<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
OYO Geospace Corporation
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1.Title of each class of securities to which transaction applies:
2.Aggregate number of securities to which transaction applies:
3.Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
4.Proposed maximum aggregate value of transaction:
5.Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1.Amount Previously Paid:
2.Form, Schedule or Registration Statement No.:
3.Filing Party:
4.Date Filed:
<PAGE>
[OYO Geospace Logo]
January 25, 1999
Dear Fellow Stockholder:
I am pleased to invite you to attend OYO Geospace Corporation's 1999 Annual
Stockholders' Meeting. We will hold the meeting at 10:00 a.m. on Monday, the
1st of March 1999, at the Stafford Civic Center, 1415 Stafford Parkway,
Stafford, Texas.
Following this letter you will find the formal Notice of Meeting, which
lists the matters to be considered at the meeting, and a proxy statement,
which describes those matters. We have enclosed a proxy card so that you may
grant your proxy to be voted as you indicate. We have also enclosed a copy of
our 1998 Annual Report. We encourage you to read these materials.
Your vote is important. Please complete and mail your proxy card promptly,
whether or not you plan to attend the annual meeting. If you attend the
meeting you may vote in person even if you have mailed a signed and dated
proxy.
The board of directors recommends that you vote FOR the proposals described
in the attached proxy statement.
Thank you for your cooperation. The rest of the board of directors and I
look forward to seeing you at the meeting.
Very truly yours,
Gary D. Owens
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
OYO Geospace Corporation
12750 South Kirkwood, Suite 200
Stafford, Texas 77477
January 25, 1999
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MARCH 1, 1999
The Annual Meeting of the Stockholders of OYO Geospace Corporation will be
held at 10:00 a.m. on Monday, the 1st of March 1999, at the Stafford Civic
Center, 1415 Stafford Parkway, Stafford, Texas, for the following purposes:
(1) To elect two directors, each to hold office until the 2002 Annual
Meeting of Stockholders or until his successor is duly elected and
qualified;
(2) To approve an amendment to the OYO Geospace Corporation 1997 Key
Employee Stock Option Plan; and
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The holders of record of OYO Geospace Corporation common stock at the close
of business on January 19, 1999, will be entitled to vote at the meeting.
By Order of the Board of Directors,
Charles H. Still
Secretary
YOUR VOTE IS IMPORTANT
Whether or not you plan to attend the meeting, please sign, date and mail
the enclosed proxy card promptly. If you attend the meeting you may vote in
person even if you have mailed a signed and dated proxy.
<PAGE>
OYO Geospace Corporation
PROXY STATEMENT
January 25, 1999
The board of directors of OYO Geospace Corporation is soliciting proxies
from its stockholders for the annual meeting of stockholders to be held at
10:00 a.m. on Monday, the 1st of March 1999, at the Stafford Civic Center,
1415 Stafford Parkway, Stafford, Texas, or any adjournment thereof.
You are entitled to vote at that meeting if you were a holder of record of
OYO Geospace Corporation common stock at the close of business on January 19,
1999. On January 25, 1999, we began mailing to stockholders entitled to vote
at the meeting a proxy card, this proxy statement and our 1998 Annual Report.
On January 19, 1999, there were 5,494,689 shares of OYO Geospace Corporation
common stock outstanding. Each share of common stock entitles the holder to
one vote on each matter considered at the meeting.
Your proxy card will appoint Gary D. Owens and Satoru Ohya as proxy holders,
or your representatives, to vote your shares as you indicate. If you sign,
date and return your proxy card without specifying voting instructions, the
proxy holders will vote your shares FOR the election of the director nominees
named in this proxy statement and FOR the amendment to the stock option plan
described in this proxy statement.
Signing, dating and returning your proxy card does not preclude you from
attending the meeting and voting in person. If you submit more than one proxy,
the latest-date proxy will automatically revoke your previous proxy. You may
revoke your proxy at any time before it is voted by sending written notice, to
be delivered before the meeting, to:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
The enclosed form of proxy provides a means for you to vote for the director
nominees listed in this proxy statement or to withhold authority to vote for
such nominees and to vote for or against the amendment to the stock option
plan or to withhold authority to vote for that proposal.
The board of directors expects the nominees named in this proxy statement to
be available for election. If any nominee is not available, the proxy holders
may vote your shares for a substitute if you have submitted a signed and dated
proxy card that does not withhold authority to vote for nominees. We are not
aware of any matters to be brought before the meeting other than those
described in this proxy statement. If any other matters are properly brought
before the meeting, the proxy holders may vote your shares in their discretion
if you return a signed, dated proxy card.
