<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- --------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
FERROFLUIDICS CORPORATION
(Name of Registrant as Specified In Its Charter)
FERROFLUIDICS CORPORATION
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
FERROFLUIDICS CORPORATION
40 SIMON STREET
NASHUA, NEW HAMPSHIRE 03061
(603) 883-9800
October 12, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Ferrofluidics Corporation (the "Company") to be held on Wednesday, November 15,
1995, at 10:00 a.m., local time, at the executive offices of the Company located
at 40 Simon Street, Nashua, New Hampshire (the "Annual Meeting").
The Annual Meeting has been called for the purpose of electing two Class
III Directors, each for a three-year term, the adoption of the Ferrofluidics
Corporation 1995 Stock Option and Incentive Plan and considering and voting upon
such other business as may properly come before the meeting or any adjournments
or postponements thereof.
The Board of Directors has fixed the close of business on October 10, 1995,
as the record date for determining stockholders entitled to notice of and vote
at the Annual Meeting and any adjournments or postponements thereof.
The Board of Directors of the Company recommends that you vote "FOR" the
election of the two nominees of the Board of Directors as Directors of the
Company.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE
ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD.
Very truly yours,
PAUL F. AVERY, JR.
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
FERROFLUIDICS CORPORATION
40 SIMON STREET
NASHUA, NEW HAMPSHIRE 03061
(603) 883-9800
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 1995
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Ferrofluidics Corporation (the "Company") will be held on Wednesday, November
15, 1995, at 10:00 a.m., local time, at the executive offices of the Company
located at 40 Simon Street, Nashua, New Hampshire (the "Annual Meeting"), for
the purpose of considering and voting upon:
1. The election of two Class III Directors of the Company, each for a
three-year term;
2. The adoption of the Ferrofluidics Corporation 1995 Stock Option and
Incentive Plan; and
3. Such other business as may properly come before the meeting and any
adjournments or postponements thereof.
Under the provisions of the Company's By-Laws, the Board of Directors has
fixed the close of business on October 10, 1995 as the record date for the
determination of stockholders entitled to notice of and vote at the Annual
Meeting and any adjournments or postponements thereof. Only holders of common
stock of record at the close of business on that date will be entitled to notice
of and vote at the Annual Meeting and any adjournments or postponements thereof.
In the event there are not sufficient votes with respect to the foregoing
proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned
in order to permit further solicitation of proxies.
By Order of the Board of Directors,
STEPHEN P. MORIN, Clerk
October 12, 1995
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 4
FERROFLUIDICS CORPORATION
40 SIMON STREET
NASHUA, NEW HAMPSHIRE 03061
(603) 883-9800
--------------------------
PROXY STATEMENT
--------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, NOVEMBER 15, 1995
This Proxy Statement and the enclosed Proxy Card are being furnished in
connection with the solicitation of proxies by the Board of Directors of
Ferrofluidics Corporation (the "Company") for use at the Annual Meeting of
Stockholders of the Company to be held on Wednesday, November 15, 1995, at 10:00
a.m., local time, at the executive offices of the Company located at 40 Simon
Street, Nashua, New Hampshire, and any adjournments or postponements thereof
(the "Annual Meeting").
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon the following matters:
1. The election of two Class III Directors of the Company, each for a
three-year term;
2. The adoption of the Ferrofluidics Corporation 1995 Stock Option
and Incentive Plan; and
3. Such other business as may properly come before the meeting and
any adjournments or postponements thereof.
The Notice of Annual Meeting, Proxy Statement and Proxy Card are first
being mailed to stockholders of the Company on or about October 12, 1995 in
connection with the solicitation of proxies for the Annual Meeting. The Board of
Directors has fixed the close of business on October 10, 1995, as the record
date for the determination of stockholders entitled to notice of and vote at the
Annual Meeting (the "Record Date"). Only holders of common stock of record at
the close of business on the Record Date will be entitled to notice of and vote
at the Annual Meeting. As of the Record Date, there were 6,047,965 shares of the
Company's common stock, par value $.004 per share ("Common Stock"), outstanding
and entitled to vote at the Annual Meeting and 3,854 stockholders of record.
Each share of Common Stock outstanding as of the close of business on the Record
Date entitles the holder thereof to one vote on each matter properly submitted
at the Annual Meeting.
VOTING
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock of the Company is necessary to provide a
quorum at the Annual Meeting. Each share of Common Stock of the Company
outstanding on the record date is entitled to one vote. A quorum being present,
the affirmative vote of a plurality of the votes cast at the Annual Meeting is
required to elect Directors, and, generally, the affirmative vote of a majority
of the votes cast at the Annual Meeting is required to approve any proposal
properly submitted at the meeting. With respect to Proposal Number 2 -- Approval
of the 1995 Stock Option and Incentive Plan, the affirmative vote of a majority
of the shares of Common Stock present or represented and entitled to vote at the
Annual Meeting is required to approve such proposal. An automated system
administered by the Company's transfer agent tabulates the votes. Shares that
reflect abstentions or "broker non-votes" (i.e., shares represented at the
meeting held by brokers or nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote such shares and
the broker or nominee does not have discretionary voting power to vote such
shares) will be counted for purposes of determining whether a quorum is present
for the transaction of business at the meeting. Generally, abstentions and
broker non-votes will have no impact on the outcome of the vote on a particular
proposal presented at the meeting. For purposes of the vote on the Ferrofluidics
Corporation 1995 Stock Option and Incentive Plan (see Proposal
<PAGE> 5
Number 2 -- Approval of the 1995 Stock Option and Incentive Plan), abstensions
will have the same effect as votes cast against the adoption of such plan. With
respect to the election of Directors, votes may be cast in favor of or withheld
from each nominee; votes that are withheld will be excluded entirely from the
vote and will have no effect. Broker non-votes also will have no effect on the
outcome of the election of Directors.
PROXIES; REVOCATION OF PROXIES
STOCKHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE. COMMON STOCK
REPRESENTED BY PROPERLY EXECUTED PROXIES RECEIVED BY THE COMPANY AND NOT REVOKED
WILL BE VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH THE INSTRUCTIONS
CONTAINED THEREIN. IF INSTRUCTIONS ARE NOT GIVEN THEREIN, PROPERLY EXECUTED
PROXIES WILL BE VOTED "FOR" THE ELECTION OF THE TWO NOMINEES FOR DIRECTOR SET
FORTH IN PROPOSAL NUMBER 1 OF THIS PROXY STATEMENT AND "FOR" THE ADOPTION OF THE
FERROFLUIDICS CORPORATION 1995 STOCK OPTION AND INCENTIVE PLAN SET FORTH IN
PROPOSAL NUMBER 2 OF THIS PROXY STATEMENT. IT IS NOT ANTICIPATED THAT ANY
MATTERS OTHER THAN THOSE SET FORTH IN THIS PROXY STATEMENT WILL BE PRESENTED AT
THE ANNUAL MEETING. IF OTHER MATTERS ARE PRESENTED, PROXIES WILL BE VOTED IN
ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS.
Any properly completed proxy may be revoked at any time before it is voted
on any matter (without, however, affecting any vote taken prior to such
revocation) by giving written notice of such revocation to the Clerk of the
Company, or by signing and duly delivering a proxy bearing a later date, or by
attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not, by itself, revoke a proxy.
EXPENSES OF SOLICITATION
All expenses of this solicitation will be borne by the Company. Brokerage
firms, nominees, fiduciaries and other custodians have been requested to forward
proxy solicitation materials to the beneficial owners of shares of Common Stock
held of record by such persons, and the Company will reimburse such brokerage
firms, nominees, fiduciaries and other custodians for reasonable out-of-pocket
expenses incurred by them in connection therewith. In addition to solicitation
of proxies by mail, directors, officers and employees of the Company, without
receiving additional compensation therefor, may solicit proxies from
stockholders of the Company by telephone, telefax, letter, in person or by other
means.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors of the Company consists of six members and is
divided into three classes, with two Directors in each class. Directors serve
for three-year terms with one class of Directors being elected by the Company s
stockholders at each annual meeting.
At the Annual Meeting, two Class III Directors will be elected to serve
until the 1998 annual meeting of stockholders and until their successors are
duly elected and qualified. The Board of Directors has nominated Paul F. Avery,
Jr. and Dean Kamen for re-election as Class III Directors. Certain information
with respect to the persons nominated by the Board of Directors for election as
Directors is shown below under "Information Regarding Directors." Unless
otherwise specified in the proxy, it is the intention of the persons named in
the proxy to vote the shares represented by each properly executed proxy for the
election as Directors of each of the nominees. Each of the nominees has agreed
to stand for re-election and to serve if re-elected as a Director. If any of the
persons nominated by the Board of Directors fails to stand for re-election or is
unable to accept re-election, however, proxies not marked to the contrary will
be voted in favor of the election of such other person as the Board of Directors
may recommend.
2
<PAGE> 6
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of a plurality of the votes
cast is necessary to elect a nominee as a Director of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE FOR THE ELECTION OF THE TWO NOMINEES OF THE BOARD OF DIRECTORS
AS DIRECTORS OF THE COMPANY.
INFORMATION REGARDING DIRECTORS
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended June 30, 1995, the Board of Directors of the
Company held six meetings. Each Director who was a Director during fiscal 1995
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors and meetings held by all committees of the Board of Directors
on which such Director served.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The members of the Audit Committee are Messrs. Nichols
and Stone. The Audit Committee reviews the financial statements of the Company
and the scope of the annual audit, monitors the Company's internal financial and
accounting controls and recommends to the Board of Directors the appointment of
independent certified public accountants. The Audit Committee met five times
during fiscal 1995. The members of the Compensation Committee are Messrs.
Rittereiser and Hazard. The Compensation Committee recommends the compensation
levels of executive officers of the Company to the Board of Directors. The
Compensation Committee met three times in fiscal 1995. The Board of Directors
does not have a nominating committee.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of the Company receive no
compensation for their service as Directors. Directors who are not officers or
employees of the Company receive such compensation for their services as the
Board of Directors may from time to time determine. Non-employee Directors each
receive an annual retainer of $16,000, payable quarterly. In addition,
non-employee Directors receive $1,000 for each Board of Directors meeting or
committee meeting attended or $600 for attending each committee meeting that is
held on the same day as a Board of Directors meeting or meeting of another
committee on which such Director serves.
On June 13, 1995, the Board of Directors approved the Ferrofluidics
Corporation 1995 Stock Option and Incentive Plan (the "1995 Incentive Plan"),
pursuant to which eligible non-employee Directors are entitled to receive
options to purchase shares of Common Stock in accordance with the formula
provisions thereof. Pursuant to the 1995 Incentive Plan, on the date of approval
(i) Mr. Nichols was granted an option to purchase 8,350 shares of Common Stock
at an exercise price of $9.63 per share (100% of the fair market value of a
share of Common Stock on that date) and (ii) each of Messrs. Kamen and
Rittereiser was granted an option to purchase 6,100 shares of Common Stock at an
exercise price of $9.63 per share (100% of the fair market value of a share of
Common Stock on that date). If the 1995 Incentive Plan is approved by the
stockholders at the Annual Meeting, these options will vest and become
immediately exercisable upon such approval. In addition, if the 1995 Incentive
Plan is approved by the stockholders at the Annual Meeting, eligible
non-employee Directors automatically will receive an option to purchase 3,000
shares of Common Stock on the fifth business day after each annual meeting of
stockholders of the Company, commencing with the Annual Meeting. All such
options will vest and become immediately exercisable upon grant and will have an
exercise price equal to 100% of the fair market value of a share of Common Stock
on the grant date. See "Proposal Number 2 -- Approval of the 1995 Stock Option
and Incentive Plan."
3
<PAGE> 7
<TABLE>
Set forth below is certain information regarding the Directors of the
Company, including the two Class III Directors who have been nominated for
election at the Annual Meeting, based on information furnished by them to the
Company.
<CAPTION>
DIRECTOR
NAME AGE SINCE
- ---- --- --------
<S> <C> <C>
CLASS I
Stephen B. Hazard.......................................................... 50 1994
Dennis R. Stone............................................................ 48 1994
CLASS II
Howard F. Nichols.......................................................... 67 1979
Robert P. Rittereiser...................................................... 57 1989
CLASS III
Paul F. Avery, Jr.*........................................................ 66 1989
Dean Kamen*................................................................ 44 1989
<FN>
- ---------------
* Nominee for election.
</TABLE>
MR. AVERY has been the Chairman of the Board and Chief Executive Officer of
the Company since October 1, 1993. He served as President of the Company from
October 1, 1993 to January 1, 1995. He is also President of P.F. Avery
Corporation, a management consulting firm, a position he has held since 1983.
From 1967 to 1983 he was President and Treasurer of C.E. Avery, a wholly-owned
subsidiary of Combustion Engineering, Inc., and President and Chief Executive
Officer of CE-KSB Pump Company, Inc. Both companies were involved in the design
and fabrication of pumps and reactor internals for the utility industry. Mr.
Avery is also general partner of a 3MW hydro-electric facility in Nashua, New
Hampshire, and he serves as a director of several privately held companies and
as a Trustee of New Hampshire Public Radio, WEVO.
MR. HAZARD is founder and managing partner of the law firm of Pepe &
Hazard, Hartford, Connecticut. He is a director of First New England Capital,
L.P., a closely-held small business investment company. He is also a trustee and
a member of the executive committee of the Kingswood-Oxford School.
