 265,358 | ||||||||||
James M. Haefner(1) | 80,000 | 8.2 | 9.77 | 1/24/2015 | 491,544 | 1,245,669 | ||||||||||
20,000 | 2.1 | 7.14 | 6/1/2015 | 89,806 | 227,586 | |||||||||||
20,000 | 2.1 | 6.66 | 12/2/2015 | 83,769 | 212,286 | |||||||||||
John H. Hohener | 0 | 0.0 | 0.00 | — | — | — |
(1) | All options granted during 2005 to the named executive officers were granted under the 2002 Stock Plan. The option grants originally became exercisable ratably each quarter over a three-year period. In consideration for recipient entering into a resale restriction agreement, the Company accelerated the vesting of the options and they became immediately exercisable on the grant date. The resale restriction agreement restricts the sale of the underlying shares before such time as vesting of the option would have otherwise taken place. Each Option is subject to earlier termination following the optionee’s termination of employment, permanent disability or death. |
The option grant made to Mr. Grant becomes exercisable ratably over a three-year period at the rate of 33,333 shares per quarter, with the first quarter ending December 31, 2004. The option has a term of ten years from the date of grant. The exercise price per share represented the fair market value of the underlying shares of Common Stock on the date the option was granted.
(2) | The assumed 5% and 10% annual rates of stock price appreciation are for illustrative purposes only. Actual stock prices will vary from time to time based upon market factors and the Company’s financial performance. No assurance can be given that such rates will be achieved. Unless the market price of the Common Stock appreciates over the option term, no value will be realized from the option grants made to the named executive officers. |
The following table provides information, with respect to the named executive officers, concerning unexercised options held as of the end of the fiscal year. No options were exercised by any of the named executive officers during the last fiscal year. Value is calculated as market price of the Common Stock at fiscal year end less exercise price.price multiplied by the number of shares subject to the option. The market price of the Common Stock at December 31, 20042005 was $10.87.
$7.99.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities Underlying Unexercised Options at | Value of Unexercised in-the-Money Options at December 31, 2004 | |||||||||||||||||||||||
Name | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Securities Underlying Unexercised Options at December 31, 2005 | Value of Unexercised In-The-Money Options at December 31, 2005 | ||||||||||||||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||||||||||
Robert E. Grant | 129,165 | 370,835 | $ | 326,787 | $ | 1,630,013 | — | — | 500,000 | 0 | $ | 804,000 | $ | 0 | ||||||||||
Jeffrey W. Jones | 956,997 | 50,003 | $ | 6,143,715 | $ | 0 | — | — | 1,057,000 | 0 | 3,819,555 | 0 | ||||||||||||
Keith G. Bateman | 281,249 | 18,751 | $ | 1,659,219 | $ | 0 | — | — | 325,000 | 0 | 1,044,469 | 0 | ||||||||||||
Edson J. Rood | 200,000 | 0 | $ | 1,296,000 | $ | 0 | ||||||||||||||||||
Ioana Rizoiu | 160,000 | 0 | $ | 1,282,381 | $ | 0 | ||||||||||||||||||
James M. Haefner | — | — | 120,000 | 0 | 43,600 | 0 | ||||||||||||||||||
John H. Hohener | — | — | 100,000 | 0 | 0 | 0 |
Equity Compensation Plan Information
The Company’s 2002 Stock Incentive Plan (the “2002 Plan”) is designed to attract and retain the services of individuals essential to its long-term growth and success. The Company also formerly maintained the 1990 Stock Option Plan and the 1993 Stock Option Plan. The 1990 Stock Option Plan and the 1993 Stock Option Plan have terminated pursuant to their terms; however, various option grants under those plans remain outstanding.
The following table summarizes information as of December 31, 2005 with respect to the shares of Common Stock that may be issued upon exercise of options, warrants or rights under the Company’s existing equity compensation plans.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | ||||
Equity Compensation Plans | 4,307,769 | $ | 6.74 | 457,834 | |||
Equity Compensation Plans Not Approved by | 3,000 | 2.69 | 0 | ||||
Total | 4,310,769 | 6.74 | 457,834 | ||||
(1) | Consists solely of options under the 1990 Stock Option Plan. |
The 1990 Stock Option Plan (the “1990 Plan”) was implemented by the Board on December 15, 1990. The 1990 Plan is a non-stockholder-approved plan under which options were authorized to be granted to directors, officers or employees. The Board authorized 150,000 shares of Common Stock for issuance under the 1990 Plan. Options under this plan were granted with an exercise price per share equal to the fair market value per share of Common Stock on the grant date and vested in installments during the optionee’s period of service with us. The plan administrator (either the Board or a Board committee) may cause options to vest on an accelerated basis in the event the Company is acquired and those options are not assumed or replaced by the acquiring entity. Each option has a maximum term (not to exceed 10 years) set by the plan administrator at the time of grant, subject to earlier termination following the optionee’s termination.
Employment Contracts, Termination of Employment and Change in Control Arrangements
The Compensation Committee of Board of Directors 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. In addition, as described below, options held by the Company’s Chief Executive Officer and Chief Financial Officer accelerate upon a change of control.
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Employment Agreement with Robert E. Grant
On October 26, 2004, the Company entered into an at-will employment agreement with Robert E. Grant, as the newly appointed President and Chief Executive Officer, which superseded his employment agreement of August 2003. The agreement provides for an annual base salary of $275,000 and beginning in calendar year 2005, an annual bonus of up to $175,000 (Mr. Grant’s bonus for calendar year 2004 was $78,000).$175,000. Sixty percent of the annual bonus is based on the achievement of revenue targets and 40% is based on the achievement of net income targets. In connection with the annual bonus, Mr. Grant is eligible to receive up to $50,000 paid quarterly$12,500 each quarter based upon the achievement of such revenue and net income targets. The remaining portion of the bonus (up to $125,000) was payable upon the completion and filing with the SEC of the Company’s annual report on Form 10-K for the previous reporting year. The agreement also providesprovided for a one-time stock option grant to purchase 400,000 shares of Common Stock at an exercise price of $5.98 per share, with pro rata vesting quarterly over three years at the rate of 33,333 shares per quarter, with the first quarter ending on December 31, 2004.share. Mr. Grant willis also be eligible to receive stock options with respect to 100,000 shares annually beginning on the third anniversary of the effective date of the agreement. Mr. Grant is entitled to four weeks paid vacation per year, and the Company pays the medical and dental plan premiums for him and his immediate family and reimburses him for out-of-pocket costs, fees, charges or expenses in connection with the medical and dental plans, which reimbursement shall not exceed $3,000 per year without the prior approval of the Board of Directors.Board. The Company has agreed to assume or reimburse Mr. Grant the costs associated with the lease of his vehicle.
In the event Mr. Grant’s employment is terminated without cause or Mr. Grant terminates his employment for good reason, he will receive severance equal to six times the base monthly salary he was receiving immediately prior to the date of termination or resignation, the Company will pay his COBRA premiums for the six-month period following termination or resignation, he will be entitled to receive the pro-rated portion of any performance bonus to which he would otherwise be entitled and his stock options will continue to vest through the end of the quarter in which such termination or resignation becomes effective. Mr. Grant will have one year from the effective date of such termination or resignation to exercise the vested portion of his stock options.
In the event of Mr. Grant’s death while employed by the Company and during the term of the agreement, Mr. Grant’s estate will receive a lump sum payment of an amount equal to six months of his then-effective base salary, subject to offset from insurance benefit payments, and all stock options that would be vested at the end of the quarter in which the death occurred will be vested and immediately exercisable. His estate will have one year from the effective date of such death to exercise the vested portion of Mr. Grant’s stock options.
If Mr. Grant’s employment is terminated by the Company due to mental or physical disability, Mr. Grant will continue to receive his base salary for six months and all stock options that would be vested at the end of the quarter in which the termination occurred will be vested and immediately exercisable. Mr. Grant will have one year from the effective date of the termination to exercise the vested portion of his stock options.
Upon a change of control of the Company, which includes a change in a majority of the Board composition within a period of 60 consecutive days or the acquisition of the Company by a third party of greater than 50% of the outstanding shares, all options held by Mr. Grant will fully vest and become immediately exercisable.
The Company has agreed to indemnify Mr. Grant, 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 by him in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, threatened or initiated against him by reason of the fact that he was serving as an officer, director, employee or agent of the Company or was serving at the Company’s request as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
Unless earlier terminated, the terms of the employment agreement will end on October 23, 2007, provided that, unless and until a new written agreement is entered into, the employment relationship under the agreement
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will continue on a calendar quarter to calendar quarter basis with the same remuneration and compensation as shall apply during the final year of the agreement term.
Employment Agreement with John W. Hohener
On October 24, 2004, the Company entered into an at-will employment agreement with John W. Hohener, as the newly appointed Executive Vice President and Chief Financial Officer, which agreement subsequently has been amended. Mr. Hohener’s employment commenced on November 13, 2004 and he was appointed Executive Vice President and Chief Financial Officer on November 15, 2004. The agreement provides for an annual base salary of $225,000 and, beginning in calendar year 2005, an annual performance bonus of up to $120,000. The agreement
also provides for a stock option grant to purchase 250,000 shares of Common Stock at an exercise price of $8.25 per share, with 1/3 of the options becoming vested on the first anniversary of the effective date and 1/8 vesting quarterly thereafter. The exercise price of such stock option is the fair market value of the Common Stock on the date of grant, November 13, 2004. Mr. Hohener is entitled to four weeks paid vacation per year, and the Company pays the medical and dental plan premiums for him and his immediate family and reimburses Mr. Hohener for out-of-pocket costs, fees, charges or expenses in connection with the medical and dental plans, which reimbursement shall not exceed $3,000 per year without the prior approval of the Board of Directors.
