<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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
QC OPTICS, 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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No:
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3) Filing party:
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4) Date Filed:
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<PAGE> 2
QC OPTICS, INC.
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of QC
OPTICS, INC. (the "Company"), a Delaware corporation, will be held on Wednesday,
June 10, 1998, at 10:00 a.m. at the Holiday Inn Tewksbury/Andover, Four Highwood
Drive, Tewksbury, Massachusetts 01876 for the following purposes:
1. To set the number of directors at four (4) and elect two (2) members of
the Board of Directors for a three year term;
2. To ratify and confirm the selection of Arthur Andersen LLP as
independent auditors for the Company for the fiscal year ending December
31, 1998; and
3. To consider and act upon any matters incidental to the foregoing and any
other matters that may properly come before the Annual Meeting or any
adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on April 20, 1998,
as the record date for the determination of stockholders entitled to notice of
and vote at the Annual Meeting and any adjournment or adjournments thereof.
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON, WE URGE YOU TO SIGN, DATE, AND
RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE. THIS WILL ENSURE THE
PRESENCE OF A QUORUM AT THE ANNUAL MEETING. PROMPTLY SIGNING, DATING, AND
RETURNING THE PROXY WILL SAVE THE COMPANY THE EXPENSES AND EXTRA WORK OF
ADDITIONAL SOLICITATION. AN ADDRESSED ENVELOPE FOR WHICH NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE. SENDING IN YOUR
PROXY WILL NOT PREVENT YOU FROM VOTING YOUR STOCK AT THE ANNUAL MEETING IF YOU
DESIRE TO DO SO, AS YOUR PROXY IS REVOCABLE AT YOUR OPTION.
By Order of the Board of Directors
JOHN R. FREEMAN
Secretary
Wilmington, Massachusetts
April 28, 1998
<PAGE> 3
QC OPTICS, INC.
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
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PROXY STATEMENT
------------------------
April 28, 1998
The enclosed proxy is solicited by the Board of Directors of QC Optics,
Inc. (the "Company"), a Delaware corporation, for use at the Annual Meeting of
Stockholders to be held on Wednesday, June 10, 1998 at 10:00 a.m. at the Holiday
Inn Tewksbury/Andover, Four Highwood Drive, Tewksbury, Massachusetts 01876 and
at any adjournment or adjournments thereof.
Stockholders of record at the close of business on April 20,1998 will be
entitled to vote at the Annual Meeting or any adjournment thereof. On that date,
3,242,500 shares of Common Stock, $.01 par value per share, of the Company (the
"Common Stock") were issued and outstanding and entitled to vote at the Annual
Meeting. Each share of Common Stock entitles the holder to one vote with respect
to all matters submitted to stockholders at the Annual Meeting. There are no
other voting securities of the Company.
The presence of the holders of a majority of the issued and outstanding
shares of Common Stock entitled to vote at the Annual Meeting, either in person
or represented by a properly executed proxy, is necessary to constitute a quorum
for the transaction of business at the Annual Meeting.
The election of directors will be determined by a plurality of the shares
voted affirmatively or negatively at the Annual Meeting. The other proposal to
be voted upon by the stockholders of the Company requires the vote of a majority
of the Common Stock present and voting at the Annual Meeting for passage. Votes
withheld from any nominee, abstentions and broker non-votes (which result when a
broker holding shares for a beneficial holder has not received timely voting
instructions on certain matters from such beneficial holder and the broker does
not have discretionary voting power on such matters) are counted as present or
represented for purposes of determining the presence or absence of a quorum at
the Annual Meeting. Abstentions and broker non-votes have no effect on whether a
proposal has been approved.
THE DIRECTORS, NOMINATED DIRECTORS AND OFFICERS OF THE COMPANY AS A GROUP
OWN OR MAY BE DEEMED TO CONTROL APPROXIMATELY 41.6% OF THE OUTSTANDING SHARES OF
COMMON STOCK. EACH OF THE DIRECTORS, NOMINATED DIRECTORS AND OFFICERS, HAS
INDICATED HIS INTENT TO VOTE ALL SHARES OF COMMON STOCK OWNED OR CONTROLLED BY
HIM IN FAVOR OF EACH ITEM SET FORTH HEREIN.
Stockholders may vote in person or by proxy. Where the stockholder
specifies a choice on the proxy as to how his or her shares are to be voted on a
particular matter, the shares will be voted accordingly. If no choice is
specified, the shares will be voted FOR the election of the two nominees for
director named herein, and FOR the ratification of the appointment of Arthur
Andersen LLP as the Company's independent auditors for the fiscal year ending
December 31, 1998. Execution of a proxy will not in any way affect a
stockholder's right to attend the Annual Meeting and vote in person. The proxy
may be revoked at any time before it is exercised by written notice to the
Secretary prior to the Annual Meeting, or by giving to the Secretary a duly
executed proxy bearing a later date than the proxy being revoked at any time
before such proxy is voted, or by appearing at the Annual Meeting and voting in
person. The shares represented by all properly executed proxies received in time
for the Annual Meeting will be voted as specified therein.