No business can be conducted at the meeting unless a majority of all
outstanding shares entitled to vote are either present at the meeting in
person or represented by proxy. The two nominees who receive the most votes
will be elected to the two open directorships even if they receive less than a
majority of the votes cast. For the amendment to the stock option plan to be
adopted, more shares must be voted for the proposal than against it.
Abstentions and broker non-votes are counted as shares present for determining
if there are sufficient shares present to hold the meeting. They are not
counted as votes for or against any item.
Representatives of American Securities Transfer & Trust, Inc., the transfer
agent and registrar for the common stock, will act as the inspectors of
election.
1
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
At the meeting, the stockholders will elect two directors. The board of
directors is divided into three classes, each class being composed as equally
in number as possible. The classes have staggered three-years terms, with the
term of one class expiring at each annual meeting of stockholders.
The directors in Class I, whose terms expire at the meeting, are Thomas L.
Davis, Ph.D. and Ernest M. Hall, Jr. Both Dr. Davis and Mr. Hall are nominees
to serve in Class I for another term expiring at the 2002 Annual Meeting of
Stockholders. The directors in Class II are serving terms that expire at the
2000 Annual Meeting of Stockholders. The directors in Class III are serving
terms that expire at the 2001 Annual Meeting of Stockholders.
Information regarding the director nominees and directors whose terms will
continue following the meeting follows.
<TABLE>
<CAPTION>
Nominees for Election for Class
I
(Terms Expiring at the 2002 Director
Annual Meeting of Stockholders) Age Position Since
<S> <C> <C> <C>
Thomas L. Davis, Ph.D.(a)(b)... 51 Director 1997
Ernest M. Hall, Jr............. 73 Director 1994
<CAPTION>
Class II Directors
(Terms Expiring at the 2000
Annual Meeting of Stockholders)
<S> <C> <C> <C>
Katsuhiko Kobayashi(a)......... 53 Director 1995
Michael J. Sheen............... 50 Senior Vice President and
Chief Technical Officer, Director 1997
Charles H. Still(a)(b)......... 56 Director 1997
<CAPTION>
Class III Directors
(Terms Expiring at the 2001
Annual Meeting of Stockholders)
<S> <C> <C> <C>
Gary D. Owens.................. 51 Chairman of the Board, President
and Chief Executive Officer 1997
Satoru Ohya.................... 66 Director 1994
</TABLE>
- --------
(a) Member of the Audit Committee.
(b) Member of the Compensation Committee.
Background of Nominees and Continuing Directors
Thomas L. Davis, Ph.D. became a director in connection with our initial
public offering in November 1997. Dr. Davis is Professor of Geophysics and
Interim Department Head at the Colorado School of Mines. He also is
coordinator of the Reservoir Characterization Project, whose objective is to
characterize reservoirs through development and application of 3-D and time
lapse 3-D multicomponent seismology. Dr. Davis consults and lectures worldwide
and has written and co-edited numerous papers and other works in the field of
seismic interpretation.
Ernest M. Hall, Jr. has been a director since the company's formation in
September 1994. From then until his retirement in July 1997, Mr. Hall served
as the President and Chief Executive Officer. He served as President of OYO
Corporation U.S.A. ("OYO U.S.A."), the holder of a majority of the common
stock, from 1985 until 1995 and was re-elected to that position effective
October 1, 1997. From 1980 to 1985, Mr. Hall served as a consultant to OYO
U.S.A.
Katsuhiko Kobayashi has been Joint General Manager of OYO Corporation, the
sole shareholder of OYO U.S.A., since May 1995. From 1973 to 1995 he was
employed by Sanwa Bank in its international banking area, where he last held
the position of general manager of the International Credit Administration
Department from 1993 to 1995.
2
<PAGE>
Michael J. Sheen joined the company as Senior Vice President and Chief
Technical Officer in August 1997 and became a director in connection with our
initial public offering in November 1997. Mr. Sheen had been a Senior Vice
President and Chief Technical Officer of Input/Output, Inc. ("I/O") since 1991
and had held other positions at I/O since 1977.
Charles H. Still became a director in connection with our initial public
offering in November 1997. He has been Secretary since the company's formation
in September 1994 and Secretary of various affiliates and predecessors of the
company since 1980. He has been a partner in the law firm of Fulbright &
Jaworski L.L.P. since 1975.
Gary D. Owens joined the company as President and Chief Executive Officer in
August 1997 and became Chairman of the Board in September 1997. From October
1993 until May of 1997, Mr. Owens was the President and Chief Executive
Officer of I/O. Mr. Owens had held other positions at I/O since 1977.
Satoru Ohya, who is a geologist by education at Tokyo University, was
Chairman of the Board from the company's formation in September 1994 until Mr.
