<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 Section 240.14a-11(c) or Section 240.14a-12
MAGNETIC TECHNOLOGIES CORPORATION
---------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
[X] 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
[MAGNETIC TECHNOLOGIES LOGO]
MAGNETIC TECHNOLOGIES CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 17, 1996
The Annual Meeting of the Stockholders of Magnetic Technologies Corporation
will be held at the Industrial Management Council in the Hutchison House, 930
East Avenue, Rochester, New York, on Tuesday, December 17, 1996, at 11:00 A.M.,
for the following purposes:
1. Election of five Directors.
2. Action upon a proposal to adopt the 1996 Stock Option Plan.
3. Such other matters as may properly come before the meeting.
All stockholders of record at the close of business on November 1, 1996,
will be entitled to vote at the meeting.
Susan M. Weise
Secretary
November 7, 1996
PLEASE SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE IN PERSON
IF YOU SO DESIRE.
<PAGE> 3
[MAGNETIC TECHNOLOGIES LOGO]
MAGNETIC TECHNOLOGIES CORPORATION
PROXY STATEMENT
GENERAL
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Magnetic Technologies Corporation ("the
Company") for use at the Annual Meeting of Stockholders to be held on December
17, 1996, at 11:00 A.M., at 930 East Avenue, Rochester, New York, and any
adjournments thereof. The proxy materials and the Company's Annual Report for
the fiscal year ended July 31, 1996 (fiscal 1996) are first being mailed on or
about November 7, 1996 to stockholders of record as of the close of business on
November 1, 1996 ("the Record Date").
A stockholder giving a proxy has the power to revoke it at any time prior
to its exercise by written revocation, by submission of a later-dated proxy or
by the stockholder's attendance and vote at the meeting. The cost of
solicitation of proxies will be borne by the Company. In addition to
solicitation by mail, officers of the Company may solicit proxies by telephone
or personal interviews. Arrangements may also be made with banks, brokerage
firms and others to forward proxy materials to beneficial owners of the
Company's Common Stock at the Company's expense.
VOTING SECURITIES
As of the Record Date, there were outstanding and entitled to vote
approximately 2,786,584 shares of Common Stock of the Company, $.15 par value
("Common Stock"), each of which will be entitled to one vote on each matter
submitted to the stockholders for voting at the meeting. The election of
Directors, approval of the 1996 Stock Option Plan and all other matters
submitted to a vote at the meeting will be decided by the vote of a majority of
all votes cast in person or by proxy at the meeting. Abstentions will be treated
as shares present and entitled to vote for purposes of determining the presence
of a quorum.
The following table sets forth, as of September 10, 1996, the number of
shares of the Company's Common Stock held by, or issuable to, (a) each Director
and Director nominee, (b) each Executive Officer, (c) all Directors and
Executive Officers as a group and (d) each person known by the Company to be the
beneficial owner of more than 5% of the Company's Common Stock:
2
<PAGE> 4
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNER CLASS (a)
------------------------------------------------- -------------------- ----------
<S> <C> <C>
Named Directors and Executive Officers:
G. Thomas Clark 42,375(b) 1.5
360 Bonnie Brae Avenue
Rochester, NY 14618
Catherine D'Amico -- --
55 Great Wood Circle
Fairport, NY 14450
Isadore Diamond 293,312(c) 10.5
7811 NW 85th Avenue
Tamarac, FL 33321
Bernard Kozel 17,000(d) 0.6
1 Woodbury Place
Rochester, NY 14618
Gordon H. McNeil 400,780(e) 13.1
44 Oak Meadow Trail
Pittsford, NY 14534
Directors and Executive Officers as a Group 753,467 24.6
Other 5% Beneficial Owners:
Richard Hall 251,247 9.0
280 Estrellita
Ft. Myers Beach, FL 33931
Elliott Landsman 199,390 7.2
3 Townline Circle
Rochester, NY 14623
<FN>
(a) Based, in each case, upon the Company's current outstanding shares plus
that number of shares which the named person or group has the right to
acquire (that is, options which are exercisable within 60 days).
