<PAGE>
SCHEDULE 14A
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
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AFP IMAGING CORPORATION
(Name of Registrant as Specified In Its Charter)
AFP IMAGING CORPORATION
(Name of Person(s) Filing Proxy Statement)
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.
(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>
AFP Imaging Corporation
Notice of Annual Meeting of Shareholders
To Be Held On November 10, 1999
To the shareholders of AFP Imaging Corporation:
You are cordially invited to attend the Annual Meeting of Shareholders of AFP
Imaging Corporation, a New York corporation (the Company), which will be held on
November 10, 1999 at the Company's offices, 250 Clearbrook Road, Elmsford, New
York 10523, at 9:00 a.m., New York time, to consider and act upon the following
matters:
1. To elect four directors of the Company to serve for the ensuing year
and until their successors are duly elected and qualified;
2. To approve and adopt the 1999 Stock Option Plan for the Company;
3. To ratify the appointment of Arthur Andersen LLP as the independent
public accountants of the Company's financial statements for the
fiscal year ending June 30, 2000; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
Only Shareholders of record at the close of business on October 1, 1999 are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
By order of the Board of Directors
David Vozick,
Secretary
Elmsford, New York
October 12, 1999
Whether or not you plan to attend the Annual Meeting, please promptly complete,
sign and date the enclosed Proxy, which is being solicited by the Board of
Directors of the Company, and promptly return it to the Company in the enclosed
postage pre-paid envelope. The Proxy may be revoked at any time before it is
voted and Shareholders executing proxies may attend the Annual Meeting and vote
there in person should they so desire.
Note that the time and location of the Annual Meeting is: November 10, 1999 at
9:00 a.m.
AFP Imaging Corporation
250 Clearbrook Road
Elmsford, New York 10523
<PAGE>
DEFINITIVE PROXY STATEMENT
The Board of Directors of AFP Imaging Corporation (the "Company") presents this
Proxy Statement to all Shareholders and solicits their proxies for the Annual
Meeting of Shareholders to be held on November 10, 1999. All proxies duly
completed, executed and received will be voted on all matters presented to the
Annual Meeting in accordance with the instructions given by such proxies. In the
absence of specific instructions, proxies so received will be voted for the
named nominees for election to the Company's Board of Directors, for the
adoption of the Company's 1999 Stock Option Plan, and for the ratification of
the appointment of Arthur Andersen LLP as the Company's independent public
accountants. Shares represented by proxies which are marked "abstain" for Items
2 and 3 on the proxy card and proxies which are marked to deny discretionary
authority on all other matters will not be included in the vote totals, and
therefore will have no effect on the vote. In addition, where brokers are
prohibited from exercising discretionary authority for beneficial owners who
have not provided voting instructions (commonly referred to as "broker
non-votes"), those shares will not be included in the vote totals. The Board of
Directors does not anticipate that any of its nominees will be unavailable for
election and does not know of any other matters that may be brought before the
Annual Meeting. In the event that any other matter should come before the Annual
Meeting or any nominee is not available for election, the persons named in the
enclosed proxy have discretionary authority to vote all proxies not marked to
the contrary with respect to such matters in accordance with their best
judgment. The proxy may be revoked at any time before being voted, by written
notice of revocation delivered to the Company prior to the Annual Meeting, or by
giving notice at the Annual Meeting. The Company will pay the entire expense of
soliciting these proxies, which solicitation will be by use of the mails, such
mailing to take place on or about October 12, 1999.
The total number of shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company outstanding as of October 1, 1999, was
9,271,054. The Common Stock is the only outstanding class of security of the
Company entitled to vote. Each share has one vote. Only Shareholders of record
as of the close of business on October 1, 1999 will be entitled to vote.
Shareholders may vote at the Annual Meeting in person or by proxy. A Shareholder
who is not the record owner of his shares may not vote in person at the Annual
Meeting unless he presents a proxy from his broker or other nominee naming him
as proxy.
A list of Shareholders entitled to vote at the Annual Meeting will be available
at the Company's office, 250 Clearbrook Road, Elmsford, New York 10523, for a
period of ten (10) days prior to the Annual Meeting for examination by any
Shareholder.
Annual Report
An Annual Report for the year ended June 30, 1999, containing financial and
other information about the Company and its subsidiary companies, is being
mailed at this time to all Shareholders of record entitled to vote at the Annual
Meeting on November 10, 1999.
ACTIONS TO BE TAKEN AT THE ANNUAL MEETING
PROPOSAL ONE - ELECTION OF DIRECTORS
The Company's Board of Directors has nominated David Vozick, Donald Rabinovitch,
Jack Becker and Robert A. Blatt for election as Directors at the Annual Meeting
to hold office for a one-year term or until their successors shall be elected
and duly qualified. It is intended that the accompanying form of Proxy will be
voted for the election as Directors of the four (4) nominees named below, unless
the Proxy withholds such authority or otherwise contains contrary instructions.
Proxies which do not direct the Proxy holders to vote for or withhold authority
in the matter of electing Directors will be voted for the election of the four
(4) nominees named below. Proxies cannot be voted for a greater number of
persons than the number of nominees named in the Proxy Statement.
In the event any one or more of the aforesaid nominees is unable to serve, it is
the intention of the persons named in the Proxy to vote for the election of
substitutes proposed by the Board of Directors or, if no substitute is proposed,
for the remaining nominees. Management has no reason to believe that any of the
nominees will be unable to serve and each nominee has advised the Company that
he can and will serve as a Director of the Company in the event he is so
elected.
