SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant X
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Filed by a Party other than the Registrant
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Check the appropriate box:
Preliminary Proxy Statement
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X Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
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Confidential, for Use of the Commission Only
- -------- (as permitted by Rule 14a-6(e)(2))
PSC Inc.
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(Name of Registrant as Specified in its Charter)
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(Name of Persons(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
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1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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<PAGE>
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:
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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>
PSC Inc.
675 BASKET ROAD
WEBSTER, NEW YORK 14580
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held
May 12, 1999
TO THE SHAREHOLDERS OF PSC Inc.:
The annual meeting of shareholders of PSC Inc. (the "Company") will be
held on Wednesday, May 12, 1999 at 9:00 a.m. at the Dryden Theatre, George
Eastman House, 900 East Avenue, Rochester, New York (the "Annual Meeting") for
the following purposes:
1. To elect three (3) directors, each to serve a three-year term.
2. To consider and act upon a proposal to amend the Company's 1994 Stock
Option Plan to increase the number of Common Shares reserved for issuance
thereunder from 1,750,000 shares to 2,750,000 shares.
3. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on March 29,
1999 as the record date for the determination of shareholders entitled to vote
at the Annual Meeting and to receive notice thereof. The transfer books of the
Company will not be closed.
SHAREHOLDERS ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND TO
MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
By Order of the Board of Directors
MARTIN S. WEINGARTEN
Secretary
Dated: April 7, 1999
Webster, New York
<PAGE>
PSC Inc.
675 Basket Road
Webster, New York 14580
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of PSC Inc. (the
"Company") by the Board of Directors (the "Board") of the Company in connection
with the solicitation of the enclosed proxy for use at the annual meeting of
shareholders to be held on Wednesday, May 12, 1999 at the Dryden Theatre, George
Eastman House, 900 East Avenue, Rochester, New York, at 9:00 a.m., Eastern
Daylight Time, and at any adjournments thereof (the "Annual Meeting").
The principal executive offices of the Company are located at 675
Basket Road, Webster, New York 14580, and the Company's telephone number is
(716) 265-1600. The approximate date on which this Proxy Statement and the
enclosed proxy are first being sent to shareholders is April 7, 1999.
Voting Information
Only shareholders of record at the close of business on March 29, 1999
(the "Record Date") will be entitled to notice of, and to vote at, the Annual
Meeting. At the close of business on the Record Date, there were issued and
outstanding and entitled to vote at the Annual Meeting 11,906,175 common shares
of the Company, par value $.01 per share (the "Common Shares"), and 110,000
shares of the Company's Series A Convertible Preferred Shares, par value $.01
per share (the "Series A Preferred Shares"). (The Common Shares and the Series A
Preferred Shares are sometimes collectively referred to below as "Voting
Shares".) Each holder of Common Shares is entitled to cast one vote for each
share held of record at the close of business on the Record Date on each matter
submitted to a vote at the Annual Meeting. The holders of the Series A Preferred
Shares have the right to one vote for each Common Share into which such Series A
Preferred Shares can be converted and are entitled to vote, together with
holders of Common Shares, with respect to any matter upon which holders of
Common Shares have the right to vote. As of the Record Date, the outstanding
Series A Preferred Shares were convertible into 1,375,000 Common Shares.
Accordingly, the Voting Shares outstanding on the Record Date represent an
aggregate of 13,281,175 votes; the holders of Common Shares having 89.65% of the
votes entitled to be cast and the holders of Series A Preferred Shares having
10.35 % of the votes entitled to be cast. A quorum consists of a majority of the
votes entitled to be cast, or 6,640,588 votes. Dr. Romano Volta, a director of
the Company, is the only beneficial owner of the Series A Preferred Shares.
<PAGE>
Under the law of New York, the Company's state of incorporation,
abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Broker
non-votes occur where a broker holding stock in street name votes the shares on
some matters but not others. Usually, this occurs where brokers have not
received instructions from clients, in which case brokers are permitted to vote
on "routine" matters but not on non-routine matters. The missing votes on
non-routine matters are broker non-votes.
Unless contrary instructions are indicated on the Proxy, all Common
Shares represented by valid Proxies received pursuant to this solicitation (and
not revoked before they are voted) will be voted FOR the election of the
nominees named in the Proxy and FOR the proposal to amend the Company's Stock
Option Plan. Any shareholder may revoke a proxy at any time prior to its
exercise by filing a later-dated proxy or a written notice of revocation with
the Secretary of the Company, 675 Basket Road, Webster, New York 14580, or by
voting in person at the Annual Meeting. If a shareholder is not attending the
Annual Meeting, any proxy or notice should be returned in time for receipt no
later than the close of business on the day preceding the Annual Meeting.
The Board knows of no other matters to be presented at the Annual
Meeting. If any other matter should be presented at the Annual Meeting upon
which a vote properly may be taken, shares represented by all proxies received
by the Board will be voted with respect thereto in accordance with the judgment
of the persons named in the proxies.
Proxy Solicitation
The entire cost of the solicitation of proxies will be paid by the
Company. In addition to the solicitation of proxies by mail, some of the
officers and regular employees of the Company, without extra remuneration, may
solicit proxies, personally or by telephone, telegram or cable. The Company may
also request brokers, banks, nominees, custodians, fiduciaries and others to
forward soliciting material to the beneficial owners of the Company's Common
Shares and will reimburse such persons for reasonable expenses incurred in
forwarding such materials.
Proxy Statement Proposals
At the annual meeting each year, the Board of Directors submits to
shareholders its nominees for election as directors. In addition, the Board of
Directors may submit other matters to the shareholders for action at the annual
meeting.
Shareholders of the Company also may submit proposals for inclusion in
the proxy material. These proposals must meet the shareholder eligibility and
other requirements of the Securities and Exchange Commission. In order to be
included in the Company's 2000 proxy material, a shareholder's proposal must be
received not later than December 6, 1999 at the principal office of the Company,
675 Basket Road, Webster, New York 14580.
<PAGE>
In addition, the Company's Bylaws provide that in order for business to
be brought before an annual meeting of shareholders, a shareholder must deliver
written notice to the Secretary of the Company not less than 90 days prior to
the date of the meeting. The notice must set forth the shareholder's name,
address and number of shares of Company stock held, a representation that the
shareholder intends to appear in person or by proxy at the meeting to make the
proposal, a description of the business to be brought before the meeting, the
reasons for conducting such business at the annual meeting, any material
interest of the shareholder in the proposal and such other information regarding
the proposal as would be required to be included in a proxy statement. No such
notice has been received by the Company for the 1999 Annual Meeting. For the
2000 Annual Meeting of Shareholders, written notice must be delivered to the
Secretary of the Company at the principal office of the Company, 675 Basket
Road, Webster, New York 14580 not later than February 11, 2000.
The Bylaws also provide that if a shareholder intends to nominate a
candidate for election as a director, the shareholder must deliver written
notice of his or her intention to the Secretary of the Company. The notice must
be delivered not less than 90 days before the date of a meeting of shareholders.
The notice must set forth the name and address and number of shares of Company
stock owned by the shareholder, the name and address of the person to be
nominated, a representation that the shareholder intends to appear in person or
by proxy at the meeting to nominate the person specified in the notice, a
description of all arrangements or understandings between such shareholder and
each nominee and any other person (naming such person) pursuant to which the
nomination is to be made by such shareholder, the business address and
experience during the past five years of the nominee, any other directorships
held by the nominee, the nominee's involvement in certain legal proceedings
during the past five years and such other information concerning the nominee as
would be required to be included in a proxy statement soliciting proxies for the
election of the nominee. In addition, the notice must include the consent of the
nominee to serve as a director of the Company, if elected. No such notice has
been received by the Company for the 1999 Annual Meeting. For the 2000 Annual
Meeting of Shareholders, written notice must be delivered to the Secretary of
the Company at the principal office of the Company, 675 Basket Road, Webster,
New York 14580 not later than February 11, 2000.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Set forth below is information regarding beneficial ownership of any
class of the Company's Voting Shares as of March 8, 1999 (except as otherwise
noted below) by (i) each entity or person known by the Company to be the
beneficial owner of more than five percent (5%) of any class of the Company's
Voting Shares, (ii) each of the Company's directors and nominees to the Board of
Directors, (iii) each of the Company's executive officers named in the Summary
Compensation Table, and (iv) all directors and executive officers of the Company
as a group. The information as to each person and entity has been furnished by
such person and entity, and, except as noted, each person and entity named in
the table has sole voting and investment power with respect to all shares shown
as beneficially owned by such person or entity.
<TABLE>
Certain Beneficial Owners
<CAPTION>
Name and Address Shares of Class Percent of Class
of Beneficial Owner Title of Class Beneficially Owned Beneficially Owned
------------------ ------------- ----------------- -----------------
<S> <C> <C> <C>
Dr. Romano Volta (1) ................. Series A Preferred 110,000 100%
Hydra S.p.A. Shares
Via Massino D'Azeglio 57
40123 Bologna, Italy ............... Common Shares 1,983,250 14.73%
L. Michael Hone (2) .................. Common Shares 1,182,805 9.29%
502 Brookside Drive
Andover, MA 01810
Skyline Asset Management, L.P. (3) ... Common Shares 697,400 5.86%
311 South Wacker Dr.
Suite 4500
Chicago, IL 60606
Eagle Asset Management Inc. (4) ...... Common Shares 658,775 5.53%
880 Carillon Parkway
St. Petersburg, FL 33716
</TABLE>
- ----------------------------
(1) Hydra Investissements S.A. ("Hydra Investissements"), a Luxembourg
corporation, is the record owner of 110,000 Series A Preferred Shares
and a warrant ("Warrant") to purchase 180,000 Common Shares. The Series
A Preferred Shares are convertible into Common Shares at the rate of
one Series A Preferred Share for 12.5 Common Shares (subject to
adjustment in certain circumstances). As adjusted to reflect the
conversion, Hydra Investissements owns beneficially 1,375,000 Common
Shares. The Warrant is currently exercisable and accordingly Hydra
Investissements owns beneficially 180,000 Common Shares. On its
Schedule 13D dated September 22, 1997, filed with the Securities and
Exchange Commission, Hydra Investissements reported that it has shared
voting and dispositive power with respect to all of the 1,555,000
Common Shares beneficially owned by it. Dr. Volta directly owns 425,000
Common Shares with sole voting and dispositive power and may be deemed
to be beneficial owner, with shared voting and dispositive power, of
the 1,555,000 Common Shares beneficially owned by Hydra Investissements
by reason of the ownership by Hydra S.p.A. ("Hydra") of 100% of the
capital stock of Hydra Investissements and the ownership by Dr. Volta
of 50% of the capital stock of Hydra. Dr. Volta also beneficially owns
3,250 Common Shares which are subject to options currently exercisable.
<PAGE>
(2) Includes 823,226 shares subject to stock options held by Mr. Hone that
are currently exercisable.
(3) Skyline Asset Management, L.P. ("SAM") is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940. On
its Schedule 13G filed with the Securities and Exchange Commission on
February 12, 1999, SAM reported that it had the sole voting power and
the sole dispositive power with respect to all of such shares.
(4) Eagle Asset Management Inc. ("EAM") is an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940. On its
Schedule 13G filed with the Securities and Exchange Commission on
January 29, 1999, EAM reported that it had the sole voting power and
the sole dispositive power with respect to all of such shares.
Security Ownership of Directors, Director Nominees and Executive Officers
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Name of Beneficial Common Shares Percent of Common Shares
Owner Beneficially Owned Beneficially Owned
------------------ ------------------ ------------------------
Jay M. Eastman* .............. 129,088 (1)(2) 1.07%
Robert S. Ehrlich* ........... 349,889 (1)(3) 2.90%
James W. Henry* .............. 235,974 (1)(4) 1.98%
Donald K. Hess* .............. 44,620 (1) +
Thomas J. Morgan* ............ 18,850 (1) +
James C. O'Shea* ............. 34,242 (1) +
Jack E. Rosenfeld* ........... 48,289 (1)(5) +
Robert C. Strandberg* ........ 163,278 (1)(6) 1.36%
Justin L. Vigdor* ............ 26,750 (1) +
Romano Volta* ................ 1,983,250 (1)(7) 14.73%
Bert W. Wasserman** .......... 30,000 +
Nigel P. Davis ............... 8,278 (1) +
William L. Parnell, Jr. ...... 53,167 (1) +
Brad R. Reddersen ............ 40,701 (1) +
William J. Woodard ........... 101,349 (1) +
All directors, director
nominees and current
executive officers
as a group
including those named above
(25 persons) ................. 3,380,639 (7)(8) 23.73%
* Member of the Board of Directors of the Company
** Nominee to the Board of Directors
+ Less than 1%
(1) Includes the following Common Shares subject to acquisition by the
exercise of stock options which are, or within 60 days after March 8,
1999 will be, exercisable and are therefore deemed under Securities and
Exchange Commission regulations to be beneficially owned: Messrs.
Henry, Hess, O'Shea, Rosenfeld and Vigdor, 22,750 shares each; Mr.
Ehrlich, 143,389 shares; Dr. Eastman, 108,828 shares; Mr. Davis, 7,500
shares; Messrs. Parnell and Reddersen, 37,500 shares each; Mr.
Strandberg, 123,846 shares; Mr. Woodard, 97,855 shares; Mr. Morgan,
16,250 shares; Dr. Volta, 3,250 shares.
(2) Includes 3,121 shares held by Dr. Eastman's wife, 12,505 shares held by
his wife as custodian for their minor children and 1,465 shares held by
his children.
<PAGE>
(3) Includes 15,000 shares held by Ehrlich & Co., 80,000 shares held in the
R. S. Ehrlich & Co. Pension Plan Trust (the pension plan for Ehrlich &
Co.) and 50,000 shares held by Red Lion Enterprises, Inc. Mr. Ehrlich
is the senior partner in Ehrlich & Co. and may be deemed to be in
control of that partnership.Red Lion Enterprises, Inc. is a corporation
wholly-owned by Mr.Ehrlich and his wife. Accordingly, Mr. Ehrlich may
be deemed to beneficially own the shares owned by Ehrlich & Co., by the
R. S. Ehrlich & Co. Pension Plan Trust, and by Red Lion Enterprises,
Inc. Also includes 17,500 restricted shares (see "ELECTION OF DIRECTORS
- Compensation of Directors").
(4) Includes 68,999 shares held by Pacific Risk Management, Inc., 105,000
shares held by Pacific Risk Management, Inc. Pension Plan and Trust and
36,666 shares held by Mr. Henry's wife. Mr. Henry is President of
Pacific Risk Management, Inc. and may be deemed to be in control of
that corporation. Accordingly, he may be deemed to beneficially own the
shares owned by Pacific Risk Management, Inc. and by Pacific Risk
Management, Inc. Pension Plan and Trust.