(b) Includes an option to purchase 7,500 shares at $2.55 per share expiring
September 1997.
(c) Includes 8,250 shares held by Mr. Diamond's wife (in which shares he
disclaims beneficial interest).
(d) Includes 5,000 shares held by Mr. Kozel's wife (in which shares he
disclaims beneficial interest). Includes an option to purchase 5,000 shares
at $4.63 per share expiring March 2000.
(e) Includes 67,500 shares held by Mr. McNeil's wife plus 15,375 shares held by
his wife as custodian for two of their children (in all of which shares
he disclaims beneficial interest). Includes an option to purchase 150,000
shares at $2.33 per share expiring in May 1997, and an option to purchase
112,500 shares at $2.50 per share expiring in January 2003.
</TABLE>
3
<PAGE> 5
PROPOSAL 1 - ELECTION OF DIRECTORS
At the meeting, five Directors will be elected to hold office until their
successors are elected and qualify. Unless authority is withheld with respect to
any individual nominee or all of the nominees, the enclosed proxy will be voted
for the election of the five Director candidates set forth below. In the event
that any of the nominees unexpectedly becomes unavailable for election, the
proxy will be voted for the election of such substitute nominee as the proxy
holders in their discretion shall determine.
Following is information about each Director, Director nominee and
Executive Officer of the Company as of October 1, 1996, as well as the recent
business experience of each:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE SINCE CURRENT COMPANY OFFICES
- ------------------------------- --- --------- ---------------------------------------------
<S> <C> <C> <C>
Director Nominees:
G. Thomas Clark 58 1992 None (a)
Catherine D'Amico 40 1995 None (b)
Isadore Diamond 77 1969 Chairman of Board (c)
Bernard Kozel 75 1994 None (d)
Gordon H. McNeil 55 1974 President and Chief Executive Officer (c)
Other Executive Officers:
None
<FN>
(a) Mr. Clark is Senior Vice President - Finance, Secretary and Treasurer of
Paychex, Inc., as well as a member of its Board of Directors.
(b) Ms. D'Amico is Chief Financial Officer, Senior Vice President of Finance
and Treasurer of Monro Muffler Brake, Inc. Prior to joining that
corporation in August 1993, she was a Senior Audit Manager with Price
Waterhouse, the Company's auditor, and supervised the Company's annual
audit.
(c) Mr. Diamond served as Chief Executive Officer of the Company until Mr.
McNeil assumed that position in 1985. Based upon their joint management of
the Company for more than two decades and their aggregate beneficial
ownership of 23% of the Company's Common Stock (see table on page 3), they
could be considered to be "control persons" or "parents" with respect to
the Company.
(d) Mr. Kozel is President of KG Capital Corporation, a venture capital
company. Formerly, he was the founder and Chairman of Kayex Corporation
prior to its sale to General Signal Corporation. He is a member of the
Board of Directors of Performance Technologies, Inc.
</TABLE>
The Board of Directors has an Audit Committee and a Compensation Committee,
each composed of the three outside Directors, Ms. D'Amico and Messrs. Clark and
Kozel. The Audit Committee has the function of recommending selection of the
Company's auditors, negotiating the audit fee, interacting with the auditors
with respect to the audit report and making recommendations to the Board with
respect to financial matters. The Compensation Committee has the function of
making recommendations to the Board with respect to Executive Officer
compensation. The Board has no standing Nominating Committee nor any committee
performing similar functions.
During fiscal 1996, there were held five meetings of the Board of
Directors, three meetings of the Audit Committee and one meeting of the
Compensation Committee. No Director attended fewer than 75% of all meetings of
the Board and of committees on which he or she served during fiscal 1996.
