<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
KENTEK INFORMATION SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(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> 2
KENTEK INFORMATION SYSTEMS, INC.
2945 WILDERNESS PLACE
BOULDER, CO 80301-5403
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 20, 1998
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" or "Kentek"),
will be held on Friday, November 20, 1998 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 purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected and qualified.
2. To ratify the selection of Deloitte & Touche LLP, independent auditors,
as auditors of the Company for its fiscal year ending June 30, 1999.
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 23, 1998
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/ Vicky S. Hammond
Vicky S. Hammond
Assistant Secretary
Boulder, Colorado
October 23, 1998
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 20, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of KENTEK INFORMATION SYSTEMS, INC., a Delaware corporation (the
"Company" or "Kentek"), for use at the Annual Meeting of Stockholders to be held
on November 20, 1998 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 26, 1998 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
23, 1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on October 23, 1998 the Company had outstanding and entitled
to vote 6,969,097 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 votes cast at the Annual Meeting is required to ratify the
selection of the Company's independent 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.
Abstentions may be specified on the proposals to ratify the selection of
the Company's independent auditors but will have no effect on the outcome of the
vote.
<PAGE> 4
Brokerage firms who hold shares in "street name" for customers have the
authority to vote those shares with respect to the election of directors and the
ratification of the selection of the Company's independent auditors if such
firms have not received voting instructions from a beneficial owner. However,
the failure of a broker to vote shares in the absence of instructions (a "broker
non-vote") will have no effect on the outcome of the vote on such proposals.
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 by completing 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 AND DIRECTOR NOMINATIONS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 1999 Annual
Meeting of Stockholders pursuant to Rule 14a-8, "Shareholder Proposals," of the
Securities and Exchange Commission is June 25, 1999. The deadline for submitting
a stockholder proposal or a nomination for a director that is not to be included
in such proxy statement and proxy is, in accordance with the advance
notification provisions of the Company's bylaws, September 22, 1999.
2
<PAGE> 5
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting five directors will be elected, each to 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, each
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 five 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. I. Jimmy Mayer was previously a director and resigned
effective January 11, 1998 and is therefore not nominated for election at the
Annual Meeting.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD 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).......... 52 Chairman of the Board of Directors
Philip W. Shires.................... 57 President, Chief Executive Officer and Director
Justin J. Perreault(1)(2)........... 35 Director
James H. Simons, Ph.D.(2)........... 60 Director
Sheldon Weinig, Ph.D. .............. 70 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, Unitronix Corporation, Cylink
Corporation, Segue Software Corporation, Infonautics Corporation, Neoware
Systems and Meta Creations, 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.
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., an object oriented database 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, Segue Software Corporation and Numar Corp.
3
<PAGE> 6
Sheldon Weinig, Ph.D. has served as a director since June 1997. Dr. Weinig
has been an Adjunct Professor at Columbia University since 1995 and at The State
University of New York at Stony Brook since 1994. From 1989 to 1996, Dr. Weinig
was employed by the Sony Corporation as Vice Chairman of Sony Engineering and
Manufacturing of America. Dr. Weinig founded Materials Research Corporation in
1957, and served as Chairman of that multinational company until it was
purchased by Sony Corporation. He serves as a director for Aseco, Insituform
Technologies Corporation and Intermagnetics General Corporation.
THE BOARD RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has selected Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending June 30, 1999 and has further directed that
management submit the selection of independent auditors for ratification by the
stockholders at the Annual Meeting. Deloitte & Touche LLP audited the Company's
financial statements for the fiscal year ended 1998. Representatives of Deloitte
& Touche LLP are expected to be present at the Annual Meeting and 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 Deloitte & Touche 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 Deloitte & Touche
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 at 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 voted at the Annual Meeting will be required
to ratify the selection of Deloitte & Touche LLP.
