<PAGE> 1
SCHEDULE 14A INFORMATION
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240.14a-12
Kentek Information Systems, Inc.
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<PAGE> 2
KENTEK INFORMATION SYSTEMS, INC.
2945 WILDERNESS PLACE
BOULDER, CO 80301-5403
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 1996
TO THE STOCKHOLDERS OF KENTEK INFORMATION SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of KENTEK
INFORMATION SYSTEMS, INC., a Delaware corporation (the "Company"), will be held
on Friday, November 15, 1996 at 10:00 a.m. local time at the offices of
Renaissance Technologies Corporation, 33rd Floor, 800 Third Avenue, New York,
New York for the following purpose:
1. To elect directors to serve for the ensuing year and until their
successors are elected and qualified.
2. To ratify the selection of BDO Seidman, LLP as independent auditors of
the Company for its fiscal year ending June 30, 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on October 4, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ CRAIG G. LAMBORN
Craig G. Lamborn
Assistant Secretary
Boulder, Colorado
October 16, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE
IT IS VOTED.
<PAGE> 3
KENTEK INFORMATION SYSTEMS, INC.
2945 WILDERNESS PLACE
BOULDER, CO 80301-5403
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
NOVEMBER 15, 1996
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
KENTEK INFORMATION SYSTEMS, INC., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders to be held on November 15, 1996 at
10:00 a.m. local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting. The Annual Meeting will be held at the offices of
Renaissance Technologies Corporation, 33rd Floor, 800 Third Avenue, New York,
New York. The Company intends to mail this proxy statement and accompanying
proxy card on or about October 15, 1996, to all stockholders entitled to vote at
the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING AT THE MEETING
Only holders of record of Common Stock at the close of business on October
4, 1996 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on October 4, 1996 the Company had outstanding and entitled to
vote 6,839,938 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
The holders of a majority of the shares entitled to vote, present in person
or represented by proxy, constitute a quorum. The affirmative vote of a
plurality of the shares present in person or represented by proxy at the meeting
and entitled to vote is required for election of directors. The affirmative vote
of a majority of the shares present in person or represented by proxy at the
Annual Meeting and entitled to vote is required to ratify the selection of the
Company's auditors or to take action with respect to any other matter as may be
properly brought before the Annual Meeting.
With regard to election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
have no effect.
<PAGE> 4
Abstentions may be specified on the proposal to ratify the selection of the
Company's auditors. Abstentions will be considered present and entitled to vote
at the meeting and, therefore, will have the effect of a negative vote on this
proposal.
Broker non-votes will be considered present for purposes of the
establishment of a quorum, but will have no effect on the outcome of the
election of directors or the ratification of the selection of the Company's
auditors.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Assistant Secretary of the Company at the Company's principal executive office,
2945 Wilderness Place, Boulder, Colorado 80301-5403, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1997 Annual Meeting of Stockholders must be received by the Company
not later than June 17, 1997 in order to be included in the proxy statement and
proxy relating to that Annual Meeting.
2
<PAGE> 5
PROPOSAL 1
ELECTION OF DIRECTORS
There are six nominees for the six Board positions presently authorized by
the Board of Directors in accordance with the Company's Bylaws, as amended. Each
director to be elected will hold office until the next annual meeting of
stockholders and until his successor is elected and has qualified, or until such
director's earlier death, resignation or removal. Each nominee listed below is
currently a director of the Company, all having been elected by the
stockholders.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the six nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected and management has no reason to believe that any nominee
will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH THE COMPANY
------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Howard L. Morgan, Ph.D.(1).......... 51 Chairman of the Board of Directors
Philip W. Shires.................... 55 President, Chief Executive Officer and Director
Michael N Emmerman(1)............... 51 Director
I. Jimmy Mayer(2)................... 60 Director
Justin J. Perreault(2).............. 33 Director
James H. Simons, Ph.D.(2)........... 58 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Howard L. Morgan, Ph.D., has served as Chairman of the Board since 1993 and
as a Director since 1982. He has served since June 1989 as the President of The
Arca Group, Inc., a consulting and investment management company. Dr. Morgan has
also been a general partner of Renaissance Partners, a venture capital
partnership, since 1982. He serves as a director of Franklin Electronic
Publishers, Inc., Quarterdeck Corporation, HDS Network Systems, Inc., Integrated
Circuit Systems, Inc., Unitronix Corporation, Cylink Corporation, Segue Software
Corporation and Metatools, Inc.
