PROPOSALS TO AMEND THE CERTIFICATE OF INCORPORATION TO LIMITLIABILITY OF DIRECTORS AND TO AMEND THE BY-LAWSTO INCLUDE A PROVISION FOR INDEMNIFICATION
(Items 3 and 4 on the Proxy Card)
The Board of Directors is presenting two proposals for action by the shareholders, each
consistent with recent authorizing legislation amending provisions of the New York Business
Corporation Law ("New York BCL"), under which the Company is organized. Item 3 is a
proposal to amend the Company's Certificate of Incorporation by adding a provision which, in
certain cases, would eliminate the personal liability of directors of the Company for monetary
damages arising from breach of fiduciary duty as a director. Item 4 is a proposal to adopt an
amendment to the Company's By-laws which, in general, provides for indemnification of
directors and officers of the Company.
The Board of Directors believes that the two proposals, in combination, will assist the
Company in attracting and retaining qualified individuals to serve as directors a nd officers of the
Company. Each of the proposals is consistent with the provisions of legislation amending the
New York BCL effective in July 1987 (as to directors' liability) and July 1986 (as to
indemnification) with the intention of enabling New York corporations to take measures t o
respond to the increasing threat of litigation which directors of public companies fac e in carrying
out their responsibilities and to the diminishing availability of directors' and officers' liability
insurance. Since directors and officers of the Company may benefit from these proposals, the
Board of Directors has an interest in the passage thereof by the shareholders. The Board pf
Directors believes, however, that adoption of the proposals is in the best interests of the
Company and its shareholders.
Each of the two proposals is discussed below. The Board of Directors has recommended
that the shareholders vote FOR approval of each proposal. Each proposal will be presented
separately for shareholder vote; approval of one is not contingent upon approval of the other.
PROPOSAL TO ADOPT AN AMENDMENT TO THECERTIFICATE OF INCORPORATION
PROVIDING FOR ELIMINATION OF CERTAIN LIABILITIES OF DIRECTORS IN ACCORDANCE WITH NEW YORK LAW
(Item 3 on the Proxy Card)
The Board of Directors recommends that the shareholders approve a proposal to amend
the Company's Certificate of Incorporation by adding an Article Sixth which would elimina te
personal liability of the Company's directors to the Company or to its shareholders for mone tary
damages arising from breach of fiduciary duty. The proposed amendment is authorized by
Section 402(b) of the New York BCL, which became effective on July 23, 1987.
Background
Since 1986, many states, including Delaware, Massachusetts, New Jersey, Ohio and
Pennsylvania, have enacted statutes to reduce the exposure of corporate directors to litiga tion
seeking to impose upon them heavy monetary liability for their acts or inaction in such capacity.
Such litigation has increased markedly in recent years. The amendment to the Ne w York BCL
was, together with the earlier amendment permitting increased indemnification di scussed below,
New York's response to this need. As noted in the legislative memorandum accompanying the
Act amending Section 402(b) of the New York BCL with respect to directors' liability, the
purpose of the New York legislation was "to assure that qualified and experienced persons
continue to be willing to serve as ... directors of New York corporations by relieving them of the
threat of monetary liability in connection with their duties.. . . " Such liabilit y is not eliminated or
limited if the acts or omissions of directors are in bad faith, involve intentional misconduct or
knowing violations of law, violate certain statutory prohibitions, or result in a profit or other
advantage to the director to which he is not legally entitled. Section 402(b) of the Ne w York
BCL is an enabling provision only. Shareholder approval of an amendment to the Certifi cate of
Incorporation is required to effect the limitation on monetary liability authorized by the statute.
Text of Proposed Amendment
The text of Article Sixth proposed to be added to the Company's Certificate of
Incorporation is as follows:
"SIXTH: To the fullest extent permitted by the New York Business Corporation Law as
presently in effect or hereafter amended, a director of the Corporation shall not be
personally liable to the Corporation or its shareholders for damages for any breach of
duty as a director. Any repeal or modification of this Article by the shareholders of the
Corporation shall not adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or omission occurring prior to
such repeal or modification."