THE BOARD 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 30, 1998 by: (i) each director;
(ii) each of the current executive officers named in the Summary Compensation
Table; (iii) all current 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>
James H. Simons, Ph.D.(2)................................... 1,066,630 15.25%
c/o Renaissance Technologies Corp.
800 Third Avenue
New York, New York 10022
Murdoch & Co.(3)............................................ 1,037,082 14.82%
c/o Bermuda Trust Company, Ltd.
6 Front Street
Hamilton HM11 Bermuda
Khronos Capital Limited(4).................................. 905,848 13.00%
Tropic Isle Building
Wickhams Cay
Road Town, Tortola
British Virgin Islands
Wellington Management Company, LLP(5)....................... 678,000 9.73%
75 State Street
Boston, Massachusetts 02109
Wellington Trust Company, NA(6)............................. 488,000 7.00%
75 State Street
Boston, Massachusetts 02109
ROI Capital Management, Inc. ............................... 653,800 9.38%
17 E. Sir Francis Drake Boulevard, #225
Larkspur, California 94939
Heartland Advisors, Inc. ................................... 589,900 8.46%
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202
Matthew L. Feshbach......................................... 449,800 6.45%
425 Sherman Avenue, Suite 220
Palo Alto, California 94306
Donald J. Bowman(7)......................................... 11,667 *
Richard L. Kann(7).......................................... 25,376 *
Howard L. Morgan, Ph.D.(8).................................. 144,902 2.05%
Justin J. Perreault(7)...................................... 19,849 *
Philip W. Shires(9)......................................... 173,382 2.44%
Sheldon Weinig(7)........................................... 9,000 *
All directors and executive officers as a group (8
persons)(10).............................................. 1,450,806 19.90%
</TABLE>
- ---------------
* Less than one percent
5
<PAGE> 8
(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 30, 1998, 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. Percentage
of ownership is based on 6,969,097 shares of Common Stock outstanding on
October 23, 1998.
(2) Includes 1,028,082 shares of Common Stock held by Murdoch & Co. as nominee
of a trust for the benefit of Dr. Simons and members of his immediate
family. Also includes 27,243 shares of Common Stock issuable upon exercise
of options.
(3) Consists solely of shares held as nominee of a trust for the benefit of
James H. Simons and members of his immediate family.
(4) I. Jimmy Mayer may be deemed to be the beneficial owner of these shares of
Common Stock. Mr. Mayer was a member of the Board until his resignation in
January 1998.
(5) Reflects 418,000 shares of Common Stock as to which they have shared voting
power and 678,000 shares with shared dispositive power.
(6) Reflects 228,000 shares of Common Stock as to which they have shared voting
power and 488,000 shares with shared dispositive power.
(7) Consists solely of shares of Common Stock issuable upon exercise of
options.
(8) Includes 96,364 shares of Common Stock issuable upon exercise of options.
(9) Includes 133,382 shares of Common Stock issuable upon exercise of options.
(10) Includes shares included pursuant to notes (2) and (7) through (9) above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
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........................... 57 President and Chief Executive Officer
Vicky S. Hammond........................... 35 Chief Financial Officer
Donald J. Bowman........................... 54 Vice President, Engineering
Richard L. Kann............................ 42 Vice President, Operations
</TABLE>
See "Proposal 1 Election of Directors" for the biography of Mr. Shires.
Vicky S. Hammond has served as Chief Financial Officer of the Company since
June 1998. Ms. Hammond joined Kentek in 1991 and served as Controller from 1992
to June of 1998. Prior to this she served as Assistant Controller of Dynamic
Materials Corporation and spent four years in public accounting, most recently
with Pannell Kerr Forster International.
Donald J. Bowman has served as Vice President, Engineering since August
1997. Mr. Bowman served as Director of Engineering for Exabyte Corporation from
1991 to 1997.
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.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1998 the Board held four meetings.
All other actions taken by the Board during fiscal 1998 were accomplished by
unanimous written consent. The Board has established the following committees:
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 auditors 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. Perreault and Dr. Morgan. It met two times during the fiscal year
ended June 30, 1998.