4
<PAGE> 6
PROPOSAL 2 - APPROVAL OF THE 1996 STOCK OPTION PLAN
The Board of Directors has unanimously adopted the 1996 Stock Option Plan
("the Plan") for the Company's Directors, officers, key employees and
consultants, effective September 13, 1996, but subject to stockholder approval
at the Annual Meeting. The purpose of the Plan is to provide long-term
incentives to the persons responsible for the success and growth of the Company
in order to attract and retain such persons on a competitive basis and to
further the association of their interests with those of the Company.
The Plan authorizes option grants to purchase up to an aggregate of 125,000
shares of the Company's Common Stock. The Compensation Committee of the Board
will administer the Plan with respect to grants to officers, employees and
consultants. A Directors Option Committee will administer the Plan with respect
to grants to Directors who are not officers. Each Committee consists entirely of
disinterested Directors who are not entitled to participate in any grants made
by that Committee. No grants may be made after July 31, 2006.
The Compensation Committee may designate each stock option grant to an
employee as either an "Incentive Stock Option" ("ISO(s)") under Section 422 of
the Internal Revenue Code of 1986 ("the Code") or as a "Non-Qualified Option"
(an option which does not qualify as an ISO). Any options granted to
non-employees by either Committee will necessarily be Non-Qualified Options. The
principal difference between the two types of options relates to their tax
treatment. Under the Code, ISO's qualify for special federal tax treatment; no
tax is associated with the grant or exercise of an option, nor is the Company
allowed a tax deduction by reason of either event; upon the sale of the stock,
the recipient is taxed at a capital gains sales rate; if, however, the recipient
disposes of the stock within two years of the grant or one year of the option
exercise, then the difference between the fair market value of the shares at the
time of exercise and the exercise price is taxed as ordinary income to the
recipient, and the Company is allowed a tax deduction for that amount.
Non-Qualified Options will also not result in income to the recipient upon the
grant; however, at the time of exercise, the recipient will realize ordinary
income in an amount equal to the difference between the fair market value of the
shares and the exercise price. The Company will receive an equivalent deduction
and upon any subsequent sale of the shares, the recipient will have a capital
gain for any amount of the sale price in excess of that fair market value.
Regardless of the type of option, all options under the Plan will have the
following characteristics: the exercise price will be no less than 100% of the
fair market value of the shares as of the date of the grant (110% in the case of
an ISO for a 10% shareholder); the option may not be exercised within six months
after the grant date nor for a period any longer than ten years after the grant
date (5 years in the case of an ISO for a 10% shareholder); in the case of
employees, the option will terminate three months after termination of the
optionee's employment for any reason; and the option will not be transferable
except to the optionee's estate. An additional restriction applicable only to
ISO's is that the maximum aggregate market value of the shares with respect to
which an optionee may exercise the option for the first time during any calendar
year is $100,000.
It is contemplated that authorized but unissued shares of Common Stock will
be issued under the Plan; however, the Plan also permits the issuance of
treasury shares. The Company will have no obligation to reserve shares for
issuance under the Plan. No preemptive rights are applicable to any of the
shares to be issued under the Plan. The proceeds to be received by the Company
from exercises of option grants will be used for general corporate purposes. The
number of shares available under the Plan and each outstanding option grant, and
the exercise prices, will be adjusted in the event of any stock dividend or
recapitalization of the Company's Common Stock. The Company's Board of Directors
may amend the Plan, but may not do so without stockholder approval if such
amendment would materially increase benefits to eligible recipients such as
increasing the number of available shares, extending the maximum option periods
or changing the eligibility requirements. A copy of the Plan is attached hereto
as Exhibit A.
Twelve key employees and a consultant have received grants under the Plan
to purchase an aggregate of 87,500 shares of Common Stock at a price of $3.50
per share (the market price of the stock on the grant date) during a ten-year
exercise period after the September 13, 1996 grant date. Each of the employee
grants was an ISO, with the options varying between 2,500 and 10,000 shares. The
consultant's option was a Non-Qualified Option for 10,000 shares. All of those
option grants are subject to approval of the Plan by the stockholders at the
meeting. It is contemplated that the options will be registered with the
Securities and Exchange Commission after such approval.