In the event Mr. Hohener’s employment is terminated without cause or Mr. Hohener terminates his employment for good reason, he will receive severance equal to six times the base monthly salary he was receiving immediately prior to the date of termination or resignation, the Company will pay his COBRA premiums for the six-month period following termination or resignation, he will be entitled to receive the pro-rated portion of any performance bonus to which he would otherwise be entitled and vesting of stock options granted to him will accelerate such that at least 100,000 option shares will be vested and immediately exercisable. Mr. Hohener will have six months from the effective date of such termination or resignation to exercise the vested portion of his stock options.
In the event of Mr. Hohener’s death while employed by the Company and during the term of the agreement, Mr. Hohener’s estate will receive a lump sum payment of an amount equal to six months of his then-effective base salary, subject to offset from insurance benefit payments, and vesting of stock options granted to Mr. Hohener will accelerate such that at least 100,000 option shares will be vested and immediately exercisable. His estate will have six months from the effective date of such death to exercise the vested portion of Mr. Hohener’s stock options.
If Mr. Hohener’s employment is terminated by the Company due to mental or physical disability, Mr. Hohener will continue to receive his base salary for six months and vesting of stock options granted to him will accelerate such that at least 100,000 option shares will be vested and immediately exercisable. Mr. Hohener will have six months from the effective date of the termination to exercise the vested portion of his stock options.
Upon a change of control of the Company, which includes a change in a majority of the Board composition within a period of 60 consecutive days or the acquisition of the Company by a third party of greater than 50% of the outstanding shares, all options held by Mr. Hohener will fully vest and become immediately exercisable.
Board.
The Company has agreed to reimburse Mr. Hohener on an after-tax basis for half of any excise tax penalties to which he may be subject by reason of receiving “excess parachute payments” upon a change of control.
The Company hasalso agreed to indemnify Mr. Hohener, 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 by him in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, threatened or initiated against him by reason of the fact that he was serving as an officer, director, employee or agent of the Company or was serving at the Company’s request as an officer,
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director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
On December 12, 2005, Mr. Hohener tendered, and the Board accepted, his resignation. In addition,connection with his resignation, the Company has agreed to providepay Mr. Hohener with directors’ and officers’ liability insurance coverage in an amount at least as favorable to him as that which was in effect at the time he joined the Company or such greater coverage as it may maintain in the future.
Unless otherwise terminated, the terms of the employment agreement will continue automatically on a yearly basis.
$150,000.
Employment Agreement with Jeffrey W. Jones
InOn December 2003,29, 2005, the Company entered into ana new employment agreement with Jeffrey W. Jones, then President and Chief Executive Officer. Effective October 24, 2004, Mr. Jones was named Vice Chairman of the Board and his title was changed to Chief TechnologyTechnical Officer. The Agreement replaces an earlier employment agreement provides for an initial term of two years commencing on January 1, 2004dated December 12, 2003 between the Company and endingMr. Jones which expired by its terms on December 31, 2005, after which his employment will continue on a calendar quarter to calendar quarter basis on the terms existing at the time until terminated at the expiration of a calendar quarter 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 Mr. Jones’ employment is terminated other than for cause, Mr. Jones will be entitled to receive severance pay in an amount equal to six to 12 months’ base salary, depending on the amount of notice he is given.
2005.
Under the terms of the employment agreement, Mr. Jones receives a base annual salary of $275,000.not less than $250,000. In addition, Mr. Jones is entitled to receive aearn an annual performance bonus equal to 0.75% of all 2004 sales in excess$100,000, based on the achievement of $40.0 million. Under his employment agreement,certain criteria established by the Board, of which $42,000 is guaranteed. Mr. Jones received an option to purchase 200,000 shares of Common Stock at an exercise price of $14.01, which was the fair market value of the Common Stock on December 12, 2003. The option vests and will be exercisable at a rate of approximately 8,333 shares per month and expires ten years from the date of grant, subject to early termination should Mr. Jones cease to provide service to the Company. Mr. Jones is also entitled to receive a housing allowance of $3,500 per month for expenses incurred in maintaining a residence in California in connection with his employment by the Company. The amount of the housing allowance will beis deducted from any bonus he is entitled to receive. Mr. Jones is also is entitled to receive an allowance for an automobile and related expenses, four weeks paid vacation per year, reimbursement of reasonable business expenses and other executive benefits.
Under the terms of the employment agreement, Mr. Jones’ employment is at will and not for a specific term, and may be terminated at any time by either the Company or him, with or without cause, as defined in the Employment Agreement. If Mr. Jones’ employment is terminated other than for cause or he resigns for good reason, Mr. Jones will be entitled to receive severance pay in an amount equal to one year of annual base salary.
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 (with the Company’s written consent which shall not be unreasonably withheld) 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 or was serving at the Company’s request as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
Employment Agreement with Richard L. Harrison
On December 12, 2005, the Company entered into an at-will employment agreement with Richard L. Harrison, the Company’s newly-appointed Executive Vice President, Chief Financial Officer and Secretary. The Employment Agreement provides that Mr. Harrison will receive an annual base salary of $230,000 and will be eligible for a bonus of up to $100,000, of which $50,000 will be paid in quarterly installments of $12,500 each and the remaining $50,000 will be payable upon the occurrence of certain performance metrics.
In addition, the Employment Agreement also provided that Mr. Harrison receive a non-qualified option to purchase 250,000 shares of the Company’s common stock at $7.20 per share. The option vests over a three-year period, with one-third of the option shares becoming vested upon completion of 12 months of service and the remaining two-thirds vesting quarterly over the remaining two years. Mr. Harrison will also be entitled to four weeks of paid vacation and an auto allowance of $1,000 per month.
In the event the Company terminates Mr. Harrison’s employment other than for cause or he resigns for good reason, and providing that he executes a release of claims, he is entitled to receive a severance payment equal to six months of base salary and benefits.
The Company agreed to indemnify Mr. Harrison to the maximum extent permitted under Delaware law against any expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (with the Company’s written consent which shall not be unreasonably withheld) actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, threatened or initiated against Mr. Harrison by reason of the fact that he was serving as an officer, director, employee or agent or was serving at the Company’s request as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
Offer Letter to Keith G. Bateman
In January 1999, the Company entered intodelivered an employment agreement withoffer letter to Keith G. Bateman, then Vice President of Global Sales. Mr. Bateman was subsequently named Executive Vice President in 2002 and Executive Vice President, Marketing in January 2005. Mr. Bateman’s base salary was $175,000 for 2004. Under the terms of this agreement, if2005.
Offer Letter to James M. Haefner
In December 2004, the Company delivered an offer letter to James M. Haefner offering him full-time employment as Executive Vice President of Global Sales. The letter provided for an annual base salary of $200,000 and an annual auto allowance of $10,000. The letter also provides that Mr. Haefner is acquiredeligible for a management bonus of up to $100,000 per year, paid quarterly at an amount of $25,000, based on achievement of sales and other performance targets. Mr. Haefner is also entitled to an additional $50,000 bonus paid following year end and based on sales over a performance target as determined by the Compensation Committee. The letter provides that Mr. Haefner may participate in all employee benefit and benefits plans that are made available to the Company’s full-time employees.
Change in Control Agreements
In February 2006, the Company and of each of Messrs. Grant, Jones, Harrison, Bateman and Haefner entered into an amendment to such officer’s employment agreement or merged,offer letter. The primary purpose of each amendment was to provide for certain severance payments to be made to the surviving entity either must offer Mr. Batemanofficer upon the occurrence of a triggering event. A triggering event is defined as the occurrence of both:
a change of control (as defined in the amendment); and
any termination of the officer’s employment (i) by the officer for good reason (as defined in his employment agreement) or (ii) by the Company without cause (as defined in the officer’s employment agreement), in each case during the 18 months following the change of control.
Upon the occurrence of a triggering event, each amendment provides that the officer will be entitled to receive, subject to his execution of a general release in favor of the Company, the following:
100% of the officer’s then current annual salary plus the full amount of the officer’s potential bonus for the current year, which aggregate amount shall be paid in a one-time lump sum payment; and
continuation of the benefits and perquisites set forth in the officer’s employment agreement for a period of one year from the date of such termination or, in some cases, a lump sum payment equal to the value of the benefit or perquisite over a one-year employment agreement with at least equivalent compensation terms as he currently receivesperiod.
In addition, upon the occurrence of a triggering event all unvested options and shares of restricted stock held by the officer shall immediately vest and become fully exercisable.
Compensation Committee Interlocks and Insider Participation
During 2005, the Compensation Committee consisted of Messrs. Pignatelli and d’Arbeloff and Dr. Anderton. No member of the Compensation Committee was an officer or must pay Mr. Bateman severance in an amount equal to his total compensation during the previous nine months, including base salary, commissions and bonus. Except for the above-described provision relating to an acquisition or merger, the agreement is terminableemployee at any time byduring the Company2005 fiscal year or Mr. Bateman.