The following table sets forth as to each nominee for election: (1) such
person's name; (2) the year in which such person was first elected a Director of
the Company; (3) biographical information for the last five years; (4) certain
other directorships, if any, held by such person; (5) positions and offices held
with the Company; and (6) such person's age. The information regarding the
Company's executive officers is also set forth in the following table, and in
the Summary Executive Compensation table below, and accompanying footnotes.
1
<PAGE>
Year First
Elected
Name & Age Director Position
David Vozick (59) 1978 Chairman of the Board of Directors,
Secretary and Treasurer
Donald Rabinovitch (53) 1978 Director and President
Robert Blatt (58) 1995 Director
Jack Becker (64) 1997 Director
David Vozick has been Chairman of the Board of Directors, Secretary and
Treasurer since the Company was founded in October 1978. He is a co-founder of
the Company.
Donald Rabinovitch has been President since the Company was founded in October
1978. He is a co-founder of the Company.
Robert Blatt is Chairman and majority owner of CRC Group, Inc., a developer,
owner and operator of commercial real estate, and a member of the New York Stock
Exchange, Inc. (Seat-holder), since 1985. Mr. Blatt is also the Chief Executive
Officer of New England National Golf Club, LLC. Mr. Blatt is a Director and
Chairman of the Finance Committee of MTR Gaming Group, Inc. and its subsidiary,
Mountaineer Race Track and Gaming Resort. He is also a Vice-President and
Assistant Secretary of both entities. He is a member of the State Bar of
California.
Jack Becker has been a practicing attorney in New York State since 1960 and is a
principal of Snow Becker Krauss P.C., general counsel to the Company. This firm
has been retained by the Company for more than the past three years and will be
retained by the Company for the current fiscal year. He has been a member of the
Board of Directors of Paxar Corporation since 1969.
Mr. Vozick and Mr. Rabinovitch are first cousins.
MEETINGS OF THE BOARD OF DIRECTORS AND INFORMATION REGARDING COMMITTEES
The Board of Directors of the Company held one regular meeting, five special
meetings, and one audit committee meeting during the fiscal year ended June 30,
1999. All Directors attended all of the meetings.
The Board of Directors has an Audit Committee. The Audit Committee is comprised
of the two outside directors, Jack Becker and Robert Blatt. The Audit Committee
is responsible for the development and implementation of policies, procedures
and other matters relating to ethics and business integrity. The Audit Committee
is also responsible for the Company's accounting practices, internal financial
controls, financial reporting, the engagement of the independent accountants and
the review of their report upon the completion of each audit. The Audit
Committee accepted the audit report of the independent accountants.
The Company's policy is only to pay fees to the outside Directors for attendance
at meetings of the Board of Directors. Both Mr. Jack Becker and Mr. Robert Blatt
receive compensation of $2,500 per Board meeting and stock option grants under
the Company's stock option plans of 3,000 shares of the Company's Common Stock
with an exercise price equal to the closing price of the Company's common stock
on the date of each meeting. Mr. Robert Blatt is also a paid consultant to the
Company, and counsels the Company on various business matters. In the fiscal
year ended June 1999, he earned $15,200 in consulting fees. The Company paid
Snow Becker Krauss PC, its general counsel, approximately $76,400 during the
fiscal year ended June 30, 1999.
SECURITY OWNERSHIP
The following table sets forth, as of October 1, 1999, the beneficial ownership
of shares of Common Stock for (i) each person known by the Company to
beneficially own 5% or more of the outstanding shares of Common Stock, based on
filings with the Securities and Exchange Commission (the "SEC") and certain
other information, (ii) each director of the Company (iii) each current
executive officer of the Company for whom information is given in the Executive
Compensation section of this Proxy Statement and (iv) all executive officers and
directors of the Company as a group. The Common Stock is the only outstanding
class of voting securities of the Company. Except as otherwise indicated, all
shares are beneficially owned, and investment and voting power is held by, the
persons named as owners.
2
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership (1),(4),(5),(6) Title of Class
- ---------------- -------------------- --------------- --------------
<S> <C> <C> <C>
David Vozick/Secretary 1,807,663 (2),(4) 18.9% Common Stock
Treasurer and Director
250 Clearbrook Road
Elmsford, NY 10523
Donald Rabinovitch 1,658,863 (3),(4) 17.4% Common Stock
Director and President
250 Clearbrook Road
Elmsford, NY 10523
Robert Blatt 718,963 (5) 7.7% Common Stock
Director
1890 Palmer Avenue
Larchmont, NY 10538
Jack Becker 60,522 (6) .7% Common Stock
Director
605 Third Avenue
New York, NY 10158
Seamus Carroll 70,000 (7) .8% Common Stock
Vice President
250 Clearbrook Road
Elmsford, NY 10523
Elise Nissen 95,000 (8) 1.0% Common Stock
Chief Financial Officer
250 Clearbrook Road
Elmsford, NY 10523
Joseph A. Cohen 728,435 (9) 7.9% Common Stock
825 Third Avenue
New York, NY 10022
Executive Officers and Directors 4,711,011 (4),(5),(6),(7),(8) 44.0% Common Stock
as a Group (6 Persons)
</TABLE>
(1) Based on 9,271,054 shares of Common Stock, outstanding as of September 8,
1999. Common Stock votes as a single class on a share-for-share basis.
Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all Common
Stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days from
the date hereof upon the exercise of options. Each beneficial owner's
percentage ownership is determined by assuming that options that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercised.
