ZONIC CORPORATION
Park 50 TechneCenter, 50 West TechneCenter Drive
Milford, Ohio 45150-9777
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 19, 1998
To the Shareholders of ZONIC CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of Zonic Corporation, an Ohio corporation, will be held at
Holiday Inn, 4501 Eastgate Boulevard, Cincinnati, Ohio 45245, on August 19,
1998 at 2:00 p.m., Eastern Daylight Savings Time, for the purpose of
considering and acting upon:
1. A proposal to fix the number of directors for the ensuing year at
three in number.
2. A proposal to elect the Board of Directors for the next year.
3. Such other business as may properly be brought before the Annual
Meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on July 10, 1998
as the record date for the determination of the shareholders entitled to
receive notice of, and to vote at, the meeting and any adjournment(s) thereof,
notwithstanding any subsequent transfers of stock.
Your attention is called to the accompanying Proxy and Proxy Statement
submitted with this Notice.
A copy of the Company's 1998 Annual Report and Form 10-K Report is being
forwarded to you herewith, but it is not deemed to be part of the official
proxy soliciting material. If any shareholder fails to receive a copy of
same, one may be obtained by writing to the Treasurer of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
Dale R. Nieman, Secretary
Milford, Ohio
July 15, 1998
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER YOU
EXPECT TO ATTEND OR NOT, PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE STAMPED ENVELOPE PROVIDED. IN THE EVENT YOU ATTEND
THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement and accompanying proxy are furnished in connection
with the solicitation of proxies by Zonic Corporation (hereinafter referred to
as the "Company"), for the Annual Meeting of Shareholders of the Company (the
"Annual Meeting"), to be held on August 19, 1998. Such solicitation is being
made by mail, although the Company may also use its officers and regular
employees to solicit proxies from shareholders personally, or by telephone,
telegraph or letter. The costs of this solicitation will be borne by the
Company. The Company may request nominees and brokers to solicit their
principals and customers for their proxies, and in such event the Company may
reimburse such nominees and brokers for their reasonable out-of-pocket
expenses.
All shares represented by valid proxies received pursuant to this
solicitation, and not revoked, will be voted at the Annual Meeting, and where
a specification is made on the proxy, such shares will be voted in accordance
with such specification. Unless contrary instructions are given, shares will
be voted in favor of the proposals set forth in the accompanying Notice of
Meeting and for the nominees for Directors set forth herein and in the
discretion of the appointed proxies upon such other matters as may properly
come before the meeting. Any proxy may be revoked by the shareholder at any
time prior to the voting thereof, by giving written notice to the Company
prior to the Annual Meeting or by giving oral notice to the Company at the
Annual Meeting.
The Board of Directors has fixed the close of business on July 10, 1998
as the record date (the "Record Date") for the determination of the
shareholders entitled to receive notice of, and to vote at, the Annual Meeting
and at any adjournment(s) thereof, notwithstanding any subsequent transfers of
stock.
OUTSTANDING VOTING SECURITIES
On July 10, 1998, there were 3,044,136 outstanding shares of the
Company's common stock without par value ("Common Stock") each of which is
entitled to one vote on each matter to be considered at the Annual Meeting.
The Company has no other class of securities outstanding which has voting
rights. The presence either in person or by proxy of the persons entitled to
vote a majority of the Common Stock is necessary for a quorum for the
transaction of business at the Annual Meeting.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock (its only outstanding voting
securities on July 10, 1998) (i) by each person who is known by the Company to
own beneficially more than 5% of the Common Stock, (ii) by each Director that
owns Common Stock, (iii) by the executive officer named in the Summary
Compensation Table in this Proxy Statement and (iv) by all Directors and
Officers of the Company as a group.
Name of Beneficial Amount & Nature
Owner or Identity of Beneficial Percent
of Group Ownership of Class (1)
- ------------------ ---------------- ------------
A&D Co. of Japan 869,560(2) 28.6%(2)
Daihatsu-Nissay
Ikebukuro Bldg.
3-23-14 Higashi-Ikebukuro
Toshima-ku, Tokyo 170, Japan
Shoiche Sekine 869,560(3) 28.6%(3)
c/o A&D Co. of Japan
Daihatsu-Nissay
Ikebukuro Bldg.
3-23-14 Higashi-Ikebukuro
Toshima-ku, Tokyo 170, Japan
Gerald J. Zobrist 684,980(4) 20.7%(4)
2900 Eight Mile Road
Cincinnati, Ohio 45244
CapTec Corporation 395,480(5) 13.0%(5)
2900 Eight Mile Road
Cincinnati, Ohio 45244
James B. Webb 149,400(6) 4.7%(6)
All Directors and Executive 1,847,870(7) 52.2%(7)
Officers as a Group (5 in number)
- ---------------------------------
(1) Percentages are based on an aggregate of 3,044,136 shares of Common Stock
outstanding as of the Record Date. Shares of Common Stock subject to options
exercisable within 60 days of the Record Date under the Company's stock option
plans are deemed outstanding for computing the percentage of class of the
person holding such option but are not deemed outstanding for computing the
percentage of class for any other person. See footnotes (4), (6) and (7)
below.
(2) Does not include a stock option granted to A&D for 1,000,000 shares at
an exercise price of $2.00 per share, as consideration for making loans, and
guaranteeing bank loans, to the Company. The option is currently exercisable
and expires on March 20, 2005.
(3) These shares represent the shares owned by A&D. Mr. Sekine, internal
auditor and a minority owner of A&D, and a director and executive officer of
the Company, does not individually own any shares of the Company and disclaims
beneficial ownership of the shares held by A&D.
(4) Includes 395,480 shares held by CapTec Corporation, a company of which
Mr. Zobrist is the president, a director, owns all of the outstanding stock,
252,500 shares subject to currently exercisable options and 37,000 shares held
in trust for his minor children. Percentage outstanding is based on
3,044,136 presently outstanding shares plus the 252,500 shares subject to
options.
(5) Excludes shares beneficially owned by Mr. Zobrist.
(6) Includes 15,000 shares held by Mr. Webb's wife and 132,500 shares subject
to presently exercisable options. Percentage is based on 3,044,136 presently
outstanding shares plus the 132,500 shares subject to options.
(7) Includes 35,800 shares owned of record and beneficially, 1,317,040 shares
held by wives, corporations, minor children or held in trust for minor
children, and 495,000 options which are presently exercisable or exercisable
within 60 days of the Record Date held by five officers and directors.
Percentages are based on presently outstanding shares of 3,044,136 plus
495,000 shares subject to options.
None of the above persons have shared voting or investment powers with
regard to their shares of Common Stock.
FIXING NUMBER OF DIRECTORS
At the Annual Meeting, shareholders will vote on a proposal to fix the
number of Directors of the Company for the ensuing year at three (3) in
number. The affirmative vote of the holders of a majority of the shares of
Common Stock which are represented at the meeting in person or by proxy and
entitled to vote will be necessary to approve this proposal. Management
recommends that shareholders vote FOR the foregoing resolution.
ELECTION OF DIRECTORS
At the meeting, Directors of the Company are to be elected to serve for
the ensuing year and until their respective successors are elected and
qualified. The existing three members of the Board of Directors will be
nominees for Directors (see below). The shares represented by the enclosed
Proxy will be voted for the election as Directors of the three nominees named
below unless otherwise indicated on the Proxy. If any nominee becomes
unavailable for any reason or if a vacancy should occur before the election
(which events are not anticipated), the shares represented by the enclosed
Proxy may be voted for such other persons as may be determined by the holders
of such proxies.
Information Concerning Nominees
The information appearing in the following table with respect to age and
principal occupation has been furnished to the Company by the nominees.
Name Age Business Experience for Past Five Years
---- --- ---------------------------------------
James B. Webb 41 President and Chief Executive Officer of the
Company since December 31, 1995. Treasurer
of the Company since September 1994.
Secretary of the Company from September 1993
to February 1996. Senior Vice President of
the Company from July 1989 to February 1996.
Director of the Company since 1985.
Shoiche Sekine 66 Director of the Company since 1988. Director of
A&D Co., Ltd.("A&D"), Tokyo, Japan, a
manufacturer of electronic measurement
instrumentation from 1985 until June 1997.
[Internal auditor of A&D since June 1997.]
Executive Vice-President of the Company
since December 1992. Secretary of the
Company from February 1996 to February 1998.
Gerald J. Zobrist 55 President and Owner of CapTec Corporation
(Acquisition and Investment Company).
Director of the Company since 1970.
President and Chief Executive Officer of the
Company from June 1970 until December 31,
1995.
None of the Directors are related.
The Board of Directors does not have standing audit, nominating or
compensation committees or committees performing similar functions.
During the fiscal year ended March 31, 1998, four meetings of the Board
of Directors were held. All existing Directors attended each meeting during
the year.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
Name Age Business Experience for Past Five Years
---- --- --------------------------------------
James B. Webb 41 President and Chief Executive Officer of the
Company since December 31, 1995. Treasurer
of the Company since September 1994.
Secretary of the Company from September 1993
to February 1996. Senior Vice President of
the Company from July 1989 to February 1996.
Director of the Company since 1985.
Shoiche Sekine 66 Executive Vice-President of the Company since
December 1992 and Secretary of the Company
from February 1996 to February 1998.
Director of the Company since 1988.
Dale R. Nieman 51 Vice-President of the Company since 1985;
Assistant Treasurer since February, 1996 and
Secretary since February 1998.
Robert L. Goelz III 50 Vice-President of the Company since November 22,
1996. Account executive for Wonderware
Corporation from May 1995 until November
1996. Director of Marketing and Sales of
Crisp Automation Division of Square D Co.
Inc. from February 1990 until May 1995.
EXECUTIVE COMPENSATION
Report of the Board on Executive Compensation
- ---------------------------------------------
The Company's Board of Directors does not have a Compensation Committee
but rather, the entire Board establishes the policies and procedures, as well
as amounts of compensation, for all executive officers of the Company. The
Company's compensation package for its executive officers consists of one or
more of the following: base salary, annual performance-based bonus and stock
option grants. In setting compensation levels the Board considers various
factors including salary levels of similarly situated executive officers at
comparable companies, the achievement of performance targets taking into
consideration competitive and economic conditions, and the Company's current
adverse financial condition.
The Board reviewed compensation for all of the Company's executive
officers and there were no salary increases during fiscal 1998. The lack of
salary increases was in recognition of cash flow problems of the Company
rather than any dissatisfaction with officer performance. No bonus was paid
to any executive officer for fiscal 1998.
Board of Directors
Gerald J. Zobrist James B. Webb Shoiche Sekine
Summary
- -------
The following table is a summary of certain information concerning the
compensation awarded or paid to, or earned by, the Company's chief executive
officer and any executive officer of the Company whose compensation exceeded
$100,000 during the last fiscal year (the "Named Executive Officer").
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
-------------------------------------------------
Securities All Other
Name and Salary Bonus Underlying Compensation
Principal Position Year ($)(1) ($) Options ($)(2)
- -----------------------------------------------------------------------------
James B. Webb,
President 1998 110,000 -0- -0- $1,650
and Chief Executive 1997 110,000 -0- -0- 1,650
Officer 1996 103,475 -0- 55,000 1,104
(1) Includes amounts deferred at the direction of the executive officer
pursuant to the Company's 401(k) Retirement Plan.
(2) Amounts shown represent the Company's contribution for the executive
officer to the Company's 401(k) Retirement Plan.
No options were granted to the Named Executive Officer during
the 1998 fiscal year pursuant to the Company's stock option plans.
No options were exercised by the Named Executive Officer during
fiscal 1998.
Other Compensation
------------------
Directors of the Company receive no compensation for their
services as Directors.
Insider Participation in Compensation Determinations
----------------------------------------------------
The Board of Directors is responsible for executive
compensation decisions. Mr. Webb serves on the Board and is
the President and Chief Executive Officer of the Company. Mr.
Sekine is a director and the Executive Vice-President of the
Company. He is also a minority owner and internal auditor of
A&D Company, Ltd. of Tokyo, Japan ("A&D"), a company which,
as of the Record Date, owns 28.6% of the Company. The
Company has in place a policy that no director shall
participate in determinations of his own
compensation. See "Related Party Transactions".
Financial Performance
The graph below summarizes the cumulative return
experienced by the Company's shareholders over the fiscal
years ended 1994 through 1998, compared to the NASDAQ Market
Index U.S. and the S&P HighTech Composite Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG ZONIC CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
Cumulative Total Return
-----------------------
3/93 3/94 3/95 3/96 3/97 3/98
Zonic Corp ZNIC 100.00 22.22 33.33 24.98 22.22 8.33
NASDAQ STOCK MARKET (U.S.) INAS 100.00 107.94 120.07 163.03 181.21 275.21
S & P TECHNOLOGY SECTOR ITES 100.00 117.62 148.84 200.95 271.66 410.56
RELATED PARTY TRANSACTIONS
In February 1988, the Company became affiliated with A&D, a Japanese
instrument manufacturing company, by reason of A&D's purchase on that date of
86,956 shares of the Company's Preferred Stock for approximately $2,000,000.
The Preferred Stock was converted on March 31, 1991 into 869,560 Common
Shares. The Company has entered into various joint product development
arrangements, marketing arrangements and a credit agreement with A&D dated
December 7, 1992 (the "Credit Agreement"), most of which have been terminated
in the past few years.
In February 1988, the Company appointed A&D as the Company's exclusive
marketing agent for the distribution of the Company's products in Japan
pursuant to an agreement which is terminable by either party upon 60 days
prior written notice. Total revenues related to products sold to A&D were
$84,000 for the year ended March 31, 1998. The Company sells its products to
A&D at discounts which vary by product. These discounts are a vendor-to-agent
discount and not a discount to the end-user. Generally, the discount rates
made available to A&D for specific products are greater than the discount
rates made available to non-affiliated international sales agents in other
countries because of the significance of the Japanese market and because A&D,
as a manufacturer of similar products, has significantly more technical
expertise than other agents currently used by the Company. Accordingly, A&D
can provide installation and more technical services to the end user, which
reduces the Company's selling expenses. The Company believes that the terms
made available to A&D as an international sales agent are fair and are not
more favorable than the terms that would be made available to a non-affiliated
sales agent in a similar market and with similar technical expertise.
In October 1988, Zonic A&D Company ("Zonic A&D"), a sales and marketing
joint venture was formed with A&D Engineering, Inc., a California subsidiary
of A&D. The joint venture marketed and sold all of the Company's products and
A&D's spectrum analysis instruments in the Western Hemisphere. Each company
had a 50% ownership in the joint venture which was based on a five-year
renewable agreement which provided for equal sharing of profits and losses,
sharing of expenses and all other respects except for A&D's funding
obligations. The Company provided Zonic A&D office space on a rent-free
basis. During 1997, the Company and A&D agreed to dissolve Zonic A&D to
simplify operations and reduce operating costs. All daily operations were
merged into the Company on April 1, 1997.
In December 1992, the Company entered into a Credit Agreement and related
agreements with A&D, whereby the Company borrowed up to $2,480,000 from A&D.
A&D also guaranteed third party loans pursuant to the Credit Agreement.
Interest on each of the loans made pursuant to the Credit Agreement bore
interest at a fluctuating interest rate per annum equal to prime plus one
percent. The amount of bank loans guaranteed by A&D under the Credit
Agreement was reduced to $1,100,000 in June, 1997 and the Credit Agreement was
terminated in fiscal 1998.
On April 1, 1997, the Company also paid in full a loan from A&D to Zonic
A&D that the Company assumed in 1994. The loan, which bore interest at 4%,
was not a part of the Credit Agreement.
In fiscal 1997, the Company sold its Zeta technology and software (the
"Zeta Technology") to A&D pursuant to a Confidential "Zeta Technology" Sale
Agreement between A&D and the Company dated December 31, 1996, and related
letters (the "Zeta Sale Agreement"). A portion of the sale price of the Zeta
Technology was in the form of notes receivable. The last note was paid in
full on June 30, 1997; the proceeds were used to pay down the Company's
outstanding bank debt. Under the terms of the Zeta Sale Agreement, the
Company retains the right to distribute the Zeta Technology internationally in
exchange for a royalty payment to A&D in the amount of 15% of the proceeds of
the sale of the Zeta products. In fiscal 1998, the royalty amounted to
$2,621.
Pursuant to the terms of a Subscription Agreement between the Company and
A&D, dated January 30, 1998, A&D purchased 12,000 shares of Class A Non-
Voting, Redeemable Convertible Preferred Stock of the Company at a price of
$100 per share which is convertible on or after January 30, 1999 at the rate
of one Class A Preferred Share for 100 shares of common stock ("Class A
Preferred Stock"). Proceeds of $1,200,000 from this sale were used to repay a
bank loan of $1,078,000, and related accrued interest of $26,757 and to settle
a portion of the loans payable to A&D of $95,243. In addition, A&D purchased
6,000 shares of Class B Non-Convertible, Redeemable, Non-Voting Preferred
Stock of the Company at a price of $200 per share with an annual dividend
equal to 20% of the Company's annual after-tax earnings excluding non-
recurring earnings ("Class B Preferred Stock"). Proceeds of $1,200,000 from
the sale of Class B Preferred Stock were used to repay a short-term bank loan
of $600,000 which A&D guaranteed, the balance of loans payable to A&D totaling
$538,203 and related accrued interest of $61,797. In the event of liquidation
or dissolution of Zonic, the Class A Preferred Stock is entitled to receive
$100.00 per share, and the Class B Preferred Stock $200.00 per share, before
holders of common stock receive any amounts. Both classes of Preferred Stock
may be redeemed by the Company upon thirty days prior notice, the Class A
shares at $100.00 per share, and the Class B shares at $200.00 per share.
Pursuant to the Subscription Agreement, the Credit Agreement was terminated
and A&D released its security interest in the Company's assets.
On February 27, 1997, the Company sold its Xcite Product line including
substantially all of the related assets to Xcite Systems Corporation.
Pursuant to the terms of the Asset Purchase Agreement (the "Purchase
Agreement"), the Company is entitled to royalties on future sales of the Xcite
products by Xcite Systems Corporation (not to exceed $110,000). Such
royalties amounted to $29,058 in fiscal year 1998. Gerald J. Zobrist, a
Director of the Company, is an officer, director and controls 100% of the
stock of a corporation owning 50% of Xcite Systems Corporation's stock.
On August 22, 1997, the Company entered into an agreement with Mr.
Zobrist pursuant to which the Company assigned its rights to receive the first
$26,650 in royalty payments due under the Purchase Agreement to Mr. Zobrist in
exchange for a cash payment of $25,000. The Company used the proceeds from
the assignment to pay past due rent in connection with termination of its then
existing lease.
Except as otherwise noted, with respect to each of the foregoing related
party transactions, it is the opinion of management of the Company that said
transactions were upon terms as favorable to the Company as those which could
have been secured from non-affiliated parties.
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 ten
percent of the Common Stock, to file with the Securities and Exchange
Commission initial reports of stock ownership and reports of changes in stock
ownership. To the Company's knowledge, any such reports required to be filed
were filed in a timely manner.
OTHER MATTERS
Management does not know of any other matters which may come before the
meeting. However, if any other matters are properly presented to the meeting,
or any adjournment thereof, it is the intention of the persons named in the
accompanying Proxy to vote, or otherwise act, in accordance with their
judgment on such matters.
Deloitte & Touche LLP, the Company's independent public accountants for
the most recent fiscal year, will again act as the Company's accountant for
the current fiscal year. A representative of Deloitte & Touche LLP will be
present at the annual meeting of shareholders and shall have the opportunity
to make a statement if he desires to do so, and the representative will be
available to respond to appropriate questions from shareholders.
SHAREHOLDER PROPOSALS
Proposals intended to be presented by shareholders at the next annual
meeting of the Company must be received by the Company, to be considered for
inclusion in any proxy material, not later than February 10, 1999, at the
Company's offices at Park 50 TechneCenter, 50 West TechneCenter Drive,
Milford, Ohio 45150-9777.
BY ORDER OF THE BOARD OF DIRECTORS
Dale R. Nieman, Secretary
Milford, Ohio
July 15, 1998
FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
ZONIC CORPORATION
Proxy for Annual Meeting of Shareholders, August 19, 1998
The undersigned hereby appoints John H. Reifschneider and Dale R. Nieman
as Proxies, each with the power to appoint his or her substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares
of common stock of Zonic Corporation held of record by the undersigned on July
10, 1998 at the annual meeting of shareholders to be held on August 19, 1998
or any adjournment thereof.
1. PROPOSAL TO FIX THE NUMBER OF DIRECTORS AT THREE IN NUMBER
_______FOR ______AGAINST ______ABSTAIN
2. ELECTION OF DIRECTORS
INSTRUCTION: Indicate by "X", For, Against, or Abstain for each
nominee.
S. Sekine ___ For ___ Against ___ Abstain
J. Webb ___ For ___ Against ___ Abstain
G. Zobrist ___ For ___ Against ___ Abstain
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
ZONIC CORPORATION
PARK 50 TECHNECENTER, 50 WEST TECHNECENTER DRIVE
MILFORD, OHIO 45150-9777
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, August 19, 1998
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, the proxy will be
voted for Proposals 1 and 2.
____________________________________
Signature
____________________________________
Signature if held jointly
Dated: _____________, 1998
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