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The following pages contain a report issued by the Compensation Committee relating toat any other time. No current executive compensation for 2004, a report issued by the Audit Committee relating to its review of the accounting, auditing and financial reporting practicesofficer of the Company andhas ever served as a chart titled “Stock Performance Graph.” Stockholders should be awaremember of the board of directors or compensation committee of any other entity that under SEC rules,has or has had one or more executive officers serving as a member of the Report on ExecutiveBoard or Compensation the Audit Committee Report and the Stock Performance Graph are not deemed to be “soliciting material” or “filed” with the SEC under the Securities Exchange Act of 1934, and are not incorporated by reference in any past or future filing by the Company under the Securities Exchange Act of 1934 or the Securities Act of 1933 unless these sections are specifically referenced.Committee.
Report on Executive Compensation
The Compensation Committee of the Company’s Board is pleased to present its annual report which is intended to update stockholders on the development of the Company’s executive compensation program. This report summarizes the responsibilities of the Company’s Compensation Committee, the compensation policy and objectives that guide the development and administration of the executive compensation program, each component of the program, and the basis on which the compensation for the chief executive officer, corporate officers and other key executives was determined for the calendar year ended December 31, 2005.
During 2004, the 2005 fiscal year, the Compensation Committee was comprised of Messrs. Pignatelli and d’Arbeloff and Dr. Anderton. The Compensation Committee’s primary responsibility wasresponsibilities are to reviewoversee the development and develop generaladministration of the total compensation policiesprogram for corporate officers and make recommendations tokey executives, and administer the Board of Directors on compensation levels for our executive officers. After receivingbonus incentive and reviewingstock plans. During the year, the Compensation Committee’s recommendations, the Board of Directors, which included a majority of the independent directors, determined the overall compensation packages, including option grants, provided to each of the executive officersCommittee met four times and our President and Chief Executive Officer.
took several actions by unanimous written consent.
General Compensation Policy. The Board and the Compensation Committee believebelieves that the compensation programs for ourthe Company’s executive officers should reflect ourthe Company’s performance and the value created for ourits stockholders. In addition, ourthe Company’s compensation programs are meant to support ourits short-term and long-term strategic goals and values and should reward individual contributions to our success. The Company is engaged in a very competitive industry, and the Company’s success depends upon its ability to attract and retain qualified executives through the competitive compensation packages it offers such individuals. When establishing overall compensation, the Board and the Compensation Committee taketakes into consideration the amounts paid to executive officers of companies with business structure, size, location and stage of development similar to us.
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 us 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 our Chief Executive Officer and other executive officers with competitive compensation opportunities based upon their contribution to our financial success 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 our 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 our achievement of annual financial and other performance goals; and (3) where appropriate, long-term stock-based incentive awards designed to strengthen the mutuality of interests between the executive officer and our stockholders.
The Board and the Compensation Committee periodically reviewreviews total compensation levels and the distribution of compensation among the three elements identified above for each of the executive officers in the context of our compensation policy and compensation packages awarded to executive officers in comparable positions at companies within related industries. The Board and the Compensation Committee believebelieves that our 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 we usually are compared for purposes of stock performance.
The principal factors that were taken into account in establishing each executive officer’s compensation package for 2005 are described below. However, the Compensation Committee may in its discretion apply entirely different factors, such as different measures of financial performance, for future years.
Base Salary. During 2004,2005, the Compensation Committee reviewed the base salary of each executive officer. In assessing appropriately competitive salary levels, the Compensation Committee considered each
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officer’s position, experience and tenure with us, 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.
In addition, the Company’s performance and profitability are factors in determining the base salaries of executive officers.
Annual Incentive Bonuses. An executive officer may be awarded incentive bonuses based on our results of operations and financial performance, the performance of the executive officer in that officer’s area of responsibility and the officer’s contribution to our operating performance. The level of award is a variable of the targeted
performance of the Company compared to the actual performance of the Company and the achievement of specific department goals. The bonus amounts range from 40% to 75% at 100% achievement of targeted performance. The performance measurements for Messrs. Grant, Jones and Hohener in 2005 were the Company’s net revenues, the Company’s earnings before taxes and the achievement of specific department goals. The performance measurements for Messrs. Bateman and Haefner in 2005 were the Company’s net revenues. In general, the performance measurements for the Company for 2005 were not achieved. Notwithstanding the failure to achieve the performance targets, the Compensation Committee determined to award $25,000 bonuses to each of Messrs. Grant and Jones, in addition to minimum amounts to which they were entitled. This amount represented a small portion of the total available bonus. The Compensation Committee determined that such amount was warranted given the extraordinary efforts of Messrs. Grant and Jones throughout 2005.
Long Term Stock-Based Incentives. Stock-based incentives are designed to align the interests of our executive officerofficers with those of our stockholders and provide each individual with a significant incentive to manage usthe 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 three-year period, contingent upon the officer’s continued employment with us. Accordingly, options provide a return to the executive officer only if he or she remains employed by us 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 us, the individual’s personal performance in recent periods and his or her potential for future responsibility and promotion over the option term. The Board and 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.
In December 2005, the Compensation Committee approved the acceleration of vesting of certain unvested stock options granted under the Company’s 2002 Stock Incentive Plan that were held by certain key employees and officers of the Company, including executive officers. As a result of such acceleration, options granted to 25 persons with respect to 1,045,847 unvested shares of the Company’s common stock, including options with respect to 684,178 unvested shares that are held by the Company’s executive officers, became fully vested. The Compensation Committee also imposed restrictions on shares of Company common stock that could be acquired by such persons upon exercise of any such accelerated options that will prevent the sale of such shares (other than to satisfy applicable withholding taxes) before such time as vesting would otherwise have taken place.
The acceleration eliminated future compensation expense that the Company would otherwise have recognized in its consolidated statements of operations with respect to the options at issue now that the Statement of Financial Accounting Standards No. 123-R “Share Based Payment,” issued by the Financial Accounting Standards Board, has become effective for fiscal years beginning after June 15, 2005. The future expense eliminated by the acceleration, based on a Black-Scholes calculation¸ was estimated to be approximately $1.6 million in 2006, $1.2 million in 2007, and $0.4 million in 2008 on a pre-tax basis. The acceleration resulted in a compensation expense in the fourth quarter of 2005 of approximately $204,000.
CEO Compensation. Mr. Jones served as our Chief Executive Officer until October 2004, when Mr. Grant was appointed to that position. In setting the total compensation payable to the person serving asMr. Grant, our Chief Executive Officer, wethe Compensation Committee sought to provide a stable level of cash compensation within a range of compensation found among competitive companies, while recognizing the individual’sMr. Grant’s contributions to our overall performance. Messrs. Jones andMr. Grant are eachis compensated in accordance with the terms of his employment agreementsagreement which areis summarized under “Employment Contracts, Termination of Employment and Change in Control Arrangements.” Mr. Grant’s base salary was $275,000 in 2005. When agreed to, Mr. Grant’s salary was based on factors discussed above in “Base Salary,” including a review of market pay trends.
In determining Mr. Grant’s incentive bonus for 2005, the Compensation Committee considered the Company’s net revenues, the Company’s earnings before taxes and the achievement of specific department goals. In general, Mr. Grant did not achieve the performance targets for the Company for 2005. Notwithstanding the failure to achieve the performance targets, the Compensation Committee determined to award a $25,000 bonus to Mr. Grant. This amount
represented a small portion of the total available bonus. The Compensation Committee determined that such amount was warranted given the extraordinary efforts of Mr. Grant throughout 2005.
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 our executive officers for the 20042005 fiscal year did not exceed the $1.0 million limit per officer, and we do not expect the non-performance-based compensation to be paid to our executive officers for the 20052006 fiscal year to exceed that limit. Because it is unlikely that the cash compensation payable to any of our executive officers in the foreseeable future will approach the $1.0 million limit, we do not expect to take any action to limit or restructure the elements of cash compensation payable to our executive officers so as to qualify that compensation as performance-based compensation under Section 162(m). We will reconsider this decision should the individual cash compensation of any executive officer ever approach the $1.0 million level.
The 2002 Stock Incentive Plan imposes 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 our executive officers, any compensation deemed paid in connection with the exercise of future option grants made to executive officers under the 2002 Stock Incentive 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.
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It is the opinion of the Compensation Committee that the executive compensation policies and plans provide the necessary total remuneration program to properly align our performance and the interests of our 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 Compensation Committee of the Board of Directors
and approved by the Board of Directors
Federico Pignatelli, Chairman
Robert M. Anderton
George V. d’Arbeloff
March 28, 2006
The following is the Report of the Audit Committee with respect to the Company’s audited financial statements for the year ended December 31, 2004, which were included in the Company’s Annual Report on Form 10-K for that year, and which include the consolidated balance sheets of the Company as of December 31, 2004 and 2003, 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, 2004, and the notes thereto.
Review with Management
The Audit Committee has reviewed and discussed our audited financial statements with management.