Philip W. Shires has served as President since April 1989 and as Chief
Executive Officer since October 1991. Prior to joining Kentek, he served as
President of the Data Products Division of Lear Siegler Corporation, President
of the ITT Qume Division of International Telephone and Telegraph Corporation
and President of Optotech, Inc., an optical disk drive manufacturer.
Michael N Emmerman served as a director since he co-founded the Company in
1981. He has been associated with Neuberger & Berman, a money management firm,
since 1974 and a General Partner of Neuberger & Berman since 1989.
I. Jimmy Mayer has served as a director since January 1990. He has been
President of Inversiones Sanford S.A., a diversified holding company, since
1985. Prior to that, beginning in 1963, he co-founded and managed several
successful industrial enterprises in Latin America.
3
<PAGE> 6
Justin J. Perreault has served as a director since February 1994. Since
November 1995 he has served as Executive Vice President and Chief Operating
Officer of Object Design, Inc., a publicly-held software company. From 1992 to
November 1995, he was a Vice President at the Harvard Private Capital Group,
Inc., an investment affiliate of Aeneas Venture Corp. and the Harvard Management
Company. Prior to joining the Harvard Private Capital Group, Mr. Perreault was a
consultant with McKinsey & Co., Inc. from 1990 to 1992.
James H. Simons, Ph.D. has served as a director since 1982. Since 1982, he
has served as the President and Chairman of Renaissance Technologies Corp. Dr.
Simons also serves as a director of Franklin Electronic Publishers, Inc., Cylink
Corporation, Seque Software Corporation and Numar Corp.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected BDO Seidman, LLP as the Company's
independent auditors for the fiscal year ending June 30, 1997 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. BDO Seidman, LLP has
audited the Company's financial statements since fiscal year 1984, when the
Company's financial statements were first audited. Representatives of BDO
Seidman, LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of BDO Seidman, LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of BDO Seidman, LLP to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of BDO Seidman, LLP .
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
4
<PAGE> 7
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of September 15, 1996 by: (i) each director;
(ii) each of the executive officers named in the Summary Compensation Table;
(iii) all executive officers and directors of the Company as a group; and (iv)
all those known by the Company to be beneficial owners of more than five percent
of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
----------------------
NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF TOTAL
- ------------------------------------------------------------------------ --------- --------
<S> <C> <C>
Auber Investments Limited............................................... 1,092,548 15.97%
Tropic Isle Building
Wickhams Cay
Road Town, Tortola
British Virgin Islands
Murdoch & Co.(2)........................................................ 1,037,980 15.18%
c/o Bermuda Trust Company, Ltd.
6 Front Street
Hamilton HM11 Bermuda
James H. Simons, Ph.D(3)................................................ 1,021,030 14.91%
c/o Renaissance Technologies Corp.
800 Third Avenue
New York, NY 10022
Aeneas Venture Corporation.............................................. 711,131 10.40%
600 Atlantic Avenue
Boston, Massachusetts 02110
Michael N Emmerman(4)................................................... 50,400 *
Richard L. Kann(5)...................................................... 15,649 *
Craig G. Lamborn(6)..................................................... 31,285 *
I. Jimmy Mayer(7)....................................................... 59,838 *
Dennis W. McFeely(5).................................................... 12,316 *
Howard L. Morgan, Ph.D(8)............................................... 106,842 1.55%
Justin J. Perreault..................................................... -- --
Charles J. Scaglia(5)................................................... 12,500 *
Philip W. Shires(9)..................................................... 201,465 2.86%
All directors and executive officers and directors as a group (10
persons)(10).......................................................... 1,511,325 20.98%
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable within 60 days of September 15, 1996, are
deemed outstanding for computing the percentage of the person or entity
holding such securities but are not outstanding for computing the
percentage of any other person or entity. Except as indicated by footnote,
and subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.
(2) Includes 1,000,482 shares of Common Stock held as nominee of a trust for
the benefit of James H. Simons and members of his immediate family.
