-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K2006tBDiXyjzaAEKK6oAhCnSdqlZFPikPaHJB2DqthUGhtF9JCxIaqq9uSHGDVz giEp+mdsjhZ8gQNu7pZV8g== /in/edgar/work/20000815/0001019687-00-001153/0001019687-00-001153.txt : 20000922 0001019687-00-001153.hdr.sgml : 20000921 ACCESSION NUMBER: 0001019687-00-001153 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOTOMEDEX INC CENTRAL INDEX KEY: 0000711665 STANDARD INDUSTRIAL CLASSIFICATION: [3690 ] IRS NUMBER: 592858100 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11635 FILM NUMBER: 702028 BUSINESS ADDRESS: STREET 1: FIVE RADNOR CORPORATE CENTER STREET 2: SUITE 470 CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 4072814103 MAIL ADDRESS: STREET 1: FIVE RADNOR CORPORATE CENTER STREET 2: SUITE 470 CITY: RADNOR STATE: PA ZIP: 19087 FORMER COMPANY: FORMER CONFORMED NAME: LASER PHOTONICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt PHOTOMEDEX, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission File Number 0-11635 ------- PHOTOMEDEX, INC. ---------------- (Exact name of registrant as specified in its charter) DELAWARE 59-2058100 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Five Radnor Corporate Center, Suite 470, Radnor, Pennsylvania 19087 ------------------------------------------------------------------- (Address of principal executive offices, including zip code) (610) 971-9292 -------------- (Registrant's telephone number, including area code) Laser Photonics, Inc. 2431 Impala Drive, Carlsbad, California 92008 --------------------------------------------- (Former name and address since last report) Indicated by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the issuer's Common Stock, as of August 10, 2000, was 16,405,393 shares. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PHOTOMEDEX, INC. AND SUBSIDIARIES --------------------------------- (FORMERLY LASER PHOTONICS, INC.) -------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- (Unaudited) -----------
June 30, December 31, 2000 1999 ------------- ------------- ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 13,501,234 $ 4,535,557 Inventories 954,428 1,170,472 Prepaid expenses and other current assets 355,144 34,685 ------------- ------------- Total current assets 14,810,806 5,740,714 PROPERTY AND EQUIPMENT, net 835,037 152,965 PATENT COSTS, net of accumulated amortization of $44,847 and $40,671 39,951 44,127 LICENSE FEE, net of accumulated amortization of $1,291,667 and $1,041,667 2,708,333 2,958,333 OTHER ASSETS 63,133 45,346 NET ASSETS OF DISCONTINUED OPERATIONS -- 764,179 ------------- ------------- $ 18,457,260 $ 9,705,664 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of notes payable and long term debt $ 101,499 $ 353,710 Accounts payable 619,299 2,034,371 Accrued payroll and related expenses 170,734 376,967 Other accrued liabilities 661,118 1,372,668 Deferred revenues -- 250,000 ------------- ------------- Total current liabilities 1,552,650 4,387,716 ------------- ------------- NOTES PAYABLE AND LONG TERM DEBT 29,562 43,620 ------------- ------------- STOCKHOLDERS' EQUITY: Common Stock, $.01 par value, 25,000,000 shares authorized 15,974,949 and 13,267,918 shares issued and outstanding 159,749 132,679 Additional paid-in capital 48,435,140 30,759,186 Accumulated deficit (31,649,799) (25,617,537) Deferred compensation (70,042) -- ------------- ------------- Total stockholders' equity 16,875,048 5,274,328 ------------- ------------- $ 18,457,260 $ 9,705,664 ============= =============
The accompanying notes are an integral part of these statements. 2 PHOTOMEDEX, INC. AND SUBSIDIARIES --------------------------------- (FORMERLY LASER PHOTONICS, INC.) -------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (Unaudited) -----------
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- REVENUES COSTS AND EXPENSES: $ 570,000 $ -- $ 570,000 $ -- Cost of revenues 325,000 -- 325,000 -- Selling, general and administrative 2,203,162 628,424 4,515,333 1,030,470 Research and development 727,933 472,366 1,427,630 597,793 Depreciation and amortization 144,164 261,331 282,004 525,900 ------------------------------------------------------------- Loss from continuing operations before interest and other (expense) income, net (2,830,259) (1,362,121) (5,979,967) (2,154,163) INTEREST (EXPENSE) INCOME, net 194,738 (138,083) 266,985 (1,679,629) OTHER INCOME, net 10,917 4,257 327,262 3,814 ------------------------------------------------------------- Loss from continuing operations (2,624,604) (1,495,947) (5,385,720) (3,829,978) Loss from discontinued operations (20,565) (427,449) (369,141) (604,614) Loss on sale of discontinued operations (277,401) -- (277,401) -- ------------------------------------------------------------- NET LOSS $ (2,922,570) $ (1,923,396) $ (6,032,262) $ (4,434,592) ============================================================= BASIC AND DILUTED LOSS PER SHARE: Continuing operations $ (0.17) $ (0.15) $ (0.37) $ (0.39) Discontinued operations $ (0.02) $ (0.04) $ (0.05) $ (0.06) ------------------------------------------------------------- Basic and diluted net loss per share $ (0.19) $ (0.19) $ (0.42) $ (0.45) ============================================================= SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER SHARE 15,422,148 9,895,684 14,496,149 9,895,684 =============================================================
The accompanying notes are an integral part of these statements. 3 PHOTOMEDEX, INC. AND SUBSIDIARIES --------------------------------- (FORMERLY LASER PHOTONICS, INC.) -------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Unaudited) -----------
Six Months Ended June 30, ----------------------------- 2000 1999 ------------- ------------- OPERATING ACTIVITIES: Net loss $ (6,032,262) $ (4,434,592) Adjustments to reconcile net loss to net cash used in operating activities - Depreciation and amortization 291,962 549,512 Stock options issued to consultants for services 510,741 2,607 Compensation recognized upon issuance of stock options - 299,650 Amortizaton of debt issuance costs - 48,779 Acceleration of options issued to employees 47,500 - Acceleration of options issued to consultants 808,766 - Interest related to beneficial conversion feature - 1,512,292 Changes in assets and liabilities - Decrease in current assets 391,477 32,694 Increase (decrease) in current liabilities (2,582,855) 88,840 ------------- ------------- Net cash used in operating activities (6,564,671) (1,900,218) ------------- ------------- INVESTING ACTIVITIES: Purchases of property and equipment (189,619) (44,553) Proceeds from sale of discontinued operations 250,500 - Lasers in process (235,601) - Lasers placed into service (284,680) - ------------- ------------- Net cash used in investing activities (459,400) (44,553) ------------- ------------- FINANCING ACTIVITIES: Principal payments on debt (316,269) (398,053) Proceeds from issuance of note payable 50,000 - Payments on payable to related party - (11,160) Advances from related parties - 7,560 Proceeds from exercise of options 1,452,940 - Proceeds from exercise of warrants 543,586 - Proceeds from issuance of convertible notes payable - 2,380,000 Payment for debt issuance costs - (166,600) Proceeds from notes payable - 101,561 Proceeds from issuance of common stock, net 14,259,491 - ------------- ------------- Net cash provided by financing activities 15,989,748 1,913,308 ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,965,677 (31,463) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,535,557 174,468 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,501,234 $ 143,005 ============= =============
The accompanying notes are an integral part of these statements. 4 PHOTOMEDEX, INC. AND SUBSIDIARIES --------------------------------- (FORMERLY LASER PHOTONICS, INC.) -------------------------------- NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ----------------------------------------------------------- THE COMPANY: Background - ---------- PhotoMedex, Inc. and subsidiaries ("the Company") changed its name from Laser Photonics, Inc. on August 8, 2000. The Company is engaged in the development, manufacturing and marketing of proprietary excimer laser and fiber optic equipment and techniques directed toward the treatment of psoriasis and cardiovascular and vascular disease. The Company anticipates developing such equipment and technologies to treat other medical problems and for non-medical applications. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Quarterly Financial Information and Results of Operations - --------------------------------------------------------- The financial statements as of June 30, 2000 and for the three and six months ended June 30, 2000 and 1999, are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2000, and the results of operations and cash flows for the three and six months ended June 30, 2000 and 1999. The results for the three and six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the entire year. While the Company believes that the disclosures presented are adequate to make the information not misleading, these consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Management's Use of Estimates - ----------------------------- The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 5 Cash and Cash Equivalents - ------------------------- For the purposes of the consolidated statements of cash flows, the Company considers investment instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents are primarily comprised of investments in various money market funds. Inventories - ----------- Inventories are stated at the lower of cost or market, determined by the first-in, first-out method and consist of the following: June 30, December 31, 2000 1999 ------------- ------------- Raw materials $ 904,428 $ 613,032 Work-in-process -- 557,440 Finished goods 50,000 -- ------------- ------------- $ 954,428 $ 1,170,472 ============= ============= As of June 30, 2000, due to the commercialization of the Company's excimer laser equipment for the treatment of psoriasis, the Company has made certain changes to its inventory classifications. The Company's psoriasis treatment equipment will be placed in a physician's office and remain the property of the Company. The Company will earn its revenues each time the laser is used for patient treatment. Accordingly, once the manufacturing process commences for a given psoriasis treatment laser, the related inventory costs are transferred to Lasers in process within property and equipment. When construction of a given psoriasis treatment laser is completed, the cost is transferred from Lasers in process to Lasers in service within property and equipment. The Company's coronary heart disease laser equipment is sold directly. Accordingly, the costs associated with these lasers are maintained in work-in-process and finished goods within inventory. Property and Equipment - ---------------------- Property and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, which range from 3 to 7 years. Improvements and betterments are capitalized, and maintenance and repair costs are charged to expense as incurred. Upon retirement or disposition, the applicable property amounts are relieved from the accounts and any gain or loss is recorded in the consolidated statement of operations. Property and equipment consists of the following: June 30, December 31, 2000 1999 ------------- ------------- Machinery and equipment $ 11,584 $ 11,584 Furniture and fixtures 90,273 45,102 Computer hardware and software 214,108 67,485 Leasehold improvements 78,716 78,716 Lasers in service 284,680 -- Lasers in process 235,601 -- ------------- ------------- 914,962 202,887 ------------- ------------- Accumulated depreciation and amortization (79,925) (49,922) ------------- ------------- $ 835,037 $ 152,965 ============= ============= 6 Lasers in service as of June 30, 2000, represent psoriasis treatment equipment currently located in physician offices. However, as of June 30, 2000, the Company is not generating any revenues from these lasers. Lasers in service are depreciated over their estimated useful life, which is three years. No depreciation is taken on Lasers in process. Intangible Assets - ----------------- Intangible assets consist of patents and license fees which are carried at cost less accumulated amortization. Patents and license fees are amortized on a straight-line basis over the estimated useful lives of the asset, which is 8 to 12 years for patents and eight years for license fees. The Company evaluates the realizability of intangible assets based on estimates of undiscounted future cash flows over the remaining useful life of the asset. If the amount of such estimated undiscounted future cash flows is less than the net book value of the asset, the asset is written down to its net realizable value. As of June 30, 2000, no such write-down was required. Revenue Recognition - ------------------- Revenues are recognized upon shipment of products to customers. Deferred revenue relates to customer payments received in advance of the delivery of the related products. Loss Per Share - -------------- The Company computes loss per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 requires dual presentation of basic and diluted earnings (loss) per share for complex capital structures on the face of the statements of operations. According to SFAS No. 128, basic earnings (loss) per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution from the exercise or conversion of securities into common stock, such as stock options. Diluted net loss per share is the same as basic net loss per share as no additional shares for the potential dilution from the exercise of securities into common stock are included in the denominator as the result is anti-dilutive due to the Company's losses. Reclassifications - ----------------- The consolidated financial statements for prior periods have been reclassified to conform with the current period's presentation. New Accounting Pronouncements - ----------------------------- In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contacts and for hedging activities and is effective for all fiscal years beginning after June 15, 2000. Management believes that the adoption of SFAS No. 133 will have no impact on its operating results or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101 summarizes certain of the Staff's views in applying generally accepted accounting principles to recognition, presentation and disclosure of revenue in financial statements. Implementation of SAB No. 101 is required no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company has determined that its accounting policies for revenue recognition are in compliance with the provisions of SAB No. 101. 7 2. PRIVATE STOCK OFFERING: ----------------------- In March 2000, the Company completed a private offering of 1,409,092 shares of common stock at $11.00 per share. The Company received net cash proceeds of $14,259,491 from this private offering. 3. DISCONTINUED OPERATIONS: ------------------------ Due to the limited financial resources of the Company, the Company's business strategy changed in 1997 to focus its efforts on excimer laser technology in order to develop excimer laser and excimer laser delivery products for medical applications. To facilitate the Company's focus on excimer laser technology, as of May 4, 2000, the Company sold its non-excimer laser businesses, which were located at its Orlando, Florida and Wilmington, Massachusetts facilities. The Company closed a transaction with respect to the sale of certain assets, including certain patents related to non-excimer lasers, related to the Company's Florida business operations, to Lastec, for a purchase price of $375,000. Lastec is unaffiliated with the Company. Lastec has paid the Company a deposit of $37,500, and has executed a secured promissory note in the principal amount of $337,500, payable in three (3) installments, as follows: (i) $37,500 due on or before May 20, 2000, (ii) $100,000 due on or before July 14, 2000, and (iii) the balance plus accrued interest due on or before October 6, 2000. The promissory note accrues interest at the rate of 8% per annum. The promissory note is secured by the assets assigned by the Company to Lastec in connection with the transaction, and is personally guaranteed by the principals of Lastec. As of the date of this filing, the Company has not received the May 20, 2000 and July 14, 2000 payments due under the promissory note. See "Legal Proceedings." The Company is currently involved in litigation with Lastec, as well as its principals. Accordingly, the balance of the promissory note ($337,500) has been written off and included in the loss on disposal of this operation. Any gain resulting from future payments received by the Company will be recognized as received. The Company closed the transaction with respect to the sale of certain assets and the grant of an exclusive license for certain patents related to non-excimer lasers related to the Company's Massachusetts business operations to Laser Components GmbH, for a purchase price of $213,000. Laser Components GmbH is unaffiliated with the Company. In addition, Laser Components GmbH assumed the Company's prospective obligations under the Company's Massachusetts office lease. Accordingly, these two operations are being accounted for together as discounted operations with a measurement date of May 4, 2000. The accompanying consolidated financial statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. The Company has recognized a loss of $277,401 on the sale of these discontinued operations in the quarter ended June 30, 2000. Prior periods have been restated. 8 Revenues and loss from discontinued operations on the accompanying consolidated statement of operations were: Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Revenues $ 8,560 $ 333,761 $ 188,838 $ 586,865 ============================================================= Loss $ (20,565) $ (427,449) $ (369,141) $ (604,614) ============================================================= The assets and liabilities of these operations have been reclassified on the accompanying consolidated balance sheets to separately identify them as net assets of discontinued operations. A summary of these net assets is as follows: December 31, 1999 ------------- Accounts receivable, net $ 176,179 Inventories 428,415 Prepaid expenses and other current assets 19,800 Property and equipment, net 139,785 ------------- $ 764,179 ============= 9 4. NOTES PAYABLE AND LONG-TERM DEBT: --------------------------------- Notes payable and long-term debt consists of the following:
June 30, December 31, 2000 1999 ------------- ------------- Notes payable - unsecured creditors, interest at prime rate, quarterly interest only payments beginning October 1, 1995, principal due October 1, 1999, unsecured. Settled in March 2000. $ -- $ 165,298 Note payable - creditor, interest at 10%, monthly interest only payments through May 5, 1997, thereafter monthly interest and principal payments of $6,384 through May 1999, unsecured. Settled in March 2000. -- 127,860 Note payable - U.S. Treasury, interest at 9%, payable in monthly principal and interest installments through July 2000. Settled in March 2000. -- 14,873 Notes payable - various creditors, interest at 9%, payable in various monthly principal and interest installments through July 2000. Settled in March 2000. -- 10,101 Note payable - creditor, interest at 9%, payable in monthly principal and interest installments of $1,258 through January 2001, collateralized by personal property of the Company. Settled in March 2000. -- 16,670 Note payable - lessor, interest at 10%, payable in monthly principal and interest installments of $1,775 through December 31, 2002, unsecured. 46,954 55,021 Note payable - creditor, interest at 13.5%, payable in monthly principal and interest installments of $1,552 through May 2000. Settled in March 2000. -- 7,507 Note payable - unsecured creditors, interest at 8.3%, payable in monthly principal and interest installments of $16,821 through November 2000. 84,107 -- ------------- ------------- 131,061 397,330 Less - current maturities (101,499) (353,710) ------------- ------------- $ 29,562 $ 43,620 ============= =============
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS QUARTERLY REPORT ON FORM 10-Q (THE "REPORT"), INCLUDING THE DISCLOSURES BELOW, CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS IN THIS REPORT OR HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), REPORTS TO THE STOCKHOLDERS OF PHOTOMEDEX, INC., A DELAWARE CORPORATION, (THE "COMPANY") AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S BEST ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF OPERATIONS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS SET FORTH HEREIN AND IN SUCH OTHER DOCUMENTS FILED WITH THE COMMISSION, EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE ACCURACY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT. OVERVIEW OF BUSINESS OPERATIONS The Company is engaged in the development, manufacturing and marketing of proprietary excimer laser and fiber optic equipment and techniques directed toward the treatment of psoriasis and cardiovascular and vascular disease. The Company anticipates developing such equipment and technologies to treat other medical problems. However, no assurance to this effect can be given. The Company's former business strategy consisted of the development of a wide range of laser products using different solid-state lasers. Between 1986 and the date of this Report, the Company sold over 1,000 lasers, usually on a private label basis, to other manufacturers. The Company also considered pursuing a strategy of using its excimer laser technology for a photolithography product, which was abandoned. The Company's former strategies proved to be unsuccessful, in the opinion of then current management of the Company. Although the Company generated revenues from the sale of its products, former management believed that the Company would never be able to operate profitably in the markets where the Company was then doing business. The Company currently believes that its excimer laser technology provides the basis for reliable cost-effective systems that will increasingly be used in connection with a variety of applications. Accordingly, the Company has discontinued its business operations related to the Company's former business strategy and is focused solely on excimer laser products for various medical applications. On May 13, 1994, the Company filed a Petition for Reorganization (the "Bankruptcy Proceeding") under Chapter 11 of the Federal Bankruptcy Act on May 13, 1994, Case No. 94-02608-611-Federal Bankruptcy Court-Middle District, Florida (the "Bankruptcy Court"). An order was issued on May 22, 1995, confirming the Company's Third Amended Plan of Reorganization (the "Bankruptcy Reorganization" or the "Plan"). The Company was subsequently authorized to conduct its business operations as a debtor-in-possession subject to the jurisdiction of the Bankruptcy Court. On May 22, 1995, the Company's Plan was confirmed by the Bankruptcy Court. The implementation of the terms of the Plan 11 resulted in the Company's adoption of "fresh start" accounting. The Plan provided, that in exchange for the forgiveness of certain unsecured debt, the Company issued to unsecured creditors shares of the Company's Common Stock such that, following the issuance of all Common Stock to be issued under the Plan, the unsecured creditors owned 1,000,000 shares of the Company's Common Stock, representing 20% of the issued and outstanding Common Stock of the Company. The 7,500,000 shares of Common Stock of the Company's prior existing stockholders were canceled and reissued into 250,000 shares of Common Stock, which represented 5% of the then total issued and outstanding shares of Common Stock. The Plan further provided that Helionetics, Inc. ("Helionetics"), a former principal stockholder of the Company, transfer to the Company 76.1% of the common stock of Acculase, Inc. ("Acculase"), the Company's principal operating subsidiary. Further, during the pendency of the Bankruptcy Proceeding, Helionetics contributed $1,000,000 in cash to the Company, which funds were utilized for cash payments under the Plan, and Helionetics loaned the Company $300,000 to fund the cost of research and development of the Company's excimer lasers, which loan has been repaid. Under the Plan, Helionetics received 3,750,000 shares of Common Stock of the Company, which represented 75% of the then total issued and outstanding shares of Common Stock. During April, 1997, Helionetics filed a voluntary petition of reorganization ("Helionetics Reorganization") with the United States Bankruptcy Court in the Central District of California for protection under Chapter 11 of Title 11 of the United States Bankruptcy Code. In connection with a bankruptcy reorganization of Helionetics, Helionetics disposed of all of its holdings of the Company's Common Stock. No persons who were stockholders of the Company immediately before the reorganization have at present any controlling interest in the Company. On September 30, 1997, Pennsylvania Merchant Group ("PMG"), the Company's then existing investment banker, purchased from the Helionetics bankruptcy estate, a note payable from Acculase to Helionetics in the amount of $2,159,708, including accrued interest. During October, 1997, PMG sold the note to the Company for 800,000 shares of Common Stock. Acculase was formed in 1985 for the purpose of commercializing products that utilize its proprietary excimer laser and fiber optic technologies. Acculase has focused primarily on the development of medical products for the treatment of coronary heart disease. The Acculase excimer laser power source was developed to perform a variety of material processing applications. The Acculase overall system, designated the pulsed excimer laser, was developed for microsurgical applications. The first medical application of the overall system, designated the excimer laser system, was approved by the United States Food and Drug Administration (the "FDA") under Investigational Device Exemption ("IDE") No. G920163, for use in the treatment of occlusive coronary artery disease, as an adjunct to coronary artery bypass graft ("CABG") surgery. Acculase chose not to pursue completion of such IDE due to the lack of funds to pay the costs of, and to recruit patients into, the necessary studies. In connection with the Company's current business plan, the Company's initial medical applications for its excimer laser technology are intended to be used in the treatment of psoriasis and cardiovascular disease. 12 Between March, 1998 and November, 1999, the Company entered into five (5) clinical trial agreements (collectively, the "Clinical Trial Agreement") with Massachusetts General Hospital ("MGH") to compare the effect of excimer laser light using its excimer laser technology to the current Ultraviolet "B" ("UVB") treatment being used to treat psoriasis and other skin disorders. The Company provided prototype laser equipment for pre-clinical dose response studies. The Company has agreed to support the clinical trials with research grants of approximately $660,000, of which approximately $448,000 has been paid, as of June 30, 2000. The final data from the first of these clinical trial agreements was collected in December, 1998, and formed the basis for a 510(k) submission to the FDA on August 4, 1999. The four remaining studies are ongoing and have not been completed as of the date of this Report. On January 27, 2000, FDA issued a 510(k) to the Company, establishing that the Company's excimer laser psoriasis system has been determined to be substantially equivalent to currently marketed devices for the treatment of psoriasis. In August, 2000, after significant progress toward completing beta testing of its psoriasis products, the Company shipped its first four excimer laser systems to dermatologists for commercial use. As of the date of this Report, the Company has generated no revenues from the psoriasis treatment system. The Company anticipates that it will not sell the psoriasis treatment lasers to dermatologists but will place them in dermatologists' offices and receive a fee for usage. In connection with the cardiovascular and vascular uses of the Company's excimer laser technology, on August 19, 1997, Acculase and Baxter Healthcare Corporation ("Baxter") entered into a strategic alliance (the "Baxter Agreement") for the manufacture and marketing of excimer laser products for an experimental procedure known as Transmyocardial Revasculization ("TMR"). Acculase granted to Baxter an exclusive worldwide right and license to manufacture and sell the Company's excimer laser technology products relating to the treatment of cardiovascular and vascular disease and the disposable products associated therewith (the "TMR System"). The Company agreed to manufacture the TMR System to the specifications of Baxter at a schedule of prices, based upon the volume of TMR Systems purchased by Baxter from the Company. During the second quarter of 2000, Baxter spun off the segment of its business with which the Company has these agreements. The new entity is known as Edwards Lifesciences Corp., to which the Company has continued to provide services under the existing agreements. DISCONTINUED OPERATIONS To facilitate the Company's focus on excimer laser technology, the Company has sold certain of its non-excimer laser assets, which are related to its business operations at its Orlando, Florida and Wilmington, Massachusetts facilities. As of May 4, 2000, the Company closed the transactions with respect to the sale of certain assets, including certain patents related to non-excimer lasers related to the Company's Florida business operations, to Lastec, Inc. ("Lastec"), for a purchase price of $375,000. Lastec is unaffiliated with the Company. The Company has discontinued its Florida operations. Lastec has paid the Company a deposit of $37,500, and has executed a secured promissory note in the principal amount of $337,500, payable in three (3) installments, as follows: (i) $37,500 due on or before May 20, 2000, (ii) $100,000 due on or before July 14, 2000, and (iii) the balance plus accrued interest due on or before October 6, 2000. The promissory note accrues interest at the rate of 8% per annum. The promissory note is secured by the assets assigned by the Company to Lastec in connection with the transaction, and is guaranteed by John Yorke and Raymond Thompson, who are principals of Lastec. As of the date of this Report, the Company has not received any payments due under the secured promissory note. The Company has filed an action against Lastec and its principals to collect on the secured promissory note and for breach of the related asset purchase agreement. See "Legal Proceedings." Further, the Company closed the transactions with 13 respect to the sale of certain assets and the grant of an exclusive license for certain patents related to non-excimer lasers related to the Company's Massachusetts business operations to Laser Components GmbH ("Laser Components"), for a purchase price of $213,000. Laser Components is unaffiliated with the Company. In addition, Laser Components assumed the Company's prospective obligations under the Company's Massachusetts office lease. The Company has discontinued its Massachusetts operations. Accordingly, the former operations at the Company's Florida and Massachusetts facilities are being accounted in the Company's Consolidated Financial Statements included elsewhere in this Report as "discontinued operations," with a measurement date of May 4, 2000. The Consolidated Financial Statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. The Company recognized a loss of $277,401 from the sale of these discontinued operations in the quarter ended June 30, 2000. Management's decision to suspend these business operations is consistent with the Company's new business strategy and has resulted in the discontinuance of business operations, which generated approximately 76% of the Company's revenues for 1998 and 1999. Revenues from discontinued operations during the six (6) months ended June 30, 2000 and 1999 were approximately $189,000 and $587,000, respectively. Loss from discontinued operations during the six (6) months ended June 30, 2000 and 1999 were $369,141 and $604,614 respectively. At June 30, 2000 and December 31, 1999, net assets of the discontinued operations were $0 and $764,179, respectively. 14 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 The Company generated revenues of $570,000 during the three (3) months ended June 30, 2000, which were related to the sale of laser equipment in connection with the Baxter Agreement. The Company did not generate any revenues from continuing operations during the three (3) months ended June 30, 1999. In August, 2000, after significant progress toward completing beta testing of its psoriasis products, the Company shipped its first four excimer laser systems to dermatologists for commercial use. As of the date of this Report, the Company has generated no revenues from the psoriasis treatment system. Costs of revenues during the three (3) months ended June 30, 2000 increased to $325,000 from $0 during the three (3) months ended June 30, 1999, due primarily to the costs of the laser equipment sold in connection with the Baxter Agreement. Selling, general and administrative expenses during the three (3) months ended June 30, 2000 increased to $2,203,162 from $628,424 during the three (3) months ended June 30, 1999. Included in selling, general and administrative expenses for the three (3) months ended June 30, 2000 was $279,101 related to charges associated with the granting of options to certain of the Company's outside consultants, including certain members of the Company's Scientific Advisory Board. Excluding these charges, the increase primarily related to the Company's building of its infrastructure to enable the Company to implement its business plan to commercialize its psoriasis laser treatment system. Specifically, these increases from 1999 included increases in consulting and professional fees related to marketing expenses with respect to the Company's excimer laser systems, increased salaries and related costs associated with the Company's newly retained executive officers, increased personnel and overhead expenses with respect to the infrastructure, which the Company is building to commercialize its excimer laser operations. Research and development during the three (3) months ended June 30, 2000 increased to $727,933 from $472,366 during the three (3) months ended June 30, 1999. This increase primarily related to the increased amount of funds available for research expenses during 2000. Research and development expenses in the three (3) months ended June 30, 2000 primarily related to the development of the Company's excimer laser systems for its psoriasis and TMR products. Research and development expenses in the three (3) months ended June 30, 1999 primarily related to the development of the Company's psoriasis laser systems and also included expenses related to additional testing to meet CE Mark and Underwriter's Laboratory ("UL") standards for the Company's excimer lasers. Depreciation and amortization during the three (3) months ended June 30, 2000 decreased to $144,164 from $261,331 during the three (3) months ended June 30, 1999. These amounts primarily related to the amortization of the license fee from Baxter and the depreciation of equipment acquired in 1998. The 1999 amount also includes amortization of goodwill from the acquisition of Acculase. 15 Net interest income during the three (3) months ended June 30, 2000 was $194,738, as compared to interest expense during the three (3) months ended June 30, 1999 of $138,083. Net interest income during the three (3) months ended June 30, 2000 primarily related to interest earned on invested cash balances from the proceeds of private placements of the Company's securities. Net interest expense during the three (3) months ended June 30, 1999 primarily related to interest charges associated with the Company's note payables and long-term debt, which were repaid in the first quarter of 2000. Other income during the three (3) months ended June 30, 2000 increased to $10,917 from $4,257 during the three (3) months ended June 30, 1999. As a result of the foregoing, the Company incurred a net loss of $2,922,570 during the three (3) months ended June 30, 2000, as compared to a net loss of $1,923,396 during the three (3) months ended June 30, 1999. The Company incurred a loss from continuing operations of $2,624,604 during the three (3) months ended June 30, 2000, as compared to a loss from continuing operations of $1,495,947 during the three (3) months ended June 30, 1999. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 The Company generated revenues of $570,000 during the six (6) months ended June 30, 2000, which were related to the sale of laser equipment in connection with the Baxter Agreement. The Company did not generate any revenues from continuing operations during the six (6) months ended June 30, 1999. In August, 2000, after significant progress toward completing beta testing of its psoriasis products, the Company shipped its first four excimer laser systems to dermatologists for commercial use. As of the date of this Report, the Company has generated no revenues from the psoriasis treatment system. Costs of revenues during the six (6) months ended June 30, 2000 increased to $325,000 from $0 during the six (6) months ended June 30, 1999, due primarily to the costs of the laser equipment sold in connection with the Baxter Agreement. Selling, general and administrative expenses during the six (6) months ended June 30, 2000 increased to $4,515,333 from $1,030,470 during the six (6) months ended June 30, 1999. Included in selling, general and administrative expenses for the six (6) months ended June 30, 2000 were $808,766 related to a charge associated with the acceleration of vesting of certain options granted to the Chairman of the Company's Scientific Advisory Board, as well was $279,101 related to charges associated with the granting of options to certain of the Company's outside consultants, including certain other members of the Company's Scientific Advisory Board. Excluding this charge, the increase primarily related to the Company's building of its infrastructure to enable the Company to implement its business plan to commercialize its psoriasis laser treatment system. Specifically, these increases from 1999 included increases in consulting and professional fees related to marketing expenses with respect to the Company's excimer laser systems, increased salaries and related costs associated with the Company's newly retained executive officers, increased personnel and overhead expenses with respect to the infrastructure, which the Company is building to commercialize its excimer laser operations. 16 Research and development during the six (6) months ended June 30, 2000 increased to $1,427,630 from $597,793 during the six (6) months ended June 30, 1999. This increase primarily related to the increased amount of funds available for research expenses during 2000. Research and development expenses in the six (6) months ended June 30, 2000 primarily related to the development of the Company's excimer laser systems for its psoriasis and TMR products. Research and development expenses in the six (6) months ended June 30, 1999 primarily related to the development of the Company's psoriasis laser systems and also included expenses related to additional testing to meet CE Mark and Underwriter's Laboratory ("UL") standards for the Company's excimer lasers. Depreciation and amortization during the six (6) months ended June 30, 2000 decreased to $282,004 from $525,900 during the six (6) months ended June 30, 1999. These amounts primarily related to the amortization of the license fee from Baxter and the depreciation of equipment acquired in 1998. The 1999 amount also includes amortization of goodwill from the acquisition of Acculase. Net interest income during the six (6) months ended June 30, 2000 was $266,985, as compared to net interest expense during the six (6) months ended June 30, 1999 of $1,679,629. Net interest income during the six (6) months ended June 30, 2000 primarily related to interest earned on invested cash balances from the proceeds of private placements of the Company's securities. Net interest expense during the six (6) months ended June 30, 1999 primarily related to interest charges associated with the recognition of a beneficial conversion feature on certain of its then outstanding convertible notes payable, as well as the Company's various notes payable and long-term debt, which were repaid in the first quarter of 2000. Other income during the six (6) months ended June 30, 2000 increased to $327,262 from $3,814 during the six (6) months ended June 30, 1999. Other income for the six (6) months ended June 30, 2000 primarily related to the forgiveness of certain payables by certain of the Company's creditors. As a result of the foregoing, the Company incurred a net loss of $6,032,262 during the six (6) months ended June 30, 2000, as compared to a loss of $4,434,592 during the six (6) months ended June 30, 1999. The Company incurred a loss from continuing operations of $5,385,720 during the six (6) months ended June 30, 2000, as compared to a loss from continuing operations of $3,829,978 during the six (6) months ended June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the ratio of current assets to current liabilities was 9.5 to 1.00 compared to 1.3 to 1.00 at December 31, 1999. The Company had $13,258,156 of working capital, as of June 30, 2000. The Company has historically financed its operations through the use of working capital provided from loans and equity and debt financing. Due to the limited financial resources of the Company, the Company's strategy changed in 1997 to focus its efforts on the Company's excimer laser technology and expertise in order to develop a broad base of excimer laser and excimer laser delivery products for both medical and non-medical applications. From September, 1997 through March, 2000, the Company issued certain securities, including shares of Common Stock and other derivative securities convertible or exercisable into shares of Common Stock, in order to finance the Company's business operations. All of the shares of Common Stock and the shares of Common Stock underlying such derivative securities have been registered in a registration statement dated May 12, 2000. 17 As of March 16, 2000, the Company completed the March 16, 2000 Financing to ten (10) institutional investors of an aggregate of 1,409,092 shares of Common Stock at a purchase price of $11.00 per share, resulting in aggregate gross proceeds to the Company of approximately $15,500,000. The market price of the Common Stock on the date that the transaction was negotiated was $13.50 and on the closing date of the transaction was approximately $15.88. The Company paid ING Barings LLC a commission of 6% of the gross proceeds, or approximately $930,000. The Company intends to use and has used the proceeds of this financing to pay for the marketing of its products (including its psoriasis treatment products) and research and development expenses, and to use as working capital. Cash and cash equivalents were $13,501,234, as of June 30, 2000, as compared to $4,535,557, as of December 31, 1999. This increase was primarily attributable to the receipt of $14,259,491 in net cash proceeds from the March 16, 2000 Financing. As of June 30, 2000, the Company had long-term borrowings in the aggregate amount of $131,061. As of December 31, 1999, the Company had long-term borrowings in the aggregate amount of $397,330. The decrease in long-term borrowings relates to the repayment of long-term obligations from the proceeds of private placements of the Company's securities. In March, 2000, the Company paid $950,000 to the landlord for its Florida facility, and $700,000 to CSC Healthcare Inc., to settle certain disputes between the Company and such other parties. The Company paid these amounts from the proceeds of a financing in March, 2000. Net cash used in operating activities was $6,564,671 and $1,900,218 for the six (6) months ended June 30, 2000 and 1999, respectively. Net cash used in operating activities during the six (6) months ended June 30, 2000 and 1999 primarily consisted of net losses, decreases in net current liabilities (2000 only) and decreases in net current assets, offset by depreciation and amortization, increases in interest related to the conversion features of the Convertible Notes and amortization of certain related issuance costs (1999 only), the payment in the Company's securities (including Common Stock, increases in net current liabilities (1999 only), options and warrants) of fees for services to consultants and the acceleration of stock options issued to employees and consultants. Net cash used in investing activities was $459,400 and $44,553 for the six (6) months ended June 30, 2000 and 1999, respectively. In the six (6) months ended June 30, 2000, the Company utilized $189,619 to acquire equipment for the Company's excimer laser business operations. The Company also used $520,281 associated with the construction of its psoriais treatment lasers. The Company received proceeds of $250,500 from the sale of certain assets related to its discontinued Florida and Massachusetts operations. In the six (6) months ended June 30, 1999, the Company utilized $44,553 to purchase equipment and leasehold improvements to support the Company's excimer laser operations. Net cash provided by financing activities was $15,989,748 and $1,913,308 during the six (6) months ended June 30, 2000 and 1999, respectively. In the six (6) months ended June 30, 2000, the Company received $14,259,491 from the net proceeds of the sale of 1,409,092 shares of Common Stock in connection with the March 16, 2000 Financing, $50,000 from the issuance of a note payable, $1,452,940 from the exercise of stock options and $543,586 from the exercise of warrants, which was offset by the utilization of $316,269 for the payment of certain debts. 18 In the six (6) months ended June 30, 1999, the Company received $2,380,000 in proceeds from the offering of the Convertible Notes, $101,561 from the proceeds of certain notes payable, and $7,560 as an advance from a related party, which was offset by the utilization of $398,053 for the payment of certain debts, $11,160 for the payment of certain related party notes payable and $166,600 for certain costs related to the issuance of the Convertible Notes and certain other securities. The Company's ability to expand business operations is currently dependent on financing from external sources. There can be no assurance that changes in the Company's manufacturing and marketing research and development plans or other changes affecting the Company's operating expenses and business strategy will not result in the expenditure of such resources before such time or that the Company will be able to develop profitable operations prior to such date, or at all, or that the Company will not require additional financing at or prior to such time in order to continue operations. There can be no assurance that additional capital will be available on terms favorable to the Company, if at all. To the extent that additional capital is raised through the sale of additional equity or convertible debt securities, the issuance of such securities could result in additional dilution to the Company's stockholders. Moreover, the Company's cash requirements may vary materially from those now planned because of results of marketing, product testing, changes in the focus and direction of the Company's marketing programs, competitive and technological advances, the level of working capital required to sustain the Company's planned growth, litigation, operating results, including the extent and duration of operating losses, and other factors. In the event that the Company experiences the need for additional capital, and is not able to generate capital from financing sources or from future operations, management may be required to modify, suspend or discontinue the business plan of the Company. IMPACT OF INFLATION The Company has not operated in a highly inflationary period, and its management does not believe that inflation has had a material effect on sales or expenses. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June, 1998, the Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivatives, including certain derivative instruments embedded in other contacts and for hedging activities, and is effective for all fiscal years beginning after June 15, 2000. Management believes that the adoption of SFAS No. 133 will have no impact on the Company's operating results or financial position. In December 1999, the Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101 summarizes certain of the Staff's views in applying generally accepted accounting principles to recognition, presentation and disclosure of revenue in financial statements. Implementation of SAB No. 101 is required no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company has determined that its accounting policies for revenue recognition are in compliance with the provisions of SAB No. 101. 19 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On May 4, 2000, the Company terminated its relationship with Hein + Associates LLP, as principal independent accountants for the Company. The decision to terminate Hein + Associates LLP as principal independent accountants for the Company was approved by the Company's Board of Directors on May 4, 2000. In connection with the audits for the three (3) most recent fiscal years ended December 31, 1999, 1998 and 1997 and the subsequent interim period through May 4, 2000, there were no disagreements between Hein + Associates LLP and the Company, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfactions of Hein + Associates LLP would have caused Hein + Associates LLP to make reference in connection with its report for the related periods with respect to the subject matter of the disagreement. The audit reports of Hein + Associates LLP on the consolidated financial statements of the Company, as of and for the fiscal years ended December 31, 1999, 1998 and 1997, did not contain any adverse opinion, or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. As of June 23, 2000, the Company engaged Arthur Andersen LLP, as the Company's independent public accountant. Prior to engaging Arthur Andersen LLP, neither the Company nor anyone on its behalf consulted Arthur Andersen LLP regarding 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's financial statements. Since no disagreements were reported between the Company and its former independent public accountant, as reported in the Company's Reports on Form 8-K, filed on May 9, 2000, and on Form 8-K/A, filed on May 11, 2000, Arthur Andersen LLP has not been consulted on any matter that was either the subject of a disagreement or a reportable event. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is not currently exposed to market risks due to changes in interest rates and foreign currency rates and therefore the Company does not use derivative financial instruments to address risk management issues in connection with changes in interest rates and foreign currency rates. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS LITIGATION WITH SURGILIGHT, INC. AND TIMOTHY J. SHEA. On or about June 20, 2000, the Company filed a Complaint for Misappropriation of Trade Secrets, Breach of Confidentiality Agreement and Breach of Fiduciary Duty against SurgiLight, Inc. ("SurgiLight") and Timothy J. Shea ("Shea") in the Circuit Court of the Tenth Judicial Circuit in and for Orange County, Florida. The Complaint alleges that SurgiLight and Shea have unlawfully misappropriated and used trade secrets and other confidential information of the Company with respect to the Excimer Laser Phototherapy System AL 7000 for the treatment of psoriasis. The Complaint alleges that Shea obtained this information when he was an employee and subject to confidentiality and employment agreements. The Complaint further alleges that SurgiLight hired Shea to oversee its corporate operations, clinical research and FDA regulatory submissions as part of a common plan or scheme between SurgiLight and Shea to pirate and use the Company's trade secrets and confidential information. Additionally, the Complaint alleges that SurgiLight and Shea used the Company's trade secrets and confidential information to develop, manufacture and/or market an excimer laser for the treatment of psoriasis known as the EX-308UV Laser, and to prepare and submit a section 510(k) application for the approval of the EX-308UV Laser to the FDA. The Complaint seeks temporary and permanent injunctive relief and damages. SurgiLight and Shea have filed a motion to dismiss, ruling on which is pending. A letter from an attorney for SurgiLight and Shea, in response to a demand letter sent by the Company's counsel, disputes the Company's claim and asserts their intention to seek damages for tortious interference with a contractual relationship or prospective business relationship and/or frivolous litigation. Based on the information currently available, the Company is unable to evaluate the likelihood of an unfavorable outcome, if any, to the Company. 