(2) Includes 186,000 shares held in trust for Mr. Vozick's three children.
(3) Includes 156,000 shares held in trust for Mr. Rabinovitch's three children.
(4) As to the amounts owned by Messrs. Vozick and Rabinovitch, each amount
includes 275,060 stock options issued to each of them of which all are
currently exercisable. However, the amount does not include 150,000,
subject to shareholder approval of the 1999 Stock Option Plan, which have
specific terms and conditions to be satisfied prior to vesting. See
discussion of Proposal Two - 1999 Stock Option Plan. It also includes
140,000 shares of Common Stock owned of record by Mr. Vozick's family
foundation and 125,000 shares of Common Stock owned of record by Mr.
Rabinovitch's family foundation. Messrs. Vozick and Rabinovitch disclaim
beneficial ownership with respect to the shares owned by their respective
family foundations. (See "Executive Compensation")
(5) Includes 15,000 stock options issued to Mr. Blatt, all of which are
currently exercisable.
(6) Includes 25,000 shares held by Snow Becker Krauss P.C., counsel to the
Company, of which Mr. Becker is a principal, and 28,500 stock options
issued to Mr. Becker, all of which are currently exercisable.
(7) Includes 70,000 stock options issued to Mr. Carroll, of which 1,540 stock
options will vest subject to shareholder approval of the 1999 Stock Option
Plan.
(8) Includes 85,000 stock options issued to Ms. Nissen of which 6,930 stock
options will vest subject to shareholder approval of the 1999 Stock Option
Plan.
(9) Mr. Cohen is neither an employee, Officer or Director of the Company.
Includes 400,193 shares of Common Stock directly owned by Mr. Cohen and
328,242 shares of Common Stock owned by various individuals and entities
through which Mr. Cohen may be
3
<PAGE>
deemed to be the beneficial owner under Rule 13d-3 of the Securities
Exchange Act of 1934. Mr. Cohen disclaims beneficial ownership of such
328,242 shares of Common Stock pursuant to Rule 13d-4 of the Securities
Exchange Act of 1934.
4
<PAGE>
SUMMARY EXECUTIVE COMPENSATION TABLES
The following table sets forth for the fiscal years ended June 30, 1999, 1998
and 1997, the cash and certain other compensation paid by the Company to the
Chief Executive Officer and all other executive officers of the Company, each
whose annual salary and bonus earned equaled or exceeded $100,000 during each
year (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------------------ -----------------------------------------------
Other Annual Restricted LTIP All Other
Salary Bonus Compensation Stock Options/SARS Payouts Compensation
Name and Position Year ($) (1) ($) (2) ($) (3) Awards (#) (4) (#) (4) (#) (4)
- ----------------- ---- -------- ------- -------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Vozick 1999 $267,400 $0 $60,940 - - - -
Chairman of the Board & 1998 $294,540 $0 $62,135 - - - -
Secretary and Treasurer 1997 $297,870 $0 $41,827 - - - -
Donald Rabinovitch 1999 $267,400 $0 $30,952 - - - -
President and Director 1998 $294,540 $0 $30,560 - - - -
1997 $297,870 $0 $31,829 - - - -
Seamus Carroll 1999 $125,000 $0 $0 - $25,000 - -
Vice President Marketing/ 1998 $119,233 $0 $0 - $52,075 - -
New Business Development(5)
Elise Nissen 1999 $100,000 $0 $0 - $10,000 - -
Chief Financial Officer (5) 1998 $100,000 $0 $0 - - - -
</TABLE>
(1) Amounts shown include cash compensation earned and accrued by the executive
officers.
(2) No cash bonuses were paid during the past fiscal years ended June 30, 1997,
1998, and 1999.
(3) The total amounts for each fiscal year consist of premiums paid by the
Company for life and disability insurance policies for their personal
benefit and an automobile allowance.
(4) No restricted stock awards, stock appreciation rights ("SARS") or long-term
incentive payouts ("LTIP") were granted during the fiscal years ended June
30, 1997, 1998 and 1999. In July 1998, Mr. Carroll was issued 25,000
incentive stock options at $1.00 per share, which reflected the repricing
of the 25,000 incentive stock options issued in January 1998 at $2.083 per
share. In July 1998, Ms. Nissen was issued 10,000 incentive stock options
at $1.00 per share, which reflected the repricing of the 5,000 incentive
stock options issued in December 1996 at $1.375 per share, and the
replacement of 5,000 incentive stock options at $1.00 per share which had
expired in July 1998.