Owens' election to that position September 1997, and he has continued as a
director. He has been President of OYO Corporation since 1993. For
approximately 40 years, Mr. Ohya has been an employee or officer of OYO
Corporation and various of its affiliates, including serving as Chief
Executive Officer of the company's predecessors from 1983 to 1994.
Committees of the Board of Directors and Meeting Attendance
The board of directors has an audit committee and compensation committee.
The board of directors has not established a nominating committee.
The audit committee is charged with recommending to the entire board
engagement and discharge of independent auditors of the financial statements
of the company, reviewing the professional service provided by independent
auditors, reviewing the independence of independent auditors, reviewing with
the auditors the plan and results of the auditing engagement, considering the
range of audit and non-audit fees and reviewing the adequacy of the company's
system of internal accounting controls. The audit committee met three times
during the fiscal year ended September 30, 1998.
The compensation committee is charged with recommending to the entire board
the compensation to be paid to officers and key employees of the company and
the compensation of members of the board of directors. The compensation
committee also makes recommendations to the entire board regarding the grant
of stock options and restricted stock awards. The compensation committee met
three times during the fiscal year ended September 30, 1998.
The board of directors met three times during the fiscal year ended
September 30, 1998. Each director attended, in person or by telephone, all
meetings held by the board of directors and by the committees on which the
director served.
Compensation of Directors
Non-employee directors are compensated for their services at a rate of
$25,000 per year, of which one-half is payable in shares of common stock based
on the fair market value thereof at the date of issuance pursuant to the
company's 1997 Non-Employee Director Stock Plan. Also pursuant to that plan,
each non-employee director serving on the board of directors following each
annual meeting of stockholders will receive a grant of options to acquire
3,150 shares of common stock. Messrs. Hall, Kobayashi and Ohya have not
accepted this annual stipend or any stock options to date and have indicated
that they will not accept such compensation in fiscal 1999. All non-employee
directors are reimbursed for ordinary and necessary expenses incurred in
attending board or committee meetings.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The beneficial ownership as of December 1, 1998, of shares of the company's
common stock of each director and executive officer, each person known to the
company to beneficially own more than 5% of outstanding common stock and all
directors and executive officers as a group, along with the percentage of
outstanding common stock that such ownership represents, follows. Each person
named has sole voting and investment power with respect to the shares
indicated except as otherwise stated in the notes to the table.
<TABLE>
<CAPTION>
Beneficial Owner Shares Percentage
---------------- --------- ----------
<S> <C> <C>
OYO Corporation (1)................................ 2,850,000 51.9%
OYO Corporation U.S.A. (1)......................... 2,850,000 51.9
Gary D. Owens (2).................................. 215,000 3.9
Michael J. Sheen (2)............................... 25,000 *
Thomas L. Davis (3)................................ 6,755 *
Ernest M. Hall, Jr................................. 40,000 *
Katsuhiko Kobayashi................................ -- *
Satoru Ohya (1).................................... 2,850,000 51.9
Charles H. Still (3)............................... 6,755 *
Thomas T. McEntire (4)............................. 12,500 *
Eagle Asset Management (5)......................... 469,825 8.6
R. Chaney & Partners III L.P. (6).................. 383,000 7.0
Executive officers and directors as a group (8
people)........................................... 3,156,010 57.2%
</TABLE>
- --------
* Less than one percent.
(1) The shares indicated as beneficially owned by OYO Corporation are held
directly by its wholly-owned subsidiary, OYO Corporation U.S.A. The
address of OYO Corporation is Ichigaya Building 2-6, Kudan-kita 4-chome,
Chiyoda-ku, Tokyo 102, Japan. The address of OYO Corporation U.S.A. is
7334 N. Gessner Road, Houston, Texas 77040. OYO Corporation and OYO
Corporation U.S.A. share the voting and dispositive power of these shares.
The shares indicated as beneficially owned by Mr. Ohya are the same shares
owned directly by OYO Corporation U.S.A. and are included because of Mr.
Ohya's affiliation with OYO Corporation. Mr. Ohya disclaims beneficial
ownership of the shares of common stock owned by OYO Corporation U.S.A.
within the meaning of Rule 13d-3 under the Exchange Act. Mr. Ohya owns
303,300 ordinary shares of OYO Corporation, and his wife and children
collectively own 16,741 ordinary shares of OYO Corporation. Mr. Ohya
disclaims beneficial ownership of the shares of OYO Corporation owned by
his children within the meaning of Rule 13d-3 under the Exchange Act.
(2) Includes unexercised options to purchase 5,000 shares.
(3) Includes unexercised options to purchase 6,300 shares.