5
<PAGE> 8
(3) Includes 1,000,482 shares of Common Stock held by Murdoch & Co. as nominee
of a trust for the benefit of Mr. Simons and members of his immediate
family. Also includes 9,243 shares of Common Stock issuable upon exercise
of options.
(4) Includes 1,000 shares held by trusts for the benefit of Mr. Emmerman's
children and 450 shares held by Mr. Emmerman's spouse. Also includes 9,243
shares of Common Stock issuable upon exercise of options.
(5) Consists solely of shares of Common Stock issuable upon exercise of
options.
(6) Includes 30,535 shares of Common Stock issuable upon exercise of options.
(7) Includes 38,549 shares held by Sir Lan Investments Limited, a corporation
owned by Mr. Mayer's children, and 15,745 shares held by Romano Properties
Limited, a corporation owned by Mr. Mayer's spouse and her children. Also
includes 5,544 shares of Common Stock issuable upon exercise of options.
(8) Includes 70,807 shares of Common Stock issuable upon exercise of options.
(9) Includes 196,340 shares of Common Stock issuable upon exercise of options.
(10) Includes shares included pursuant to notes (3) through (9) above.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1996, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with, except that each of Auber
Investments Limited and Murdoch & Co. failed to file an initial report of
ownership, Mr. Emmerman failed to file a Form 4 with respect to each of three
transactions, Mr. Shires failed to file a Form 4 with respect to one
transaction, Mr. Simons failed to file a Form 4 with respect to each of two
transactions and Mr. Lamborn and Mr. Perreault each failed to file a Form 5 with
respect to one transaction.
6
<PAGE> 9
MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- -------------------------------------------
<S> <C> <C>
Philip W. Shires...................... 55 President and Chief Executive Officer
Craig G. Lamborn...................... 43 Vice President, Finance and Administration
Richard L. Kann....................... 41 Vice President, Operations
Dennis W. McFeely..................... 53 Vice President, Sales
Charles J. Scaglia.................... 57 Vice President, Engineering
</TABLE>
See "Proposal 1 -- Election of Directors" for the biography of Mr. Shires.
Craig G. Lamborn has served as Vice President, Finance and Administration
since September 1992. Mr. Lamborn served as Controller of the Company from
December 1990 to September 1992. From September 1987 to December 1990, Mr.
Lamborn held several financial positions at McDATA Corporation, a manufacturer
of communication devices for IBM compatible products.
Richard L. Kann has served as Vice President, Operations since April 1995.
Mr. Kann served as Director of Operations from October 1990 to April 1995. Prior
to joining Kentek, he served in various management positions at Beckman
Instruments, Lear Siegler Data Products Division and Optotech, Inc., a
manufacturer of optical disk drive products.
Dennis W. McFeely has served as Vice President, Sales since November 1994.
From September 1992 to October 1994, Mr. McFeely was Vice President and General
Manager of Axiom Real Estate Management, Inc., an IBM and Grubb & Ellis real
estate management joint venture. Mr. McFeely served in various capacities at IBM
prior to 1992, including Manager of the Printer Systems Marketing Center.
Charles J. Scaglia has served as Vice President, Engineering since March
1996. From 1994 to March 1996, Mr. Scaglia served as Director, Information
Application Development at U.S. West Technologies, a communications company. Mr.
Scaglia served as Project Director from 1988 to 1994 at Ball Corporation, an
aerospace engineering company.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1996 the Company's Board of Directors
(the "Board") held four meetings. The Board has an Audit Committee and a
Compensation Committee.
The Audit Committee makes recommendations to the Board regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent certified public
accountants and reviews the Company's balance sheet, statement of operations and
statement of cash flows for each interim period. The Audit Committee is composed
of two non-employee directors: Mr. Emmerman and Dr. Morgan. It met two times
during the fiscal year ended June 30, 1996.
The Compensation Committee administers the Company's compensation program
and 1992 Stock Option Plan and makes recommendations to the Board concerning
salaries and incentive compensation for employees and consultants of the
Company. The Compensation Committee is composed of three non-employee directors:
Messrs. Mayer and Perreault and Dr. Simons. It met one time during the fiscal
year ended June 30, 1996.