(5) Seamus Carroll (39) and Elise Nissen (45) became executive officers of the
Company in 1998. Mr. Carroll joined the Company in 1996. He was appointed
VP of Operations/New Business Development in 1997 and VP of Marketing/New
Business Development in 1999. He was VP of Marketing for MacBeth Division
of Kollmorgan from 1995-1996. From 1993 to 1995, he was VP of Sales and
Marketing for worldwide sales at Visiplex Instruments Ltd. Ms. Nissen
joined the Company in 1982. She was appointed Chief Financial Officer in
1997. Prior to 1997, she served as VP of Finance and Controller.
Stock Options held at end of Fiscal 1999
The following table sets forth the (a) number of shares underlying options
granted to each Named Executive Officer during the fiscal year ended June 30,
1999, (b) percentage that the grant represents of the total number of options
granted to all employees of the Company during the same period, (c) the per
share exercise price of each option and (d) the expiration date of each option.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants Appreciation for Option Term
---------------------------------------------------------------------------- ----------------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to Exercise
SARs Employees of Base Expiration
Name Granted (#) in Fiscal Year Price ($/Sh) Date 5%($)(1) 10%($)(1)
---- ----------- -------------- ------------ ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Seamus Carroll (2) 25,000 27.6% $1.00 July 2003 $0 $0
Elise Nissen (2) 10,000 11.0% $1.00 July 2003 $0 $0
</TABLE>
(1) The closing bid price for the Company's Common Stock on June 30, 1999, was
quoted at $.3438 per share on the OTC Bulletin Board. As such these options
are currently not "In-the-Money" during their Option Term.
(2) The number of stock options included herein, include the stock options
regranted during fiscal 1999.
5
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table sets forth for the fiscal year ended June 30, 1999, the
options exercised and the value of unexercised options at fiscal year end for
the named executive officers.
<TABLE>
<CAPTION>
Number of unexercised Value of unexercised
Options/SARS at In-the-money Options/SARS
Shares Acquired Value Fiscal Year-End (#)(2) at Fiscal Year End ($)(1)
Name on exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------------- ------------ ------------------------- --------------------------
<S> <C> <C> <C> <C>
David Vozick - $0 275,060/0 $0/0
Donald Rabinovitch - $0 275,060/0 $0/0
Seamus Carroll - $0 60,000/0 $0/0
Elise Nissen - $0 40,000/0 $0/0
</TABLE>
(1) The closing bid price for the Company's Common Stock on June 30, 1999, was
quoted at $.3438 per share on the OTC Bulletin Board.
(2) Such Options/SARs do not include the Stock Options granted on September 8,
1999, subject to Shareholder approval.
<TABLE>
<CAPTION>
5 Year Option/SAR Repricings
Number of Length of
Securities Market Price Original Option
Underlying of Stock At Exercise Price Term Remaining
Options/ Time of at Time of New At Date of
SARs Repriced Repricing or Repricing or Exercise Repricing or
Name Date or Amended Amendment Amendment Price Amendment
- ---- ---- ---------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Seamus Carroll July 1998 25,000 $1.00/share $2.063/share $1.00/share 4 1/2 years
Vice President of Marketing/
New Business Development
Elise Nissen July 1998 5,000 $1.00/share $1.375/share $1.00/share 3 1/2 years
Chief Financial Officer
</TABLE>
Compensation Committee Interlocks and Insider Participation
The Board of Directors does not have a Compensation Committee. Executive
compensation is determined according to each individual's responsibilities and
Company philosophy as determined by the Board of Directors itself. None of the
executive officers of the Company has served during the last fiscal year on the
Board of Directors or Compensation Committee of any other entity whose officers
also served on the Board of Directors of the Company.
Report of the Board of Directors on Executive Compensation
Executive Compensation
The Company's executive compensation philosophy is to provide competitive levels
of compensation by recognizing the need for multi-discipline management
responsibility, achievement of the Company's performance goals, individual
initiative and achievement, and allow the Company to attract and retain
management with the skills critical to the long-term success of the Company.
Management compensation is intended to be set at levels that the Board of
Directors believes is consistent with responsibilities in other comparable
companies. The Company's executive compensation has four major components: base
salary, performance incentive, incentive stock options and other compensation.
Executive Base Salaries
Base salaries are determined by evaluating the various responsibilities for the
position held, the experience of the individual, and by comparison to positions
at companies within similar industries. The Board of Directors reviews base
salaries and determines increases based upon an officer's contribution to
corporate performance, the rate of inflation, and competitive market conditions.
Performance Incentives
The Board of Directors utilizes performance incentives based upon criteria
relating to revenues, income and operating goals to augment the base salaries
received by executive officers. No performance incentives have been paid to the
executive officers for the past three years, however, incentive stock options
have been granted in the past three years.
Incentive Stock Options
The Company uses incentive stock options issued under its 1992 and 1995 Employee
Stock Option Plans as a means to attract, retain and encourage management and to
align the interests of executive officers with the long-term interest of all
shareholders. Incentive
6
<PAGE>
stock options are typically granted at the commencement of employment of key
personnel and are augmented by subsequent periodical grants. All stock option
plans are approved by the Shareholders.
7
<PAGE>
Benefits and Other Compensation
The Company offers a life, health and disability benefit package to its
executive officers, which is similar to the package offered to all of its
employees. The Company provides supplemental life and disability insurance
coverage as well as an automobile allowance to its two senior officers, as other
compensation.
Retirement and Post Retirement Benefits
The Company does not offer a post-retirement health plan to its executive
officers or employees. The Company does offer a 401(k) retirement savings plan
to its executive officers which is the identical plan offered to all of its
employees.
The Company maintains a profit sharing plan and trust pursuant to which
participants receive certain benefits upon retirement, death, disability and, to
a limited extent, upon termination of employment for other reasons. Allocation
among participants' interests, including officers and directors who are
employees, is in accordance with current Internal Revenue Service regulations.