5
<PAGE> 7
At the current time, no other employee of the Company, other than the two
executive officers, is deemed by the Compensation Committee as being eligible to
receive option grants under the Plan. To date, no option grants under the Plan
have been made to any of the five directors and executive officers of the
Company, nor are any such grants contemplated prior to the meeting. Since
options for 87,500 shares of Common Stock have already been granted, the maximum
number of shares for which options may be granted under the Plan in the future
to directors and executive officers is limited to 37,500 shares unless any
previously-granted options are canceled.
TRANSACTIONS INVOLVING DIRECTORS AND EXECUTIVE OFFICERS
The Company subleases a building to house its main plant and offices at 770
Linden Avenue, Rochester, New York, at a rent of $30,468 per month through
October 2000. The sublessor of the premises is Linden Properties, a New York
general partnership in which the two principal partners are Isadore Diamond, who
is a Director, Executive Officer and owner of more than 5% of the Company's
Common Stock, and Elliott Landsman, who is also an owner of more than 5% of the
Company's Common Stock. During fiscal 1996 and fiscal 1995, Mayzon Corporation,
a property management company owned by Mr. Landsman, performed construction work
on the Company's premises, for which the Company paid Mayzon $19,950 and
$68,000 respectively.
EXECUTIVE COMPENSATION
THREE-YEAR COMPENSATION SUMMARY. The following table summarizes the Company's
compensation of its Executive Officers for the past three fiscal years:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(a)
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------------- -------
OTHER SECURITIES ALL
ANNUAL UNDER- OTHER
COMPEN- RESTRICTED LYING LTIP COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION STOCK AWARDS OPTIONS PAYOUTS SATION
POSITION YEAR ($) ($) ($)(b) ($) SARs (#) ($) ($)(c)
- -------------------- ---- -------- ----- ------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gordon H. McNeil 1996 $222,200 -- -- -- -- -- $15,995
President and CEO 1995 $218,623 -- -- -- -- -- $ 5,609
1994 $196,883 -- -- -- -- -- $11,583
Isadore Diamond 1996 $132,000 -- -- -- -- -- $ 363
Chairman of Board 1995 $132,000 -- -- -- -- -- --
1994 $132,000 -- -- -- -- -- --
<FN>
(a) Covers awards (grants) and payouts. See the table on the next page for the
number and value of the Executive Officers' options as of the end of fiscal
1996.
(b) Does not include certain perquisites and other personal benefits the value
of which in each case did not exceed the lesser of $50,000 or 10% of the
Executive Officer's total salary and bonus in the fiscal year.
(c) Includes Company-paid insurance premiums on policies in which the executive
or his estate is the beneficiary.
</TABLE>
6
<PAGE> 8
OPTION/SAR GRANTS IN LAST FISCAL YEAR. No stock options or stock appreciation
rights ("SARs") were granted by the Company to Executive Officers during fiscal
1996. There are no outstanding SARs.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES. No stock options were exercised by any of the Company's
Executive Officers during fiscal 1996. The following table sets forth
information concerning the amounts and values of unexercised stock options as of
the end of fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARs AT FY-END (#) OPTIONS/SARs AT FY-END ($)(a)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------ ------------------------------- ------------------------------
<S> <C> <C>
Gordon H. McNeil 262,500 / -- $337,219 / --
Isadore Diamond -- / -- -- / --
<FN>
(a) Figures represent the difference between the $3.6875 average of the bid and
asked prices of the Company's Common Stock as of July 31, 1996 and the
exercise prices of the outstanding options.
</TABLE>
LONG-TERM INCENTIVE PLANS. During fiscal 1996, the Company made no awards to
Executive Officers of long-term plans providing compensation intended to serve
as incentive for performance.