During the fiscal year ended June 30, 1996, each Board member attended at
least 75% or more of the aggregate of the meetings of the Board and of the
committees on which he served, held during the period for which he was a
director or committee member, respectively.
7
<PAGE> 10
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each of the Company's non-employee directors generally receives $750
compensation for each regular or special meeting of the Board of Directors at
which he is in attendance and is entitled additionally to be reimbursed for his
reasonable out-of-pocket expenses relating to such attendance.
Each non-employee director of the Company also receives stock option grants
under the 1992 Stock Option Plan, as amended (the "Option Plan"). Only directors
of the Company who are not otherwise employed by the Company or a subsidiary of
the Company are eligible to receive such options. Options granted to
non-employee directors are not as incentive stock options under the Internal
Revenue Code of 1986, as amended. Options granted to non-employee directors are
nondiscretionary. On the first business day of each calendar year, beginning on
January 2, 1997, each non-employee director of the Company will automatically be
granted, without further action by the Company, the Board or the stockholders of
the Company, an option to purchase 2,000 shares of the Company's Common Stock.
After January 2, 1997, each person who first becomes a non-employee director of
the Company will automatically be granted an option, on the first business day
on which such person becomes a non-employee director, to purchase a number of
shares of Common Stock equal to 2,000 multiplied by a fraction, the numerator of
which shall be the number of calendar months remaining in the calendar year and
the denominator of which shall be twelve. The exercise price of options granted
to non-employee directors shall be the fair market value of Common Stock on the
date of grant. Options granted to non-employee directors pursuant to the Option
Plan will vest in full six months after the date of grant.
During fiscal 1996, the Company granted each non-employee director (except
Mr. Perreault who did not receive options at the request of the Harvard
Management Company) an option to purchase 924 shares of Common Stock at an
exercise price of $6.49 per share. The fair market value of such Common Stock on
the date of grant was $6.49 per share. As of August 18, 1996, no options had
been exercised by the Company's non-employee directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth, for the fiscal years ended June 30, 1996
and 1995, compensation, awarded or paid to, or earned by, the Company's Chief
Executive Officer and its three next most highly compensated executive officers
whose salary and bonus exceeded $100,000 for the fiscal year ended June 30, 1996
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------- SECURITIES
BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION (1) YEAR SALARY ($) ($) OPTIONS(2) COMPENSATION(3)
- ----------------------------------------- ---- ---------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Philip W. Shires......................... 1996 $ 230,000 $202,000 95,896 $ 3,132
President and Chief Executive Officer 1995 227,446 89,415 -- 5,302
Craig G. Lamborn......................... 1996 129,600 75,000 34,589 2,415
Vice President, Finance and
Administration 1995 128,527 37,500 -- 3,699
Richard L. Kann.......................... 1996 104,600 45,000 20,753 1,219
Vice President, Operations 1995 89,500 10,000 4,263 2,145
Dennis W. McFeely(4)..................... 1996 148,440(5) 25,000(6) 12,294 2,638
Vice President, Sales 1995 86,361(7) 12,000 7,705 --
</TABLE>
8
<PAGE> 11
- ---------------
(1) Charles J. Scaglia has been excluded from this table because he joined the
Company in March 1996 as Vice President, Engineering and therefore did not
earn over $100,000 in fiscal 1996. Mr. Scaglia's annualized compensation in
fiscal 1996 would have been $135,400. Mr. Scaglia was granted options to
purchase 37,500 shares of Common Stock with an exercise price of $6.49 per
share on April 30, 1996.
(2) Options are incentive stock options granted under the Option Plan.
(3) Represents matching contributions made on behalf of the individuals to the
Company's 401(k) plan.
(4) Mr. McFeely became an executive officer of the Company in November 1994. His
annualized salary in fiscal 1995, excluding commission, would have been
$110,000.
(5) Includes commission in the amount of $21,334.
(6) Mr. McFeely's bonus in the amount of $25,000 has been placed in escrow by
the Company and has not yet been paid. Mr. McFeely's receipt of such bonus
is contingent upon his achievement of certain defined milestones in fiscal
1997.
(7) Includes commission in the amount of $13,169.
The following table sets forth certain information regarding options
granted to each of the Named Executive Officers during the fiscal year ended
June 30, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER ANNUAL RATES OF
OF PERCENT OF STOCK PRICE
SECURITIES TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE PRICE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PER SHARE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SHARE)(1) DATE 5% 10%
- ---------------------- ---------- --------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Philip W. Shires...... 30,820 8.14% $ 6.49 11/01/2000 $ 55,262 $122,115
65,076 17.19 6.49 02/07/2001 116,685 257,845
Craig G. Lamborn...... 10,787 2.85 6.49 11/01/2000 19,342 42,740
23,802 6.29 6.49 02/07/2001 42,679 94,309
Richard L. Kann....... 3,082 0.81 6.49 11/01/2000 5,526 12,212
17,671 4.67 6.49 02/07/2001 31,685 70,016
Dennis W. McFeely..... 1,541 0.41 6.49 11/01/2000 2,763 6,106
10,753 2.84 6.49 02/07/2001 19,281 42,606
</TABLE>
- ---------------
(1) The exercise price per share of granted options was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(2) The potential realizable value is calculated based on the term of the option
(5 years). It is calculated assuming that the fair market value of the
Company's Common Stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and that
the option is exercised and sold on the last day of its term for the
appreciated stock price.
9
<PAGE> 12
The following table sets forth information with respect to (i) the exercise
of stock options by the Named Executive Officers during the fiscal year ended
June 30, 1996, (ii) the number of securities underlying unexercised options held
by the Named Executive Officers as of June 30, 1996 and (iii) the value of
unexercised in-the-money options (i.e., options for which the fair market value
of the Common Stock ($10.58 at June 30, 1996) exceeds the exercise price) as of
June 30, 1996:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Philip W. Shires................... 0 186,067 63,931 $ 1,161,681 $ 261,478
Craig G. Lamborn................... 0 26,939 23,060 135,222 94,315
Richard L. Kann.................... 0 14,622 15,377 74,829 62,892
Dennis W. McFeely.................. 0 9,233 10,766 37,763 44,033
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock as of June 30, 1996
($10.58), minus the exercise price, multiplied by the number of shares
underlying the option.
EMPLOYMENT AGREEMENT
The Company entered into an Employment Agreement with Mr. Shires on April
1, 1989 (the "Employment Agreement"). The Employment Agreement, which pursuant
to its terms has been amended by the Board, provided in fiscal 1996 for (i) an
annual salary of $241,500, (ii) an annual bonus equal to 1.5% of the Company's
pre-tax profit for each fiscal year and (iii) a leased or purchased automobile
or an automobile allowance of $800 per month. The Employment Agreement can be
terminated by the Company by written notice at any time, and in such event, Mr.
Shires is entitled to a monthly severance payment equal to his then current
monthly salary (exclusive of any incentive compensation or bonus) for a period
of six months after such termination. Mr. Shires is obligated not to solicit any
employees to leave employment of the Company for a period of three years after
termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the fiscal year ended June 30, 1996, the Company had no compensation
committee interlocks required to be disclosed under applicable rules and
regulations of the Securities and Exchange Commission.
1992 STOCK OPTION PLAN
GENERAL
The Company's 1992 Stock Option Plan, as amended provides for the grant of
both incentive and nonstatutory stock options. Incentive stock options granted
under the Option Plan are intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Nonstatutory stock options granted under the Option Plan
are intended not to qualify as incentive stock options under the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment of
incentive and nonstatutory stock options.
PURPOSE
The Company's Option Plan was adopted by the Board of Directors in October
1992 and was amended in June 1993, November 1995 and February 1996. The purpose
of the Option Plan is to attract new key personnel and to encourage such key
personnel to secure or increase on reasonable terms their stock ownership in the
Company.
10
<PAGE> 13
ADMINISTRATION
Except for the administration of options granted to outside directors of
the Company, as described below, the Board has delegated administration of the
Option Plan to the Stock Option Committee, which is comprised of two or more
disinterested directors. Subject to the limitations set forth in the Option
Plan, the Stock Option Committee has the authority to determine the terms of
option agreements, select the persons to whom grants are to be made, to
designate the number of shares to be covered by each option, to determine
whether an option is to be an incentive stock option or a non-statutory stock
option, to determine the periods during which options shall be exercisable, and,
subject to certain restrictions, to specify the type of consideration to be paid
to the Company upon exercise and to specify other terms of the options.