(4) Includes unexercised options to purchase 2,500 shares.
(5) Based solely on information provided by The Nasdaq Stock Market, Inc.
(6) Based solely on a Schedule 13D/A filed with the Securities and Exchange
Commission on December 12, 1997. According to this Schedule 13D/A, these
shares are beneficially owned by R. Chaney & Partners III L.P., R. Chaney
& Partners, Inc. and Robert H. Chaney, the address of each of whom is 909
Fannin, Suite 1275, Two Houston Center, Houston, Texas 77010-1006, and
each of whom shares the voting and dispositive power of these shares.
4
<PAGE>
EXECUTIVE OFFICERS AND COMPENSATION
Information regarding the executive officers follows.
<TABLE>
<CAPTION>
Name Age Position
---- --- ----------------------------------------------------
<C> <C> <S>
Chairman of the Board, President and Chief Executive
Gary D. Owens....... 51 Officer
Michael J. Sheen.... 50 Vice President and Chief Technical Officer
Thomas T. McEntire.. 38 Chief Financial Officer
</TABLE>
Thomas T. McEntire joined the company as Chief Financial Officer in
September of 1997. Mr. McEntire had been Financial Controller of APS Holding
Corporation ("APS") since February 1995 and held other senior financial
management positions since joining APS in 1990. Prior to joining APS, Mr.
McEntire held various positions with Coopers & Lybrand L.L.P. from 1982 to
1990.
Mr. Owens' and Mr. Sheen's backgrounds are described above under "Background
of Nominees and Continuing Directors".
Summary of Compensation
A summary of the compensation earned by the executive officers in the fiscal
years ended September 30, 1997 and 1998 follows.
<TABLE>
<CAPTION>
Annual Long-term
Compensation Compensation Awards
------------------ ---------------------
Restricted Shares
Name and Principal Stock Underlying Other (4)
Position Year (1) Salary Bonus (2) Awards (3) Options Compensation
- ------------------ -------- -------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gary D. Owens........... 1998 $175,000 $131,250 $160,000 20,000 $3578
Chairman of the Board, 1997 29,167 -- -- -- --
President and CEO
Michael J. Sheen........ 1998 150,000 112,500 160,000 20,000 3,079
Vice President and
Chief 1997 25,000 -- -- -- --
Technical Officer
Thomas T. McEntire...... 1998 100,000 75,000 80,000 10,000 1,558
Chief Financial Officer 1997 8,333 -- -- -- --
</TABLE>
- --------
(1) Salaries for fiscal 1997 represent less than a full fiscal year. Messrs.
Owens and Sheen joined the company effective August 1, 1997. Mr. McEntire
joined the company effective September 1, 1997.
(2) Bonuses are shown in the fiscal year in which they are earned but are
actually paid in the following fiscal year.
(3) These awards are subject to vesting, and no shares were vested as of
September 30, 1998. This dollar value was calculated by multiplying the
number of shares of restricted stock awarded by the closing price of the
common stock on the date the awards were granted. All of these awards were
granted in connection with, and were conditioned upon the closing of, our
initial public offering. While the initial public offering price of the
common stock was $14.00 per share, the closing price on November 26, 1997,
the date the offering closed and these restricted stock awards were
granted, was $16.00 per share. The executive officers held the number of
shares indicated below as of September 30, 1998, which had the indicated
values as of that date based on the $15.75 closing price of the common
stock on that date. These awards vest as to one fourth of the shares on
each November 26 from 1998 through 2001.
<TABLE>
<CAPTION>
Value at
Number September 30,
of Shares 1998
--------- -------------
<S> <C> <C>
Gary D. Owens..................................... 20,000 $315,000
Michael J. Sheen.................................. 20,000 315,000
Thomas T. McEntire................................ 10,000 157,500
</TABLE>
(4) Other Compensation includes contributions by the company to defined
contribution retirement savings plans.
5
<PAGE>
Stock Options
Information regarding stock options granted to the executive officers in
fiscal 1998 follows. All of these options were granted in connection with our
initial public offering in November 1997.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Shares of Price
Common Percent of Appreciation for
Stock Total Options Exercise Option Term (1)
Underlying Granted to Price per -----------------
Name Options Employees Share Expiration 5% 10%
- ---- ---------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary D. Owens........... 20,000 6.5% $14.00 11/26/07 $176,090 $446,248
Michael J. Sheen........ 20,000 6.5 14.00 11/26/07 176,090 446,248
Thomas T. McEntire...... 10,000 3.3 14.00 11/26/07 88,045 223,124
</TABLE>
- --------
(1) The potential realizable value of the options is based on an assumed
appreciation in the price of the common stock at a compounded annual rate
of 5% or 10% from the date the option was granted until the date the
option expires. The 5% and 10% appreciation rates are set forth in the
Securities and Exchange Commission's regulations. We do not represent that
the common stock will appreciate at these assumed rates or at all.