The Compensation Committee administers the Company's compensation program
and Option Plan and makes recommendations to the Board concerning salaries and
incentive compensation for employees and consultants of the Company. Until
January 1998 when Mr. Mayer resigned from the Board, the Compensation Committee
included three non-employee directors. The committee is now composed of two
non-employee directors: Mr. Perreault and Dr. Simons. It met one time during the
fiscal year ended June 30, 1998.
During the fiscal year ended June 30, 1998, all Board members attended at
least 75% 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 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 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 treated as
incentive stock options under the Internal Revenue Code of 1986, as amended.
Options granted to non-employee directors are non-discretionary. On the first
business day of each calendar year, each non-employee director of the Company is
automatically granted, without further action by the Company, the Board or the
stockholders of the Company, an option to purchase 9,000 shares of the Company's
Common Stock. Each person who first becomes a non-employee director of the
Company during the course of a calendar year is automatically 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 9,000 multiplied by a
fraction, the numerator of which is the number of calendar months remaining in
the calendar year and the denominator of which is twelve. The exercise price of
options granted to non-employee directors is the fair market value of Common
Stock on the date of grant. Options granted to non-employee directors pursuant
to the Option Plan vest in full six months after the date of grant.
During fiscal 1998, the Company granted each non-employee director (except
Dr. Weinig) an option to purchase 9,000 shares of Common Stock at an exercise
price of $8.00 per share. The fair market value of such Common Stock on the date
of grant was $8.00 per share. Upon election to the Board in June 1997, Dr.
Weinig received an option to purchase 27,000 shares of Common Stock at an
exercise price and fair market value of $7.88 per share with a vesting period of
three years. Dr. Weinig will not receive an automatic grant of 9,000 shares
until January 2000. As of September 30, 1998, only one non-employee director
exercised options. In March 1998, Howard L. Morgan exercised 30,820 stock
options at $3.24 per share and retained 12,500 of those shares.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth, for the fiscal years ended June 30, 1998,
1997 and 1996, 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 $100,000 for the fiscal year ended June
30, 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
----------------------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(1) COMPENSATION(2)
- --------------------------- ---- ---------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Philip W. Shires........................ 1998 $261,600 $113,000 -- $4,882
President and Chief Executive Officer 1997 251,100 134,650 10,000 4,672
1996 239,600 202,000 95,896 3,132
Craig G. Lamborn(4)..................... 1998 143,000 -- -- 3,382
Vice President, Finance and 1997 139,600 25,000 5,000 4,650
Administration 1996 129,600 75,000 34,589 2,415
Donald J. Bowman(3)..................... 1998 135,000 -- 35,000 2,394
Vice President, Engineering
Warren W. Frebel(5)..................... 1998 144,700 -- -- 3,325
Vice President, Sales 1997 57,100 10,000 30,000 --
Richard L. Kann......................... 1998 115,300 20,000 -- 1,985
Vice President, Operations 1997 110,300 25,000 -- 4,577
1996 104,600 45,000 20,753 1,219
</TABLE>
8
<PAGE> 11
- ---------------
(1) Options are incentive stock options granted under the Option Plan.
(2) Represents matching contributions made or accrued by the Company on behalf
of the individuals to the Company's 401(k) plan.
(3) Mr. Bowman joined the Company in August 1998. His annualized salary for 1998
would have been $150,000.
(4) As of June 1998, Mr. Lamborn was no longer employed by the Company.
(5) Mr. Frebel joined the Company in February 1997 and his annualized salary for
1997 (excluding bonus) would have been $120,000. As of July 1998, Mr. Frebel
was no longer employed by the Company.
The following table sets forth certain information regarding options
granted to Named Executive Officers during the fiscal year ended June 30, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED ANNUAL
OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL APPRECIATION FOR OPTIONS
UNDERLYING OPTIONS GRANTED PRICE PER TERM(2)
OPTIONS TO EMPLOYEES IN SHARE EXPIRATION -------------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SHARE)(1) DATE 5% 10%
---- ---------- --------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Bowman................... 35,000 42.4% $9.50 08/28/2007 $208,950 $529,900
</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.
(2) The potential realizable value is calculated based on the term of the option
(10 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.
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, 1998, (ii) the number of securities underlying unexercised options held
by the Named Executive Officers as of June 30, 1998 and (iii) the value of
unexercised in the money options (i.e., options for which the fair market value
of the Common Stock ($8.63 at June 30, 1998) exceeds the exercise price) as of
June 30, 1998:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-ENDED(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip W. Shires........ 83,282 $517,051 130,049 6,667 $277,838 $13,334
Craig G. Lamborn........ 7,705 48,233 43,961 3,333 93,843 6,666
Donald J. Bowman........ 0 0 11,667 23,333 0 0
Richard L. Kann......... 4,623 30,327 25,376 0 54,305 0
Warren W. Frebel........ 10,000 21,250 0 20,000 0 52,600
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock as of June 30, 1998
($8.63), minus the exercise price, multiplied by the number of shares
underlying the option.
9
<PAGE> 12
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 1998 for (i) an
annual salary of $252,000, (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, 1998, the Company had no compensation
committee interlocks required to be disclosed under applicable rules and
regulations of the Securities and Exchange Commission.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") is responsible
for establishing and administering the Company's compensation programs with
respect to the Company's executive officers. Until January 1998 when Mr. Mayer
resigned from the Board, the Compensation Committee included three non-employee
directors. The committee is now composed of two non-employee directors: Mr.
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 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.
The Company'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, 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 profit in each fiscal year.
10
<PAGE> 13
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 the Company's Vice President of
Engineering in fiscal 1998. Options granted under the Option Plan have a
three-year vesting schedule and expire ten years from the date of grant. The
exercise price of such options granted to executive officers in fiscal 1998 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 profit.
Mr. Shires' base salary in fiscal 1998 was $252,000, and he earned a bonus
in the amount of $113,000 in accordance with the terms of his Employment
Agreement. The Committee has set Mr. Shires' base salary for fiscal 1999 at
$252,000, 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
Justin J. Perreault
James H. Simons, Ph.D.
11
<PAGE> 14
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., Tridex 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 30, 1998.
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 beginning of the period.
<TABLE>
<CAPTION>
Kentek Nasdaq
Measurement Period Information Composite
(Fiscal Year Covered) Systems, Inc. Peer Group (US)
<S> <C> <C> <C>
4/17/96 100 100 100
6/28/96 132.81 88.93 105.72
6/30/97 98.10 82.20 128.66
6/30/98 110.22 118.80 169.05
</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.
12
<PAGE> 15
CERTAIN TRANSACTIONS
During fiscal year 1998, the Company paid The Arca Group, Inc. $79,000 for
consulting services provided by Dr. Morgan, Chairman of the Board. Dr. Morgan is
President of The Arca Group, Inc.
OTHER MATTERS
The Board 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 1998 Annual Report is being transmitted herewith,
by order of the Board, but does not constitute part of the proxy solicitation
materials.
By Order of the Board of Directors
/s/ Vicky S. Hammond
Vicky S. Hammond
Assistant Secretary
October 23, 1998
13
<PAGE> 16
KENTEK INFORMATION SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 20, 1998
The undersigned hereby appoints Philip W. Shires and Vicky S. Hammond,
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 20, 1998 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.
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all nominees (except
as marked to the contrary below) listed below.
</TABLE>
NOMINEES: Howard L. Morgan, Philip W. Shires, Justin J. Perreault,
James H. Simons, Sheldon Weinig.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)'
NAME(S) BELOW:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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<PAGE> 17
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To ratify selection of Deloitte & Touche LLP as
independent auditors of the Company for its fiscal
year ending June 30, 1999.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
DATED _______________, 199___
--------------------------
--------------------------
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.