ELIGIBILITY
Options may be granted under the Option Plan to key employees of (including
officers and directors), directors of, and consultants to and advisors who
regularly provide services to, the Company or a subsidiary, provided that
outside directors are eligible for the grants described below.
The aggregate fair market value of the stock with respect to which
incentive stock options are first exercisable in any calendar year may not
exceed $100,000 per optionee; portions in excess of such amount shall be treated
as non-statutory stock options. When Section 162(m) of the Code applies to the
Option Plan, no person should be eligible to receive an option covering more
than 1,687,500 shares in a calendar year.
STOCK SUBJECT TO THE OPTION PLAN
3,375,000 shares of stock have been reserved for issuance pursuant to the
exercise of options. If options granted under the Option Plan expire or
otherwise terminate without being exercised, the Common Stock not purchased
pursuant to such options again becomes available for issuance under the Option
Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Option Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the Option Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant (110% of such fair
market value for a 10% owner of the Company's Common Stock). The exercise price
of nonstatutory options under the Option Plan may not be less than 50% of the
fair market value of the Common Stock subject to the option on the date of the
option grant.
The exercise price of options granted under the Option Plan must be paid
either (a) in cash or check or (b) by the delivery of other Common Stock of the
Company.
Option Exercise. Options granted under the Option Plan may become
exercisable in cumulative increments as determined by the Board. Unless
otherwise determined by the Board, options become exercisable in three equal
installments commencing with the first anniversary of the date of grant.
Term. The maximum allowable term of options under the Option Plan is 10
years, except that in the case of ISOs held by 10% owners of the Common Stock,
the maximum term is five years. Options currently granted under the Option Plan
terminate in five years. Options granted under the Option Plan are non-
transferable during an optionee's lifetime, except pursuant to a qualified
domestic relations order, and generally expire ninety (90) days after the
termination of an optionee's service to the Company. In general, in the event
the optionee's service terminates by reason of death, permanent disability or
retirement from employment on or after age 65, such optionee's option generally
becomes immediately exercisable in full and remains exercisable for six (6)
months after such death, permanent disability or retirement.
11
<PAGE> 14
OUTSIDE DIRECTOR GRANTS
Outside Directors are only eligible for grants of non-statutory options,
exercisable by cash or, as described in "Executive Compensation -- Compensation
for Directors."
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a merger, consolidation or other changes in the corporate
structure or capitalization affecting the Common Stock in which the company is
the surviving corporation, the Board has discretion to prescribe the terms and
conditions for the modification of the options granted under the Option Plan. In
the event of a dissolution or liquidation of the Company, or a merger or
consolidation in which the Company is not the surviving corporation, all
outstanding options will terminate unless assumed by another corporation.
DURATION, AMENDMENT AND TERMINATION
The Board may terminate the Option Plan without stockholder approval or
ratification at any time or from time to time. Unless sooner terminated, the
Option Plan will terminate in October 2002.
The Board may also amend the Option Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company if the amendment would: (a) modify the requirements as to
eligibility for participation; (b) increase the number of shares of Common Stock
reserved for issuance upon exercise of options; (c) change the manner of
determining the option prices to lower the option prices; (d) except as
specifically allowed by the Option Plan, extend the period during which an
option may be granted or exercised; or (e) change any other provision of the
Plan in any manner which requires stockholder approval in order to comply with
Rule 16b-3 or satisfy the requirements of Section 422 of the Code.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive Stock options under the Option Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for more than two years from the date on which the option is granted and
more than one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss upon the disqualifying disposition, will be a
capital gain or loss which will be long-term or short-term depending on whether
the stock was held for more than one year. Capital gains may be subject to lower
tax rates than ordinary income. Slightly different rules may apply to optionees
who acquire stock subject to certain repurchase options.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness and the satisfaction of a reporting
obligation) to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Option Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable
12
<PAGE> 15
ordinary income equal to the excess of the stock's fair market value on the date
of exercise over the option exercise price. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness and the satisfaction of a reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionee. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for such stock plus any amount recognized as ordinary income upon exercise of
the option. Such gain or loss will be long or short-term depending on whether
the stock was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m) which denies a deduction to any publicly-held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. The
Option Plan was adopted and approved by the stockholders prior to the Company
becoming a publicly held corporation and, thus, the Option Plan is not currently
subject to Section 162(m) pursuant to a transition rule for newly public
companies set forth in the regulations under Section 162(m). The Company
anticipates that options granted under the Option Plan will satisfy the
requirements for performance-based compensation when the Option Plan becomes
subject to Section 162(m).