Information regarding the value of unexercised options held by the executive
officers as of September 30, 1998, follows. None of the executive officers
exercised any options in fiscal 1998. None of the options were exercisable
during fiscal 1998.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Name September 30, 1998 (# shares) September 30, 1998 ($)(1)
- ---- ------------------------------- -------------------------
<S> <C> <C>
Gary D. Owens........ 20,000 $35,000
Michael J. Sheen..... 20,000 35,000
Thomas T. McEntire... 10,000 17,500
</TABLE>
- --------
(1) Based on $15.75 per share, the closing price of the common stock on
September 30, 1998, as reported by The Nasdaq Stock Market, Inc.
Employment Agreements
Messrs. Owens and Sheen have entered into employment agreements with the
company. Mr. Owens' base annual salary is $175,000, and Mr. Sheen's base
annual salary is $150,000. These salaries may be adjusted by the board of
directors. Messrs. Owens and Sheen are entitled to participate in the
company's 401(k) plan and any bonus plan the board of directors adopts and to
receive certain other benefits and vacation. Pursuant to their employment
agreements, each of Messrs. Owens and Sheen is entitled to receive the
severance benefits described below upon termination of his employment unless
the termination:
. results from his death, disability or retirement;
. is by the company for Cause; or
. is by the employee other than for Good Reason.
"Cause" is defined to mean the employee's willful and continued failure to
perform his duties after a demand for his performance of those duties or the
employee's willfully engaging in gross misconduct materially and demonstrably
injurious to the company. "Good Reason" is defined to mean a demotion, a
reduction in base salary, a relocation of the employee's base location of
employment, the discontinuation of any employee benefit without comparable
substitution, the failure of any successor of the company to assume the
employment agreement or a purported termination not in compliance with the
employment agreement.
6
<PAGE>
The severance benefits to which Messrs. Owens and Sheen would be entitled on
termination include
. his salary through the date of termination;
. twice his base salary and pro-rated bonus for the fiscal year of
termination;
. any relocation and indemnity payments to which he is entitled and any
costs and legal fees incurred in connection with any dispute over his
employment agreement; and
. a gross-up for any applicable "excess parachute payment" tax imposed
by the Internal Revenue Code of 1986.
In connection with these employment agreements, each of Messrs. Owens and
Sheen has agreed that he will not disclose or misappropriate any confidential
information of the company.
Compensation Committee Interlocks and Insider Participation
The compensation committee comprises Dr. Thomas L. Davis, Ph.D., and Mr.
Charles H. Still. Mr. Still is a partner in the law firm of Fulbright &
Jaworski L.L.P., which provides legal services to the company.
Compensation Committee Report on Executive Compensation
Our executive compensation program is designed to attract, motivate and
retain talented management personnel and to reward management for the
company's successful financial performance and for increasing stockholder
value. We provide compensation and incentives through a combination of
salaries, annual performance bonuses and long-term incentive stock-based
awards.
Base Annual Salaries
Prior to the company's initial public offering, and prior to the formation
of the compensation committee, the company entered into employment agreements
with Messrs. Owens and Sheen as described under "--Employment Agreements"
above. The compensation levels reflected in those employment agreements were
established in July 1997 by negotiations among Messrs. Owens and Sheen, before
they joined the company, and representatives of OYO U.S.A., the company's sole
stockholder at that time. Mr. McEntire's base salary was determined in August
1997 by negotiations among Mr. McEntire, before he joined the company, and Mr.
Owens and representatives of OYO U.S.A.
The base annual salaries of the company's executive officers for fiscal 1998
were as follows.
<TABLE>
<S> <C>
Mr. Owens, Chief Executive Officer....... $175,000
Mr. Sheen, Chief Technical Officer....... 150,000
Mr. McEntire, Chief Financial Officer.... 100,000
</TABLE>
The compensation committee has the authority to adjust these base salaries;
however, the employment agreements described above require that Messrs. Owens'
and Sheen's base salaries not be reduced from the base amounts set forth
above. To date, we have not adjusted the base salaries of Messrs. Owens and
Sheen, as we believe them to be within an acceptable range for the officers'
positions and responsibility and the company's size. For fiscal 1999, we
approved an increase in Mr. McEntire's base annual salary to $125,000 in
recognition of his contributions to the company.
