SCHEDULE 14a INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[X] Filed by the Registrant
[X] Definitive Proxy Statement
ZONIC CORPORATION
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee:
[X] No fee required.
<PAGE>
ZONIC CORPORATION
Park 50 TechneCenter, 50 West TechneCenter Drive
Milford, Ohio 45150-9777
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 20, 1999
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 July 20, 1999 at 9:00
a.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. A
proposal to adopt the Zonic Corporation 1999 Stock Option Plan. 4. 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 June 11, 1999 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 1999 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
June 18, 1999
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.
<PAGE>
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 July 20, 1999. 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 June 11, 1999 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 June 11, 1999 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 June
11, 1999) (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.
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount & Nature of Percent of Percent Common
or Identity of Group Beneficial Ownership Class (1) Stock Only(2)
(including exercisable stock options
and conversion of preferred stock to
common shares)
<S> <C> <C> <C>
A&D Company, Ltd. 3,069,560(3) 58.5%(3) 28.6%
Daihatsu-Nissay
Ikebukuro Bldg
3-23-14 Higashi-Ikebukuro
Toshima-ku, Tokyo 170, Japan
Shoiche Sekine 3,069,560(4) 58.5%(4) 28.6%
c/o A&D Company, Ltd.
Daihatsu-Nissay
Ikebukuro Bldg
3-23-14 Higashi-Ikebukuro
Toshima-ku, Tokyo 170, Japan
Gerald J. Zobrist 685,030(5) 20.8%(5) 14.2%
2900 Eight Mile Road
Cincinnati, Ohio 45244
CapTec Corporation 395,530(6) 13.0%(6) 13.0%
2900 Eight Mile Road
Cincinnati, Ohio 45244
James B. Webb 156,900(7) 4.9%(7) 0.6%
All Directors and Executive 4,055,390(8) 70.6%(8) 44.4%
Officers as a Group (4 in number)
</TABLE>
- --------------------------------------------------------------------------------
(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 (3), (5) and (7) below.
(2) Percentages are based on an aggregate of 3,044,136 shares of Common Stock
outstanding as of the Record Date and exclude shares of Common Stock subject to
options exercisable within 60 days of the Record Date under the Company's stock
option plans and preferred stock convertible into Common Stock.
(3) Includes a stock option granted to A&D Company, Ltd., of Tokyo, Japan
("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. Also includes
1,200,000 shares issuable upon conversion of 12,000 shares of Class A
Non-Voting, Redeemable Convertible Preferred Stock ("Class A Preferred Stock")
which are currently convertible. Does not include 6,000 shares of Class B
Non-Convertible, Redeemable Non-Voting Preferred Stock. Percentage is based on
3,044,136 presently outstanding shares plus the 1,000,000 shares subject to
options and the 1,200,000 shares subject to conversion.
(4) 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.
(5) Includes 395,530 shares held by CapTec Corporation, a company of which Mr.
Zobrist is the president and director; 252,500 shares subject to currently
exercisable options and 37,000 shares held in trust for his children. Percentage
is based on 3,044,136 presently outstanding shares plus the 252,500 shares
subject to options.
(6) Excludes shares deemed to be beneficially owned by Mr. Zobrist and his
spouse.
(7) Includes 15,000 shares held by Mr. Webb's wife and 140,000 shares subject
to presently exercisable options. Percentage is based on 3,044,136 presently
outstanding shares plus the 140,000 shares subject to options.
(8) Includes 35,800 shares owned of record and beneficially, 1,317,090 shares
held by wives, corporations, minor children or held in trust for minor children,
1,502,500 options which are presently exercisable or exercisable within 60 days
of the Record Date held by four officers and directors and A&D, and 1,200,000
shares issuable upon conversion of 12,000 shares of Class A Preferred Stock,
which are currently convertible. Percentage is based on presently outstanding
shares of 3,044,136 plus 1,502,500 shares subject to options, plus 1,200,000
shares subject to conversion.
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Name Age Business Experience for Past Five Years
<S> <C> <C>
James B. Webb 42 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 67 Director of the Company since 1988. Director of
A&D, 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 56 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.
</TABLE>
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, 1999, 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:
<TABLE>
<CAPTION>
Name Age Business Experience for Past Five Years
<S> <C> <C>
James B. Webb 42 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 67 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 52 Vice-President of the Company since 1985;
Assistant Treasurer since February, 1996 and
Secretary since February 1998.
</TABLE>
EXECUTIVE COMPENSATION
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
$100,000 during the last fiscal year (the "Named Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Securities All Other
Name and Salary Bonus Underlying Compensation
Principal Position Year ($)(1) ($) Options ($)(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James B. Webb, President 1999 115,834 8,867 140,000(3) 2,896
and Chief Executive 1998 110,000 -0- -0- 1,650
Officer 1997 110,000 -0- -0- 1,650
</TABLE>
(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.
(3) Represents options which were repriced in fiscal 1999. See "Executive
Compensation -- Ten-Year Option Repricings" and "Executive Compensation- Report
of the Board on Executive Compensation."
Stock Option Grants in Fiscal 1999
The following table sets forth information regarding options granted to the
Named Executive Officer during the year ended March 31, 1999. All reported
grants related to options which were repriced in fiscal 1999. See "Executive
Compensation -- Ten-Year Option Repricings" and "Executive Compensation- Report
of the Board on Executive Compensation."
<TABLE>
<CAPTION>
Potential Realized Value
Number of at Assumed Annual
Securities Percentage of Rates of Stock Price
Underlying Total Option Exercise Appreciation for
Option Granted in Price Expiration Option Term (1)
Name Granted Fiscal 1999 ($/Share) Date 5% ($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
James B. Webb 30,000 8.8% $0.14 02/12/06 $1,800 $3,900
James B. Webb 25,000 7.3% $0.14 08/07/05 $1,250 $2,750
James B. Webb 85,000 24.0% $0.14 12/16/03 $2,550 $5,525
</TABLE>
(1) As required by rules of the Securities and Exchange Commission, potential
values stated are based on the prescribed assumption that the Company's Common
Stock will appreciate in value from the date of grant to the end of the option
term at annualized rates of 5% and 10%, respectively, and therefore are not
intended to forecast possible future appreciation, if any, in the price of the
Company's Common Stock.
Aggregated Option Exercises in Fiscal 1998 and Fiscal Year End Option Values
No options were exercised by the Named Executive Officer during the 1999 fiscal
year. The following table sets forth certain information concerning the number
and value of stock options at March 31, 1999, held by the Named Executive
Officer.
<TABLE>
<CAPTION>
Name SharesAcquired Value Number of Options Value of Options
on Exercise Realized at March 31, 1999 at March 31, 1999
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
James B. Webb 0 0 140,000 0 $ 0 (1) $ 0
</TABLE>
(1) At March 31, 1999, the average of the bid and asked prices of the common
stock was below the exercise price of the option resulting in the option having
no value.
Ten-Year Option Repricings
The following table sets forth options held by the Named Executive Officer which
were repriced during fiscal 1999. See "Executive Compensation -- Report of the
Board on Executive Compensation."
<TABLE>
<CAPTION>
Length of
Number of Original
Securities Market Price Exercise Option Term
Underlying of Stock Price at Remaining at
Options/SARs at Time of Time of New Date of
Repriced or Repricing or Repricing or Exercise Repricing or
Name and Position Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
<S> <C> <C> <C> <C> <C> <C>
James B. Webb, President 2/19/99 30,000 $.014 $0.34 $.014 (1)
Chief Executive Officer and 2/19/99 25,000 .014 0.50 .014 (2)
Treasurer 2/19/99 85,000 .014 0.65 .014 (3)
</TABLE>
(1) The original option term expires on February 12, 2006 (2) The original
option term expires on August 7, 2005. (3) The original option term expired on
December 16, 2003.
<PAGE>
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, a company
which, as of the Record Date, could own 58.5% of the Company upon exercising its
outstanding stock option and converting its "Class A Preferred Stock". 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 1995 through 1999, compared to the
NASDAQ Market Index U.S. and the S&P HighTech Composite Index.
<TABLE>
<CAPTION>
STOCK PERFORMANCE GRAPH
Zonic Corp (ZNIC)
Cumulative Total Return
----------------------------------------
3/94 3/95 3/96 3/97 3/98 3/99
<S> <C> <C> <C> <C> <C> <C>
ZONIC CORPORATION 100 150 112 100 38 50
NASDAQ STOCK MARKET (U.S.) 100 111 151 168 254 351
S & P TECHNOLOGY SECTOR 100 127 171 231 349 584
</TABLE>
RELATED PARTY TRANSACTIONS
In February 1988, the Company became affiliated with A&D, a Japanese instrument
manufacturing company. As part of this relationship, A&D acquired a 28%
ownership interest in the Company. The Company had entered into various joint
product development arrangements, marketing arrangements and a credit agreement
with A&D dated December 7, 1992 (the "Credit Agreement") pursuant to which the
Company borrowed money from A&D, most of which have been terminated in the past
few years.
The Company is the exclusive distributor in the Western Hemisphere of A&D's WCA
product and purchases components from A&D used principally in the production of
its WCA product line. Such purchases totaled $48,085 during fiscal 1999.
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.
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.
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. In
recognition of their performance, James B. Webb's salary was increased to
$120,000 and Dale R. Nieman's was increased to $85,000 effective September
1,1998. To provide an incentive for executive officers, the Company implemented
a bonus for its top executives for fiscal 1999. James B. Webb, the President,
CEO and Treasurer of the Company received a bonus equal to 6% of the Company's
net after taxes profit in fiscal 1999, excluding extraordinary gains or losses.
Dale R. Nieman, Vice-President, Assistant Treasurer and Secretary received a
bonus of 4% of said profits.
Due to a decline in the price of the Common Stock, incentive stock options
outstanding under the Company's stock option plans were exercisable at a price
which substantially exceeded the current market value of the Common Stock.
Therefore, on February 19, 1999, the Board of Directors adopted a resolution
authorizing a reduction in the exercise price of outstanding incentive stock
options. The purpose of the option repricing was to reinstate the value of
outstanding options, thereby creating an incentive for employees to remain with,
and to continue to work for the success of, the Company. The exercise price was
set at $0.14, the average of the bid and asked prices of the Common Stock on
February 19, 1999. All other terms of the options are unchanged.
A total of 290,500 options with per share exercise prices ranging from $3.625 to
$0.34 and a weighted average exercise price of $0.62 per share were repriced. A
total of 250,000 options held by executive officers of the Company with per
share exercise prices ranging from $0.34 to $0.65 and a weighted average
exercise price of $0.54 per share were repriced. Options held by the Named
Executive Officer were repriced as set forth in the Ten-Year Option Repricing
Table. See "Executive Committee - Ten-Year Option Repricings."
Board of Directors
Gerald J. Zobrist James B. Webb Shoiche Sekine
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.
<PAGE>
PROPOSAL TO ADOPT THE ZONIC CORPORATION 1999 STOCK OPTION PLAN
The Board of Directors recommends the adoption of a long term incentive
compensation plan for the Board of Directors, key officers and employees of the
Company, the Zonic Corporation 1999 Stock Option Plan (the "Plan"). Adoption of
the Plan will require the affirmative vote of the holders of a majority of the
issued and outstanding shares of Common Stock. The full text of the proposed
Plan is set forth in Appendix A to this Proxy Statement and the following
discussion is qualified in its entirety by reference to such text.
The purpose of the Plan is to advance the long term growth and success of the
Company by offering stock to directors, key officers and employees of the
Company and its affiliated companies. The Plan is also intended as a means of
reinforcing the commonality of interest between the Company's shareholders and
the directors, key officers and employees who are participating in the Plan and
as an aid in attracting and retaining key officers and employees of outstanding
abilities and specialized skills. The Company will receive no consideration for
the grant of options under the Plan.
The Board of Directors adopted the Plan on June 17, 1999, subject to the
approval of the Plan by the shareholders at this annual meeting. The principal
provisions of the Plan are as follows:
1. Shares Reserved for Issuance. Subject to the adjustment in the event of
certain changes in the capital structure of the Company, an aggregate of
250,000 shares of Common Stock shall be available for grant. If any option
granted under the Plan ceases to be exercisable, the shares of Common Stock
subject to the award shall again be available for grant.
2. Administration. The Plan will be administered by the Board of Directors.
3. Types of Awards. Awards under the Plan may be either incentive stock
options (ISOs) within the meaning of Section 422A of the Internal Revenue
code of 1986 or non-statutory stock options. No incentive stock options may
be granted under the Plan after ten years from the date the Plan was
approved by the Board of Directors.
4. Stock Options. The Plan provides that the purchase price of shares of
Common Stock purchasable under any stock option shall be not less than 100%
of the fair market value of the Common Stock on the date that the option is
granted unless the option is granted to a 10% beneficial owner of the
outstanding Common Stock in which case the purchase price shall be not less
than 110% of the fair market value. The value of the Common Stock on June
11, 1999 was $.125. Each option granted under the Plan is exercisable as to
not more than 25% of the total number of shares granted under the option
during each year from the date of grant, but no option may be exercised
later than ten years after the date of grant, and in the case of an option
granted to a 10% beneficial owner, the option may not be exercised after
five years from the date of grant.
5. Change of Control. In order to maintain all of the participants' rights in
the event of a Change in Control (as defined in the Plan) of the Company,
the Board of Directors, as constituted before such Change of Control, in
its sole discretion, may, as to any outstanding option, either at the time
an option is granted or any time thereafter, take any one or more of the
following actions: (a) provide for the acceleration of any time period
relating to the exercise or realization of any such option so that such
option may be exercised or realized in full on or before a date fixed by
the Board of Directors; (b) provide for the purchase of any such option by
the Company, upon a participant's request, for an amount of cash equal to
the amount which could have been attained upon the exercise of such option
or realization of such participant's rights had such option been currently
exercisable; (c) make such adjustment to any such award then outstanding as
the Board of Directors deems appropriate to reflect such Change of Control;
or (d) cause any such option then outstanding to be assumed, or new rights
substituted therefor, by the acquiring or surviving corporation in such
Change of Control.
6. Amendment and Termination. The Plan may be amended or terminated by the
shareholders of the Company, by the affirmative vote of a majority in
interest of the Common Stock of the Company. The Plan may also be amended
by the Board in such respects as it deems advisable and to the extent
permitted by the Internal Revenue Code and Securities and Exchange Act of
1934 and the rules and regulations promulgated thereunder.
7. Federal Income Tax Consequences. The following are the federal income tax
consequences generally arising with respect to options granted under the
Plan. The grant of an ISO or a non-statutory option will create no tax
consequences for an optionee or the Company. The optionee will have no
taxable income upon exercising an ISO (except that the alternative minimum
tax may apply), and the Company will receive no deduction when an ISO is
exercised. Upon exercising a non-statutory option the optionee must
recognize ordinary income equal to the difference between the exercise
price and the fair market value of the Common Stock on the date of
exercise; the Company will be entitled to a deduction for the same amount.
Upon exercise of a non-statutory stock option, the optionee's tax basis in
the shares acquired upon exercise will be equal to the sum of the exercise
price and the amount the optionee recognized as income on the date of
exercise. The treatment to an optionee of a disposition of Common Stock
acquired through the exercise of an option depends on how long the shares
of Common Stock have been held; gains or losses arising from the sale of
shares will result in a short-term capital gain or loss for shares held six
months or less and long-term capital gain or loss if held more than six
months. Generally, there will be no tax consequences to the Company in
connection with a disposition of Common Stock acquired under either an ISO
or a non-statutory option.
NEW PLAN BENEFITS
The number of options, if any, that will be granted to directors, key officers
and employees pursuant to the Plan cannot be determined since such grants are
subject to the discretion of the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN.
OTHER MATTERS
Effective December 17, 1998, the Board of Directors of the Company dismissed its
former auditor and selected Clark, Schaefer, Hackett & Co. ("Clark"), as the
sole auditor for the Company for the fiscal year ending March 31, 1999. Since
November 11, 1991, Deloitte & Touche LLP ("Deloitte"), acted as the Company's
auditor. The decision to change auditors was recommended by the Board of
Directors based upon management's belief that the Company could substantially
reduce its accounting fees by selecting a smaller regional rather than national
accounting firm.
During the past two years, Deloitte's report on the financial statements of the
Company has not contained an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles, except that Deloitte's reports have expressed uncertainty as to the
Company's ability to continue as a going concern. The Company has had no
disagreements with Deloitte on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures which, if not
resolved to Deloitte's satisfaction, would have caused it to make a reference to
the subject matter of the disagreement in connection with its audit report.
A representative of Clark will be present at the Annual Meeting 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.
Management does not know of any other matters which may come before the
Annual 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.
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 1, 2000, at the
Company's offices at Park 50 TechneCenter, 50 West TechneCenter Drive, Milford,
Ohio 45150-9777.
BY ORDER OF THE BOARD OF DIRECTORS
James B. Webb, President
Milford, Ohio
June 18, 1999
Appendix A
ZONIC CORPORATION
1999 STOCK OPTION PLAN
1. Purpose
The purpose of the Zonic Corporation 1999 Stock Option Plan (the
"Plan") is to advance the long term growth and success of Zonic Corporation (the
"Company") by offering stock to those directors, key officers and employees of
the Company and its affiliated companies. The Plan is also intended as a means
of reinforcing the commonality of interest between the Company's shareholders
and the directors, key officers and employees who are participating in the Plan
and as an aid in attracting and retaining key officers and employees of
outstanding abilities and specialized skills. The Plan shall become effective on
the date in which it is approved by the shareholders of the Company.
2. Administration
2.1 The Plan shall be administered, at the Company's expense, by the
Company's Board of Directors (the "Board"), or, at the discretion of the Board,
a committee of three or more persons who need not be members of the Board.
2.2 Subject to the limitations of the Plan, the Board shall have the
sole and complete authority (a) to select those employees and directors who
shall participate in the Plan ("Participants"), (b) to grant options in such
forms and amounts as it shall determine and to cancel or suspend options, (c) to
impose such limitations, restrictions and conditions upon options as it shall
deem appropriate, (d) to interpret the Plan and to adopt, amend and rescind
rules and regulations relating to the Plan and (e) to make all other
determinations and to take all other actions necessary or advisable for the
proper administration of the Plan. Except as otherwise stated in the Plan,
determinations of fair market value under the Plan shall be made in accordance
with the methods and procedures established by the Board. The Board's
determinations on matters within its authority shall be conclusive and binding
on the Company and all other parties.
3. Types of Awards
Awards under the Plan may be either incentive stock options (ISOs)
within the meaning of Section 422(A) of the Internal Revenue Code of 1986, or
non-statutory options. No incentive stock options shall be granted under the
Plan after ten years from the date the Plan is adopted by the Board or approved
by the shareholders of the Company, whichever is earlier.
4. Shares Subject to Plan
Subject to adjustment as provided in Section 9 below, an aggregate of
250,000 shares of Common Stock of the Company shall be reserved and available
for grant under the Plan. If an option ceases to be exercisable in whole or in
part, the shares representing such option shall continue to be available under
the Plan for purposes of granting options with respect thereto. In the future,
if another company is acquired, any Common Stock covered by or issued as a
result of the assumption or substitution of outstanding grants of the acquired
company shall not be deemed issued under the Plan and shall not be subtracted
from the shares of Common Stock available for grant under the Plan. The Common
Stock deliverable under the Plan may consist in whole or in part of authorized
and unissued shares or treasury shares.
5. Stock Options
All stock options granted under the Plan shall be subject to the
following terms and conditions:
5.1 The Board may, subject to the provisions of the Plan and such other
terms and conditions as the Board may prescribe, grant to any Participate
options to purchase shares of Common Stock, which options may be ISOs or
non-statutory options or both. The grant of an option shall be evidenced by a
signed written agreement ("Stock Option Agreement") containing such terms and
conditions as the Board may prescribe.
5.2 The purchase price per share of Common Stock of options granted
under the Plan shall be determined by the Board but shall not be less than one
hundred (100%) percent of the fair market value of the Common Stock on the date
the option is granted, or not less than one hundred ten (110%) percent of the
fair market value of the Common Stock if the employee owns in excess of ten
(10%) percent of the total combined voting power of all classes of stock of the
Company or its subsidiary, as defined in Section 422A of the Internal Revenue
Code ("a 10% Stockholder"). If as of the date the option is granted the Common
Stock is traded over-the-counter, the fair market value shall be deemed to be
the mean "bid" and "asked" prices of the Common Stock as reported by the
National Association of Securities Dealers, Inc. If the Common Stock is listed
upon an established stock exchange or exchanges, such fair market value shall be
deemed to be the highest closing price of the Common Stock on such exchange(s)
on the day the option is granted, or if no sale of the Common Stock shall have
been made on any exchange on such date, on the next preceding day on which there
was a sale of such stock.
5.3 Unless otherwise prescribed by the Board in the Stock Option
Agreement, each option granted under the Plan shall be exercisable for a period
of ten years, except that no option granted to a "10% Stockholder" shall be
exercisable after the expiration of five years from the date it is granted.
Additionally, the option granted shall be exercisable (i) as to not more than
25% of the total number of shares which may be purchased under the option,
during the first year after the grant of the option; (ii) as to not more than
50% during the first two years after the grant of the option; (iii) as to not
more than 75% during the first three years after the grant of the option; (iv)
the total number of shares not previously exercised during the remaining term of
the option. The Board shall establish procedures governing the exercise of
options and shall require that written notice of exercise be given and that the
option price be paid in full in cash at the time of exercise. The Board may
permit a Participant, in lieu of part or all of the cash payment, to make
payment in Common Stock or other property, valued at fair market value on the
date of exercise, as partial or full payment of option price. As soon as
practicable after receipt of each notice and full payment, the Company shall
deliver to the Participant a certificate or certificates representing the
acquired Common Stock.
5.4 Any ISO granted under the Plan shall be exercisable upon the date
or dates specified in the Stock Option Agreement, but not earlier than one year
after the date of grant of the ISO and not later than ten years after the date
of grant of the ISO or five years in the case of an option granted to a "10%
Stockholder", provided that the aggregate fair market value, determined as of
the date of grant, of Common Stock for which ISOs are exercisable for the first
time during any calendar year as to any Participant shall not exceed the maximum
limitation in section 422A of the Internal Revenue Code.
6. Compliance with Securities Laws
At the time of exercise of any option, the Board may require the
Participant to execute any document or take any action which may be then
necessary to comply with the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any other applicable federal or state
laws regulating the sale and issuance of securities, and the Board may, if it
deems necessary, include provisions in the Stock Option Agreement to assure such
compliance. The Board may, from time to time, change its requirements with
respect to enforcing compliance with federal and state securities laws,
including the request for and enforcement of letters of investment intent, such
requirements to be determined by the Board in its judgment as necessary to
assure compliance with said laws. Such changes may be made with respect to any
particular option or stock issued upon exercise thereof.
7. Nonassignability of Awards
No option granted under the Plan shall be assigned, transferred,
pledged or otherwise encumbered by a Participant, otherwise than by will, by
designation of a beneficiary after death or by the laws of descent and
distribution. Each option shall be exercisable during the Participant's lifetime
only by the Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative.
8. Change of Control
In order to maintain all of the Participant's rights in the event of a
Change of Control of the Company, the Board, as constituted before such Change
of Control, in its sole discretion, may, as to any outstanding option, either at
the time an option is made or any time thereafter, take any one or more of the
following actions: (a) provide for the acceleration of any time periods relating
to the exercise of any such option so that such option may be exercised in full
on or before a date fixed by the Board; (b) provide for the purchase of any such
option by the Company, upon a Participant's request, for an amount of cash equal
to the amount which could have been attained upon the exercise of such option
had such option been currently exercisable; (c) make such adjustment to any such
option then outstanding as the Board deems appropriate to reflect such Change of
Control; or (d) cause any such option then outstanding to be assumed, or new
rights substituted therefor, by the acquiring or surviving corporation in such
Change of Control. The Board may, in its discretion, include such further
provisions and limitations in any agreement documenting such options as it may
deem equitable and in the best interests of the Company. A "Change of Control of
the Company" shall be deemed to have occurred if (i) a tender offer shall be
made and consummated for the ownership of 30% or more of the outstanding voting
securities of the Company; (ii) the Company shall be merged or consolidated with
another corporation and as a result of such merger or consolidation less than
75% of the outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former shareholders of the
Company as the same shall have existed immediately prior to such merger or
consolidation; however, for purposes of this calculation voting securities of
the Company held by affiliates (within the meaning of the Securities Exchange
Act of 1934) of any party to such merger or consolidation shall not be included
in the aggregate shares owned by the "former shareholders of the Company"; (iii)
the Company shall sell substantially all of its assets to another corporation
which is not a wholly owned subsidiary; (iv) a person within the meaning of
Section 3(a)(9) or of Section 13(d)(3) (as in effect on the effective date of
the Plan) of the Securities Exchange Act of 1934, shall acquire after the date
this Plan is adopted 20% or more of the outstanding voting securities of the
Company (whether directly, beneficially or of record), or a person, within the
meaning of Section 3(a)(9) or Section 13(d)(3) (as in effect on the effective
date of the Plan) of the Securities Exchange Act of 1934, controls in any manner
the election of a majority of the directors of the Company; or (v) within any
period of two consecutive years after the effective date of the Plan,
individuals who at the beginning of such period constitute the Company's Board
cease for any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such period
has been approved in advance by directors representing at least two-thirds of
the directors then in office who were directors at the beginning of the period.
For purposes hereof, ownership of voting securities shall take into account and
shall include ownership as determined by applying the provisions of Rule
13d-3(d)(1)(i) (as in effect on the effective date of the Plan) pursuant to the
Securities Exchange Act of 1934.
<PAGE>
9. Adjustments
9.1 In the event of any change affecting the Common Stock by reason of
any stock dividend or split, recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other corporate change, or any
distributions to common shareholders other than cash dividends, the Board shall
make such substitution or adjustment in the aggregate number or class of shares
which may be distributed under the Plan and in the number, class and option
price or other price of shares subject to the outstanding options granted under
the Plan as it deems to be appropriate in order to maintain the purpose of the
original grant.
9.2 The Board shall be authorized to make adjustment in performance
award criteria or in the terms and conditions of the options in recognition of
unusual or non-recurring events affecting the Company or its financial
statements or changes in applicable laws, regulations or accounting principles.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any option in the manner and to the extent it shall
deem desirable to carry it into effect.
10. Withholding
At the Board's discretion, the recipient of any option under the Plan
may be required to pay to the Company, in cash, Common Stock or other property,
or in a combination thereof, the amount of any taxes required to be withheld
with respect to such option or, the Company shall have the right to retain from
such option a sufficient number of shares of Common Stock to satisfy the
applicable withholding tax obligation.
11. Amendment of the Plan
The Plan may at any time or from time to time be terminated, modified,
or amended by the shareholders of the Company, by the affirmative vote of a
majority in interest of the Common Stock of the Company. The Board may at any
time and from time to time modify or amend the Plan in such respects as it shall
deem advisable and to the extent permitted by the Internal Revenue Code and
Securities and Exchange Act of 1934 and the rules and regulations promulgated
thereunder.
12. Indemnification of Board
In addition to such other rights of indemnification as they may have as
Directors or as members of the Board, the members of the Board shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal thereof, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any 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 or proceeding that such Board member is liable for negligence or misconduct
in the performance of his duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding a Board member shall in
writing offer the Company the opportunity, at its own expense, to pursue and
defend the same.