(5) Includes 10,000 shares held by Solana Inc. (Pension Plan), a
corporation wholly-owned by Mr. Rosenfeld and his wife. Accordingly,
Mr. Rosenfeld may be deemed to beneficially own the shares owned by
Solana Inc.
(6) Includes 37,500 restricted shares (see "EXECUTIVE OFFICER COMPENSATION
- Summary Compensation Table" - Footnote (3)).
(7) See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Certain Beneficial Owners" - Footnote (1).
(8) Includes 783,964 shares subject to acquisition by the exercise of stock
options which are, or within 60 days after March 8, 1999 will be,
exercisable.
<PAGE>
ELECTION OF DIRECTORS
(Proxy Item 1)
The Company's Restated Certificate of Incorporation provides for a Board of
Directors to serve in three classes having staggered terms of three years each.
At present, there are ten directors, nine of whom have been elected by the
holders of the Common Shares and one of whom has been elected by the holders of
the Series A Preferred Shares. Under the Company's Restated Certificate of
Incorporation, as amended, so long as Hydra Investissements S.A. holds at least
27,500 Series A Preferred Shares, the holders of Series A Preferred Shares have
the exclusive right, voting separately as a class, to elect one director (the
"Series A Director") and are entitled to vote together with the holders of the
Common Shares as a single class in the election of the other directors. Three
directors have terms of office expiring at the 1999 Annual Meeting; three
directors have terms of office expiring at the 2000 Annual Meeting; and four
directors (one of whom is the Series A Director) have terms of office expiring
at the 2001 Annual Meeting.
Nominations of persons for election to the Board of Directors may be made
at a meeting of shareholders only (i) by or at the direction of the Board of
Directors or (ii) by any shareholder of the Company entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in the Company's Bylaws. See "GENERAL INFORMATION - Proxy Statement
Proposals."
At this Annual Meeting, three persons will be nominated to serve until the
Annual Meeting in 2002 and until their successors are elected and shall have
qualified. The three nominees are: Dr. Jay M. Eastman, Thomas J. Morgan and Bert
W. Wasserman. Dr. Eastman and Mr. Morgan are currently directors of the Company.
Mr. Wasserman, who currently is not a director of the Company, has been
nominated by the Board of Directors for election as a director. The holders of
Common Shares and Series A Preferred Shares, voting together as a class, are
entitled to vote with respect to the election of the three nominees standing for
election. Unless otherwise specified by the shareholders, it is intended that
the shares represented by proxies will be voted for the three nominees.
All nominees have consented to serve if elected, but if one or more of the
nominees becomes unable or unwilling to serve at the time of the Annual Meeting,
the shares represented by proxy will be voted for the remaining nominee(s) and
for any substitute nominee(s) designated by the Board of Directors. The Board of
Directors does not anticipate that any nominee will be unavailable or unable to
serve.
For the election of directors, only proxies and ballots marked "FOR all
nominees", "WITHHELD for all nominees" or specifying that votes be withheld for
one or more designated nominees are counted to determine the total number of
votes cast; votes that are withheld are excluded entirely from the vote and will
have no effect. Abstentions will have no effect on the vote for the election of
directors. Directors are elected by a plurality of the votes cast.
<PAGE>
The Board of Directors recommends that shareholders vote FOR the nominees
named in this Proxy Statement.
Information Concerning Nominees for Directors and other Incumbent Members of the
- --------------------------------------------------------------------------------
Board of Directors
- ------------------
Certain biographical and other information about the nominees for election
as directors and the directors continuing in office is presented as follows.
Nominees for directors to be elected by holders of Voting Shares for a
- --------------------------------------------------------------------------------
three-year term expiring in 2002:
- ---------------------------------
Dr. Jay M. Eastman, age 50, has served as a director of the Company since
April 1996. He also served as Senior Vice President, Strategic Planning from
December 1995 until October 1997 and as Executive Vice President of the Company
from December 1987 until December 1995. Dr. Eastman is President, Chief
Executive Officer and major shareholder of Lucid, Inc., Rochester, New York, a
corporation he founded in November 1991. Lucid designs and manufactures custom
electro-optical instrumentation for application in fields such as desktop
publishing and medical diagnosis. Dr. Eastman holds Ph.D. and Bachelor degrees
in Optics from the University of Rochester and is an inventor on 18 United
States patents owned by the Company. Dr. Eastman is also a director of Electric
Fuel Corporation ("EFC"), an Israel-based company engaged in the research,
development and commercialization of advanced zinc air battery products, and
Centennial Technologies, Inc., Wilmington, Massachusetts, a manufacturer of PC
card-based solutions to original equipment manufacturers.
Thomas J. Morgan, age 63, has served as a director of the Company since
April 1996. Mr. Morgan was the President and Chief Executive Officer from
October 1984 until January 1993 and Chairman of the Board from January 1993
until January 1995 of Verax Systems, Inc., Rochester, New York, a manufacturer
of data collection and specialized software for statistical process control. Mr.
Morgan is also a director of In Touch Massage Center, Inc., Seal Beach,
California, a woman's fitness studio.
Bert W. Wasserman, age 66, is being elected to the Board for the first
time. Mr. Wasserman served as Executive Vice President and Chief Financial
Officer of Time Warner, Inc. from 1990 until his retirement in 1995 and served
on the Board of Directors of Time Warner, Inc. and its predecessor company,
Warner Communications, Inc., from 1981 to 1995. He joined Warner Communications,
Inc. in 1966 and had been an officer of that company since 1970. Mr. Wasserman
is a director of several investment companies in the Dreyfus Family of Funds. He
is a director of Malibu Entertainment International, Inc., Winstar
Communications, Inc. and Lillian Vernon Corporation.
Directors whose terms expire in 2000:
- -------------------------------------
Donald K. Hess, age 68, has served as a director of the Company since 1987.
From 1975 until his retirement in December 1995, Mr. Hess was a Vice President
of the University of Rochester, Rochester, New York. He currently continues his
association with the University of Rochester on a part-time basis as Vice
President Emeritus.
James C. O'Shea, age 53, has served as a director of the Company since
1989. He has been Chairman of the Board and Chief Executive Officer of Bioject
Medical Technologies, Inc., a medical device manufacturer of needle-free
injection systems in Portland, Oregon, since April 1995. Prior thereto, he was
President of Biopure Corporation, a biomedical manufacturer in Boston,
Massachusetts, from January 1989 until April 1995.
<PAGE>
Justin L. Vigdor, age 69, has served as a director of the Company since
1989. He has been an attorney since 1951 and is a partner in the law firm of
Boylan, Brown, Code, Fowler, Vigdor & Wilson, LLP, Rochester, New York, counsel
to the Company. He is also a director of IEC Electronics Corp., Newark, New
York, an independent contract manufacturer of complex printed circuit board
assemblies and electronic products and systems.
Directors whose terms expire in 2001:
- -------------------------------------
Robert S. Ehrlich, age 61, has served as a director of the Company since
1983 and has been Chairman of the Board of Directors since April 1997. He was
Vice Chairman of the Board of Directors from February 1997 until April 1997. He
was also Chairman of the Board of Directors from December 1987 until July 1992.
From January 1995 until December 1996, Mr. Ehrlich was engaged to provide
consulting services to the Company. From August 1991 until December 1994, Mr.
Ehrlich was employed by the Company as a senior management executive. Mr.
Ehrlich has been Chairman of the Board of EFC since January 1993 and Chief
Financial Officer of EFC since May 1991.
Jack E. Rosenfeld, age 60, has served as a director of the Company since
1989. He has been President and Chief Executive Officer of Potpourri Collection,
Inc., a consumer catalog company in Medfield, Massachusetts, since 1998. Prior
thereto, he was President and Chief Executive Officer of Hanover Direct, Inc.
(formerly Horn & Hardart Co.) from September 1990 until January 1996 and
President and Chief Executive Officer of its direct marketing subsidiary from
May 1988 until January 1996. He is also a director of EFC and Maurice
Corporation, an apparel retailer.
Robert C. Strandberg, age 41, has served as a director since May 1998. He
has served as the President and Chief Executive Officer of the Company since
April 1997 and as Executive Vice President from November 1996 until April 1997.
Between 1991 and 1996, Mr. Strandberg was Chairman of the Board of Directors,
President and Chief Executive Officer of Datamax International Corporation
("Datamax"), Orlando, Florida. Datamax designs and manufactures thermal bar code
printers. Mr. Strandberg is also a director of Sawtek, Inc., Orlando, Florida, a
manufacturer of surface acoustical filters for cellular phones. He is also a
director of Merix Corporation, Forest Grove, Oregon, a manufacturer of advanced
printed circuit boards for use in sophisticated electronic equipment.
Dr. Romano Volta, age 62, is the Series A Director and has served as a
director of the Company since September 1997. Dr. Volta is President of the
Board of Directors of Hydra S.p.A., an Italian corporation, which is an
industrial and real estate holding corporation. He is also the founder and
President of Datalogic S.p.A., an Italian corporation, which manufactures auto
identification and data collection systems. Dr. Volta is a member of the Board
of Directors of Bank Institution and Bank Foundation of Bologna, Italy.
<PAGE>
Information Regarding the Board and its Committees
- --------------------------------------------------
The Board of Directors has the responsibility for establishing broad
corporate policies and for overseeing the overall performance of the Company and
its subsidiaries and appoints the corporate officers of the Company who are
responsible for conducting business on a day-to-day basis. In 1998, the Board of
Directors held six meetings and took action by unanimous written consent in lieu
of a special meeting once.
To assist in the discharge of its responsibilities, the Board of Directors
has established five standing committees: an Audit Committee, a Compensation
Committee, an Executive Committee, a Nominating Committee and a Strategic
Planning Committee.
The Audit Committee has the responsibility for recommending the appointment
of the Company's outside auditors, reviewing the scope and results of audits,
and reviewing internal accounting controls and systems. These reviews include
meetings with the independent auditors and representatives of management, as
well as separate and private meetings with the independent auditors to ensure
that the scope of their activities had not been restricted and that adequate
responses to their recommendations had been received. In addition, the Audit
Committee reviews the estimated fees and types of non-audit services to be
rendered to the Company by the independent accountants for the coming year. The
Audit Committee also monitors the Company's compliance efforts with respect to
the Year 2000 issue and monitors compliance with the Company's Code of Conduct,
its conflict of interest policy and its policy concerning trading in the
Company's securities and it reviews senior level accounting, auditing and
financial personnel performance and succession planning. The minutes of the
Audit Committee meetings as well as all of the recommendations of the Audit
Committee are submitted to the full Board of Directors. The Audit Committee,
currently consisting of Messrs. Vigdor (Chairman), Henry, Hess and Morgan, held
two meetings in 1998 and took action by unanimous written consent in lieu of a
special meeting once.
The Executive Committee is authorized to exercise the powers of the Board
of Directors in the interval between regular meetings of the Board and serves as
the investment committee of the Board. The Executive Committee, currently
consisting of Messrs. Ehrlich (Chairman), Morgan, O'Shea, Rosenfeld and
Strandberg, held four meetings in 1998.
The Compensation Committee reviews and approves the Company's compensation
philosophy covering executive officers and other key management employees,
reviews the competitiveness of the Company's total compensation practices,
reviews and approves the terms and conditions of proposed incentive plans
applicable to executive officers and other key employees, approves and
administers the Company's 1994 Stock Option Plan and any other stock option plan
of the Company, approves and administers the Company's 1995 Employee Stock
Purchase Plan, reviews and makes recommendations with respect to management
compensation, including salaries and bonus awards, examines the impact and
effect of various benefits and incentive plans and reviews and recommends
changes or amendments to such programs to the Board, and reviews and approves
special hiring and severance arrangements with executive officers. The
Compensation Committee, currently consisting of Messrs. O'Shea (Chairman),
Morgan, Rosenfeld and Volta, held five meetings during 1998 and took action by
unanimous written consent in lieu of a special meeting six times.
<PAGE>
The Nominating Committee considers and recommends individuals to be
proposed for election as directors at the annual meeting of shareholders and to
fill vacancies existing on the Board. The Company's Bylaws include provisions
setting forth specific conditions under which persons may be nominated as
directors of the Company at an annual meeting of shareholders. See "General
Information - Proxy Statement Proposals." The Nominating Committee, currently
consisting of Messrs. Rosenfeld (Chairman), Ehrlich, Strandberg and Volta, held
two meetings in the first quarter of 1999.
Created in 1998, the Strategic Planning Committee has the responsibility
for monitoring and providing oversight with respect to the Company's strategic
planning process and for working with management in the development of strategic
priorities. The Strategic Planning Committee, currently consisting of Messrs.
Morgan (Chairman), Eastman, Ehrlich, Strandberg and Volta, held one formal
meeting in 1998 and several informal meetings.
Each director attended 75% or more of the meetings held by the Board of
Directors and the committees on which the director served.
Compensation of Directors
- -------------------------
In 1998, each non-employee director was paid $500 for each Board and
Committee meeting attended by him, except that no more than $500 was paid if
more than one meeting occurred on the same day. In addition, each non-employee
director received a retainer at the annual rate of $12,500 payable in four equal
installments on the last day of each calendar quarter. For 1998, an aggregate of
$138,500 in retainer and meeting fees was paid to eight non-employee directors.
Each non-employee director is also reimbursed the reasonable expenses incurred
in attending the meeting. All directors, except Messrs. Ehrlich and Strandberg,
are non-employee directors.
Pursuant to the PSC Inc. Compensation Plan for Non-Employee Directors,
which was approved by the shareholders at the 1998 Annual Meeting, non-employee
directors have the opportunity to receive payment of their compensation either
in cash or in Common Shares and either currently or on a deferred basis. If the
amount to be deferred would have been payable in cash, the Company will credit a
Deferral Account maintained for the director with an amount that would otherwise
have been payable to the director in cash. If the amount to be deferred would
have been payable in stock, the Company will credit units ("Stock Units") to a
Unit Account maintained for the director. Directors will make separate elections
with respect to the manner of the payment of the compensation and the time of
the payment of the compensation. The number of Common Shares issued or the
number of Stock Units credited to a director's account will equal the cash
amount of the compensation divided by the fair market value of one share of
stock on the date on which such cash amount would otherwise have been paid.
Stock Units and amounts in a Deferral Account are fully vested at all times.
Payment of Stock Units (in full Common Shares) and the amounts in a Deferral
Account must be deferred at least one year. The director chooses the date of the
payment, which may be upon termination of service as a director. The maximum
number of Common Shares that may be issued under the Plan is 50,000 shares.