COMPENSATION OF DIRECTORS. Executive Officers are not separately compensated by
the Company for services rendered in their capacity as Directors or members of
any committee of the Board of Directors. Outside Directors, consisting of Ms.
D'Amico and Messrs. Clark and Kozel, are compensated at the rate of $1,250 per
Board meeting and $750 per committee meeting attended. In addition, Mr. Clark
holds an option, which was granted to him upon becoming a Director, to purchase
7,500 shares of the Company's Common Stock at a price of $2.55 per share. Mr.
Kozel holds an option, which was granted to him upon becoming a Director, to
purchase 5,000 shares of the Company's Common Stock at a price of $4.63 per
share.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS. The Company has no employment contracts with any of its Executive
Officers. The Company has no pension plan, nor any severance plan, salary
continuation policy, "golden parachute" plan, or any other plan or arrangement
pertaining to the resignation, retirement or other termination of any Executive
Officer's employment or to any change of control of the Company or to any change
in responsibilities of any Executive Officer following a change in control.
REPRICING OF OPTIONS/SAR's. The Company did not adjust or amend the exercise
price of any outstanding stock options or SAR's during fiscal 1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of Forms 3, 4 and 5 furnished to the Company by
Directors, Officers and beneficial owners of more than 10% of the Company's
Common Stock during, and with respect to, fiscal 1996, to the best of the
Company's knowledge, no person subject to Section 16 of the Securities Exchange
Act of 1934 failed to file such reports on a timely basis during fiscal 1996 or
prior fiscal years as required by that Act, except as follows. In May 1996,
Richard Hall, a former Director of the Company (during a portion of fiscal
1996), filed a tardy Form 4 relative to his acquisition of 8,500 shares of the
Company's Common Stock in a single transaction on March 22, 1996, and also
correcting an error of 5,000 shares contained in his Form 3 report dated
December 14, 1995.
7
<PAGE> 9
INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse LLP has been the Company's independent auditor since 1988.
The Board of Directors selects the auditor each year. No selection has yet been
made for fiscal 1997 because the decision is normally made after the prior
year's audit report has been reviewed by the Audit Committee. Representatives of
Price Waterhouse LLP are expected to be present at the meeting to respond to
appropriate questions and to make a statement to stockholders if they desire to
do so.
STOCKHOLDER PROPOSALS AND OTHER MATTERS
Any proposal which a stockholder wishes to be presented at the Annual
Meeting of Stockholders following fiscal 1997 must be received by the Secretary
of the Company prior to July 31, 1997, in order to be placed before the
stockholders.
The Board of Directors knows of no other matters which may be presented for
consideration at the meeting. However, if any other matters come before the
meeting, the persons named as proxy holders in the enclosed proxy will have
discretionary authority to vote the shares represented thereby in accordance
with their judgment.
By Order of the Board of Directors
Susan M. Weise
Secretary
November 7, 1996
ENCLOSED WITH THIS PROXY STATEMENT IS THE ANNUAL REPORT TO STOCKHOLDERS FOR
FISCAL 1996, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, WHICH IS THE ANNUAL
REPORT ON FORM 10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY
BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK MAY OBTAIN A COPY OF THE ANNUAL
REPORT BY SUBMITTING A WRITTEN REQUEST ADDRESSED TO SUSAN M. WEISE, SECRETARY OF
THE COMPANY, AT 770 LINDEN AVENUE, ROCHESTER, NEW YORK 14625.
8
<PAGE> 10
EXHIBIT A
MAGNETIC TECHNOLOGIES CORPORATION
1996 STOCK OPTION PLAN
SECTION 1. PURPOSE
-------
The purpose of the Magnetic Technologies Corporation 1996 Stock Option Plan
("the Plan") is to provide, through options to purchase Magnetic Technologies
Corporation $.15 par value Common Stock ("Stock"), long-term incentives to
directors, officers, key employees and consultants responsible for the success
and growth of Magnetic Technologies Corporation and its subsidiaries ("the
Company") in order to attract and retain such persons on a competitive basis and
to further the association of their interests with those of the Company.