The Board of Directors knows of no other matter to be presented at the
Annual Meeting. If any other matter should be presented at the Annual Meeting
upon which a vote may be taken, such shares represented by all proxies received
by the Board of Directors will be voted with respect thereto in accordance with
the judgment of the persons named as attorneys in the proxies. The Board of
Directors knows of no matter to be acted upon at the Annual Meeting that would
give rise to appraisal rights for dissenting stockholders.
<PAGE> 4
An annual report containing audited financial statements for the fiscal
years ended December 31, 1997 ("Fiscal 1997") and December 31, 1996 ("Fiscal
1996") is being mailed herewith to all stockholders entitled to vote at the
Annual Meeting. This Proxy Statement and the accompanying proxy were first
mailed to stockholders on or about April 28, 1998.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and Bylaws, as amended, provide
that the members of the Board of Directors (the "Board") shall be classified as
nearly as possible into three classes, each with as nearly as possible one-third
of the members of the Board. A classified board is designed to assure continuity
and stability in the Board's leadership and policies. Eric T. Chase is
classified as a Class I director and shall serve until the 1999 Annual Meeting;
John M. Tarrh and Allan Berman are classified as Class II directors and are
being nominated at this Annual Meeting to serve as a director until the 2001
Annual Meeting; and Charles H. Fine is classified as a Class III director and
shall serve until the 2000 Annual Meeting. On June 10, 1997, the Board of
Directors voted to set the number of directors at four (4) and to fill such
vacancy by electing Allan Berman as a Class II director.
The successors to the class of directors whose terms expire at an Annual
Meeting would be elected for a term of office to expire at the third succeeding
Annual Meeting after their election and until their successors have been duly
elected by the stockholders. Directors chosen to fill vacancies on a classified
board shall hold office until the next election of the class for which directors
shall have been chosen, and until their successors are duly elected by the
stockholders. Officers are elected by, and serve at the discretion of, the Board
of Directors. No director, executive officer, or significant employee is related
by blood, marriage or adoption to any other director, executive officer, or
significant employee.
Shares represented by all proxies received by the Board of Directors and
not so marked so as to withhold authority to vote for an individual director,
will be voted (unless such nominee is unable or unwilling to serve) FOR the
election of the nominees named herein. The Board of Directors knows of no reason
why such nominees should be unwilling to serve, but if such should be the case,
proxies will be voted for the election of some other person or for fixing the
number of directors at a lesser number.
A plurality of the shares voted affirmatively or negatively at the Annual
Meeting is required to elect each nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MR. JOHN M. TARRH AND MR.
ALLAN BERMAN AS DIRECTORS, EACH TO SERVE A THREE YEAR TERM, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
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<PAGE> 5
The following table sets forth the year the nominee director and the
directors of the Company were first elected as a director and the age, positions
and offices currently held by each director:
<TABLE>
<CAPTION>
YEAR
FIRST BECAME
NAME AGE DIRECTOR POSITION
---- --- ------------ --------
<S> <C> <C> <C>
Eric T. Chase................. 39 1986 Chief Executive Officer, President, Chair-
man of Board and Founder
Allan Berman*................. 67 1997 Director
Charles H. Fine............... 41 1996 Director
John M. Tarrh*................ 50 1996 Director
</TABLE>
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* Nominees for election at this Annual Meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) ("Section 16(a)") of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires executive officers and directors, and
persons who beneficially own more than ten percent (10%) of the Company's Common
Stock, to file initial reports of ownership on Form 3 and reports of changes in
ownership on Form 4 or Form 5 with the Securities and Exchange Commission (the
"SEC") and any national securities exchange on which the Company's securities
are registered. Executive officers, directors and greater than ten percent (10%)
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than ten percent (10%) beneficial
owners during Fiscal 1997 were complied with.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met four times during Fiscal 1997. All of the
Company's directors attended all of the Annual Meetings of the Board of
Directors in Fiscal 1997 during the period for which they were directors.
The Board of Directors established both an Audit Committee and Compensation
Committee on June 18, 1996. Messrs. Fine and Tarrh serve as members of the Audit
Committee. The Audit Committee is concerned primarily with recommending the
selection of, and reviewing the effectiveness of, the Company's independent
auditors and reviewing the effectiveness of the Company's accounting policies
and practices, financial reporting and internal controls. The Audit Committee
reviews any transactions which involve a potential conflict of interest and the
scope of independent audit coverages, the fees charged by the independent
auditors, and internal control systems. The Audit Committee met once in Fiscal
1997.
Messrs. Berman, Fine and Tarrh serve as members of the Compensation
Committee. The Compensation Committee is responsible for setting and
administering the policies which govern annual compensation for the Company's
executives. The Compensation Committee negotiates and proposes to the Board of
Directors compensation arrangements for officers, other key employees, certain
consultants and directors of the Company. Following review and approval by the
Compensation Committee of the compensation policies, all issues pertaining to
executive compensation are submitted to the Board of Directors for approval. The
Compensation Committee met informally once in Fiscal 1997.
The Company does not have a standing nominating committee or a committee
performing similar functions.