Annual Performance Bonuses
In January 1998, we recommended to the board of directors, and the board of
directors adopted, a comprehensive, company-wide cash bonus compensation plan
for all employees for the fiscal year 1998, as proposed by Mr. Owens. The cash
bonus plan set forth various targets and criteria for each of the company's
operating subsidiaries, based on the financial results of the subsidiary, and
established a cash bonus for each employee of the subsidiaries that met those
targets. The financial targets were designed to provide incentives for the
employees of each subsidiary to work as a team to improve the financial
results in which the company believed there was room for growth.
7
<PAGE>
At the executive level, we set a single financial target for fiscal 1998:
the company as a whole needed to achieve net income per share for the fiscal
year of a set amount, which at the time of adoption of the plan was in line
with published analyst's expectations for the fiscal year. We believed this to
be an appropriate short-term goal for a newly-public company. The fiscal 1998
bonus for executive officers was set as an all-or-nothing bonus; there was to
be no graduated payout if the company did not achieve the financial target.
The bonus plan provided a cash bonus to each of the company's executive
officers in an amount equal to 75% of the officer's base salary. As reported
in our 1998 annual report to stockholders, the company achieved net income per
share of $1.32 for the year ended September 30, 1998, and the executive
officers, as well as the other employees of the company, earned the bonuses
set in the bonus plan in January 1998.
Recently, we approved a company-wide bonus plan, including financial targets
and bonus levels, for fiscal 1999. For fiscal 1999, the executive officers'
bonuses will awarded only if the company achieves a predetermined amount of
growth in earnings per share in fiscal 1999.
Long-Term Stock-Based Compensation
We also believe that long-term incentive compensation is an important
component of the company's compensation program and that the value of this
compensation should be directly related to increases in stockholder value.
Therefore, in addition to base salaries and annual performance bonuses, the
executive officers participate in the company's 1997 Key Employee Stock Option
Plan, which allows the company to grant long-term incentive compensation to
its executive officers in the form of stock options and restricted stock
awards. These options and restricted stock typically vest 25% per year over
four years and are therefore intended to compensate executive officers for
long-term appreciation in the market value of the common stock, and only for
such appreciation.
In connection with the company's initial public offering, the company
granted options to purchase stock and restricted stock to the executive
officers as set forth above under "Summary of Compensation" and "Stock
Options". The amounts of these options and restricted stock were determined
before the initial public offering by negotiations among Mr. Owens and
representatives of OYO U.S.A. These options have an exercise price of $14 per
share, which is equal to the initial public offering price, and vest over four
years.
In November 1998, we recommended to the board of directors, and the board of
directors approved, the grant of options to purchase 10,000 shares to each of
Messrs. Owens and Sheen and options to purchase 5,000 shares to Mr. McEntire.
These options have exercise prices of $14.56 and also vest over four years.
Applicable Tax Code Provision
The compensation committee has reviewed the potential consequences for the
company of Section 162(m) of the Internal Revenue Code, which limits the tax
deduction the company can claim for annual compensation in excess of $1
million to certain executives. This limit did not impact the company in fiscal
1998 and is not expected to impact the company in fiscal 1999.
Compensation Committee:
Dr. Thomas L. Davis, Ph.D.
Mr. Charles H. Still
8
<PAGE>
Common Stock Performance Comparisons
The following graphs compare the performance of the common stock with the
performance of the Russell 2000 index and the Standard & Poor's Oil & Gas
(Drilling & Equipment) index from our initial public offering through the end
of fiscal 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
11/20/97 9/30/98
-------- -------
<S> <C> <C>
OYOG..................................................... 100.00 112.50
Russell 2000............................................. 100.00 83.45
S&P Oil & Gas............................................ 100.00 56.01
(Drilling & Equipment)
</TABLE>
These graphs assume $100 dollars invested (a) at our initial public offering
price on the date on which the common stock became registered under Section 12
of the Securities Exchange Act, (b) in the stocks comprising the Russell 2000
index on that day and (c) in the stocks comprising the Standard & Poor's Oil &
Gas (Drilling & Equipment) index that day. In each case, reinvestment of all
dividends is assumed.
The foregoing graphs are based on historical data and are not necessarily
indicative of future performance. These graphs shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to the Regulations of 14A or 14C under the Exchange Act
or to the liabilities of Section 18 under that act.
PROPOSAL 2: AMENDMENT OF STOCK OPTION PLAN
General
At the meeting, the stockholders will vote on a proposal (the "Amendment")
to amend the company's 1997 Key Employee Stock Option Plan (the "Plan") to
increase the number of shares available under the Plan from 425,000 to
625,000. Approval of the Amendment requires the vote of the holders of a
majority of the shares being voted at the meeting.
Description of the Plan
The Plan is designed to provide key employees, including officers and
employee-directors of the company, with additional incentives to promote the
success of our business and to enhance our ability to attract and retain the
services of qualified persons. The Plan is currently administered by the Board
of Directors.
9
<PAGE>
Under the Plan, the Board of Directors may grant options to purchase the
company's common stock and awards of the company's restricted stock up to an
aggregate of 425,000 shares of common stock. The exercise price of options
granted under the Plan may not be less than the fair market value of the
common stock on the date of grant. In the case of a grant of an option
designated as an "Incentive Option" (as defined in the Plan) to an employee
who owns ten percent or more of the outstanding shares of common stock (a "10%
Stockholder"), the exercise price may not be less than 110% of the fair market
value of the common stock on the date of the grant. No option may be granted
under the Plan for a period of more than ten years. In the case of a 10%
Stockholder, no option designated as an Incentive Option may be granted for a
period of more than five years. Options designated as Incentive Options under
the Plan may not be granted to an individual to the extent the aggregate fair
market value of the stock, valued as of the date of the grant, with respect to
which options first are exercisable by that person in any calendar year, under
the Plan or any other incentive stock option plan of the Company, exceeds
$100,000.
Under the Plan, the Board of Directors may issue shares of restricted stock
to employees for no payment by the employee or for a payment below the fair
market value on the date of grant. The restricted stock is subject to certain
restrictions described in the Plan, with no restrictions continuing for more
than ten years from the date of the award. Generally, restricted stock may not
be transferred and is subject to forfeiture on termination of employment until
the awards vest. Generally, awards vest annually in four equal increments.
Currently, there are no shares left under the Plan for the grant of options
or restricted stock.
In the 1993 Omnibus Budget Reconciliation Act ("OBRA"), Congress generally
limited to $1.0 million per year the tax deduction available to public
companies for certain compensation paid to designated executives. These
executives include the chief executive officer and the next four highest
compensated officers of the company. An exception is provided from this
deduction limitation, for "performance-based" compensation, if specified
statutory requirements are satisfied. The Plan is generally designed to
satisfy these statutory requirements for stock options. We anticipate being
entitled to deduct an amount equal to the ordinary income reportable by an
optionee on exercise of nonqualified options and the early disposition of
shares of stock acquired by exercise of incentive stock options. Restricted
stock awards vest based on service to the company, and generally will not be
exempt from the $1.0 million deduction cap. Because of special transition
rules applicable to companies which first become public in an initial public
offering, we do not anticipate that application of this deduction cap will
have a material impact on awards issued under this Plan.
Text of the Amendment
The Amendment amends the Plan as follows:
1. Section 4.2 of the Plan is amended to read in its entirety as follows:
" 1.1 Dedicated Shares. The total number of shares of Stock with
respect to which Options and Stock Awards may be granted under the Plan
shall be 625,000. The shares may be treasury shares or authorized but
unissued shares. The maximum number of shares subject to Options that
may be issued to any Employee under the Plan in any calender year is
400,000. The number of shares stated in this Section 4.2 shall be
subject to adjustment in accordance with the provisions of Section 4.5.
In the event that any outstanding Option or Stock Award shall expire
or terminate for any reason or any Option or Stock Award is
surrendered, the shares of Stock allocable to the unexercised portion
of that Option or Stock Award may again be subject to an Option or
Stock Award under the Plan."
Reasons for the Amendment
We believe it is in the best interests of the company to attract and retain
the services of experienced and knowledgeable employees and to provide an
incentive for those employees to increase their proprietary interest in our
long-term success and progress. The Plan is designed to provide certain full-
time key employees, including officers and directors of the company and its
subsidiaries (approximately 425 people as of November 30, 1998), with
additional incentives to promote the success of the company's business.
10
<PAGE>
The Plan currently provides that the Board of Directors may grant options to
purchase the company's common stock and awards of the company's restricted
stock up to an aggregate of 425,000 shares of common stock. The Amendment
would increase the aggregate number of shares of common stock that could be
subject to those awards to 625,000. The Board of Directors has adopted the
Amendment and directed that it be presented to the shareholders for their
approval.
Certain Considerations
You should note that certain disadvantages may result from the adoption of
the Amendment, including a dilution of your proportional interest in the
company with respect to future earnings per share, voting, liquidation value
and book and market value per share if options are granted under the Plan and
subsequently exercised or if restricted stock is granted under the Plan and
subsequently vests.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Mr. Ohya, a director of the company, is President of OYO Corporation and
Chairman of the Board of OYO U.S.A. and holds other offices of subsidiaries of
OYO U.S.A. Mr. Kobayashi, also a director of the company, is the Joint General
Manager of OYO Corporation. Mr. Kobayashi also holds offices with many
subsidiaries of OYO U.S.A. Mr. Hall, also a director of the company, is the
President of OYO U.S.A. Mr. Still, also a director of the company, is the
Secretary of OYO U.S.A. and also serves in that position with respect to most
of the subsidiaries of OYO U.S.A. Mr. Still is a partner in the law firm of
Fulbright & Jaworski L.L.P., which provides legal services to the company.
In fiscal 1998, we purchased printheads for our thermal plotters from OYO
Corporation pursuant to a Printhead Purchase Agreement (the "Printhead
Purchase Agreement"), between us and OYO Corporation. OYO Corporation had in
turn purchased the printheads primarily from another Japanese corporation and,
to a lesser extent, from two other Japanese corporations. For its service and
assistance in these transactions, pursuant to the Printhead Purchase
Agreement, OYO Corporation marked up its cost for these printheads by 10% in
reselling them to us. We believe that, by purchasing the heads through OYO
Corporation, we receive a more favorable price for the heads than we could
obtained if we were to negotiate directly for their purchase.
Pursuant to a Master Sales Agreement (the "Master Sales Agreement"), we and
OYO Corporation purchase products from one another at scheduled discounts of 5
to 20 percent off the seller's list prices. In fiscal 1998, we sold
approximately $0.4 million in goods to OYO Corporation and its affiliates and
purchased approximately $2.6 million in goods from OYO Corporation (including
the products covered by the Printhead Purchase Agreement).
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
PriceWaterhouseCoopers LLP served as the company's principal independent
public accountants for the 1998 fiscal year. Representatives of
PriceWaterhouseCoopers LLP are expected to attend the meeting, will have the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the company's
officers, directors and persons who own more than 10% of a registered class of
the company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% stockholders are required by the regulation to furnish the
company with copies of all Section 16(a) reports they file.
Based solely on a review of reports on those filings furnished to the
company and written representations from reporting persons that no additional
reports were required, the company believes that during and with respect to
the fiscal year ended September 30, 1998, all officers, directors and greater
than 10% stockholders complied with all filing requirements applicable to
them, except that a Form 5 reporting a gift of 200 shares by Mr. Owens' wife
to her parents was filed late.
11
<PAGE>
PROPOSALS FOR NEXT ANNUAL MEETING; OTHER MATTERS
Any proposals of holders of common stock intended to be presented at the
annual meeting of stockholders of the company to be held in 2000 must be
received by the company at its principal executive offices, 12750 S. Kirkwood,
Suite 200, Stafford, Texas 77477, no later than September 20, 1999 to be
included in the proxy statement and form of proxy relating to that meeting.
The cost of solicitation of proxies in the accompanying form will be paid by
the company. In addition to solicitation by use of the mails, the directors,
officers or employees of the company may solicit the return of proxies by
telephone, telecopy or in person.
12
<PAGE>
OYO Geospace Corporation
PROXY--ANNUAL MEETING OF STOCKHOLDERS
March 1, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of Common Stock of OYO Geospace Corporation ("OYOG")
hereby appoints Gary D. Owens and Satoru Ohya, or either of them, proxies of
the undersigned with full power of substitution, to vote at the Annual Meeting
of Stockholders of OYOG to be held at 10:00 a.m. on Monday, the 1st of March
1999, at the Stafford Civic Center, 1415 Stafford Parkway, Stafford, Texas, and
at any adjournment or postponement thereof, the number of votes that the
undersigned would be entitled to cast if personally present.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted FOR the election of the director nominees named in Item 1, or if any one
or more of the nominees becomes unavailable, FOR another nominee or other
nominees to be selected by the Board of Directors, and FOR the proposal set
forth in Item 2.
Please mark, sign, date and return in the enclosed envelope, which requires no
postage if mailed in the United States.
(continued and to be signed on other side)
(1)ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
FOR all of the nominees listed below [_] WITHHOLD AUTHORITY [_]
(except as indicated to the contrary below) to vote for election of directors
</TABLE>
NOMINEES: Thomas L. Davis, Ph.D. and Ernest M. Hall, Jr.
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
(2) AMENDMENT OF STOCK OPTION PLAN:
FOR [_] AGAINST [_] ABSTAIN [_]
(3) In their discretion, the above-named proxies are authorized to vote upon
such other business as may properly come before the meeting or any
adjournment thereof and upon matters incident to the conduct of the
meeting.
-------------------------------------
-------------------------------------
Signature of Stockholder(s)
Please sign your name exactly as it
appears hereon. Joint owners must
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give your full
title as such.
Date , 1999.