During 1998, no director received his compensation in Common Shares or on a
deferred basis.
<PAGE>
The Company's 1994 Stock Option Plan (the "1994 Plan") provides for
automatic grants of stock options on the date of the annual meeting of
shareholders to each member of the Board of Directors who is not also an
employee or consultant of the Company. On the date of the 1998 Annual Meeting of
Shareholders, non-employee director stock options ("NEDSO"s) to purchase 6,500
shares were granted to each non-employee director at a purchase price of $11.875
per share, the fair market value on the date of the grant. Said NEDSOs are
exercisable in two equal installments on May 7, 1999 and May 7, 2000 and
terminate on May 7, 2003. No NEDSOs were granted to Messrs. Ehrlich and
Strandberg in 1998.
Mr. Ehrlich was elected Chairman of the Board in April 1997 and, as of June
2, 1997, the Board approved a one-year compensation agreement with Mr. Ehrlich
which expired on June 1, 1998. In May 1998, the Board approved a new agreement
with Mr. Ehrlich which will expire on December 31, 2000, and in December 1998,
the Board approved an amendment to the agreement (the agreement, as amended, is
referred to as the "Ehrlich Agreement"). Pursuant to the Ehrlich Agreement, for
all services rendered to the Company as Chairman of the Board and as a
consultant in such areas as strategic planning, corporate development, mergers
and acquisitions and development of overseas markets, Mr. Ehrlich will receive
compensation at the annual rate of $85,000. In 1998, Mr. Ehrlich received an
aggregate of $80,831 and was also reimbursed for expenses incurred in the
performance of his duties. The Ehrlich Agreement includes confidentiality and
non-compete provisions and provides for a severance payment upon the termination
of his position as Chairman of the Board as the result of a change-in-control in
an amount equal to 2.9 times his annual rate of compensation to be paid over a
period of three years. Pursuant to the Ehrlich Agreement, Mr. Ehrlich received
an award of 17,500 restricted shares, which he cannot sell, transfer or
otherwise dispose of until the restrictions lapse. The restrictions on 50% of
such shares will lapse in four equal annual installments on March 25, 1999,
March 25, 2000, March 25, 2001 and March 25, 2002 so long as Mr. Ehrlich is
Chairman of the Board on such dates. The restrictions on the other 50% of the
shares will not lapse unless and until certain performance levels for the
Company's shares are attained - with respect to 2,917 shares, at such time as
the trading price of the Company's Common Shares equals or exceeds $14.30 per
share for seven consecutive days at any time prior to March 25, 2002; with
respect to 2,916 shares, at such time as the trading price of the Company's
Common Shares equals or exceeds $16.87 per share for seven consecutive days at
any time prior to March 25, 2002; and with respect to 2,917 shares, at such time
as the trading price of the Company's Common Shares equals or exceeds $19.57 per
share for seven consecutive days at any time prior to March 25, 2002. If the
trading price of the shares does not reach the specified performance levels by
March 25, 2002, all shares still subject to the restrictions will be returned to
or cancelled by the Company. Pursuant to the Ehrlich Agreement, and subject to
the approval of the amendment to the 1994 Stock Option Plan at this Annual
Meeting, awards of 17,500 restricted shares will be given to Mr. Ehrlich as of
March 25, 1999 and on March 25, 2000, provided he is Chairman of the Board on
such date, and will contain provisions relating to the lapse of the restrictions
which will be similar to those set forth above but modified to reflect
appropriate changes in dates and performance standards. In the event of a
change-in-control and if Mr. Ehrlich becomes entitled to receive the severance
payment set forth above, all of the restrictions will lapse and all of his
options will immediately vest.
<PAGE>
Directors' and Officers' Liability Insurance Policy
- ---------------------------------------------------
The Company has an insurance policy for $15,000,000 effective until January
20, 2000, which protects its officers and directors against losses which certain
persons may incur because of their acts or omissions as officers or directors.
The policy is underwritten by National Union Fire Insurance Company at an
aggregate premium of $345,800 for a two-year period.
<PAGE>
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table
- --------------------------
Set forth below is information concerning the cash and non-cash
compensation for services in all capacities to the Company for the fiscal years
1998, 1997 and 1996 received by (i) the Chief Executive Officer and (ii) the
four other most highly paid executive officers in the employ of the Company at
December 31, 1998 (the individuals in (i) and (ii), collectively, the "Named
Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
------------------------------------------------ -------------------------
Restricted Securities All Other
Other Annual Stock Awards Underlying Compensation
Name & Principal Position Year Salary($) Bonus($)(1) Compensation ($)(2) ($)(3) Options(#) ($)(4)
- ------------------------- ---- --------- ----------- ------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert C. Strandberg (5) 1998 $165,000(6) $133,380 $132,170 $403,125 --- $ 4,500
President and Chief 1997 80,460(6) --- 64,345 --- 298,846 ---
Executive Officer 1996 21,346 --- 777 --- 50,000 ---
William J. Woodard 1998 $179,384 $156,690 $ 59,704 --- --- $ 5,000
Vice President, Chief 1997 160,000 --- 26,710 --- 30,000 3,139
Financial Officer & Treasurer 1996 136,606 49,600 --- --- 28,125 4,106
William L. Parnell, Jr. (7) 1998 $187,445 $142,758 $ 13,891 --- --- $ 4,850
Vice President, Operations 1997 169,386 1,597 11,718 --- 30,000 4,750
1996 71,502 167,042 102,754 --- 35,000 2,146
Nigel P. Davis (8) 1998 $234,705 $ 90,789 $ 29,165 --- --- ---
Vice President, Sales - 1997 177,599 --- 22,868 --- 30,000 $57,330
Europe, Middle East, Africa 1996 116,985 --- 12,570 --- --- ---
Brad R. Reddersen (7) 1998 $184,784 $140,634 $ 12,392 --- --- $ 4,620
Vice President, Chief 1997 170,836 1,597 7,270 --- 30,000 4,393
Technology Officer 1996 72,273 165,441 --- --- 35,000 1,809
</TABLE>
(1) For 1998 the amounts in this column reflect annual incentive awards
under the Company's Management Incentive Plan ("MIP") and/or bonus
payments made in lieu of stock options. See "Report of the Compensation
Committee of the Board of Directors on Executive Compensation." The
amounts of the MIP awards and the bonus in lieu of options,
respectively, for 1998 were as follows:
MIP Bonus in Lieu of Options
-------- ------------------------
R. Strandberg ...... $133,380 ---
W. Woodard ......... 66,690 $90,000
W. Parnell ......... 48,758 94,000
N. Davis ........... --- 90,789
B. Reddersen ....... 48,032 92,602
Messrs. Parnell and Reddersen had been executive officers of
Spectra-Physics Scanning Systems, Inc. ("Spectra") prior to its
acquisition by the Company on July 12, 1996. Bonus amounts for 1997 for
Messrs. Parnell and Reddersen were payable pursuant to Spectra's
Phantom Stock Option Plan and 1996 bonus amounts to Messrs. Parnell and
Reddersen were payable pursuant to Spectra's 1996 Management Incentive
Plan and Phantom Stock Option Plan. Bonus payments to Mr. Woodard in
1996 were payable pursuant to the Company's Management Incentive Plan.
<PAGE>
(2) Except as noted, none of the Named Executive Officers received personal
benefits in excess of the lesser of $50,000 or 10% of such individual's
reported salary and bonus for 1998, 1997 or 1996. The amounts in this
column for 1998 include the following: Mr. Strandberg - $97,412 for
relocation expenses and other amounts for automobile expenses, club
membership dues and fees, and premiums on enhanced life and disability
insurance policies, and a related tax gross-up; Mr. Woodard - $15,779
for automobile expenses, $23,728 for club membership dues and fees, and
other amounts for premiums on enhanced life and disability insurance
policies, and a related tax gross-up.
The amounts in this column for 1997 include the following: Mr.
Strandberg - $47,516 for relocation expenses and other amounts for
automobile expenses and premiums on enhanced life and disability
insurance policies; Mr. Woodard - $15,641 for automobile expenses and
$11,069 for premiums on enhanced life and disability insurance policies
and club membership dues; Mr. Davis - $12,832 for automobile expenses
and $10,036 for other executive benefits.
The amounts in this column for 1996 include the following: Mr. Parnell
- $86,007 for relocation expenses and the balance for amounts paid in
lieu of vacation accrued; Mr. Davis - $8,236 for automobile expenses
and $4,334 for other executive benefits.
(3) Restricted stock awards are valued in the table above at their fair
market value based on the closing price for the Company's Common Shares
as reported by The Nasdaq Stock Market(R) on the date of award. On
March 25, 1998, Mr. Strandberg was awarded 37,500 restricted shares.
The closing price of the Company's Common Shares on that date was
$10.75. At the end of the 1998 fiscal year, the fair market value of
Mr. Strandberg's restricted stock holdings was $356,250, based upon the
closing price of the Company's Common Shares on December 31, 1998 of
$9.50. The restrictions on 50% of such shares will lapse in four equal
annual installments on March 25, 1999, March 25, 2000, March 25, 2001
and March 25, 2002 so long as Mr. Strandberg is an officer on such
dates. The restrictions on the other 50% of the shares will not lapse
unless and until certain performance levels for the Company's shares
are attained - with respect to 6,250 shares, at such time as the
trading price of the Company's Common Shares equals or exceeds $14.30
per share for seven consecutive days at any time prior to March 25,
2002; with respect to 6,250 shares, at such time as the trading price
of the Company's Common Shares equals or exceeds $16.87 per share for
seven consecutive days at any time prior to March 25, 2002; and with
respect to 6,250 shares, at such time as the trading price of the
Company's Common Shares equals or exceeds $19.57 per share for seven
consecutive days at any time prior to March 25, 2002. If the trading
price of the shares does not reach the specified performance levels by
March 25, 2002, all shares still subject to the restrictions will be
returned to or cancelled by the Company.
(4) The amounts in this column for 1998 consist of the following:
(a) The Company's matching contributions to its 401(k) Plan as
follows: Mr. Strandberg - $4,500; Mr. Woodard - $5,000;
Mr. Parnell - $4,850; Mr. Reddersen - $4,620.
<PAGE>
The amounts in this column for 1997 consist of the following:
(a) The Company's matching contributions to its 401(k) Plans as
follows: Mr. Woodard - $3,139; Mr. Parnell - $4,750;
Mr. Reddersen - $4,393.
(b) The amount paid pursuant to a severance agreement as follows:
Mr. Davis - $57,330.
The amounts in this column for 1996 include the following:
(a) The Company's matching contributions to its 401(k) Plans: Mr.
Woodard - $3,410; Mr. Parnell - $2,146; Mr. Reddersen- $1,809.
(b) The actuarially determined value of the Company-paid premiums
on "split-dollar" life insurance as follows: Mr. Woodard -
$696.
(5) Mr. Strandberg became the President and Chief Executive Officer on
April 30, 1997. He joined the Company as Executive Vice President in
November 1996.
(6) The amount set forth as salary for 1998 represents the cash payment to
Mr. Strandberg for the period June 1, 1998 through December 31, 1998
and the amount set forth for 1997 represents the cash payment to Mr.
Strandberg for the period January 1, 1997 through May 31, 1997.
Pursuant to his Employment Agreement, Mr. Strandberg elected to receive
all of his base salary ($240,000) for the period between June 1, 1997
and May 31, 1998 in the form of stock options. Accordingly, on June 2,
1997, Mr. Strandberg received a stock option to purchase 73,846 shares
at an exercise price of $6.50 per share (the fair market value of the
Company's Common Shares on the date of grant). Said option vested in
four equal quarterly installments on August 31, 1997, November 30,
1997, February 28, 1998 and May 31, 1998 and expires on June 2, 2000.
(7) On July 12, 1996, the date on which the Company acquired Spectra,
Messrs. Parnell and Reddersen became employees of the Company retaining
their same positions as at Spectra, and thereafter became executive
officers of the Company in September 1996 and December 1996,
respectively. While the 1996 salary amounts for Messrs. Parnell and
Reddersen reflect payments for the period July 12, 1996 through
December 31, 1996, the bonus amounts for them for that year were based
upon the full year financial performance of Spectra as though it had
not been acquired in July 1996 and were paid in their entirety by the
Company.
(8) Mr. Davis' compensation information contained in this Proxy Statement
has been converted from English pounds to U.S. dollars based upon
average foreign exchange rates for the respective years.
Options and Stock Appreciation Rights
- -------------------------------------
No stock options or stock appreciation rights were granted to any of
the Named Executive Officers in fiscal 1998.
<PAGE>
The following table summarizes option exercises during fiscal 1998 by
the Named Executive Officers, and the value of the options held by such persons
at the end of fiscal 1998.
<TABLE>
AGGREGATED OPTION EXERCISES IN 1998
AND 1998 YEAR-END OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at December 31, 1998 (#) December 31, 1998 ($)(1)
-------------------------------- ------------------------
Shares Acquired
on Exercise Value
Name ($)(1) Realized ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- --------------------- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Robert C. Strandberg -- -- 123,846 225,000 $355,913 $659,375
William J. Woodard -- -- 93,480 21,875 $124,464 $ 54,297
William L. Parnell, Jr. -- -- 37,500 27,500 $100,938 $ 73,438
Nigel P. Davis -- -- 7,500 22,500 $ 20,625 $ 61,875
Brad R. Reddersen -- -- 37,500 27,500 $100,938 $ 73,438
</TABLE>
(1) The closing price for the Company's Common Shares as reported by The
Nadsaq Stock Market(R) on December 31, 1998 was $9.50. Value is
calculated on the basis of the difference between the option price and
$9.50 multiplied by the number of Common Shares underlying the option.
An option is in-the-money if the market value of the Common Shares
subject to the option exceeds the option price.
(2) An individual, upon exercise of an option, does not receive cash equal
to the amount contained in the Value Realized column of this table.
Instead, the amounts contained in the Value Realized column reflect the
increase in the price of the Company's Common Shares from the option
grant date to the option exercise date. Value is calculated based on
the difference between the option price and the closing market price of
the Common Shares on the date of exercise multiplied by the number of
shares to which the exercise relates. No cash is realized until the
shares received upon exercise of an option are sold.
Employment Contracts and Severance and Change-in-Control Arrangements
- ---------------------------------------------------------------------
Robert C. Strandberg
--------------------
On June 2, 1997, the Company and Robert C. Strandberg entered into an
Employment Agreement pursuant to which Mr. Strandberg was employed as President
and Chief Executive Officer. Said Agreement expired on June 1, 1998. Effective
June 2, 1998, the Company entered into a new Employment Agreement with Mr.
Strandberg, which was amended in December 1998 (the Employment Agreement, as
amended, is referred to as the "Strandberg Agreement"), and which will expire on
December 31, 2000 (the "Initial Term"). However, unless written notice is given
to the contrary by either the Company or Mr. Strandberg at least 75 days prior
to the expiration date, the employment period will automatically be extended for
additional one-year terms (each an "Additional Term"). Under the Strandberg
Agreement, Mr. Strandberg will receive an annual base salary of $300,000 or such
increased amount as may be determined by the Board from time to time. In
addition, under the Strandberg Agreement, if certain performance goals and
targets determined annually by the Company's Board of Directors for the
Company's Management Incentive Plan ("MIP") are met, Mr. Strandberg will be
entitled to receive a performance bonus for that year ranging from 40% to 170%
of his base salary with no performance bonus if the performance goal is not
achieved in a particular year. Mr. Strandberg is also eligible to participate in
employee benefit plans generally made available by the Company to its executive
officers.
<PAGE>
If Mr. Strandberg's services are terminated without cause (as defined
below), the Company will continue to pay him for a period of one year his base
salary and all current health, dental, life and accidental death and
dismemberment insurance benefits.
In the event Mr. Strandberg terminates his employment for any reason
within 90 days after the occurrence of a Change-in-Control (as defined below) or
in the event of the termination of employment of Mr. Strandberg within the two
year period following a Change-in-Control (as defined below), and such
termination is (i) by the Company for any reason other than Termination for
Cause (as defined below), death or disability, or (ii) by Mr. Strandberg for
"Good Reason" (as defined below), the Company will pay Mr. Strandberg over a
period of three years following such termination an amount equal to the product
of the sum of (x) Mr. Strandberg's base salary at the annual rate then in effect
and (y) the highest annual bonus paid to Mr. Strandberg under the Company's
current Management Incentive Plan in the three full fiscal years preceding
termination multiplied by 2.9. In addition, Mr. Strandberg will be immediately
vested in any retirement, incentive, restricted stock, or option plans or
agreements then in effect and the Company will continue to provide Mr.
Strandberg with his then current health, dental, life and accidental death and
dismemberment insurance benefits for a period of three years.
If any of the payments to Mr. Strandberg are considered "excess
parachute payments" as defined in Section 280G of the Internal Revenue Code, the
payments will be reduced to avoid such a characterization.
The Strandberg Agreement contains confidentiality provisions and a
covenant not-to-compete for a period of 24 months after the expiration of the
Initial Term and the Additional Term, if any.
Pursuant to the Strandberg Agreement, Mr. Strandberg received an award
of 37,500 restricted shares which cannot be sold, transferred or otherwise
disposed of until the restrictions lapse. See Footnote (3) to the Summary
Compensation Table for further details with respect to the restricted shares.
Pursuant to the Strandberg Agreement, and subject to the approval of the
amendment to the 1994 Stock Option Plan at this Annual Meeting, awards of 37,500
restricted shares will be given to Mr. Strandberg as of March 25, 1999 and on
March 25, 2000, if he is an officer on that date, and will contain provisions
relating to the lapse of the restrictions which will be similar to those set
forth in Footnote (3) to the Summary Compensation Table but modified to reflect
appropriate changes in dates and performance standards.
<PAGE>
Nigel P. Davis
--------------
In 1998, the Company through its wholly-owned subsidiary, PSC Bar Code
Limited ("PSC BCL"), entered into a Service Agreement with Nigel P. Davis
pursuant to which Mr. Davis is employed as Vice President Europe, Middle East
and Africa at an annual base salary of (pound)110,000 ($181,578) plus sales
commissions. The Service Agreement includes: confidentiality and non-compete
provisions; participation in employee benefit plans and in the PSC BCL Group
Personal Pension Scheme; and automobile benefits. In the event of the
termination of Mr. Davis' employment by the Company for any reason other than
Termination for Cause (as defined below), death, disability or a
Change-in-Control (as defined below), the Company will continue to pay him for a
period of one year following the termination date an amount equal to the
aggregate of (x) his salary at the annual rate in effect on the termination
date; (y) the highest annual incentive payments paid to him under the Company's
current Business Incentive Scheme or any successor scheme in the three full
financial years preceding the termination date; and (z) an amount equal to the
annual cost to the Company of providing a company car for him. In the event of
the termination of Mr. Davis' employment within the two-year period following a
Change-in-Control (as defined below), and such termination is (i) by the Company
for any reason other than Termination for Cause (as defined below), death or
disability or (ii) by Mr. Davis for "Good Reason" (as defined below), the
Company will pay Mr. Davis a total amount equal to the aggregate of (x) an
amount equal to his salary at the annual rate in effect on the termination date
multiplied by 2.9; (y) an amount equal to the highest annual incentive payments
paid to him under the Company's current Business Incentive Scheme or any
successor scheme in the three full financial years preceding the termination
date multiplied by 2.9; and (z) an amount equal to the annual cost to the
Company of providing a company car for him. Payments of such aggregate amount
will be paid over a three-year period. In addition, Mr. Davis will be
immediately vested in options then in effect and the Company will continue to
provide him with his then current medical, long-term disability insurance and
life insurance benefits for a period of three years.
Severance/Change-in-Control Agreements
--------------------------------------
Severance/Change-in-Control Agreements have been entered into with all
senior executive officers, including Messrs. Parnell, Reddersen and Woodard, in
order to assure the Company of the continued services of those executives to the
Company in an effective manner without distraction by reason of the possibility
of a termination of employment by the Company or a change in control of the
Company. In general, all provide that in the event of the termination of the
executive's employment by the Company, for any reason other than Termination for
Cause (as defined below), death, disability or a Change-in-Control (as defined
below), the Company will continue to pay the executive for a period of one year
following such termination an amount equal to the executive's salary at the
annual rate then in effect. In addition, the Company will provide the executive
with the executive's then current health, dental, life and accidental death and
dismemberment insurance benefits for a period of one year following such
termination. Each agreement also contains a covenant not-to-compete during the
one-year period in which severance benefits are being paid. In the event of the
termination of the executive's employment within the two-year period following a
Change-in-Control (as defined below) of the Company, and such termination is (i)
by the Company for any reason other than Termination for Cause (as defined
below) or (ii) by the executive if the executive terminates such employment for
Good Reason (as defined below), or, in the case of Mr. Woodard, in addition, if
he terminates his employment for any reason within 90 days after the occurrence
of a Change-in-Control (as defined below), the Company will pay the executive
either over a period of three years or in a lump sum payment an amount equal to
the product of the sum of (x) the executive's salary at the annual rate then in
effect and (y) the highest annual bonus paid to the executive under the
<PAGE>
Company's current Management Incentive Plan or any successor plan in the three
full fiscal years preceding termination multiplied by 2.9. In addition, the
executive will be immediately vested in any retirement, incentive or option
plans then in effect and the Company will continue to provide the executive with
his or her then current health, dental, life and accidental death and
dismemberment insurance benefits for a period of three years.
If any of the payments to the executive are considered "excess
parachute payments" as defined in Section 280G of the Internal Revenue Code, the
payments will be reduced to avoid such a characterization.
Certain Definitions. As used in the Ehrlich Agreement, the Strandberg
Agreement, the Service Agreement and the Severance/Change-in-Control Agreements:
(a) Change-in-Control generally means the acquisition of 30% of the
Company's voting securities (20% in the Strandberg Agreement), or a change of
one-third of the incumbent Board of Directors without the prior approval of the
members of the incumbent Board of Directors, or the merger or consolidation of
the Company with another corporation where the shareholders of the Company would
not, immediately after the merger or consolidation, own at least 50% of the
voting securities of the corporation issuing the cash or securities in the
merger or consolidation, or the sale of substantially all of the assets of the
Company.
(b) Termination for Cause generally means the termination of the
employment of an officer because the officer has failed or refused to perform
such services as may reasonably be delegated to the officer consistent with the
officer's position, or has been grossly negligent in connection with the
performance of his or her duties, or has committed acts involving dishonesty,
willful misconduct, breach of fiduciary duty, fraud, or any similar offense
which materially affects the officer's ability to perform his or her duties for
the Company or may materially adversely affect the Company, or has been
convicted of a felony.
(c) Good Reason generally means an officer's annual rate of salary is
reduced from the annual rate then currently in effect or the officer's other
employee benefits are in the aggregate materially reduced from those then
currently in effect, (unless such reduction of employee benefits applies to
employees of the Company), or the officer's place of employment is moved from
its then current location, or the officer is assigned duties that are demeaning
or are otherwise materially inconsistent with the duties then currently
performed by the officer.
(d) Termination without Cause generally means the termination of the
employment of an officer for reasons other than death, disability, termination
for cause or termination upon Change-in-Control.
<PAGE>
Interest of Directors and Management in Certain Transactions
- ------------------------------------------------------------
Severance Payments
In fiscal 1998, the Company, pursuant to a Severance Agreement dated
April 30, 1997, paid L. Michael Hone, the Company's former Chairman of the Board
and Chief Executive Officer, who currently owns beneficially more than five
percent of the Company's Common Shares, $381,811 and forgave $167,188 of
indebtedness.
In fiscal 1998, the Company, pursuant to a Severance and Consulting
Agreement, paid Dr. Jay Eastman, a director of the Company, who had been the
Company's Senior Vice President, Strategic Planning until October 1997, $39,904.
Stuart M. Itkin, Vice President, Marketing, pursuant to a Severance
Agreement effective February 5, 1998, received severance payments in 1998 in the
amount of $122,171.
Dennis T. Hopwood, Vice President, Human Resources, had served in a
similar position for Spectra. After the Company's acquisition of Spectra in July
1996, Mr. Hopwood left the employ of the Company in January 1997 and became
entitled to receive severance payments pursuant to his Change-in-Control
Agreement with Spectra. In fiscal 1998, the Company paid him $143,541 pursuant
to said Agreement. He subsequently rejoined the Company and became an executive
officer in July 1997.
Other Transactions
In 1998, the Company paid approximately $324,735 to Boylan, Brown,
Code, Fowler, Vigdor & Wilson, LLP for legal services rendered. Justin L.
Vigdor, a director, is a member of that firm and Martin S. Weingarten, Secretary
of the Company, is of counsel to that firm.
<PAGE>
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934 that might incorporate future filings, including
this Proxy Statement, in whole or in part, the following Performance Graph and
the Report of the Compensation Committee of the Board of Directors on Executive
Compensation shall not be incorporated by reference into any such filings.
CORPORATE PERFORMANCE GRAPH
The following graph reflects a comparison of the cumulative total
return of the Company's Common Shares from December 31, 1993 through December
31, 1998, with the Standard and Poor's 500 Index and the Standard and Poor's
Technology Sector Index. Comparisons of this sort are required by the Securities
and Exchange Commission and, therefore, are not intended to forecast or be
indicative of possible future performance of the Company's Common Shares. The
graph assumes that $100 was invested on December 31, 1993 in each of the
Company's Common Shares, the Standard and Poor's 500 Index and the Standard and
Poor's Technology Sector Index and that all dividends were reinvested.
Comparison of Five Year Cumulative Total Return*
Among PSC Inc., the S&P 500 Index and
The S&P Technology Sector
12/93 12/94 12/95 12/96 12/97 12/98
----- ----- ----- ----- ----- -----
PSC Inc..................... $100 $217 $154 $119 $220 $158
S&P 500..................... $100 $101 $139 $171 $229 $294
S&P Technology Sector....... $100 $117 $168 $238 $300 $519
* $100 invested on 12/31/93 in stock or index - including reinvestment of
dividends. Fiscal year ending December 31.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
consisting entirely of non-employee directors (Messrs. O'Shea (Chairman),
Morgan, Rosenfeld and Volta) approves all of the policies under which
compensation is paid or awarded to the Company's executive officers.
The Company's executive compensation policy is intended (i) to support
the attainment of the Company's long and short-term strategic and financial
objectives; (ii) to provide a competitive total compensation program that
enables the Company to attract, motivate and retain the key executives needed to
accomplish the Company's goals; (iii) to provide variable compensation
opportunities that are directly related to the performance of the Company; (iv)
to align executive compensation with growth in shareholder value; and (v) to
recognize and reward executives for their contributions and commitment to the
growth and profitability of the Company. The Compensation Committee believes
this policy is generally best accomplished by providing a competitive total
compensation package, a significant portion of which is variable and at risk and
related to established performance goals.
To maintain a competitive level of compensation, the Company and the
Committee periodically utilize the services of independent compensation
consultants to analyze compensation data for high technology companies with
revenues of $250 million and to recommend plan designs and guidelines and
compensation strategies. Such consultants were engaged in 1998 to assist the
Company.
The Company's compensation program for executive officers consists of
the following key elements: base salary, annual cash incentives and equity-based
incentives. Salary and annual incentive payments are mainly designed to reward
current and past performances. Equity-based incentives are primarily designed to
provide strong incentives for long-term future performance. The components of
the compensation program for executives are described below.
Base Salary: Base salaries and increases for executive officers, other
than Mr. Strandberg, are determined by the Chief Executive Officer within the
guidelines established by the Committee and are based upon the officer's current
performance, experience, the scope and complexity of his or her position within
the Company and the external competitive marketplace for comparable positions at
peer companies. Base salaries are designed to be competitive, generally at the
median or 50th percentile, as compared to salary levels for equivalent executive
positions in comparable companies and are normally reviewed annually.
Annual Incentive: A substantial portion of each executive officer's
compensation is variable and tied to Company performance.
<PAGE>
In 1997, the Committee adopted a new Management Incentive Plan (the
"MIP") which is applicable to all of the Company's key executives and department
managers. The MIP provides cash incentive awards based upon overall performance
by the Company as measured by return on capital employed ("ROCE") and sales
growth. ROCE is defined as operating income divided by net average capital as
reported in the Company's financial statements. Sales growth is defined as the
percentage increase of current fiscal year revenue over the preceding fiscal
year revenue. If the target is achieved, awards varying from 10% to 60% of base
salary will be paid. Below a threshold level of performance, no awards will be
granted. If the target is surpassed, awards increase, depending on the
percentage of target achieved. The incentive percentage for an employee is based
upon position in the Company and is based upon market comparisons. Each year the
Committee establishes the specific ROCE and sales growth targets for that year
and the weighting factor to be given to each. After the end of the fiscal year,
the Committee confirmed that the threshold level of performance had been
surpassed, that, based on performance against the ROCE and sales growth
measures, 74.1% of the targeted payout had been achieved and that the annual
bonuses, at reduced percentages, could therefore be paid. Accordingly, awards
varying from 7% to 44% of base salary were paid to the MIP participants for
1998.
