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 ----
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 Rule 14a-11(c) or Rule 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.
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------ 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
December 6, 2000
TO THE SHAREHOLDERS OF PSC INC.:
The annual meeting of shareholders of PSC Inc. (the "Company") will be
held on December 6, 2000 at 9:30 a.m. at the Helmsley Park Lane Hotel, 36
Central Park South, New York, New York (the "Annual Meeting") for the following
purposes:
1. To elect two (2) directors, each to serve a three-year term.
2. To consider and act upon a proposal to approve the Company's 2000 Employee
Stock Purchase Plan.
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 October 23,
2000 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: November 8, 2000
Webster, New York
<PAGE>
PSC Inc.
675 Basket Road
Webster, New York 14580
PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF SHAREHOLDERS
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 December 6, 2000 at the Helmsley Park Lane Hotel, 36
Central Park South, New York, New York, at 9:30 a.m., Eastern Standard Time, and
at any adjournment or postponement 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 November 8, 2000.
GENERAL INFORMATION
Voting at the Annual Meeting; Record Date
-----------------------------------------
Only shareholders of record at the close of business on October 23,
2000 (the "Record Date") are 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 12,131,695 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 13,506,695 votes; the holders of Common Shares having 89.82% of the
votes entitled to be cast and the holders of Series A Preferred Shares having
10.18% of the votes entitled to be cast.
<PAGE>
Solicitation and Revocation
---------------------------
Proxies in the form enclosed are solicited by and on behalf of the
Board. The persons named in the proxy have been designated as proxies by the
Board. Any proxy given pursuant to such solicitation and received in time for
the Annual Meeting will be voted as specified in such proxy.
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 listed below under Proxy Item 1, FOR the proposal to approve the
Company's Employee Stock Purchase Plan under Proxy Item 2, and, in the
discretion of the proxies named on the proxy card, with respect to any other
matters properly brought before the meeting and any adjournments thereof. The
Board knows of no other matters to be presented at the Annual Meeting. If any
other matters are presented at the Annual Meeting upon which a vote properly may
be taken, the persons named in the proxy will vote the proxies in accordance
with their best judgment.
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. Attendance by a shareholder
at the Annual Meeting does not alone serve to revoke his or her proxy.
Quorum; Required Vote; Abstentions and Non-Votes
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The presence, in person or by proxy, of the holders of a majority of
the shares entitled to be voted at the Annual Meeting is necessary to constitute
a quorum at the Annual Meeting; Shares that are voted "FOR," "AGAINST" or
"ABSTAIN" from a matter are treated as being present at the meeting for purposes
of establishing a quorum and are also treated as being entitled to vote on the
subject matter (the "Votes Cast") with respect to such matter. While abstentions
and broker non-votes will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, with respect to proposals
set forth in this Proxy Statement, they will not be considered as Votes Cast
and, accordingly, will not offset the determination as to whether the requisite
majority of Votes Cast has been obtained with respect to a particular matter.
A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner.
<PAGE>
Expenses of 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, letter, facsimile or
other means of communication. 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.
Procedure for Submitting Shareholder 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. It is anticipated that the 2001 Annual Meeting of Shareholders will be
held on May 16, 2001.
Shareholders of the Company also may submit proper 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 2001 proxy material, a shareholder's
proposal must be received not later than January 28, 2001 by the Secretary of
the Company at the principal office of the Company, 675 Basket Road, Webster,
New York 14580.
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 2000 Annual Meeting. For the
2001 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 16, 2001.
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 2000 Annual Meeting. For the 2001 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 16, 2001.
<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 October 23, 2000 (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 current 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 current directors, director nominees,
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 Percentage 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 1,990,860 14.54%
L. Michael Hone Common Shares 908,912 (2) 7.11%
502 Brookside Drive
Andover, MA 01810
Whelan & Gratny Capital Common Shares 733,587 6.05%
Management (3)
611 Santa Cruz Avenue, Suite C
Menlo Park, CA 94025
Stadium Capital Management, LLC Common Shares 723,300 5.96%
and related parties (4)
430 Cowper Street - Suite 200
Palo Alto, CA 94301
</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 426,501
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
9,750 Common Shares which are subject to options currently exercisable.
<PAGE>
(2) Includes 645,833 shares subject to stock options held by Mr. Hone that
are currently exercisable.
(3) Based on Schedule 13F filed with the Securities and Exchange Commission
on October 25, 2000, Whelan & Gratny Capital Management reported that
it had sole voting power and sole investment power with respect to
733,587 shares. Whelan & Gratny Capital Management is an institutional
investment manager.
(4) Based on Schedule 13G filed on April 20, 2000, the Company has been
advised that Stadium Capital Management, LLC, a Delaware limited
liability company ("SCM"), has shared voting power and shared
dispositive power with respect to 723,300 shares; Stadium Capital
Partners, L.P., a California limited partnership ("SCP"), has shared
voting power and shared dispositive power with respect to 723,300
shares; Alexander M. Seaver ("Seaver") has shared voting power and
shared dispositive power with respect to 723,300 shares and Bradley R.
Kent ("Kent") has shared voting power and shared dispositive power with
respect to 723,300 shares. SCM is an investment advisor whose clients
have the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the shares. SCP is a
client of SCM. Seaver and Kent are the managers of SCM.
<TABLE>
Security Ownership of Directors and Executive Officers
------------------------------------------------------
<CAPTION>
Name of Beneficial Common Shares Percent of Common Shares
Owner Beneficially Owned Beneficially Owned
--------------------------- ------------------ ------------------------
<S> <C> <C>
Jay M. Eastman* ........................... 128,850 (1)(2) 1.05%
Robert S. Ehrlich* ........................ 401,270 (1)(3) 3.26%
Donald K. Hess* ........................... 47,645 (1) +
Thomas J. Morgan* ......................... 29,380 (1) +
James C. O'Shea* .......................... 36,674 (1) +
Terry R. Peets** .......................... --
Jack E. Rosenfeld* ........................ 58,152 (1)(4) +
Roberto Tunioli* .......................... --
Justin L. Vigdor* ......................... 31,244 (1) +
Bert W. Wasserman* ........................ 93,250 (1) +
Robert C. Strandberg ...................... 470,581 (1) 3.75%
Linda J. Miller ........................... 6,875 +
William L. Parnell, Jr .................... 54,995 (1) +
Brad R. Reddersen ......................... 4,962 (1) +
William J. Woodard ........................ 113,728 (1) +
All current directors, director nominees and
executive officers as a group
including those named above (27 persons) 1,716,475 (5) 12.87%
----------------------------------------
* Current member of the Board of Directors of the Company
** Nominee to the Board of Directors
+ Less than 1%
</TABLE>
<PAGE>
(1) Includes the following Common Shares subject to acquisition by the
exercise of stock options which are, or within 60 days after October
23, 2000 will be, exercisable and are therefore deemed under Securities
and Exchange Commission regulations to be beneficially owned: Messrs.
Hess, Morgan, O'Shea, Rosenfeld and Vigdor, 22,750 shares each; Mr.
Ehrlich, 169,770 shares; Dr. Eastman, 115,328 shares; Mr. Parnell,
46,250 shares; Mr. Strandberg, 423,846 shares; Mr. Wasserman, 43,250
shares; Mr. Woodard, 91,980 shares.
(2) Includes 3,121 shares held by Dr. Eastman's wife, and 7,232 shares held
by his son.
(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 con-
trol 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 13,125 restricted shares (see "ELECTION OF DIRECTORS
- Compensation of Directors").
(4) 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.
(5) Includes 1,203,382 shares subject to acquisition by the exercise of
stock options which are, or within 60 days after October 23, 2000 will
be, exercisable.
<PAGE>
ELECTION OF DIRECTORS
(Proxy Item 1)
The Company's Restated Certificate of Incorporation and Bylaws provide that
the number of directors on the Board shall be fixed from time to time by the
Board but shall not be less than nine nor more than 20 persons. The number of
members constituting the Board of Directors is currently fixed at ten. However,
as a result of the resignation of Robert C. Strandberg as President and Chief
Executive Officer and as a director on August 22, 2000, there is currently a
vacancy on the Board and the Board currently consists of nine persons.
In accordance with the Company's Restated Certificate of Incorporation and
Bylaws, the members of the Board of Directors are divided into three classes.
The terms of office of the members of one class of directors expire each year in
rotation, so that the members of one class are elected at each Annual Meeting to
serve full three-year terms, or until their successors are elected and
qualified. Each class consists, as nearly as may be possible, of one-third of
the total number of directors constituting the entire Board of Directors.
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. On June 5, 2000, the
holders of Series A Preferred Shares elected Roberto Tunioli as the Series A
Director to fill the vacancy caused by the resignation of Dr. Romano Volta, who
had been the Series A Director since September 1997.
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 - Procedure for
Submitting Shareholder Proposals."
At this Annual Meeting, two persons will be nominated to serve until the
Annual Meeting in 2003 and until their successors are elected and shall have
qualified. The two nominees are James C. O'Shea and Terry R. Peets. Mr. O'Shea
is currently a director of the Company. Mr. Peets, who currently is not a
director of the Company, has been nominated by the Board of Directors for
election as a director. Donald K. Hess and Justin L. Vigdor, each of whose terms
as a director expires at this Annual Meeting, will retire from the Board
effective December 6, 2000. Mr. Hess has served on the Company's Board of
Directors since 1987, and Mr. Vigdor has served on the Board of Directors since
1989. The Company is indebted to each of them for their guidance and support.
<PAGE>
Following the Annual Meeting, there will remain two vacancies on the Board.
When a new Chief Executive Officer has been selected by the Board, it is the
Board's intent to also appoint such person to the Board. In addition, the Board
is currently considering potential candidates to fill the other vacancy on the
Board. Accordingly, the Board has not taken any action to reduce the size of the
Board.
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 two
nominees standing for election. Unless otherwise specified by the shareholders,
it is intended that the shares represented by proxies will be voted for the two
nominees. Proxies for the Annual Meeting may not be voted for more than the two
nominees named.
Both nominees have consented to serve if elected, but if one or both 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. That means
the two nominees will be elected if they receive more affirmative votes than any
other nominees.
The Board of Directors recommends that shareholders vote FOR the nominees
named in this Proxy Statement.
<PAGE>
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. The
ages of the directors are as of December 6, 2000.
Nominees for directors to be elected by holders of Voting Shares for a
--------------------------------------------------------------------------------
three-year term expiring in 2003:
---------------------------------
James C. O'Shea, age 55, 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.
Terry R. Peets, age 56, is being elected to the Board for the first time.
Mr. Peets has been Chairman of the Board of Bruno's Supermarkets, Inc. since
1999. He served as President, Chief Executive Officer and director of PIA
Merchandising Company, Inc., a provider of nationwide retail merchandising
services, from 1997 until 1999, and as Executive Vice President of The Vons
Companies, Inc., a supermarket chain in Southern California, from 1995 until
1997. From 1977 until 1995, Mr. Peets served in various sales, marketing and
operation roles for Ralphs Grocery Co., the most recent of which was as
Executive Vice President (1993-1995). Mr. Peets is also a director of Diamond
Brands Inc., a consumer products company, and Super Markets Online, a division
of Catalina Marketing Corporation, a provider of in-store electronic marketing
services.
Directors whose terms expire in 2001:
-------------------------------------
Robert S. Ehrlich, age 62, has served as a director of the Company since
1983, has been Chairman of the Board of Directors since April 1997 and has been
interim Co-Chief Executive Officer since August 22, 2000. 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 Electric Fuel Corporation ("EFC") since January 1993
and Chief Financial Officer of EFC since May 1991. EFC is an Israel-based
company engaged in the research, development and commercialization of advanced
zinc air battery products.
Jack E. Rosenfeld, age 62, 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 Thane
International, an electronic retailer.
<PAGE>
Roberto Tunioli, age 42, is the Series A Director and has served as a
director of the Company since June 2000. Mr. Tunioli is the President and Chief
Executive Officer of Datalogic S.p.A., an Italian corporation which manufactures
auto identification and data collection systems. Mr. Tunioli is a member of the
Board of Directors of I.E.S. S.p.A., an automation components company in
Bologna, Italy, Peppercom S.p.A., a telecom company in Bologna, Italy, and Hydra
S.p.A., an industrial and real estate holding company in Bologna, Italy.
Directors whose terms expire in 2002:
-------------------------------------
Dr. Jay M. Eastman, age 52, 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 EFC and
Centennial Technologies, Inc., Wilmington, Massachusetts, a manufacturer of PC
card-based solutions to original equipment manufacturers.
Thomas J. Morgan, age 64, 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 Tru II Form, Inc., Seal Beach, California, a
woman's fitness studio.
Bert W. Wasserman, age 67, has served as a director of the Company since
May 1999 and as interim Co-Chief Executive Officer since August 22, 2000. 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.
<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 1999, the Board of
Directors held five 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,
consisting of Messrs. Vigdor (Chairman), Hess, Morgan and Wasserman, held two
meetings in 1999.
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, consisting of
Messrs. Ehrlich (Chairman), Morgan, O'Shea, Rosenfeld, Strandberg (until his
resignation in August 2000) and Wasserman, held eight meetings in 1999.
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, consisting of Messrs. O'Shea (Chairman), Morgan,
Rosenfeld and Volta (until his resignation in June 2000), held six meetings
during 1999.
<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 - Procedure for Submitting Shareholder Proposals." The Nominating
Committee, consisting of Messrs. Rosenfeld (Chairman), Ehrlich, Strandberg
(until his resignation in August 2000) and Volta (until his resignation in June
2000), held two meetings in 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, consisting of Messrs. Morgan
(Chairman), Eastman, Ehrlich, Strandberg (until his resignation in August 2000)
and Volta (until his resignation in June 2000), held several informal meetings
in 1999.
In 1999, each director, except Dr. Volta, attended 75% or more of the
meetings held by the Board of Directors and the committees on which the director
served.
Special Committee
-----------------
In October 1998, the Board of Directors appointed a Special Committee
consisting of five directors, Messrs. Ehrlich, Morgan, O'Shea, Rosenfeld and
Vigdor, to explore certain specific matters related to alternatives for the
Company's future, in light of the indications of interest to acquire the Company
and alternative transactions, subject to the final determination by the Board of
Directors. In October 1999, two additional directors, Messrs. Strandberg and
Wasserman, were appointed to the Special Committee.
Compensation of Directors
-------------------------
In 1999, 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. Also, each non-employee director
received a retainer at the annual rate of $12,500 (the "Director Retainer"), and
each Chairman of a Board Committee (except Mr. Erhlich) received an additional
annual retainer of $2,500 (the "Chairman Retainer"). Both the Director Retainer
and the Chairman Retainer were paid in four equal installments on the last day
of each calendar quarter. A Special Committee of the Board had been appointed in
October 1998 to consider strategic alternatives for the Company and to consider,
negotiate, or oversee the negotiation, and to recommend to the Board, for its
approval, the terms of potential acquisitions, if any. In 1999, each member of
the Special Committee, except Messrs. Ehrlich, Strandberg and Wasserman, was
paid $9,000 for such extra service. For 1999, an aggregate of $194,217 in
meeting fees, retainers, and special compensation was paid in cash or in stock
to eight non-employee directors. Each non-employee director is also reimbursed
the reasonable expenses incurred in attending the meeting. In 1999, all
directors, except Messrs. Ehrlich and Strandberg, were non-employee directors.
<PAGE>
Pursuant to the PSC Inc. Compensation Plan for Non-Employee Directors,
non-employee directors have the opportunity to receive payment of their
compensation either in cash or in Common Shares. During 1999, Messrs. Hess,
O'Shea, Rosenfeld, Vigdor and Volta received a portion of their compensation in
Common Shares. The directors may also elect to receive their compensation either
currently or on a deferred basis. During 1999, no director chose to defer his
compensation. 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
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.
The Company's 1994 Stock Option Plan (the "1994 Plan") provides that each
member of the Board of Directors who is not also an employee or consultant of
the Company will automatically receive on the date of the Annual Meeting of
Shareholders a stock option for 6,500 Common Shares. As discussed in the Report
of the Compensation Committee, the Board adopted a policy to reduce by 50% the
size of the annual stock option grants to officers and key employees. See
"REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION." Believing that this policy should be applicable to everyone, the
directors voluntarily agreed to also reduce the size of their annual grants by
50%. Accordingly, on the date of the 1999 Annual Meeting of Shareholders,
non-employee director stock options ("NEDSOs") to purchase 3,250 shares were
granted to each non-employee director, except Mr. Wasserman, at a purchase price
of $10.375 per share, the fair market value on the date of the grant. Said
NEDSOs were exercisable in their entirety on May 12, 2000 and terminate on May
12, 2004. Mr. Wasserman, elected as a director for the first time at the 1999
Annual Meeting, received a NEDSO for 6,500 shares. No NEDSOs were granted to
Messrs. Ehrlich and Strandberg in 1999.
<PAGE>
In May 1998, the Board approved a new compensation agreement with Mr.
Ehrlich, Chairman of the Board, which was amended in December 1998 and July 1999
(the agreement, as amended, is referred to as the "Ehrlich Agreement") and which
will expire on December 31, 2000. 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 1999, Mr. Ehrlich received an
aggregate of $85,000 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, effective as of March
25, 1999, Mr. Ehrlich received an option for 17,500 Common Shares, at an
exercise price of $8.625 per share (the Fair Market Value of the Company's
Common Shares on the date of grant). This option replaced the award of 17,500
restricted shares which would otherwise have been awarded on March 25, 1999 and
represented a 50% reduction in the size of the option grant to which he
otherwise would have been entitled. Of the 17,500 stock options granted, options
for 8,750 shares have vested or will vest as follows: 2,188 on March 25, 2000;
2,187 on March 25, 2001; 2,188 on March 25, 2002; and 2,187 on March 25, 2003.
The remaining 8,750 shares will not vest unless and until certain performance
levels for the Company's Common Shares are attained - with respect to 2,916
shares, at such time as the Fair Market Value of the Company's Common Shares
equals or exceeds $11.47 per share for seven consecutive days; with respect to
2,917 shares, at such time as the Fair Market Value of the Company's Common
Shares equals or exceeds $13.53 per share for seven consecutive days and with
respect to 2,917 shares, at such time as the Fair Market Value of the Company's
Common Shares equals or exceeds $15.70 per share for seven consecutive days. If
the specified performance goals are not reached, the options will nevertheless
become fully exercisable after December 1, 2003 in order to maintain favorable
accounting treatment. The options will expire on March 25, 2004. Pursuant to the
Ehrlich Agreement, effective as of March 25, 2000, Mr. Ehrlich received an
option for 17,500 shares of Common Stock, at an exercise price of $6.00 per
share (the Fair Market Value of the Company's Common Stock on the date of
grant). This option represented a 50% reduction in the size of the option grant
to which he otherwise would have been entitled pursuant to his Agreement. Of the
17,500 stock options granted, options for 8,750 shares will vest as follows:
2,188 on March 25, 2001; 2,187 on March 25, 2002; 2,188 on March 25, 2003; and
2,187 on March 25, 2004. The remaining 8,750 shares will not vest unless and
until certain performance levels for the Company's Common Stock are attained -
with respect to 2,916 shares, at such time as the Fair Market Value of the
Company's Common Stock equals or exceeds $7.98 per share for seven consecutive
days; with respect to 2,917 shares, at such time as the Fair Market Value of the
Company's Stock equals or exceeds $9.41 per share for seven consecutive days;
and with respect to 2,917 shares, at such time as the Fair Market Value of the
Company's Common Stock equals or exceeds $10.92 per share for seven consecutive
days. If the specified performance goals are not reached, the options will
nevertheless become fully exercisable after December 1, 2004 in order to
maintain favorable accounting treatment. The options will expire on March 25,
2005. In the event of a change-in-control and if Mr. Ehrlich becomes entitled to
receive the severance payment set forth above, all of his options will
immediately vest.
Other Remuneration Arrangements
-------------------------------
See "EXECUTIVE OFFICER COMPENSATION - Recent Developments and Other
Remuneration Arrangements."
Directors' and Officers' Liability Insurance Policy
---------------------------------------------------
The Company has an insurance policy for $15,000,000 effective until January
20, 2002, 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 Great American Insurance Company at an aggregate
premium of $218,750 for a two-year period.
<PAGE>
EXECUTIVE OFFICER COMPENSATION
Recent Developments
-------------------
On August 22, 2000, Robert C. Strandberg resigned as President and Chief
Executive Officer and as a director of the Company, and Messrs. Robert S.
Ehrlich, Chairman of the Board, and Bert W. Wasserman, a director, were
appointed interim Co-Chief Executive Officers until a permanent Chief Executive
Officer has been recruited and appointed. The following data incorporates
compensation data resulting from Mr. Strandberg's resignation and the
appointment of Messrs. Ehrlich and Wasserman as interim Co-Chief Executive
Officers. In addition, on October 23, 2000, William L. Parnell, Jr., who had
previously held executive positions with the Company, was appointed to the newly
created position of Executive Vice President and Chief Operating Officer.
Summary Compensation Table
--------------------------
Set forth below is information concerning the cash and non-cash
compensation for services in all capacities to the Company for the fiscal years
1999, 1998 and 1997 received by (i) the Chief Executive Officer and (ii) the
four other most highly paid executive officers in the employ of the Company at
December 31, 1999 (the individuals in (i) and (ii), collectively, the "Named
Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION> Long-term
Annual Compensation Compensation Awards
--------------------------------------------- ------------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name & Principal Position Year Salary($) Bonus($)(1) Compensation ($)(2) Awards ($)(3) Options(#) Compensation ($)(4)
-------------------------- ---- --------- ----------- ------------------- ------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert C. Strandberg (5) 1999 $319,800 $152,208 $ 50,442 --- 37,500 $ 5,000
President and Chief 1998 165,000 (6) 133,380 132,170 $403,125 -- 4,500
Executive Officer 1997 80,460 (6) --- 64,345 --- 298,846 ---
William J. Woodard 1999 $199,307 $ 75,500 $ 37,243 --- 6,500 $55,000
Vice President, Chief 1998 179,384 156,690 59,704 --- --- 5,000
Financial Officer 1997 160,000 --- 26,710 --- 30,000 3,139
and Treasurer
William L. Parnell, Jr. (7) 1999 $215,031 $ 81,540 $152,304 --- 7,500 $ 5,000
Chief Operating Officer 1998 187,445 142,758 --- --- --- 4,850
& Senior Vice President 1997 169,386 1,597 --- --- 30,000 4,750
Linda J. Miller (8) 1999 $179,308 $ 67,950 --- --- 33,750 ---
Senior Vice President 1998 113,846 121,496 --- --- 35,000 ---
& General Manager
Brad R. Reddersen (9) 1999 $194,661 $ 51,529 --- --- 5,000 $ 4,000
Vice President, Chief 1998 184,784 140,634 --- --- --- 4,620
Technology Officer 1997 170,836 1,597 --- --- 30,000 4,393
</TABLE>
<PAGE>
(1) For 1999, the amounts in this column reflect annual incentive awards under
the Company's Management Incentive Plan ("MIP"). See "Report of the
Compensation Committee of the Board of Directors on Executive
Compensation." For 1998, the amounts in this column reflect annual
incentive awards under the Company's MIP and/or bonus payments made in lieu
of stock options. The amounts of the MIP awards and the bonus in lieu of
options, respectively, for 1998 were as follows:
Bonus in Lieu of
MIP($) Options($)
------ ----------
R. Strandberg $ 133,380 --
W. Woodard $ 66,690 $90,000
W. Parnell $ 48,758 $94,000
L. Miller $ 41,496 $80,000
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.
(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 1999, 1998 or 1997. The amounts in this
column for 1999 include the following: Mr. Strandberg - $50,442 for
automobile expenses, club membership dues and fees, and premiums on
enhanced life and disability insurance policies; Mr. Woodard - $37,243 for
automobile expenses, club membership dues and fees, and premiums on
enhanced life and disability insurance policies; Mr. Parnell - $130,170 for
relocation expenses and other amounts for automobile expenses and premiums
on enhanced life and disability insurance policies, and a related tax
gross-up.
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.
<PAGE>
(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. As set forth in the original
award, the restrictions on 50% of such shares would 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 was an officer on such dates. The
restrictions on the other 50% of the shares would not lapse unless and
until certain performance levels for the Company's shares were 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 did not reach the specified performance
levels by March 25, 2002, all shares still subject to the restrictions
would be returned to or cancelled by the Company. In connection with Mr.
Strandberg's resignation, the Board, as of August 22, 2000, waived all
restrictions still remaining on the shares and all of the restrictions were
deemed to have lapsed. See "EXECUTIVE OFFICER COMPENSATION - Employment
Contracts and Severance and Change-in-Control Agreements - Robert C.
Strandberg."
(4) The amounts in this column for 1999 consist of the following:
The Company's matching contributions to its 401(k) Plan as follows: Mr.
Strandberg - $5,000; Mr. Woodard - $5,000; Mr. Parnell - $5,000; Mr.
Reddersen - $4,000. In addition, Mr. Woodard received a cash award of
$50,000 in order to exercise stock options pursuant to a program adopted by
the Board in 1999 designed to encourage an increase in the ownership of the
Company's Common Shares by management. As conditions to the receipt of such
award, any executive officer electing to receive the award would be
required to hold the stock acquired upon the exercise of the stock option
for a minimum period of three years and the size of such officer's annual
stock option grant for 1999 would be reduced. Mr. Woodard elected to
receive this special cash award and, accordingly, also received a reduced
annual stock option grant.
The amounts in this column for 1998 consist of the following:
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.
The amounts in this column for 1997 consist of the following:
The Company's matching contributions to its 401(k) Plan as follows: Mr.
Woodard - $3,139; Mr. Parnell - $4,750; Mr. Reddersen - $4,393.
<PAGE>
(5) Mr. Strandberg resigned as President and Chief Executive Officer on August
22, 2000, having held those positions since 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 $6.50 per
share (the fair market value of the Company's Common Shares on the date of
grant). Said option vested in four equal quarterly installments on August
31, 1997, November 30, 1997, February 28, 1998 and May 31, 1998 and, as
amended, expires on December 31, 2000.
(7) Mr. Parnell left the Company on January 11, 2000. Subsequent thereto, on
October 23, 2000, Mr. Parnell was appointed to the newly created position
of Executive Vice President and Chief Operating Officer.
(8) Ms. Miller became Senior Vice President and General Manager in May 1999.
She joined the Company as Vice President, Marketing in April 1998.
(9) Mr. Reddersen left the Company on July 1, 2000.
<PAGE>
Options and Stock Appreciation Rights
-------------------------------------
The following tables summarize option grants to, and exercises by, the
Named Executive Officers in fiscal 1999, and the value of the options held by
such persons at the end of fiscal 1999. No stock appreciation rights have ever
been granted by the Company.
<TABLE>
OPTION GRANTS IN 1999
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (1)
--------------------------------------------------------------- ----------------------------
Percent of
Number of Total Options
Securities Granted to Exercise or
Underlying Employees in Base Price
Name Options Granted (#) Fiscal 1999 (2)($/Share)(3) Expiration Date (4) 5% ($) 10%($)
---- ------------------ -------------- ------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Strandberg 37,500 (5) 8.7% $8.625 3/25/04 $89,359.82 $197,461.83
William J. Woodard 6,500 (6) 1.5% $6.750 10/25/04 $12,121.85 $ 26,786.13
William L. Parnell,Jr. 7,500 (6) 1.7% $6.750 10/25/04 $13,986.75 $ 30,907.07
Linda J. Miller 7,500 (6) 1.7% $6.750 10/25/04 $13,986.75 $ 30,907.07
26,250 (7) 6.1% $7.094 12/6/04 $51,448.46 $113,687.65
Brad R. Reddersen 5,000 (6) 1.2% $6.750 10/25/04 $ 9,324.50 $20,604.71
</TABLE>
(1) The potential realizable value portion of the table illustrates the value
that might be realized upon exercise of the options immediately prior to
the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Shares over the term of the options.
This hypothetical value is based entirely on assumed annual growth rates of
5% and 10% in the Company's stock price over the term of the options
granted in 1999. The assumed rates of growth were selected by the
Securities and Exchange Commission for illustration purposes only, and are
not intended to predict future performance and prospects. These numbers do
not take into account provisions of certain options providing for
termination of the option following termination of employment,
nontransferability or vesting over various periods.
(2) Percentages indicated are based on a total of 432,000 options granted to
106 employees during 1999.
(3) The exercise price per share is 100% of fair market value of the Company's
Common Shares on the date of grant.
(4) All stock options expire five years from the date of grant.
(5) See "Employment Contracts and Severance and Change-in-Control Arrangements
- Robert C. Strandberg".
(6) Options are exercisable in four equal annual installments commencing one
year from the date of grant.
<PAGE>
(7) Represents options granted in 1999 to replace 35,000 options initially
granted on April 6, 1998 at $10.875. The options will not vest or become
exercisable unless and until certain performance levels for the Company's
Common Shares are attained - one-third will vest at such time as the Fair
Market Value of the Company's Common Shares equals or exceeds $9.44 per
share for seven consecutive days; one-third will vest at such time as the
Fair Market Value of the Company's Common Shares equals or exceeds $11.14
per share for seven consecutive days; and one-third will vest at such time
as the Fair Market Value of the Company's Common Shares equals or exceeds
$12.91 per share for seven consecutive days. If the specified performance
goals are not reached, the options will nevertheless become fully
exercisable after June 6, 2004 in order to maintain favorable accounting
treatment.
<TABLE>
AGGREGATED OPTION EXERCISES IN 1999
AND 1999 YEAR-END OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at December 31, 1999 (#) December 31, 1999 ($)(1)
-------------------------------- ------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($)(2) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Strandberg -- -- 186,346 200,000 $139,615 $134,375
William J. Woodard 15,000 $8,445 86,605 20,250 $ 18,125 $ 12,188
William L. Parnell, Jr. -- -- 46,250 26,250 $ 25,625 $ 15,313
Linda J. Miller -- -- -- 33,750 $ --- $ 12,064
Brad R. Reddersen -- -- 46,250 23,750 $ 25,625 $ 13,750
</TABLE>
(1) 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.
(2) The closing price for the Company's Common Shares as reported by The Nadsaq
Stock Market(R) on December 31, 1999 was $7.375. Value is calculated on the
basis of the difference between the option price and $7.375 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.
Option Repricing and Ten-Year Option Repricing Table
----------------------------------------------------
In 1999, the Company offered two executive officers the opportunity to
exchange certain options for new options. The new options reduced the number of
shares underlying the original grants of options by 25%, lowered the exercise
price, reduced the option term from ten years to five years and established a
new performance-based vesting and exercise schedule.
<PAGE>
The following table sets forth certain information concerning the repricing
of stock options by the named executive officers and any other executive officer
during the last ten fiscal years.
<TABLE>
TEN-YEAR OPTION/SAR REPRICINGS
<CAPTION>
Number of
Securities Exercise Length of
Underlying Number Market Price of Price at Original Option
Options of New Stock at Time of Time of New Term Remaining At
Repriced Options Repricing or Repricing or Exercise Date of Repricing
Name Date or Amended Granted Amendment Amendment Price or Amendment
---- ---- ---------- ------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Linda J. Miller (1) 12/6/99 35,000 26,250 $7.094 $10.875 $7.094 8-1/3 years
Senior Vice
President and
General Manager
Matt D. Schler (1) 12/6/99 50,000 37,500 $7.094 $10.375 $7.094 7-11/12 years
Vice President,
Engineering and
Product Development
</TABLE>
(1) The options granted to Ms. Miller and Mr. Schler will not vest or become
exercisable unless and until certain performance levels for the Company's
Common Shares are attained - one-third will vest at such time as the Fair
Market Value of the Company's Common Shares equals or exceeds $9.44 per
share for seven consecutive days; one-third will vest at such time as the
Fair Market Value of the Company's Common Shares equals or exceeds $11.14
per share for seven consecutive days; and one-third will vest at such time
as the Fair Market Value of the Company's Common Shares equals or exceeds
$12.91 per share for seven consecutive days. If the specified performance
goals are not reached, the options will nevertheless become fully
exercisable after June 6, 2004 in order to maintain favorable accounting
treatment. Each option will expire on December 6, 2004.
Employment Contracts and Severance and Change-in-Control Arrangements
---------------------------------------------------------------------
Robert C. Strandberg
--------------------
Employment Agreement
--------------------
Effective June 2, 1998, the Company entered into a new Employment Agreement
with Mr. Strandberg, which was amended in December 1998 and July 1999 (the
Employment Agreement, as amended, is referred to as the "Strandberg Agreement"),
and which would have expired on December 31, 2000. However, Mr. Strandberg
resigned as President and Chief Executive Officer on August 22, 2000. Under the
Strandberg Agreement, Mr. Strandberg received an annual base salary of $336,000.
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") were met, Mr. Strandberg would 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 was not
achieved in a particular year. Mr. Strandberg was also eligible to participate
in employee benefit plans generally made available by the Company to its
executive officers.
<PAGE>
The Strandberg Agreement contained provisions relating to confidentiality,
non-competition and Change-in-Control (as defined below).
Pursuant to the Strandberg Agreement, in March 1998 Mr. Strandberg received
an award of 37,500 restricted shares which could not 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, on March 25, 1999, Mr. Strandberg
received an option for 37,500 Common Shares at an exercise price of $8.625 per
share (the Fair Market Value of the Company's Common Shares on the date of
grant). This option replaced the award of 37,500 restricted shares which would
have been awarded on March 25, 1999 and represented a 50% reduction in the size
of the option grant to which he otherwise would have been entitled. Of the
37,500 stock options granted, options for 18,750 shares vested as follows: 4,688
on March 25, 2000; 4,687 on March 25, 2001; 4,688 on March 25, 2002; and 4,687
on March 25, 2003. The options for the remaining 18,750 shares did not vest
unless and until certain performance levels for the Company's Common Shares were
attained. The options expire on March 25, 2004.
Pursuant to the Strandberg Agreement, effective as of March 25, 2000, Mr.
Strandberg received an option for 37,500 shares of Common Stock, at an exercise
price of $6.00 per share (the Fair Market Value of the Company's Common Stock on
the date of grant). This option represented a 50% reduction in the size of the
option grant to which he otherwise would have been entitled pursuant to his
Agreement. Of the 37,500 stock options granted, options for 18,750 shares vested
as follows: 4,688 on March 25, 2001; 4,687 on March 25, 2002; 4,688 on March 25,
2003; and 4,687 on March 25, 2004. The remaining 18,750 shares did not vest
unless and until certain performance levels for the Company's Common Stock were
attained -- with respect to 6,250 shares, at such time as the Fair Market Value
of the Company's Common Stock equals or exceeds $7.98 per share for seven
consecutive days; with respect to 6,250 shares, at such time as the Fair Market
Value of the Company's Stock equals or exceeds $9.41 per share for seven
consecutive days; and with respect to 6,250 shares, at such time as the Fair
Market Value of the Company's Common Stock equals or exceeds $10.92 per share
for seven consecutive days. If the specified performance goals were not reached,
the options would nevertheless become fully exercisable after December 1, 2004
in order to maintain favorable accounting treatment. The options expire on March
25, 2005.