The aggregate amount contributed by the Company each fiscal year is determined
by the Board of Directors following a review of the profits of such fiscal year.
The defined contribution plan requires no minimum contribution by the Company.
The Company did not contribute to the Plan for the year ended June 30, 1999.
Respectfully submitted,
David Vozick, Donald Rabinovitch
Robert Blatt, Jack Becker
Performance Graph
Research Data Group Peer Group Total Return Worksheet
Afp Imaging Corp (AFPC)
Cumulative Total Return
--------------------------------------------
6/94 6/95 6/96 6/97 6/98 6/99
AFP IMAGING CORPORATION 100 133 255 344 155 61
PEER GROUP 100 115 162 192 260 286
NASDAQ STOCK MARKET (U.S.) 100 133 171 208 274 393
Assumes $100 invested on June 30, 1994 in the Company's Common Stock, the NASDAQ
Stock Index and the Peer Group Index. Total return assumes reinvestment of
dividends. The Peer Group comprises companies nationwide which compete against
the Company in its industry segment of dental products manufacturers and
distributors. None of the Companies competing with the Company offer a fully
comparable range of products and services. The performances of each company have
been weighted according to their respective stock market capitalization for
purposes of arriving at a peer group average. Each member of the peer group has
been publicly traded for at least five years.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Section 16 (a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and greater than ten percent shareholders are required by
regulation to furnish the Company with copies of all Section 16 (a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5's were
required for those persons, the Company believes that, during the period from
July 1, 1998 through June 30, 1999, all filing requirements applicable to its
Officers, Directors, and greater than ten percent beneficial owners were
complied with.
8
<PAGE>
PROPOSAL TWO - 1999 STOCK OPTION PLAN
The Board of Directors has adopted, subject to the approval of Shareholders, the
1999 Stock Option Plan (the "1999 Plan"), which authorizes the grant of options
to purchase 500,000 shares of Common Stock.
General
An aggregate of 400,000 shares of Common Stock have been reserved for issuance
upon exercise of options granted under the 1992 Stock Option Plan, and all such
options have been granted. An aggregate of 1,100,000 shares of Common Stock have
been reserved for issuance upon exercise of options granted under the 1995 Stock
Option Plan and as of September 9, 1999, all such remaining options have been
granted.
The Board of Directors has deemed it in the best interest of the Company to
establish the 1999 Plan to employees and other persons involved in the
continuing development and success of the Company an opportunity to acquire a
proprietary interest in the Company by means of grants of options to purchase
Common Stock. Persons eligible to receive grants of options under the 1999 Plan
are referred to below as "Participants." The 1999 Plan supplements the Company's
existing stock option plans. The previous plans have no authorized common shares
remaining for issuance. It is the opinion of the Board of Directors that by
rewarding the Company's employees and other individuals contributing to the
Company with the opportunity to acquire an equity investment in the Company, the
1999 Plan will maintain and strengthen their desire to remain with the Company,
stimulate their efforts on the Company's behalf, and also attract other
qualified personnel to provide services on behalf of the Company and induce them
to exert their maximum efforts toward the Company's success. As of the Record
Date, options to purchase an aggregate of 343,000 Common Shares have been
granted pursuant to the 1999 Plan, subject to shareholder approval.
The following table sets forth, as of the Record Date, certain information
concerning options granted pursuant to the Plan.
# of Options # of Options # of Options Exercise Price Expiration
Granted Vested Exercised Per Share Date
------- ------ --------- --------- ----
43,000 (1) 43,000 0 $.31 9/8/2004
300,000 (1) 0 (2) 0 $.31 9/8/2009
(1) All such options were granted on September 8, 1999. An additional 237,000
options were granted, in the aggregate, to current employees, under the
1995 Plan on such date.
(2) In addition to the stated terms and conditions of the Plan, the options
issued to the Chairman of the Board and the President of the Company shall
be deemed to be 100% fully vested upon satisfaction of certain events. If
the Company's financial results, adjusted for any non-recurring events, as
measured by EBITDA (earnings before interest, taxes, depreciation and
amortization) for Fiscal 2000, as calculated in accordance with Generally
Accepted Accounting Principles and confirmed by the independent auditors of
the Company, meets or exceeds $2 million, or in each year thereafter, the
audited results, adjusted for any non-recurring events, as measured by
EBITDA meets or exceeds $2 million plus an additional 10% per year during
the term of the option, the options will be deemed fully vested. If there
is a merger or acquisition resulting in a change of control of the Company
at a per share value 200% more than the market value on the date of grant,
the options also will be deemed fully vested. In any event, the 150,000
Stock Options issued to each of the Chairman of the Board and the President
become fully vested ninety (90) days prior to the end of the tenth year of
the issuance date.
New Plan Benefits
The following table sets forth certain information concerning the options
granted pursuant to the Plan to (i) each executive officer named in the
Executive Compensation section; (ii) all current executive officers as a group;
and (iii) all employees, including all current officers who are not executive
officers, but not including consultants, as a group.