Equity-Based Incentives: Stock options are granted to aid in the
retention of key employees and to align the interests of key employees with
those of the shareholders. Stock option grants are discretionary and reflect the
current performance and continuing contribution of the individual to the success
of the Company. The Committee is responsible for determining the individuals to
whom grants should be made, the time of the grants and the number of shares
subject to each option. Stock options are granted with an exercise price equal
to the fair market value of the Company's Common Shares on the date of grant.
Any value received by the executive from an option grant depends completely upon
increases in the price of the Company's Common Shares. Consequently, the full
value of an executive's compensation package cannot be realized unless an
appreciation in the price of the Company's Common Shares occurs over a period of
years.
After reviewing various studies and reports by independent compensation
consultants, the Committee in September 1997 adopted certain stock option
guidelines. Each participant is assigned a stock option target based on his or
her level and base salary. The stock option target is based on competitive
market information regarding ongoing standard option grants by position level in
high technology companies, as reported in an annual report on executive
compensation prepared by an independent compensation source. Targeted option
grants are designed to be competitive and will approximate the median or 50th
percentile, as compared to option grants for equivalent positions at other
global technology companies. The option grant target is expressed as a
percentage of each individual's base salary and ranges from 40% of base salary
for an individual contributor to 150% of base salary for senior vice presidents
to 200% of base salary for the Chief Executive Officer. The stock option target
is not a guarantee. The actual award may be smaller or larger depending on a
number of factors including the available stock option pool, the type of option
awarded (standard time vesting vs. performance-based), and the individual's
performance as assessed by senior management and the Board.
<PAGE>
In 1998, although some stock options were granted below the targeted
levels to certain key employees below the executive level, no stock options were
granted to the senior vice presidents because of the unavailability of a
sufficient number of shares under the stock option plan. In lieu thereof, the
Board awarded a special one-time cash bonus to each of the senior vice
presidents, including those named in the Summary Compensation Table. In general,
the amount of each bonus represented the current economic value of the stock
options that would have normally been granted to such individual in 1998 based
upon a Black Scholes calculation.
CEO Compensation
----------------
The compensation of the Chief Executive Officer reflects the same
elements as the compensation of the other executive officers. A new employment
agreement was entered into with Mr. Strandberg effective June 2, 1998. Mr.
Strandberg's base salary was increased from $240,000, which he had elected to
receive in the form of stock options, to $300,000, which is below the median
level of high technology companies with revenues of $250 million. Mr.
Strandberg's bonus for 1998 was determined under the MIP and he earned a bonus
of $133,380, which represents approximately 44% of his base salary. No stock
options were granted to Mr. Strandberg in 1998. In lieu thereof, he received an
award of 37,500 restricted shares on March 25, 1998 and, subject to the approval
of the amendment to the 1994 Stock Option Plan at this Annual Meeting, he will
receive similar awards as of March 25, 1999 and on March 25, 2000, if he is an
officer on that date. See "EXECUTIVE OFFICER COMPENSATION - Employment Contracts
and Severance and Change-in-Control Arrangements."
Tax Considerations
------------------
Section 162(m) of the Internal Revenue Code generally limits the
corporate tax deduction for compensation paid to the Named Executive Officers to
$1,000,000 each. However, compensation is exempt from this limit if it qualifies
as "performance-based compensation". The Compensation Committee has carefully
considered the impact of this tax code provision and its normal practice is to
take such action as is necessary to preserve the Company's tax deduction. The
Company's 1994 Stock Option Plan currently complies with the provisions of
Section 162(m) and there is being submitted to the shareholders for approval at
this Annual Meeting an amendment to the 1994 Stock Option Plan so that the Plan
will continue to comply with the provisions of Section 162(m) and any gains
realized upon the exercise of stock options granted under said Plan will
continue to qualify as performance-based compensation and will be fully
deductible by the Company. The Committee believes that all of the Company's 1998
compensation expense will be deductible for federal income tax purposes.
Although the Compensation Committee will continue to consider
deductibility under Section 162(m) with respect to future compensation
arrangements with executive officers, deductibility will not be the sole factor
used in determining appropriate levels or methods of compensation. Since Company
objectives may not always be consistent with the requirements for full
deductibility, the Company may enter into compensation arrangements under which
<PAGE>
payments are not deductible under Section 162(m). It is not expected that the
compensation of any executive officer will exceed $1,000,000 in fiscal 1999.
Compensation Committee
James C. O'Shea, Chairman
Thomas J. Morgan
Jack E. Rosenfeld
Romano Volta
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The members of the Compensation Committee consist of Messrs. O'Shea
(Chairman), Morgan, Rosenfeld and Dr. Volta. Each member is a non-employee
director and does not have any direct or indirect material interest in or
relationship with the Company outside of his position as director.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") reports of ownership and changes in
ownership of common stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during the 1998 fiscal year, all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with.
<PAGE>
PROPOSAL TO AMEND
THE 1994 STOCK OPTION PLAN
(Proxy Item 2)
General
- -------
In May 1995, the shareholders approved the 1994 Stock Option Plan (the
"1994 Plan") which had been adopted by the Board of Directors in November 1994.
The 1994 Plan is the Company's only stock option plan currently in effect.
The 1994 Plan authorizes the issuance of options and awards of
restricted shares covering up to 1,750,000 Common Shares (subject to appropriate
adjustments in the event of stock splits, stock dividends and similar dilutive
events). The 1994 Plan constitutes a key element of the Company's incentive
program and is utilized to attract, retain and motivate key employees of the
Company and to align key employee and shareholder interests.
As a result of the acquisition of Spectra in July 1996, whereby the
total number of employees of the Company doubled, and as a result of the
subsequent restructuring of the Company, whereby certain officers left the
Company and certain new officers were recruited and hired, the number of key
employees eligible for stock options increased significantly in 1997 and 1998.
Accordingly, it became necessary for the Board to grant more stock options and
awards of restricted shares in those years than had originally been anticipated
by the Board at the time of the adoption of the 1994 Plan. As a result, the
number of shares currently available under the 1994 Plan for grants of stock
options or awards of restricted shares is approximately 4,000 shares. The Board
of Directors has determined that this amount is insufficient to continue to
maintain the Company's needs under its incentive program. As a result, the Board
had adopted, and proposes that the shareholders approve, an amendment (the
"Amendment") to the 1994 Plan which will increase the total number of shares
available for the grant of stock options and the award of restricted shares
under the 1994 Plan by 1,000,000 shares, thereby increasing the aggregate number
of shares which would be available for the grant of options and the award of
restricted stock from 1,750,000 to 2,750,000.
The Board of Directors believes that the increase in the number of
shares available for issuance under the 1994 Plan will strengthen the Company's
ability to attract, retain and compensate key employees and future employees of
the Company and motivate such employees to attain individual performance and
overall corporate goals. In an environment which has become increasingly
competitive in the search for employees, especially in high technology
companies, the Board believes it is essential that the Company have the ability
to respond to that competition. This can be done either by substantially
increasing the cash compensation paid to the Company's officers and key
employees or by continuing to grant them stock options in a form and quantity
consistent with other comparable companies in the industry. Unlike the immediate
dilutive effect on earnings per share ("EPS") caused by increases in cash
compensation, grants of stock options have no effect on EPS until the Company's
stock increases in value beyond the option exercise price. As of March 8, 1999,
approximately 39% of the Company's outstanding stock options were below their
respective exercise prices. Although the Board has the right under the 1994 Plan
to reprice stock options if their exercise prices decline, the Board, believing
<PAGE>
that it would not be in the best interests of the Company's shareholders, has
never exercised this right and has adopted a policy not to do so. In addition,
in order to minimize the number of outstanding stock options, the Board intends
for the foreseeable future to restrict the annual grants of stock options to
officers, key employees and non-employee directors to approximately 2% of the
Company's outstanding shares.
Summary Plan Description
------------------------
The principal features of the 1994 Plan are summarized below. The
summary is qualified in its entirety by reference to the complete text of the
1994 Plan, as proposed to be amended, which is attached as Exhibit A.
Administration of the 1994 Plan
The 1994 Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). No director may be appointed to the
Committee who is not a "disinterested person" within the meaning of Rule 16b-3
of the Securities Exchange Act of 1934 (the "Exchange Act"). In addition, no
director may be appointed to the Committee who is not an "outside director" for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). Except as described below, the Committee has full authority to
determine the specific individuals to whom awards may be made under the 1994
Plan, to determine the provisions of such awards, to interpret the terms of the
1994 Plan and awards made under the 1994 Plan and to adopt, amend and rescind
rules and guidelines for the administration of the 1994 Plan. To the extent
permitted by applicable law, the Committee may delegate to one or more executive
officers who are also directors, the power to grant options to participants who
are not subject to the reporting requirements of Section 16(a) of the Exchange
Act, provided, however, that the Committee must fix the maximum amount of
options for such participants as a group.
Types of Awards Under the 1994 Plan
The 1994 Plan provides the Committee with authority to grant incentive
stock options (within the meaning of Section 422 of the Code), nonstatutory
stock options and shares of restricted stock. In addition, the 1994 Plan also
provides for automatic grants of stock options to directors who are not
employees of the Company.
Incentive Stock Options and Nonstatutory Stock Options
Any officer or key employee of the Company or any subsidiary of the
Company is eligible to receive an incentive stock option ("ISO") or nonstatutory
stock option ("NSO") under the 1994 Plan. In addition, any consultant to the
Company, who, in the opinion of the Committee, is in a position to have a
significant effect upon the Company's business, is eligible to receive a NSO
under the 1994 Plan. The Committee, in its sole discretion, selects the
participants from among those eligible to receive options and determines the
form, amount, vesting and timing of the options, except, however, that no
individual may be granted options for more than 525,000 shares in any fiscal
year of the Company. Under the 1994 Plan, the exercise price for the purchase of
shares subject to an ISO or NSO may not be less than one hundred percent (100%)
of the fair market value of the Common Shares at the time the ISO or NSO is
granted, except that the exercise price of ISOs granted to holders of more than
ten percent (10%) of the Common Shares must be at least one hundred ten percent
(110%) of the fair market value of the Common Shares on the date of grant.
<PAGE>
The term of an ISO or NSO may not exceed ten (10) years and, in the
case of an ISO granted to a holder of more than ten percent (10%) of the Common
Shares, the term cannot exceed five (5) years. An ISO or NSO is exercisable in
such installments, and upon such other terms (e.g., the attainment of specific
predetermined stock price goals or other performance goals) as prescribed by the
Committee.
ISOs and NSOs may not be assigned or transferred other than by will or
by the laws of descent and distribution. Any optionee who ceases to be employed
by the Company for any reason other than death, disability, or termination for
cause may exercise such ISOs or NSOs, to the extent exercisable, within three
(3) months after such termination. In the event of an optionee's death or
disability, ISOs and NSOs generally will be exercisable for one (1) year after
such death or disability. The Committee may vary these provisions at or after
the time of grant, but in no event may an ISO or NSO be exercised after the
expiration of the option exercise period established at the time of grant.
Non-Employee Director Stock Options
The 1994 Plan provides for automatic grants of stock options to each
member of the Board of Directors who is not also an employee of the Company. All
directors, except Messrs. Ehrlich and Strandberg, are non-employee directors.
A Non-Employee Director Stock Option ("NEDSO") for 6,500 shares is
granted to each non-employee director automatically every year on the date of
the Annual Meeting of Shareholders. Non-employee directors elected by the Board
to fill vacancies and newly created directorships in the interim between grant
dates will receive a prorated NEDSO based upon the number of full months such
non-employee director will serve between his election and the next grant date.
The exercise price of each NEDSO is the fair market value of such shares on the
date the NEDSO is granted.
Each NEDSO is exercisable as follows: fifty percent (50%) one (1) year
from the date of grant and one hundred percent (100%) two (2) years from the
date of grant. Each NEDSO terminates upon the expiration of five (5) years from
the date upon which such NEDSO was granted. A NEDSO is not transferable other
than by will or by the laws of descent and distribution.
In the event a non-employee director voluntarily terminates service on
the Board other than by reason of death or disability, such person's NEDSO (to
the extent exercisable upon such termination) will expire three (3) months from
the date of termination of service, provided that in no event may a NEDSO be
exercised beyond its original expiration date.
<PAGE>
Restricted Stock Awards
The 1994 Plan also permits the Committee to make awards of shares of
restricted stock to officers or key employees of the Company and its
subsidiaries. The award will set forth a restriction period during which the
grantee must remain in the employ of the Company and cannot sell, transfer,
assign or pledge the shares. If the grantee's employment terminates during the
period, all such shares still subject to restrictions will be forfeited by the
employee and reacquired by the Company.
The Committee may provide for the lapse of restrictions in installments
where deemed appropriate and it may also require the achievement of
predetermined performance objectives in order for such shares to vest. The
recipient, as owner of the awarded shares, shall have all other rights of a
shareholder, including the right to vote the shares and receive dividends and
other distributions during the restriction period. The restrictions may be
waived, in the discretion of the Committee, in the event of the employee's
retirement, permanent total disability, death or in cases of special
circumstances.
Payment of Exercise Price
Payment for shares purchased on the exercise of a stock option must be
made in full at the time the stock option is exercised. Payment may be made in
cash, with Common Shares of the Company owned by an optionee (provided the
optionee has held such shares for at least six (6) months) or by the delivery to
the Company of irrevocable instructions to deliver the stock certificates
representing the shares for which the option is being exercised directly to a
broker, and instructions to the broker to sell such shares and deliver promptly
to the Company the total exercise price in cash.
Tax Withholding
Whenever a NSO is exercised, a participant must also provide for the
payment of any federal, state or local taxes required by law to be withheld.
Such payment is usually in cash. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of the Company, including
shares retained from the option creating the tax obligation, valued at their
fair market value on the date of delivery. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the participant.
Option Adjustments
In the event of a recapitalization, stock split, stock dividend,
merger, reorganization, tender offer, sale of substantially all of the Company's
assets, dissolution or liquidation of the Company, change-in-control (as defined
in the 1994 Plan), or similar transaction affecting the Company's Common Shares,
the Committee, in its sole discretion, may, as to any outstanding options, make
such substitution or adjustment in the aggregate number of shares reserved for
issuance under the 1994 Plan and in the number and purchase price of shares
subject to such options as it may determine, make outstanding options fully
exercisable, or amend or terminate such options upon such terms and conditions
as it shall provide (which, in the case of the termination of the vested portion
of any option, shall require payment or other consideration which the Committee
deems equitable in the circumstances).