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<PAGE> 6
BACKGROUND
The following is a brief summary of the background of the nominee
directors, the existing directors and executive officers of the Company:
ERIC T. CHASE, CHIEF EXECUTIVE OFFICER, PRESIDENT, CHAIRMAN OF THE BOARD,
AND FOUNDER. Mr. Chase co-founded the Company in July 1986 and served as its
Vice President of Sales and Marketing until May 1990 when he was elected
President of the Company. In June 1996, Mr. Chase was also elected the Chief
Executive Officer and Chairman of the Board. He was formerly with GCA
Corporation, a semiconductor equipment manufacturer, in the position of Staff
Scientist and Technical Marketing Specialist. Mr. Chase has authored a variety
of articles related to inspection equipment. Mr. Chase graduated from the
University of California, Irvine with a Bachelor of Science degree in Physics
and a Bachelor of Arts degree in Economics.
JOHN R. FREEMAN, VICE PRESIDENT OF FINANCE, TREASURER AND SECRETARY. Mr.
Freeman has been the Company's Vice President of Finance since May 1996. He was
elected Treasurer in June 1996 and elected Secretary in June 1997. Over the past
20 years, Mr. Freeman has been involved with several companies in various roles,
including chief financial officer and controller. In 1984, Mr. Freeman founded
Freeman & Associates, a consulting firm which provided chief financial
officer/controller services to small businesses and, through his firm, he served
as the Company's part-time controller as a consultant from January 1987 until he
joined the Company as an employee in May 1996. Mr. Freeman has a Bachelor of
Arts degree in accounting from Duke University.
ABDU BOUDOUR, SENIOR VICE PRESIDENT OF CUSTOMER OPERATIONS. Mr. Boudour
has held various positions at the Company, including Senior Physicist in the
Engineering Department from April 1987 to February 1994, where he was
responsible for design and development of the Company's equipment, and Far East
Marketing Manager for which he was based in Japan from February 1994 to April
1995. In July 1995, Mr. Boudour advanced to Director of Engineering and in June
1996, he was elected Vice President of Engineering. In January 1998, Mr. Boudour
was elected Senior Vice President of Customer Operations. Prior to joining the
Company in April 1987, Mr. Boudour was with PTR Optics, an optical component
manufacturer. He earned his Bachelor of Science degree from the University of
Oran, Algeria and has a Master of Science degree in Physics from Northeastern
University.
JAY L. ORMSBY, VICE PRESIDENT OF TECHNOLOGY AND FOUNDER. Mr. Ormsby
co-founded the Company in July 1986 with Mr. Chase and served as the Company's
Vice President of Engineering until June 1996. In June 1996, he was elected as
the Company's Vice President of Technology. Mr. Ormsby has over 30 years
experience in design, development and marketing of high technology systems. Mr.
Ormsby was formerly with GCA Corporation, a company that was a semiconductor
equipment manufacturer, in the position of Chief Engineer, Technology Division.
Mr. Ormsby has a Bachelor of Science degree in Mechanical Engineering from The
Cooper Union for the Advancement of Science and Art and a Master of Science
degree in Engineering from Northeastern University.
ALBERT E. TOBEY, VICE PRESIDENT OF OPERATIONS AND ASSISTANT
SECRETARY. Since joining the Company in June 1988, Mr. Tobey has served as its
Vice President of Operations with responsibility for manufacturing operations.
Mr. Tobey has over 30 years experience in engineering as a system designer and
in various management positions both in engineering and manufacturing. Mr. Tobey
served as the Principal Engineer -- RTOS Program at AVCO Systems ("AVCO"), a
defense contractor, and worked for over 19 years with AVCO, advancing from an
electronics technician to a senior systems engineer. His primary positions at
AVCO were in telemetry and instrumentation systems. Mr. Tobey received his
Bachelor of Science degree in Electrical Engineering from Northeastern
University.
ALLAN BERMAN, NOMINEE DIRECTOR. Mr. Berman has served as a director of the
Company since June 1997. Since March 1972, Mr. Berman has served as President of
Imtec Acculine, Inc. ("Imtec"), a closely-held California company specializing
in semi-conductor wafer-fabrication equipment and materials. Prior to organizing
Imtec, Mr. Berman held positions as President and Director of Castle & Cooke
Computer Systems, Inc., a national data processing service bureau, and General
Manager of the Semiconductor Materials Division of Apogee Chemical, Inc., which
division is a supplier of silicone source materials for the semiconductor
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<PAGE> 7
industry. Mr. Berman also served as a consultant to the major military services
in the areas of operations research and systems analysis. Mr. Berman received
his Bachelor of Arts and Bachelor of Science degrees at New York University and
completed his basic MBA course work at the University of California, Los
Angeles.
CHARLES H. FINE, DIRECTOR. Mr. Fine has served as a director of the
Company since June 1996. Since January 1983, Mr. Fine has served on the faculty
of the Sloan School of Management at Massachusetts Institute of Technology
("MIT"). Mr. Fine has expertise in manufacturing and technology management and
his research has focused on the automotive, semiconductor, and capital equipment
industries. Mr. Fine received his Bachelor of Arts degree from Duke University
and earned both his Master of Science and Ph.D. degrees from Stanford
University.