Discussions with Independent Registered Public Accounting Firm
The Audit Committee discussed with ouroversees the Company’s independent registered public accounting firm and assists the Board in fulfilling its oversight responsibilities on matters relating to the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements and the independent registered public accounting firm’s qualifications and independence by meeting regularly with the independent registered public accounting firm and financial management personnel. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements; establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; and evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the Company’s financial statements for the fiscal year ended December 31, 2004, PricewaterhouseCoopers2005, with Company management and BDO Seidman LLP, (“PWC”),the Company’s independent registered public accounting firm. The Audit Committee also discussed with BDO Seidman LLP the matters required to be discussed by SAS 61 (Codification of StatementsStatement on Auditing Standards AU Section 380),No. 61 (Communications with Audit Committees, as amended which includes, among other items, matters relatedby Statement on Auditing Standards No. 90 (Audit Committee Communications)). This included a discussion of the independent registered public accounting firm’s judgments as to the conductquality, not just the acceptability, of the audit of our financial statements.
Company’s accounting principles and such other matters that generally accepted auditing standards require to be discussed with the Audit Committee. The Audit Committee also has received the written disclosures and the letter from PWCBDO Seidman LLP required by Independence Standards Board Standard No. 1 (Independence DiscussionsDiscussion with Audit Committees), as amended, and the Audit Committee discussed with PWC the independence of PWC from us.
Conclusion
BDO Seidman LLP with that firm.
Based on the Audit Committee’s review and discussions referred tonoted above, in this Report, the Audit Committee recommended to ourthe Board, of Directorsand the Board approved, that ourthe audited financial statements be included in ourthe Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20042005 for filing with the SecuritiesSEC. The Audit Committee also approved the selection of BDO Seidman LLP as the Company’s independent registered public accounting firm for 2005.
The Audit Committee and Exchange Commission.
the Board have also recommended, subject to stockholder approval, the selection of BDO Seidman LLP as the Company’s independent registered public accounting firm for fiscal year 2006.
Submitted by the Audit Committee of the Board of Directors
Company’s Board:
George V. d’Arbeloff Chairman(Chairman)
Robert M. Anderton, DDS
Federico Pignatelli
Date: March 28, 2006
29Incorporation by Reference
Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, which might incorporate future filings made by the Company under those statutes, neither the preceding Compensation Committee Report, the Audit Committee Report, nor the following Stock Performance Graph will be incorporated by reference into any of those prior filings, nor will any such report be incorporated by reference into any future filings made by the Company under those statutes. In addition, information on the Company’s website, other than our Proxy Statement and form of Proxy, is not part of the proxy soliciting material and is not incorporated herein by reference.
The graph depicted below shows a comparison of cumulative total stockholder returns for the Company’s Common Stock, the S&P SmallCap 600NASDAQ U.S. Index and the S&P SmallCap 600 HealthcareNASDAQ Medical Devices Index for the period from December 31, 19992000 to December 31, 2004. The S&P SmallCap 600 Healthcare Index is depicted in the graph instead of the Nasdaq Medical Devices Index which was used last year because the latter index is no longer available.2005.
(1) | The graph assumes that $100 was invested on December 31, |
(2) | Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. |
Certain Relationships and Related TransactionsCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the above discussion under “Employment Contracts, Termination of Employment and Change in Control Arrangements” for a discussion of the employment agreements with Messrs. Bateman, Haefner, Grant, Hohener, JonesHarrison and Bateman.Jones.
The Company entered intoUnder the indemnification agreements, with each ofthe Company agrees to indemnify its executivedirectors, officers and directors. See the above discussion under “Proposal Two – Ratification of Form of Indemnification Agreement” for a summary of the indemnification agreements. In addition, the Company’s executive officers and directors are indemnified under Delaware General Corporation Law and the Company’s bylawsagents, or Indemnified Parties, to the fullest extent permitted by law against all expenses and liabilities actually and reasonably incurred by reason of such Indemnified Party becoming, or being threatened to be made, a party to any action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative, investigative or other. Such expenses will be advanced by the Company upon written request by an Indemnified Party.
The Company has no obligation to provide indemnification if the party selected by the Board (such party being either the stockholders, a majority of disinterested directors, independent legal counsel or a panel of arbitrators) to review the Indemnified Party’s request for indemnification (the “Reviewing Party”) determines that the Indemnified Party would not be permitted to be indemnified. Additionally, if the Company has advanced expenses to the Indemnified Party and the Reviewing Party subsequently determines the Indemnified Party is not permitted to be indemnified under applicable law, the advanced expenses must be reimbursed by the Indemnified Party to the Company.
If an Indemnified Party is successful on the merits of an action, the Company is required to indemnify such Indemnified Party against all expenses and liabilities incurred in connection with such action. An Indemnified Party must notify the Company in writing, as soon as practicable, of any claim made against him or her for which indemnification will or could be sought.
To secure the Company’s obligations to indemnify and advance expenses to the Indemnified Parties in the event of a change of control, the Company will secure a surety bond in the amount of not less than $1.0 million, upon which an Indemnified Party may from time to time file a claim for payment. If there is a change in control of the Company (other than a change in control approved by a majority of the Board who were directors immediately prior to the change in control), then independent legal counsel will act as the Reviewing Party to determine whether the Indemnified Party is entitled to indemnification. The Company agrees to pay the reasonable fees of any independent legal counsel or arbitrators retained to make a determination of entitlement to indemnification pursuant to the indemnification agreement.
The termination of any claim by judgment, order, settlement, conviction, or plea of nolo contendere, or its equivalent, does not affect the presumption that an Indemnified Party is entitled to indemnification under the indemnification agreement, and the Company shall have the burden of proof to overcome that presumption. Additionally, if the Company is obligated to pay the expenses of any claim, the Company may assume the defense of such claim with counsel approved by such Indemnified Party upon the delivery to such Indemnified Party of written notice of the Company’s election to do so.
The Company shall not be obligated under the indemnification agreement: (i) to make any payment in connection with any claim against an Indemnified Party to the extent such party has otherwise actually received payment (under any insurance policy or otherwise) of the amounts indemnifiable under the indemnification agreement; (ii) to indemnify an Indemnified Party for liabilities in connection with a proceeding settled without the Company’s consent; (iii) to indemnify an Indemnified Party for expenses and the payment of profits arising from the purchase and sale by such Indemnified Party of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, or any similar state statute; or (iv) to indemnify an Indemnified Party for acts, omissions or transactions from which such Indemnified Party may not be relieved of liability under applicable law.
The Company agrees to use all reasonable efforts to maintain one or more policies of directors’ and officers’ liability insurance for such period of time as the Indemnified Party shall consent to serve as a director, officer or agent of the Company, as thereafter for so long as the Indemnified Party is subject to any possible proceeding.
The indemnification agreement is governed by Delaware law.
Since January 1, 2004,2005, there has not been any transaction or series of similar transactions to which the Company was a party in which the amount involved exceeded or exceeds $60,000 and in which any director, executive officer, holder of more than five percent (5%) of any class of 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.
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Section 16(a) Beneficial Ownership Reporting ComplianceSECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Board, of Directors, the executive officers and beneficial holders of more than ten percent of the outstanding Common Stock are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 which requires them to file reports with respect to their ownership of the Company’s securities. Based upon the copies of Section 16(a) reports which the Company received from such persons for their 20042005 fiscal year
transactions in the Common Stock and their Common Stock holdings, and while the Company inadvertently did not obtain timely written certifications from each such person that no Forms 5 were due, 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 for the following: Dr. Anderton did not file a Form 3 within ten days of being elected as a director and failed to report one transaction relating to his initial stock option grant upon joining the Board, Mr. Pignatelli did not file a Form 4 reporting one transaction relating to his annual automaticfor James M. Haefner in connection with a grant of stock option grant, Mr. d’Arbeloffoptions on June 1, 2005 was not filed one lateuntil October 18, 2005, a Form 4 reporting one transaction regarding his annual automaticfor Jeffrey W. Jones in connection with a grant of stock option grant,options on December 29, 2005 was not filed until January 10, 2006, and Messrs. Jones and Bateman each did not file a Form 5 to report one transaction each relating to a4 for Federico Pignatelli in connection with purchases of common stock option grant received by each of them the previous fiscal year but previously unreported.
on November 22 and November 23, 2005 was not filed until November 28, 2005.
Annual Report
The Company filed withA copy of the Securities and Exchange Commission an2005 annual report on Form 10-K, on July 19, 2005. A copy ofwhich includes the annual report onfinancial statements, but excludes Form 10-K has beenexhibits, is being 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 annual 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
John W. Hohener
Secretary
Dated: October 17, 2005
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Appendix A
BIOLASE TECHNOLOGY, INC.
AUDIT COMMITTEE CHARTER
Purpose of the Audit Committee
The purpose of the Audit Committee is to assist the Board of Directors (the “Board”) in fulfilling its responsibilities relating to the general oversight of the Company’s accounting and financial reporting processes, the system of internal controls, the audit of the financial statements and such other duties as directed by the Board. The Committee’s role includes a particular focus on the qualitative aspects of financial reporting to stockholders, and on the Corporation’s processes to manage business and financial risk, and for compliance with significant applicable legal, ethical, and regulatory requirements. The Committee is directly responsible for the appointment, compensation, and oversight of the public accounting firm engaged to prepare or issue an audit report on the financial statements of the Corporation.
The Committee’s responsibility is limited to oversight as set forth in this Charter. It is not the duty of the Committee to duplicate or certify the activities of management and the independent auditor.