Reasons for the Proposed Amendment Directors of New York corporations are required, under the New York BCL, to perform
their duties in such capacity in good faith and with that degree of care which a n ordinarily
prudent person in a like position would use under similar circumstances. A director may rel y
upon information, opinions, reports or statements (including financial statements) prepared by
certain officers or employees, professional advisors, or committees of the Board on which such
director does not serve. Decisions made on that basis are protected by the "business judgment
rule" and should not be questioned by a court in the event of a lawsuit challenging such
decisions. The expense of defending such lawsuits, the frequency of unwarranted litigation and
the inevitable uncertainties of applying the business judgment rule to particular fac ts and
circumstances mean, as a practical matter, that directors must rely on inde mnification
arrangements and directors' and officers' liability insurance in the event of such expenses or
unforeseen liability. In a companion proposal, the Company is requesting shareholder approval
of an amendment to the Company's By-laws to permit the fullest possible indemnificati on
permitted under the New York BCL. Recent changes in the market for directors' and officers'
liability insurance have resulted in reduced availability for directors and officers of meaningful
liability coverage. In a period of increasing threats of corporate litigation, premiums have
increased at the same time as the coverage of such policies has been limite d, so that only partial
coverage may be available and, then, only at prohibitive cost. Because of such factors, the
Company has chosen not to obtain such coverage.
As noted above, the purpose of the New York legislation was to assure that qualified
persons would continue to serve as directors of New York corporations by relieving them of the
threat of monetary liability. Since Dr. Welt resigned from the Company in 1986, significant
management changes have occurred in the Company. At the present time, the entire Board of
Directors is comprised of non-employees of the Company, except for Allan Booth, the
Company's President. The current directors of the Company who are standing for reelection
have indicated that they will consider resigning if the proposed amendment to the Cert ificate of
Incorporation is not adopted, and the nominee standing for election as a new director has
indicated that he will not serve as a director if such proposed amendment is not adopted. The
Board of Directors of the Company believes that the Company should take every possible step to
ensure that it will continue to be able to attract and retain the best possible directors.
Effect of the Proposed Amendment
The proposed amendment would protect each of the Company's directors against personal
liability to the Company or its shareholders for any breach of duty unless a judgment or othe r
final adjudication adverse to the director establishes that (i) his acts or omissions were in bad
faith, or (ii) involved intentional misconduct or a knowing violation of the law, or (iii) he
personally gained in fact a financial profit or other advantage to which he was not le gally
entitled, or (iv) his acts violated the prohibitions contained in Section 719 of the New York BCL
against certain declarations of dividends, certain purchases or redemptions of its share s by the
Company, certain distributions of assets after dissolution of the Company without adequately
providing for its liabilities and the making of certain loans to directors. In the past, there has been
no claim of the type which would be affected by the proposed amendment and none is presentl y
pending or, to the knowledge of management of the Company, threatened. Since the amendment
provides that the liability of the Company's directors is limited to the fullest extent permitted by
the New York BCL "as presently in effect or hereafter amended", the amendment wil l further
protect directors to the extent provided in any amendment to the statute, without further approval
of the shareholders.
The amendment does not reduce the fiduciary duty of a director; it only eliminate s
monetary damage awards to the Company and its shareholders occasioned by a breach of that
duty. It does not affect equitable remedies, such as to enjoin or rescind a transacti on involving a
breach of fiduciary duty, although such remedies may be unavailable or ineffective with re spect
to a particular challenged action of the Board of Directors. The amendment does not affect a
director's liability for acts taken or omitted prior to the time the amendme nt becomes effective
(i.e., after shareholder approval and filing with the New York Secretary of State), nor does it
affect the liabilities of directors who are also officers for acts taken or omitte d in their capacity as
officers. The limitation of liability afforded by the amendment affects only act ions brought by
the Company or its shareholders, and does not preclude or limit recovery of damages by third
parties, nor does it affect the responsibility of directors under other laws, such as the federal
securities laws. The amendment provides that any repeal or modification thereof would not affect
any right or protection of a director thereunder with respect to any act or omission occurri ng
prior to such repeal or modification. It should also be noted that the authorizing statute has been
adopted only recently and there has been as yet no judicial interpretation as to its enforceability
or applicability.
The Company's directors acknowledge that they and future directors may personally
benefit fro adoption of the proposed amendment at the potential expense of the Company's
shareholders, whose right to bring claims for monetary damages against directors will be lim ited
thereby, and that they may thus have a conflict of interest in recommending approval of the
amendment. The Board of Directors believes, however, that the diligence exercised by directors
stems primarily from their desire to act in the best interests of the Company, and not from a fear
of monetary damage awards. Accordingly, the Board believes that the level of scrutiny and care
exercised by directors will not be lessened by adoption of the proposed amendment. The Board
believes that such adoption will enhance the Company's ability to attract and re tain qualified
individuals to serve as directors of the Company.
Approval of the proposed amendment to the Certificate of Incorporation requires the
affirmative vote of the holders of at least a majority of the issued and outstanding shares of
Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR APPROVAL OF THE FOREGOING PROPOSAL TO AMEND THE
COMPANY’S CERTIFICATE OF INCORPORATION (Item 3 on the Proxy Card).
UNLESS INSTRUCTIONS TO THE CONTRARY ARE INDICATED ON THE PROXY
CARD, IT IS INTENDED THAT PROXIES WILL BE VOTED IN FAVOR OF THE
FOREGOING PROPOSAL.
PROPOSAL TO ADOPT AN AMENDMENT TO THE BY-LAWS
RELATING TO INDEMNIFICATION OF DIRECTORS AND OFFICERS (Item 4 on the Proxy Card)
The Board of Directors recommends that the shareholders approve a proposal to amend
the Bylaws of the Company to add an Article 44 which relates to indemnification of directors,
officers and others. This proposal is being made as a result of a 1986 change in the provisions of
the New York BCL relating to indemnification.
Background
A number of states have recently changed the indemnification provisions of their
corporate laws in response to increasing general concern over the ability of corporations to
attract and retain qualified persons to serve as corporate directors and officers in the face of
heightened risks of litigation challenging their decisions and the diminishing avail ability of
meaningful directors' and officers' liability insurance. The basic indemnification provisions of
the New York BCL were amended in July 1986 to authorize New York corporations to provide
for indemnification and advancement of expenses to directors and officers against liabil ities
incurred, as a result of their service to the corporation, in either shareholder derivat ive suits by or
in the name of the corporation or third-party claims, and against the expenses of defending the se
claims. Prior to these amendments, New York law provided for limited mandatory
indemnification, and all rights to indemnification were contained exclusively in the statute.This revision in the New York law, however, prohibits indemnification when and if a
judgment or other final adjudication adverse to the director or officer establishes tha t (i) his acts
were committed in bad faith or were the result of active and deliberate dishonesty and were
material to the adverse adjudication, or (ii) he personally pined a financial profit or other
advantage to which he was not legally entitled.
The New York statute now provides that the indemnification and advancement of
expenses provisions thereof are not exclusive of any other rights to which a director or officer
may be entitled, and permit a corporation to provide directors and officers more extensi ve
indemnification rights, if such additional rights are contained in, or authorized by, its c ertificate
of incorporation or by-laws, except that no indemnification may be made if a director or officer
is found to be ineligible for indemnification under the circumstances set forth in the preceding
paragraph.
Text of Proposed Amendment
The text of Article 44 proposed to be added to the Company's By-laws is set forth as
Appendix A to this Proxy Statement.
Reasons for the Proposed Amendment
The New York Governor's memorandum in support of the legislation expanding the
power of a New York corporation to indemnify its directors and officers in the manner
contemplated by the amendment stated that the principal objective of the st atutory changes was
"to encourage capable and experienced persons to serve in corporate management by providing
reasonable indemnification of the directors and officers of public corporations for their defense
of both third-party and derivative actions". Although the Company's By-laws may be amended
by action of the Board of Directors, the proposed amendment to the By-laws is being put to a
vote of shareholders in response to the change in the statute in order to ensure that direc tors and
officers of the Company will receive indemnification to the fullest extent aut horized by the new
law. The directors may benefit from shareholder adoption of the proposed amendment to the
potential detriment of shareholders, since adoption may discourage shareholder derivative
actions based on alleged negligence to the extent that the Company will be re quired to reimburse
directors or officers for the amounts the Company recovers in such suits from defendant directors
or officers and for their expenses in defending such suits. This proposal is intended to help the
Company attract and retain able and well-qualified persons as directors and officers by assuring
them that the Company will hold them harmless when they do not act in bad fait h or dishonestly
or for their own interests.
As noted above, the purpose of the New York legislation was to assure that qualified
persons would continue to serve as directors and officers of New York corporations by relieving
them of the threat of monetary liability. The current directors of the Company who are standing
for reelection have indicated that they will consider resigning if the proposed amendment to the
By-laws is not adopted, and the nominee standing for election as a new director has indicated
that he will not serve as a director if such proposed amendment is not adopted. The Board of
Directors of the Company believes that the Company should take every possible step to ensure
that it will continue to be able to attract and retain the best possible directors and officers.
New York Statutory Provisions for indemnification
The New York BCL, as amended, now provides that a corporation may (but is not
required to) indemnify a director or officer against judgments, fines, amounts paid in sett lement
and reasonable expenses of litigation (other than in an action brought by the corporation agai nst
such person or by shareholders against such person on behalf of the corporation), even if the
director or officer is not successful on the merits, if he acted in good faith and for a purpose he
reasonably believed to be in (or not opposed to) the best interests of the corporation (and, in cri
al actions or proceedings, had no reason to believe his conduct was unlawful). In addition, a
corporation may (but is not required to) indemnify a director or officer against amounts paid in
settlement and reasonable expenses of an action brought against him by the corporation or by
shareholders on behalf of the corporation, even if he is not successful on the merits, if he acted in
good faith and for a purpose he reasonably believed to be in (or not opposed to) the best interests
of the corporation. However, no indemnification is permitted in an action by the corporati on, or
shareholders on behalf of the corporation, in connection with the settlement or other disposi tion
of a threatened or pending action or in connection with any cl issue or matter as to which a
director or officer is adjudged to be liable to the corporation, unless a court determi nes that, in
view of all of the circumstances, he is entitled to indemnity for such portion of the settlement
amount and expenses as the court deems proper. In addition, the New York BCL provides that a
director or officer shall be indemnified if such person is successful in the litigation on the merits
or otherwise.
Permitted indemnification as described above may only be made if it is det ermined that
indemnification is proper because the applicable standard of conduct has been met. This
determination may be made by a quorum of disinterested directors, independent legal counsel or
the shareholders. Upon application of the person seeking indemnification, a court may also
award indemnification upon a determination that the standards outlined above have been met. A
corporation's board of directors may also authorize the advancement of litigation expenses to a
director or officer upon receipt of an undertaking by him to repay such expenses, if it is
ultimately determined that he is not entitled to be indemnified for them.
Indemnification as Provided by Proposed Article 44
The purpose of proposed Article 44 is to provide greater rights of indemnification than
those statutory provisions described above and thus take advantage of the New York BCL's
present provisions allowing for expansion upon the statutory indemnification provisions. Neither
the Company's Certificate of Incorporation nor its By-laws presently contains any provisions
concerning indemnification.
Mandatory Indemnification
At present, unless any director or officer involved in litigation has been successful, on the
merits or otherwise, the Company may choose not to provide indemnification in any parti cular
case (although a person denied such indemnification may apply to a court therefor). Artic le 44
provides that the Company shall indemnify a director or officer to the fullest extent permitted by
law.
Standard of Conduct
Prior to the amendment to the New York BCL, a person seeking indemnification was
required to show that his acts were committed in good faith, for a purpose he reasonably bel ieved
to be in (or not opposed to) the best interests of the corporation (and, in criminal act ions or
proceedings, had no reason to believe that his action was unlawful). Under Article 44, a di rector
or officer seeking indemnification will be indemnified unless there is a judgment or othe r
adverse final adjudication establishing (i) that the acts involved were taken in bad faith or were
the result of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or (ii) that the director or officer personally gained a financial profit or other
advantage to which the person was not legally entitled.
Indemnification of Directors and Officers
Under Article 44, the Company will be obligated to indemnify directors and officers
against any liability incurred in connection with any proceeding in which such person may be
involved as a party or otherwise by reason of the fact that the person is or was serving as a
director or officer of the Company, except as expressly prohibited by law. Such liabilities may
include, without limitation, judgments, fines, penalties, punitive damages, excise t axes assessed
with respect to an employee benefit plan, amounts paid in settlement, costs and expenses of any
nature (including attorneys' fees). Since indemnification payments would be made from the
Company's general funds, in the event that the Company were to make substantial payme nts
under Article 44, the shareholders' investment in the Company may be at risk. The Company wi ll
be required to reimburse or advance to a director or officer funds necessary for the payment of
expenses, subject to his undertaking to repay such funds to the Company upon an adjudication
that he was not entitled to indemnification. Prior to the amendment of the Ne w York BCL, the
Company could indemnify a director or officer made a party to an action brought by the
Company or by shareholders on behalf of the Company only against amounts paid in settlement
and reasonable attorneys' fees. Moreover, if such a proceeding were settled, or if the director or
officer were adjudged to have been liable to the Company in such a proceeding, the di rector or
officer could have been indemnified only to the extent permitted by a court.
Article 44 will also indemnify directors and officers against liabilities incurred under the
federal securities laws. However, the Securities and Exchange Commission and some courts
have taken the position that a corporation may not provide indemnification against such
liabilities. Other state or federal statutes may raise similar issues.
Indemnification of Other Corporate Personnel and Othe
Article 44 also provides that the Company may indemnify any other person (including
other corporate personnel) to whom the Company by applicable law is permitted to provide
indemnification or advancement of expenses, whether pursuant to the New York BCL or by a
resolution of shareholders or directors or an agreement providing for such indemnification. Such
other corporate personnel may include, but need not be limited to, any person serving at the
request of the Company as a director, officer, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other entity or enterprise. New York
law formerly permitted indemnification of such persons.