JOHN M. TARRH, NOMINEE DIRECTOR. Mr. Tarrh has served as a director of the
Company since May 1996. Since January 1987, Mr. Tarrh has been the Senior Vice
President, Chief Financial Officer and a director of Applied Science and
Technology, Inc., a publicly held corporation he co-founded that manufactures
equipment for producing advanced materials such as semiconductors and diamond.
Prior to January, 1987, Mr. Tarrh was the Manager of the Mirror Confinement
Division of MIT's Plasma Fusion Center where he was responsible for financial
management, project management and administration. Mr. Tarrh earned his Master
of Science degree in Electrical Engineering from MIT.
CERTAIN TRANSACTIONS
In July 1996, the Company entered into employment agreements with Messrs.
Chase, Freeman, Boudour, Ormsby and Tobey. See "Employment Contracts,
Termination of Employment and Change-in-Control Arrangements."
In October 1995, the Company, Kobe Steel USA Holdings, Inc. ("Kobe Steel"),
a controlling stockholder of the Company, and certain management employees of
the Company pursuant to the QC Optics Voting Trust (the "Voting Trust") entered
into a Stock Repurchase and Loan Repayment Agreement (the "Agreement"). Pursuant
to the terms of the Agreement, as amended on March 29, 1996, the Company
purchased an aggregate of 1,337,313 shares (the "Kobe Shares") of its voting and
non-voting Common Stock from Kobe Steel or approximately 62.5% of all of the
Company's Common Stock then owned by Kobe Steel for a purchase price of
$5,000,000. Of the $5,000,000 purchase price, $3,250,000 was financed by State
Street Bank and Trust Company pursuant to the terms of a $4,000,000 revolving
line of credit (the "Line of Credit") evidenced by a promissory note secured by
all of the assets of the Company (the "Bank Note"), $1,000,000 was provided from
available cash of the Company and $750,000 was financed pursuant to a promissory
note from the Company to Kobe Steel, which was also secured by all of the assets
of the Company (the "Kobe Note"). The Kobe Note was subordinated to the Bank
Note. In connection with this transaction, a corporation formed in February 1995
by Messrs. Chase, Bernal, Ormsby, Freeman, Tobey and Boudour (collectively, the
"Stockholders") to acquire an equity interest in the Company was merged into the
Company. As a result of this merger, the Stockholders exchanged their shares in
such corporation for an aggregate of 1,337,313 shares of the Company's Common
Stock. The consideration for the merger was the unlimited personal guarantees
provided to the Bank by Messrs. Chase and Bernal and the limited guarantees
provided by Messrs. Ormsby, Freeman, Tobey and Boudour to secure the Bank Note.
In addition, all of the shares issued to these individuals were pledged as
collateral to secure both the Line of Credit and the Kobe Note. The Company
recorded a non-recurring, non-cash charge of $1,701,000 during Fiscal 1996 as a
result of this merger.
The Line of Credit and Bank Note mature on June 30, 1998 and the interest
rate per annum is the bank's prime rate plus 1%. On October 24, 1996, the
interest rate was decreased to the bank's prime rate plus 1/2%. The Line of
Credit has a fee on the daily unused portion of the facility at the rate of
1/4% per annum. The aggregate amount outstanding under the Line of Credit shall
not exceed the sum of 80% of qualifying receivables and 10% (not to exceed
$350,000) of qualifying inventory. The Bank Note was secured by unlimited
personal guarantees from Messrs. Chase and Bernal and each of the several
stockholders of the Voting Trust pledged their QCO Shares held in the Voting
Trust to the bank as collateral. These guarantees
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<PAGE> 8
and the pledges were released by the bank on October 29, 1996. The Kobe Note was
satisfied in full on October 29, 1996. Effective in August 1997, Mr. K. Andrew
Bernal was no longer employed by the Company.
Of the remaining 802,387 shares held by Kobe Steel, the Voting Trust held
an option (the "Option") to purchase up to 588,418 shares at a price of $3.74
per share. The Option expired in October 1996.
On October 27, 1995, the Company and Messrs. Chase, Bernal, Ormsby,
Freeman, Tobey and Boudour entered into a voting trust agreement known as the
"QC Optics Voting Trust, u/d/t dated as of October 27, 1995" (the "Voting
Trust"). Mr. Chase is the trustee of the Voting Trust. The Voting Trust holds
all voting rights to all Company shares held by each beneficiary and continues
in force for a period of 21 years from October 27, 1995, unless terminated
earlier as a result of a merger, dissolution, sale of all or substantially all
of the Company's assets or liquidation, or agreement of the parties.
Kobe Steel USA International, Inc. has provided loans to the Company since
July 1991 by means of a revolving credit arrangement. At March 29, 1996, the
principal amount due totaled $4,250,000. This amount plus accrued interest of
approximately $6,000 was paid in full by the Company on March 29, 1996 in
connection with the closing of the Agreement utilizing amounts received from
Kobe Steel as a capital infusion in the same amount and on the same date.
Any future transactions between the Company and its officers, directors,
principal stockholders or other affiliates will be on terms no less favorable
than could be obtained from independent third parties and will be subject to
approval by a majority of the independent and disinterested directors.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth, as of April 20, 1998, the ownership of the
Company's Common Stock by (i) each person who is known by the Company to own of
record or beneficially more than 5% of the Company's Common Stock; (ii) each of
the Company's directors; (iii) each executive officer named in the Summary
Compensation Table; and (iv) all directors and executive officers as a group.
Except as otherwise indicated, the stockholders listed in the table have sole
voting and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) STOCK BENEFICIALLY OWNED OF CLASS(2)
--------------------------------------- -------------------------- -----------
<S> <C> <C>
QC Optics, Inc. Voting Trust(3)......................... 1,347,613 41.6%
Kobe Steel USA Holdings, Inc. .......................... 802,387 24.7%
Eric T. Chase(3)(4)..................................... 1,351,341 41.6%
K. Andrew Bernal(3)..................................... 314,754 9.7%
Jay L. Ormsby(3)(5)..................................... 165,359 5.1%
Albert E. Tobey(3)(6)................................... 81,221 2.5%
Allan Berman(7)......................................... 3,750 *
Charles H. Fine(8)...................................... 7,500 *
John M. Tarrh(8)........................................ 7,500 *
All Directors and Officers as a group (8
people)(3)(4)(5)(6)(7)(8)(9).......................... 1,380,251 42.1%
</TABLE>
- ---------------
* Less than 1%
(1) The address for all of these individuals, except for Kobe Steel USA
Holdings, Inc. ("Kobe") and K. Andrew Bernal is c/o QC Optics, Inc., 46
Jonspin Road, Wilmington, Massachusetts 01887. The address for Kobe is 535
Madison Avenue, New York, New York 10022. The address for Mr. Bernal is 8989
North Gainey Center, Scottsdale, Arizona 85258.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days from April 20, 1998 pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage
ownership
6
<PAGE> 9
of such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in
the table.
(3) Eric T. Chase is the sole voting trustee of the QC Optics Voting Trust (the
"Voting Trust"). The stockholders participating in the Voting Trust and the
number of their shares subject to the Voting Trust are as follows: Eric T.
Chase -- 634,517 shares; Karl Andrew Bernal -- 314,754 shares; Jay L.
Ormsby -- 162,599 shares; John R. Freeman -- 78,581; Albert E.
Tobey -- 78,581 shares; Abdu Boudour -- 78,581 shares. See "Certain
Transactions."
(4) Includes 1,347,613 shares subject to the Voting Trust for which Mr. Chase is
the sole voting trustee and includes 100 shares of Common Stock owned by Mr.
Chase. Also includes (i) 100 shares of Common Stock issuable upon the
exercise of a warrant at an exercise price of $7.80 per share, which expires
on October 23, 2001; and (ii) 3,528 shares of Common Stock issuable upon the
exercise of an option to purchase 5,292 shares of the Company's Common Stock
at an exercise price of $3.625 per share. The exercise price of this option
was repriced in January 1998 from $5.10 per share to $3.625 per share. This
option expires on June 19, 2006 and vests in three equal installments over a
three year period commencing June 20, 1997. Excludes an option to purchase
5,000 shares of Common Stock at an exercise price of $3.625 per share, which
expires on January 21, 2008 and vests in three equal installments over a
three year period commencing on January 22, 1999.
(5) Includes 2,760 shares of Common Stock issuable upon the exercise of an
option to purchase 4,140 shares of the Company's Common Stock at an exercise
price of $3.625 per share. The exercise price of this option was repriced in
January 1998 from $5.10 per share to $3.625 per share. This option expires
on June 19, 2006 and vests in three equal installments over a three year
period commencing June 20, 1997. Excludes an option to purchase 5,000 shares
of Common Stock at an exercise price of $3.625 per share, which expires on
January 21, 2008 and vests in three equal installments over a three year
period commencing on January 22, 1999.
(6) Includes 2,640 shares of Common Stock issuable upon the exercise of an
option to purchase 3,960 shares of the Company's Common Stock. The exercise
price of this option was repriced in January 1998 from $5.10 per share to
$3.625 per share. This option expires on June 19, 2006 and vests in three
equal installments over a three year period commencing June 20, 1997.
Excludes an option to purchase 5,000 shares of Common Stock at an exercise
price of $3.625 per share, which expires on January 21, 2008 and vests in
three equal installments over a three year period commencing on January 22,
1999.
(7) Includes 3,750 shares of Common Stock issuable upon the exercise of an
option to purchase 15,000 shares of the Company's Common Stock at an
exercise price of $3.25 per share. The option expires on June 10, 2007 and
vests in sixteen (16) equal installments over a period of four years
commencing July 1, 1997.
(8) Includes 7,500 shares of Common Stock issuable upon the exercise of an
option to purchase 15,000 shares of the Company's Common Stock at an
exercise price of $3.625 per share. The exercise price of this option was
repriced in January 1998 from $5.10 per share to $3.625 per share. The
option expires on June 17, 2006 and vests in 16 equal installments over a
period of four years commencing July 1, 1996.
(9) Includes (i) 2,160 shares of Common Stock issuable upon the exercise of an
option owned by Mr. Boudour to purchase 3,240 shares of the Company's Common
Stock; (ii) 100 shares of Common Stock owned by John R. Freeman; (iii) 2,400
shares of Common Stock issuable upon the exercise of an option owned by Mr.
Freeman to purchase 3,600 shares of the Company's Common Stock; and (iv) 100
shares of Common Stock issuable upon the exercise of a warrant owned by Mr.
Freeman at an exercise price of $7.80 per share, which expires on October
23, 2001. The exercise price for each of these options was repriced in
January 1998 from $5.10 per share to $3.625 per share. These options expire
on June 19, 2006 and vest in equal installments over a three year period
commencing June 20, 1997. Excludes an option owned by Mr. Boudour to
purchase 5,000 shares of Common Stock at an exercise price of $3.625 per
share, which expires on January 21, 2008 and vests in three equal
installments over a three year period commencing on January 22, 1999.
7
<PAGE> 10
COMPENSATION OF OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services rendered to the Company for the fiscal years
ended December 31, 1997, 1996 and 1995 ("Fiscal 1995") of those persons who were
at December 31, 1997: (i) the chief executive officer of the Company; and (ii)
each other executive officer of the Company whose annual compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ ------------
(a) (b) (c) (d) (f)
(e) SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) OPTIONS(#) COMPENSATION(3)
--------------------------- ---- --------- ----- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Eric T. Chase................. 1997 $147,000 $-0- $ -0- -0- $7,350
Chief Executive Officer, 1996 $140,215 $-0- $3,462 5,292 $6,978
President and Chairman of 1995 $134,000 $-0- $6,000 -0- $6,604
the Board
Jay L. Ormsby................. 1997 $114,500 $-0- $ -0- -0- $5,725
Vice President of Technology 1996 $112,000 $-0- $ -0- 4,140 $5,582
1995 $109,000 $-0- $ -0- -0- $5,450
Albert E. Tobey............... 1997 $110,300 $-0- $ -0- -0- $5,515
Vice President of
Operations............... 1996 $107,000 $-0- $ -0- 3,960 $5,372
1995 $ 99,000 $-0- $ -0- -0- $5,240
</TABLE>
- ---------------
(1) Amounts shown indicate cash compensation earned and received by executive
officers. Effective July 1, 1996, the Company increased the salaries of
Messrs. Chase, Ormsby and Tobey to $147,000, $114,500 and $110,300,
respectively. Effective in August 1997, K. Andrew Bernal was no longer
employed by the Company. See "Employment Contracts, Termination of
Employment and Change in Control Arrangements." Executive officers
participate in group health and other benefits generally available to all
employees of the Company.
(2) Through July 21, 1996, the Company provided a bi-weekly automobile allowance
of $230.77 for Mr. Chase.
(3) Amounts shown represent the Company's matching contributions and profit
sharing contributions made under its 401(k) plan on behalf of each named
executive officer.
8
<PAGE> 11
The following table sets forth the value of Mr. Chase's, Mr. Ormsby's and
Mr. Tobey's outstanding stock options held as of the end of Fiscal 1997. None of
Messrs. Chase, Ormsby and Tobey exercised any stock options during Fiscal 1997.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#)(1) AT FISCAL YEAR-END($)(2)(3)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eric T. Chase.............................. 1,764 3,528 -0- -0-
Jay L. Ormsby.............................. 1,380 2,760 -0- -0-
Albert Tobey............................... 1,320 2,640 -0- -0-
</TABLE>
- ---------------
(1) See "Summary Compensation Table."
(2) In-the-Money options are those options for which the fair market value of
the underlying Common Stock is greater than the exercise price of the
option.
(3) The value of the unexercised options is determined by multiplying the number
of options held by the difference in the fair market value of the Common
Stock underlying the options at the end of Fiscal 1997 (as determined by the
closing bid price as reported by AMEX, which was $3.625 per share) and the
exercise price of the options granted. Since the fair market value at the
end of Fiscal 1997 was lower than the exercise price of all of the options
held, none of the options listed in this table are In-the-Money.
COMPENSATION OF DIRECTORS
Each of the Company's non-management and non-affiliated directors, Messrs.
Berman, Fine and Tarrh, receives a fee of $1,000 per meeting plus out-of-pocket
expenses. Messrs. Fine and Tarrh each received $4,000 in Fiscal 1997 and Mr.
Berman received $3,000 in Fiscal 1997. Each of Messrs. Fine and Tarrh also
received an option under the Company's 1996 Formula Stock Option Plan to
purchase 15,000 shares of the Company's Common Stock at an exercise price of
$3.625 per share. These options expire on June 17, 2006 and vest in 16 equal
installments over a period of four years commencing July 1, 1996. Mr. Berman
also received an option under the Company's 1996 Formula Stock Option Plan to
purchase 15,000 shares of the Company's Common Stock at an exercise price of
$3.25 per share. These options expire on June 10, 2007 and vest in 16 equal
installments over a period of four years commencing July 1, 1997.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Effective as of July 1, 1996, the Company entered into employment and
non-competition agreements (the "Agreements") with each of Eric T. Chase, Jay L.
Ormsby, Albert E. Tobey, Abdu Boudour and John R. Freeman. Eric T. Chase's and
Jay L. Ormsby's Agreements provide for annual base salaries of $147,000 and
$114,500, respectively, through June 30, 1997 and at least the same base
salaries, as determined by the Company's Board of Directors or Compensation
Committee, for the next two years until the Agreements expire on June 30, 1999.
Effective in January 1998, the Compensation Committee approved an increase in
the base salaries of Messrs. Chase and Ormsby to $153,000 and $119,500,
respectively. Albert E. Tobey's, Abdu Boudour's and John R. Freeman's Agreements
provide for annual base salaries of $110,300, $100,000 and $100,000,
respectively, and expired on December 31, 1997. These agreements were
automatically renewed for a one year period ending December 31, 1998. Effective
in January 1998, the Compensation Committee also approved an increase in the
base salaries of Messrs. Tobey and Boudour to $115,500 and $110,000,
respectively. The Agreements also provide for vacation, insurance, participation
in the Company's 401(k) plan, and certain other benefits as may be determined by
the Compensation Committee or the Company's Board of Directors. Each individual
is entitled to receive benefits offered to the Company's
9
<PAGE> 12
employees generally. Each individual is also entitled to receive severance in
the event his employment is terminated by the Company without cause (the
"Severance Benefits"). The Severance Benefits are equal to the individual's
current annual base salary in Eric T. Chase's and Jay L. Ormsby's Agreements and
six (6) months of the individual's current annual base salary in Albert E.
Tobey's, Abdu Boudour's and John R. Freeman's Agreements. Effective in August
1997, K. Andrew Bernal was no longer employed by the Company. As a result, Mr.
Bernal received $39,500 as severance pay in accordance with the terms of his
employment agreement.
In the event of a Change in Control in the Company, each individual will
receive severance payments as provided in the Agreements. A Change in Control is
defined generally as: the acquisition by an individual, entity or group of
beneficial ownership of 25% or more of the outstanding shares of Common Stock;
unapproved changes in the Board of Directors; tender offers to acquire any of
the Common Stock; certain reorganizations, mergers or consolidations; a complete
or substantial liquidation or dissolution of the Company; or the sale or
disposition of all or substantially all of the assets of the Company.
In the event of a Change in Control during the term of an Agreement or any
renewal or extension thereof and provided the individual remains employed by the
Company for a period of twelve months from the date of the Change in Control,
the individual will receive, at the one-year anniversary of the Change in
Control, a supplemental amount in a lump sum, irrespective of whether he
thereafter actually terminates employment with the Company. The lump sum is
equal to the individual's annual Base Salary immediately preceding the Change in
Control in Eric T. Chase's and Jay L. Ormsby's Agreements and six (6) months of
the individual's annual Base Salary immediately preceding the Change in Control
in Albert E. Tobey's, Abdu Boudour's and John R. Freeman's Agreements. In the
event of the actual termination of an individual's employment contemporaneous
with or following a Change in Control, except (i) because of the individual's
death, (ii) by the Company for cause or disability (as defined in the employment
agreement), or (iii) by the individual other than for good reason (as defined in
the employment agreement) the individual shall be entitled to receive an amount
equal to 299% of the individual's annual Base Salary immediately preceding the
Change in Control in Eric T. Chase's and Jay L. Ormsby's Agreements and 150% of
the individual's annual Base Salary immediately preceding the Change in Control
in Albert E. Tobey's, Abdu Boudour's and John R. Freeman's Agreements. Certain
additional provisions also apply.
Each Agreement also contains non-competition provisions for a period of two
(2) years following termination, a confidentiality provision and an ownership
provision in the Company's favor for techniques, discoveries and inventions
arising during the term of employment. The Agreements provide for successive
one-year renewals after the initial term.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the American Stock Exchange
("AMEX") under the symbol "QCO" from October 24, 1996 to November 8, 1996 and
thereafter under the symbol "OPC."
As of April 20, 1998, there were approximately 16 record holders of the
Company's Common Stock. Management believes there are approximately 850
beneficial holders of the Company's Common Stock.
10
<PAGE> 13
For the periods indicated, the following table sets forth the range of high
and low sale prices for the Common Stock as reported by AMEX from October 24,
1996 through April 20, 1998.
<TABLE>
<CAPTION>
SALE
------------------
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
1996
Fourth Quarter (commencing October 24, 1996)................ $ 6 1/2 $ 4 3/4
1997
First Quarter............................................... $ 5 7/8 $ 3 3/4
Second Quarter.............................................. $ 3 3/4 $ 2 3/8
Third Quarter............................................... $ 5 1/4 $ 3 1/4
Fourth Quarter.............................................. $ 5 $ 3 1/4
1998
First Quarter............................................... $ 5 1/8 $ 3 3/8
Second Quarter (through April 20, 1998)..................... $ 4 7/8 $ 4 3/16
</TABLE>
DIVIDENDS
The Company has not paid dividends on its Common Stock since its inception
and does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to reinvest earnings, if any,
in the development and expansion of its business. Any future determination with
respect to the payments of dividends will be subject to the discretion of the
Company's Board of Directors and will depend upon the earnings, capital
requirements, and financial positions of the Company, general economic
conditions, and other pertinent factors. In addition, the Company's agreement
with its primary bank lender prohibits the payment of dividends without the
bank's prior written consent.