Membership and Structure
The Audit Committee shall be comprised of at least three directors determined by the Board to meet the independence and experience requirements of the applicable rules of the National Association of Securities Dealers, Inc. governing companies listed on the NASDAQ Stock Market and applicable rules of the SEC. The Board shall appoint the members based on the recommendation of the Nominating Committee.
The entire Committee or any individual Committee member may be removed from such Committee with or without cause by the affirmative vote of a majority of the Board. Any Committee member may resign from the Committee effective upon giving oral or written notice to the Chairman of the Board, the Corporate Secretary, or the entire Board (unless the notice specifies a later time for the effectiveness of such resignation). The Board may appoint a qualified successor to take office when such resignation becomes effective.
Chairperson
A chairperson of the Committee (the “Chairperson”) may be designated by a majority of the members of the Committee or by the Board upon recommendation, if any, by the Nominating and Corporate Governance Committee of the Board. In the absence of such designation, the members of the Committee may designate the Chairperson by majority vote of the full Committee membership. The Chairperson shall determine the agenda, the frequency and the length of meetings. All Committee members, including the Chairperson, shall have unlimited access to management, employees and information.
Meetings
The Audit Committee shall meet at such times and places as the Audit Committee shall determine but not less frequently than quarterly. The Audit Committee shall periodically meet separately with the independent auditor and with management. Notice of meetings shall be given in accordance with the provisions of the Corporation’s by-laws.
Responsibilities
General:
The Audit Committee shall be directly responsible for the appointment, compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and
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|
Relationship with the Independent Auditor
Financial Reporting
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Other
Reliance on Information Provided
In adopting this Charter, the Board acknowledges that the Committee members are not necessarily legal experts and are not providing any expert or special assurance as to the Corporation’s legal compliance. Each member of the Committee shall be entitled to rely on the integrity of those persons and organizations within and outside the Corporation that provide information to the Committee and the accuracy and completeness of the information provided to the Committee by such persons or organizations absent actual knowledge to the contrary.
Amendment
This Charter and any provision contained herein may be amended or repealed by the Board.
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Appendix B
BIOLASE TECHNOLOGY, INC.
COMPENSATION COMMITTEE CHARTER
Purpose
The purpose of the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of BIOLASE Technology, Inc. (the “Corporation”) is to:
1. Carry out the Board’s overall responsibility relating to compensation of executive officers of the Corporation;
2. Assist the Board in establishing the appropriate incentive compensation and equity-based plans for the Corporation’s executive officers and to administer such plans;
3. Produce an annual report on executive compensation for inclusion in the Corporation’s annual proxy statement; and
4. Perform such other duties and responsibilities enumerated in and consistent with this Charter.
Membership and Procedures
Membership and Appointment. The Committee shall consist of not fewer than three members of the Board, with the exact number being determined by the Board. Members of the Committee shall be appointed from time to time by the Board based upon the recommendations of the Nominating and Corporate Governance Committee of the Board, if any.
Removal of Members. The entire Committee or any individual Committee member may be removed from the Committee with or without cause by the affirmative vote of a majority of the Board. Any Committee member may resign from the Committee effective upon giving oral or written notice to the Chairman of the Board, the Corporate Secretary or the entire Board (unless the notice specifies a later time for the effectiveness of such resignation). The Board may appoint a qualified successor to take office when such resignation becomes effective.
Chairperson. A chairperson of the Committee (the “Chairperson”) may be designated by the Board. In the absence of such designation, the members of the Committee may designate the Chairperson by majority vote of the full Committee membership. The Chairperson shall determine the agenda, the frequency and the length of meetings and shall have unlimited access to management and information. Such Chairperson shall establish such other rules as may from time to time be necessary and proper for the conduct of the business of the Committee.
Secretary. The Committee may appoint a Secretary whose duties and responsibilities shall be to keep full and complete records of the proceedings of the Committee for the purposes of reporting Committee activities to the Board and to perform all other duties as may from time to time be assigned to him or her by the Committee, or otherwise at the direction of a Committee member. If no Secretary is appointed, any member of the Committee may serve as Secretary of a meeting. The Secretary need not be a Director.
Independence. Each member shall meet the independence and outside director requirements of applicable tax and securities laws and regulations and stock market rules.
Delegation. The Committee may, by resolution passed by a majority of the Committee, designate one or more subcommittees, each subcommittee to consist of one or more members of the Committee. Any such
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subcommittee, to the extent provided in the resolutions of the Committee and to the extent not limited by applicable law or listing standard, shall have and may exercise all the powers and authority of the Committee. Each subcommittee shall have such name as may be determined from time to time by resolution adopted by the Committee. Each subcommittee shall keep regular minutes of its meetings and report the same to the Committee or the Board when required.
Authority to Retain Advisors. In the course of its duties, the Committee shall have the sole authority, at the Corporation’s expense, to retain and terminate compensation consultants and other advisor as the Committee may deem appropriate, including the sole authority to approve any such advisor’s fees and other retention terms.
Evaluation. The Committee shall undertake an annual evaluation assessing its performance with respect to its purposes and its duties and tasks set forth in this Charter, which evaluation shall be reported to the Board. The Committee shall periodically review and reassess the adequacy of this Charter and recommend any proposed changes to the Board.
Duties and Responsibilities
The following shall be the common recurring duties of the Committee in carrying out its oversight functions. The duties and responsibilities are set forth below as a guide to the Committee with the understanding that the Committee may alter or supplement them as appropriate under the circumstances, to the extent permitted by applicable law, regulation or listing standard.
The Committee shall:
1. Review and approve corporate goals and objectives relevant to the compensation of the Corporation’s chief executive officer (the “CEO”) and other officers who are reporting persons under Section 16 of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder (“Officers”).
2. Evaluate the CEO’s and Officers’ performance in light of such goals and objectives at least annually and communicate the results to the CEO and the Board.
3. Based on the evaluation in paragraph 2 above, establish and approve annually for the CEO and Officers, the compensation levels for those persons, including, as applicable, (a) base salary, (b) bonus, (c) long-term incentive and equity compensation, and (d) any other compensation, perquisites, and special or supplemental benefits.
4. In determining the long-term incentive component of the CEO’s and Officers’ compensation, consider, among other items, the Corporation’s performance and relative stockholder return, the value of similar incentive awards to chief executive officers and other executive officers at comparable companies, and the compensation provided to the CEO and Officers in the past.
5. In consultation with the CEO, review and make recommendations to the Board regarding guidelines for review of the performance and the establishment of compensation policies for all other employees of the Corporation and for the delegation to executive officers of the Corporation of the determination of compensation for all employees of the Corporation who are not executive officers.
6. Establish and modify the terms and conditions of employment of the CEO and Officers, by contract or otherwise.
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7. Determine, within parameters that may be established by the independent and disinterested members of the entire Board, the provisions of any contracts for the CEO and Officers that will govern the situation in which severance payments will be due upon change in control situations.
8. Make recommendations to the full Board regarding the fees and other compensation to be paid to members of the Board for their service as directors and as members of committees of the Board.
9. Provide oversight of management’s decisions concerning the performance and compensation of other officers of the Corporation.
10. Assist the Board in developing and evaluating potential candidates for executive positions, including the position of chief executive officer, and oversee the development of executive succession plans.
11. Administer the stock plans of the Corporation in accordance with the terms of such plans.
12. Oversee the administration of the Corporation’s other employee benefit plans.
13. Maintain sole discretionary authority to interpret provisions of the Corporation’s executive compensation plans.
14. Establish all rules necessary or appropriate for implementing and conducting the Corporation’s executive compensation plans.
15. Determine, as applicable, in connection with the Corporation’s stock plans, such matters as eligibility for participation; persons to receive awards; the amount, form and other terms and conditions of awards; the form of agreements pertaining to such awards; the manner and form of deferral elections; or, when appropriate, the authorization of the Corporation’s purchase of its stock for allocation to the accounts of persons to whom awards have been made under such plans. The Committee may delegate to the Corporation’s CEO the authority to carry out all of the powers of the Committee to grant options and issue awards under the Corporation’s stock plans to employees or consultants of the Corporation or any subsidiary thereof who are not members of the Board, the CEO or Officers; provided, that no such grant or award shall exceed the maximum number of shares that may be awarded to individuals and/or in the aggregate in any fiscal quarter or year as the Committee shall direct from time to time, and all grants or awards shall be at an exercise or grant price per share at least equal to fair market value of the Corporation’s stock on the date of such grant or award.
16. Review the Corporation’s incentive compensation and other equity-based plans and practices and recommend changes in such plans and practices to the Board.
17. Administer the other equity-based compensation plans that may be adopted from time to time by the Board.
18. Approve equity compensation plans and the grant of equity awards not subject to stockholder approval under applicable listing standards.
19. Prepare the Committee report on executive compensation as required by the Securities and Exchange Commission (“SEC”) rules for inclusion in the Corporation’s annual proxy statement or annual report on Form 10-K filed with the SEC.
20. Perform such other activities and functions related to executive compensation as may be assigned from time to time by the Board.
Amendment
This Charter, and any provision contained herein, may be amended or repealed by the Board.
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Appendix C
BIOLASE TECHNOLOGY, INC.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER
Committee Purpose
The Nominating and Corporate Governance Committee (the “Committee”) is a standing committee of the Board of Directors (the “Board”) of BIOLASE Technology, Inc. (the “Corporation”) whose purposes are to:
By Order of the Board |
Committee Membership
The Committee shall consist of a minimum of three (3) directors. The members of the Committee shall be appointed by the Board. The entire Committee or any individual member of the Committee may be removed without cause by the affirmative vote of a majority of the Board. Any Committee member may resign effective upon giving oral or written notice to the Chairman of the Board, the Corporate Secretary or the Board (unless the notice specifies a later time for the effectiveness of such resignation). The Board may appoint a qualified successor to take office when such resignation becomes effective. Each member shall be an “independent director” as defined by the rules promulgated by the National Association of Securities Dealers, Inc. (“NASD Rules”), as amended, and shall satisfy all applicable independence requirements under the federal securities laws or rules thereunder.
Chairperson
A chairperson of the Committee (the “Chairperson”) may be designated by the Board. In the absence of such designation, the members of the Committee may designate the Chairperson by majority vote of the full Committee membership. The Chairperson shall determine the agenda, the frequency and the length of meetings and shall have unlimited access to management and information. Such Chairperson shall establish such other rules as may from time to time be necessary and proper for the conduct of the business of the Committee.
Secretary
The Committee may appoint a Secretary whose duties and responsibilities shall be to keep full and complete records of the proceedings of the Committee for the purposes of reporting Committee activities to the Board and to perform all other duties as may from time to time be assigned to him or her by the Committee, or otherwise at the direction of a Committee member. If no Secretary is appointed, any member of the Committee may serve as Secretary of a meeting. The Secretary need not be a member of the Board.
Committee Meetings
The Committee shall hold regular meetings, and shall report significant matters arising from such meetings to the Board. A majority of the members of the Committee shall constitute a quorum. A majority of the members present (in person or by telephone or videoconferencing) shall decide any matter brought before the Committee.
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Duties and Responsibilities of the Committee
The following shall be the common recurring duties and responsibilities of the Committee in carrying out its oversight role. These duties and responsibilities are set forth below as a guide to the Committee with the understanding that the Committee may alter or supplement them as appropriate under the circumstances to the extent permitted by applicable law, regulation or NASD Rules:
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Resources and Authority
The Committee shall have the authority to retain search firms to assist in identifying director candidates, and to select, retain and terminate outside counsel and any other advisors as the Committee may deem appropriate in its sole discretion. The Committee shall have sole authority to approve related fees and retention terms of outside counsel and other advisors, without seeking Board approval.
Reliance on Information Provided
In adopting this Nominating and Corporate Governance Committee Charter, the Board acknowledges that the Committee members are not necessarily legal experts and are not providing any expert or special assurance as to the Corporation’s legal compliance. Each member of the Committee shall be entitled to rely on the integrity of those persons and organizations within and outside the Corporation that provide information to the Committee and the accuracy and completeness of the corporate governance and other information provided to the Committee by such persons or organizations absent actual knowledge to the contrary.
Amendment
This Nominating and Corporate Governance Committee Charter and any provision contained herein may be amended or repealed by the Board.
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Appendix D
FORM OF
BIOLASE TECHNOLOGY, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this “Agreement”) is entered into as of , 2005 (the “Effective Date”), by and between BIOLASE TECHNOLOGY, INC., a Delaware corporation (the “Company”), and (“Indemnitee”).
RECITALS
A. Indemnitee is either a member of the board of directors of the Company (the “Board of Directors”) or an officer of the Company, or both, and in such capacity or capacities, or otherwise as an Agent (as hereinafter defined) of the Company, is performing a valuable service for the Company.
B. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be indemnified as herein provided.
C. It is intended that Indemnitee shall be paid promptly by the Company all amounts necessary to effectuate in full the indemnity provided herein.
NOW, THEREFORE, in consideration of the premises and the covenants in this Agreement, and of Indemnitee continuing to serve the Company as an Agent and intending to be legally bound hereby, the parties hereto agree as follows:
1.Services by Indemnitee. Indemnitee agrees to serve (a) as a director or an officer of the Company, or both, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the Certificate of Incorporation and bylaws of the Company, and until such time as Indemnitee resigns or fails to stand for election or is removed from Indemnitee’s position, or (b) as an Agent of the Company. Indemnitee may from time to time also perform other services at the request or for the convenience of, or otherwise benefiting, the Company. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual obligation or other obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in any such position.
2.Indemnification. Subject to the limitations set forth herein and in Section 7 hereof, the Company hereby agrees to indemnify Indemnitee as follows:
The Company shall, with respect to any Proceeding (as hereinafter defined) associated with Indemnitee’s being an Agent of the Company, indemnify Indemnitee to the fullest extent permitted by applicable law and the Certificate of Incorporation of the Company in effect on the date hereof or as such law or Certificate of Incorporation may from time to time be amended (but, in the case of any such amendment, only to the extent such amendment permits the Company to provide broader indemnification rights than the law or Certificate of Incorporation permitted the Company to provide before such amendment). The right to indemnification conferred herein and in the Certificate of Incorporation shall be presumed to have been relied upon by Indemnitee in serving or continuing to serve the Company as an Agent and shall be enforceable as a contract right. Without in any way diminishing the scope of the indemnification provided by this Section 2, the Company will indemnify Indemnitee to the full extent permitted by law if and wherever Indemnitee is or was a party or is threatened to be made a party to any Proceeding, including any Proceeding brought by or in the right of the Company, by reason of the fact that Indemnitee is or was an Agent or by reason of anything done or not done by Indemnitee in such capacity, against Expenses (as hereinafter defined) and Liabilities (as hereinafter defined) actually and reasonably incurred by Indemnitee or on his or her behalf in connection with the investigation, defense,
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settlement or appeal of such Proceeding. In addition to, and not as a limitation of, the foregoing, the rights of indemnification of Indemnitee provided under this Agreement shall include those rights set forth in Sections 3 and 9 below. Notwithstanding the foregoing, the Company shall be required to indemnify Indemnitee in connection with a Proceeding commenced by Indemnitee (other than a Proceeding commenced by Indemnitee to enforce Indemnitee’s rights under this Agreement) only if the commencement of such Proceeding was authorized by the Board of Directors.
3.Advancement of Expenses. All reasonable Expenses incurred by or on behalf of Indemnitee (including costs of enforcement of this Agreement) shall be advanced from time to time by the Company to Indemnitee within thirty (30) days after the receipt by the Company of a written request for an advance of Expenses, whether prior to or after final disposition of a Proceeding (except to the extent that there has been a Final Adverse Determination (as hereinafter defined) that Indemnitee is not entitled to be indemnified for such Expenses), including, without limitation, any Proceeding brought by or in the right of the Company. The written request for an advancement of any and all Expenses under this paragraph shall contain reasonable detail of the Expenses incurred by Indemnitee. In the event that such written request shall be accompanied by an affidavit of counsel to Indemnitee to the effect that such counsel has reviewed such Expenses and that such Expenses are reasonable in such counsel’s view, then such expenses shall be deemed reasonable in the absence of clear and convincing evidence to the contrary. By execution of this Agreement, Indemnitee shall be deemed to have made whatever undertaking as may be required by law at the time of any advancement of Expenses with respect to repayment to the Company of such Expenses. In the event that the Company shall breach its obligation to advance Expenses under this Section 3, the parties hereto agree that Indemnitee’s remedies available at law would not be adequate and that Indemnitee would be entitled to specific performance.
4.Surety Bond.
(a) In order to secure the obligations of the Company to indemnify and advance Expenses to Indemnitee pursuant to this Agreement, the Company shall obtain at the time of any Change in Control (as hereinafter defined) a surety bond (the “Bond”). The Bond shall be in an appropriate amount not less than one million dollars ($1,000,000), shall be issued by a commercial insurance company or other financial institution headquartered in the United States having assets in excess of $10 billion and capital according to its most recent published reports equal to or greater than the then applicable minimum capital standards promulgated by such entity’s primary federal regulator and shall contain terms and conditions reasonably acceptable to Indemnitee. The Bond shall provide that Indemnitee may from time to time file a claim for payment under the Bond, upon written certification by Indemnitee to the issuer of the Bond that (i) Indemnitee has made written request upon the Company for an amount not less than the amount Indemnitee is drawing under the Bond and that the Company has failed or refused to provide Indemnitee with such amount in full within thirty (30) days after receipt of the request, and (ii) Indemnitee believes that he or she is entitled under the terms of this Agreement to the amount that Indemnitee is drawing upon under the Bond. The issuance of the Bond shall not in any way diminish the Company’s obligation to indemnify Indemnitee against Expenses and Liabilities to the full extent required by this Agreement.
(b) Once the Company has obtained the Bond, the Company shall maintain and renew the Bond or a substitute Bond meeting the criteria of Section 4(a) during the term of this Agreement so that the Bond shall have an initial term of five (5) years, be renewed for successive five-year terms, and always have at least one (1) year of its term remaining.
5.Presumptions and Effect of Certain Proceedings. Upon making a request for indemnification, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proof to overcome that presumption in reaching any contrary determination. The termination of any Proceeding by judgment, order, settlement, arbitration award or conviction, or upon a plea of nolo contendere or its equivalent shall not affect this presumption or, except as determined by a judgment or other final adjudication adverse to Indemnitee, establish a presumption with regard to any factual matter relevant to determining
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Indemnitee’s rights to indemnification hereunder. If the person or persons so empowered to make a determination pursuant to Section 6 hereof shall have failed to make the requested determination within ninety (90) days after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of a plea of nolo contendere or its equivalent, or other disposition or partial disposition of any Proceeding or any other event that could enable the Company to determine Indemnitee’s entitlement to indemnification, the requisite determination that Indemnitee is entitled to indemnification shall be deemed to have been made.
6.Procedure for Determination of Entitlement to Indemnification.
(a) Whenever Indemnitee believes that Indemnitee is entitled to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification to the Company. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee for the determination of entitlement to indemnification. In any event, Indemnitee shall submit Indemnitee’s claim for indemnification within a reasonable time, not to exceed five (5) years after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of a plea of nolo contendere or its equivalent, or final determination, whichever is the later date for which Indemnitee requests indemnification. The Secretary or other appropriate officer shall, promptly upon receipt of Indemnitee’s request for indemnification, advise the Board of Directors in writing that Indemnitee has made such request. Determination of Indemnitee’s entitlement to indemnification shall be made not later than ninety (90) days after the Company’s receipt of Indemnitee’s written request for such indemnification, provided that any request for indemnification for Liabilities, other than amounts paid in settlement, shall have been made after a determination thereof in a Proceeding.
(b) The Company shall be entitled to select the forum in which Indemnitee’s entitlement to indemnification will be heard; provided, however, that if there is a Change in Control of the Company, Independent Legal Counsel (as hereinafter defined) shall determine whether Indemnitee is entitled to indemnification. The forum shall be any one of the following:
(i) the stockholders of the Company;
(ii) a majority vote of Disinterested Directors (as hereinafter defined), even though less than a quorum;
(iii) Independent Legal Counsel, whose determination shall be made in a written opinion; or
(iv) a panel of three (3) arbitrators, one selected by the Company, another by Indemnitee and the third by the first two arbitrators; or if for any reason three (3) arbitrators are not selected within thirty (30) days after the appointment of the first arbitrator, then selection of additional arbitrators shall be made by the American Arbitration Association. If any arbitrator resigns or is unable to serve in such capacity for any reason, the American Arbitration Association shall select such arbitrator’s replacement. The arbitration shall be conducted pursuant to the commercial arbitration rules of the American Arbitration Association now in effect.
7.Specific Limitations on Indemnification. Notwithstanding anything in this Agreement to the contrary, the Company shall not be obligated under this Agreement to make any payment to Indemnitee with respect to any Proceeding:
(a) To the extent that payment is actually made to Indemnitee under any insurance policy, or is made to Indemnitee by the Company or an affiliate otherwise than pursuant to this Agreement. Notwithstanding the availability of such insurance, Indemnitee also may claim indemnification from the Company pursuant to this Agreement by assigning to the Company any claims under such insurance to the extent Indemnitee is paid by the Company;
(b) Provided there has been no Change in Control, for Liabilities in connection with Proceedings settled without the Company’s consent, which consent, however, shall not be unreasonably withheld;
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(c) For an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or similar provisions of any state statutory or common law; or
(d) To the extent it would be otherwise prohibited by law, if so established by a judgment or other final adjudication adverse to Indemnitee.
8.Fees and Expenses of Independent Legal Counsel or Arbitrators. The Company agrees to pay the reasonable fees and expenses of Independent Legal Counsel or a panel of three arbitrators should such Independent Legal Counsel or such arbitrators be retained to make a determination of Indemnitee’s entitlement to indemnification pursuant to Section 6(b) of this Agreement, and to fully indemnify such Independent Legal Counsel or arbitrators against any and all expenses and losses incurred by any of them arising out of or relating to this Agreement or their engagement pursuant hereto.
9.Remedies of Indemnitee.
(a) In the event that (i) a determination pursuant to Section 6 hereof is made that Indemnitee is not entitled to indemnification, (ii) advances of Expenses are not made pursuant to this Agreement, (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement or (iv) Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication in the Court of Chancery of the State of Delaware of the remedy sought. Alternatively, unless (x) the determination was made by a panel of arbitrators pursuant to Section 6(b)(iv) hereof, or (y) court approval is required by law for the indemnification sought by Indemnitee, Indemnitee at Indemnitee’s option may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial arbitration rules of the American Arbitration Association now in effect, which award is to be made within ninety (90) days following the filing of the demand for arbitration. The Company shall not oppose Indemnitee’s right to seek any such adjudication or arbitration award. In any such proceeding or arbitration, Indemnitee shall be presumed to be entitled to indemnification and advancement of Expenses under this Agreement and the Company shall have the burden of proof to overcome that presumption.
(b) In the event that a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been made pursuant to Section 6 hereof, the decision in the judicial proceeding or arbitration provided in paragraph (a) of this Section 9 shall be madede novoand Indemnitee shall not be prejudiced by reason of a determination that Indemnitee is not entitled to indemnification.
(c) If a determination that Indemnitee is entitled to indemnification has been made pursuant to Section 6 hereof, or is deemed to have been made pursuant to Section 5 hereof or otherwise pursuant to the terms of this Agreement, the Company shall be bound by such determination in the absence of a misrepresentation or omission of a material fact by Indemnitee in connection with such determination.
(d) The Company shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Company shall stipulate in any such court or before any such arbitrator that the Company is bound by all of the provisions of this Agreement and is precluded from making any assertion to the contrary.
(e) Expenses reasonably incurred by Indemnitee in connection with Indemnitee’s request for indemnification under, seeking enforcement of or to recover damages for breach of this Agreement shall be borne by the Company when and as incurred by Indemnitee irrespective of any Final Adverse Determination that Indemnitee is not entitled to indemnification.
10.Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying
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Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (a) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (b) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
11.Maintenance of Insurance. Upon the Company’s purchase of directors’ and officers’ liability insurance policies covering its directors and officers, then, subject only to the provisions within this Section 11, the Company agrees that so long as Indemnitee shall have consented to serve or shall continue to serve as a director or officer of the Company, or both, or as an Agent of the Company, and thereafter so long as Indemnitee shall be subject to any possible Proceeding (such periods being hereinafter sometimes referred to as the “Indemnification Period”), the Company will use all reasonable efforts to maintain in effect for the benefit of Indemnitee one or more valid, binding and enforceable policies of directors’ and officers’ liability insurance from established and reputable insurers, providing, in all respects, coverage both in scope and amount which is no less favorable than that provided by such preexisting policies. Notwithstanding the foregoing, the Company shall not be required to maintain said policies of directors’ and officers’ liability insurance during any time period if during such period such insurance is not reasonably available or if it is determined in good faith by the then directors of the Company either that:
(a) The premium cost of maintaining such insurance is substantially disproportionate to the amount of coverage provided thereunder; or
(b) The protection provided by such insurance is so limited by exclusions, deductions or otherwise that there is insufficient benefit to warrant the cost of maintaining such insurance.
Anything in this Agreement to the contrary notwithstanding, to the extent that and for so long as the Company shall choose to continue to maintain any policies of directors’ and officers’ liability insurance during the Indemnification Period, the Company shall maintain similar and equivalent insurance for the benefit of Indemnitee during the Indemnification Period (unless such insurance shall be less favorable to Indemnitee than the Company’s existing policies).
12.Modification, Waiver, Termination and Cancellation. No supplement, modification, termination, cancellation or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.
13.Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.
14.Notice by Indemnitee and Defense of Claim. Indemnitee shall promptly notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative or investigative, but the omission so to notify the Company will not relieve it from any liability that it may have to Indemnitee if such omission does not prejudice the Company’s rights. If such omission does prejudice the Company’s rights, the Company will be relieved from liability only to the extent of such prejudice. Notwithstanding the foregoing, such omission will not relieve the Company from any liability that it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof:
(a) The Company will be entitled to participate therein at its own expense; and
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(b) The Company jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided, however, that the Company shall not be entitled to assume the defense of any Proceeding if there has been a Change in Control or if Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee with respect to such Proceeding. After notice from the Company to Indemnitee of its election to assume the defense thereof, the Company will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ Indemnitee’s own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless:
(i) the employment of counsel by Indemnitee has been authorized by the Company;
(ii) Indemnitee shall have reasonably concluded that counsel engaged by the Company may not adequately represent Indemnitee due to, among other things, actual or potential differing interests; or
(iii) the Company shall not in fact have employed counsel to assume the defense in such Proceeding or shall not in fact have assumed such defense and be acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Company.
(c) The Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent; provided, however, that Indemnitee will not unreasonably withhold his or her consent to any proposed settlement.
15.Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) delivered by facsimile with telephone confirmation of receipt or (c) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:
(i) If to Indemnitee, to the address or facsimile number set forth on the signature page hereto.
(ii) If to the Company, to:
BIOLASE Technology, Inc.
981 Calle Amanecer
San Clemente, California 92673
Attn: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
16.Nonexclusivity. The rights of Indemnitee hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under applicable law, the Company’s Certificate of Incorporation or bylaws, or any agreements, vote of stockholders, resolution of the Board of Directors or otherwise, and to the extent that during the Indemnification Period the rights of the then existing directors and officers are more favorable to such directors or officers than the rights currently provided to Indemnitee thereunder or under this Agreement, Indemnitee shall be entitled to the full benefits of such more favorable rights.
17.Certain Definitions.
(a)“Agent” shall mean any person who is or was, or who has consented to serve as, a director, officer, employee, agent, fiduciary, joint venturer, partner, manager or other official of the Company or a subsidiary or an affiliate of the Company, or any other entity (including without limitation, an employee benefit plan) either at the request of, for the convenience of, or otherwise to benefit the Company or a subsidiary of the Company.
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(b)“Change in Control” shall mean the occurrence of any of the following:
(i) Both (A) any “person” (as defined below) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least twenty percent (20%) of the total voting power represented by the Company’s then outstanding voting securities and (B) the beneficial ownership by such person of securities representing such percentage has not been approved by a majority of the “continuing directors” (as defined below);
(ii) Any “person” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least fifty percent (50%) of the total voting power represented by the Company’s then outstanding voting securities;
(iii) A change in the composition of the Board of Directors occurs, as a result of which fewer than two-thirds of the incumbent directors are directors who either (A) had been directors of the Company on the “look-back date” (as defined below) (the “Original Directors”) or (B) were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority in the aggregate of the Original Directors who were still in office at the time of the election or nomination and directors whose election or nomination was previously so approved (the “continuing directors”);
(iv) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, if such merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto representing (either by remaining outstanding or by being converted into voting securities of the surviving entity) fifty percent (50%) or less of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or
(v) The stockholders of the Company approve (A) a plan of complete liquidation of the Company or (B) an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.
For purposes of Subsection (i) above, the term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act, but shall exclude (x) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a parent or subsidiary of the Company or (y) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the Common Stock of the Company.
For purposes of Subsection (iii) above, the term “look-back date” shall mean the later of (x) the Effective Date and (y) the date twenty-four (24) months prior to the date of the event that may constitute a “Change in Control.”
Any other provision of this Section 17(b) notwithstanding, the term “Change in Control” shall not include a transaction, if undertaken at the election of the Company, the result of which is to sell all or substantially all of the assets of the Company to another corporation (the “surviving corporation”); provided that the surviving corporation is owned directly or indirectly by the stockholders of the Company immediately following such transaction in substantially the same proportions as their ownership of the Company’s common stock immediately preceding such transaction; and provided, further, that the surviving corporation expressly assumes this Agreement.
(c)“Disinterested Director” shall mean a director of the Company who is not or was not a party to or otherwise involved in the Proceeding in respect of which indemnification is being sought by Indemnitee.
(d)“Expenses” shall include all direct and indirect costs (including, without limitation, attorneys’ fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and
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binding costs, telephone charges, postage, delivery service fees, all other disbursements or out-of-pocket expenses and reasonable compensation for time spent by Indemnitee for which Indemnitee is otherwise not compensated by the Company or any third party) actually and reasonably incurred in connection with either the investigation, defense, settlement or appeal of a Proceeding or establishing or enforcing a right to indemnification under this Agreement, applicable law or otherwise; provided, however, that “Expenses” shall not include any Liabilities.
(e)“Final Adverse Determination” shall mean that a determination that Indemnitee is not entitled to indemnification shall have been made pursuant to Section 6 hereof and either (1) a final adjudication in the Court of Chancery of the State of Delaware or decision of an arbitrator pursuant to Section 9(a) hereof shall have denied Indemnitee’s right to indemnification hereunder, or (2) Indemnitee shall have failed to file a complaint in a Delaware court or seek an arbitrator’s award pursuant to Section 9(a) for a period of one hundred twenty (120) days after the determination made pursuant to Section 5 hereof.
(f)“Independent Legal Counsel” shall mean a law firm or a member of a firm selected by the Company and approved by Indemnitee (which approval shall not be unreasonably withheld) or, if there has been a Change in Control, selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), that neither is presently nor in the past five (5) years has been retained to represent: (i) the Company or any of its subsidiaries or affiliates, or Indemnitee or any corporation of which Indemnitee was or is a director, officer, employee or agent, or any subsidiary or affiliate of such a corporation, in any material matter, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Legal Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s right to indemnification under this Agreement.
(g)“Liabilities” shall mean liabilities of any type whatsoever including, but not limited to, any judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) of any Proceeding.
(h)“Proceeding” shall mean any threatened, pending or completed action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, that is associated with Indemnitee’s being an Agent of the Company.
18.Binding Effect; Duration and Scope of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. This Agreement shall continue in effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as an Agent.
19.Severability. If any provision or provisions of this Agreement (or any portion thereof) shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and
(b) to the fullest extent legally possible, the provisions of this Agreement shall be construed so as to give effect to the intent of any provision held invalid, illegal or unenforceable.
20.Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware, without regard to conflict of laws rules.
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21.Consent to Jurisdiction. The Company and Indemnitee each irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of Delaware.
22.Entire Agreement. This Agreement represents the entire agreement between the parties hereto, and there are no other agreements, contracts or understandings between the parties hereto with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in Section 16 hereof.
23.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer and Indemnitee has executed this Agreement as of the date first above written.
BIOLASE TECHNOLOGY, INC.,
a Delaware corporation
By
Print Name
Title
INDEMNITEE
Signature
Print Name
Address
Telephone
Facsimile
E-mail
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Appendix E
BIOLASE TECHNOLOGY, INC.
2002 STOCK INCENTIVE PLAN
(As amended by the Board of Directors on through October 10, 2005)
ARTICLE ONE
GENERAL PROVISIONS
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.
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Richard L. Harrison
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
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.
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.
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The Plan Administrator should consider the tax and accounting consequences before exercising such discretion.
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, shallnot be subject to the terms of this Section II.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
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.
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ARTICLE FOUR
Automatic Option Grant Program
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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.
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ARTICLE FIVE
MISCELLANEOUS
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.
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.
Except with the approval of the stockholders of the Corporation, (i) no option may be granted under the Plan to an employee, consultant or member of the Board in direct exchange for, or in direct connection with, the
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cancellation or surrender of an outstanding option of such person having a higher exercise price, and (ii) no option granted under the Plan may be amended to reduce the exercise price per share of the Common Stock of the Corporation subject to such option below the exercise price of the option as of the date the option is granted, except to reflect the substitution for or assumption of the option in connection with a Change in Control of the Corporation or if any change is made in the Common Stock subject to the Plan or subject to any option under the Plan without the receipt of consideration by the Corporation (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Corporation) in which case the outstanding stock options will be appropriately adjusted in the class or classes and number of securities and price per share of Common Stock subject to such outstanding stock options. In the event of the substitution for or assumption of an option in connection with a Change in Control of the Corporation or if any change is made in the Common Stock subject to the Plan or subject to any option under the Plan without the receipt of consideration by the Corporation, the Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Corporation shall not be treated as a transaction “without receipt of consideration” by the Corporation.)
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, and, except as provided in Section IV of Article Five of the Plan relating to adjustments upon changes in Common Stock, no increase in the number of shares of Common Stock reserved for issuance under the Plan shall be effective unless approved by the stockholders of the Corporation to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Securities and Exchange Commission Rule 16b-3 or any Nasdaq or securities exchange listing requirements as in effect on October 10, 2005.
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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.
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.
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.
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APPENDIX
The following definitions shall be in effect under the Plan:
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19Dated: April 5, 2006
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P R O X Y |
| BIOLASE TECHNOLOGY, INC.
Annual Meeting of Stockholders,
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 Annual Meeting of Stockholders to be held on
CONTINUED AND TO BE SIGNED ON REVERSE SIDE | ||
SEE REVERSE SIDE |
Please Detach Here
¨ÚYou Must Detach This Portion of the Proxy CardÚ¨
Before Returning it in the Enclosed Envelope
The Board of Directors recommends a vote IN FAVOR OFFOR the directors listed below and a vote IN FAVOR OFFOR each of the listed proposals. This Proxy, when properly executed, will be voted as specified below. If no specification is made, this Proxy will be voted IN FAVOR OFFOR the election of the directorseach director listed below and IN FAVOR OF Proposals Two, Three and Four.FOR Proposal Two.
1. | To elect |
NOMINEES | WITHHOLD | |||||||||||||||||||
01 | ¨ | ¨ | ||||||||||||||||||
02 George V. d’Arbeloff | ¨ | ¨ | ||||||||||||||||||
03 Daniel S. Durrie, M.D. | ¨ | ¨ | ||||||||||||||||||
04 Robert E. Grant | ¨ | ¨ | ||||||||||||||||||
05 Jeffrey W. Jones | ¨ | ¨ | ||||||||||||||||||
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07 Federico Pignatelli | ¨ |
*INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee’s nameso indicate in the space provided.appropriate check box.
2. | ||||||||||||||
To ratify the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, | 2006. | FOR | AGAINST | ABSTAIN | ||||||||||
¨ | ¨ | ¨ |
By executing this Proxy, the undersigned hereby grants the named proxy holders discretionary authority to act upon all other matters incident to the conduct of the meeting or as may properly come before the meeting, or any adjournment thereof.
Please sign |
Dated:, 2006 |
Signature (Joint Owners) |
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MARK HERE FOR ADDRESS CHANGE AND NOTE CORRECTIONS ON THE MAILING LABEL | ¨ |