SECTION 2. EFFECTIVE DATE
--------------
The Plan will become effective September 13, 1996, subject to its approval
by the Shareholders of the Company prior to December 31, 1996.
SECTION 3. SHARES OF STOCK SUBJECT TO PLAN
-------------------------------
Options may be granted under the Plan to purchase in the aggregate not more
than one hundred twenty-five thousand (125,000) shares of Stock, which shares
may consist in whole or in part of either authorized but unissued shares or
treasury shares. Any shares subject to unexercised options granted under the
Plan which for any reason expire or are terminated shall be available again for
new options under the Plan.
SECTION 4. PLAN ADMINISTRATION
-------------------
The Plan shall be administered by two Committees of the Company's Board of
Directors ("the Plan Administrator Committee(s)"): (1) the Compensation
Committee - with respect to options granted to the Company's officers, key
employees and consultants; and (2) a Directors Option Committee - with respect
to options granted to directors who are not officers or employees. Each
Committee shall have not less than two director members, all of whom shall be
"disinterested persons" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 ("the 1934 Act").
Each Plan Administrator Committee shall select the persons to whom options
may be granted and determine the number of shares of Stock to be granted to each
such optionee. Subject to the provisions of the Plan, each Plan Administrator
Committee shall have the authority to determine the other terms of options
granted under the Plan (which need not be uniform), to establish and rescind
rules and regulations as it deems necessary for the administration of the Plan
and to correct any defects and reconcile any inconsistency in any option granted
under the Plan as it deems necessary. All determinations of a Plan Administrator
Committee shall be by a majority of its members, and shall be final. No member
of a Plan Administrator Committee shall be liable for any action taken in good
faith with respect to the Plan or any option granted under the Plan.
The expenses of administering the Plan shall be paid by the Company. Each
option granted under the Plan shall be evidenced by a written contract executed
by both the Company and the optionee.
9
<PAGE> 11
SECTION 5. ELIGIBILITY AND SELECTION PROCESS
---------------------------------
Persons eligible to receive options under the Plan will consist of the
Company's directors, officers, key employees and consultants. The Plan
Administrator Committees will take into account the duties of prospective
optionees and their past and potential contributions to the Company in making
determinations as to the persons to be selected for option grants, the number of
shares of Stock to be included in each option and the other terms of the option.
The Compensation Committee will determine the participation of, and make
grants under the Plan to, the Company's officers, key employees and consultants,
including officers who are directors, and will determine whether each option
shall be an Incentive Stock Option [being an option in compliance with the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
("the Code") or any successor section] or a Non-Qualified Stock Option [being an
option not intended to meet the requirements of an Incentive Stock Option].
The Directors Option Committee will determine the participation of, and
make grants under the Plan to, directors who are not officers or employees of
the Company. All of such options shall be Non-Qualified Stock Options (as
defined above).
SECTION 6. PROVISIONS TO BE CONTAINED IN ALL STOCK OPTIONS
-----------------------------------------------
Each option granted under the Plan will contain the following provisions:
A. The exercise price shall be an amount not less than 100% of
the fair market value of the Stock as determined by the Plan
Administration Committee on the date the option is granted.
B. The period in which the option may be exercised shall not
exceed ten years from the date of the option grant.
C. The option may be exercised only by the optionee during the
optionee's lifetime, and the option will not be transferable by the
optionee other than by will or the laws of descent and distribution.
D. The optionee's agreement to make no disposition of the
Stock acquired upon the exercise of the option within a period of six
months after the date of the option grant.
E. In the cases of optionees who are employees, if an
optionee's employment with the Company is terminated for any reason,
then the option will expire if not exercised within three months after
such termination of employment. Notwithstanding the foregoing, if the
Compensation Committee determines that the optionee's employment was
terminated by reason of fraudulent, dishonest or disloyal conduct, then
the optionee will forfeit all rights under the option immediately upon
discharge from the Company's employment.
F. The optionee will have no rights as a shareholder of the
Company until the optionee has complied with all of the option exercise
terms, including full payment for the Stock purchased, and the
certificates of stock representing the Stock so purchased have been
issued to the optionee.
10
<PAGE> 12
SECTION 7. INCENTIVE STOCK OPTIONS
-----------------------
In addition to the provisions contained in Section 6 hereof, each Incentive
Stock Option granted under the Plan will contain the following provisions and
such other provisions as may be necessary to qualify as an Incentive Stock
Option under Section 422 of the Code:
A. In the event that the optionee owns more than 10% of the
Company's outstanding Stock (as defined in the Code and the regulations
thereunder) on the date the option is granted, then the exercise price
shall be not less than 110% of the fair market value of the Stock on
the grant date and the exercise period shall not exceed five years from
the grant date.
B. The aggregate fair market value of Stock (determined at the
date that the option is granted) with respect to which the option is
exercisable for the first time by the optionee during any calendar year
shall not exceed $100,000.
C. The optionee's agreement to make no disposition of the
Stock acquired upon the exercise of the option which would be deemed to
be a "disqualifying disposition" under Section 422 of the Code
(currently, any sale within two years from the option grant date or one
year from the exercise date); and, in the event that the optionee makes
a disqualifying disposition so as to require the withholding of
federal, State or local taxes (including social security taxes), the
optionee's agreement to promptly pay to the Company the amount of such
taxes if the Company is unable to withhold the necessary sums from
monies due to the optionee.
D. Such other provisions as determined by the Compensation
Committee.
SECTION 8. NON-QUALIFIED STOCK OPTIONS
---------------------------
In addition to the provisions contained in Section 6 hereof, each
Non-Qualified Stock Option granted under the Plan will contain the following
provisions:
A. In the cases of optionees who are employees, the optionee's
agreement to pay to the Company upon exercise of the option all
federal, State and local taxes (including social security taxes)
required to be withheld and, alternatively, to permit the Company, at
its sole discretion, to withhold from the Stock to be issued to the
optionee that number of shares at their then fair market value which
would satisfy the amount of taxes to be withheld.
B. Such other provisions as determined by the Compensation
Committee or the Directors Option Committee, as the case may be.
SECTION 9. ADJUSTMENTS FOR CHANGE OF SHARES
--------------------------------
The aggregate number and kind of shares of Stock available for options
under the Plan and subject to any outstanding option under the Plan, and the
exercise price of each outstanding option, shall be adjusted for any change in
the Stock resulting from a stock dividend or recapitalization (including a stock
split, merger, combination or exchange of shares; but excluding the Company's
issuance, sale or purchase of shares of Stock for money, services or property).
11
<PAGE> 13
SECTION 10. RIGHT OF COMPANY TO CANCEL OPTIONS
----------------------------------
The Company shall have the right to cancel any unexercised options granted
under the Plan at any time, without cause, upon a vote of the Company's Board of
Directors, which right may be exercised as to one or more optionees; provided
that, if exercised with respect to any optionee, all of the option grants held
by such optionee shall be canceled. Should the Company determine to cancel any
such option, it shall pay to the optionee a purchase price equal to the
difference between the exercise price of the option and the value of the
optioned Stock on the effective date of the Company's purchase as established in
the notice from the Company to the optionee; provided, however, that in no event
shall the purchase price be less than zero.