PROPOSAL NO. 2
ACCOUNTING MATTERS AND RATIFICATION OF AUDITORS
The persons named in the enclosed proxy will vote to ratify the selection
of Arthur Andersen LLP as auditors for the fiscal year ending December 31, 1998
unless otherwise directed by the stockholders. A representative of Arthur
Andersen LLP is expected to be present at the Annual Meeting of stockholders,
and will have the opportunity to make a statement and answer questions from
stockholders if he or she so desires.
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Annual Meeting is required to ratify the appointment of
the independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
VOTING AT ANNUAL MEETING
The Board of Directors has fixed Monday, April 20, 1998, as the record date
for the determination of stockholders entitled to vote at this Annual Meeting.
At the close of business on that date, there were outstanding and entitled to
vote 3,242,500 shares of Common Stock.
SOLICITATION OF PROXIES
The cost of solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by mail, officers and employees of the
Company may solicit in person or by telephone. The Company may reimburse brokers
or persons holding stock in their names, or in the names of their nominees, for
their
11
<PAGE> 14
expenses in sending proxies and proxy material to beneficial owners.
Solicitation of proxies by mail may be supplemented by telephone, telegram,
telex and personal solicitation by the directors, officers or employees of the
Company. No additional compensation will be paid for such solicitation.
REVOCATION OF PROXY
Subject to the terms and conditions set forth herein, all proxies received
by the Company will be effective, notwithstanding any transfer of the shares to
which such proxies relate, unless prior to the Annual Meeting the Company
receives a written notice of revocation signed by the person who, as of the
record date, was the registered holder of such shares. The Notice of Revocation
must indicate the certificate number or numbers of the shares to which such
revocation relates and the aggregate number of shares represented by such
certificate(s).
STOCKHOLDER PROPOSALS
In order to be included in proxy material for the 1999 Annual Meeting,
tentatively scheduled for June 10, 1999, stockholders' proposed resolutions must
be received by the Company on or before December 29, 1998. The Company suggests
that proponents submit their proposals by certified mail, return receipt
requested, addressed to the Secretary of the Company.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY IS PROVIDING TO EACH STOCKHOLDER, TOGETHER WITH THIS PROXY
STATEMENT WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB
(OTHER THAN EXHIBITS THERETO), INCLUDING THE FINANCIAL STATEMENTS FOR THE
COMPANY'S MOST RECENT FISCAL YEAR ENDED DECEMBER 31, 1997.
MISCELLANEOUS
Management does not know of any other matters which may come before this
Annual Meeting. However, if any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
By Order of the Board of Directors
JOHN R. FREEMAN
Secretary
Wilmington, Massachusetts
April 28, 1998
MANAGEMENT HOPES THAT THE STOCKHOLDERS WILL ATTEND THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
12
<PAGE> 15
QC OPTICS, INC.
THIS PROXY IS BEING SOLICITED BY QC OPTICS, INC.'S BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated April 28,
1998 in connection with the Annual Meeting to be held at 10:00 a.m. on
Wednesday, June 10, 1998 at Holiday Inn Tewksbury/Andover, Four Highwood Drive,
Tewksbury, Massachusetts 01876 and hereby appoints Eric T. Chase and Abdu
Boudour, and each of them (with full power to act alone), the attorneys and
proxies of the undersigned, with power of substitution to each, to vote all
shares of the Common Stock of QC Optics, Inc. (the "Company") registered in the
name provided herein which the undersigned is entitled to vote at the 1998
Annual Meeting of Stockholders, and at any adjournments thereof, with all the
powers the undersigned would have if personally present. Without limiting the
general authorization hereby given, said proxies are, and each of them is,
instructed to vote or act as follows on the proposals set forth in said Proxy.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSAL 2.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
ELECTION OF DIRECTORS (or if any nominee is not available for election, such
substitute as the Board of Directors may designate)
NOMINEES: JOHN M. TARRH ALLAN BERMAN
SEE REVERSE SIDE FOR BOTH PROPOSALS. If you wish to vote in accordance with
the Board of Directors' recommendations, just sign on the reverse side. You need
not mark any boxes.
(SEE REVERSE SIDE)
<PAGE> 16
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
<TABLE>
<S> <C> <C>
1. Election of Directors (see reverse)
[ ] FOR [ ] WITHHELD
--------------------------------------------------------------
[ ] For all nominees except as noted above.
2. Proposal to ratify and confirm the selection of Arthur Andersen LLP as the Company's independent auditors for the
fiscal year ending December 31, 1998.
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
Please sign exactly as name(s)
appears hereon. Joint owners
should each sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full title
as such.
--------------------------------
Signature Date
--------------------------------
Signature Date