20 LITIGATION WITH LASTEC, INC., JOHN YORKE AND RAYMOND "TIM" THOMPSON. On June 7, 2000, the Company filed a Complaint against Lastec, Inc. ("Lastec"), John Yorke ("Yorke") and Raymond "Tim" Thompson ("Thompson") in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida, to collect the balance of $337,500 in principal, plus interest, due on a promissory note and guaranty. The promissory note and guaranty were given as a portion of the purchase price for assets purchased by Lastec from the Company with respect to its prior business operations in Orlando, Florida. Lastec is the obligor on the promissory note. Yorke and Thompson signed a guaranty of the note. The Complaint alleges that Lastec failed to make an installment payment of $37,500 due on the note on May 20, 2000, and that the full amount is therefore due and payable on the note and the guaranty. The Complaint seeks to enforce the promissory note and guaranty, and also includes claims for breach of the security agreement which secures the note, and repossessing the assets. The defendants have filed an answer denying liability. The Company is advised that if the matter is not settled, the defendants will file an amended answer and cross-complaint claiming damages for the Company's alleged breach of the agreement and that the defendants have repudiated the agreement based thereon. Based on the information currently available, the Company is unable to evaluate the likelihood of an unfavorable outcome, if any, to the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS INCREASE IN CAPITAL On August 8, 2000, pursuant to a vote of the Company's stockholders at the Annual Meeting on July 18, 2000, the Company amended its Certificate of Incorporation to increase its authorized capital from 25,000,000 to 50,000,000 shares of Common Stock, par value $0.01 per share. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On July 18, 2000, at the Company's Annual Meeting of Stockholders, the Company's stockholders adopted the following resolutions by the votes set forth below: 1. The Company's six directors were re-elected by the following votes: Director Votes For Votes Against Votes Withheld -------- --------- ------------- -------------- Alex Charlton 10,687,596 0 2,059 Jeffrey O'Donnell 10,687,596 0 2,059 Alan Novak 10,687,588 0 2,067 John J. McAtee, Jr. 10,687,596 0 2,059 Samuel Navarro 10,687,596 0 2,059 Richard DePiano 10,687,596 0 2,059 2. The Company's Restated Certificate of Incorporation and revised Bylaws were approved with 10,649,255 votes for, 29,684 against and 10,716 abstaining. 21 3. The Company's Certificate of Incorporation was amended to increase its authorized capital to 50,000,000 shares of Common Stock, with 10,532,125 votes for, 150,879 against and 6,033 abstaining. 4. The Company's change of name to PhotoMedex, Inc. was approved by a vote of 10,675,551 for, 8,071 against and 6,033 abstaining. 5. The Company's adoption of its 2000 Stock Option Plan was approved by a vote of 3,574,753 for, 270,732 against and 199,104 abstaining. 6. The Company's adoption of its 2000 Non-Employee Director Stock Option Plan was approved by a vote of 3,60,495 for, 355,614 against and 79,480 abstaining. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits -------- 3.1 Restated Certificate of Incorporation. 3.2 Revised Bylaws. 10.1 2000 Stock Option Plan. 10.2 2000 Non-Employee Director Stock Option Plan. 16.1 Letter re Change in Certifying Accountant (1) 27 Financial Data Schedules - ---------- (1) Filed as part of the Company's Current Report on Form 8-K, dated May 9, 2000, and as amended on May 11, 2000. B. Reports on Form 8-K ------------------- The Company filed a Current Report on Form 8-K on May 9, 2000, and as amended on May 11, 2000, with respect to a change in its principal independent accountants. The Company filed a Current Report on Form 8-K on June 27, 2000, to report the appointment of Arthur Andersen LLP as its independent public accountant. 22 DOCUMENTS INCORPORATED BY REFERENCE The Company is currently subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information may be inspected and copied at the public reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549; at its New York Regional Office, Suite 1300, 7 World Trade Center, New York, New York 10048; and its Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,and copies of such materials can be obtained from the Public Reference Section of the Commission at its principal office in Washington, D.C., at prescribed rates. In addition, such materials may be accessed electronically at the Commission's site on the World Wide Web, located at http://www.sec.gov. The Company intends to furnish its stockholders with annual reports containing audited financial statements and such other periodic reports as the Company may determine to be appropriate or as may be required by law. Certain documents listed above in Part II, Item 6 of this Report (Exhibit 16.1), as exhibits to this Report on Form 10-Q, are incorporated by reference from other documents previously filed by the Company with the Commission. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PHOTOMEDEX, INC. Date: August 14, 2000 By: /S/ Jeffrey F. O'Donnell -------------------------------------- Jeffrey F. O'Donnell President and Chief Executive Officer Date: August 14, 2000 By: /S/ Dennis McGrath -------------------------------------- Dennis McGrath Chief Financial Officer 23 EX-3.1 2 0002.txt RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF LASER PHOTONICS, INC. 1. This Restated Certificate of Incorporation (the "Certificate") of LASER PHOTONICS, INC. (the "Corporation"), was duly adopted by the Board of Directors of the Corporation on May 15, 2000 and the stockholders of the Corporation on July 18, 2000, as set forth below, in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. The original Certificate of Incorporation was filed on November 3, 1987. 2. The following Restated Certificate of Incorporation was adopted on July 18, 2000 by the vote of the stockholders of the Corporation by in excess of 50% of the issued and outstanding shares of each class of the Corporation's capital stock entitled to vote thereon. The number of shares voted for the Restated Certificate of Incorporation was sufficient for approval. 3. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated and further amended to read in its entirety as follows: FIRST: The name of the corporation is PhotoMedex, Inc. SECOND: The address of the registered office of the Corporation in the State of Delaware shall be at Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware. The name and address of the Corporation's registered agent in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the General Corporation Law of the State of Delaware. FOURTH: 1. The total number of shares of stock which the Corporation shall have authority to issue is Fifty Million (50,000,000) shares, consisting of Fifty Million (50,000,000) shares of Common Stock, par value $0.01 per share (the "Common Stock"). FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, rescind, alter or amend in any respect the Bylaws of the Corporation (the "Bylaws"). SIXTH: The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. The exact number of directors of the Corporation shall be determined from time to time by a Bylaw or Amendment thereto provided that the number of directors shall not be reduced to less than three (3), except that there need be only as many directors as there are stockholders in the event that the outstanding shares are held of record by fewer than three (3) stockholders. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provided. SEVENTH: Each director shall serve until his successor is elected and qualified or until his death, resignation or removal; and no decrease in the authorized number of directors shall shorten the term of any incumbent director EIGHTH: Newly created directorships resulting from any increase in the number of directors, or any vacancies on the Board of Directors resulting from death, resignation, removal or other causes, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified or until such director's death, resignation or removal, whichever first occurs. NINTH: Meetings of stockholders of the Corporation may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision of applicable law) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws. TENTH: The Corporation reserves the right to adopt, repeal, rescind, alter or amend in any respect any provision contained in this Certificate in the manner now or hereafter prescribed by applicable law, and all rights conferred on stockholders herein are granted subject to this reservation. ELEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Delaware General Corporation Law. Any repeal or modification of this Section by the stockholders of the Corporation shall be prospective only and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. 2 TWELFTH: No contract or other transaction of the Corporation with any other person, firm or corporation, or in which this corporation is interested, shall be affected or invalidated by: (a) the fact that any one or more of the directors or officers of the Corporation is interested in or is a director or officer of such other firm or corporation; or, (b) the fact that any director or officer of the Corporation, individually or jointly with others, may be a party to or may be interested in any such contract or transaction, so long as the contract or transaction is authorized, approved or ratified at a meeting of the Board of Directors by sufficient vote thereon by directors not interested therein, to which such fact of relationship or interest has been disclosed, or the contract or transaction has been approved or ratified by vote or written consent of the stockholders entitled to vote, to whom such fact of relationship or interest has been disclosed, or so long as the contract or transaction is fair and reasonable to the Corporation. Each person who may become a director or officer of the Corporation is hereby relieved from any liability that might otherwise arise by reason of his contracting with the Corporation for the benefit of himself or any firm or corporation in which he may in any way be interested. IN WITNESS WHEREOF, Laser Photonics, Inc. has caused this Restated Certificate of Incorporation to be executed by its President as of this July 18, 2000. LASER PHOTONICS, INC. By: /S/ Jeffrey F. O'Donnell ----------------------------------- Jeffrey F. O'Donnell, President 3 EX-3.2 3 0003.txt BYLAWS BYLAWS OF PHOTOMEDEX, INC. (A DELAWARE CORPORATION) The foregoing are the Bylaws of PHOTOMEDEX, INC., a Delaware corporation (the "Corporation"), effective as of July 18, 2000, after approval by the Corporation's Board of Directors and stockholders: ARTICLE I Offices Section 1.01. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the Corporation shall be located at Five Radnor Corporate Center, Suite 470, Radnor, Pennsylvania 19087. The Board of Directors of the Corporation (the "Board of Directors") may change the location of said principal executive office. Section 1.02. OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II Meetings of Stockholders Section 2.01. ANNUAL MEETINGS. The annual meeting of stockholders of the Corporation shall be held at a date and at such time as the Board of Directors shall determine. At each annual meeting of stockholders, directors shall be elected in accordance with the provisions of Section 3.03 hereof and any other proper business may be transacted. Section 2.02. SPECIAL MEETINGS. Special meetings of stockholders for any purpose or purposes may be called at any time by a majority of the Board of Directors, by the Chairman of the Board, by the President or by holders of not less than sixty-six and two thirds percent (66 2/3%) of the voting power of all outstanding shares of voting stock regardless of class and voting together as a single voting class. The term "voting stock" as used in these Bylaws shall have the meaning set forth in Section 203(c) of the Delaware General Corporation Law. Special meetings may not be called by any other person or persons. Each special meeting shall be held at such date and time as is requested by the person or persons calling the meeting, within the limits fixed by law. Section 2.03. PLACE OF MEETINGS. Each annual or special meeting of stockholders shall be held at such location as may be determined by the Board of Directors or, if no such determination is made, at such place as may be determined by the Chairman of the Board. If no location is so determined, any annual or special meeting shall be held at the principal executive office of the Corporation. Section 2.04. NOTICE OF MEETINGS. Written notice of each annual or special meeting of stockholders stating the date and time when, and the place where, it is to be held shall be delivered either personally or by mail to stockholders entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. The purpose or purposes for which the meeting is called may, in the case of an annual meeting, and shall, in the case of a special meeting, also be stated. If mailed, such notice shall be directed to a stockholder at his address as it shall appear on the stock books of the Corporation, unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case such notice shall be mailed to the address designated in such request. Section 2.05. CONDUCT OF MEETINGS. All annual and special meetings of stockholders shall be conducted in accordance with such rules and procedures as the Board of Directors may determine subject to the requirements of applicable law and, as to matters not governed by such rules and procedures, as the chairman of such meeting shall determine. The chairman of any annual or special meeting of stockholders shall be the Chairman of the Board. The Secretary, or in the absence of the Secretary, a person designated by the Chairman of the Board, shall act as secretary of the meeting. Section 2.06. QUORUM. At any meeting of stockholders of the Corporation, the presence, in person or by proxy, of the holders of record of a majority of the shares then issued and outstanding and entitled to vote at the meeting shall constitute a quorum for the transaction of business; provided, however, that this Section 2.06 shall not affect any different requirement which may exist under statute, pursuant to the rights of any authorized class or series of stock, or under the Certificate of Incorporation of the Corporation, as amended or restated from time to time (the "Certificate"), for the vote necessary for the adoption of any measure governed thereby. In the absence of a quorum, the stockholders present in person or by proxy, by majority vote and without further notice, may adjourn the meeting from time to time until a quorum is attained. At any reconvened meeting following such adjournment at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 2.07. VOTES REQUIRED. The affirmative vote of a majority of the shares present in person or represented by proxy at a duly called meeting of stockholders of the Corporation, at which a quorum is present and entitled to vote on the subject matter, shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, except that the election of directors shall be by plurality vote, unless the vote of a greater or different number thereof is required by statute, by the rights of any authorized class of stock or by the Certificate. Unless the Certificate or a resolution of the Board of Directors adopted in connection with the issuance of shares of any class or series of stock provides for a greater or lesser number of votes per share, or limits or denies voting rights, each outstanding share of stock, regardless of class or series, shall be entitled to one (l) vote on each matter submitted to a vote at a meeting of stockholders. 2 Section 2.08. PROXIES. A stockholder may vote the shares owned of record by him either in person or by proxy executed in writing (which shall include writings sent by telex, telegraph, cable or facsimile transmission) by the stockholder himself or by his duly authorized attorney-in-fact. No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be in writing, subscribed by the stockholder or his duly authorized attorney-in-fact, and dated, but it need not be sealed, witnessed or acknowledged. Section 2.09. STOCKHOLDER ACTION. Any action required or permitted to be taken by the stockholders of the Corporation must be effect at a duly called Annual Meeting or at a special meeting of stockholders of the Corporation. Section 2.10. LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make (or cause to be prepared and made), at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of, and the number of shares registered in the name of, each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the duration thereof, and may be inspected by any stockholder who is present. Section 2.11. INSPECTORS OF ELECTION. In advance of any meeting of stockholders, the Board of Directors may appoint Inspectors of Election to act at such meeting or at any adjournment or adjournments thereof. If such Inspectors are not so appointed or fail or refuse to act, the chairman of any such meeting may (and, upon the demand of any stockholder or stockholder's proxy, shall) make such an appointment. The number of Inspectors of Election shall be one (1) or three (3). If there are three (3) Inspectors of Election, the decision, act or certificate of a majority shall be effective and shall represent the decision, act or certificate of all. No such Inspector need be a stockholder of the Corporation. Subject to any provisions of the Certificate of Incorporation, the Inspectors of Election shall determine the number of shares outstanding, the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; they shall receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close and determine the result; and finally, they shall do such acts as may be proper to conduct the election or vote with fairness to all stockholders. On request, the Inspectors shall make a report in writing to the secretary of the meeting concerning any challenge, question or other matter as may have been determined by them and shall execute and deliver to such secretary a certificate of any fact found by them. 3 ARTICLE III Directors Section 3.01. POWERS. The business and affairs of the Corporation shall be managed by and be under the direction of the Board of Directors. The Board of Directors shall exercise all the powers of the Corporation, except those that are conferred upon or reserved to the stockholders by statute, the Certificate or these Bylaws. Section 3.02. NUMBER. The number of directors shall be fixed from time to time by resolution of the Board of Directors but shall not be less than three (3) nor more than eight (8). Section 3.03. ELECTION AND TERM OF OFFICE. Each director shall serve until his successor is elected and qualified or until his death, resignation or removal, no decrease in the authorized number of directors shall shorten the term of any incumbent director, and additional directors elected in connection with rights to elect such additional directors under specified circumstances which may be granted to the holders of any series of Preferred Stock shall not be included in any class, but shall serve for such term or terms and pursuant to such other provisions as are specified in the resolution of the Board of Directors establishing such series. Section 3.04. ELECTION OF CHAIRMAN OF THE BOARD. At the organizational meeting immediately following the annual meeting of stockholders, the directors shall elect a Chairman of the Board from among the directors who shall hold office until the corresponding meeting of the Board of Directors in the next year and until his successor shall have been elected or until his earlier resignation or removal. Any vacancy in such office may be filled for the unexpired portion of the term in the same manner by the Board of Directors at any regular or special meeting. Section 3.05. REMOVAL. Any director may be removed from office only as provided in the Certificate of Incorporation. Section 3.06. VACANCIES AND ADDITIONAL DIRECTORSHIPS. Newly created directorships resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 3.07. REGULAR AND SPECIAL MEETINGS. Regular meetings of the Board of Directors shall be held immediately following the annual meeting of the stockholders; without call at such time as shall from time to time be fixed by the Board of Directors; and as called by the Chairman of the Board in accordance with applicable law. 4 Special meetings of the Board of Directors shall be held upon call by or at the direction of the Chairman of the Board, the President or any two (2) directors, except that when the Board of Directors consists of one (1) director, then the one director may call a special meeting. Except as otherwise required by law, notice of each special meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least three days before the day on which the meeting is to be held, or shall be sent to him at such place by telex, telegram, cable, facsimile transmission or telephoned or delivered to him personally, not later than the day before the day on which the meeting is to be held. Such notice shall state the time and place of such meeting, but need not state the purpose or purposes thereof, unless otherwise required by law, the Certificate of Incorporation or these Bylaws ("Bylaws"). Notice of any meeting need not be given to any director who shall attend such meeting in person (except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened) or who shall waive notice thereof, before or after such meeting, in a signed writing. Section 3.08. QUORUM. At all meetings of the Board of Directors, a majority of the fixed number of directors shall constitute a quorum for the transaction of business, except that when the Board of Directors consists of one (1) director, then the one director shall constitute a quorum. In the absence of a quorum, the directors present, by majority vote and without notice other than by announcement, may adjourn the meeting from time to time until a quorum shall be present. At any reconvened meeting following such an adjournment at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.09. VOTES REQUIRED. Except as otherwise provided by applicable law or by the Certificate of Incorporation, the vote of a majority of the directors present at a meeting duly held at which a quorum is present shall be sufficient to pass any measure. Section 3.10. PLACE AND CONDUCT OF MEETINGS. Each regular meeting and special meeting of the Board of Directors shall be held at a location determined as follows: The Board of Directors may designate any place, within or without the State of Delaware, for the holding of any meeting. If no such designation is made: (a) any meeting called by a majority of the directors shall be held at such location, within the county of the Corporation's principal executive office, as the directors calling the meeting shall designate; and (b) any other meeting shall be held at such location, within the county of the Corporation's principal executive office, as the Chairman of the Board may designate or, in the absence of such designation, at the Corporation's principal executive office. Subject to the requirements of applicable law, all regular and special meetings of the Board of Directors shall be conducted in accordance with such rules and procedures as the Board of Directors may approve and, as to matters not governed by such rules and procedures, as the chairman of such meeting shall determine. The chairman of any regular or special meeting shall be the Chairman of the Board, or, in his absence, a person designated by the Board of Directors. The Secretary, or, in the absence of the Secretary, a person designated by the chairman of the meeting, shall act as secretary of the meeting. 5 Section 3.11. FEES AND COMPENSATION. Directors shall be paid such compensation as may be fixed from time to time by resolution of the Board of Directors: (a) for their usual and contemplated services as directors; (b) for their services as members of committees appointed by the Board of Directors, including attendance at committee meetings as well as services which may be required when committee members must consult with management staff; and (c) for extraordinary services as directors or as members of committees appointed by the Board of Directors, over and above those services for which compensation is fixed pursuant to items (a) and (b) in this Section 3.11. Compensation may be in the form of an annual retainer fee or a fee for attendance at meetings, or both, or in such other form or on such basis as the resolutions of the Board of Directors shall fix. Directors shall be reimbursed for all reasonable expenses incurred by them in attending meetings of the Board of Directors and committees appointed by the Board of Directors and in performing compensable extraordinary services. Nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity, such as an officer, agent, employee, consultant or otherwise, and receiving compensation therefor. Section 3.12. COMMITTEES OF THE BOARD OF DIRECTORS. To the full extent permitted by applicable law, the Board of Directors may from time to time establish committees, including, but not limited to, standing or special committees and an executive committee with authority and responsibility for bookkeeping, with authority to act as signatories on Corporation bank or similar accounts and with authority to choose attorneys for the Corporation and direct litigation strategy, which shall have such duties and powers as are authorized by these Bylaws or by the Board of Directors. Committee members, and the chairman of each committee, shall be appointed by the Board of Directors. The Chairman of the Board, in conjunction with the several committee chairmen, shall make recommendations to the Board of Directors for its final action concerning members to be appointed to the several committees of the Board of Directors. Any member of any committee may be removed at any time with or without cause by the Board of Directors. Vacancies which occur on any committee shall be filled by a resolution of the Board of Directors. If any vacancy shall occur in any committee by reason of death, resignation, disqualification, removal or otherwise, the remaining members of such committee, so long as a quorum is present, may continue to act until such vacancy is filled by the Board of Directors. The Board of Directors may, by resolution, at any time deemed desirable, discontinue any standing or special committee. Members of standing committees, and their chairmen, shall be elected yearly at the regular meeting of the Board of Directors which is held immediately following the annual meeting of stockholders. The provisions of Sections 3.07, 3.08, 3.09 and 3.10 of these Bylaws shall apply, mutatis mutandis, to any such Committee of the Board of Directors. ARTICLE IV Officers Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE. The Corporation shall have a Chairman of the Board, a President, Treasurer, such senior vice presidents and vice presidents as the Board of Directors deems appropriate, a Secretary and such other officers as the Board of Directors may deem appropriate. These officers shall be elected annually by the Board of Directors at the organizational meeting immediately following the annual meeting of stockholders, and each such officer shall hold office until the corresponding meeting of the Board of Directors in the next year and until his successor shall have been elected and qualified or until his earlier resignation, death or removal. Any vacancy in any of the above offices may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. 6 Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors shall preside at all meetings of the directors and shall have such other powers and duties as may from time to time be assigned to him by the Board of Directors. Section 4.03. PRESIDENT. The President shall be the chief executive officer of the Corporation and shall, subject to the power of the Board of Directors, have general supervision, direction and control of the business and affairs of the Corporation. He shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, at all meetings of the directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other duties as may be assigned to him from time to time by the Board of Directors. Section 4.04. TREASURER. The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by the directors. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his transactions as the Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. Section 4.05. SECRETARY. The Secretary shall keep the minutes of the meetings of the stockholders, the Board of Directors and all committees. He shall be the custodian of the corporate seal and shall affix it to all documents which he is authorized by law or the Board of Directors to sign and seal. He also shall perform such other duties as may be assigned to him from time to time by the Board of Directors or the Chairman of the Board or President. Section 4.06. ASSISTANT OFFICERS. The President may appoint one or more assistant secretaries and such other assistant officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as may be specified from time to time by the President. Section 4.07. WHEN DUTIES OF AN OFFICER MAY BE DELEGATED. In the case of absence or disability of an officer of the Corporation or for any other reason that may seem sufficient to the Board of Directors, the Board of Directors or any officer designated by it, or the President, may, for the time of the absence or disability, delegate such officer's duties and powers to any other officer of the Corporation. 7 Section 4.08. OFFICERS HOLDING TWO OR MORE OFFICES. The same person may hold any two (2) or more of the above-mentioned offices. Section 4.09. COMPENSATION. The Board of Directors shall have the power to fix the compensation of all officers and employees of the Corporation. Section 4.10. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors, to the President, or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein unless otherwise determined by the Board of Directors. The acceptance of a resignation by the Corporation shall not be necessary to make it effective. Section 4.11. REMOVAL. Any officer of the Corporation may be removed, with or without cause, by the affirmative vote of a majority of the entire Board of Directors. Any assistant officer of the Corporation may be removed, with or without cause, by the President or by the Board of Directors. ARTICLE V Indemnification of Directors, Officers Employees end other Corporate Agents Section 5.01. ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to hereinafter as an "Agent"), against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. 8 Section 5.02. ACTION, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was an Agent against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation by a court of competent jurisdiction, after exhaustion of all appeals therefrom, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Section 5.03. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under Sections 5.01 or 5.02 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Agent is proper in the circumstances because the Agent has met the applicable standard of conduct set forth in Sections 5.01 and 5.02 hereof, which determination is made (a) by the Board of Directors, by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. Section 5.04. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article V, to the extent that an Agent has been successful on the merits or otherwise, including the dismissal of an action without prejudice or the settlement of an action without admission of liability, in defense of any action, suit or proceeding referred to in Sections 5.01 or 5.02 hereof, or in defense of any claim, issue or matter therein, such Agent shall be indemnified against expenses, including attorneys' fees actually and reasonably incurred by such Agent in connection therewith. Section 5.05. ADVANCES OF EXPENSES. Except as limited by Section 5.06 of this Article V, expenses incurred by an Agent in defending any civil or criminal action, suit, or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding, if the Agent shall undertake to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified as authorized in this Article V. Notwithstanding the foregoing, no advance shall be made by the Corporation if a determination is reasonably and promptly made by the Board of Directors by a majority vote of a quorum of disinterested directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel in a written opinion, that, based upon the facts known to the Board of Directors or counsel at the time such determination is made, such person acted in bad faith and in a manner that such person did not believe to be in or not opposed to the best interest of the Corporation, or, with respect to any criminal proceeding, that such person believed or had reasonable cause to believe his conduct was unlawful. 9 Section 5.06. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON APPLICATION. Any indemnification or advance under this Article V shall be made promptly, and in any event within ninety days, upon the written request of the Agent, unless a determination shall be made in the manner set forth in the second sentence of Subsection 5.05 hereof that such Agent acted in a manner set forth therein so as to justify the Corporation's not indemnifying or making an advance to the Agent. The right to indemnification or advances as granted by this Article V shall be enforceable by the Agent in any court of competent jurisdiction, if the Board of Directors or independent legal counsel denies the claim, in whole or in part, or if no disposition of such claim is made within ninety (90) days. The Agent's expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. Section 5.07. OTHER RIGHTS AND REMEDIES. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall not be deemed exclusive of any other rights to which an Agent seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors and administrators of such a person. All rights to indemnification under this Article V shall be deemed to be provided by a contract between the Corporation and the Agent who serves in such capacity at any time while these Bylaws and other relevant provisions of the Delaware General Corporation Law and other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. Section 5.08. INSURANCE. Upon resolution passed by the Board of Directors, the Corporation may purchase and maintain insurance on behalf of any person who is or was an Agent against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article V. Section 5.09. CONSTITUENT CORPORATIONS. For the purposes of this Article V, references to "the Corporation" shall include, in addition to the resulting corporation, all constituent corporations (including all constituents of constituents) absorbed in a consolidation or merger as well as the resulting or surviving corporation, which, if the separate existence of such constituent corporation had continued, would have had power and authority to indemnify its Agents, so that any Agent of such constituent corporation shall stand in the same position under the provisions of the Article V with respect to the resulting or surviving corporation as that Agent would have with respect to such constituent corporation if its separate existence had continued. Section 5.10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S REQUEST. For purposes of this Article V, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to any employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article V. 10 Section 5.11. SAVINGS CLAUSE. If this Article V or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article V that shall not have been invalidated, or by any other applicable law. ARTICLE VI Stock Section 6.01. CERTIFICATES. Except as otherwise provided by law, each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and class (and series, if appropriate) of shares of stock owned by him in the Corporation. Each certificate shall be signed in the name of the Corporation by the Chairman of the Board or a Vice-Chairman of the Board or the President or a Vice President, together with the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Any or all of the signatures on any certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 6.02. TRANSFER OF SHARES. Shares of stock shall be transferable on the books of the Corporation only by the holder thereof, in person or by his duly authorized attorney, upon the surrender of the certificate representing the shares to be transferred, properly endorsed, to the Corporation's transfer agent, if the Corporation has a transfer agent, or to the Corporation's registrar, if the Corporation has a registrar, or to the Secretary, if the Corporation has neither a transfer agent nor a registrar. The Board of Directors shall have power and authority to make such other rules and regulations concerning the issue, transfer and registration of certificates of the Corporation's stock as it may deem expedient. Section 6.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may have one or more transfer agents and one or more registrars of its stock whose respective duties the Board of Directors or the Secretary may, from time to time, define. No certificate of stock shall be valid until countersigned by a transfer agent, if the Corporation has a transfer agent, or until registered by a registrar, if the Corporation has a registrar. The duties of transfer agent and registrar may be combined. 11 Section 6.04. STOCK LEDGERS. Original or duplicate stock ledgers, containing the names and addresses of the stockholders of the Corporation and the number of shares of each class of stock held by them, shall be kept at the principal executive office of the Corporation or at the office of its transfer agent or registrar. Section 6.05. RECORD DATES. The Board of Directors may fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or in order to make a determination of stockholders for any other proper purpose. Such date in any case shall be not more than sixty (60) days, and in case of a meeting of stockholders, not less than ten (10) days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. Only those stockholders of record on the date so fixed shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the Corporation after any such record date fixed by the Board of Directors. 12 EX-10.1 4 0004.txt 2000 STOCK OPTION PLAN PHOTOMEDEX, INC. 2000 STOCK OPTION PLAN 1. PURPOSE. The purpose of the PhotoMedex, Inc. 2000 Stock Option Plan (the "Plan") is to provide an incentive to officers, directors, employees, independent contractors, and consultants of PhotoMedex, Inc., a Delaware corporation (the "Company"), and any parent companies and subsidiaries (together with the Company herein collectively referred to as "PHMD") to remain in the employ of PHMD or provide services to PHMD and contribute to its success. This Plan was adopted by the Board of Directors as of May 15, 2000 and by the stockholders of the Company as of July 18, 2000. As used in the Plan, the term "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor statute, and the terms "Parent" and "Subsidiary" shall have the meanings set forth in Section 424(e) and (f) of the Code. 2. ADMINISTRATION. The Plan shall be administered by a committee (the "Plan Committee") which shall be established by the Board of Directors of the Company (the "Board"). The Plan Committee shall be comprised of at least two individuals, each of whom shall be a "nonemployee director," as defined in Rule 16b-3, as promulgated by the Securities and Exchange Commission ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended and shall, at such times as the Company is subject to Section 162(m) of the Code (to the extent relief from the limitation of Section 162(m) of the Code is sought with respect to Options), qualify as "outside directors" for purposes of Section 162(m) of the Code. Members of the Plan Committee shall be appointed, both initially and as vacancies occur, by the Board. The Board may serve as the Plan Committee if by the terms of the Plan all members of the Board are otherwise eligible to serve on the Plan Committee. The Board, at any time it so desires, may increase or decrease, but not below two, the number of members of the Plan Committee, may remove from membership on the Plan Committee all or any portion of its members, and may appoint such person or persons as it desires to fill any vacancy existing on the Plan Committee, whether by removal, resignation or otherwise. The provisions of the Plan and all option and ("SAR") agreements executed pursuant thereto, and its decisions shall be conclusive and binding upon all interested persons. Subject to the provisions of the Plan, the Plan Committee shall have the sole authority to: (a) Determine the persons (hereinafter, "optionees") to whom options to purchase shares of Common Stock of the Company ("Stock") and SARs shall be granted; (b) Determine the number of options and SARs to be granted to each optionee; (c) Determine the price to be paid for each share of Stock issued (or otherwise sold) upon the exercise of each option and the manner and condition in which each option may be exercised; (d) Determine the period within which each option and SAR may be exercised, any extensions of such period (provided, however, that the original period and all extensions shall not exceed the maximum period permissible under the Plan); and (e) Determine whether to grant incentive stock options, or non-qualified stock options, or both (to the extent that any option does not qualify as an incentive stock option, it shall constitute a separate non-qualified stock option); provided, however, that incentive stock options may only be granted to employees; (f) Interpret the Plan and the Award Agreements hereunder, with such interpretations to be conclusive and binding on all persons and otherwise accorded the maximum deference permitted by law; (g) Determine the terms and conditions of each stock option and/or SAR agreement entered into between the Company and persons to whom the Company has granted an option or SAR and of any amendments thereto (provided that the optionee consents to each such amendment). The Plan Committee may require that each optionee enter into a written agreement with the Company, which will set forth all the terms and conditions of the grant of options or SARs. The award agreement shall contain such other terms, provisions and conditions not inconsistent herewith, as shall be determined by the Plan Committee. The optionee shall take whatever additional actions and execute whatever additional documents the Plan Committee may, in its reasonable judgment, deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the optionee pursuant to the express provisions of the Plan and the applicable award agreement. The Plan Committee shall cause each option to be designated as an incentive stock option or a non-qualified stock option. The Plan Committee shall meet at such times and places as it determines, including by means of a telephone conference call. A majority of the members shall constitute a quorum, and a decision of a majority of those present at any meeting at which a quorum is present shall constitute the decision of the Plan Committee. A memorandum signed by all of the members of the Plan Committee shall constitute the decision of the Plan Committee without the necessity, in such event, for holding an actual meeting. If no Committee is designated by the Board to act for these purposes, the Board shall have the rights and responsibilities of the Committee hereunder and under the award agreements. 3. ELIGIBILITY. Officers, directors and employees of PHMD independent contractors, consultants and other persons providing significant services to PHMD shall be eligible to receive grants of options under the Plan. 4. STOCK SUBJECT TO PLAN. There shall be reserved for issue, upon the exercise of options granted under the Plan, 1,000,000 shares of Stock or the number of shares of Stock, which, in accordance with the provisions of Section 9 hereof, shall be substituted therefor. Such shares may be treasury shares. If an option granted under the Plan shall expire or terminate for any reason without having been exercised in full, unpurchased shares subject thereto shall again be available for the purposes of the Plan. The maximum number of shares with respect to which options or SARs may be granted to an optionee who is an employee of PHMD shall not exceed 100,000 shares in any fiscal year during the term of the Plan. The certificates for Stock issued hereunder may include any legend, which the Plan Committee deems appropriate to reflect any rights of first refusal or other restrictions on transfer hereunder or under the award agreement, or as the Plan Committee may otherwise deem appropriate. 5. TERMS OF OPTIONS AND SARS. (a) INCENTIVE STOCK OPTIONS. It is intended that options granted pursuant to this Section 5(a) qualify as incentive stock options as defined in Section 422 of the Code. Incentive stock options shall be granted only to employees of PHMD. Each stock option agreement evidencing an incentive stock option shall provide that the option is subject to the following terms and conditions and to such other terms and conditions not inconsistent therewith as the Plan Committee may deem appropriate in each case: (1) OPTION PRICE. The price to be paid for each share of Stock upon the exercise of each incentive stock option shall be determined by the Plan Committee at the time the option is granted, but shall in no event be less than 100% of the Fair Market Value (as defined below) of the shares on the date the option is granted, or not less than 110% of the Fair Market Value of such shares on the date such option is granted in the case of an individual then owning (for purposes of Sections 422(b)(6) and 424(d) of the Code) 10% or more of the total combined voting power of all classes of stock of the Company or of its Parent or Subsidiaries. As used in this Plan, the term "date the option is granted" means the date on which the Plan Committee authorizes the grant of an option hereunder or any later date specified by the Plan Committee. For the purposes of the Plan, "Fair Market Value" of the shares shall be the closing sales price reported for the Stock on the applicable date, (i) as reported by the principal national securities exchange in the United States on which it is then traded, (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, or if the sale of the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted, or (iii) if the Stock is not traded in any market, such value as may be determined by the Committee in its discretion or as may be determined in accordance with such methodologies, procedures or other rules, (which may provide, without limitation, that determinations of Fair Market Value shall be made by an independent third party), as may be established by the Committee in its discretion; provided, however, that, where the shares are so listed or traded, the Committee may make discretionary determinations, or implement such methodologies, procedures or other rules, where the shares have not been traded for 10 trading days. 3 (2) PERIOD OF OPTION AND EXERCISE. The period or periods within which an option may be exercised shall be determined by the Plan Committee at the time the option is granted, but in no event shall any option granted hereunder be exercised more than ten (10) years from the date the option was granted nor more than five years from the date the option was granted in the case of an individual then owning (for purposes of Sections 422 (b)(6) and 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of its Parent or Subsidiaries. (3) PAYMENT FOR STOCK. The option exercise price for each share of Stock purchased under an option shall be paid in full at the time of purchase. The Plan Committee may provide that the option price be payable, at the election of the holder of the option and with the consent of the Plan Committee, in whole or in part either in cash or by delivery of Stock in transferable form, such Stock to be valued for such purpose at its Fair Market Value on the date on which the option is exercised. No share of Stock shall be issued upon exercise until full payment therefor has been made, and no optionee shall have any rights as an owner of Stock until the date of issuance to him of the stock certificate evidencing such Stock. (4) LIMITATION ON AMOUNT BECOMING EXERCISABLE IN ANY ONE CALENDAR YEAR. Subject to the overall limitations of Section 4 hereof (relating to the aggregate shares subject to the Plan), the aggregate Fair Market Value (determined as of the time the option is granted) of Stock with respect to which incentive stock options are exercisable for the first time by the optionee during any calendar year (under the Plan and all other incentive stock option plans of the Company, the Parent, and Subsidiaries) shall not exceed $100,000. (5) DISQUALIFYING DISPOSITIONS OF INCENTIVE STOCK OPTIONS. If Shares acquired upon exercise of an incentive stock option are disposed of in a disqualifying disposition, within the meaning of Section 422 of the Code, by an optionee prior to the expiration of either two years from the date of grant of such option or one year from the transfer of Shares to the optionee pursuant to the exercise of such option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such optionee shall notify the Company in writing as soon as practicable thereafter of the date and terms of such disposition and, if the Company (or any affiliate thereof) thereupon has a tax-withholding obligation, shall pay to the Company (or such affiliate) an amount equal to any withholding tax the Company (or affiliate) is required to pay as a result of the disqualifying disposition. (b) NONQUALIFIED STOCK OPTIONS. Nonqualified stock options may be granted not only to employees but also to directors who are not employees of PHMD and to consultants, independent contractors and other persons who provide substantial services to PHMD. Each nonqualified stock option granted under the Plan shall be evidenced by a stock option agreement between the person to whom such option is granted and the Company. Such stock option agreement shall provide that the option is subject to the following terms and conditions and to such other terms and conditions not inconsistent therewith as the Plan Committee may deem appropriate in each case: 4 (1) OPTION PRICE. The price to be paid for each share of stock upon the exercise of an option shall be determined by the Plan Committee at the time the option is granted, but in no event shall be less than 85% of the Fair Market Value of the shares on the date the option is granted. As used in this Plan, the term "date the option is granted" means the date on which the Plan Committee authorized the grant of an option hereunder or any later date specified by the Plan Committee. To the extent that the Fair Market Value of Stock is relevant to the pricing of the option by the Plan Committee, Fair Market Value of the Stock shall be determined as set forth in Section 5(a)(1) hereof. (2) PERIOD OF OPTION AND EXERCISE. The periods, installments or intervals during which an option may be exercised shall be determined by the Plan Committee at the time the option is granted, but in no event shall such period exceed 10 years from the date the option is granted. (3) PAYMENT FOR STOCK. The option exercise price for each share of Stock purchased under an option shall be paid in full at the time of purchase. The Plan Committee may provide that the option exercise price be payable at the election of the holder of the option, with the consent of the Plan Committee, in whole or in part either in cash or by delivery of Stock in transferable form, such Stock to be valued for such purpose at its Fair Market Value on the date on which the option is exercised. No share of Stock shall be issued until full payment therefor has been made, and no optionee shall have any rights as an owner of shares of Stock until the date of issuance to him of the stock certificate evidencing such Stock. (c) STOCK APPRECIATION RIGHTS. SARs may be granted in writing under the Plan by the Plan Committee subject to the following terms and conditions and such other terms and conditions as the Plan Committee may prescribe. (1) RIGHT OF OPTIONEE. Each SAR shall entitle the holder thereof, upon the exercise of the SAR, to receive from the Company in exchange therefor an amount equal in value to the excess of the Fair Market Value on the date of exercise of one share of Stock over its Fair Market Value on the date of grant (or, in the case of an SAR granted in connection with an option, the excess of the Fair Market Value of one share of Stock at the time of exercise over the option exercise price per share under the option to which the SAR relates), multiplied by the number of shares covered by the SAR or the option, or portion thereof, that is surrendered. No SAR shall be exercisable at a time that the amount determined under this subparagraph is negative. Payment by the Company upon exercise of an SAR shall be made in Stock valued at the Fair Market Value of the Stock on the date of exercise. (2) EXERCISE. An SAR shall be exercisable only at the time or times established by the Plan Committee. If an SAR is granted in connection with an option, the following rules shall apply: (i) the SAR shall be exercisable only to the extent and on the same conditions that the related option could be exercised; (ii) upon exercise of the SAR, the option or portion thereof to which the SAR relates terminates; and (iii) upon exercise of the option, the related SAR or portion thereof terminates. 5 (3) RULES. The Plan Committee may withdraw any SAR granted under the Plan at any time and may impose any conditions upon the exercise of an SAR or adopt rules and regulations from time to time affecting the rights of holders of SARs granted prior to adoption or amendment of such rules and regulations as well as SARs granted thereafter. (4) FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of an SAR. In lieu thereof, cash may be paid in an amount equal to the value of the fraction or, if the Plan Committee shall determine, the number of shares may be rounded downward to the next whole share. (5) SHARES SUBJECT TO PLAN. Upon the exercise of an SAR for shares, the number of shares of Stock reserved for issuance under the Plan shall be reduced by the number of shares issued. 6. NONTRANSFERABILITY. The options and SARs granted pursuant to the Plan shall be nontransferable, except by will or the laws of descent and distribution of the state or country of the optionee's domicile at the time of death or for options other than incentive stock options, pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and shall be exercisable during the optionee's lifetime only by him (or, in the case of a transfer pursuant to a qualified domestic relations order, by the transferee under such qualified domestic relations order) and after his death, by his personal representative or by the person entitled thereto under his will or the laws of intestate succession. 7. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. Unless otherwise specified in the applicable option and/or SAR agreement, or unless otherwise specified by the Plan Committee, upon termination of the optionee's employment or other relationship with PHMD, his rights to exercise options and SARs then held by him shall be only as follows (in no case do the time periods referred to below extend the term specified in any option): (a) DEATH OR DISABILITY. Upon the death or disability (within the meaning of Section 22(e)(3) of the Code) of an optionee, any option or SAR which he holds may be exercised (to the extent exercisable at his death or disability), unless it otherwise expires, within such period after the date of his death (not less than six months nor more than twelve months) as the Plan Committee shall prescribe in his option agreement or SAR, by the optionee or, in the event of death, by the optionee's representative or by the person entitled thereto under his will or the laws of intestate succession. (b) RETIREMENT. Upon the retirement (either pursuant to an PHMD retirement plan, if any, or pursuant to the approval of the Board) of an officer, director or employee, an outstanding option or SAR may be exercised (to the extent exercisable at the date of such retirement) by him within such period after the date of his retirement (provided that such period is no less than 30 days and no more than three months) as the Plan Committee shall prescribe in his option agreement or SAR. 6 (c) OTHER TERMINATION. In the event an officer, director or employee ceases to serve as an officer or director or leaves the employ of PHMD for any reasons other than as set forth in (a) and (b), above, or a nonemployee ceases to provide services to PHMD, any option or SAR which he holds shall remain exercisable (to the extent exercisable as of the date of such termination) until 30 days after the date of such termination. (d) PLAN COMMITTEE DISCRETION. The Plan Committee may in its sole discretion accelerate the exercisability of any or all options or SARs. 8. TRANSFER TO RELATED CORPORATION. In the event an employee leaves the employ of the Company to become an employee of a Parent or a Subsidiary or any employee leaves the employ of a Parent or a Subsidiary to become an employee of the Company or another Parent or Subsidiary, such employee shall be deemed to continue as an employee for purposes of this Plan. 9. ADJUSTMENT OF SHARES; TERMINATION OF OPTIONS AND SARS. (a) ADJUSTMENT OF SHARES. In the event of changes in the outstanding Stock by reason of stock dividends, split-ups, consolidations, recapitalization, reorganizations or like events (as determined by the Plan Committee), an appropriate adjustment may be made by the Plan Committee in the number of shares reserved under the Plan, in the number of shares set forth in Section 4 hereof, in the number of shares and the option price per share specified in any stock option agreement, in the number of SARs with respect to any unexercised shares, and in any other appropriate terms of options or SARs. The determination of the Plan Committee as to what adjustments shall be made shall be conclusive. Adjustments for any options to purchase fractional shares shall also be determined by the Plan Committee. The Plan Committee shall give prompt notice to all optionees of any adjustment pursuant to this Section. (b) TERMINATION OF OPTIONS AND SARS ON MERGER, REORGANIZATION OR LIQUIDATION OF THE COMPANY. Notwithstanding anything to the contrary in this Plan, unless otherwise provided by the Plan Committee, in the event of any merger, consolidation or other reorganization of the Company in which the Company is not the surviving or continuing corporation (as determined by the Plan Committee) or in the event of the liquidation or dissolution of the Company, all options and SARs granted hereunder shall terminate on the effective date of the merger, consolidation, reorganization, liquidation or dissolution unless there is an agreement with respect thereto which expressly provides for the assumption of such options and SARs by the continuing or surviving corporation. 7 10. SECURITIES LAW REQUIREMENTS. The Company's obligation to issue shares of its Stock upon exercise of an option or SAR is expressly conditioned upon the completion by the Company of any registration or other qualification of such shares under any state and/or federal law or rulings and regulations of any government regulatory body or the making of such investment representations or other representations and undertakings by the optionee (or his legal representative, heir or legatee, as the case may be) in order to comply with the requirements of any exemption from any such registration or other qualification of such shares which the Company in its sole discretion shall deem necessary or advisable. The Company may refuse to permit the sale or other disposition of any shares acquired pursuant to any such representation until it is satisfied that such sale or other disposition would not be in contravention of applicable state or federal securities law. 11. TAX WITHHOLDING. As a condition to the exercise of an option or SAR or otherwise, the Company may require an optionee to pay over to the Company all applicable federal, state and local taxes which the Company is required, as determined in the discretion of the Plan Committee, to withhold with respect to the exercise of an option or SAR granted hereunder. At the discretion of the Plan Committee and upon the request of an optionee, the minimum statutory withholding tax requirements may be satisfied by the withholding of shares of Stock otherwise issuable to the optionee upon the exercise of an option or SAR. 12. AMENDMENT. The Board may amend the Plan at any time, except that without shareholder approval: (a) The number of shares of Stock which may be reserved for issuance under the Plan shall not be increased except as provided in Section 9(a) hereof; (b) The option price per share of Stock subject to incentive stock options may not be fixed at less than 100% of the Fair Market Value of a share of Stock on the date the option is granted; (c) The maximum period of ten (10) years during which the options or SARs may be exercised may not be extended; (d) The class of persons eligible to receive options or SARs under the Plan as set forth in Section 3 shall not be changed; and (e) This Section 12 may not be amended in a manner that limits or reduces the amendments, which require shareholder approval. 13. EFFECTIVE DATE. The Plan shall be effective upon the date of its adoption by the Board, and subject to the approval of the stockholders of the Company within the 12 month period following such adoption date. 8 14. TERMINATION. The Plan shall terminate automatically as of the close of business on the day preceding the 10th anniversary date of its effectiveness or earlier by resolution of the Board, or upon consummation of any merger, consolidation or other reorganization in which the options granted hereunder terminate, all as described in Section 9(b) hereof. Unless otherwise provided herein, the termination of the Plan shall not affect the validity of any option agreement outstanding at the date of such termination. 15. NO RIGHTS AS STOCKHOLDER. Neither the optionee nor any person entitled to exercise the optionee's rights in the event of death shall have any rights of a stockholder with respect to the Shares subject to an option, except to the extent that a certificate for such Shares shall have been issued upon the exercise of the option as provided for herein. 16. STOCK OPTION AND SAR AGREEMENT. Each option and SAR granted under the Plan shall be evidenced by a written agreement executed by the Company and accepted by the optionee, which (i) shall contain each of the provisions and agreements herein specifically required to be contained therein, (ii) shall indicate whether an option is to be an incentive stock option or a nonqualified stock option, and if it is to be an incentive stock option, the stock option agreement shall contain terms and conditions permitting such option to qualify for treatment as an incentive stock option under Section 422 of the Code, (iii) may contain the agreement of the optionee to remain in the employ of, and/or to render services to, the Company or any Parent or Subsidiary for a period of time to be determined by the Plan Committee, and (iv) may contain such other terms and conditions as the Plan Committee deems desirable and which are not inconsistent with the Plan. 17. NO RIGHT TO EMPLOYMENT. Nothing in this Plan or in any option or SAR granted hereunder shall confer upon any optionee any right to continue in the employ of PHMD or to continue to perform services for PHMD, or shall interfere with or restrict in any way the rights of PHMD to discharge or terminate any officer, director, employee, independent contractor or consultant at any time for any reason whatsoever, with or without good cause. 18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. Executed and dated as of the date first written above at Radnor, Pennsylvania. PHOTOMEDEX, INC. By: /s/ Jeffrey F. O'Donnell ------------------------------- Jeffrey F. O'Donnell Chief Executive Officer EX-10.2 5 0005.txt 2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN PHOTOMEDEX, INC. 2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. Purposes of the Plan -------------------- The purposes of this 2000 Non-Employee Director Stock Option Plan (the "Plan") are to enable PhotoMedex, Inc., a Delaware corporation (the "Company") to attract, retain and motivate the directors who are important to the success and growth of the business of the Company and to create a long-term mutuality of interest between the directors and the stockholders of the Company by granting the directors options to purchase Common Stock (as defined herein). The Plan was adopted by the Board of Directors to be effective as of June 1, 2000 and approved by the stockholders on July 18, 2000. 2. Definitions ----------- In addition to the terms defined elsewhere herein, for purposes of this Plan, the following terms will have the following meanings when used herein with initial capital letters: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of the Company. (c) "Cause" means an act or failure to act that constitutes "cause" for removal of a director under applicable Delaware law. (d) "Code" means the Internal Revenue Code of 1986, as amended (or any successor statute). (e) "Committee" means a committee of the Board, appointed from time to time by the Board, which Committee shall be intended to consist of two or more directors who are non-employee directors, as defined in Rule 16b-3, or such other committee of the Board to which the Board has delegated its power and functions hereunder. If for any reason the appointed Committee does not meet the requirements of Rule 16b-3, such noncompliance with the requirements of Rule 16b-3 shall not affect the validity of the interpretations or other actions of the Committee. If and to the extent that no Committee exists which has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board. (f) "Common Stock" means the common stock of the Company, par value $0.01 per share, any common stock into which the common stock may be converted and any common stock resulting from any reclassification of the common stock. 1 (g) "Company" means Laser Photonics, Inc., a Delaware corporation, and any successor thereto. (h) "Disability" means a total and permanent disability, as defined in Section 22(e)(3) of the Code. (i) "Eligible Director" means a director of the Company who is not then a current employee of the Company or any Related Person. (j) "Fair Market Value" means, for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date, the closing sales price reported for the Common Stock on the applicable date, (i) as reported by the principal national securities exchange in the United States on which it is then traded, (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, or if the sale of the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted, or (iii) if the Common Stock is not traded in any market, such value as may be determined by the Committee in its discretion or as may be determined in accordance with such methodologies, procedures or other rules, (which may provide, without limitation, that determinations of Fair Market Value shall be made by an independent third party), as may be established by the Committee in its discretion; provided, however, that, where the shares are so listed or traded, the Committee may make discretionary determinations, or implement such methodologies, procedures or other rules, where the shares have not been traded for 10 trading days. (k) "Option" means the right to purchase the number of Shares granted in the Option agreement at a prescribed purchase price according to the terms specified in the Plan. (l) "Participant" means an Eligible Director who is granted an Option under the Plan, which Option has not expired. (m) "Related Person" means, other than the Company (a) any corporation that is defined as a subsidiary corporation in Section 424(f) of the Code; or (b) any corporation that is defined as a parent corporation in Section 424(e) of the Code. An entity shall be deemed a Related Person only for such periods as the requisite ownership relationship is maintained. (n) "Rule 16b-3" means Rule 16b-3 promulgated under Section 16(b) of the Act, as then in effect or any successor provisions. (o) "Securities Act" means the Securities Act of 1933, as amended. (p) "Share" means a share of Common Stock. 2 (q) "Termination of Directorship" with respect to an individual means that individual is no longer acting as a director (whether a non-employee director or employee director) of the Company. 3. Effective Date -------------- The Plan shall be effective as of January 1, 2000 (the "Effective Date"), subject to its approval by the majority of the votes of the shares of Common Stock present in person or represented by proxy and entitled to vote on the Plan at a meeting of stockholders within one (1) year after the Plan is adopted by the Board, provided that the total vote cast on the Plan represents the majority in interest of all securities present, or represented, and entitled to vote on the Plan. Grants of Options under the Plan will be made on or after the Effective Date of the Plan, provided that, if the Plan is not approved by the requisite vote of stockholders, all Options which have been granted pursuant to the terms of the Plan shall be null and void. No Options may be exercised prior to the approval of the Plan by the majority of the Common Stock, as such majority is measured at the time of such approval. 4. Administration -------------- 4.1. DUTIES OF THE COMMITTEE. The Plan shall be administered by the Committee. The Committee shall have full authority to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan; to establish, amend and rescind rules for carrying out the Plan; to administer the Plan, subject to its provisions; to prescribe the form or forms of instruments evidencing Options and any other instruments required under the Plan and to change such forms from time to time; and to make all other determinations and to take all such steps in connection with the Plan and the Options as the Committee, in its sole discretion, deems necessary or desirable. Any determination, action or conclusion of the Committee shall be final, conclusive and binding on all parties. 4.2. ADVISORS. The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan, and may rely upon any advice or opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company. 4.3. INDEMNIFICATION. To the maximum extent permitted by applicable law, no officer or former officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. To the maximum extent permitted by applicable law and the Certificate of Incorporation and Bylaws of the Company and to the extent not covered by insurance, each officer or former officer and member or former member of the Committee or of the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably 3 acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the Plan, except to the extent arising out of such officer's or former officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, directors or members or former officers, directors or members may have under applicable law or under the Certificate of Incorporation or Bylaws of the Company. 4.4. MEETINGS OF THE COMMITTEE. The Committee shall adopt such rules and regulations as it shall deem appropriate concerning the holding of its meetings and the transaction of its business. All determinations by the Committee shall be made by the affirmative vote of a majority of its members. Any such determination may be made at a meeting duly called and held at which a majority of the members of the Committee are in attendance in person or through telephonic communication. Any determination set forth in writing and signed by all the members of the Committee shall be as fully effective as if it had been made by a majority vote of the members at a meeting duly called and held. 4.5. DETERMINATIONS. Each determination, interpretation or other action made or taken pursuant to the provisions of this Plan by the Committee shall be final, conclusive and binding for all purposes and upon all persons, including, without limitation, the Participants, the Company, directors, officers and other employees of the Company, and the respective heirs, executors, administrators, personal representatives and other successors in interest of each of the foregoing. 5. Shares, Adjustments Upon Certain Events --------------------------------------- 5.1. SHARES TO BE DELIVERED. Shares to be issued under the Plan shall be made available, at the sole discretion of the Board; either from authorized but unissued Shares or from issued Shares reacquired by Company and held in treasury. No fractional Shares will be issued or transferred upon the exercise of any Option nor will any compensation be paid with regard to fractional shares. 