<TABLE>
<CAPTION>
1999 Stock Option Plan
Name and Position Dollar Value (1) Number of Shares
- ----------------- ---------------- ----------------
<S> <C> <C>
David Vozick, Chairman of the Board &
Secretary and Treasurer $6,000 150,000(2)
Donald Rabinovitch, President & Director $6,000 150,000(2)
Seamus Carroll, Vice-President Marketing/
New Business Development $62 1,540
Elise Nissen, Chief Financial Officer $277 6,930
All current executive officers as a group (4 persons) $12,339 308,470(2)
All employees including current officers
who are not executive officers $1,381 34,530
</TABLE>
(1) Amounts are determined by multiplying (i) the number of options granted by
(ii) the difference between $.35, the average closing bid and asked price
on the OTC Bulletin Board on September 13, 1999, and the exercise price.
9
<PAGE>
(2) The number of shares for Messrs. Vozick and Rabinovitch assumes all such
options can be exercised per the additional stated vesting terms and
conditions as required as stated in (2) above.
The following description summarizes some of the provisions of the 1999 Plan.
Interested persons should refer to the full text of the 1999 Plan for more
detail. Copies of the 1999 Plan are available for examination on the SEC's web
site at http://www.sec.gov as an exhibit to the Form 10-K for the fiscal year
1999 and at the Company's offices.
The 1999 Plan allows the Company to grant Incentive Stock Options ("ISO"), as
defined in Section 422(b) of the Internal Revenue Code of 1986, Non-Qualified
Stock Options ("NQSOs") not to qualify under Section 422(b) of the Code, and
Stock Appreciation Rights ("SARs"). ISOs, NQSOs and SARs are collectively
referred to below as "Options".
Eligibility for Participation
The Company may grant ISO's separately or in tandem with SAR's to employees of
the Company, including officers, but excluding directors who are not employees
of the Company. The Company may grant NQSO's separately or in tandem with SAR's
to employees of the Company, officers, directors, independent contractors,
consultants and other individuals who are not employees, but are involved in the
continuing development and success of the Company. In general, the total
exercise price of all ISO's granted to an employee who is not a 10% owner under
all of the Company's Stock Option Plans may not exceed $100,000 in the year in
which they first vest. Any Options granted in excess of the $100,000 limitation
would be NQSO's. Furthermore, the Company may not grant more than 200,000
Options to a Participant in any calendar year. The Company presently has 135
employees (including two director-employees), and two outside directors who are
eligible for grants of one or more types of Options under the 1999 Plan. The
Company cannot presently determine the number of non-employees who may be
entitled to NQSO's under the Plan.
Administration
The 1999 Plan may be administered by the Board of Directors, by a Compensation
Committee comprised of two or more Outside Directors (the "Committee") (as
defined under Section 162(m) of the Code), or by another Board Committee
(Compensation Committee or other Board Committee referred to as a "Committee").
The Board of Directors administers the existing Stock Option Plans and is
expected to administer the 1999 Plan as well unless and until such time as a
Compensation Committee is appointed. The Board of Directors or a Committee has
the authority to make the following determinations:
o the persons who will receive Option grants;
o whether the Options are ISOs or NQSOs and whether they are granted in
tandem with SARs;
o how and when participants may exercise their Options and when the
Options expire (with a limit of a ten year expiration from the date of
grant);
o how participants may pay the exercise price;
o the number of Options granted.
Terms of Options
The Board of Directors and/or a Committee will determine the terms of Options
granted under the 1999 Plan as long as the terms are not inconsistent with the
limitations of the 1999 Plan. The terms will be subject to the conditions
described below.
Term of Option. No Option may have a term of more than ten years from the date
of grant. In the case of ISO's granted to employees who also directly or
indirectly own more than 10% of the Company's Common Stock ("10% Owners"), an
Option may not have a term of more than five years.
Vesting. In general, Options must vest over a period of not longer than five
years and at a rate of not less than 20% per year. The Committee may also grant
Options that vest on the Participant's or the Company's attainment of specified
performance goals, or if so determined by the Board of Directors or Committee at
the end of the period on which such specific performance is based.
Exercise Price. The exercise price of the Options are generally determined by
the Board of Directors or a Committee. NQSO's are subject to a Minimum Option
Price in accordance with state securities laws. The exercise price of ISO's may
not be less than the fair market value of the Company's Common Stock on the date
of grant. In the case of 10% Owners, the exercise price of ISOs must be at least
110% of the fair market value on the date of grant.
Payment of Exercise Price. Participants may pay the exercise price in cash or by
check. The Committee also has the discretion to permit full or partial payment
of the exercise price by delivery of an interest-bearing promissory note or
shares of the Company's Common Stock having a fair market value equal to the
exercise price. The Board of Directors or a Committee may also permit the
Participant to have the Company withhold from the Common Stock to be issued on
exercise that number of shares having a fair market value equal to the exercise
price and/or the tax withholding due.
10
<PAGE>
Fair Market Value of Option Exercise Price. Such fair market value of an Option
shall be determined by the Board of Directors and, if the Common Stock is listed
on a national securities exchange or traded on the over-the-counter market, the
fair market value shall be the closing price on such exchange, or the mean of
the reported bid and asked prices of the Common Stock on the over-the-counter
market as reported by NASDAQ, the NASD OTC Bulletin Board or the National
Quotation Bureau, Inc., as the case may be, on such date. ISOs or SARs granted
in tandem with ISOs, granted to holders owning directly or through attribution,
more than 10% of the Company's Common Stock are subject to the additional
restriction that the option price must be at least 110% of the fair market value
of the Company's Common Shares on the date of grant.