General
The Board of Directors without further shareholder approval will have the authority to
amend, modify, or repeal Article 44 as necessary or appropriate to reflect any future
developments concerning indemnification of directors and officers. Article 44 will not be applied
retroactively to events occurring prior to the adoption of the proposal, although such retroactive
application is permissible, since the Board of Directors believes that retroact ive application is not
appropriate and, under certain circumstances, Dr. We t, a former President and director of the
Company, could otherwise argue that his actions should come within Article 44. See "Certa in
Legal Proceedings" above.
As noted above, this is a companion proposal to that relating to amendment of the
Company's Certificate of Incorporation to eliminate the personal liability of direc tors under
certain circumstances. This proposal will give additional protection to directors, and (unless the
Company should procure directors'-and officers' liability insurance, which is not presently
contemplated due to its prohibitive cost and restricted coverage) will be the sol e protection for
the Company's officers and others who are acting for the Company in good faith. The threa t of a
possible lawsuit, even though groundless, is one of the major reasons for the need of such
insurance. Lack of such insurance requires even an innocent director or officer to bear the
expenses of such litigation unless he is protected by an indemnification provision. Again, the
Board believes that providing this level of protection to its directors and officers, compa rable to
that being provided by other public companies, will not lessen the level of scrutiny and care
exercised by them in the Company's service.
Approval of the proposed amendment to the By-laws requires the affirmative vote of a
majority of the votes cast by shareholders present in person or by proxy and entitled to vote at
the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT E SHAREHOLDERS VOTE
FOR APPROVAL OF THE FOREGOING PROPOSAL TO AMEND THE COMPANY'S
BYLAWS (Item 4 on the Proxy Card). UNLESS INSTRUCTIONS TO THE CONTRARY
ARE INDICATED ON THE PROXY CARD, IT IS INTENDED THAT PROXIES WILL
BE VOTED IN FAVOR OF THE FOREGOING PROPOSAL .
APPENDIX A
PROPOSED ARTICLE 44 OF THE BY-LAWS
Indemnification of Directors, Officers and Others
44(a) The Corporation shall, to the fullest extent now or hereafter permitted by the New
York Business Corporation Law, indemnify any director or officer who is or was made, or
threatened to be made, a party to an action or proceeding, whether civil or criminal , whether
involving any actual or alleged breach of duty, neglect or error, any accountability, or any actual
or alleged misstatement, misleading statement or other act or omission and whet her brought or
threatened in any court or administrative or legislative body or agency, including an ac tion by or
in the right of the Corporation to procure a judgment in its favor and an action by or in the right
of any other corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or other enterprise, which any director or officer of the
Corporation is serving or served in any capacity at the request of the Corporation, or is serving or
served such other corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid in settlement, a nd costs,
charges and expenses, including attorneys' fees, or any appeal therein; provided, however, that
no indemnification shall be provided to any such director or officer if a judgment or other fi nal
adjudication adverse to the director or officer establishes that (i) his acts were committed in bad
faith or were the result of active and deliberate dishonesty and, in either case, we re material to
the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not le y entitled.
(b) The Corporation may indemnify any other person (including, without tation,
corporate personnel other than directors or officers) to whom the Corporation is permitted to
provide indemnification or the advancement of expenses by applicable law, whether pursuant to
rights granted pursuant to, or provided by, the New York Business Corporation Law or other
rights created by (i) a resolution of stockholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that these By-laws
authorize the creation of other rights in any such manner.
(c) The Corporation shall, from time to time, reimburse or advance to any person referred
to Section (a) the funds necessary for payment of expenses, including attorneys' fees, incurred in
connection with any action or proceeding referred to in Section (a), upon receipt of a writt en
undertaking by or on behalf of such person to repay such amount(s) if a judgment or other final
adjudication adverse to the director or officer establishes that (i) his acts were committed in bad
faith or were the result of active and deliberate dishonesty and, in either case, we re material to
the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
(d) The right to indemnification conferred by Section (a) shall not be retroactive to events
occurring prior to the adoption of this Article 44.
(e) This Article 44 may be amended, modified or repealed either by action of the Board
of Directors of the Corporation or by the vote of the shareholders. Any repeal or modification of
the foregoing provisions of this Article 44 shall not adversely affect any right or protection of
any person in respect of any act or omission occurring prior to the time of such repeal or
modification.Radiation Technology, Inc. 4/5/88