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing and administering the Company's compensation
programs with respect to the Company's executive officers. The Committee is
composed of three non-employee directors: Messrs. Mayer and Perreault and Dr.
Simons. The Committee is responsible for administering the policies which govern
annual executive salaries, bonuses and the granting of stock options pursuant to
the Company's Option Plan. The Committee will annually evaluate the performance,
and determine the compensation, of the Chief Executive Officer (the "CEO") and
the other executive officers of the Company. In making this determination, the
Committee considers both internal and external data, including input from
outside compensation consultants and independent executive compensation data.
All decisions by the Committee relating to the compensation of the Company's
executive officers are reviewed in full by the Board.
The policies of the Company with respect to compensation of executive
officers, including the CEO, were to provide compensation sufficient to attract,
motivate and retain executives of outstanding ability and potential and to
establish an appropriate relationship between executive compensation and the
creation of stockholder value. To meet these goals, the Board adopted a mix
among the compensation elements of salary and stock options.
Kentek's executive compensation program has three major components, all of
which are intended to attract, retain and motivate highly effective executives:
BASE SALARY
Base salaries for executive officers are set annually by reviewing the
skills and performance levels of individual executive officers, the needs of the
Company and the competitive pay practices of comparable companies.
BONUS
Cash incentive compensation (bonus) is designed to reward executives by
linking a portion of their overall cash compensation to the Company's overall
performance. Bonus payments to all executive officers,
13
<PAGE> 16
except the CEO, are based on the Company's overall performance and the
individual's success in meeting certain specified individual objectives.
Pursuant to the terms of an Employment Agreement by and between the CEO and the
Company, the CEO receives a bonus equal to 1.5% of the Company's pre-tax income
in each fiscal year.
OPTION GRANTS
Equity-based incentive compensation has been established by the Company
through its Option Plan to provide executive officers of the Company with an
opportunity to share, along with stockholders of the Company, in the long-term
performance of the Company and to closely align the interests of management and
stockholders.
In awarding stock options under the Option Plan, the Committee considers
individual performance and responsibilities, relative position within the
Company and prior option grants. The purpose of the Option Plan is to instill
the economic incentives of ownership and to create management incentives to
improve stockholder value. Vesting restrictions are utilized to encourage
executives to remain with the Company and to focus on long-term results.
After considering the criteria relating to awarding stock options, the
Board determined to grant stock options to each of the Company's executive
officers, including the CEO, in fiscal 1996. Options granted under the Option
Plan have a three-year vesting schedule and expire five years from the date of
grant. The exercise price of such options granted to executive officers in
fiscal 1996 was 100% of the fair market value of the underlying stock on the
date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Company has entered into an Employment Agreement with Mr. Shires (see
"Employment Agreement") which provides for the determination of annual salary by
the Committee at its discretion, as well as a bonus equal to 1.5% of the
Company's pre-tax income.
Mr. Shires' base salary in fiscal 1996 was $230,000, and he earned a bonus
in the amount of $202,000 in accordance with the terms of his Employment
Agreement. The Committee has set Mr. Shires base salary for fiscal 1997 at
$241,500, based on its subjective evaluation of various factors, including the
importance to the Company of the level of leadership and strategic planning
contributed by Mr. Shires.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain Named Executive Officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code. Treasury regulations under Section
162(m) offer a number of transitional exceptions to this deduction limit,
including an exemption for compensation plans or agreements in existence prior
to the time the Company becomes publicly-held, and the Option Plan qualifies for
this exemption. As a result, the Compensation Committee believes that at the
present time it is quite unlikely that the compensation paid to any Named
Executive Officer in a taxable year which is subject to the deduction limit will
exceed $1 million. Therefore, the Compensation Committee has not yet established
a policy for determining which other forms of incentive compensation awarded to
its Named Executive Officers shall be designed to qualify as "performance-based
compensation." The Board intends to continue to evaluate the effects of the
statute and Treasury regulations and to comply with Code Section 162(m) in the
future to the extent consistent with the best interests of the Company.
COMPENSATION COMMITTEE
I. Jimmy Mayer
Justin J. Perreault
James H. Simons, Ph.D.
14
<PAGE> 17
PERFORMANCE MEASUREMENT COMPARISON(1)
The Securities and Exchange Commission requires that the Company's total
return to its stockholders be compared to a relevant market index and a similar
industry index for the last five years or such shorter period of time as the
Company has been publicly traded. The Company became a publicly-traded company
on April 17, 1996 when its initial public offering commenced. The following
table shows the total return to stockholders of an investment in the Company's
Common Stock as compared to an investment in a peer group of companies
consisting of GENICOM Corporation, Nu-Kote Holding, Inc., Printronix, Inc., QMS,
Inc., Tradux Corporation and Zebra Technologies, Corp., which companies are
similar in scope to the Company in terms of printer and/or consumable supplies
sales, and an investment in the Nasdaq Composite Index, for the period April 17,
1996 through June 28, 1996.
Total stockholder return is determined by dividing (i) the sum of the
cumulative amount of dividend for a given period (assuming dividend
reinvestment) and the difference between the share price at the end and the
beginning of the period, by (ii) the share price at the end of the period.
<TABLE>
<CAPTION>
KENTEK
Information
Measurement Period Systems, Inc. Nasdaq Compo
(Fiscal Year Covered) # Peer Group site (US)
<S> <C> <C> <C>
4/17/96 100.00 100.00 100.00
6/28/96 132.81 86.05 105.77
</TABLE>
- ---------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934 whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
15
<PAGE> 18
CERTAIN TRANSACTIONS
In accordance with the terms of the securities, the Company paid
approximately $4,152,000 of liquidation preference to the holders of the Senior
Convertible Preferred Stock upon the conversion of such Preferred Stock into
Common Stock in connection with the Company's initial public offering in April
1996, including approximately $1.2 million to Aeneas Venture Corporation, $1.2
million to Auber Investments Limited, and $800,000 to Murdoch & Co., each of
which is a more than five percent stockholder of the Company.
During fiscal year 1996, the Company paid The Arca Group, Inc. $78,000 for
consulting services provided by Dr. Morgan, Chairman of the Board of Directors.
Dr. Morgan is President of The Arca Group, Inc.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
A copy of the Company's 1996 Annual Report is being transmitted herewith,
by order of the Board of Directors, but does not constitute part of the proxy
solicitation materials.
By Order of the Board of Directors
/s/ CRAIG G. LAMBORN
Craig G. Lamborn
Assistant Secretary
October 16, 1996
16
<PAGE> 19
KENTEK INFORMATION SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 1996
The undersigned hereby appoints Philip W. Shires and Craig G. Lamborn,
and each of them as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Kentek Information
Systems, Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of Kentek Information Systems, Inc. to be held at
Renaissance Technologies Corporation, 33rd Floor, 800-Third Avenue, New York,
New York on Friday, November 15, 1996 at 10:00 a.m., local time, and at any and
all postponements, continuations and adjournments thereof, with all powers that
the undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors to hold office until the next Annual
Meeting of Stockholders and until their successors are
elected.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to
(except as marked to the contrary vote for all nominees
below). listed below.
NOMINEES: Howard L. Morgan, Philip W. Shires, Michael N Emmerman, I.
Jimmy Mayer, Justin J. Perreault, James H. Simons.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)'
NAME(S) BELOW
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1.
<PAGE> 20
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To ratify selection of BDO Seidman, LLP as independent
auditors of the Company for its fiscal year ending June 30,
1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED , 1996
------------------
----------------------------------------
----------------------------------------
SIGNATURE(S)
Please sign exactly as your name
appears hereon. If the stock
is registered in the names of
two or more persons, each
should sign. Executors,
administrators, trustees,
guardians and attorneys-in-fact
should add their titles. If signer
is a corporation, please give full
corporate name and have a
duly authorized officer sign,
stating title. If signer is
a partnership, please sign in
partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
2.