5.2. NUMBER OF SHARES. Subject to adjustment as provided in this Article 5, the maximum aggregate number of Shares authorized for issuance under the Plan shall be 250,000. Where an Option is for any reason canceled, or expires or terminates unexercised, the Shares covered by such Option shall again be available for the grant of Options, within the limits provided by the preceding sentence. The certificates for Shares issued hereunder may include any legend, which the Committee deems appropriate to reflect any rights of first refusal or other restrictions on transfer hereunder or under the award agreement, or as the Committee may otherwise deem appropriate. 5.3 ADJUSTMENT OF SHARES. In the event of changes in the outstanding Common Stock by reason of stock dividends, split-ups, consolidations, recapitalization, reorganizations or like events (as determined by the Committee), an appropriate adjustment may be made by the Committee in the number of shares reserved under the Plan, in the number of shares set forth in Section 5.2 hereof, in the number of shares and the option price per share specified in any stock option agreement. The determination of the Committee as to what adjustments shall be made shall be conclusive. Adjustments for any options to purchase fractional shares shall also be determined by the Committee. The Committee shall give prompt notice to all optionees of any adjustment pursuant to this Section. 4 5.4. TERMINATION OF OPTIONS ON MERGER, REORGANIZATION OR LIQUIDATION OF THE COMPANY. Notwithstanding anything to the contrary in this Plan, unless otherwise provided by the Committee, in the event of any merger, consolidation or other reorganization of the Company in which the Company is not the surviving or continuing corporation (as determined by the Committee) or in the event of the liquidation or dissolution of the Company, all options granted hereunder shall terminate on the effective date of the merger, consolidation, reorganization, liquidation or dissolution unless there is an agreement with respect thereto which expressly provides for the assumption of such options by the continuing or surviving corporation. 6. SECURITIES LAW REQUIREMENTS. The Company's obligation to issue shares of its Common Stock upon exercise of an option is expressly conditioned upon the completion by the Company of any registration or other qualification of such shares under any state and/or federal law or rulings and regulations of any government regulatory body or the making of such investment representations or other representations and undertakings by the optionee (or his legal representative, heir or legatee, as the case may be) in order to comply with the requirements of any exemption from any such registration or other qualification of such shares which the Company in its sole discretion shall deem necessary or advisable. The Company may refuse to permit the sale or other disposition of any shares acquired pursuant to any such representation until it is satisfied that such sale or other disposition would not be in contravention of applicable state or federal securities law. 7. Grants and Terms of Options --------------------------- 7.1. GRANT. Upon the first anniversary (the "Initial Grant Date") of the later of (i) the Effective Date of the Plan and (ii) the date of the approval of the Plan by the Board, each Eligible Director shall be automatically granted an Option to purchase a number of Shares equal to the product of (i) 5,000 and (ii) the number of fiscal quarters remaining in the Company's then current fiscal year (including the quarter in which the Initial Grant Date falls), subject to the terms of the Plan. Notwithstanding anything to the contrary herein, any Eligible Director who is first elected to the Board after the Effective Date, but prior to the Initial Grant Date, shall automatically be granted, as of the effective date of his election ("First Grant Date"), an Option to purchase a number of Shares equal to the product of (i) 5,000 and (ii) the number of fiscal quarters remaining in the Company's then current fiscal year (including the quarter in which such director was elected), subject to the terms of the Plan. As of January 1 of each year following the Initial Grant Date or the First Grant Date, as the case may be, each Eligible Director shall be automatically granted an Option to purchase 20,000 Shares ("Annual Grant"). 5 7.2. DATE OF GRANT. If a grant of Options is to be made on a day on which the principal national exchange or automated quotation system sponsored by the National Association of Securities Dealers with respect to which Shares are traded is not open for trading, the grant shall be made on the first day thereafter on which such exchange or system is open for trading. 7.3. OPTION AGREEMENT. Options shall be evidenced by Option agreements in such form as the Committee shall approve from time to time. 7.4. OPTION TERMS: (a) Exercise Price. The purchase price per share ("Purchase Price") deliverable upon the exercise of an Option shall be 100% of the Fair Market Value of such Share as follows: (i) For Options issued on the Initial Grant Date, the Fair Market Value shall be measured as of the last trading date of the fiscal quarter prior to the Initial Grant Date; (ii) For Options issued on the First Grant Date, the Fair Market Value shall be measured as of the First Grant Date; (iii) For Annual Grants of Options issued as of January 1 of any fiscal year, the Fair Market Value shall be measured as of the last trading date of the prior year; 7.5. VESTING OF OPTIONS. Except as otherwise provided herein, Options granted to Eligible Directors shall vest and become exercisable to the extent of 5,000 Shares for each fiscal quarter in which the Eligible Director shall have served at least one day as a director of the Company. 7.6. PROCEDURE FOR EXERCISE. A Participant electing to exercise one or more Options shall give written notice to the Company of such election and of the number of Options he has elected to exercise. Shares purchased pursuant to the exercise of Options shall be paid for at the time of exercise in cash. 7.7. EXPIRATION. Except as otherwise provided herein, if not previously exercised each Option shall expire upon the tenth anniversary of the date of the grant thereof. 8. Effect of Termination of Directorship ------------------------------------- 8.1. GENERAL. Unless provided otherwise in the Option agreement, upon a Participant's Termination of Directorship for any reason except death, Disability or Cause, prior to the complete exercise of an Option (or deemed exercise thereof), then such Option shall thereafter be exercisable to the extent such Option is vested and shall remain exercisable until the earlier of (i) the expiration of the ninety (90) day period following the Participant's Termination of Directorship or (ii) the remaining term of the Option. 6 8.2. DEATH OR DISABILITY. Unless provided otherwise in the Option agreement, upon Termination of Directorship on account of Disability or death, all outstanding Options then exercisable and not exercised by the Participant prior to such Termination of Directorship shall remain exercisable by the Participant or, in the case of death, by the Participant's estate or by the person given authority to exercise such Options by his or her will or by operation of law, until the earlier of (i) first anniversary of the Participant's Termination of Directorship or (ii) the remaining term of the Option. 8.3. TERMINATION BY COMPANY FOR CAUSE. Upon removal, failure to stand for reelection or failure to be renominated for Cause, or if the Company obtains or discovers information after Termination of Directorship that such Participant had engaged in conduct during such directorship that would have justified a removal for Cause during such directorship, all outstanding Options of such Participant shall immediately terminate and shall be null and void. 8.4. CANCELLATION OF OPTIONS. Options that were not exercisable during the period a Participant serves as a director shall not become exercisable upon a Termination of Directorship for any reason whatsoever, and such Options shall terminate and become null and void upon a Termination of Directorship. 9. Nontransferability of Options ----------------------------- No Option shall be transferable by any Participant otherwise than (i) by will, other instrument of testamentary distribution, or under applicable laws of descent and distribution, or (ii) to such Participant's retirement plan or grantor trust to the extent that such transferability does not disqualify the Shares underlying such options from qualification for registration by the Company on Form S-8. Except as provided above, no Option shall be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and no Option shall be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in the event of any levy upon any Option by reason of any execution, attachment or similar process contrary to the provisions hereof, such Option shall immediately terminate and become null and void. Notwithstanding the foregoing, the Committee may determine at the time of grant or thereafter that an Option that is otherwise not transferable pursuant to this Article 9 is transferable in whole or in part and in such circumstances, and under such conditions, as specified by the Committee. 10. Rights as a Stockholder ----------------------- A Participant (or a permitted transferee of an Option) shall have no rights as a stockholder with respect to any Shares covered by such Participant's Option until such Participant (or permitted transferee) shall have become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property or distributions or other rights in respect to any such Shares, except as otherwise specifically provided in this Plan. 7 11. Securities Law Requirements --------------------------- The Company's obligation to issue Shares upon exercise of an option is expressly conditioned upon the completion by the Company of any registration or other qualification of such shares under any state and/or federal law or rulings and regulations of any government regulatory body or the making of such investment representations or other representations and undertakings by the optionee (or his legal representative, heir or legatee, as the case may be) in order to comply with the requirements of any exemption from any such registration or other qualification of such shares which the Company in its sole discretion shall deem necessary or advisable. The Company may refuse to permit the sale or other disposition of any shares acquired pursuant to any such representation until it is satisfied that such sale or other disposition would not be in contravention of applicable state or federal securities law. 12. Termination, Amendment and Modification --------------------------------------- Subject to the number of Shares authorized for issuance under the Plan as provided in Section 5.2, the Plan shall continue in effect without limit unless and until the Board otherwise determines. The termination of the Plan shall not terminate any outstanding Options that by their terms continue beyond such termination date. The Committee or the Board at any time or from time to time may amend this Plan to effect (i) amendments necessary or desirable in order that this Plan and the Options shall conform to all applicable laws and regulations, and (ii) any other amendments deemed appropriate. Notwithstanding the foregoing, solely to the extent required by law, the Committee or the Board may not effect any amendment that would require the approval of the stockholders of the Company under applicable law or under any regulation of a principal national securities exchange or automated quotation system sponsored by the National Association of Securities Dealers unless such approval is obtained. This Plan may be amended or terminated at any time by the stockholders of the Company. Except as otherwise required by law, no termination, amendment or modification of this Plan may, without the consent of the Participant or the permitted transferee of his Option, alter or impair the rights and obligations arising under any then outstanding Option. 13. Use of Proceeds --------------- The proceeds of the sale of Shares subject to Options under the Plan are to be added to the general funds of the Company and used for its general corporate purposes as the Board shall determine. 14. General Provisions ------------------ 14.1. RIGHT TO TERMINATE DIRECTORSHIP. This Plan shall not impose any obligations on the Company to retain any Participant as a director nor shall it impose any obligation on the part of any Participant to remain as a director of the Company. 8 14.2. TRUSTS, ETC. Nothing contained in the Plan and no action taken pursuant to the Plan (including, without limitation, the grant of any Option thereunder) shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant or the executor, administrator or other personal representative or designated beneficiary of such Participant, or any other persons. If and to the extent that any Participant or such Participant's executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. 14.3. NOTICES. Any notice to the Company required by or in respect of this Plan will be addressed to the Company at Five Radnor Corporate Center, Suite 470, Radnor, Pennsylvania 19087, fax: 610-971-9303, Attention: Chief Financial Officer, or such other place of business as shall become the Company's principal executive offices from time to time. Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing to such Participant of notices and the delivery to such Participant of agreements, Shares and payments. Any such notice to the Participant will, if the Company has received notice that the Participant is then deceased, be given to the Participant's personal representative if such representative has previously informed the Company of his or her status and address (and has provided such reasonable substantiating information as the Company may request) by written notice under this Section. Any notice required by or in respect of this Plan will be deemed to have been duly given when delivered in person or when dispatched by telecopy and deposited in the United States mail by first class delivery within one business day following dispatch by telecopy, or, in the case of notice to the Company, by facsimile as described above, or one business day after having been dispatched by a nationally recognized overnight courier service or three business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid. The Company assumes no responsibility or obligation to deliver any item mailed to such address that is returned as undeliverable to the addressee and any further mailings will be suspended until the Participant furnishes the proper address. 14.4. SEVERABILITY OF PROVISIONS. If any provisions of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provisions had not been included. 14.5. PAYMENT TO MINORS, ETC. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and their employees, agents and representatives with respect thereto. 9 14.6. HEADINGS AND CAPTIONS. The headings and captions herein are provided for reference and convenience only. They shall not be considered part of the Plan and shall not be employed in the construction of the Plan. 14.7 COSTS. The Company shall bear all expenses included in administering this Plan, including expenses of issuing Common Stock pursuant to any Options hereunder. 14.8. CONTROLLING LAW. The Plan shall be construed and enforced according to the laws of the State of Delaware, without giving effect to rules governing the conflict of laws. 14.9. SECTION 16(b) OF THE ACT. All elections and transactions under the Plan by persons subject to Section 16 of the Act involving shares of Common Stock are intended to comply with any applicable condition under Rule 16b-3. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder. 15. Issuance of Stock Certificates, Legends, Payment of Expenses ------------------------------------------------------------ 15.1. STOCK CERTIFICATES. Upon any exercise of an Option and payment of the exercise price as provided in such Option, a certificate or certificates for the Shares as to which such Option has been exercised shall be issued by the Company in the name of the person or persons exercising such Option and shall be delivered to or upon the order of such person or persons. 15.2. LEGENDS. Certificates for Shares issued upon exercise of an Option shall bear such legend or legends as the Committee, in its sole discretion, determines to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or to implement the provisions of any agreements between the Company and the Participant with respect to such Shares. 15.3. PAYMENT OF EXPENSES. The Company shall pay all issue or transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer and with the administration of the Plan. 16. Listing of Shares and Related Matters ------------------------------------- If at any time the Board or the Committee shall determine in its sole discretion that the listing, registration or qualification of the Shares covered by the Plan upon any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the grant of Options or the award or sale of Shares under the Plan, no Option grant shall be effective and no Shares will be delivered, as the case may be, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board. 10 17. Withholding Taxes ----------------- The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock, payment by the Participant of any federal, state or local taxes required by law to be withheld. Executed and dated as of the date first written above at Radnor, Pennsylvania. PHOTOMEDEX, Inc. By: /s/ Jeffrey F. O'Donnell --------------------------------- Jeffrey F. O'Donnell Chief Executive Officer EX-27 6 0006.txt FINANCIAL DATA SCHEDULE
5 1 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 13,501,234 0 0 0 954,428 14,810,806 914,962 (79,925) 18,457,260 1,552,650 0 0 0 159,749 16,715,299 18,457,260 570,000 0 325,000 6,224,967 0 0 0 (5,385,720) 0 (5,385,720) (646,542) 0 0 (6,032,262) 0.42 0.42
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