SECTION 11. TERMINATION AND AMENDMENT OF THE PLAN
-------------------------------------
The Plan will automatically terminate on July 31, 2006, and no options
shall be granted under the Plan thereafter. The Company's Board of Directors may
at any time amend or terminate the Plan provided that no amendment shall apply
to adversely affect the rights of any optionee with respect to an option already
granted and no amendment shall be made without shareholder approval which would
(a) increase the aggregate number of shares of Stock for which options may be
granted (except pursuant to Section 9 hereof), (b) change the eligibility
requirements for persons entitled to receive options, (c) extend the Plan
termination date, (d) reduce the minimum option exercise price specified herein,
(e) extend the maximum period during which an option may be exercised specified
herein, (f) otherwise materially increase benefits accruing to eligible persons
or (g) effect a change prohibited by Section 16(b) of the 1934 Act absent
shareholder approval.
SECTION 12. MISCELLANEOUS
-------------
A. The granting of options under the Plan shall be at the sole
discretion of the Plan Administrator Committees. The adoption of the
Plan shall not be construed to give any eligible person hereunder any
right to participate in the Plan or to receive options hereunder. The
granting of an option hereunder, and the execution of a Stock Option
Contract in connection with such grant, shall not be construed to
constitute an understanding or agreement, express or implied, on the
part of the Company to employ any optionee for any specified period of
time.
B. The Plan and options granted under the Plan will be subject
to all federal and State statutes, rules and regulations, including
securities laws. If, in the opinion of the Company's counsel, the
issuance, sale or transfer of shares of Stock under the Plan is not
lawful for any reason, the Company will not be obligated to issue, sell
or transfer the Stock notwithstanding conflicting provisions of the
Plan or any Stock Option Contracts entered into under the Plan.
C. The Company will be under no obligation to reserve shares
to fill options granted under the Plan. The Company will be deemed to
have complied with the terms of the Plan if, at the time of issuance of
an option under the Plan, it has a sufficient number of authorized and
unissued shares of Stock or treasury Stock which may be appropriated
and issued for that purpose.
D. The Plan and Stock Option Contracts entered into under the
Plan will be construed and enforced in accordance with the laws of the
State of Delaware.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
MAGNETIC TECHNOLOGIES CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- DECEMBER 17, 1996
The undersigned hereby appoints ISADORE DIAMOND and GORDON H. McNEIL,
and each of them, proxies for the undersigned, with full power of substitution,
to vote as designated below all the shares of Common Stock of MAGNETIC
TECHNOLOGIES CORPORATION which the undersigned would be entitled to vote at the
Annual Meeting of Stockholders to be held at the Industrial Management Council
in the Hutchison House, 930 East Avenue, Rochester, New York, on Tuesday,
December 17, 1996, at 11:00 A.M., and at all adjournments thereof, on the
following matters:
<TABLE>
<S> <C> <C> <C> <C> <C>
(1) Election of Directors:
----------------------
[ ] FOR all nominees listed below, except as deleted.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME BELOW.
G.T. Clark C. D'Amico I. Diamond B. Kozel G. McNeil
[ ] WITHHOLD AUTHORITY to vote for the nominees as a group.
(2) 1996 Stock Option Plan:
-----------------------
FOR [ ] or AGAINST [ ] a proposal to adopt the 1996 Stock Option Plan.
(3) Other Business: In their discretion, upon such other matters as may come before the meeting.
</TABLE>
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. UNLESS AUTHORITY TO VOTE
FOR ONE OR MORE OF THE NOMINEES IS WITHHELD PURSUANT TO ABOVE INSTRUCTIONS, THIS
PROXY WILL BE VOTED FOR EACH OF THE DIRECTOR NOMINEES AND FOR THE PROPOSAL TO
ADOPT THE 1996 STOCK OPTION PLAN.
(continued, and to be signed, on the other side)
<PAGE> 15
(continued from the other side)
The undersigned acknowledges receipt of the Annual Meeting Notice, Proxy
Statement and 1996 Annual Report.
Dated:__________________________________, 1996
____________________________________________
Signature of Stockholder
____________________________________________
Signature of Co-Owner
Please date this Proxy and sign exactly as your
name appears hereon. For a joint account, all
co-owners must sign. When signing as attorney,
executor, administrator, trustee, guardian or
officer of a corporation, please use full title.