MR. KAMEN is the founder and Chairman and Chief Executive Officer of DEKA
Research and Development Corporation, which develops highly specialized medical
equipment. Prior to assuming his present position, he was, from 1976 to 1982,
the founder and Chief Executive Officer of Auto-Syringe, Inc., a manufacturer of
medical devices that was acquired by Baxter Healthcare Corporation. He also
serves as a director of several privately-held companies.
MR. NICHOLS is a consultant. Until July 1989, he was a Vice President of
The First National Bank of Boston, Trust Department. He also serves as a
director of several privately-held companies.
MR. RITTEREISER is Chairman of Yorkville Associates, a private investment
and financial advisory concern. He served as Chairman of the Board of Nationar,
a banking services corporation, since November 1992, and President and Chief
Executive Officer of Nationar from March 1993 until February 1995. Prior to
March 1993, he was Chief Executive Officer and President of the E.F. Hutton
Group, Inc., until its merger with Shearson Lehman Bros. Until June 1985, he was
Executive Vice President, Chief Administrative Officer and Chief of Staff to the
President at Merrill Lynch & Co., Inc., where he spent 26 years performing a
wide range of management and other responsibilities. He also serves as a Trustee
of the DBL Liquidating Trust and the Main Stay Family of Funds and as a Director
of Interchange Financial Services and CUC International. Mr. Rittereiser has
been nominated by Moore Corp. Ltd. to be a Director of Wallace Computer Services
Inc.
MR. STONE has been a practicing certified public accountant for 18 years.
Since 1989 he has been a principal in the firm of Dennis R. Stone, CPA,
Portsmouth, New Hampshire. From 1989 to 1991 he also served as Executive Vice
President and Chief Financial Officer of The Blake Insurance Group, Inc., of
Portsmouth, New Hampshire. From January 1980 to April 1989 he served as a
certified public accountant for Stone & Hart, P.A., Exeter, New Hampshire. Mr.
Stone has also served for the past 13 years as investigative
4
<PAGE> 8
auditor for the New Hampshire Supreme Court Professional Conduct Committee. He
is a member of the Board of Directors of Odyssey House, Inc.
INFORMATION REGARDING EXECUTIVE OFFICERS
<TABLE>
The names and ages of all executive officers of the Company and principal
occupation and business experience during at least the last five years for each
are set forth below.
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Chairman, Chief Executive Officer and
Paul F. Avery, Jr.................... 66 Treasurer
Salvatore J. Vinciguerra............. 57 President and Chief Operating Officer
Alvan F. Chorney..................... 49 Senior Vice President
</TABLE>
MR. AVERY has held the positions of Chairman of the Board and Chief
Executive Officer of the Company since October 1, 1993. Mr. Avery also served as
President of the Company from October 1, 1993 until January 1, 1995. Mr. Avery
has been the Treasurer of the Company since October 7, 1993, and has been a
Director of the Company since 1989. See "Information Regarding Directors" above.
MR. VINCIGUERRA became President and Chief Operating Officer of the Company
on January 1, 1995. Prior to January 1995, Mr. Vinciguerra was President and
Chief Executive Officer of Staveley, Inc., the United States and Measurement
Group headquarters of Staveley Industries, plc, a British conglomerate. Until
1991, Mr. Vinciguerra was the President and Chief Executive Officer of
Weightronix, Inc., a manufacturer of industrial weighting products. From 1968
until 1990, Mr. Vinciguerra held various positions at Instron Corporation,
including President and Chief Operating Officer from 1985 until 1990. Instron is
a manufacturer of materials testing instrumentation for international markets.
Mr. Vinciguerra is a Director of Lytron Corporation and Holometrix Corporation
and is the President and a Director of The Japan Society of Boston.
MR. CHORNEY became Senior Vice President of the Company in November 1991.
Mr. Chorney was a Director of the Company from 1986 to April 1994.
EXECUTIVE COMPENSATION
The following sections of this Proxy Statement set forth and discuss the
compensation paid or awarded during the last three years to the Company's Chief
Executive Officer and the four most highly compensated executive officers who
earned in excess of $100,000 during fiscal 1995.
<TABLE>
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended June 30, 1993, 1994
and 1995, the annual compensation paid by the Company to the Chief Executive
Officer and the four most highly compensated executive officers who earned more
than $100,000 during fiscal 1995.
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- -------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) WARRANTS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($)(3) ($) ($) ($) OPTIONS(#) ($) ($)
- ----------------------------- ----- -------- ----- ------------ -------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul F. Avery, Jr............ 1995 258,522 -- -- 106,875(4) 65,000(5) -- 17,520(6)
Chief Executive 1994 255,760 -- 7,399(7) 125,000(8) -- -- 14,350(9)
Officer (1) 1993 -- -- -- -- -- -- --
Salvatore J. Vinciguerra..... 1995 92,500 -- -- 450,000(10) 50,000(5) -- --
President and Chief 1994 -- -- -- -- -- -- --
Operating Officer (2) 1993 -- -- -- -- -- -- --
Alvan F. Chorney............. 1995 150,000 8,000 -- -- 25,000(5) -- 2,596(11)
Senior Vice 1994 150,000 -- 1,000(12) 45,000(13) -- -- --
President 1993 151,730 -- 6,769(14) -- 50,000(15) -- 312(16)
</TABLE>
5
<PAGE> 9
- ---------------
(1) Paul F. Avery, Jr., became the Chief Executive Officer of the Company on
October 1, 1993.
(2) Salvatore J. Vinciguerra became the President and Chief Operating Officer
of the Company on January 1, 1995.
(3) Includes all voluntary pre-tax contributions to the Ferrofluidics
Corporation Tax Savings Deposit and Investment Plan and Trust (the "401(k)
Plan").
(4) Represents 15,000 shares of restricted stock which had a market value as of
the date of grant of $106,875. One-third of the shares vest on each
anniversary of January 1, beginning on January 1, 1996. If the Company pays
dividends on its Common Stock, dividends would also be paid on these
shares. As of June 30, 1995, all 15,000 of the shares remained restricted
shares. Based on the closing sale price of a share of Common Stock on
NASDAQ on June 30, 1995, such shares had an aggregate market value of
$144,375.
(5) Represents stock options.
(6) $14,520 of this amount represents the full dollar value of insurance
premiums paid by the Company during fiscal 1995 on behalf of Mr. Avery with
respect to term life insurance. $3,000 of this amount represents
contributions made by the Company on Mr. Avery's behalf to the 401(k) Plan.
(7) This amount represents an automobile allowance.
(8) Represents 25,000 shares of restricted stock which had a market value on
the date of grant of $125,000. One-third of the shares vest on each
anniversary of April 5, beginning on April 5, 1995. If the Company pays
dividends on its Common Stock, dividends would also be paid on these
shares. As of June 30, 1995, 16,667 of these shares remained restricted
shares. Based on the closing sale price of a share of Common Stock on
NASDAQ on June 30, 1995, such shares had an aggregate market value of
$240,625.
(9) This amount represents the full dollar value of insurance premiums paid by
the Company during fiscal 1994 on behalf of Mr. Avery with respect to term
life insurance.
(10) Represents 75,000 shares of restricted stock which had a market value as of
the date of grant of $450,000. One-third of the shares vest on each
anniversary of January 1, beginning on January 1, 1996. If the Company pays
dividends on its Common Stock, dividends would also be paid on these
shares. As of June 30, 1995, all 75,000 of the shares remained restricted
shares. Based on the closing sale price of a share of Common Stock on
NASDAQ on June 30, 1995, such shares had an aggregate market value of
$721,875.
(11) This amount represents contributions made by the Company on Mr. Chorney's
behalf to the 401(k) Plan.
(12) This amount represents an allowance for medical and health expenses
incurred by Mr. Chorney in excess of amounts covered by the Company's group
health plan.
(13) Represents 9,000 shares of restricted stock which had a market value on the
date of grant of $45,000. One-third of the shares vest on each anniversary
of April 5, beginning on April 5, 1995. If the Company pays dividends on
its Common Stock, dividends would also be paid on these shares. As of June
30, 1995, 6,000 of these shares remained restricted shares. Based on the
closing sale price of a share of Common Stock on NASDAQ on June 30, 1995,
such shares had an aggregate market value of $86,625.
(14) $5,769 of this amount represents cash compensation paid to Mr. Chorney in
exchange for vacation time foregone at his election; $1,000 of this amount
represents an allowance for medical and health expenses incurred by Mr.
Chorney in excess of amounts covered by the Company's group health plan.
(15) Represents stock purchase warrants.
(16) This amount represents the difference between the prime market rate and the
actual interest rate on indebtedness owed to the Company by Mr. Chorney in
connection with his purchase of Common Stock from the Company upon the
exercise of warrants in fiscal 1993.
6
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
The following table sets forth each grant of stock options during fiscal
1995 to the Chief Executive Officer and each other executive officer named in
the Summary Compensation Table. No stock appreciation rights ("SARs") have been
granted.
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
---------------------------------------------------------- ------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
- ---- ---------- --------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Avery, Jr........... 65,000(4) 27.66% $9.13 6/29/2005 373,218 945,806
Salvatore J. Vinciguerra.... 50,000(5) 21.28% $9.13 6/29/2005 287,090 727,543
Alvan F. Chorney............ 25,000(5) 10.64% $9.13 6/29/2005 143,545 363,772
<FN>
- ---------------
(1) All options were granted pursuant to the 1995 Incentive Plan and are subject
to stockholder approval of the 1995 Incentive Plan.
(2) Percentages are based on a total of 235,000 shares of Common Stock
underlying all options granted to employees of the Company in fiscal 1995
pursuant to the 1995 Incentive Plan.
(3) Represents the value of the options granted at the end of the option terms
if the price of the Company's Common Stock were to appreciate annually by
5% and 10% respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table. If the stock price appreciates,
the value of stock held by all shareholders will increase.
(4) Such option vests and becomes exercisable as follows: 5,000 shares vested
and became immediately exercisable upon grant and the remaining 60,000
shares vest and become exercisable ratably over four years beginning on
June 29, 1996.
(5) Such option vests and becomes exercisable ratably over four years beginning
on June 29, 1996.
</TABLE>
AGGREGATED OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
VALUES
<TABLE>
The following table sets forth the shares acquired and the value realized
upon exercise of stock options and stock purchase warrants during fiscal 1995 by
the Chief Executive Officer and each other executive officer named in the
Summary Compensation Table and certain information concerning the number and
value of unexercised options and warrants. There are currently no outstanding
SARs.
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS AT FY- OPTIONS/WARRANTS AT FY-
SHARES END(#) END($)(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Avery,
Jr. ............... -- -- 8,500(2) -- 2,500 --
5,000(3) 60,000(3) 2,500 30,000
Salvatore J.
Vinciguerra........ -- -- -- 50,000(3) -- 25,000
Alvan F. Chorney..... -- -- 77,500(2) 12,500(2) 0 0
-- 25,000(3) -- 12,500
<FN>
- ---------------
(1) Equal to the market value of shares covered by in-the-money options/warrants
on June 30, 1995, less the aggregate option/warrant exercise price.
Options/warrants are in-the-money if the market value of the shares covered
thereby is greater than the option/warrant exercise price.
</TABLE>
7
<PAGE> 11
(2) Represents stock purchase warrants.
(3) Represents stock options granted pursuant to the 1995 Incentive Plan, which
are subject to stockholder approval of the 1995 Incentive Plan.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The members of the Compensation Committee of the Board of Directors of the
Company, whose names are set forth below, have prepared the following report on
the Company's executive compensation policies and philosophy for fiscal 1995.
General
The Compensation Committee consists of Mr. Rittereiser and Mr. Hazard, both
of whom are outside Directors. The Compensation Committee is generally
responsible for developing the Company's executive and management compensation
policies, including awards of equity-based compensation. The Company's executive
compensation program is designed to provide competitive levels of compensation,
reward above-average individual performance and assist the Company in attracting
and retaining qualified management. Where applicable, the Compensation Committee
takes into account employment agreements between an executive officer and the
Company. See "Employment Agreements" below. Mr. Avery, the Chief Executive
Officer of the Company, and Mr. Vinciguerra, the President of the Company, make
general recommendations to and review with the Compensation Committee salary
increases and bonus compensation of executive officers and employees other than
themselves.
Compensation Policy Review
During fiscal 1995, the Compensation Committee, together with certain
members of management and the Board of Directors, completed a review of the
Company's policies regarding executive compensation. The Compensation
Committee's primary objectives in evaluating executive compensation philosophy
were: (i) to review base salaries, short-term incentives and longer-term
incentives for executive officers based upon a survey of compensation for
executive officers in a group of comparable high technology companies; (ii) to
develop an appropriate methodology for determining the amount of annual cash
bonuses, if any, paid to executive officers; and (iii) to develop an appropriate
methodology for structuring long-term incentive awards. The Compensation
Committee undertook this review with the goal of ensuring that (a) the total
compensation of executive officers is comparable and competitive when measured
against those paid by other high technology companies; (b) annual cash bonuses
awarded to executive officers are based on appropriate individual and Company
performance targets established at the beginning of each fiscal year; and (c)
long-term incentive awards to executive officers more closely align the
interests of the executive officers with those of the Company's stockholders.
To accomplish the aforementioned objectives and goals, the Compensation
Committee retained an independent compensation consulting firm (the
"Consultant") which conducted a survey of executive compensation levels and
practices of companies within a proxy peer group (the "Peer Group") of companies
of similar size to the Company. The Peer Group consisted of seven companies in
the specialty machinery industry having annual revenues of $30 million to $50
million. Such companies are not necessarily the same as the companies in the Dow
Jones Industrial Technology Index shown in the Stock Performance Graph included
elsewhere in this Proxy Statement. The Consultant's survey also considered
broader marketplace compensation information, including published national
competitive compensation surveys, the Consultant's proprietary data bank and
published proxy statement data. Based upon the Consultant's survey, the
Compensation Committee during fiscal 1995 made certain adjustments to the
Company's compensation policies which are discussed below.
Compensation Policies for Executive Officers
Base Salary. The annual base salary and base salary adjustments for
executive officers are determined by the Compensation Committee in its
discretion and are targeted according to the salaries of executives holding
similar offices and having similar responsibilities within the Company's
industry segment. The
8
<PAGE> 12
Compensation Committee also considers factors such as industry experience and
executive retention. Annual salary adjustments for executive officers are
determined by evaluating the competitive marketplace, the performance of the
Company, the performance of the executive officer and any change in the
responsibilities assumed by the executive officer. Salary adjustments are
normally determined and made on an annual basis. The base salary of Mr. Avery,
the Chief Executive Officer, was established by an employment agreement entered
into in October 1993 until the expiration of its term on March 31, 1995, and
thereafter by an employment agreement entered into on April 1, 1995. The base
salary of Mr. Vinciguerra, the President and Chief Operating Officer, was
established by an employment agreement entered into on January 1, 1995. See
"Employment Agreements" below.
Cash Bonuses. Historically, cash bonuses were paid to executive officers
pursuant to the Company's Variable Compensation Plan. Under that plan, bonuses
were awarded to executive officers upon the attainment of targeted financial
objectives by the business segment in which they worked. In connection with the
restructuring of operations which took place in fiscal 1994 and the Compensation
Committee's then ongoing review of compensation policies, the Variable
Compensation Plan was abolished in fiscal 1994. However, the Board of Directors
in its discretion may award a cash bonus to an executive officer for outstanding
performance based upon individual performance reviews (which may or may not take
into account specific performance measures relative to that executive officer),
retention considerations and general industry practice. Based upon such
criteria, the Board of Directors awarded Mr. Chorney a cash bonus of $8,000 for
his performance during fiscal 1995. No other executive officer received a cash
bonus for fiscal 1995 performance. While the Compensation Committee and the
Board of Directors retains the ultimate discretion to award a cash bonus to an
executive officer, the Company anticipates that future cash bonuses, if any,
will be awarded pursuant to the Cash Incentive Plan (as defined below) adopted
during fiscal 1995 and effective for fiscal 1996.
As a result of the Compensation Committee's review of executive
compensation policies, the Compensation Committee recommended that the Company
adopt a cash incentive program (the "Cash Incentive Plan") to better align the
Company's total cash compensation for its executives with the median of the
Consultant's survey of the Peer Group. The Cash Incentive Plan, effective as of
July 1, 1995, is intended to encourage, recognize and award performance by
executives by providing cash compensation based upon the achievement of a
pre-determined annual operating budget and a combination of quantitative and
qualitative measures (the relative weights of which are determined in the sole
discretion of the Compensation Committee when it reviews executive officer
performance) including orders received (for marketing managers), percent defect
rate (for production managers), timeliness and quality of monthly reporting (for
accounting managers), and effectiveness of improvement projects (for all
managers). The annual operating budget is determined by the Compensation
Committee and the Board of Directors prior to the beginning of the fiscal year
and the total pool from which cash incentives may be awarded under the plan is
formed based upon the achievement of the operating profits contained in the
annual operating budget. The Compensation Committee determines in its sole
discretion whether the quantitative and qualitative measures applicable to
executive officers are achieved. The Chief Executive Officer and the President
are eligible to receive up to 35% of their respective base salaries depending
upon the extent to which the operating profits contained in the annual operating
budget are achieved, while executive officers other than the Chief Executive
Officer and the President are eligible to receive up to either 20% or 25% of
their respective base salaries depending upon the extent to which the operating
profits contained in the annual operating budget are achieved.
Equity and Equity-Based Incentives. Equity and equity-based incentive
awards are designed to attract and retain executives who can make significant
contributions to the Company's success; reward executives for such significant
contributions; and give executives a longer-term incentive to increase
shareholder value. The size and frequency of equity and equity-based incentive
awards are determined by the Compensation Committee in its discretion, taking
into account individual performance and responsibilities, but without any
specific performance measures. The Compensation Committee also may grant stock
options for executive retention purposes, taking into account, among other
things, general industry practice. To ensure that high levels of performance
occur over the long-term, stock options granted to executives typically vest
over a period
9
<PAGE> 13
of time. All outstanding options have been granted with an exercise price equal
to 100% of the fair market value of the Company's Common Stock on the grant
date.
In connection with the completion of the Compensation Committee's review of
the Company's executive compensation policies and as a result of the expiration
of the Company's 1984 Non-Qualified Stock Option Plan, the Board of Directors on
June 13, 1995, approved and adopted the 1995 Incentive Plan. See "Proposal
Number 2--Approval of the 1995 Stock Option and Incentive Plan." If the 1995
Incentive Plan is approved by the Company's stockholders, the plan will be the
principal vehicle by which the Company intends to achieve the executive
compensation policy objective of providing long-term incentives to executive
officers that will more closely align the interests of such executives with
those of the Company's stockholders. Pursuant to the 1995 Incentive Plan, the
Compensation Committee may grant a variety of long-term incentive awards based
on the Common Stock of the Company, including stock options (both incentive
options and non-qualified options), SARs, restricted stock, unrestricted stock,
performance shares and dividend equivalent rights.
At its discretion, under the Company's 1994 Restricted Stock Plan (the
"1994 Restricted Stock Plan"), the Compensation Committee may also award
restricted stock bonuses to key employees. Shares of restricted stock granted to
executive officers under the 1994 Restricted Stock Plan vest over a period of
time and are subject to forfeiture in the event an officer's employment with the
Company terminates prior to vesting. Shares of restricted stock are not
transferable prior to vesting. In fiscal 1995, Paul F. Avery, Jr., the Company's
Chief Executive Officer, and Salvatore J. Vinciguerra, the Company's President
and Chief Operating Officer, were granted 15,000 and 75,000 shares of restricted
stock, respectively. These shares vest ratably over three years beginning on
January 1, 1996.
Any value received by an executive officer from a stock option grant and
any increase in the value of stock received as a bonus depends entirely on
increases in the price of the Company's Common Stock.
Other Compensation. The Company provides executive officers and management
with health, retirement and other benefits under plans that are generally
available to the Company's employees.
Compensation of the Chief Executive Officer
Mr. Paul F. Avery, Jr. The Company and Mr. Avery, who became Chief
Executive Officer of the Company on October 1, 1993, entered into an employment
agreement in October 1993. This employment agreement expired on March 31, 1995,
and accordingly, the Company and Mr. Avery entered into a new employment
agreement on April 1, 1995, the terms of which are described below under
"Employment Agreements." Mr. Avery's base salary was established by these
agreements. As a result of favorable performance reviews, in fiscal 1995 the
Compensation Committee awarded Mr. Avery 15,000 shares of restricted stock which
vest ratably over three years beginning on January 1, 1996. These shares had a
fair market value of $106,875 on the date of grant.
New Federal Tax Regulations
As a result of new Section 162(m) of the Internal Revenue Code (the
"Code"), the Company's deduction of executive compensation may be limited to the
extent that a "covered employee" (i.e., the chief executive officer or one of
the four highest compensated officers who is employed on the last day of the
Company's taxable year and whose compensation is reported in the summary
compensation table in the Company's proxy statement) receives compensation in
excess of $1,000,000 in such taxable year of the Company (other than
performance-based compensation that otherwise meets the requirements of Section
162(m) of the Code). The Company intends to take appropriate action to comply
with such regulations, if applicable, in the future.
Robert P. Rittereiser, Chairman Stephen B. Hazard
10
<PAGE> 14
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Avery, the Chief Executive Officer, and Mr. Vinciguerra, the President,
make general recommendations to and review with the Compensation Committee the
salary increases and bonus compensation of executives and management other than
themselves.
EMPLOYMENT AGREEMENTS
Avery Employment Agreements
The Company and Mr. Avery, who became Chief Executive Officer of the
Company on October 1, 1993, entered into an employment agreement (the "1993
Avery Employment Agreement") that provided for Mr. Avery's employment as Chief
Executive Officer and President of the Company at a salary of $25,000 per month
through March 31, 1995, subject to earlier termination for death, disability,
cause or upon 30 days' notice by Mr. Avery or at any time by the Company upon
notice. The 1993 Avery Employment Agreement did not for any adjustment to base
salary over its term. Pursuant to the 1993 Avery Employment Agreement, the
Company was required to, among other things, (i) reimburse Mr. Avery for all
reasonable business expenses incurred by Mr. Avery in the performance of his
duties, (ii) provide Mr. Avery with an automobile for business and personal use
and pay or reimburse Mr. Avery for all expenses associated therewith, and (iii)
maintain insurance on Mr. Avery's life in the amount of $2,000,000, payable as
directed by Mr. Avery, until October 1, 1995.
Upon the expiration of the 1993 Avery Employment Agreement on March 31,
1995, the Company and Mr. Avery entered into a new employment agreement (the
"1995 Avery Employment Agreement") that provides for Mr. Avery's employment as
Chief Executive Officer of the Company for two years at a salary of $225,000 per
year through March 31, 1996, and a salary of $200,000 per year from April 1,
1996 through March 31, 1997, subject to (i) automatic one-year extensions unless
either Mr. Avery or the Company provides 60 days' notice prior to the end of the
initial term or any subsequent one-year term, and (ii) earlier termination for
death, disability, cause, upon 60 days' notice by Mr. Avery, or at any time by
the Company upon 60 days' notice. Pursuant to the 1995 Avery Employment
Agreement, the Company is required to, among other things, (i) reimburse Mr.
Avery for all reasonable business expenses incurred by Mr. Avery in the
performance of his duties, (ii) provide Mr. Avery with an automobile for
business and personal use and pay or reimburse Mr. Avery for all expenses
associated therewith, and (iii) maintain insurance on Mr. Avery's life in the
amount of $2,000,000, payable as directed by Mr. Avery, until April 1, 1997.
Pursuant to the 1995 Avery Employment Agreement, Mr. Avery received 15,000
shares of restricted stock on April 1, 1995. See "Report of the Compensation
Committee of the Board of Directors on Executive Compensation--Compensation of
the Chief Executive Officer." In addition, Mr. Avery is entitled to participate
in the health, welfare, retirement and other fringe benefit plans which the
Company makes available to management from time to time.
Pursuant to the 1995 Avery Employment Agreement, if Mr. Avery's employment
is terminated for reasons other than for cause or other than in the event of a
change in control of the Company, Mr. Avery is entitled to an amount equal to
the greater of (i) the aggregate base salary which Mr. Avery would have received
had he been employed by the Company through March 31, 1997 and (ii) twelve
months' base salary at the rate then in effect under the 1995 Avery Employment
Agreement. If Mr. Avery dies or becomes disabled during the term of the 1995
Avery Employment Agreement, Mr. Avery's employment immediately terminates and he
is entitled to any earned but unpaid salary. If the Company undergoes a change
in control (as defined in the 1995 Avery Employment Agreement), and Mr. Avery is
terminated, voluntarily or involuntarily, other than for cause within
twenty-four months after the date such change in control occurs, Mr. Avery is
entitled to receive an amount equal to twenty-four months' base salary at the
rate then in effect under the 1995 Avery Employment Agreement.
Vinciguerra Employment Agreement
The Company and Mr. Vinciguerra, who became President and Chief Operating
Officer of the Company on January 1, 1995, entered into an employment agreement
(the "Vinciguerra Employment Agreement") that provides for Mr. Vinciguerra's
employment as President and Chief Operating Officer of the Company at a
11
<PAGE> 15
salary of $185,000 per year, subject to an increase to $200,000 per year upon
six (6) months of satisfactory performance, as determined by the Chief Executive
Officer. Pursuant to the Vinciguerra Employment Agreement, Mr. Vinciguerra
received 75,000 shares of restricted stock on January 1, 1995, which vest
ratably over three years beginning January 1, 1996. See "Report of the
Compensation Committee of the Board of Directors on Executive
Compensation--Equity and Equity Based Incentives." Pursuant to the Vinciguerra
Employment Agreement, the Company is required to reimburse Mr. Vinciguerra for
all reasonable business expenses incurred by Mr. Vinciguerra in the performance
of his duties. In addition, Mr. Vinciguerra is entitled to participate in the
health, welfare, retirement and other fringe benefit plans which the Company
makes available to management from time to time.
Pursuant to the Vinciguerra Employment Agreement, Mr. Vinciguerra is
entitled to a severance payment of six months' salary if he was employed for
less than six months and twelve months' salary if he was employed for more than
six months. If Mr. Vinciguerra dies or becomes disabled during the term of the
Vinciguerra Employment Agreement, Mr.Vinciguerra's employment immediately
terminates and he is entitled to any earned but unpaid salary. If the Company
undergoes a change in control (as defined in the Vinciguerra Employment
Agreement) and Mr. Vinciguerra (i) is terminated by the Company or its successor
for any reason other than death, disability or cause, or (ii) resigns because
(A) there occurs a significant change in the nature or scope of Mr.
Vinciguerra's responsibilities, authorities, powers, functions or duties as
compared to the responsibilities, authorities, powers, functions or duties
exercised by Mr. Vinciguerra prior to the change in control, (B) Mr. Vinciguerra
is required to relocate outside of his current county of residence in order to
maintain his employment after the change in control or (C) there is a decrease
in the total annual compensation payable to Mr. Vinciguerra after the change in
control, then Mr. Vinciguerra is entitled to an amount equal to eighteen months'
base salary at the rate then in effect under the Vinciguerra Employment
Agreement. If terminated for reasons other than for cause, the Company is
required to pay Mr. Vinceguerra his salary and other benefits through the end of
the term.
Chorney Severance Agreement
The Company has an agreement with Mr. Chorney, dated October 1, 1993, that
provides Mr. Chorney with certain severance benefits in the event that his
employment is terminated by the Company other than by reason of death,
disability or cause. Pursuant to this agreement, if Mr. Chorney's employment is
terminated other than for any of the aforementioned reasons, he is entitled to
receive for a period of eighteen months an aggregate amount equal to the greater
of (i) $225,000 and (ii) the annual base salary which he would have received
over an eighteen-month period commencing on the date of such termination.
12
<PAGE> 16
SHAREHOLDER RETURN PERFORMANCE GRAPH
<TABLE>
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock, based on
the market price of the Company's Common Stock and assuming reinvestment of
dividends, with the cumulative total return of companies within the NASDAQ stock
market and the companies within the Dow Jones Industrial Technology Index. The
calculation of total cumulative return assumes a $100 investment in the
Company's Common Stock, the NASDAQ stock market and the Dow Jones Industrial
Technology Index on July 1, 1990. The comparisons in this table are historical
and are not intended to forecast or be indicative of possible future performance
of the Common Stock of the Company.
<CAPTION>
Measurement Period
(Fiscal Year Covered) DJIT NASDAQ FERO
<S> <C> <C> <C>
6/28/90 100. 100 100
6/28/90 77.61 75.13 61.36
12/31/90 89.59 82.47123 72.73
3/28/91 123.73 107.12 86.36
6/28/91 126.55 105.89 102.27
9/30/91 123.24 118.14 131.82
12/30/91 129.57 132.35 127.27
3/30/92 131.97 136.54 161.36
6/30/92 124.08 127.25 159.09
9/30/92 127.46 132.45 122.73
12/30/92 130.59 154.1 156.82
3/31/93 119.59 157 152.27
6/30/93 118.46 159.99 122.73
9/30/93 124.71 173.48 72.73
12/30/93 127.39 176.9 56.82
3/30/94 125.2 169.5 46.59
6/30/94 128.41 161.61 47.73
9/30/94 139.44 174.99 52.27
12/30/94 135.87 172.97 54.55
3/31/95 158.5 188.43 64.77
6/30/95 182.92 215.33 87.5
9/30/95 12/30/95
</TABLE>
PROPOSAL NUMBER 2
APPROVAL OF THE 1995 STOCK OPTION AND INCENTIVE PLAN
PROPOSAL
In connection with the completion of the Compensation Committee's review of
the Company' executive compensation policies and as a result of the expiration
of the Company's 1984 Non-Qualified Stock Option Plan, the Board of Directors on
June 13, 1995 approved and adopted the 1995 Incentive Plan, subject to approval
by the Company's stockholders.
The 1995 Incentive Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Committee, at its discretion, may
grant a variety of stock incentive awards based on the Common Stock of the
Company. Awards under the 1995 Incentive Plan include stock options (both
incentive options and non-qualified options), stock appreciation rights,
restricted stock, performance shares, unrestricted stock and dividend equivalent
rights. These awards are described in greater detail below.
Subject to adjustment for stock splits, stock dividends and similar events,
the total number of shares of Common Stock that can be issued under the 1995
Incentive Plan is 750,000 shares. In order to satisfy the performance-based
compensation exception to the $1 million cap on the Company's tax deduction
imposed by Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), the 1995 Incentive Plan
13
<PAGE> 17
also provides that stock options or stock appreciation rights with respect to no
more than 200,000 shares of Common Stock may be granted to any one individual in
any 12 month calendar year period. The shares issued by the Company under the
1995 Incentive Plan may be authorized but unissued shares, or shares reacquired
by the Company. To the extent that awards under the 1995 Incentive Plan do not
vest or otherwise revert to the Company, the shares of Common Stock represented
by such awards may be the subject of subsequent awards.
RECOMMENDATION
The Board of Directors believes that stock options and other stock-based
incentive awards can play an important role in the success of the Company by
encouraging and enabling the officers and other employees of the Company and its
subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. The Board of Directors anticipates that providing such
persons with a direct stake in the Company will assure a closer identification
of the interests of participants in the 1995 Incentive Plan with those of the
Company, thereby stimulating their efforts on the Company s behalf and
strengthening their desire to remain with the Company.
The Board of Directors believes that the proposed 1995 Incentive Plan will
help the Company to achieve its goals by keeping the Company's incentive
compensation program dynamic and competitive with those of other companies.
Accordingly, the Board of Directors believes that the 1995 Incentive Plan is in
the best interests of the Company and its stockholders and recommends that the
stockholders approve the 1995 Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE 1995 INCENTIVE PLAN BE APPROVED,
AND THEREFORE RECOMMENDS A VOTE FOR THIS PROPOSAL.
SUMMARY OF THE FERROFLUIDICS CORPORATION 1995 STOCK OPTION AND INCENTIVE PLAN
The following description of certain features of the 1995 Incentive Plan is
intended to be a summary only. The summary is qualified in its entirety by the
full text of the 1995 Incentive Plan which is attached hereto as Exhibit A.
Plan Administration; Eligibility. The 1995 Incentive Plan is administered
by the Committee. All members of the Committee must be "disinterested persons"
as that term is defined under the rules promulgated by the Securities and
Exchange Commission and "outside directors" as defined in Section 162 of the
Code and the regulations promulgated thereunder.
The Committee has full power to select, from among the employees eligible
for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms and
conditions of each award, subject to the provisions of the 1995 Incentive Plan.
The Committee may permit Common Stock, and other amounts payable pursuant to an
award, to be deferred. In such instances, the Committee may permit interest,
dividend or deemed dividends to be credited to the amount of deferrals.
Persons eligible to participate in the 1995 Incentive Plan will be those
employees and other key persons, such as consultants, of the Company and its
subsidiaries who are responsible for or contribute to the management, growth or
profitability of the Company and its subsidiaries, as selected from time to time
by the Committee. Directors of the Company who are not employed by the Company
or its subsidiaries ("Independent Directors") will also be eligible for certain
awards under the 1995 Incentive Plan.
Stock Options. The 1995 Incentive Plan permits the granting of (i) options
to purchase Common Stock intended to qualify as incentive stock options
("Incentive Options") under Section 422 of the Code and (ii) options that do not
so qualify ("Non-Qualified Options"). The option exercise price of each option
will be determined by the Committee but may not be less than 100% of the fair
market value of the Common Stock on the date of grant in the case of incentive
stock options, and may not be less than 85% of the fair market value of the
Common Stock on the date of grant in the case of Non-Qualified Options. However,
employees participating in the 1995 Incentive Plan may elect, with the consent
of the Committee, to receive discounted
14
<PAGE> 18
Non-Qualified Options in lieu of cash bonuses. In the case of such grants, the
option exercise price must be at least 50% of the fair market value of the
Common Stock on the date of grant.
The term of each option will be fixed by the Committee and may not exceed
ten years from date of grant in the case of an Incentive Option. The Committee
will determine at what time or times each option may be exercised and, subject
to the provisions of the 1995 Incentive Plan, the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee.
Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Committee or, if the Committee so permits, by delivery of shares of Common
Stock already owned by the optionee. The exercise price may also be delivered to
the Company by a broker pursuant to irrevocable instructions to the broker from
the optionee.
At the discretion of the Committee, stock options granted under the 1995
Incentive Plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of Common Stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the Common Stock on the date the additional
stock option is granted) to purchase that number of shares of Common Stock equal
to the number delivered to exercise the original stock option. The purpose of
this feature is to enable participants to maintain any equity interest in the
Company without dilution.
To qualify as Incentive Options, options must meet additional Federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.
Stock Options Granted to Independent Directors. The 1995 Incentive Plan
provides for the automatic grant of Non-Qualified Options to Independent
Directors. Each Independent Director who is serving as a Director of the Company
on the fifth business day after each annual meeting of shareholders, beginning
with the Annual Meeting, will automatically be granted on such day a
Non-Qualified Option to acquire 3,000 shares of Common Stock. In addition, the
formula provisions for non-employee Director option grants contained in the 1995
Incentive Plan also provide for an initial one-time grant on the date which the
Board of Directors approved the plan of a Non-Qualified Option to purchase 8,350
shares of Common Stock to each Independent Director who has served as a Director
of the Company since January 1, 1986, and an initial one-time grant on the date
which the Board of Directors approved the plan of a Non-Qualified Option to
purchase 6,100 shares of Common Stock to each Independent Director who has
served as a Director of the Company since January 1, 1990. The exercise price of
each such Non-Qualified Option is the fair market value of the Common Stock on
the date of grant. Non-Qualified Options granted to Independent Directors vest
and become immediately exercisable upon grant.
Stock Appreciation Rights. The Committee may award a stock appreciation
right ("SAR") either as a freestanding award or in tandem with a stock option.
Upon exercise of the SAR, the holder will be entitled to receive an amount equal
to the excess of the fair market value on the date of exercise of one share of
Common Stock over the exercise price per share specified in the related stock
option (or, in the case of freestanding SAR, the price per share specified in
such right, which price may not be less than 85% of the fair market value of the
Common Stock on the date of grant) times the number of shares of Common Stock
with respect to which the SAR is exercised. This amount may be paid in cash,
Common Stock, or a combination thereof, as determined by the Committee. If the
SAR is granted in tandem with a stock option, exercise of the SAR cancels the
related option to the extent of such exercise.
Restricted Stock. The Committee may also award shares of Common Stock to
officers, other employees and key persons subject to such conditions and
restrictions as the Committee may determine ("Restricted Stock"). These
conditions and restrictions may include the achievement of certain performance
goals and/or continued employment with the Company through a specified
restricted period. The purchase price, if any, of shares of Restricted Stock
will be determined by the Committee. If the performance goals and other
restrictions are not attained, the employees will forfeit their awards of
Restricted Stock.
15
<PAGE> 19
Unrestricted Stock. The Committee may also grant shares (at no cost or for
a purchase price determined by the Committee) which are free from any
restrictions under the 1995 Incentive Plan ("Unrestricted Stock"). Unrestricted
Stock may be issued to employees and key persons in recognition of past services
or other valid consideration, and may be issued in lieu of cash bonuses to be
paid to such employees and key persons.
Subject to the consent of the Committee, an employee or key person of the
Company may make an irrevocable election to receive a portion of his
compensation in Unrestricted Stock (valued at fair market value on the date the
cash compensation would otherwise be paid).
An Independent Director may, pursuant to an irrevocable written election at
least six months before directors' fees would otherwise be paid, receive all or
a portion of such fees in Unrestricted Stock, valued at fair market value on the
date the directors' fees would otherwise be paid. In certain instances, an
Independent Director may also elect to defer a portion of his directors' fees
payable in the form of Unrestricted Stock, in accordance with such rules and
procedures as may from time to time be established by the Company. During the
period of deferral, the deferred unrestricted stock would receive dividend
equivalent rights.
Performance Share Awards. The Committee may also grant performance share
awards to employees or other key persons entitling the recipient to receive
shares of Common Stock upon the achievement of individual or Company performance
goals and such other conditions as the Committee shall determine ("Performance
Share Award").
Dividend Equivalent Rights. The Committee may grant dividend equivalent
rights, which entitle the recipient to receive credits for dividends that would
be paid if the grantee had held specified shares of Common Stock. Dividend
equivalent rights may be granted as a component of another award or as a
freestanding award. Dividend equivalents credited under the 1995 Incentive Plan
may be paid currently or be deemed to be reinvested in additional shares of
Common Stock, which may thereafter accrue additional dividend equivalents at
fair market value at the time of deemed reinvestment or on the terms then
governing the reinvestment of dividends under the Company's dividend
reinvestment plan, if any. Dividend equivalent rights may be settled in cash,
shares, or a combination thereof, in a single installment or installments, as
specified in the award. Awards payable in cash on a deferred basis may provide
for crediting and payment of interest equivalents.
Adjustments for Stock Dividends, Mergers, Etc. The Committee will make
appropriate adjustments in outstanding awards to reflect stock dividends, stock
splits and similar events. In the event of a merger, liquidation, sale of the
Company or similar event, the Committee, in its discretion, may provide for
substitution or adjustments of outstanding options and SARs, or may terminate
all unexercised options and SARs with or without payment of cash consideration.
Amendments and Termination. The Board of Directors may at any time amend
or discontinue the 1995 Incentive Plan and the Committee may at any time amend
or cancel outstanding awards for the purpose of satisfying changes in the law or
for any other lawful purpose. However, no such action may be taken which
adversely affects any rights under outstanding awards without the holder's
consent. Further, 1995 Incentive Plan amendments shall be subject to approval by
the Company's stockholders if and to the extent required by the Securities
Exchange Act of 1934, as amended (the "1934 Act"), to ensure that awards granted
under the 1995 Incentive Plan are exempt under Rule 16b-3 promulgated under the
1934 Act, or required by the Code to preserve the qualified status of Incentive
Options.
Change of Control Provisions. The 1995 Incentive Plan provides that in the
event of a "Change of Control" (as defined in the 1995 Incentive Plan) of the
Company, all stock options and stock appreciation rights shall automatically
become fully exercisable. In addition, at any time prior to or after a Change of
Control, the Committee may accelerate awards and waive conditions and
restrictions on any awards to the extent it may determine appropriate.
16
<PAGE> 20
EFFECTIVE DATE OF 1995 INCENTIVE PLAN
The 1995 Incentive Plan will become effective upon the affirmative vote of
the holders of at least a majority of the shares of Common Stock present or
represented and entitled to vote at the Annual Meeting. For purposes of the vote
on the 1995 Incentive Plan, abstentions will have the same effect as votes
against the 1995 Incentive Plan and broker non-votes will have no effect on the
results of the vote. Both abstentions and broker-non votes will count towards
the presence of a quorum. Awards of Incentive Stock Options may be granted under
the 1995 Incentive Plan until November 15, 2005.
NEW PLAN BENEFITS
Approximately 250 employees and five Independent Directors are currently
eligible to participate in the 1995 Incentive Plan. The table below shows the
aggregate number of options that have been granted to employees and the
aggregate number of options that have been granted to Independent Directors in
fiscal 1995 in connection with the adoption of the 1995 Incentive Plan, subject
to stockholder approval. Each option granted to an employee and each option
granted to an Independent Director has an option exercise price equal to 100% of
the fair market value of the Common Stock on the date of grant.
<TABLE>
FERROFLUIDICS CORPORATION 1995 STOCK OPTION AND INCENTIVE PLAN
<CAPTION>
==================================================================================================
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Paul F. Avery, Jr., Chief Executive Officer 593,450(1) 65,000
- --------------------------------------------------------------------------------------------------
Salvatore J. Vinciguerra, President and 456,500(1) 50,000
Chief Operating Officer
- --------------------------------------------------------------------------------------------------
Alvan F. Chorney, Senior Vice President 228,250(1) 25,000
- --------------------------------------------------------------------------------------------------
Executive Group 1,278,200(1) 140,000(3)
- --------------------------------------------------------------------------------------------------
Non-Executive Director Group 197,897(2) 20,550(4)
165,000(5) 15,000(5)
- --------------------------------------------------------------------------------------------------
Non-Executive Officer Employee Group 867,350(1) 95,000(6)
==================================================================================================
<FN>
(1) Based upon a closing sale price of $9.13 per share as reported by NASDAQ on
June 29, 1995.
(2) Based upon a closing sale price of $9.63 per share as reported by NASDAQ on
June 13, 1995.
(3) Includes Paul F. Avery, Jr., Salvatore J. Vinciguerra and Alvan F. Chorney.
(4) Pursuant to the 1995 Incentive Plan, on June 13, 1995, the date the Board of
Directors approved the 1995 Incentive Plan, Howard F. Nichols, Robert P.
Rittereiser and Dean Kamen received options to purchase 8,350, 6,100 and
6,100 shares of Common Stock, respectively, at an exercise price of $9.63
per share, subject to stockholder approval.
(5) Pursuant to the 1995 Incentive Plan, each of Messrs. Nichols, Rittereiser,
Kamen, Hazard and Stone will receive an option to purchase 3,000 shares of
the Common Stock of the Company on the fifth business day after each annual
meeting of the Company's stockholders, commencing with the Annual Meeting,
if the 1995 Incentive Plan is approved by stockholders. Dollar value is
based upon a closing sale price of $11.00 per share as reported by NASDAQ
on October 2, 1995.
(6) Represents total options granted to non-executive officer employees on June
29, 1995 to purchase Common Stock at an exercise price of $9.13 per share,
subject to stockholder approval.
</TABLE>
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
The following is a summary of the principal Federal income tax consequences
of option grants under the 1995 Incentive Plan. It does not describe all Federal
tax consequences under the 1995 Incentive Plan, nor does it describe state or
local tax consequences.
17
<PAGE> 21
INCENTIVE OPTIONS
Under the Code, an employee will not realize taxable income by reason of
the grant or the exercise of an Incentive Option. If an employee exercises an
Incentive Option and does not dispose of the shares until the later of (a) two
years from the date the option was granted or (b) one year from the date the
shares were transferred to the employee, the entire gain, if any, realized upon
disposition of such shares will be taxable to the employee as long-term capital
gain, and the Company will not be entitled to any deduction. If an employee
disposes of the shares within such one-year or two-year period in a manner so as
to violate the holding period requirements (a "disqualifying disposition"), the
employee generally will realize ordinary income in the year of disposition, and,
provided the Company complies with applicable withholding requirements, the
Company will receive a corresponding deduction, in an amount equal to the excess
of (1) the lesser of (x) the amount, if any, realized on the disposition and (y)
the fair market value of the shares on the date the option was exercised over
(2) the option price. Any additional gain realized on the disposition will be
long-term or short-term capital gain and any loss will be long-term or
short-term capital loss. The employee will be considered to have disposed of his
shares if he sells, exchanges, makes a gift of or transfers legal title to the
shares (except by pledge or by transfer on death). If the disposition of shares
is by gift and violates the holding period requirements, the amount of the
employee's ordinary income (and the Company's deduction) is equal to the fair
market value of the shares on the date of exercise less the option price. If the
disposition is by sale or exchange, the employee's tax basis will equal the
amount paid for the shares plus any ordinary income realized as a result of the
disqualifying distribution. The exercise of an Incentive Option may subject the
employee to the alternative minimum tax.
Special rules apply if an employee surrenders shares of Common Stock in
payment of the exercise price of an Incentive Option.
An Incentive Option that is exercised by an employee more than three months
after an employee's employment terminates will be treated as a Non-Qualified
Option for Federal income tax purposes. In the case of an employee who is
disabled, the three-month period is extended to one year and in the case of an
employee who dies, the three-month employment rule does not apply.
NON-QUALIFIED OPTIONS
There are no Federal income tax consequences to either the optionee or the
Company on the grant of a Non-Qualified Option. On the exercise of a
Non-Qualified Option, the optionee (except as described below) has taxable
ordinary income equal to the excess of the fair market value of the Common Stock
received on the exercise date over the option price of the shares. The
optionee's tax basis for the shares acquired upon exercise of a Non-Qualified
Option is increased by the amount of such taxable income. The Company will be
entitled to a Federal income tax deduction in an amount equal to such excess,
provided the Company complies with applicable withholding rules. Upon the sale
of the shares acquired by exercise of a Non-Qualified Option, the optionee will
realize long-term or short-term capital gain or loss depending upon his or her
holding period for such shares.
Section 83 of the Code and the regulations thereunder provide that the date
for recognition of ordinary income (and the Company's equivalent deduction) upon
exercise of a Non-Qualified Option and for the commencement of the holding
period of the shares thereby acquired by a person who is subject to Section 16
of the 1934 Act will be delayed until the date that is the earlier of (i) six
months after the date of the exercise and (ii) such time as the shares received
upon exercise could be sold at a gain without the person being subject to such
potential liability.
Special rules apply if an optionee surrenders shares of Common Stock in
payment of the exercise price of a Non-Qualified Option.
PARACHUTE PAYMENTS
The exercise of any portion of any option that is accelerated due to the
occurrence of a change of control may cause a portion of the payments with
respect to such accelerated options to be treated as "parachute payments" as
defined in the Code. Any such parachute payments may be non-deductible to the
Company, in
18
<PAGE> 22
whole or in part, and may subject the recipient to a non-deductible 20% federal
excise tax on all or portion of such payment (in addition to other taxes
ordinarily payable).
LIMITATION ON COMPANY'S DEDUCTIONS
As a result of Section 162(m) of the Code, the Company's deduction for
certain awards under the 1995 Incentive Plan may be limited to the extent that
the Chief Executive Officer or other executive officer whose compensation is
required to be reported in the summary compensation table receives compensation
(other than performance-based compensation) in excess of $1 million a year.
LEGAL PROCEEDINGS
On February 19, 1993, the Company received an informal inquiry letter from
the SEC requesting that the Company provide the SEC with all documents
concerning publicity relating to the Company for the period of January 1, 1992
to February 19, 1993. In August 1993, the SEC issued an order directing a
private investigation to determine whether certain unnamed persons had violated
or caused the Company to violate the federal securities laws. Among the areas of
inquiry identified in the order was whether publicity about the Company,
including research reports, were published without fully disclosing
consideration given or received therefor. The order also indicates that the
inquiry would examine possible manipulation by certain unnamed persons of the
Company's securities, payment in connection therewith, and failure to disclose
such activities in public filings made by the Company, including the financial
statements contained or incorporated therein, as well as possible nondisclosure
of transactions with the Company in which such persons may have had a material
interest. The Company continues to cooperate fully with the SEC's investigation.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of the Company's
Common Stock as of October 2, 1995 by (i) each person known by the Company to be
the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
of the Company's Directors and nominees, (iii) each of the named executive
officers in the Summary Compensation Table and (iv) all of the Company's
executive officers and Directors as a group.
<TABLE>
<CAPTION>
SHARES
DIRECTORS, EXECUTIVE OFFICERS BENEFICIALLY PERCENT OF
AND 5% STOCKHOLDERS OWNED(1) CLASS(2)
------------------------------------------------------ ------------ ----------
<S> <C> <C>
Pioneering Management Corporation..................... 456,300(3) 6.89%
60 State Street
Boston, MA 02114
Paul F. Avery, Jr..................................... 56,500(4) *
Salvatore J. Vinciguerra.............................. 75,000(5) 1.13%
Alvan F. Chorney...................................... 86,646(6) 1.31%
Howard F. Nichols..................................... 24,375(7) *
Dean Kamen............................................ 9,250(8) *
Robert P. Rittereiser................................. 9,250(9) *
Stephen B. Hazard..................................... 3,000(10) *
Dennis R. Stone....................................... -- *
All directors and executive officers as a group (8
persons)............................................ 264,021(11) 3.99%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 under the
Exchange Act. Accordingly, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares the power to vote
such security or the power to dispose of such security. The amounts set
forth above as beneficially owned include shares owned, if any, by spouses
and relatives living in the same home as to which beneficial ownership may
be disclaimed. The amounts set forth as beneficially owned include shares
of Common Stock which such persons had the right to acquire within 60 days
of October 2, 1995, pursuant to stock purchase warrants.
19
<PAGE> 23
(2) Percentages are calculated on the basis of 6,620,532 shares of Common Stock
outstanding of October 2, 1995, which includes 443,983 shares of Common
Stock subject to stock options and stock purchase warrants exercisable
within 60 days of October 2, 1995.
(3) Based on a Schedule 13G dated January 18, 1995 filed with the SEC and other
information available to the Company, Pioneering Management Corporation has
sole voting power with respect to all 456,300 shares.
(4) Includes 8,500 shares of Common Stock deemed to be beneficially owned by
Mr. Avery that are subject to stock purchase warrants and 31,667 shares of
restricted stock which are subject to vesting and certain other
restrictions pursuant to the 1994 Restricted Stock Plan.
(5) Represents 75,000 shares of restricted stock deemed to be beneficially
owned by Mr. Vinciguerra which are subject to vesting and certain other
restrictions pursuant to the 1994 Restricted Stock Plan.
(6) Includes 77,500 shares of Common Stock deemed to be beneficially owned by
Mr. Chorney that are subject to stock purchase warrants. Includes 125
shares of Common Stock owned by Mr. Chorney s immediate family. Mr. Chorney
disclaims beneficial ownership of all 125 shares. Includes 6,000 shares of
restricted stock which are subject to vesting and certain other
restrictions pursuant to the 1994 Restricted Stock Plan.
(7) Includes 21,000 shares of Common Stock deemed to be beneficially owned by
Mr. Nichols that are subject to stock purchase warrants.
(8) Includes 8,500 shares of Common Stock deemed to be beneficially owned by
Mr. Kamen that are subject to stock purchase warrants.
(9) Includes 8,500 shares of Common Stock deemed to be beneficially owned by
Mr. Rittereiser that are subject to stock purchase warrants.
(10) Includes 124,000 shares of Common Stock deemed to be beneficially owned by
such persons that are subject to stock purchase warrants. Includes 112,667
shares of restricted stock which are subject to vesting and certain other
restrictions pursuant to the 1994 Restricted Stock Plan.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company's executive officers and Directors and beneficial owners of
more than 10% of its Common Stock are required under Section 16(a) of the
Exchange Act to file reports of ownership and changes in ownership with the SEC.
Copies of those reports must also be furnished to the Company. Based solely on a
review of the copies of reports furnished to the Company and written
representations that no other reports were required, the Company believes that
during fiscal 1995 no person who was a Director, officer or greater than 10%
beneficial owner of the Company's Common Stock failed to file on a timely basis
all reports required by Section 16(a).
MARKET VALUE
On October 2, 1995 the closing sale price of a share of the Company's
Common Stock on NASDAQ was $11.00.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1995 ANNUAL MEETING
Stockholder proposals intended to be presented at the next annual meeting
of stockholders must be received by the Company on or before June 14, 1996 in
order to be considered for inclusion in the Company's proxy statement. Such a
proposal must also comply with the requirements as to form and substance
established by the SEC in order to be included in the proxy statement and should
be directed to: Clerk, Ferrofluidics Corporation, 40 Simon Street, Nashua, New
Hampshire 03061.
The Company's By-laws provide that any stockholder of record wishing to
have a stockholder proposal considered at an annual meeting must provide written
notice of such proposal and appropriate supporting documentation, as set forth
in the By-laws, to the Company at its principal executive office not less than
75 days nor more 120 days prior to the anniversary date of the immediately
preceding annual meeting (the
20
<PAGE> 24
"Anniversary Date"); provided, however, that in the event the annual meeting is
scheduled to be held on a date more than 30 days before or more than 60 days
after the Anniversary Date, notice must be so delivered not later than the close
of business on the later of (i) the 75th day prior to the scheduled date of such
annual meeting or (ii) the 15th day after public disclosure of the date of such
meeting.
INDEPENDENT AUDITORS
The Board of Directors has not made a decision as to the independent
certified public accountants to be selected as the auditors of the financial
statements of the Company and its subsidiaries for its current year ending June
30, 1996. The firm of Coopers & Lybrand served as the auditors of the Company
for fiscal 1995. A member of such firm will be present at the Annual Meeting and
will be given the opportunity to make a statement and to answer any questions
any stockholder may have with respect to the financial statements of the Company
for the fiscal year ended June 30, 1995.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement that will be presented for action at the
Annual Meeting. If other matters are duly presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
21
<PAGE> 25
EXHIBIT A
FERROFLUIDICS CORPORATION
1995 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Ferrofluidics Corporation 1995 Stock Option and
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the officers, employees, Directors and other key persons of Ferrofluidics
Corporation (the "Company") and its Subsidiaries upon whose judgment,
initiative and efforts the Company largely depends for the successful conduct
of its business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of
the Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"ADOPTION DATE" means the date on which the Plan is approved by the Board
of Directors as set forth in Section 17.
"AWARD" or "AWARDS," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified
Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Unrestricted
Stock Awards, Performance Share Awards and Dividend Equivalent Rights.
"BOARD" means the Board of Directors of the Company.
"CAUSE" as such term relates to the termination of any person means the
occurrence of one or more of the following: (i) such person is convicted of,
pleads guilty to, or confesses to any felony or any act of fraud,
misappropriation or embezzlement which has an immediate and materially adverse
effect on the Company or any Subsidiary, as determined by the Board in good
faith in its sole discretion, (ii) such person engages in a fraudulent act to
the material damage or prejudice of the Company or any Subsidiary or in conduct
or activities materially damaging to the property, business or reputation of
the Company or any Subsidiary, all as determined by the Board in good faith in
its sole discretion, (iii) any material act or omission by such person
involving malfeasance or negligence in the performance of such person's duties
to the Company or any Subsidiary to the material detriment of the Company or
any Subsidiary, as determined by the Board in good faith in its sole
discretion, which has not been corrected by such person within 30 days after
written notice from the Company of any such act or omission, (iv) failure by
such person to comply in any material respect with the terms of his employment
agreement, if any, or any written policies or directives of the Board as
determined by the Board in good faith in its sole discretion, which has not
been corrected by such person within 30 days after written notice from the
Company of such failure, or (v) material breach by such person of his
noncompetition agreement with the Company, if any, as determined by the Board
in good faith in its sole discretion.
"CHANGE OF CONTROL" is defined in Section 15.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"COMMITTEE" means the Committee of the Board referred to in Section 2.
A-1
<PAGE> 26
"DISABILITY, means an individual's inability to perform his or her normal
required services for the Company and its Subsidiaries for a period of six
consecutive months by reason of the individual's mental or physical disability,
as determined by the Committee in good faith in its sole discretion.
"DISINTERESTED PERSON" means an Independent Director who qualifies as such
under Rule 16b-3(c)(2)(i) promulgated under the Act, or any successor
definition under said Rule.
"DIVIDEND EQUIVALENT RIGHT" means Awards granted pursuant to Section
10.
"EFFECTIVE DATE" means the date on which the Plan is approved by
stockholders as set forth in Section 17.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related rules, regulations and interpretations.
"FAIR MARKET VALUE" on any given date means the last reported sale price at
which Stock is traded on such date or, if no Stock is traded on such date, the
most recent date on which Stock was traded, as reflected on the principal stock
exchange or, if applicable, any other national stock exchange on which the
Stock is traded or admitted to trading.
"INCENTIVE STOCK OPTION" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"INDEPENDENT DIRECTOR" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option.
"OPTION" or "STOCK OPTION" means any option to purchase shares of
Stock granted pursuant to Section 5.
"PERFORMANCE SHARE AWARD" means Awards granted pursuant to Section 9.
"RESTRICTED STOCK AWARD" means Awards granted pursuant to Section 7.
"RETIREMENT" means the employee's termination of employment with the
Company and its Subsidiaries after attainment of age 65 or attainment of age 55
and completion of 10 years of employment.
"STOCK" means the Common Stock, par value $.004 per share, of the Company,
subject to adjustments pursuant to Section 3.
"STOCK APPRECIATION RIGHT" means any Award granted pursuant to Section 6.
"SUBSIDIARY" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"UNRESTRICTED STOCK AWARD" means any Award granted pursuant to Section 8.
A-2
<PAGE> 27
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
-----------------------------------------------------
PARTICIPANTS AND DETERMINE AWARDS
---------------------------------
(a) COMMITTEE. The Plan shall be administered by all of the
Independent Director members of the Compensation Committee of the Board, or
any other committee of not less than two Independent Directors performing
similar functions as appointed by the Board from time to time. Each member of
the Committee shall be a Disinterested Person and an "outside director"
within the meaning of Section 162(m) of the Code and the regulations promulgated
thereunder.
(b) POWERS OF COMMITTEE. The Committee shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the officers, employees and key persons of the
Company and its Subsidiaries to whom Awards may from time to time be
granted;
(ii) to determine the time or times of grant, and the extent,
if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights, or
any combination of the foregoing, granted to any one or more
participants;
(iii) to determine the number of shares of Stock to be covered
by any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and participants, and to approve the form of written
instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of
all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(iii), to extend
at any time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and
under what circumstances Stock and other amounts payable with respect
to an Award shall be deferred either automatically or at the election
of the participant and whether and to what extent the Company shall
pay or credit amounts constituting interest (at rates determined by
the Committee) or dividends or deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its
own acts and proceedings as it shall deem advisable; to interpret the
terms and provisions of the Plan and any Award (including related
written instruments); to make all determinations it deems advisable
for the administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the
administration of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 750,000 shares. For purposes of
this limitation, the shares of Stock underlying any
A-3
<PAGE> 28
Awards which are forfeited, cancelled, reacquired by the Company, satisfied
without the issuance of Stock or otherwise terminated (other than by exercise)
shall be added back to the shares of Stock available for issuance under the
Plan. Subject to such overall limitation, shares of Stock may be issued up to
such maximum number pursuant to any type or types of Award; provided, however,
that Stock Options or Stock Appreciation Rights with respect to no more than
200,000 shares of Stock may be granted to any one individual participant during
any 12 month calendar year period. The shares available for issuance under the
Plan may be authorized but unissued shares of Stock or shares of Stock
reacquired by the Company. Upon the exercise of a Stock Appreciation Right
settled in shares of Stock, the right to purchase an equal number of shares of
Stock covered by a related Stock Option, if any, shall be deemed to have been
surrendered and will no longer be exercisable, and said number of shares of
Stock shall no longer be available under the Plan.
(b) RECAPITALIZATIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar transaction, the outstanding shares
of Stock are increased or decreased or are exchanged for a different number or
kind of shares or other securities of the Company, or additional shares or new
or different shares or other securities of the Company or other non-cash assets
are distributed with respect to such shares of Stock or other securities, the
Committee shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Stock Options or Stock Appreciation Rights that can be granted to any one
individual participant, (iii) the number and kind of shares or other securities
subject to any then outstanding Awards and Stock Appreciation Rights under the
Plan, and (iv) the price for each share subject to any then outstanding Stock
Options and Stock Appreciation Rights under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by the number of
Stock Options and Stock Appreciation Rights) as to which such Stock Options and
Stock Appreciation Rights remain exercisable. The adjustment by the Committee
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the Plan resulting from any such adjustment, but the Committee in
its discretion may make a cash payment in lieu of fractional shares.
(c) MERGERS. Upon consummation of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property of
any other corporation or business entity or in the event of a liquidation of
the Company, the Board, or the board of directors of any corporation assuming
the obligations of the Company, may, in its discretion, take any one or more of
the following actions, as to outstanding Stock Options and Stock Appreciation
Rights: (i) provide that such Stock Options shall be assumed or equivalent
options shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), (ii) upon written notice to the optionees, provide that all
unexercised Stock Options and Stock Appreciation Rights will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice,
and/or (iii) in the event of a business combination under the terms of which
holders of the Stock of the Company will receive upon consummation thereof a
cash payment for each share surrendered in the business combination, make or
provide for a cash payment to the optionees equal to the difference between (A)
the value (as determined by the Committee) of the consideration payable per
share of Stock pursuant to the business combination (the "Merger Price") times
the number of shares of Stock subject to such outstanding Stock Options and
Stock Appreciation Rights (to the extent then exercisable at prices not in
excess of the Merger Price) and (B) the aggregate exercise price of all such
outstanding Stock Options and Stock Appreciation Rights in exchange for the
termination of such Stock Options and Stock Appreciation Rights.
(d) SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result
of a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Committee may direct that the
substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
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SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such full or part-time officers, and other
employees and key persons of the Company and its Subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
Company and its Subsidiaries as are selected from time to time by the
Committee, in its sole discretion. Independent Directors are also eligible to
participate in the Plan but only to the extent provided in Section 5(c) and
Section 8 below.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. To the extent that any Option
does not qualify as an Incentive Stock Option, it shall be deemed a Non-
Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after the date
which is 10 years from the date the Plan is approved by the Board of Directors.
(a) STOCK OPTIONS GRANTED TO EMPLOYEES AND KEY PERSONS. The Committee
in its discretion may grant Stock Options to eligible employees and key persons
of the Company or any Subsidiary. Stock Options granted to employees pursuant
to this Section 5(a) shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Committee shall deem desirable:
(i) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Committee at the time of grant but shall not be
less than 100% of the Fair Market Value on the date of grant in the
case of Incentive Stock Options, or 85 % of the Fair Market Value on
the date of grant, in the case of Non-Qualified Stock Options.
Notwithstanding the foregoing, with respect to Non-Qualified Stock
Options which are granted in lieu of cash bonus, the exercise price
per share shall not be less than 50% of the Fair Market Value on the
date of grant. If an employee owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of
the Company or any parent or subsidiary corporation and an Incentive
Stock Option is granted to such employee, the option price of such
Incentive Stock Option shall be not less than 110% of the Fair Market
Value on the grant date.
(ii) GRANT OF DISCOUNT OPTIONS IN LIEU OF CASH BONUS. Upon the
request of an eligible employee and with the consent of the Committee,
such employee may elect each calendar year to receive a Non-Qualified
Stock Option in lieu of any cash bonus to which he may become entitled
during the following calendar year pursuant to any other plan of the
Company, but only if such employee makes an irrevocable election to
waive receipt of all or a portion of such cash bonus. Such election
shall be made on or before the date set by the Committee which date
shall be no later than 15 days (or such shorter period permitted by
the Committee) preceding January I of the calendar year for which the
cash bonus would otherwise be paid. A Non-Qualified Stock Option shall
be granted to each employee who made such an irrevocable election on
the date the waived cash bonus would otherwise be paid; provided,
however, that with respect to an employee who is subject to Section 16
of the Act, if such grant date is not at least six months and one day
from the date of the election, the grant shall be delayed until the
date which is six months and one day from the date of the election (or
the next following business day, if such date is not a business day).
The exercise price per share shall be
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determined by the Committee but shall not be less than 50% of the Fair Market
Value of the Stock on the date the Stock Option is granted. The number of
shares of Stock subject to the Stock Option shall be determined by dividing the
amount of the waived cash bonus by the difference between the Fair Market Value
of the Stock on the date the Stock Option is granted and the exercise price per
Stock Option. The Stock Option shall be granted for whole number of shares so
determined; the value of any fractional share shall be paid in cash. An
employee may revoke his election under this Section 5(a)(ii) on a prospective
basis at any time; provided, however, that with respect to an employee who is
subject to Section 16 of the Act, such revocation shall only be effective six
months and one day following the date of such revocation.
(iii) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of stock of the Company or
any Subsidiary or parent corporation and an Incentive Stock Option is granted
to such employee, the term of such option shall be no more than five years from
the date of grant.
(iv) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall become
vested and exercisable at such time or times, whether or not in installments,
as shall be determined by the Committee at or after the grant date; provided,
however, that Stock Options granted in lieu of cash bonus shall be exercisable
in full as of the grant date. The Committee may at any time accelerate the
exercisability of all or any portion of any Stock Option. An optionee shall
have the rights of a stockholder only as to shares acquired upon the exercise
of a Stock Option and not as to unexercised Stock Options.
(v) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part, by giving written notice of exercise to the Company, specifying the
number of shares to be purchased. Payment of the purchase price may be made by
one or more of the following methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(B) In the form of shares of Stock that are not then subject to
restrictions under any Company plan and that have been held by the
optionee for at least six months, if permitted by the Committee in its
discretion. Such surrendered shares shall be valued at Fair Market
Value on the exercise date; or
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price; provided that in
the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Committee shall prescribe as a condition of such
payment procedure.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to the
exercise of a Stock Option will be contingent upon receipt from the optionee
(or a purchaser acting in his stead in accordance with the provisions of the
Stock Option) by the Company of the full purchase price for such shares and the
fulfillment of any other requirements contained in the Stock Option or
applicable provisions of laws.
(vi) TERMINATION BY REASON OF DEATH. Any Stock Option held by an
optionee whose
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employment by (or other business relationship with) the Company and its
Subsidiaries is terminated by reason of death shall become fully exercisable
and may thereafter be exercised by the legal representative or legatee of the
optionee, for a period of 12 months (or such longer period as the Committee
shall specify at any time) from the date of death, or until the expiration of
the stated term of the Option, if earlier.
(vii) TERMINATION BY REASON OF DISABILITY.
-----------------------------------
(A) Any Stock Option held by an optionee whose employment by
(or other business relationship with) the Company and its Subsidiaries
is terminated by reason of Disability shall become fully exercisable
and may thereafter be exercised, for a period of 12 months (or such
longer period as the Committee shall specify at any time) from the
date of such termination of employment (or business relationship), or
until the expiration of the stated term of the Option, if earlier.
(B) The Committee shall have sole authority and discretion to
determine whether a participant's employment (or business
relationship) has been terminated by reason of Disability.
(C) Except as otherwise provided by the Committee at any time,
the death of an optionee during the period provided in this Section
5(a)(vii) for the exercise of a Stock Option shall extend such period
for 12 months from the date of death, subject to termination on the
expiration of the stated term of the Option, if earlier.
(viii) TERMINATION BY REASON OF RETIREMENT.
-----------------------------------
(A) Any Stock Option held by an optionee whose employment by
(or other business relationship with) the Company and its Subsidiaries
is terminated by reason of Retirement may thereafter be exercised, to
the extent it was exercisable at the time of such termination, for a
period of 12 months (or such other period as the Committee shall
specify at any time) from the date of such termination of employment
(or business relationship), or until the expiration of the stated term
of the Option, if earlier.
(B) Except as otherwise provided by the Committee at any time,
the death of an optionee during a period provided in this Section
5(a)(viii) for the exercise of a Stock Option shall extend such period
for 12 months from the date of death, subject to termination on the
expiration of the stated term of the Option, if earlier.
(ix) TERMINATION FOR CAUSE. If any optionee's employment by (or
other business relationship with) the Company and its Subsidiaries is
terminated for Cause, any Stock Option held by such optionee, including any
Stock Option that is immediately exercisable at the time of such termination,
shall immediately terminate and be of no further force and effect; provided,
however, that the Committee may, in its sole discretion, provide that such
Stock Option can be exercised for a period of up to 30 days from the date of
termination of employment (or business relationship) or until the expiration of
the stated term of the Option, if earlier.
(x) OTHER TERMINATION. Unless otherwise determined by the Committee,
if an optionee's employment by (or other business relationship with) the
Company and its Subsidiaries terminates for any reason other than death,
Disability, Retirement, or for Cause, any Stock Option held by such optionee
may thereafter be exercised, to the extent it was exercisable on the date of
termination of employment (or business relationship), for three months (or such
longer period as the Committee shall specify at any time) from the date of
termination of employment (or business relationship) or until the
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expiration of the stated term of the Option, if earlier.
(xi) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time
of grant) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and any other plan of the Company or
its parent and subsidiary corporations become exercisable for the
first time by an optionee during any calendar year shall not exceed
$100,000. To the extent that any Stock Option exceeds this limit, it
shall constitute a Non-Qualified Stock Option.
(b) RELOAD OPTIONS. At the discretion of the Committee, Options
granted under Section 5(a) may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(v)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Committee may provide) to purchase that number of shares of Stock equal to the
number delivered to exercise the original Option.
(c) STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS.
----------------------------------------------
(i) AUTOMATIC GRANT OF OPTIONS.
--------------------------
(A)(1) Each Independent Director who has served as a
Director of the Company since January 1, 1986 shall
automatically be granted on the Adoption Date a Non-Qualified
Stock Option to acquire 8,350 shares of Stock.
(A)(2) Each Independent Director who has served as a
Director of the Company since January 1, 1990 shall
automatically be granted on the Adoption Date a Non-Qualified
Stock Option to acquire 6,100 shares of Stock.
(A)(3) Each Independent Director who is serving as a
Director of the Company on the fifth business day after each
annual meeting of shareholders, beginning with the 1995 annual
meeting, shall automatically be granted on such day a
Non-Qualified Stock Option to acquire 3,000 shares of Stock.
(B) The exercise price per share for the Stock covered
by a Stock Option granted under this Section 5(c) shall be
equal to the Fair Market Value of the Stock on the date the
Stock Option is granted.
(ii) EXERCISE; TERMINATION.
---------------------
(A) Except as provided in Section 15, an Option granted
under this Section 5(c) shall be exercisable in full as of the
grant date. An Option issued under this Section 5(c) shall not
be exercisable after the expiration of ten years from the date
of grant.
(B) If an Independent Director ceases to be a Director
for any reason other than Cause or death, an Option granted
under this Section 5(c) may thereafter be exercised, to the
extent it was exercisable on the date such optionee ceases to
be a Director, for a person of six months from such date or
until the expiration of the stated term of the Option, if
earlier. If the optionee ceases to be a Director for Cause,
all rights in an Option granted under this Section 5(c) shall
terminate immediately on the date he ceases to be a Director.
(C) Notwithstanding paragraph (B) above, any Option
granted to an Independent
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Director and outstanding on the date of his death may be
exercised by the legal representative or legatee of the
optionee for a period of twelve months from the date of death
or until the expiration of the stated term of the option, if
earlier.
(D) Options granted under this Section 5(c) may be
exercised only by written notice to the Company specifying the
number of shares to be purchased. Payment of the full purchase
price of the shares to be purchased may be made by one or more
of the methods specified in Section 5(a)(v). An optionee shall
have the rights of a stockholder only as to shares acquired
upon the exercise of a Stock Option and not as to unexercised
Stock Options.
(iii) LIMITED TO INDEPENDENT DIRECTORS. The provisions of
this Section 5(c) shall apply only to Options granted or to be granted
to Independent Directors, and shall not be deemed to modify, limit or
otherwise apply to any other provision of this Plan or to any Option
issued under this Plan to a participant who is not an Independent
Director of the Company. To the extent inconsistent with the provisions
of any other Section of this Plan, the provisions of this Section 5(c)
shall govern the rights and obligations of the Company and Independent
Directors respecting Options granted or to be granted to Independent
Directors. The provisions of this Section 5(c) which affect the price,
date of exercisability, option period or amount of shares of Stock
under an Option shall not be amended more than once in any six-month
period, other than to comport with changes in the Code or ERISA.
(d) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Committee may provide in an option agreement that the optionee may transfer,
without consideration for the transfer, his Stock Options to members of his
immediate family, to trusts for the benefit of such family members and to
partnerships in which such family members are the only partners.
(e) FORM OF SETTLEMENT. Shares of Stock issued upon exercise of a
Stock Option shall be free of all restrictions under the Plan, except as
otherwise provided in the Plan.
SECTION 6. STOCK APPRECIATION RIGHTS.
-------------------------
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
is an Award entitling the recipient to receive an amount in cash or shares of
Stock or a combination thereof having a value equal to the excess of the Fair
Market Value of the Stock on the date of exercise over the exercise price per
Stock Appreciation Right set by the Committee at the time of grant, which price
shall not be less than 85% of the Fair Market Value of the Stock on the date
of grant (or over the option exercise price per share, if the Stock
Appreciation Right was granted in tandem with a Stock Option) multiplied by the
number of shares of Stock with respect to which the Stock Appreciation Right
shall have been exercised, with the Committee having the right to determine the
form of payment.
(b) GRANT AND EXERCISE OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights may be granted to any eligible employee or key person of
the Company or any Subsidiary by the Committee in tandem with, or independently
of, any Stock Option granted pursuant to Section 5 of the Plan. In the case of
a Stock Appreciation Right granted in tandem with a Non-Qualified Stock Option,
such Stock Appreciation Right may be granted either at or after the time of the
grant of such Option. In the case of a Stock Appreciation Right granted in
tandem with an Incentive Stock Option, such Stock Appreciation Right may be
granted only at the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in
tandem with a Stock Option shall terminate and no longer be exercisable upon
the termination or exercise of the related Option.
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(c) TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined from time to time by the Committee, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Options
shall be exercisable at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon exercise of a Stock Appreciation Right, the
applicable portion of any related Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with an
Option shall be transferable only when and to the extent that the
underlying Option would be transferable. Stock Appreciation Rights not
granted in tandem with a Option shall not be transferable otherwise
than by will or the laws of descent or distribution. All Stock
Appreciation Rights shall be exercisable during the participant's
lifetime only by the participant or the participant's legal
representative.
(iv) No Stock Appreciation Right may be exercised for a
period of six months after the date of grant.
(d) RULES RELATING TO EXERCISE. In the case of a participant
subject to the restrictions of Section 16(b) of the Act, no Stock Appreciation
Right (as referred to in Rule 16b-3(e) or any successor rule under the Act)
shall be exercised except in compliance with any applicable requirements of
Rule 16b-3 or any successor rule. If a full or partial settlement in cash would
result, (i) such a participant may not exercise a Stock Appreciation Right or
any related Stock Option during the first six months of the term of the Stock
Appreciation Right or Option to be exercised; and (ii) such a participant may
exercise a Stock Appreciation Right only either: (A) during the period
beginning on the third business day following the date of release of quarterly
or annual summary statements of sales and earnings of the Company and ending on
the twelfth business day following such date, unless a different period is
specified by Rule 16bo3(e) or any successor rule under the Act; (B) pursuant to
an irrevocable election to exercise made at least six months in advance of the
effective date of the election, which election shall be subject to the consent
or disapproval of the Committee; or (C) pursuant to an election to exercise
incident to death, Retirement, Disability or termination of employment.
Notwithstanding the foregoing, Section 6(e)(ii)(A) shall not be applicable
until the Company has been subject to the reporting requirements of Section
13(a) of the Act for at least a year prior to the exercise and has filed all
reports and statements required to be filed pursuant to that Section for a
year.
SECTION 7. RESTRICTED STOCK AWARDS
-----------------------
(a) NATURE OF RESTRICTED STOCK AWARDS. The Committee may grant
Restricted Stock Awards to any employee or key person of the Company or any
Subsidiary. A Restricted Stock Award is an Award entitling the recipient to
acquire, at no cost or for a purchase price determined by the Committee, shares
of Stock subject to such restrictions and conditions as the Committee may
determine at the time of grant ("Restricted Stock"). Conditions may be based on
continuing employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives.
(b) RIGHTS AS A STOCKHOLDER. Upon execution of a written instrument
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the Committee
shall otherwise determine, certificates evidencing the Restricted Stock shall
remain in the possession of the Company until such Restricted Stock is vested
as provided in Section 7(e) below.
(c) RESTRICTIONS. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise
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encumbered or disposed of except as specifically provided herein or in the
written instrument evidencing the Restricted Stock Award. In the case of
Restricted Stock granted to an employee, if the participant's employment with
the Company and its Subsidiaries terminates for any reason other than death or
Disability, the Company shall have the right, at the discretion of the
Committee, to repurchase Restricted Stock with respect to which conditions have
not lapsed at their purchase price, or to require forfeiture of such shares to
the Company if acquired at no cost, from the participant or the participant's
legal representative. The Company must exercise such right of repurchase or
forfeiture not later than the 90th day following such termination of employment
(unless otherwise specified in the written instrument evidencing the Restricted
Stock Award). Restricted Stock granted to a key person who is not an employee
shall be subject to such forfeiture and repurchase provisions as the Committee
shall specify.
(d) VESTING OF RESTRICTED STOCK. The Committee at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." A participant whose employment
is terminated for reason of death or Disability shall become fully vested on
his termination date in any Restricted Stock he received as an employee to the
extent such vesting is otherwise contingent only on continued service with the
Company. Where vesting is contingent on attainment of pre-established
performance goals, the vesting of Restricted Stock in the case of death or
Disability shall remain dependent on the attainment of such goals and shall be
determined as of such date or dates specified by the Committee.
(e) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The written
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
SECTION 8. UNRESTRICTED STOCK AWARDS
-------------------------
(a) GRANT OR SALE OF UNRESTRICTED STOCK. The Committee may, in its sole
discretion, grant (or sell at a purchase price determined by the Committee) an
Unrestricted Stock Award to any employee or key person of the Company or any
Subsidiary, pursuant to which such employee or key person may receive shares of
Stock free of any restrictions ("Unrestricted Stock") under the Plan.
Unrestricted Stock Awards may be granted or sold as described in the preceding
sentence in respect of past services or other valid consideration, or in lieu
of any cash compensation due to such employee or key person.
(b) ELECTIONS TO RECEIVE UNRESTRICTED STOCK IN LIEU OF COMPENSATION.
Upon the request of an employee or a key person and with the consent of the
Committee, each employee or key person may, pursuant to an irrevocable written
election delivered to the Company no later than the date or dates specified by
the Committee, receive a portion of the cash compensation otherwise due to such
employee or key person in the form of shares of Unrestricted Stock (valued at
Fair Market Value on the date or dates the cash compensation would otherwise be
paid). With respect to any employee who is subject to Section 16 of the Act,
such irrevocable election shall become effective no earlier than six months and
one day following the date of such election and the revocation of such election
shall be effective six months and one day following the date of the revocation.
(c) ELECTIONS TO RECEIVE UNRESTRICTED STOCK IN LIEU OF DIRECTOR FEES.
Each Independent Director may, pursuant to an irrevocable written election
delivered to the Company, receive all or a portion of such Independent
Director's director fees in shares of Unrestricted Stock (valued at Fair Market
Value on the date or dates that the director fees would otherwise be paid in
cash). Such election shall be effective no earlier than six months and one day
following the date of such election. Any revocation of such election shall be
effective six months and one day following the date of the revocation.
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(d) DEFERRAL OF AWARDS. Each Independent Director who has made an
election to receive shares of Unrestricted Stock under Section 8(c) above will
have the right to defer receipt of up to 100% of such shares of Unrestricted
Stock payable to such Independent Director in accordance with such rules and
procedures as may from time to time be established by the Company for that
purpose, and such election shall be effective on the later of the date six
months and one day from the date of such election or the beginning of the next
calendar year. The deferred Unrestricted Stock shall be entitled to receive
Dividend Equivalent Rights settled in shares of Stock.
(e) RESTRICTIONS ON TRANSFERS. The right to receive Unrestricted Stock
on a deferred basis may not be sold, assigned, transferred, pledged or
otherwise encumbered, other than by will or the laws of descent and
distribution.
SECTION 9. PERFORMANCE SHARE AWARDS
------------------------
(a) NATURE OF PERFORMANCE SHARE AWARDS. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Committee may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. Performance Share Awards may be granted under the Plan to any employees
or key persons of the Company or any Subsidiary, including those who qualify
for awards under other performance plans of the Company. The Committee in its
sole discretion shall determine whether and to whom Performance Share Awards
shall be made, the performance goals applicable under each such Award, the
periods during which performance is to be measured, and all other limitations
and conditions applicable to the awarded Performance Shares; provided, however,
that the Committee may rely on the performance goals and other standards
applicable to other performance unit plans of the Company in setting the
standards for Performance Share Awards under the Plan.
(b) RESTRICTIONS ON TRANSFER. Performance Share Awards and all rights
with respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) RIGHTS AS A SHAREHOLDER. A participant receiving a Performance
Share Award shall have the rights of a shareholder only as to shares actually
received by the participant under the Plan and not with respect to shares
subject to the Award but not actually received by the participant. A
participant shall be entitled to receive a stock certificate evidencing the
acquisition of shares of Stock under a Performance Share Award only upon
satisfaction of all conditions specified in the written instrument evidencing
the Performance Share Award (or in a performance plan adopted by the
Committee).
(d) TERMINATION. Except as may otherwise be provided by the Committee
at any time prior to termination of employment (or other business
relationship), a participant's rights in all Performance Share Awards shall
automatically terminate upon the participant's termination of employment by (or
business relationship with) the Company and its Subsidiaries for any reason.
(e) ACCELERATION, WAIVER, ETC. At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Committee may in its sole discretion accelerate, waive
or, subject to Section 13, amend any or all of the goals, restrictions or
conditions imposed under any Performance Share Award.
SECTION 10. DIVIDEND EQUIVALENT RIGHTS
--------------------------
(a) DIVIDEND EQUIVALENT RIGHTS. A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would
be paid on the shares of Stock specified in the Dividend Equivalent Right (or
other award to which it relates) if such shares were held by the recipient. A
Dividend Equivalent Right may be granted hereunder to an eligible employee or
key person, as a component of another
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Award or as a freestanding award. A Dividend Equivalent Right may also be
granted to an Independent Director pursuant to Section 8(e). The terms and
conditions of Dividend Equivalent Rights shall be specified in the grant.
Dividend equivalents credited to the holder of a Dividend Equivalent Right may
be paid currently or may be deemed to be reinvested in additional shares of
Stock, which may thereafter accrue additional equivalents. Any such
reinvestment shall be at Fair Market Value on the date of reinvestment or such
other price as may then apply under a dividend reinvestment plan sponsored by
the Company, if any. Dividend Equivalent Rights may be settled in cash or
shares of Stock or a combination thereof, in a single installment or
installments. A Dividend Equivalent Right granted as a component of another
Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement, or payment of, or lapse of restrictions on, such other
award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled under the same conditions as such other award. A Dividend Equivalent
Right granted as a component of another Award may also contain terms and
conditions different from such other award.
(b) INTEREST EQUIVALENTS. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
SECTION 11. TAX WITHHOLDING
---------------
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts
received thereunder first becomes includable in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any Federal,
state, or local taxes of any kind required by law to be withheld with respect
to such income. The Company and its Subsidiaries shall, to the extent permitted
by law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the participant.
(b) PAYMENT IN STOCK. A participant may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from shares of Stock to be issued pursuant to any Award a
number of shares with an aggregate Fair Market Value (as of the date the
withholding is effected) that would satisfy the withholding amount due, or (ii)
transferring to the Company shares of Stock owned by the participant with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due. With respect to any participant who
is subject to Section 16 of the Act, the following additional restrictions
shall apply:
(A) the election to satisfy tax withholding obligations
relating to an Award in the manner permitted by this Section 1 l(b)
shall be made either (1) during the period beginning on the third
business day following the date of release of quarterly or annual
summary statements of sales and earnings of the Company and ending on
the twelfth business day following such date, or (2) at least six
months prior to the date as of which the receipt of such an Award
first becomes a taxable event for Federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or
disapproval of the Committee; and
(D) the Stock withheld to satisfy tax withholding must
pertain to an Award which has been held by the participant for at
least six months from the date of grant of the Award.
Notwithstanding the foregoing, the first sentence of Section 11 (b)(A) shall
not be applicable until the Company has been subject to the reporting
requirements of Section 13(a) of the Act for at least a year prior to the
election and has filed all reports and statements required to be filed pursuant
to that Section for that year.
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SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the Committee
may, at any time, amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price in a manner not inconsistent with the terms of the Plan), but
such price, if any, must satisfy the requirements which would apply to the
substitute or amended Award if it were then initially granted under this Plan)
for the purpose of satisfying changes in law or for any other lawful purpose,
but no such action shall adversely affect rights under any outstanding Award
without the holder's consent. If and to the extent determined by the Committee
to be required by the Act to ensure that Awards granted under the Plan are
exempt under Rule 16b-3 promulgated under the Act, or that Incentive Stock
Options granted under the Plan are qualified under Section 422 of the Code,
Plan amendments shall be subject to approval by the Company stockholders.
SECTION 14. STATUS OF PLAN
--------------
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 15:
(a) Each outstanding Stock Option and Stock Appreciation Right shall
automatically become fully exercisable notwithstanding any provision to the
contrary herein.
(b) Each Restricted Stock Award and Performance Share Award shall be
subject to such terms, if any, with respect to a Change of Control as have been
provided by the Committee in connection with such Award.
(c) "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following events:
(i) any "PERSON," as such term is used in Sections 13(d) and 14(d)
of the Act (other than the Company, any of its Subsidiaries, or any
trustee, fiduciary or other person or entity holding securities under any
employee benefit plan or trust of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such terms are defined
in Rule 12b-2 under the Act) of such
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<PAGE> 39
person, shall become the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the
Company representing 15% or more of either (A) the combined voting power
of the Company's then outstanding securities having the right to vote in an
election of the Company's Board of Directors ("Voting Securities") or (B)
the then outstanding shares of Stock of the Company (in either such case
other than as a result of an acquisition of securities directly from the
Company); or
(ii) persons who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the Effective Date whose election or nomination for election
was approved by a vote of at least a majority of the Incumbent Directors
shall, for purposes of this Plan, be considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 80% or more
of the voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any),
(B) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single
plan) of all or substantially all of the assets of the Company or (C) any
plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding, increases (x) the
proportionate number of shares of Stock beneficially owned by any person to 15%
or more of the shares of Stock then outstanding or (y) the proportionate voting
power represented by the Voting Securities beneficially owned by any person to
15% or more of the combined voting power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any person referred to in clause (x) or
(y) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "CHANGE OF
CONTROL" shall be deemed to have occurred for purposes of the foregoing clause
(i).
SECTION 16. GENERAL PROVISIONS
------------------
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee
may require each person acquiring Stock pursuant to an Award to represent to
and agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Committee may require the placing of such
stop-orders and restrictive legends on certificates for Stock and Awards as it
deems appropriate.
(b) DELIVERY OF STOCK CERTIFICATES. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or
additional compensation arrangements, including trusts, and such
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<PAGE> 40
arrangements may be either generally applicable or applicable only in specific
cases. The adoption of this Plan and the grant of Awards do not confer upon any
employee any right to continued employment with the Company or any Subsidiary.
SECTION 17. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a majority
of the shares of Stock of the Company present or represented and entitled to
vote at a meeting of stockholders. Subject to such approval by the stockholders
and to the requirement that no Stock may be issued hereunder prior to such
approval, Stock Options and other Awards may be granted hereunder on and after
adoption of this Plan by the Board.
SECTION 18. GOVERNING LAW
-------------
This Plan shall be governed by The Commonwealth of Massachusetts law except
to the extent such law is preempted by federal law.
DATE APPROVED BY BOARD OF DIRECTORS: June 13, 1995
DATE APPROVED BY SHAREHOLDERS:
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<PAGE> 41
FERROFLUIDICS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FERROFLUIDICS CORPORATION
The undersigned hereby constitutes and appoints Paul F. Avery, Jr., Alvan F.
Chorney and Stephen P. Morin, and each of them, as Proxies of the undersigned,
with full power to appoint his substitute, and authorizes each of them to
represent and to vote all shares of Common Stock of Ferrofluidics Corporation
(the "Company") held of record by the undersigned as of the close of business on
October 10, 1995, at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held at the executive offices of the Company located at 40 Simon Street,
Nashua, New Hampshire, at 10:00 a.m., Eastern Time, on Wednesday, November 15,
1995, and at any adjournments or postponements thereof.
WHEN PROPERLY EXECUTED THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE TWO NOMINEES OF THE BOARD OF DIRECTORS LISTED IN PROPOSAL 1 AND
FOR THE ADOPTION OF THE FERROFLUIDICS CORPORATION 1995 STOCK OPTION AND
INCENTIVE PLAN SET FORTH IN PROPOSAL 2. IN THEIR DISCRETION, THE PROXIES ARE
EACH AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. A STOCKHOLDER
WISHING TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS NEED
ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of Annual Meeting of Stockholders, the Proxy Statement with respect
thereto and the Company's 1995 Annual Report to Stockholders and hereby
revoke(s) any proxy or proxies heretofore given. This proxy may be revoked at
any time before it is exercised.
(PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.)
PLEASE MARK VOTES AS IN THIS EXAMPLE /X/
PROPOSAL 1. Election of two Class III Directors for a three-year term.
FOR / / WITHHOLD / /
Nominees: Paul F. Avery, Jr. and Dean Kamen
IF YOU DO NOT WISH YOUR SHARES TO BE VOTED FOR A PARTICULAR NOMINEE, MARK THE
FOR BOX AND STRIKE A LINE THROUGH THAT NOMINEE'S NAME. YOUR SHARES WILL BE VOTED
FOR THE REMAINING NOMINEE.
PROPOSAL 2. Approval of Ferrofluidics Corporation 1995 Stock Option and
Incentive Plan. FOR / / WITHHOLD / / ABSTAIN / /
PROPOSAL 3. In their discretion, the Proxies are each authorized to vote upon
such other business as may properly come before the Annual Meeting and any
adjournments or postponements thereof.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY
CHANGE OF
ADDRESS?
________________________________________
________________________________________
________________________________________
Signature(s)_________________________________________ Date:___________________
NOTE: PLEASE SIGN NAME EXACTLY AS SHOWN. WHERE THERE IS MORE THAN ONE HOLDER,
EACH SHOULD SIGN. WHEN SIGNING AS AN ATTORNEY, ADMINISTRATOR, EXECUTOR,
GUARDIAN OR TRUSTEE, PLEASE ADD YOUR TITLE AS SUCH. IF EXECUTED BY A
CORPORATION OR PARTNERSHIP, THE PROXY SHOULD BE SIGNED BY A DULY AUTHORIZED
PERSON, STATING HIS OR HER TITLE OR AUTHORITY.