Termination of Employment. Unless a Participant's option agreement provides
otherwise, a Participant may exercise his vested Options within three months
after termination of his employment or consulting agreement. All Options will
immediately terminate on a Participant's termination for cause.
Death or Disability. Unless a Participant's option agreement provides otherwise,
if a Participant dies while employed or within six months after termination of
his employment without cause, his personal representatives can exercise his
Options for six months after his death. If a Participant becomes disabled while
employed, he or his personal representatives may exercise his Options at any
time within six months after the termination of his employment due to the
disability.
Transferability of Options. A Participant may not transfer or grant any interest
in ISO's, except by will or under the laws of intestacy. The Board of Directors
or a Committee has the discretion to permit Participants to transfer or
otherwise grant interests in NQSO's.
Termination, Modification and Amendment of the Plan
The 1999 Plan will terminate ten years after the date of its adoption by the
Board of Directors. No Option will be granted after termination of the 1999
Plan. The term of an Option, however, may extend beyond the expiration of the
1999 Plan.
The Board of Directors of the Company may terminate the 1999 Plan at any time
prior to its expiration date. It may also make such modifications or amendments
of the 1999 Plan as it deems advisable. However, the Board may not, without
Shareholder approval, increase the maximum number of shares as to which Options
may be granted under the 1999 Plan or materially change the standards of
eligibility under the 1999 Plan.
No termination, modification or amendment of the 1999 Plan may adversely affect
the terms of any outstanding options without the consent of the holders of those
Options. In the event of any consolidation or merger of the Company with or into
another company, or the sale of substantially all the assets of the Company to
another company for solely stock or securities, each then outstanding Option
shall, upon exercise thereafter, entitle the holder thereof to the consideration
which he would have received upon the exercise prior to such merger. In the
event of the proposed dissolution or liquidation of substantially all of the
assets of the Company, all outstanding Options will automatically terminate,
unless otherwise provided by the Board of Directors.
Adjustments Upon Changes in Capitalization
If the number of outstanding shares of the Company's Common Stock changed by
reason of recapitalization, reclassification, stock split, stock dividend,
combination, exchange of shares, or similar transaction, the Board of Directors
of the Company will make an appropriate adjustment in the total number of shares
of Common Stock available under the 1999 Plan, the number of shares reserved for
issuance upon the exercise of outstanding Options, and the exercise prices of
outstanding Options.
Federal Income Tax Consequences
The following discussion summarizes the federal income tax consequences of the
grant and exercise of Options granted under the 1999 Plan. The law is subject to
change, including retroactive change. In addition, the tax consequences may vary
depending on the particular circumstances of a Participant. A Participant may
also be subject to state or local income tax consequences that differ from those
described below.
ISOs. The grant and exercise of ISOs and the subsequent sale of shares will have
the following federal income tax treatment.
o A Participant will not realize taxable income on either the grant or
the exercise of an ISO .
o The difference between the fair market value of the Common Stock on the
date of exercise and the exercise price will be included in alternative
minimum taxable income.
o If the Participant sells the shares issued on exercise of his Option
more than two years after the date of grant and more than one year
after the exercise of the Option, the difference between the net
proceeds of the sale of shares issued on exercise and the exercise
price will be capital gain or loss.
o If the Participant sells the shares issued on exercise of his Option
less than two years after the date of grant or less than one year after
the exercise of the Option, the sale will be a disqualifying
disposition. The Participant will recognize ordinary income equal to
the difference between the fair market value of the shares issued on
the date of exercise and the exercise price and capital gains on any
balance.
o The Company may not deduct any amounts in connection with the exercise
of an Option or the sale of shares issued on exercise, unless the sale
is a disqualifying disposition. In that case, the Company will be able
to deduct the amount that the Participant recognizes as ordinary
income.
11
<PAGE>
NQSOs. The grant and exercise of NQSO's and the subsequent sale of shares will
have the following federal income tax treatment.
o The Participant will not recognize income on the grant of a NQSO.
o The Participant will recognize ordinary income on the exercise of a
NQSO equal to the difference between the fair market value of the
Common Stock on the date of grant and the exercise price.
o The ordinary income recognized on exercise may be compensation income
subject to withholding under federal and state law.
o The Company would be entitled to deduct as a compensation expense the
amount of compensation income recognized by the Participant.
o The Participant will have a tax basis in the shares issued on exercise
equal to the fair market value of the Common Stock on the date of
exercise.
o On sale of the shares issued, the Participant will recognize capital
gain or loss equal to the difference between the net proceeds of the
sale and the fair market value of the Common Stock on the date of
exercise. The Participant's capital gains holding period begins on the
exercise date.
The Company's deduction of income recognized by a Participant on exercise of his
Option may be subject to Section 162(m) of the Code, which limits to $1 million
the amount a publicly held corporation may deduct with respect to remuneration
paid to an executive officer of the corporation. Generally, the income that an
executive officer recognizes on exercise of an NQSO will be treated as
remuneration and included in the $1 million limitation. The rule does not apply,
however, with respect to performance based options determined by a Compensation
Committee composed solely of two or more "outside directors" and if the option
plan limits the number of options that the corporation may grant during any
year. The Company believes that it will be subject to the $1 million limitation
under Section 162(m) of the Code, with respect to grants not made by a
Compensation Committee to executive officers.
SARs. The grant of an SAR is generally not a taxable event for the Participant.
Upon the exercise of an SAR, the Participant will recognize ordinary income
equal to the amount of cash and the fair market value of any Common Stock
received upon exercise, and the Company will be entitled to a deduction equal to
the same amount, subject to the $1 million limitation under Section 162(m) of
the Code.
Effective Date of the Plan
The Plan became effective upon adoption by the Board of Directors on September
8, 1999. The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the Company
entitled to vote thereon within one year before or after adoption of the Plan by
the Board. In the event such Shareholder approval is withheld or otherwise not
received within the given time period, the Plan shall become null and void.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
PROPOSAL 3 APPROVING THE 1999 STOCK OPTION PLAN AND THE RESERVATION OF 500,000
SHARES OF COMMON STOCK FOR ISSUANCE UNDER THE PLAN.
PROPOSAL THREE - RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been independent auditors of the Company's accounts
since October 1980. Such firm has no financial interest, either direct or
indirect, in the Company. Selection of the auditors for the fiscal year ending
June 30, 2000 will be made by the Board of Directors subject to approval by the
Shareholders. A representative of Arthur Andersen LLP is expected to attend the
meeting and have an opportunity to make a statement and/or respond to
appropriate questions from Shareholders. Management recommends voting "FOR
Proposal 3" the ratifying of the appointment of the independent auditors.
OTHER TRANSACTIONS
The Company maintains $4.0 million of Directors and Officer's liability
insurance with RLI Insurance Company, The Safeco Insurance Company, and the TIG
Company, all of which insure the Company and the directors and officers of the
Company in accordance with the indemnification provisions of the New York
Business Corporation Law. These policies are renewed each year in May and
currently costs the Company an aggregate of $63,560 per annum.
On September 8, 1999, the Company granted under the 1999 Stock Option Plan
150,000 incentive stock options to each of Messrs. Rabinovitch and Vozick at
$.31 per share, which equals the closing bid price on such date. Such options
require that the Company achieve specific performance goals prior to such
exercise.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of Shareholders of the Company which are intended to be presented at
the next Annual Meeting must be received by the Company no later than July 20,
2000 in order that they may be included in the proxy statement and form of proxy
relating to that meeting.
COSTS OF SOLICITATION
The costs of soliciting proxies will be borne by the Company. The Company will
also reimburse brokerage firms and other custodians, nominees and fiduciaries,
if any, for reasonable out-of-pocket expenses incurred by them in connection
with forwarding solicitation materials to beneficial owners of Common Stock held
of record by such persons. Solicitation by the Company will be primarily by
mail.
12
<PAGE>
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
Upon the written request of a Shareholder of the Company, addressed to David
Vozick, Secretary of the Company, AFP Imaging Corporation, 250 Clearbrook Road,
Elmsford, New York, 10523, the Company will provide without charge to such
Shareholder a copy of the Company's Annual Report on Form 10-K for its fiscal
year ended June 30, 1999, including all statements and schedules to be filed
with the Securities Exchange Commission pursuant to Rule 13a-1 under the
Securities Exchange Act of 1934. A copy of the Form 10-K can also be retrieved
from the SEC's EDGAR Database on the Internet at http://www.sec.gov.
By Order of the Board of Directors
Elmsford, New York David Vozick,
October 12, 1999 Secretary
13
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
AFP IMAGING CORPORATION
The undersigned Shareholder of AFP Imaging Corporation, a New York corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated October 12, 1999 and hereby appoints David Vozick
and Donald Rabinovitch, and each of them with full power of substitution,
proxies and attorneys-in-fact, on behalf and in the name of the undersigned at
the 1999 Annual Meeting of Shareholders of AFP Imaging Corporation, to be held
on November 10, 1999 at 9:00 a.m., local time, at the Company's offices, 250
Clearbrook Road, Elmsford, New York 10523, and at any adjournments thereof, and
to vote all shares of Common Stock which the undersigned would be entitled to
vote if then and there personally present, on the matters set forth on the
reverse:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
/ X / Please mark your
- ---- votes as in this
example.
1. ELECTION OF DIRECTORS:
FOR all Nominees:
nominees listed Withhold David Vozick
at right authority Donald Rabinovitch
/ / / / Jack Becker
---- ---- Robert A. Blatt
(If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in list at right.)
2. Proposal to adopt the 1999 Stock Option Plan.
For / / Against / / Abstain / /
---- ---- ----
3. Proposal to ratify the appointment of Arthur Andersen LLP as
the independent public accountants of the Company.
For / / Against / / Abstain / /
---- ---- ----
4. Upon such other matters which may properly come before the meeting or any
adjournment or adjournments thereof.
For / / Against / / Abstain / /
---- ---- ----
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS NOMINATED, FOR THE ADOPTION OF THE
1999 STOCK OPTION PLAN AND RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN
LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY COME BEFORE THE ANNUAL MEETING.
A majority of such attorneys or substitutes as shall be present and shall act at
said Annual Meeting or any adjournment or adjournments thereof (or if only one
shall be present and act, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact, hereunder.
SIGNATURE DATE
---------------------------- ----------- -------------------------
Please Print
Note: (This proxy should be marked, dated and signed by the shareholder(s)
exactly as the name appears hereon and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If shares
are held by joint tenants or as community property, both should sign. If the
signer is a corporation, please sign in the full corporate name and give the
title of the signing officer.)