<PAGE>
Financing
The 1994 Plan permits the Company, in the discretion of the Committee,
to make a loan to any person holding an ISO, NSO or NEDSO (a "Participant") or
to guarantee the payment of a loan from a bank or others in an amount sufficient
to enable a Participant to exercise a stock option and to pay the income taxes
incurred upon the exercise of an option.
Each loan or guaranty may extend for a period of not more than five (5)
years, will be evidenced by a promissory note given by the Participant and for
which the Participant will have full personal liability, will bear interest at
such rate per annum as determined by the Committee, which interest will not be
less than the rate in effect for the Company's senior indebtedness to a
financial institution and will be payable at such times as determined by the
Committee but at least no less frequently than annually, will be secured by a
pledge of the shares purchased with the proceeds of the loan which shall be
deposited with the Company, and may contain such further terms and conditions
consistent with the 1994 Plan, including provisions of additional collateral
security, as may be determined by the Committee from time to time.
Amendment of the 1994 Plan
The Board may amend or terminate the 1994 Plan at any time, except that
it may not amend the 1994 Plan without shareholder approval where the absence of
such approval would cause the 1994 Plan to fail to comply with Rule 16b-3 under
the Exchange Act, the performance-based compensation requirements under Section
162(m) of the Code, Section 422 of the Code, the requirements of any securities
exchange on which the Common Shares of the Company are then listed, or any other
requirement of applicable law or regulation. The Board may not amend the section
of the 1994 Plan relating to NEDSOs more than once every six (6) months other
than to conform with changes in the Code or the rules and regulations
thereunder. The Committee may make non-material amendments to the 1994 Plan.
Term of the 1994 Plan
Options and awards of restricted shares may be granted under the 1994
Plan until November 7, 2004.
Federal Income Tax Consequences
-------------------------------
The following is a summary of the principal federal income tax
consequences associated with options granted under the 1994 Plan. It does not
describe all federal tax consequences under the 1994 Plan nor does it describe
foreign, state or local tax consequences.
(a) ISOs: The ISOs granted under the 1994 Plan are intended to meet the
requirements of Section 422 of the Code. Under the provisions of Section 422 and
the related regulations, an optionee will not be required to recognize any
income for federal income tax purposes at the time of grant of an ISO, nor is
the Company entitled to any deduction. The exercise of an ISO is also not a
taxable event, although the difference between the option price and the fair
market value on the date of exercise is an item of tax preference for purposes
of the alternative minimum tax. The taxation of gain or loss upon the sale of
stock acquired upon exercise of an ISO depends in part on whether the stock is
held for at least two (2) years from the date the option was granted and at
least one (1) year from the date the stock was transferred to the optionee (the
"ISO Holding Period").
<PAGE>
If the ISO Holding Period is not met, then, upon disposition of such
shares (a "disqualifying disposition"), the optionee will realize compensation,
taxable as ordinary income, in an amount equal to the excess of the fair market
value of the shares at the time of exercise over the option price, limited,
however, to the gain on sale. Any additional gain would be taxable as capital
gain (see below). If the optionee disposes of the shares in a disqualifying
disposition at a price that is below the fair market value of the shares at the
time the ISO was exercised and such disposition is a sale or exchange to an
unrelated party, the amount includible as compensation income to the optionee
will be limited to the excess of the amount received on the sale or exchange
over the exercise price.
If the optionee recognizes ordinary income upon a disqualifying
disposition, the Company generally will be entitled to a tax deduction in the
same amount.
If the ISO Holding Period is met, any gain upon the sale of the shares
is taxable as a long-term capital gain at a maximum rate of twenty percent
(20%).
If the ISO is exercised by delivery of previously owned common shares
in partial or full payment of the option price, no gain or loss will ordinarily
be recognized by the optionee on the transfer of such previously owned shares.
However, if the previously owned transferred shares were acquired through the
exercise of an ISO, the optionee may realize ordinary income with respect to the
shares used to exercise an ISO if such transferred shares have not been held for
the ISO Holding Period. If the optionee recognizes ordinary income upon a
disqualifying disposition, the Company generally will be entitled to a tax
deduction in the same amount. If an ISO is exercised through the payment of the
exercise price by the delivery of common shares, to the extent that the number
of shares received exceeds the number of shares surrendered, such excess shares
will be considered ISO stock with a zero basis.
(b) NSOs and NEDSOs: In the case of NSOs and NEDSOs granted under the
1994 Plan, no tax consequences result to the Company or the optionee upon
granting of the option. Rather, the optionee realizes compensation income only
when the option is exercised. The amount of income realized is equal to the
excess of the fair market value of the shares at the time the shares are
transferred over the exercise price paid by the optionee for the option. The
income realized by the optionee will be subject to income tax withholding in the
case of an employee.
If a NSO or NEDSO is exercised through payment of the exercise price by
the delivery of common shares, to the extent that the number of shares received
by the optionee exceeds the number of shares surrendered, ordinary income will
be realized by the optionee at that time only in the amount of the fair market
value of such excess shares, and the tax basis of such excess shares will be
such fair market value.
<PAGE>
Generally, the optionee's basis in the shares will be the exercise
price plus the compensation income realized at the time of exercise. The capital
gain or loss will be short-term if the shares are disposed of within one (1)
year after the option is exercised; such short-term gains are taxable as
ordinary income. If the shares were held more than one (1) year as of the sale
date, the gain is taxable as a long-term capital gain at a maximum rate of
twenty percent (20%).
The Company is generally entitled to a deductible compensation expense
in an amount equivalent to the amount included as compensation income to the
optionee. This deduction is allowed in the Company's taxable year in which the
income is included as compensation to the optionee.
(c) Restricted Stock: An awardee of restricted stock will generally
realize compensation income (subject to withholding) when and to the extent that
the restrictions on the shares lapse, as measured by the value of the shares at
the time of lapse. The awardee's holding period for the shares will not commence
until the date of lapse, and dividends paid during the restriction period will
constitute an addition to the awardee's tax basis in the shares.
In lieu of deferred recognition of income, the awardee may formally
elect, within thirty (30) days of the award, to realize compensation income at
the time of award, as measured by the fair market value of the shares on the
date of award determined without regard to the restrictions. The income realized
will constitute an addition to the tax basis of the shares. In the case of such
election, any appreciation (or depreciation) on the shares during the
restriction period will give rise to capital gain (or capital loss). In the
event that the awardee terminates employment during the restriction period and
forfeits his or her shares, no deduction may be claimed and the taxes paid on
award of the shares shall be forfeited.
The Company will be entitled to a federal tax deduction at the same
time and to the same extent that the awardee realizes compensation income.
The preceding discussion is based upon federal tax laws and regulations
in effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the relevant sections of the Code, their legislative
histories and the income tax regulations which interpret similar provisions of
the Code. Furthermore, the foregoing is only a general discussion of the federal
income tax aspects of the 1994 Plan and does not purport to be a complete
description of all federal income tax aspects of the 1994 Plan. Optionees may
also be subject to state and local taxes in connection with the grant or
exercise of options or the award of restricted shares granted under the 1994
Plan and the sale or other disposition of shares acquired upon the exercise of
the options. Each person receiving a grant of options or an award of restricted
shares should consult with his or her personal tax advisor regarding the
federal, state and local tax consequences of participating in the 1994 Plan.
<PAGE>
Plan Benefits
- -------------
The following table contains information on stock options granted under
the 1994 Plan for the Company's fiscal year January 1, 1998 through December 31,
1998.
<TABLE>
Stock Options Granted Under the 1994 Plan in 1998
<CAPTION>
Number of Shares Average Exercise Price
Name and Position Subject to Options of Options ($)
----------------- ------------------ ----------------------
<S> <C> <C>
Robert C. Strandberg ....................... -0- --
President and Chief Executive Officer
William J. Woodard ......................... -0- --
Vice President, Chief Financial Officer
and Treasurer
William L. Parnell, Jr. .................... -0- --
Vice President, Operations
Nigel P. Davis ............................. -0- --
Vice President, Sales - Europe, Middle
East, Africa
Brad R. Reddersen .......................... -0- --
Vice President, Chief Technology Officer
Current executive officers as a ............ 34,000 $ 9.570
group (15 persons including those named
above)
Non-Executive Director Group ............... 52,000 $11.875
(8 persons)
All employees, including all current ....... 305,500 $ 8.343
officers who are not executive officers, as
a group (136 employees)
</TABLE>
For information regarding restricted stock awards made to Mr.
Strandberg and Mr. Ehrlich in 1998, and to be made to them in 1999 and 2000, see
the material under the heading "EXECUTIVE OFFICER COMPENSATION - Employment
Contracts and Severance and Change-in-Control Arrangements" and "ELECTION OF
DIRECTORS - Compensation of Directors." In addition, in 1998, restricted stock
awards aggregating 7,500 shares were made to 8 employees.
Because options and restricted stock awards will be granted from time
to time by the Committee to those persons whom the Committee determines in its
discretion should receive grants, the benefits and amounts that may be received
in the future by persons eligible to participate in the 1994 Plan are not
presently determinable.
The closing price of the Company's Common Shares on The Nasdaq Stock
Market(R) on March 8, 1999 was $8.438.
<PAGE>
Vote Required
- -------------
Approval of the Amendment requires the affirmative vote of a majority
of the votes cast at the Annual Meeting. Abstentions and broker non-votes are
not considered as votes cast.
Unless authority to so vote is withheld, the persons named in the proxy
card intend to vote shares as to which proxies are received in favor of the
Amendment.
The Board of Directors recommends that the shareholders vote FOR the
approval of the Amendment.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP have been the Company's independent public
accountants since June 1985, and have been retained by the Board of Directors
for the current year.
It is anticipated that representatives of Arthur Andersen LLP will be
present at the Annual Meeting and they will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be presented at the
Annual Meeting, but if other matters properly come before the meeting, the
persons named as Proxies in the enclosed Proxy will vote according to their best
judgment. Shareholders are requested to date and sign the enclosed Proxy and to
mail it promptly in the enclosed postage-paid envelope. If you attend the Annual
Meeting, you may revoke your Proxy at that time and vote in person, if you wish.
Otherwise, your Proxy will be voted for you.
THE COMPANY WILL MAKE AVAILABLE AT NO COST, UPON THE WRITTEN REQUEST OF A
SHAREHOLDER, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998 (WITHOUT EXHIBITS) AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. COPIES OF EXHIBITS TO THE COMPANY'S FORM 10-K WILL BE MADE
AVAILABLE, UPON WRITTEN REQUEST OF A SHAREHOLDER AND THE PAYMENT TO THE COMPANY
OF THE REASONABLE COSTS OF REPRODUCTION AND MAILING.
By Order of the Board of Directors
/s/ Martin S. Weingarten
MARTIN S. WEINGARTEN
Secretary
Dated: April 7, 1999
Webster, New York
<PAGE>
PROXY PROXY PROXY
PSC INC.
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, MAY 12, 1999
The undersigned, revoking all prior proxies, hereby appoints Robert C.
Strandberg, Robert S. Ehrlich and Justin L. Vigdor, and any one of them with
full power of substitution, as proxy or proxies to vote for the undersigned, in
the name of the undersigned, all of the Common Shares of PSC Inc. (the
"Company") of the undersigned, as if the undersigned were personally present and
voting at the Company's Annual Meeting of Shareholders to be held at the Dryden
Theatre, George Eastman House, 900 East Avenue, Rochester, New York on May 12,
1999 at 9:00 a.m. (the "Annual Meeting"), and at any and all adjournments
thereof, upon the following matters:
(Continued and to be signed on reverse side)
================================================================================
<PAGE>
1. Election of three (3) directors, each to serve a three-year term.
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees listed
------ ------
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Jay M. Eastman Thomas J. Morgan Bert W. Wasserman
2. Proposal to approve the amendment to the 1994 Stock Option Plan.
FOR AGAINST ABSTAIN
----- ------- -------
3. Transaction of such other business as may properly come before the meeting or
any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ELECTION OF THE NOMINEES FOR DIRECTORS SPECIFIED IN THE PROXY STATEMENT AND
FOR PROPOSAL 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Dated: , 1999
------------------------
Signature
-------------------------------
Signature
-------------------------------
IMPORTANT: Sign the Proxy exactly as your name or names appear on your Common
Share certificate; in the case of Common Shares held in joint tenancy, each
joint tenant must sign. Fiduciaries should indicate their full titles and the
capacity in which they sign. Please complete, sign, date and return this Proxy
promptly in the enclosed envelope.
<PAGE>
EXHIBIT A
As Amended
PSC INC.
1994 STOCK OPTION PLAN
1. Title and Purpose. The plan described herein shall be known as the "PSC
Inc. 1994 Stock Option Plan" (the "Plan"). The purpose of the Plan is to advance
the interests of PSC Inc. (the "Company") and its shareholders by strengthening
the Company's ability to attract and retain individuals of training, experience,
and ability as officers, key employees, directors and consultants and to furnish
additional incentive to such key individuals to promote the Company's financial
success by providing them with an equity ownership in the Company commensurate
with Company performance, as reflected in increased shareholder value. It is the
intent of the Company that such individuals be encouraged to obtain and retain
an equity interest in the Company and each Participant will be specifically
apprised of said intent.
2.1 Definitions. As used herein, the following words or terms have the
meaning set forth below. 2.1 "Award" means an award granted to any key employee,
officer, consultant, or Non-Employee Director in accordance with the provisions
of the Plan in the form of Options or Restricted Stock.
2.2 "Award Agreement" means the written agreement evidencing each Award of
Restricted Stock granted under the Plan.
2.3 "Board" means the Board of Directors of the Company, except that,
whenever action is to be taken under the Plan with respect to a Reporting
Person, "Board" shall mean only such directors who are disinterested persons
within the meaning of Rule 16b-3 under the Exchange Act or any successor rule.
<PAGE>
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
2.5 "Committee" means the Compensation Committee of the Board or such other
committee as may be designated by the Board to administer the Plan. To the
extent that the Committee delegates its power to grant Options as permitted by
Section 4.2, all references in the Plan to the Committee's authority to grant
Options and determinations with respect thereto shall be deemed to include the
Committee's delegate or delegates.
2.6 "Common Stock" or "Stock" means the Company's $.01 par value Common
Shares.
2.7 "Company" means PSC Inc., a corporation established under the laws of
the State of New York, and its subsidiaries.
2.8 "Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
to exercise rights of the Participant in the event of the Participant's death.
In the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
2.9 "Disability" means a physical or mental condition of such a nature that
it would qualify a Participant for benefits under the Company's long-term
disability insurance plan.
2.10 "Disinterested Person" shall have the same meaning as defined in Rule
16b-3(c)(2) promulgated by the Securities and Exchange Commission pursuant to
its authority under the Exchange Act.
<PAGE>
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
2.12 "Fair Market Value" in the case of a share of Common Stock on a
particular day, means the closing price per share of the Common Stock on the
Nasdaq National Market for that day, provided at least one sale of said Stock
took place on such exchange on such date, and, if not, then on the basis of the
closing price on the last preceding date on which at least one sale on such
exchange did occur. If the Stock of the Company is not admitted to trading on
any of the aforesaid dates for which closing prices of the Stock are to be
determined, then reference shall be made to the fair market value of the Stock
on that date, as determined on such basis as shall be established or specified
for the purpose by the Committee.
2.13 "Incentive Stock Option" ("ISO") means an Option which is intended to
satisfy the requirements of Section 422 of the Code or any successor provision.
2.14 "Non-Employee Director" means a member of the Board who is not an
employee of the Company or a management consultant to the Company.
2.15 "Non-Employee Director Stock Option" ("NEDSO") means a Nonstatutory
Stock Option granted to a Non-Employee Director of the Company.
2.16 "Nonstatutory Stock Option" ("NSO") means an Option which is not
intended to qualify as an Incentive Stock Option.
2.17 "Option" means any Option granted under the Plan and includes an
Incentive Stock Option, a Nonstatutory Stock Option and a Non-Employee Director
Stock Option.
2.18 "Option Agreement" means the written agreement evidencing each Option
granted under the Plan.
<PAGE>
2.19 "Option Price" means the purchase price per share of Common Stock upon
the exercise of an Option.
2.20 "Outside Director" shall have the same meaning as defined or
interpreted for purposes of Section 162(m) of the Code.
2.21 "Participant" means an individual who has been granted an Award under
the Plan.
2.22 "Reporting Person" means a person required to file reports under
Section 16(a) of the Exchange Act or any successor statute.
2.23 "Restricted Stock" means Stock awarded under Section 9 of the Plan
which is subject to certain forfeiture provisions or restrictions on transfer.
2.24 "Retirement" means termination of employment with the Company if such
termination of employment constitutes normal retirement, early retirement,
disability retirement or other retirement as provided for at the time of such
termination of employment under the applicable retirement program then
maintained by the Company, provided that the Participant does not continue in
the employment of the Company.
3. Shares Subject to the Plan. Subject to adjustment as provided in Section
12 below, an aggregate of 2,750,000 shares of Common Stock shall be available
for Awards under the Plan. Such shares may be authorized but previously unissued
shares or shares reacquired by the Company, including shares purchased in the
open market. In the event that any outstanding Option granted under the Plan for
any reason expires or is terminated without having been exercised in full, or
any shares of Restricted Stock are forfeited, the shares allocable to the
unexercised portion of such Option or the forfeited portion of such Restricted
Stock shall (unless the Plan shall have been terminated) become available for
subsequent Awards under the Plan; provided that in no event may the number of
shares issued hereunder exceed the total number of shares reserved for issuance.
<PAGE>
4. Administration of the Plan.
------------------------------
4.1 The Plan shall be administered by the Committee. No individual may be
appointed to the Committee who is not both a Disinterested Person and an Outside
Director. Grants of NEDSOs and the amounts and nature of such Options shall be
automatic as described in Section 8. Subject to the preceding sentence and the
provisions set forth herein, the Committee shall have full authority to
determine the time or times at which, and the officers and key employees of the
Company to whom, Awards shall be granted under the Plan, to determine the
provisions of Awards, to interpret the terms of the Plan and of Awards made
under the Plan, to adopt, amend and rescind rules and guidelines for the
administration of the Plan and for its own acts and proceedings and to decide
all questions and settle all controversies and disputes which may arise in
connection with the Plan. The Committee shall report any action taken by it to
the meeting of the Board next following such action.
4.2 To the extent permitted by applicable law, the Committee may delegate
to one or more executive officers who are also directors of the Company the
power to grant Options to Participants who are not Reporting Persons at the time
of such Options and all determinations under the Plan with respect thereto,
provided that the Committee shall fix the maximum amount of Options for such
Participants as a group. Such delegate or delegates shall report any action
taken by it or them to the meeting of the Committee next following such action.
<PAGE>
4.3 The decision of the Committee on any matter as to which the Committee
is given authority shall be final and binding on all persons concerned. No
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
5. Indemnification of the Committee. In addition to such other rights of
indemnification as they may have as directors of the Company or as members of
the Committee or otherwise, the members of the Committee shall be indemnified by
the Company as and to the fullest extent permitted by law, including without
limitation, indemnification against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Awards
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is liable
for negligence, bad faith or misconduct in the performance of his duties;
provided that within 60 days after institution of such action, suit or
proceeding a Committee member shall, in writing, offer the Company the
opportunity, at its own expense, to handle and defend the same.
6. Types of Awards Under the Plan. Awards under the Plan may be in the form
of any one or more of the following:
Incentive Stock Options (ISOs)
Nonstatutory Stock Options (NSOs)
Non-Employee Director Stock Options (NEDSOs)
Restricted Stock
<PAGE>
All Awards shall be subject to the terms and conditions set forth herein and to
such other terms and conditions as may be established by the Committee.
Determinations by the Committee under the Plan including without limitation,
determinations of the Participants, the form, amount and timing of Awards , the
terms and provisions of Awards, and the agreements evidencing Awards, need not
be uniform and may be made selectively among Participants who receive, or are
eligible to receive, Awards hereunder, whether or not such Participants are
similarly situated. Except as otherwise provided by the Plan or a particular
Award, any determination with respect to an Award may be made by the Committee
at the time of grant of the Award or any time thereafter.
7. Incentive Stock Options and Nonstatutory Stock Options.
-------------------------------------------------------
7.1 Eligibility. Any officer or key employee of the Company shall be
eligible to receive an ISO or NSO under the Plan. In addition, any consultant to
the Company, who, in the opinion of the Committee, is in a position to have a
significant effect upon the Company's business, shall be eligible to receive a
NSO under the Plan. No ISO or NSO may be granted to an individual under this
Plan at a time when such individual is serving as a member of the Committee. An
employee owning stock possessing more than 10% of the total combined voting
power or value of all classes of stock of the Company or any parent or
subsidiary corporation ("Ten Percent Stockholder") is not eligible to receive an
ISO unless the option price is at least 110% of the Fair Market Value of the
Common Stock at the time the ISO is granted and the ISO option by its terms is
not exercisable more than five years from the date it is granted. Restricted
Stock and Common Stock which a grantee may purchase under outstanding Options
shall be treated as stock owned by such grantee for purposes of this
calculation. The Committee also may authorize the granting of ISOs and NSOs to
prospective employees. In the case of a prospective employee, the grant of an
ISO or NSO shall be on the condition of employment by the Company in a key
position, and the date of the grant of the ISO or NSO shall be the date such
employment begins or such later date as the Committee may have specified when
authorizing the grant.
7.2 Grant of ISOs and NSOs
----------------------
7.2.1 From time to time while the Plan is in effect, the Committee may, in
its absolute discretion, select from among persons eligible to receive ISOs and
NSOs (including persons to whom ISOs and NSOs were previously granted) those
persons to whom ISOs and NSOs are to be granted.
7.2.2 The Committee shall, in its absolute discretion, determine the number
of shares of Common Stock to be subject to each ISO and NSO made by it under the
Plan, provided, however, that the maximum number of shares of Common Stock with
respect to which ISOs and NSOs may be granted to any individual in any one
taxable year of the Company shall not exceed 525,000 shares (the "Maximum Annual
Grant").
7.2.3 The Committee shall determine at the time of each grant hereunder
whether the option is an ISO or NSO. The terms and conditions of ISOs shall be
subject to and comply with Section 422 of the Code or any successor provision,
and any regulations thereunder.
7.3 Option Price. The option price per share of Common Stock with respect
to each ISO and NSO, shall not be less than 100% of the Fair Market Value per
share at the time the ISO or NSO is granted.
7.4 Period of Options. An ISO and NSO shall be exercisable during such
period of time as the Committee may specify, subject, in the case of ISOs, to
any limitation required by the Code. No ISO or NSO shall be exercisable after
the expiration of 10 years from the date the ISO or NSO is granted.
<PAGE>
7.5 Vesting of Options. Each ISO and NSO shall be made exercisable at such
time or times as the Committee shall determine. In the case of an ISO or NSO
made exercisable in installments, the Committee may later determine to
accelerate the time at which one or more of such installments may be exercised.
The Committee may impose such conditions with respect to the exercise of ISOs
and NSOs, including conditions relating to the attainment of specific
pre-determined stock price goals or other performance criteria or conditions
relating to applicable federal or state tax or securities laws, as it considers
necessary or advisable and such conditions may differ with respect to each
Participant.
7.6 Limitation on Grant of ISOs. The aggregate Fair Market Value
(determined as of the time the ISO is granted) of the shares with respect to
which ISOs are exercisable for the first time by a grantee during any calendar
year (under all such plans of the Company) shall not exceed $100,000.
7.7 Options Non-Transferable. No ISO or NSO granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution. No
interest of a Participant under an ISO or NSO or the Plan shall be subject to
the attachment, execution, garnishment, sequestration, the laws of bankruptcy or
any other legal equitable process. During the lifetime of the Participant, ISOs
and NSOs shall be exercisable only by the Participant who received them.
<PAGE>
7.8 Termination of Employment.
--------------------------
7.8.1 Death During or After Employment. If a Participant dies during
employment or within three (3) months after terminating employment, and at a
time when the Participant is entitled to exercise an ISO or NSO, then at any
time or times within one year after death (or such greater or lesser period
after death as may be specified in the documentation evidencing the ISO or NSO)
such ISO or NSO may be exercised, but only as to any or all of those shares
which the Participant was entitled to purchase immediately prior to the
Participant's death (unless the Committee within thirty (30) days after the
Participant's death shall have accelerated the vesting of the ISO or NSO). ISOs
or NSOs exercisable after death may be exercised by the Participant's Designated
Beneficiary, and except as so exercised, shall expire at the end of the
specified post-death exercise period. In no event, however, may any ISO or NSO
granted under the Plan be exercised after the expiration of the ISO or NSO
exercise period established at the time of grant.
7.8.2 Retirement or Disability. In the event of a Participant's Retirement
or Disability at a time when the Participant is entitled to exercise an ISO or
NSO, then within three months after Retirement or one year after Disability (or
such greater or lesser period after Retirement or Disability as may be specified
in the documentation evidencing the ISO or NSO) the Participant may exercise
such ISO or NSO only as to those shares which the Participant was entitled to
purchase immediately prior to such Retirement or Disability (unless the
Committee within thirty (30) days after the Participant's Retirement or
Disability shall have accelerated the vesting of the ISO or NSO). If the
Participant dies within the specified post-Retirement or post-Disability
exercise period, the Participant's ISO or NSO may be exercised by the
Participant's Designated Beneficiary, to the same extent as if the deceased
Participant had survived, during the greater of one year from the date of his
death or, if a post-Retirement or post-Disability exercise period greater than
three months or one year was specified in the ISO or NSO documentation, the
remainder of such longer period.
Except as exercised within the applicable period described above, each ISO
or NSO shall expire at the end of such period. In no event, however, may any ISO
or NSO granted under the Plan be exercised after the expiration of the ISO or
NSO exercise period established at the time of grant.
7.8.3 Other Terminations of Employment. If the employment of a Participant
is terminated for cause, the Participant's option rights, both accrued and
future, under any then outstanding ISO or NSO shall be forfeited and terminated
immediately and may not thereafter be exercised to any extent.
If the employment of a Participant is terminated for any reason other than
cause, death, Retirement or Disability at a time when the Participant is
entitled to exercise an ISO or NSO, then within three months after such
termination of employment (or such greater or lesser period after termination of
employment as may be specified in the documentation evidencing the ISO or NSO),
the Participant may exercise such ISO or NSO only as to those shares which the
Participant was entitled to purchase immediately prior to such termination of
employment (unless the Committee within thirty (30) days after the Participant's
termination of employment shall have accelerated the vesting of the ISO or NSO).
If the Participant dies within the specified post-termination of employment
exercise period, the Participant's ISO or NSO may be exercised by the
Participant's Designated Beneficiary, to the same extent as if the deceased
Participant had survived, during a period equal to the greater of one year from
the date of the Participant's death or the remainder of such specified
post-termination of employment exercise period.
If the Committee so decides, an ISO or NSO may provide that a leave of
absence granted by the Company is not a termination of employment for the
purpose of this subsection 7.8.3 and, in the absence of such a provision, the
Committee may, in any particular case, determine that such a leave of absence is
not a termination of employment for such purpose.
<PAGE>
8. Non-Employee Director Stock Options.
------------------------------------
8.1 Eligibility. Each Non-Employee Director of the Board shall receive a
NEDSO as determined hereunder without further action by the Board or Committee.
8.2 Option Grant Dates. Subject to the approval of the Plan by the
shareholders at the 1995 Annual Meeting, a NEDSO shall be granted to each
Non-Employee Director automatically every year on the date of the Annual Meeting
of Shareholders, commencing on the date of the 1995 Annual Meeting of
Shareholders. Non-Employee Directors elected by the Board to fill vacancies and
newly created directorships in the interim between grant dates will receive a
prorated NEDSO based upon the number of full months such Non-Employee Director
will serve between his election and the next grant date.
8.3 Option Formula. Each Non-Employee Director shall receive a NEDSO to
purchase 3,167 shares of Stock on each grant date, without further action by the
Board or Committee. Notwithstanding the foregoing sentence and without further
action by the Board or Committee, each Non-Employee Director shall receive a
NEDSO to purchase 6,500 shares of Stock on each grant date commencing on the
first grant date on which a Non-Employee Director does not receive a stock
option under the Company's 1987 Stock Option Plan.
8.4 Period of Options. Except as otherwise provided herein, each NEDSO will
be exercisable as follows: 50% one year from the date of grant and 100% two
years from the date of grant. All NEDSOs shall terminate upon the expiration of
five years from the date upon which such NEDSOs were granted (subject to prior
termination as hereinafter provided).
8.5 Option Price. The price per share of Stock at which a NEDSO may be
exercised shall be equal to 100% of the Fair Market Value of the price per share
of Stock on the date the NEDSO is granted.
<PAGE>
8.6 Options Non-Transferable. No NEDSO granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution. No
interest of a Non-Employee Director under a NEDSO or the Plan shall be subject
to attachment, execution, garnishment, sequestration, the laws of bankruptcy or
any other legal or equitable process. During the lifetime of the Non-Employee
Director, NEDSOs shall be exercisable only by the Non-Employee Director who
received them.
8.7 Death or Disability of Non-Employee Director. If a Non-Employee
Director shall terminate performance of services for the Company because of
death or Disability, or shall die after termination of performance of services
for the Company but while the Non-Employee Director could have exercised a
NEDSO, that NEDSO may be exercised, to the extent that the Non-Employee Director
was entitled to do so at the date of termination of performance of services, at
any time, or from time to time, within one year after the date of death or
termination of performance of services because of Disability, but in no event
later than the expiration date specified pursuant to Section 8.4. In the case of
death, exercise may be made by the Non-Employee Director's Designated
Beneficiary.
8.8 Termination of Services as Non-Employee Director. If a Non-Employee
Director's performance of services for the Company shall terminate for any
reason other than death or Disability, the Non-Employee Director must exercise
such NEDSO, to the extent the Non-Employee Director was entitled to do so at the
date of termination of performance of services, at any time, or from time to
time, within three months after the date of termination of performance of
services, but in no event later than the expiration date specified pursuant to
Section 8.4; provided, however, in the case of termination of performance of
services for cause, the NEDSO shall cease to be exercisable on the date of such
termination.
<PAGE>
9. General Provisions Applicable to All Options.
------------------------------------------------
9.1 Exercise of Options; Payment of Option Price. Options may be exercised
(in full or in part) only by written notice of exercise delivered to the Company
at its principal executive office, accompanied by payment equal to the full
Option Price for the shares of Stock which are exercised. The Option Price of
each share of Common Stock purchased upon exercise of an Option shall be paid in
full in cash at the time of exercise, with shares of Common Stock owned by the
Participant, by delivering to the Company (i) irrevocable instructions to
deliver the stock certificates representing the shares of Stock for which the
Option is being exercised, directly to a broker, and (ii) instructions to the
broker to sell such shares of Stock and promptly deliver to the Company the
portion of the proceeds equal to the total Option Price, or in any combination
thereof. For purposes of making payment in shares of Common Stock, such shares
shall be valued at their Fair Market Value on the date of exercise of the Option
and shall have been held by the Participant for a period of at least six (6)
months.
9.2 Documentation of Options. Neither anything contained in the Plan nor in
any resolutions adopted or to be adopted by the Board or the Shareholders nor
any action taken by the Committee shall constitute the granting of any Option.
The granting of an Option shall take place only when a written Option Agreement
shall have been duly executed and delivered by the Company and the Participant.
Each Option Agreement shall specify the terms and conditions of the Option and
contain such other terms and conditions not inconsistent with the provisions of
the Plan as the Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles. The Option Agreement with respect to ISOs shall provide,
among other things, that the Participant shall advise the Company immediately
upon any sale or transfer of shares of Common Stock received upon exercise of
the Option to the extent such sale or transfer takes place prior to the later of
two (2) years from the date of grant or one (1) year from the date of exercise.
9.3 Tax Withholding. The Committee shall require, on such terms as it deems
necessary, that the Participant pay to the Company or make other satisfactory
provision for payment of, any federal, state or local taxes required by law to
be withheld in respect to Options under the Plan. In the Committee's discretion,
such tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the Option creating the tax obligation, valued at
their Fair Market Value on the date of delivery. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Participant.
<PAGE>
9.4 Amendment of Options. The Committee may modify or amend any outstanding
Option if it determines, in its sole discretion, that amendment is necessary or
advisable in the light of any addition to or change in the Code or in the
regulations issued thereunder, or any federal or state securities laws or other
law or regulation, which change occurs after the date of grant of the Option and
by its terms applies to the Option. In addition, subject to the terms and
conditions and within the limitations of the Plan, the Committee may modify,
amend, extend or renew outstanding Options granted under the Plan, or accept the
surrender of outstanding Options under the Plan or under any other stock option
plan of the Company (to the extent not theretofore exercised) and authorize the
granting of new Options under the Plan in substitution therefor (to the extent
not theretofore exercised). No amendment of an outstanding Option, however, may,
without the consent of the Participant, make any changes which would adversely
affect the rights of such Participant.
10. Financing. In the discretion of the Committee, the Company may
guarantee bank loans or make loans to a Participant to finance the Option Price
of the shares purchased upon the exercise of an Option and also to finance
payment by the Participant of income taxes incurred with such exercise upon the
following terms and conditions:
10.1 Term of Loan. Each loan or guaranty will extend for a period of not
more than five (5) years.
10.2 Promissory Note. Each loan will be evidenced by a promissory note
given by the Participant and for which the Participant shall have full personal
liability. Each such note shall bear interest at such rate per annum as
determined by the Committee which interest shall be not less than the rate in
effect for the Company's senior indebtedness to a financial institution and
shall be payable at such times as determined by the Committee but at least no
less frequently than annually. Payments of principal, or installments thereof,
need not be required by the terms of the notes, but may be required thereby if
so determined by the Committee. Principal and interest may be prepaid in whole
or in part, from time to time, without penalty. Each such note shall in all
events become due and payable without demand on the fifth anniversary of the
date of the note, or upon the Participant's failure to pay any installment of
principal and interest when due or within 30 days thereafter, or immediately
upon the insolvency or bankruptcy of the Participant, or within 30 days from the
date of termination of the Participant's employment or directorship or office
for whatever cause, excepting only death, Disability and Retirement. In the
event of the death of a Participant, such note shall become due and payable
without demand nine months from the date of such death. In the event of the
Disability or Retirement of a Participant his or her note shall become due and
payable without demand three months from the date of such permanent disability
or approved retirement.
<PAGE>
10.3 Pledge of Shares. Each note or guaranty will be secured by a pledge of
the shares purchased with the proceeds of the loan which shall be deposited with
the Company. Dividends paid on shares subject to the pledge shall be first
applied against interest charges due upon the bank loan, or the note secured,
with any balance applied to reduce the principal thereof. Regardless of any
other provision of this Plan, shares pledged to secure the guaranty or note may
not be withdrawn from the pledge unless the proportionate amount of the
guaranteed bank loan or the note secured thereby shall be immediately repaid.
10.4 Other Terms and Conditions. All such notes, guaranty and pledges may
contain such further terms and conditions consistent with this Plan, including
provisions for additional collateral security, as may be determined by the
Committee from time to time.
10.5 Approval by Shareholders. Approval and adoption of this Plan by the
shareholders of the Company shall constitute full and complete authorization for
any guaranty, loan, or interest reimbursement made to or on behalf of
Participant hereunder.
10.6 Loans to Non-Employee Directors and Consultants. Notwithstanding
anything contained herein to the contrary, each note or guaranty representing a
loan or guaranty to a Non-Employee Director or Consultant shall be secured by a
pledge of shares equal to twice their maximum loan value as defined in Federal
Reserve Regulation G (12 CFR Part 207) or by such other or additional collateral
security as the Committee deems appropriate and in the best interests of the
Company.
<PAGE>
11. Restricted Stock.
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11.1 The Committee may, in its discretion, make Awards of Restricted Stock
to such officers and key employees as may be selected in the manner provided in
Section 6 of this Plan. Such Awards shall be evidenced by an Award Agreement in
such form, and containing such terms and conditions as are not inconsistent with
this Plan, as the Committee, shall, from time to time, determine. Restricted
Stock awarded hereunder shall be subject to such restrictions as may be
determined by the Committee and set out in the Award Agreement.
11.2 Restricted Stock shall be subject to a restriction period (after which
restrictions will lapse) which shall mean a period commencing on the date the
Award is granted and ending on such date as the Committee shall determine (the
"Restriction Period"). The Committee may provide for the lapse of restrictions
in installments where deemed appropriate.
11.3 Except when the Committee determines otherwise pursuant to Section
11.5, if a Participant terminates employment with the Company for any reason
before the expiration of the Restriction Period, all shares of Restricted Stock
still subject to the restriction shall be forfeited by the Participant and shall
be reacquired by the Company.
11.4 Except as otherwise provided in this Section 11, no shares of
Restricted Stock received by a Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
11.5 In cases of death, Disability or Retirement or in cases of special
circumstances, the Committee may, in its sole discretion when it finds that a
waiver would be in the best interests of the Company, elect to waive any or all
remaining restrictions with respect to such Participant's Restricted Stock.
<PAGE>
11.6 The Committee may require, under such terms and conditions as it deems
appropriate or desirable, that the certificates of Stock delivered under the
Plan may be held in custody by a bank or other institution, or that the Company
may itself hold such shares in custody until the Restriction Period expires or
until restrictions thereon otherwise lapse, and may require, as a condition of
any Award of Restricted Stock that the Participant shall have delivered a stock
power endorsed in blank relating to the Restricted Stock.
11.7 Subject to Section 11.6, each Participant entitled to receive
Restricted Stock under the Plan shall be issued a certificate for the shares of
Stock. Such certificate shall be registered in the name of the Participant and
shall bear an appropriate legend reciting the terms, conditions and
restrictions, if any, applicable to such Award and shall be subject to
appropriate stop-transfer orders.
11.8 The restrictions imposed under this Section 11 shall apply as well to
all shares or other securities issued in respect of the Restricted Stock in
connection with any stock split, stock dividend, recapitalization,
reclassification, merger, consolidation or reorganization, but such restrictions
shall expire or terminate at such time or times as may be specified therefor in
the Award Agreement.
12. Adjustment Upon Changes in Capitalization; Changes in Control.
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12.1 If the outstanding shares of Stock of the Company as a whole are
increased, decreased, changed into, or exchanged for, a different number or kind
of shares or securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure, or
amendment to the certificate of incorporation of the Company or otherwise, an
appropriate and proportionate adjustment, as determined by the Committee shall
be made to the number and kind of shares subject to this Plan, and to the
number, kind, and per share Option Price of shares subject to unexercised
Options granted prior to any such change. Any such adjustment shall be made
without a change in the aggregate purchase price of the shares of Stock subject
to the unexercised portion of any Option.
<PAGE>
12.2 In the event of any tender offer or exchange offer (other than an
offer by the Company) for the Company's Stock, or a dissolution or liquidation
of the Company, or a merger or consolidation or similar transaction in which the
Company is not the surviving corporation, or a sale, exchange or other
disposition of all or substantially all of the Company assets, or a "change in
control" of the Company (as such term is defined in Section 12.3 hereinafter),
the Committee, in its sole discretion, may, as to any outstanding Options, make
such substitution or adjustment in the aggregate number of shares reserved for
issuance under the Plan and in the number and per share Option Price (if any) of
shares subject to such Options as it may determine, make outstanding Options
fully exercisable, or amend or terminate such Options upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any Option, shall require payment or other consideration which
the Committee deems equitable in the circumstances).
12.3 For the purposes of this Plan, a "change in control" of the Company
shall be deemed to have occurred if (i) any "person" (as that term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the "beneficial
owner" (as that term is defined by the Securities and Exchange Commission for
purposes of Section 13(d) of the Exchange Act), directly or indirectly, of more
than 20% of the outstanding voting securities of the Company or its successors;
or (ii) during any period of two consecutive years a majority of the Board of
Directors no longer consists of individuals who were members of the Board of
Directors at the beginning of such period, unless the election of each director
who was not a director at the beginning of the period was approved by a vote of
at least two-thirds of the directors still in office who were directors at the
beginning of the period.
12.4 The restrictions applicable to Awards of Restricted Stock issued
pursuant to Section 11 shall lapse upon the occurrence of an event specified in
Section 12.2 and the Company shall issue stock certificates without a
restrictive legend.
13. Miscellaneous.
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13.1 No Right to Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to terminate the employment of a Participant free from any
liability or claim under the Plan except as may be expressly provided in the
applicable Award.
<PAGE>
13.2 No Right to Continue as a Director. The granting of a NEDSO shall not
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a Non-Employee Director for any period of time.
13.3 No Rights as Shareholder. Subject to the provisions of the applicable
Option, no Participant or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of Common Stock to be distributed under
the Plan until such person becomes the holder thereof.
13.4 No Fractional Shares. No fractional shares of Common Stock shall be
issued under the Plan, and cash shall be paid in lieu of any fractional shares
in settlement of Options granted under the Plan.
13.5 Unfunded Plan. The Plan shall be unfunded, shall not create (or be
construed to create) a trust or a separate fund or funds, and shall not
establish any fiduciary relationship between the Company and any Participant or
other person.
13.6 Successors and Assigns. The Plan shall be binding on all successors
and assigns of the Participant, including without limitation the Participant's
Designated Beneficiary or any receiver or trustee in bankruptcy or
representative of the Participant's creditors.
13.7 Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of Awards under the Plan, and the obligation of the Company to transfer
shares under such Awards shall be subject to all applicable federal and state
laws, rules and regulations, including those related to disclosure of financial
and other information to Participants, and to any approvals by any government or
regulatory agency as may be required. The Company shall not be required to issue
or deliver any certificates for shares of Stock prior to (a) the listing of such
shares on any stock exchange on which the Stock may then be listed, where such
listing is required under the rules or regulations of such exchange, and (b) the
compliance with applicable federal and state securities laws and regulations
relating to the issuance and delivery of such certificates; provided, however,
that the Company shall make all reasonable efforts to so list such shares and to
comply with such laws and regulations.
13.8 Compliance with Rule 16b-3. With respect to persons subject to Section
16 of the Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of the Plan or action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
<PAGE>
13.9 Amendment of Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, except that it may not
amend the Plan without shareholder approval where the absence of such approval
would cause the Plan to fail to comply with Rule 16b-3 under the Exchange Act,
the performance-based compensation requirements under Section 162(m) of the
Code, Section 422 of the Code, the requirements of any securities exchange on
which the shares of Common Stock are then listed, or any other requirement of
applicable law or regulation. The Board may not amend Section 8 more than once
every six months, other than to conform with changes in the Code or the rules
and regulations thereunder. The Committee may make non-material amendments to
the Plan. No amendment shall apply to adversely affect any Participant with
respect to whom an Award shall heretofore have been granted.
13.10 Governing Law. To the extent not superseded by federal
law, the provisions of the Plan shall be governed by and interpreted in
accordance with the laws of the State of New York.
14. Effective Date of Plan; Term of Plan. The Plan shall become
effective as of the date on which the Board adopts the Plan, subject, however,
to the approval by the shareholders at the 1995 Annual Meeting of Shareholders.
The Plan shall terminate on November 7, 2004 and no Awards shall be granted
under the Plan after that date, provided, however, that the Plan and all Awards
granted under the Plan prior to such date shall remain in effect until such
Awards have been satisfied or terminated in accordance with the Plan and the
terms of such Awards.
Date Plan adopted by Board of Directors: November 8, 1994
Date Plan approved by Shareholders: May 3, 1995
Date Amendment adopted by Board of Directors: February 2, 1999
Date Amendment approved by Shareholders:
