UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment #1)
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to____
Commission file number: 0-9919
PSC Inc.
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Exact name of registrant as specified in its charter
New York 16-0969362
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State or other jurisdiction of IRS Employer ID No.
incorporation or organization
675 Basket Road, Webster, New York 14580
- -------------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 716-265-1600
Securities registered pursuant to Section
12(b) of the Act:
None
------
Securities registered pursuant to Section 12(g) of the Act: Nasdaq Stock Market
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
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<PAGE>
As of March 27, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $65,539,284 (Assumes
officers, directors and any shareholder holding 5% of the outstanding shares are
affiliates.)
As of March 27, 2000, there were outstanding 12,208,801 shares of Common Stock.
Documents incorporated by reference: None
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<PAGE>
TABLE OF CONTENTS
PART III
Page Number
-----------
Item 10: Directors and Executive Officers of the Registrant.............. 4
Item 11: Executive Compensation.......................................... 7
Item 12: Security Ownership of Certain Beneficial Owners and Management.. 15
Item 13: Certain Relationships and Related Transactions.................. 17
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PSC Inc. hereby amends its Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, by restating Part III, Items 10, 11, 12 and 13 thereof
in their entirety, as follows:
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The Company's Restated Certificate of Incorporation provides for a Board of
Directors to serve in three classes having staggered terms of three years each.
At present, there are ten directors, nine of whom have been elected by the
holders of the Common Shares and one of whom has been elected by the holders of
the Series A Convertible Preferred Shares. Under the Company's Restated
Certificate of Incorporation, as amended, so long as Hydra Investissements S.A.
holds at least 27,500 Series A Convertible Preferred Shares, the holders of
Series A Convertible Preferred Shares have the exclusive right, voting
separately as a class, to elect one director (the "Series A Director") and are
entitled to vote together with the holders of the Common Shares as a single
class in the election of the other directors. Three directors have terms of
office expiring at the 2000 Annual Meeting of Shareholders; four directors (one
of whom is the Series A Director) have terms of office expiring at the 2001
Annual Meeting; and three directors have terms of office expiring at the 2002
Annual Meeting.
Directors whose terms expire in 2000:
Donald K. Hess, age 69, has served as a director of the Company since 1987.
From 1975 until his retirement in December 1995, Mr. Hess was a Vice President
of the University of Rochester, Rochester, New York. He currently continues his
association with the University of Rochester on a part-time basis as Vice
President Emeritus.
James C. O'Shea, age 54, 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.
Justin L. Vigdor, age 70, has served as a director of the Company since
1989. He has been an attorney since 1951 and is a partner in the law firm of
Boylan, Brown, Code, Vigdor & Wilson, LLP, Rochester, New York, counsel to the
Company. He is also a director of IEC Electronics Corp., Newark, New York, an
independent contract manufacturer of complex printed circuit board assemblies
and electronic products and systems.
Directors whose terms expire in 2001:
Robert S. Ehrlich, age 62, has served as a director of the Company since
1983 and has been Chairman of the Board of Directors since April 1997. He was
Vice Chairman of the Board of Directors from February 1997 until April 1997. He
was also Chairman of the Board of Directors from December 1987 until July 1992.
From January 1995 until December 1996, Mr. Ehrlich was engaged to provide
consulting services to the Company. From August 1991 until December 1994, Mr.
Ehrlich was employed by the Company as a senior management executive. Mr.
Ehrlich has been Chairman of the Board of Electric Fuel Company ("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.
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<PAGE>
Jack E. Rosenfeld, age 61, has served as a director of the Company since
1989. He has been President and Chief Executive Officer of Potpourri Collection,
Inc., a consumer catalog company in Medfield, Massachusetts, since 1998. Prior
thereto, he was President and Chief Executive Officer of Hanover Direct, Inc.
(formerly Horn & Hardart Co.) from September 1990 until January 1996 and
President and Chief Executive Officer of its direct marketing subsidiary from
May 1988 until January 1996. He is also a director of EFC and Maurice
Corporation, an apparel retailer.
Robert C. Strandberg, age 42, has served as a director since May 1998.
He has served as the President and Chief Executive Officer of the Company since
April 1997 and as Executive Vice President from November 1996 until April 1997.
Between 1991 and 1996, Mr. Strandberg was Chairman of the Board of Directors,
President and Chief Executive Officer of Datamax International Corporation
("Datamax"), Orlando, Florida. Datamax designs and manufactures thermal bar code
printers. Mr. Strandberg is also a director of Sawtek, Inc., Orlando, Florida, a
manufacturer of surface acoustical filters for cellular phones. He is also a
director of Merix Corporation, Forest Grove, Oregon, a manufacturer of advanced
printed circuit boards for use in sophisticated electronic equipment.
Dr. Romano Volta, age 63, is the Series A Director and has served as a
director of the Company since September 1997. Dr. Volta is President of the
Board of Directors of Hydra S.p.A., an Italian corporation, which is an
industrial and real estate holding corporation. He is also the founder and
President of Datalogic S.p.A., an Italian corporation, which manufactures auto
identification and data collection systems. Dr. Volta is a member of the Board
of Directors of Bank Institution and Bank Foundation of Bologna, Italy.
Directors whose terms expire in 2002:
Dr. Jay M. Eastman, age 51, 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 In Touch Massage Center, 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. 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.
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Executive Officers
The executive officers of the Registrant are set forth in Part I of the
Registrant's Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC") on April 14, 2000.
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 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.
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ITEM 11: EXECUTIVE COMPENSATION
Summary Compensation Table
Set forth below is information concerning the cash and non-cash
compensation for services in all capacities to the Company for the fiscal years
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>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-term
Compensation
Annual 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 and 1997 160,000 -- 26,710 -- 30,000 3,139
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
and 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 --
and General Manager
Brad R. Reddersen 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>
(1) For 1999, the amounts in this column reflect annual incentive awards under
the Company's Management Incentive Plan ("MIP"). 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:
MIP ($) Bonus in Lieu of Options ($)
-------- ----------------------------
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.
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(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.
(3) Restricted stock awards are valued in the table above at their fair market
value based on the closing price for the Company's Common Shares as
reported by The Nasdaq Stock Market(R) on the date of award. On March 25,
1998, Mr. Strandberg was awarded 37,500 restricted shares. The closing
price of the Company's Common Shares on that date was $10.75. At the end of
the 1998 fiscal year, the fair market value of Mr. Strandberg's restricted
stock holdings was $356,250, based upon the closing price of the Company's
Common Shares on December 31, 1998 of $9.50. The restrictions on 50% of
such shares will lapse in four equal annual installments on March 25, 1999,
March 25, 2000, March 25, 2001 and March 25, 2002 so long as Mr. Strandberg
is an officer on such dates. The restrictions on the other 50% of the
shares will not lapse unless and until certain performance levels for the
Company's shares are attained - with respect to 6,250 shares, at such time
as the trading price of the Company's Common Shares equals or exceeds
$14.30 per share for seven consecutive days at any time prior to March 25,
2002; with respect to 6,250 shares, at such time as the trading price of
the Company's Common Shares equals or exceeds $16.87 per share for seven
consecutive days at any time prior to March 25, 2002; and with respect to
6,250 shares, at such time as the trading price of the Company's Common
Shares equals or exceeds $19.57 per share for seven consecutive days at any
time prior to March 25, 2002. If the trading price of the shares does not
reach the specified performance levels by March 25, 2002, all shares still
subject to the restrictions will be returned to or cancelled by the
Company.
(4) The amounts in this column for 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.
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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.
(5) Mr. Strandberg became the President and Chief Executive Officer on April
30, 1997. He joined the Company as Executive Vice President in November
1996.
(6) The amount set forth as salary for 1998 represents the cash payment to Mr.
Strandberg for the period June 1, 1998 through December 31, 1998 and the
amount set forth for 1997 represents the cash payment to Mr. Strandberg for
the period January 1, 1997 through May 31, 1997. Pursuant to his Employment
Agreement, Mr. Strandberg elected to receive all of his base salary
($240,000) for the period between June 1, 1997 and May 31, 1998 in the form
of stock options. Accordingly, on June 2, 1997, Mr. Strandberg received a
stock option to purchase 73,846 shares at an exercise price of $6.50 per
share (the fair market value of the Company's Common Shares on the date of
grant). Said option vested in four equal quarterly installments on August
31, 1997, November 30, 1997, February 28, 1998 and May 31, 1998 and expires
on June 2, 2000.
(7) Mr. Parnell left the Company on January 11, 2000.
(8) Ms. Miller became Senior Vice President and General Manager in May 1999.
She joined the Company as Vice President, Marketing in April 1998.
Options and Stock Appreciation Rights
The following tables summarize option grants to, and exercises by, the
Named Executive Officers in fiscal 1999, and the value of the options held by
such persons at the end of fiscal 1999. No stock appreciation rights have ever
been granted by the Company.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1999
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (1)
--------------------------------------------------- ---------------------------
Number of Percent of Total
Securities Options Granted Exercise or
Underlying to Employees in Base Price
Name Options Granted(#) Fiscal 1999 (2) ($/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 $89,360 $ 97,462
William J. Woodard 6,500 (6) 1.5% $6.750 10/25/04 $12,122 $ 26,786
William L. Parnell, Jr. 7,500 (6) 1.7% $6.750 10/25/04 $13,987 $ 30,907
Linda J. Miller 7,500 (6) 1.7% $6.750 10/25/04 $13,987 $ 30,907
26,250 (7) 6.1% $7.094 12/6/04 $51,448 $113,688
Brad R. Reddersen 5,000 (6) 1.2% $6.750 10/25/04 $ 9,325 $ 20,605
</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.
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<PAGE>
(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.
(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
$12.91 per share for seven consecutive days. If the specified performance
goals are not reached, the options will nevertheless become fully
exercisable after June 6, 2004 in order to maintain favorable accounting
treatment.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1999
AND 1999 YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at December 31, 1999 (#) December 31, 1999 ($)(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.
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<PAGE>
Employment Contracts and Severance and Change-in-Control Arrangements
Robert C. Strandberg
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 will expire on December 31, 2000 (the "Initial Term"). However, unless
written notice is given to the contrary by either the Company or Mr. Strandberg
at least 75 days prior to the expiration date, the employment period will
automatically be extended for additional one-year terms (each an "Additional
Term"). Under the Strandberg Agreement, Mr. Strandberg will receive an annual
base salary of $336,000 or such increased amount as may be determined by the
Board from time to time. In addition, under the Strandberg Agreement, if certain
performance goals and targets determined annually by the Company's Board of
Directors for the Company's Management Incentive Plan ("MIP") are met, Mr.
Strandberg will be entitled to receive a performance bonus for that year ranging
from 40% to 170% of his base salary with no performance bonus if the performance
goal is not achieved in a particular year. Mr. Strandberg is also eligible to
participate in employee benefit plans generally made available by the Company to
its executive officers.
If Mr. Strandberg's services are terminated without cause (as defined
below), the Company will continue to pay him for a period of one year his base
salary and all current health, dental, life and accidental death and
dismemberment insurance benefits.
In the event Mr. Strandberg terminates his employment for any reason within
90 days after the occurrence of a Change-in-Control (as defined below) or in the
event of the termination of employment of Mr. Strandberg within the two-year
period following a Change-in-Control (as defined below), and such termination is
(i) by the Company for any reason other than Termination for Cause (as defined
below), death or disability, or (ii) by Mr. Strandberg for "Good Reason" (as
defined below), the Company will pay Mr. Strandberg over a period of three years
following such termination an amount equal to the product of the sum of (x) Mr.
Strandberg's base salary at the annual rate then in effect and (y) the highest
annual bonus paid to Mr. Strandberg under the Company's current Management
Incentive Plan in the three full fiscal years preceding termination multiplied
by 2.9. In addition, Mr. Strandberg will be immediately vested in any
retirement, incentive, restricted stock, or option plans or agreements then in
effect and the Company will continue to provide Mr. Strandberg with his then
current health, dental, life and accidental death and dismemberment insurance
benefits for a period of three years.
If any of the payments to Mr. Strandberg are considered "excess parachute
payments" as defined in Section 280G of the Internal Revenue Code, the payments
will be reduced to avoid such a characterization.
The Strandberg Agreement contains confidentiality provisions and a covenant
not-to-compete for a period of 24 months after the expiration of the Initial
Term and the Additional Term, if any.
Pursuant to the Strandberg Agreement, in March 1998 Mr. Strandberg received
an award of 37,500 restricted shares which cannot be sold, transferred or
otherwise disposed of until the restrictions lapse. See Footnote (3) to the
Summary Compensation Table for further details with respect to the restricted
shares. Pursuant to the Strandberg Agreement, 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 represents 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 will vest 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.
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<PAGE>
The options for the remaining 18,750 shares will not vest unless and until
certain performance levels for the Company's Common Shares are attained - with
respect to 6,250 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 6,250 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 6,250 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.
Severance/Change-in-Control Agreements
Severance/Change-in-Control Agreements have been entered into with all
senior executive officers, including Messrs. Parnell, Reddersen and Woodard and
Ms. Miller, 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, the Strandberg
Agreement and the Severance/Change-in-Control Agreements:
(a) Change-in-Control generally means the acquisition of 30% of the
Company's voting securities (20% in the Strandberg Agreement), or a change of
one-third of the incumbent Board of Directors without the prior approval of the
members of the incumbent Board of Directors, or the merger or consolidation of
the Company with another corporation where the shareholders of the Company would
not, immediately after the merger or consolidation, own at least 50% of the
voting securities of the corporation issuing the cash or securities in the
merger or consolidation, or the sale of substantially all of the assets of the
Company.
-12-
<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.
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 Mr. Ehrlich, was paid $9,000 for such extra
service. Members of the Special Committee were Messrs. Ehrlich (Chairman),
Morgan, O'Shea, Rosenfeld and Vigdor. 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. All directors, except
Messrs. Ehrlich and Strandberg, are non-employee directors.
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.
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<PAGE>
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. Since the Board in 1999
adopted a policy of reducing by 50% the size of the annual stock option grants
to officers and key employees, the Board believed that this policy should be
applicable to everyone, and, accordingly, 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 are 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.
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 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 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. In the event of a
change-in-control and if Mr. Ehrlich becomes entitled to receive the severance
payment set forth above, all of the restrictions on his restricted shares will
lapse and all of his options will immediately vest.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee consist of Messrs. O'Shea
(Chairman), Morgan, Rosenfeld and Dr. Volta. Each member is a non-employee
director and does not have any direct or indirect material interest in or
relationship with the Company outside of his position as director.
-14-
<PAGE>
ITEM 12: 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 April 24, 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 directors, (iii) each of the Company's Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group. The information as to each person and entity has been furnished by
such person and entity, and, except as noted, each person and entity named in
the table has sole voting and investment power with respect to all shares shown
as beneficially owned by such person or entity.
<TABLE>
<CAPTION>
Certain Beneficial Owners
Name and Address Shares of Class Percent of Class
of Beneficial Owner Title of Class Beneficially Owned Beneficially Owned
- ------------------------------------ -------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Dr. Romano Volta (1) Series A Preferred 110,000 100%
Hydra S.p.A. Shares
Via Massino D'Azeglio 57
40123 Bologna, Italy Common Shares 1,990,735 14.65%
L. Michael Hone (2) Common Shares 1,048,805 8.19%
502 Brookside Drive
Andover, MA 01810
Stadium Capital Management, LLC and Common Shares 723,300 6.01%
related parties (3)
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 425,985 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.
(2) Includes 785,726 shares subject to stock options held by Mr. Hone that are
currently exercisable.
(3) 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 adviser 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.
-15-
<PAGE>
<TABLE>
<CAPTION>
Security Ownership of Directors and Executive Officers
Name of Beneficial Common Shares Percent of Common Shares
Owner Beneficially Owned Beneficially Owned
- -------------------- ------------------ ------------------------
<S> <C> <C>
Jay M. Eastman* 128,850 (1)(2) 1.06%
Robert S. Ehrlich* 359,854 (1)(3) 2.95%
Donald K. Hess* 52,420 (1) +
Thomas J. Morgan* 26,973 (1) +
James C. O'Shea* 41,970 (1) +
Jack E. Rosenfeld* 57,246 (1)(4) +
Robert C. Strandberg* 235,177 (1)(5) 1.92%
Justin L. Vigdor* 36,413 (1) +
Romano Volta* 1,990,735 (1)(6) 14.65%
Bert W. Wasserman* 53,250 (1) +
Linda J. Miller 3,611 +
William L. Parnell, Jr. 54,995 (1) +
Brad R. Reddersen 50,611 (1) +
William J. Woodard 106,810 (1) +
All directors and current executive officers as a
group including those named above (26 persons) 3,413,345 (6)(7) 23.45%
* Member of the Board of Directors of the Company
+ Less than 1%
</TABLE>
(1) Includes the following Common Shares subject to acquisition by the exercise
of stock options which are, or within 60 days after April 24, 2000 will be,
exercisable and are therefore deemed under Securities and Exchange
Commission regulations to be beneficially owned: Messrs. Hess, O'Shea,
Rosenfeld and Vigdor, 29,250 shares each; Mr. Ehrlich, 153,354 shares; Dr.
Eastman, 115,328 shares; Messrs. Parnell and Reddersen, 46,250 shares each;
Mr. Strandberg, 191,034 shares; Mr. Woodard, 86,605 shares; Mr. Morgan,
22,750 shares; Dr. Volta, 9,750 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 control of that
partnership. Red Lion Enterprises, Inc. is a corporation wholly-owned by
Mr. Ehrlich and his wife. Accordingly, Mr. Ehrlich may be deemed to
beneficially own the shares owned by Ehrlich & Co., by the R. S. Ehrlich &
Co. Pension Plan Trust, and by Red Lion Enterprises, Inc. Also includes
15,313 restricted shares (see "ITEM 11 - EXECUTIVE COMPENSATION -
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 32,813 restricted shares (see "ITEM 11 - EXECUTIVE COMPENSATION -
Summary Compensation Table" - Footnote (3)).
(6) See "ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT - Certain Beneficial Owners" - Footnote (1).
(7) Includes 971,654 shares subject to acquisition by the exercise of stock
options which are, or within 60 days after April 24, 2000 will be,
exercisable.
-16-
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED 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.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PSC Inc.
DATE: April 28, 2000 By: /s/ Robert C. Strandberg
Robert C. Strandberg
President and Chief Executive Officer
DATE: April 28, 2000 By: /s/ William J. Woodard
William J. Woodard
Vice President and
Chief Financial Officer
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