Severance Arrangements
----------------------
On August 22, 2000, Mr. Strandberg resigned all his positions and offices,
including those of President, Chief Executive Officer and member of the Board of
Directors. Pursuant to resolutions adopted by the Board, the Company will
continue to pay Mr. Strandberg, for a period of one year, his base salary of
$336,000 and all current health, dental, life and accidental death and
dismemberment insurance benefits and certain incidental benefits. In addition,
all options held by Mr. Strandberg were deemed fully vested as of August 22,
2000 and may be exercised until the earlier of (i) the date on which the option
expires by its terms or (ii) August 22, 2003. Also, all restrictions on the
restricted shares owned by Mr. Strandberg were waived by the Board and were
deemed to have lapsed as of August 22, 2000. Certain obligations in Mr.
Strandberg's prior Employment Agreement relating to confidentiality and
non-competition remain in effect in accordance with their terms.
<PAGE>
Severance/Change-in-Control Agreements
--------------------------------------
Severance/Change-in-Control Agreements have been entered into with all
senior executive officers 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
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 and the Severance/Change-
in-Control Agreements:
(a) Change-in-Control generally means the acquisition of 30% of the
Company's voting securities, 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.
<PAGE>
(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.
Other Remuneration Arrangements
-------------------------------
On August 22, 2000, Messrs. Ehrlich and Wasserman were appointed interim
Co-Chief Executive Officers to serve until a new President and Chief Executive
Officer has been appointed. During such interim period, Mr. Wasserman will
receive no fees as an outside director and Mr. Ehrlich will receive no fees
under the Ehrlich Agreement, but each will receive fees at the rate of $18,000
per month for so long as they serve as interim Co-Chief Executive Officers.
In addition, Mr. Ehrlich received an option for 25,000 shares of Common
Stock and Mr. Wasserman received an option for 50,000 shares of Common Stock.
Each option was granted at an exercise price of $3.594 per share and each option
vests in five equal monthly installments commencing on September 1, 2000.
However, neither option may be exercised until such time as the fair market
value of the Company's Common Stock equals or exceeds $5.391 per share for seven
consecutive days. If the $5.391 price per share is not reached, the options will
nevertheless become fully exercisable after April 1, 2005 in order to maintain
favorable accounting treatment. Each option expires on August 25, 2005.
<PAGE>
Interest of Directors and Management in Certain Transactions
------------------------------------------------------------
Severance Payments
In fiscal 1999, 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, $232,917 and forgave $166,791 of indebtedness.
Other Transactions
In 1999, the Company paid approximately $353,000 to Boylan, Brown, Code,
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, 1994 through December 31, 1999,
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, 1994 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.
CUMULATIVE TOTAL RETURN
----------------------------------------------
12/94 12/95 12/96 12/97 12/98 12/99
----- ----- ----- ----- ----- -----
PSC Inc.............. 100 71 55 101 73 57
S & P 500............ 100 138 169 226 290 351
S&P Technology Sector 100 144 204 258 446 781
<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 (until his resignation in June 2000)) 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 1999 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, 75.5% of the targeted payout had been achieved and that the annual
bonuses, at reduced percentages, could therefore be paid. Accordingly, awards
aggregating $1,017,018 and varying from 7.6% to 45.3% of an individual's base
salary were paid to 48 MIP participants for 1999.
Equity-Based Incentives/Reduction in 1999 Grants: 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 1999, no stock options to current officers and key employees were
granted at the targeted level. In order to reduce the dilutive effect on
earnings per share caused by the granting of stock options, the Board, in 1999,
adopted a policy to minimize the number of outstanding stock options by
restricting the annual grants of stock options to officers and key employees to
approximately 2% of the Company's outstanding shares. To implement this policy,
the Board provided for an across-the-board 50% reduction in the size of grants
to all current officers and key employees. In addition, all non-employee
directors agreed to a 50% reduction in the size of their annual NEDSO grant and
Messrs. Ehrlich and Strandberg agreed to amend their respective agreements with
the Company and accept a 50% reduction in the size of the equity grants to which
they otherwise would have been entitled.
Award to Exercise Stock Options
-------------------------------
In order to encourage an increase in the ownership of the Company's Common
Shares by management, the Board, in 1999, offered the Company's executive
officers the opportunity to receive a cash award for the purpose of using the
after-tax proceeds to exercise stock options. As conditions to the receipt of
such bonus, any executive officer electing to receive the award would be
required to hold the stock acquired upon the exercise of the stock option for a
minimum period of three years and the size of such officer's annual stock option
grant for 1999 would be reduced. Mr. Woodard elected to receive this special
cash award. See "Executive OFFICER Compensation - Summary Compensation Table,
Table of Option Grants in 1999 and Table of Aggregate Option Exercises in 1999
and 1999 Year-End Option Values."
Option Repricing
----------------
Recognizing that certain key executive officers held stock options with
option prices significantly higher than the current market value of the
Company's Common Shares, thereby negating the incentive and retention power
associated with such options, the Committee decided in December 1999 to offer
two officers the opportunity to exchange certain options for new options. The
new options reduced the number of shares underlying the original grants of
options by 25%, lowered the exercise price to $7.094, the fair market value on
the effective date of the exchange, established a new option term of five years
and established a new performance-based vesting and exercise schedule. See
"EXECUTIVE OFFICER COMPENSATION - Option Repricing and Ten-Year Option Repricing
Table."
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. As amended on July
13, 1999 following a Performance Review by the Executive and Compensation
Committees, Mr. Strandberg's base salary was increased from $300,000 to
$336,000, which is below the median level of high technology companies with
revenues of $250 million. Mr. Strandberg's bonus for 1999 was determined under
the MIP and he earned a bonus of $152,208, which represents approximately 45% of
his base salary. In 1999, he received a stock option for 37,500 shares, which
represented a 50% reduction in the size of the grant to which he was otherwise
entitled by his employment agreement. Mr. Strandberg voluntarily accepted this
reduction in order to be treated in the same manner as other officers and
employees. See "EXECUTIVE OFFICER COMPENSATION - Employment Contracts and
severance and Change-in-Control Arrangements."
<PAGE>
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
Committee believes that all of the Company's 1999 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
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 2000.
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 (until his resignation in June
2000). Each member is a non-employee director and, with the exception of the
securities beneficially owned by Dr. Volta, 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 1999 fiscal year, all filing requirements
applicable to its officers, directors and greater-than-10% beneficial owners
were complied with, except for a late initial report on Form 3 filed by George
A. Plesko, who became a Senior Vice President of the Company on December 21,
1999.
<PAGE>
PROPOSAL TO APPROVE
-------------------
2000 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
(Proxy Item 2)
In 1990, the Company first established an employee stock purchase plan (the
"1990 ESPP") whereby employees of the Company were provided an opportunity to
purchase Common Shares of the Company through voluntary systematic payroll
deductions. The 1990 ESPP terminated, by its terms, on December 31, 1995. In
1995, the shareholders approved a new Employee Stock Purchase Plan (the "1995
ESPP") which terminates, by its terms, on December 31, 2000.
In order to be able to continue to attract, retain and motivate employees
by providing them with an opportunity to acquire an interest in the economic
progress of the Company and in order to encourage them to increase their efforts
to make the Company's business more successful by providing them with
equity-based incentives, the Board of Directors adopted the PSC Inc. 2000
Employee Stock Purchase Plan on October 23, 2000 (the "2000 ESPP").
The effective date of the 2000 ESPP is January 1, 2001, subject to the
approval of the shareholders at the Annual Meeting. A copy of the 2000 ESPP is
attached hereto as Exhibit A and the statements made in this Proxy Statement
with respect to the 2000 ESPP are qualified by and subject to the more complete
information set forth therein.
The proposed 2000 ESPP is substantially similar to the shareholder-approved
1990 ESPP and 1995 ESPP.
Shares Available Under the 2000 ESPP
------------------------------------
The Company has reserved for issuance under the 2000 ESPP 600,000
Common Shares, the same number of shares that had been reserved for issuance
under the 1995 ESPP. Such shares may be either authorized but unissued shares or
shares reacquired by the Company. The number of shares available under the 2000
ESPP is subject to adjustment in the event of any merger, recapitalization,
stock split, stock dividend, stock distribution, or other similar action. To
date, no shares have been issued under the 2000 ESPP.
Eligibility
-----------
In general, all regularly employed employees of the Company and its
subsidiaries are eligible to participate in the 2000 ESPP. In addition, in
general terms, employees who own 5% or more of the Company's Common Shares are
not eligible to participate. The Committee may also provide for other exclusions
permitted by Section 423 of the Internal Revenue Code.
On October 23, 2000, approximately 1,200 employees were eligible to
participate in the 2000 ESPP.
<PAGE>
Administration
--------------
The 2000 ESPP will be administered by the Compensation Committee (the
"Committee") of the Board of Directors. The Committee may make such rules and
regulations and establish such procedures for the administration of the 2000
ESPP as it deems appropriate. The Committee has authority to interpret the 2000
ESPP, with such interpretations to be conclusive and binding on all persons and
otherwise accorded the maximum deference permitted by law. The Committee shall
take any other actions and make any other determinations or decisions that it
deems necessary or appropriate in connection with the 2000 ESPP or the
administration or interpretation thereof.
Participation
-------------
Employees will enroll in the 2000 ESPP by completing a payroll deduction
form. The maximum payroll deduction allowed is generally 10% of an employee's
pay. Pay is an employee's base cash pay (including commissions and overtime, but
not including bonuses, profit-sharing contributions, value of fringe benefits,
reimbursement for expenses, and incentive compensation). No employee is allowed
to buy more than $25,000 of Common Shares in any year, based on the Fair Market
Value (as hereinafter defined) at the beginning of the Purchase Period (as
hereinafter defined) in which the shares are purchased. An employee may
discontinue participation in the 2000 ESPP at any time. An employee's
eligibility to participate in the 2000 ESPP ends at termination of employment.
Offering
--------
The 2000 ESPP will be implemented by establishing two six-month purchase
periods ("Purchase Periods") each year over a five-year period. The initial
Purchase Period will begin January 1, 2001 and end on June 30, 2001. The 2000
ESPP will terminate on December 31, 2005.
Purchase Price
--------------
Employees who choose to participate in the 2000 ESPP will receive an option
to acquire Common Shares at a discount. Under the option, the purchase price
("Purchase Price") of Common Shares will be the lower of (i) 85% of the Fair
Market Value of the Common Shares on the first day of a Purchase Period, or (ii)
85% of the Fair Market Value on the last day of the Purchase Period. The Fair
Market Value will be the closing price on The Nasdaq Stock Market(R) on the
relevant date.
Purchase of Stock
-----------------
At the end of a Purchase Period, a participant's option will be exercised
automatically to purchase the number of Common Shares that the employee's
accumulated payroll deductions will buy at the Purchase Price. No fractional
shares will be purchased. Any cash remaining in a participant's account after
the purchase of whole shares will be credited to the participant's account for
the next succeeding offering or, at the participant's election, will be returned
to the employee, without interest.
<PAGE>
Delivery
--------
On the exercise of an option on the last day of the Purchase Period (the
"Offering Termination Date"), the Company will deliver as soon as practicable
thereafter to the participant a stock certificate for the Common Shares
purchased or, at the participant's request, will deposit such shares directly
with a broker designated by the participant.
Recapitalization
----------------
In the event any change is made in the Company's capitalization, such as a
stock split or stock dividend, which results in an increase or decrease in the
number of outstanding Common Shares without the Company's receipt of
consideration, appropriate adjustments will be made to the shares available in
the 2000 ESPP, the maximum number of shares and the price of the option.
Transferability
---------------
Options under the 2000 ESPP cannot be voluntarily or involuntarily
assigned. The Common Shares acquired under the 2000 ESPP will be freely
transferable, except as otherwise determined by the Committee.
Amendment and Termination
-------------------------
The Board of Directors may amend the 2000 ESPP, except that no amendment
may, without the approval of shareholders; (i) increase the number of shares
authorized under the 2000 ESPP, (ii) materially modify the eligibility
requirements for participation in the 2000 ESPP, or (iii) extend the term of the
2000 ESPP beyond December 31, 2005.
Federal Income Tax Consequences
-------------------------------
The 2000 ESPP is intended to qualify for favorable income tax treatment
under Sections 421 and 423 of the Internal Revenue Code. Payroll deductions will
be made on an after-tax basis. Thus, participants will have to pay income tax on
the dollars withheld from their paychecks under the 2000 ESPP.
No income will be recognized when payroll deductions are used to buy Common
Shares at a discount. The discount at the time of purchase will not be taken
into account for income tax purposes until the Common Shares are sold. The
income tax consequences associated with the sale of Common Shares purchased
under the 2000 ESPP depend upon when the sale occurs and the length of the
participant's holding period for his or her Common Shares.
<PAGE>
When the shares are disposed of by a participant two years or more after
the beginning of a Purchase Period in which the shares were purchased (or if the
participant dies while owning the shares), he or she will recognize ordinary
income equal to the lesser of (i) the excess of the Fair Market Value of the
shares at the beginning of the Purchase Period over 85% of the Fair Market Value
of the shares at that time or (ii) the excess of the Fair Market Value of the
shares at disposition over the Purchase Price. When shares are disposed of after
less than two years (in what is known as a "disqualifying disposition"), the
participant must recognize the difference between the Fair Market Value of the
shares on the Offering Termination Date and the Purchase Price as ordinary
income, even if the disposition is a gift or is at a loss. In the event of a
participant's death while owning shares acquired under the 2000 ESPP, ordinary
income must be recognized in the year of death as though the shares had been
sold.
In the cases discussed above (other than death), the amount of ordinary
income recognized by a participant is added to the Purchase Price paid by the
participant, and this amount becomes the tax basis for determining the amount of
the capital gain or loss from the disposition of the shares. Additional gain, if
any, will be short-term or long-term capital gain depending on whether the
holding period is 12 months or less, or more than 12 months.
Net capital gains from the disposition of capital stock held more than 12
months are currently taxed at a maximum federal income tax rate of 20% and net
capital gains from the disposition of stock held not more than 12 months is
taxed as ordinary income (maximum rate of 39.6%). However, limitations on
itemized deductions and the phase-out of personal exemptions may result in
effective marginal tax rates higher than 20% for net capital gains and 39.6% for
ordinary income.
The Company is entitled to tax deductions for shares issued under the 2000
ESPP only in the event of disqualifying dispositions. For disqualifying
dispositions, the Company is allowed a deduction to the extent of the amount of
ordinary income includable in gross income by such participant for the taxable
year as a result of the premature disposition of the shares.
The foregoing tax discussion is a general description of certain expected
federal income tax results under current law. No attempt has been made to
address any state and local, foreign or estate and gift tax consequences that
may arise in connection with participation in the 2000 ESPP. All affected
individuals should consult their own advisers if they wish any further details
or have special questions.
The closing price of the Company's Common Shares on The Nasdaq Stock
Market (R)on October 23, 2000 was $2.50.
Vote Required
-------------
Approval of the 2000 ESPP 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 2000
ESPP.
The Board of Directors recommends that the shareholders vote FOR the
approval of the 2000 ESPP.
<PAGE>
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.
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, 1999 (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
MARTIN S. WEINGARTEN
Secretary
Dated: November 8, 2000
Webster, New York
<PAGE>
PROXY
PROXY PSC INC. PROXY
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, DECEMBER 6, 2000
The undersigned, revoking all prior proxies, hereby appoints Robert S. Ehrlich,
Bert W. Wasserman 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 Helmsley Park Lane
Hotel, 36 Central Park South, New York, New York on December 6, 2000 at 9:30
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>
Please mark your votes as
as indicated in this example |X|
--------------------------------------------------------------------------------
1. Election of two (2) 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 below
|_| |_|
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
James C. O'Shea Terry R. Peets
|_| |_|
2. Proposal to approve the 2000 Employee Stock Purchase 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: , 2000
-------------------------
---------------------------------
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
PSC Inc.
2000 Employee Stock Purchase Plan
Section 1. Purpose.
The PSC Inc. 2000 Employee Stock Purchase Plan (the "Plan") is designed
to provide an opportunity for the employees of PSC Inc. and its subsidiaries
(hereinafter referred to, unless the context otherwise requires, as the
"Company") to purchase Common Shares (the "Stock") of the Company through
voluntary systematic payroll deductions. It is the purpose and policy of the
Plan to provide employees with an opportunity to acquire a proprietary interest
in the economic progress of the Company and thereby to have an additional
incentive to promote its best interests. It is the intention of the Company to
have the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that Section of
the Code.
Section 2. Certain Definitions.
(a) "Compensation" means the base salary or wage paid to an Employee,
including commissions and overtime payments. "Compensation" shall not include
bonuses, profit sharing contributions, Company contributions to Social Security,
contributions to the Company's 401(k) Profit Sharing Plan or any other
retirement plan or program, or the value of any other fringe benefits provided
at the expense of the Company.
(b) "Employee" means any person, including an officer, who is employed by
(i) the Company or (ii) any subsidiary company, 50% or more of whose voting
shares are owned directly or indirectly by the Company. A director of the
Company who is not also a full time officer is not deemed to be an employee.
(c) "Fair Market Value" means the value of one share of Stock on the
relevant date, determined as follows:
(i) If the shares are traded on an exchange (including The Nasdaq Stock
Market(R)), the reported "closing price" on the relevant date (e.g., the
Offering Commencement Date or Offering Termination Date) assuming it is a
trading day; otherwise on the next trading day.
(ii) If the shares are traded over-the-counter with no reported closing
price, the mean between the lowest bid and the highest asked prices on said
system on the relevant date assuming it is a trading day; otherwise on the next
trading day; and
(iii) If neither (i) nor (ii) applies, the fair market value as determined
by the Committee in good faith. Such determination shall be conclusive and
binding on all persons.
Section 3. Eligibility.
(a) Initial Eligibility. Except as provided in Section 3(b) of the Plan,
each individual who is an Employee on an Offering Commencement Date shall be
eligible to participate in the Plan.
(b) Restrictions on Participation. Notwithstanding any provisions of the
Plan to the contrary, no Employee shall be eligible to participate in the Plan
or be granted an option to purchase Stock in the Plan if:
(i) Immediately after the grant, such Employee would own, or be considered
to own, 5% or more of the total combined voting power or value of all classes of
stock of the Company (for purposes of this paragraph, the rules of Section
424(d) of the Code shall apply in determining stock ownership of any Employee,
and stock that the Employee may purchase under outstanding options shall be
treated as stock owned by the Employee); or
(ii) Such option would permit such Employee's rights to purchase stock
under all employee stock purchase plans of the Company which meet the
requirements of Section 423(b) of the Code to accrue at a rate which exceeds
$25,000 in fair market value (as determined pursuant to Section 423(b)(8) of the
Code) for each calendar year in which such option is outstanding.
<PAGE>
Section 4. Offerings under the Plan.
The Plan will be implemented by ten semi-annual offerings of the
Company's Stock (the "Offerings") beginning on January 1 and July 1 in each of
the years 2001, 2002, 2003, 2004 and 2005 and terminating on June 30 and
December 31 in each of such years, respectively. As used in the Plan, "Offering
Commencement Date" means the January 1 or July 1, as the case may be, on which
the particular Offering begins and "Offering Termination Date" means the June 30
or December 31, as the case may be, on which the particular Offering terminates.
Participation in any Offering under the Plan shall neither limit, nor
require, participation in any other Offering except that no Employee may have
more than one authorization for payroll deduction in effect simultaneously.
Except as provided in Section 3 of the Plan, all Employees participating in an
Offering shall have the same rights and privileges to purchase Stock in the
Plan.
Section 5. Participation and Payroll Deductions.
(a) Payment for Stock. Shares of Stock purchased under the Plan will be
paid for by payroll deductions during the period beginning on the Offering
Commencement Date and ending on the Offering Termination Date ("Purchase
Period").
(b) Participation.
(i) An Employee who meets the eligibility requirements of Section 3(a) of
the Plan and whose participation is not restricted under Section 3(b) of the
Plan shall become a participant ("Participant") in the Plan by completing an
authorization for a payroll deduction on the form provided by the Company
("Employee Authorization Card") and filing it with the Human Resources
Department of the Company during the enrollment period ("Enrollment Period")
prior to an Offering Commencement Date. Upon becoming a Participant, the
Employee shall be bound by the terms of this Plan, including any amendments
hereto.
(ii) The Enrollment Period for each of the Offerings is the thirty (30)
days prior to each Offering Commencement Date or such other period of time as
may be prescribed by the Committee.
(iii) An Employee Authorization Card shall become effective on the Offering
Commencement Date of the first applicable Offering and shall remain in effect
for all subsequent Offerings so long as the Employee remains eligible under the
Plan and has not withdrawn from the Plan as set forth in Section 8.
(c) Payroll Deductions.
(i) At the time an Employee files an Employee Authorization Card, the
Employee shall elect to have deductions made from his or her pay on each payday
during the time the Employee is a Participant in an Offering at the rate of 2,
3, 4, 5, 6, 7, 8, 9 or 10% of the Compensation which the Employee is entitled to
receive on such payday ("Payroll Deduction Rate").
(ii) Payroll deductions for a Participant shall begin as of the first pay
period after an Employee Authorization Card has become effective.
(iii) All payroll deductions made for a Participant shall be credited to
the Participant's account under the Plan. Amounts credited to such accounts may
be used by the Company for any corporate purpose. A Participant may not make any
separate cash payment into such account.
(d) Changes in Payroll Deduction Rate; Discontinuance of Payroll Deductions.
(i) A Participant may discontinue his or her participation in the Plan as
provided in Section 8(a) of the Plan, but no other change can be made during an
Offering, including, but not limited to, changes in the Payroll Deduction Rate
for such Offering. A Participant may change the Payroll Deduction Rate for
subsequent Offerings by giving written notice of such change to the Company
during the Enrollment Period immediately preceding the Offering Commencement
Date for the Offering for which such change is effective.
(ii) At any time during an Offering, a Participant may discontinue his or
her participation in the Plan by notifying the Company that the Participant
wishes to discontinue his or her payroll deductions. This notice shall be in
writing and on such forms as provided by the Company and shall become effective
as of a date not more than thirty (30) days following its receipt by the
Company.
(e) No Interest.
No interest shall be paid or credited to the Participant with respect to
payroll deductions or any amounts held in the Participant's account.
Section 6. Granting of Options.
<PAGE>
(a) Number of Option Shares. With respect to each Offering, each eligible
Employee who has elected to participate as provided in Section 5(b) above shall
be deemed to have been granted on the Offering Commencement Date an option to
purchase the number of full shares of Stock which may be purchased with the
payroll deductions accumulated in an account maintained on behalf of each
Participant during each Purchase Period at the option price specified in Section
6(b) below, subject to the limitations contained in Section 3(b) above.
(b) Option Price. The option price under each option shall be the lower of:
(i) 85% of the Fair Market Value of the Stock on the Offering Commencement
Date; or
(ii) 85% of the Fair Market Value of the Stock on the Offering Termination
Date.
Section 7. Exercise of Options.
(a) Automatic Exercise. Unless a Participant gives written notice to the
Company as provided in Section 8(a) below, the Participant's option for the
purchase of Stock with payroll deductions made during any Offering will be
deemed to have been exercised automatically on the Offering Termination Date
applicable to such Offering.
(b) Fractional Shares. Fractional shares will not be issued under the Plan
and any accumulated payroll deductions which would have been used to purchase
fractional shares will be credited to the Participant's account for the next
succeeding Offering, or, at the Participant's election, returned to the
Participant as soon as practicable following the Offering Termination Date,
without interest.
(c) Transferability of Option. No option granted to a Participant pursuant
to the Plan shall be transferable other than by will or by the laws of descent
and distribution, and no such option shall be exercisable during the
Participant's lifetime other than by the Participant.
(d) Delivery of Shares. The Company shall deliver to the Participant
certificates for shares of Stock acquired on the exercise of options during an
Offering as soon as practicable following the Offering Termination Date of such
Offering or, at the Participant's request, the Company shall deposit such shares
directly with a broker designated by the Participant. The Company may utilize
electronic or automated methods of share transfer. The Company may require that
shares be retained for a designated period of time and/or may establish other
procedures to permit tracking of disqualifying dispositions of such shares or to
restrict transfer of such shares.
Section 8. Withdrawals.
(a) Withdrawal of Account. A Participant may elect to withdraw payroll
deductions credited to the Participant's account under the Plan at any time
before the Offering Termination Date of any Offering by giving written notice to
the Company. All of the Participant's payroll deductions credited to the
Participant's account will be paid to the Participant promptly after receipt of
the notice of withdrawal, and no further payroll deductions will be made from
the Participant's pay during such Offering.
(b) Effect on Subsequent Participation. A Participant's withdrawal from any
Offering will not have any effect upon the Participant's eligibility to
participate in any succeeding Offering or in any similar plan which may
hereafter be adopted by the Company.
(c) Termination of Employment. Upon termination of the Participant's
employment for any reason, including retirement (but excluding death while in
the employ of the Company), the payroll deductions credited to the Participant's
account will be returned to the Participant or, in the case of the Participant's
death subsequent to the termination of the Participant's employment, to the
person or persons entitled thereunder under Section 11(a).
(d) Termination of Employment Due to Death. Upon termination of the
Participant's employment because of the Participant's death, the Participant's
beneficiary (as defined in Section 11) shall have the right to elect, by written
notice given to the Company prior to the earlier of the Offering Termination
Date or the expiration of a period of sixty (60) days commencing with the date
of the death of the Participant, either:
(i) to withdraw all of the payroll deductions credited to the Participant's
account under the Plan, or
(ii) to exercise the Participant's option for the purchase of Stock on the
Offering Termination Date next following the date of the Participant's death for
the purchase of the number of full shares of Stock which the accumulated payroll
deductions in the Participant's account at the date of the Participant's death
will purchase at the applicable option price, and any excess in such account
will be returned to said beneficiary, without interest.
In the event that no such written notice of election shall be duly received
by the Company, the beneficiary shall automatically be deemed to have elected,
pursuant to paragraph (ii), to exercise the Participant's option.
<PAGE>
Section 9. Stock.
(a) Maximum Number of Shares. The maximum number of shares which shall be
issued under the Plan, subject to adjustment upon changes in capitalization of
the Company as provided in Section 11(d), shall be 600,000 shares. If the total
number of shares for which options are exercised on any Offering Termination
Date in accordance with Section 6 exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
available for delivery and distribution in as nearly a uniform manner as shall
be practicable and as it shall determine to be equitable, and the balance of
payroll deductions credited to the account of each Participant under the Plan
shall be returned to the Participant as promptly as possible.
(b) Participant's Interest in Option Stock. The Participant will have no
interest in Stock covered by the Participant's option until such option has been
exercised.
(c) Registration of Stock. Stock to be delivered to a Participant under the
Plan will be registered in the name of the Participant, or, if the Participant
so directs by written notice to the Company prior to the Offering Termination
Date applicable thereto, in the names of the Participant and one such other
person as may be designated by the Participant, as joint tenants with rights of
survivorship or as tenants by the entireties, to the extent permitted by
applicable law.
(d) Restrictions on Exercise. The Committee may, in its discretion, require
as conditions to the exercise of any option that the shares of Stock reserved
for issuance upon the exercise of the option shall have been duly listed, upon
official notice of issuance, upon a stock exchange, and that either:
(i) a Registration Statement under the Securities Act of 1933, as amended,
with respect to said shares shall be effective, or
(ii) the Participant shall have represented at the time of purchase, in
form and substance satisfactory to the Company, that it is the Participant's
intention to purchase the shares for investment and not for resale or
distribution.
<PAGE>
Section 10. Administration.
(a) Committee. The Compensation Committee (the "Committee") of the Board of
Directors shall administer the Plan. The Committee shall consist of no fewer
than three members of the Board of Directors. No member of the Committee shall
be eligible to purchase Stock under the Plan.
(b) Authority of Committee. Subject to the express provisions of the Plan,
the Committee shall have plenary authority in its discretion to interpret and
construe any and all provisions of the Plan, to adopt rules and regulations for
administering the Plan, and to make all other determinations deemed necessary or
advisable for administering the Plan. The Committee may delegate to one or more
individuals the day-to-day administration of the Plan. Decisions of the
Committee shall be conclusive and binding upon all persons in interest.
(c) Rules Governing the Administration of the Committee. The Board of
Directors may from time to time appoint members of the Committee in substitution
for or in addition to members previously appointed and may fill vacancies,
however caused, in the Committee. The Committee may select one of its members as
its Chairman and shall hold its meetings at such times and places as it shall
deem advisable and may hold telephonic meetings. A majority of its members shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. The Committee may correct any defect or omission or
reconcile any inconsistency in the Plan, in the manner and to the extent it
shall deem desirable. Any decision or determination reduced to writing and
signed by a majority of the members of the Committee shall be as fully effective
as if it had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary and shall make such rules and regulations for
the conduct of its business as it shall deem advisable.
(d) Indemnification of Committee. In addition to such other rights of
indemnification as they may have as directors or as members of the Committee,
under the Company's Certificate of Incorporation, Bylaws, or pursuant to law or
contract, the members of the Committee shall be indemnified by the Company
against reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with any action or appeal therein, to which they or any
of them may be party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, 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,
proceeding that such Committee member is liable for misconduct in the
performance of his duties; provided that within sixty (60) days after
institution of any 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.
<PAGE>
Section 11. Miscellaneous.
(a) Designation of Beneficiary. A Participant may file a written
designation of a beneficiary who is to receive any shares and cash to the
Participant's credit under the Plan in the event of such Participant's death
prior to delivery to the Participant of such shares and cash. Such designation
of beneficiary may be changed by the Participant at any time by written notice
to the Company. Upon the death of a Participant and upon receipt by the Company
of proof of the identity and existence at the Participant's death of a
beneficiary validly designated by the Participant under the Plan, the Company
shall deliver such shares and cash to such beneficiary. In the event of the
death of a Participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such Participant's death, the
Company shall deliver such shares and cash to the executor or administrator of
the estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company) the Company, in its discretion, may
deliver such shares and cash to the spouse or to any one or more dependents or
relatives of the Participant or if no spouse, dependent, or relative is known to
the Company then to such other person as the Company may designate. No
designated beneficiary shall prior to the death of the Participant by whom the
beneficiary has been designated, acquire any interest in the shares or cash
credited to the Participant under the Plan.
(b) Transferability. Neither payroll deductions credited to a Participant's
account nor any rights with regard to the exercise of an option or to receive
Stock under the Plan may be assigned, transferred, pledged, or otherwise
encumbered or disposed of in any way by the Participant other than by will or
the laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with Section 8(a).
(c) Use of Funds. All payroll deductions received or held by the Company
under this Plan may be used by the Company for any corporate purpose and the
Company shall not be obligated to segregate such payroll deductions.
(d) Recapitalization. If, while any options are outstanding, the
outstanding shares of Stock of the Company have increased, decreased, changed
into, or been exchanged for a different number or kind of shares or securities
of the Company through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split or similar transaction,
appropriate and proportionate adjustments may be made by the Committee in the
number and/or kind of shares which are subject to purchase under outstanding
options and on the option exercise price or prices applicable to such
outstanding options. In addition, in any such event, the number and/or kind of
shares which may be offered in the Offerings described in Section 4 hereof shall
also be proportionately adjusted.
(e) Merger, Liquidation, Other Corporate Transactions.
(i) In the event of the proposed liquidation or dissolution of the Company,
the Offering then in progress will terminate immediately prior to the
consummation of such proposed liquidation or dissolution, unless otherwise
provided by the Board in its sole discretion, and all outstanding options shall
automatically terminate and the amounts of all payroll deductions will be
refunded without interest to the Participants.
(ii) In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger or consolidation of the Company with or
into another corporation, then in the sole discretion of the Board, (1) each
option shall be assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor corporation, or
(2) a date established by the Board on or before the date of consummation of
such merger, consolidation or sale shall be treated as an Exercise Date, and all
outstanding options shall be deemed exercisable on such date, or (3) all
outstanding options shall terminate and the accumulated payroll deductions shall
be returned to the Participants, without interest.
<PAGE>
(f) Amendment and Termination. The Board of Directors shall have complete
power and authority to terminate or amend the Plan; provided, however, that the
Board of Directors shall not, without the approval of the shareholders of the
Company (i) increase the maximum number of shares which may be issued under the
Plan, (ii) amend the requirements as to the class of employees eligible to
purchase Stock under the Plan or permit the members of the Committee to purchase
Stock under the Plan. No termination, modification or amendment of the Plan may,
without the consent of an Employee then having an option under the Plan to
purchase Stock, adversely affect the rights of such Employee under such option.
(g) No Rights as a Shareholder. No right as a shareholder shall exist with
respect to any shares of Stock covered by options until the shares subject to
the option have been purchased and delivered as provided in Section 7(d). No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such shares have been purchased and delivered.
(h) No Employment Rights. The Plan does not, directly or indirectly, create
any right for the benefit of any Employee or class of employees to purchase any
shares under the Plan, or create in any Employee or class of employees any right
with respect to continuation of employment by the Company, and it shall not be
deemed to interfere in any way with the Company's right to terminate, or
otherwise modify, an Employee's employment at any time.
(i) Effective Date. The Plan shall become effective as of January 1, 2001,
subject to approval by the shareholders of the Company within twelve (12) months
after its adoption by the Board of Directors. If the Plan is not approved, the
Plan shall not become effective.
(j) Termination Date. This Plan shall terminate, and no further shares of
Stock shall be sold or issued hereunder, on December 31, 2005, or such earlier
date as may be determined by the Board of Directors or Committee. The
termination of this Plan, however, shall not affect any restrictions previously
imposed on the shares issued pursuant to this Plan or rights of the Company
granted pursuant to this Plan.
(k) Effect of Plan. The provisions of the Plan shall, in accordance with
its terms, be binding upon, and inure to the benefit of, all successors of each
Employee participating in the Plan, including, without limitation, such
Employee's estate and the executors, administrator or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Employee.
(l) Governing Law. The law of the State of New York will govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
Date Plan adopted by Board of Directors: October 23, 2000
Date Plan approved by Shareholders:
