<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 22, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Ferrofluidics Corporation (the "Company") to be held on Tuesday, November 18,
1997, 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 II
Directors, each for a three-year term, 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 15, 1997
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,
/s/ Salvatore J. Vinciguerra
SALVATORE J. VINCIGUERRA
President 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 18, 1997
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Ferrofluidics Corporation (the "Company") will be held on Tuesday, November 18,
1997, 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 II Directors of the Company, each for a
three-year term; and
2. 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 15, 1997 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,
/s/ Stuart M. Cable
STUART M. CABLE
Clerk
OCTOBER 22, 1997
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 TUESDAY, NOVEMBER 18, 1997
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 Tuesday, November 18, 1997, 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 II Directors of the Company, each for a
three-year term; and
2. 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 22, 1997 in
connection with the solicitation of proxies for the Annual Meeting. The Board of
Directors has fixed the close of business on October 15, 1997 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 (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 6,177,996 shares of the Company's common stock, par
value $.004 per share ("Common Stock"), outstanding and entitled to vote at the
Annual Meeting and 3,107 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 Annual Meeting. 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 Annual
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 Annual Meeting. Generally, abstentions
and broker
<PAGE> 5
non-votes will have no impact on the outcome of the vote on a particular
proposal presented at the Annual Meeting. 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. 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 three directors in Class I, two directors in
Class II and one director in Class III. 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 II Directors will be elected to serve
until the 2000 annual meeting of stockholders and until their successors are
duly elected and qualified. The Board of Directors has nominated Howard F.
Nichols and Robert P. Rittereiser for re-election as Class II 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
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<PAGE> 6
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.
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 28, 1997 ("fiscal 1997"), the Board of
Directors of the Company held five meetings. Each Director who was a Director
during fiscal 1997 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 two times
during fiscal 1997. 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 two times during fiscal 1997. 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.
Pursuant to the Ferrofluidics Corporation Amended and Restated 1995 Stock
Option and Incentive Plan (the "1995 Incentive Plan"), eligible non-employee
Directors are entitled to receive options to purchase shares of Common Stock in
accordance with the formula provisions thereof. Under the 1995 Incentive Plan,
eligible non-employee Directors automatically 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 1995 Annual Meeting.
Accordingly, on November 29, 1996, each of Messrs. Hazard, Stone, Nichols,
Rittereiser and Kamen were granted an option to purchase 3,000 shares of Common
Stock at an exercise price of $9.00. All such options vested and became
immediately exercisable upon grant and have an exercise price equal to 100% of
the fair market value of a share of Common Stock on the grant date.
3
<PAGE> 7
Set forth below is certain information regarding the Directors of the
Company, including the two Class II Directors who have been nominated for
election at the Annual Meeting, based on information furnished by them to the
Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
----------------------------------------------------------- ---- --------
<S> <C> <C>
CLASS I
Stephen B. Hazard.......................................... 52 1994
Dennis R. Stone............................................ 50 1994
Salvatore J. Vinciguerra................................... 59 1996
CLASS II
Howard F. Nichols*......................................... 69 1979
Robert P. Rittereiser*..................................... 59 1989
CLASS III
Dean Kamen................................................. 46 1989
</TABLE>
- ---------------
* Nominee for election.
MR. VINCIGUERRA has been the Chief Executive Officer of the Company since
June 26, 1996 and the President of the Company since January 1, 1995. He served
as the Chief Operating Officer of the Company from January 1, 1995 until June
25, 1996. 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 weighing 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, Holometrix Corporation and Saphikon, Inc., and
is a Director and former President of The Japan Society of Boston.
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. Mr. Kamen in the founder and, from 1976 to 1982, was the Chief
Executive Officer of Auto-Syringe, Inc., a manufacturer of medical devices that
was acquired by Baxter Healthcare Corporation. He is a member of the Board of
Directors of Sander's Prototype, Inc. and Zero Emissions Technology. 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 has been the Chairman of the Board of Directors and Chief
Executive Officer of Gruntal Financial L.L.C. and Gruntal & Co. L.L.C., a
national full-service securities brokerage firm, since 1995. He is also the
Chairman of the Board of Directors of Yorkville Associates Corp., a private
investment and financial advisory concern formed in 1989. He has also served as
Chairman of the Board of Directors since November 1992, a Director since 1990
and President and Chief Executive Officer from March 1993 until February 1995
4
<PAGE> 8
of Nationar, a banking services corporation. From April 1992 until April 1996,
Mr. Rittereiser was a trustee of The DBL Liquidating Trust. He is also a member
of the Board of Directors of Wallace Computer Services Inc., CUC International,
and Interchange Financial Services.
MR. STONE has been a practicing certified public accountant for 21 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.,
Portsmouth, New Hampshire. From January 1980 to April 1989, he was a partner in
the firm of Stone & Hart, P.A., Exeter, New Hampshire. Mr. Stone has also served
for the past 15 years as investigative 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
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.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ---- -----------------------------------------------
<S> <C> <C>
Salvatore J. Vinciguerra........... 59 President and Chief Executive Officer
Alvan F. Chorney................... 52 Vice President and General
Manager -- Components Division
Thomas J. Uhlig.................... 47 Vice President and General Manager -- Systems
Division
William B. Ford.................... 57 Vice President, Chief Financial Officer and
Treasurer
</TABLE>
MR. VINCIGUERRA has held the position of Chief Executive Officer of the
Company since June 26, 1996 and the position of President of the Company since
January 1, 1995. Mr. Vinciguerra served as Chief Operating Officer of the
Company from January 1, 1995 until June 25, 1996. See "Information Regarding
Directors" above.
MR. CHORNEY has held the position of Vice President and General
Manager -- Components Division since April 19, 1996. Prior to that, Mr. Chorney
served as Senior Vice President of the Company from November 1991 to April 19,
1996. Mr. Chorney was also a Director of the Company from 1986 to April 1994.
MR. UHLIG has held the position of Vice President and General
Manager -- Systems Division since April 22, 1996. Before then, he served as
President of Johnstown America Corporation, a manufacturer of railroad freight
cars and components, from 1993 until April 1996. From 1992 to 1993, he was
Director of Manufacturing of The Timken Company, a manufacturer of tapered
roller bearings, and before that he was President of MPB Corporation, a
subsidiary of The Timken Company and a manufacturer of precision ball and roller
bearings.
MR. FORD has held the position of Treasurer of the Company since May 19,
1997 and the positions of Vice President and Chief Financial Officer of the
Company since September 23, 1996. From November 1993 until April 1995, Mr. Ford
was Vice President and Chief Financial Officer of Versyss Incorporated, a
software developer and distributor of integrated hardware and software systems
for medical practice management and other small business applications. From 1987
to November 1993, he was a Director in the Financial Advisory Services
consulting practice of Coopers & Lybrand L.L.P.
5
<PAGE> 9
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 1997.
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended June 30, 1995 and 1996
and the year ended June 28, 1997, the annual compensation paid by the Company to
the Chief Executive Officer and the four most highly compensated executive
officers who earned in excess of $100,000 during fiscal 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------ -------------------------- -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
COMPENSATION STOCK AWARD(S) WARRANTS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) ($) ($) OPTIONS(#) ($) ($)
- ----------------------------------- ---- ------------ -------- ------------ -------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salvatore J. Vinciguerra........... 1997 255,961 -- 5,043(4) -- -- -- --
President and Chief 1996 202,938 -- 6,839(4) -- 50,000(9) -- --
Executive Officer 1995 92,500(3) -- -- 450,000(6) 50,000(9) -- --
Paul F. Avery, Jr.................. 1997 183,814 -- 3,615(4) -- -- -- --
Chairman of the Board and 1996 223,931 -- 8,774(4) -- 65,000(9) -- 16,400(10)
Treasurer(1) 1995 258,521 -- 8,207(4) 106,875(7) 65,000(9) -- 14,520(10)
Alvan F. Chorney................... 1997 170,223 5,156 1,000(5) -- -- -- --
Vice President and General 1996 164,097 5,152 1,000(5) -- -- -- --
Manager -- Components Division 1995 150,000 8,000 1,000(5) -- 25,000(9) -- --
William B. Ford.................... 1997 112,223(3) -- -- -- 30,000(9) -- --
Vice President, Chief Financial 1996 -- -- -- -- -- -- --
Officer and Treasurer 1995 -- -- -- -- -- -- --
Thomas J. Uhlig.................... 1997 160,154 4,688 2,308(4) -- -- -- --
Vice President and General 1996 28,846(3) -- 962(4) 125,000(8) 15,000(9) -- --
Manager -- Systems Division 1995 -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Mr. Avery was the Chairman of the Board and Treasurer of the Company from
October 1993 through May 1997.
(2) Includes all voluntary pre-tax contributions to the Ferrofluidics
Corporation Tax Savings and Deposit and Investment Plan.
(3) This amount represents less than a full year's salary.
(4) This amount represents an automobile allowance.
(5) 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.
(6) Represents 75,000 shares of restricted stock which had a market value as of
the date of grant of $450,000. The shares vest ratably over three years
beginning on January 1, 1996. If the Company pays dividends on its Common
Stock, dividends will also be paid on these shares. As of June 28, 1997,
25,000 of Mr. Vinciguerra shares remained restricted shares. Based on the
closing sale price of a share of Common Stock on the Nasdaq National Market
on June 28, 1997, Mr. Vinciguerra's 75,000 shares of restricted stock had a
market value of $637,500.
(7) Represents 15,000 shares of restricted stock which had a market value as of
the date of grant of $106,875. Pursuant to Mr. Avery's employment agreement
with the Company, upon Mr. Avery's
6
<PAGE> 10
retirement in April 1997, all of Mr. Avery's restricted stock became fully
vested and all of Mr. Avery's stock options became fully vested and
immediately exercisable. See "Employment Agreements." Based on the closing
sale price of a share of Common Stock on the Nasdaq National Market on June
28, 1997, Mr. Avery's 15,000 shares of restricted stock had a market value
of $127,500.
(8) Represents 10,000 shares of restricted stock which had a market value as of
the date of grant of $125,000. If the Company pays dividends on its Common
Stock, dividends will also be paid on these shares. Fifty percent (50%) of
the shares vested on April 22, 1997, seventy-five percent (75%) of the
shares shall be vested on April 22, 1998, and one hundred percent (100%) of
the shares shall be vested on April 22, 1999. As of June 28, 1997, 5,000 of
Mr. Uhlig's shares remained restricted shares. Based on the closing sale
price of a share of Common Stock on the Nasdaq National Market on June 28,
1997, Mr. Uhlig's shares of restricted stock had a market value of $85,000.
(9) Represents stock options.
(10) This amount represents the full dollar value of insurance premiums paid by
the Company on behalf of Mr. Avery with respect to term life insurance
during the fiscal years ended June 28, 1997 and June 30, 1996 and 1995,
respectively.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during fiscal
1997 to the Chief Executive Officer and each other executive officer named in
the Summary Compensation Table. No stock appreciation rights ("SARs") have been
granted.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(4)
---------------------------------------------------------- -----------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#)(2) FISCAL YEAR(3) ($/SH) DATE 5%($) 10%($)
- ----------------------------- ---------- ------------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Salvatore J. Vinciguerra..... -- -- -- -- -- --
Paul F. Avery, Jr.(1)........ -- -- -- -- -- --
Alvan F. Chorney............. -- -- -- -- -- --
William B. Ford.............. 30,000(5) 37.4% $9.38 9/23/2006 176,971 448,479
Thomas J. Uhlig.............. -- -- -- -- -- --
</TABLE>
- ---------------
(1) Mr. Avery was the Chairman of the Board and Treasurer of the Company from
October 1993 through May 1997.
(2) All options were granted pursuant to the 1995 Incentive Plan.
(3) Percentages are based on a total of 80,210 shares of Common Stock underlying
all options granted to employees of the Company in fiscal 1997.
(4) Represents the value of the options granted at the end of the option terms
if the price of the Company's Common Stock were to appreciate annually by 5%
and 10% respectively. There is no assurance that the
7
<PAGE> 11
stock price will appreciate at the rates shown in the table. If the stock
price appreciates, the value of stock held by all shareholders will
increase.
(5) Such option vests and becomes exercisable ratably over four years beginning
on September 23, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
The following table sets forth the shares acquired and the value realized
upon exercise of stock options during fiscal 1997 by the Chief Executive Officer
and each other executive officer named in the Summary Compensation Table and
certain information concerning the number and value of unexercised stock
options. There are currently no outstanding SARs.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS OPTIONS/WARRANTS
SHARES AT FY-END(#) AT FY-END(#)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Salvatore J. Vinciguerra.... -- -- 25,000 75,000 -- --
Paul F. Avery, Jr.(1)....... -- -- 130,000 -- -- --
Alvan F. Chorney............ -- -- 12,500 12,500 -- --
William B. Ford............. -- -- -- 30,000 -- --
Thomas J. Uhlig............. -- -- 3,750 11,250 -- --
</TABLE>
- ---------------
(1) Mr. Avery was the Chairman of the Board and Treasurer of the Company from
October 1993 through May 1997. Pursuant to Mr. Avery's employment agreement
with the Company, upon Mr. Avery's retirement in April 1997, all of Mr.
Avery's stock options became fully vested and immediately exercisable. See
"Employment Agreements."
(2) Equal to the market value of shares covered by in-the-money options on June
28, 1997, less the aggregate options exercise price. Options are
in-the-money if the market value of the shares covered thereby is greater
than the exercise price of the options.
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 1997.
General
The Compensation Committee consists of Mr. Rittereiser and Mr. Hazard, both
of whom are non-employee 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. Vinciguerra, the Chief Executive
Officer and President of the Company, makes general recommendations to and
reviews with
8
<PAGE> 12
the Compensation Committee salary increases and bonus compensation of executive
officers and employees other than himself.
Compensation Policy Review
During the fiscal year ended June 30, 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 the Company's
executive compensation philosophy were to (i) review base salaries, cash bonuses
and short-term and long-term incentives for executive officers based upon a
survey of compensation for executive officers in a group of comparable
high-technology companies, and (ii) to develop an appropriate methodology for
structuring long-term incentive awards to ensure that such awards 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.
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 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 Salvatore J. Vinciguerra, the Chief Executive Officer and the President of
the Company, was established pursuant to an employment agreement with the
Company, which is described below in "Employment Agreements", and was based on
the foregoing criteria.
Cash Bonuses. 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, which
became effective on July 1, 1995, is intended to encourage, recognize and reward
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 performs
its performance review), 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 Chief Executive
9
<PAGE> 13
Officer is eligible to receive up to 35% of his base salary 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
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.
Based upon the foregoing criteria, no executive officers of the Company
received a cash bonus for fiscal 1997 performance. Although cash bonuses
generally are awarded pursuant to the Cash Incentive Plan, the Compensation
Committee, 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.
During fiscal 1997, the Compensation Committee exercised its discretion and
awarded cash bonuses outside of the Cash Incentive Plan in the amount of $5,156
to Mr. Chorney and $4,688 to Mr. Uhlig in view of their individual performances
in fiscal 1997.
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 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.
The 1995 Incentive Plan is 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. In fiscal 1997, William B. Ford was granted an option to purchase 30,000
shares of Common Stock. This option vests and becomes exercisable ratably over
four years beginning on September 23, 1997. The Compensation Committee granted
this award to Mr. Ford in connection with his appointment to the position of
Vice President and Chief Financial Officer of the Company.
At its discretion, under the Ferrofluidics Corporation Amended and Restated
1994 Restricted Stock Plan (the "1994 Restricted Stock Plan"), the Compensation
Committee may also award restricted stock bonuses to executive officers and
other 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. During fiscal 1997, no executive officers of the Company received an
award of restricted stock.
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.
10
<PAGE> 14
Compensation of the Chief Executive Officer
Mr. Salvatore J. Vinciguerra. Mr. Vinciguerra has an employment agreement
with the Company, the terms of which are described below under "Employment
Agreements." Mr. Vinciguerra's base salary was established pursuant to the
criteria described above in "Base Salary."
Federal Tax Regulations Applicable to Executive Compensation
As a result of 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
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Vinciguerra, the Chief Executive Officer and President of the Company,
makes general recommendations to and reviews with the Compensation Committee the
salary increases and bonus compensation of executives and management other than
himself.
EMPLOYMENT AGREEMENTS
Avery Employment Agreements
On April 1, 1995, the Company and Mr. Avery, who became the Chief Executive
Officer of the Company on October 1, 1993, entered into an employment agreement
(the "1995 Avery Employment Agreement") that provided 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. 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, Mr. Avery may terminate
his employment at any time upon 60 days written notice to the Company and the
Company may terminate Mr. Avery's employment other than for cause (as defined in
the 1995 Avery Employment Agreement) at any time upon 60 days written notice to
Mr. Avery. If Mr. Avery is terminated for cause, he is entitled to any earned
but unpaid salary at the date of termination and the contribution by the Company
to the cost of Mr. Avery's participation in the
11
<PAGE> 15
Company's group medical and dental insurance plans as permissible under
applicable law and plan terms. 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. 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.
On May 17, 1996, the Company and Mr. Avery entered into an Amended and
Restated Employment Agreement (the "Amended and Restated Avery Employment
Agreement") which amended and restated the 1995 Avery Employment Agreement.
Pursuant to the Amended and Restated Avery Employment Agreement, Mr. Avery
maintained his positions as Chairman of the Board of Directors and Treasurer of
the Company, but was no longer the Chief Executive Officer of the Company. In
addition, pursuant to the Amended and Restated Avery Employment Agreement, Mr.
Avery received an option to purchase 65,000 shares of the Company's Common Stock
at an exercise price of $13.00, which option vests and becomes exercisable
ratably over four years beginning on May 17, 1998. If Mr. Avery's employment is
terminated by reason of death or by the Company for any other reason other than
for cause (as defined in the Company's 1994 Restricted Stock Plan or 1995 Stock
Option and Incentive Plan, as appropriate), any restricted stock held by Mr.
Avery shall become fully vested and any option held by Mr. Avery shall become
fully vested and exercisable and may thereafter be exercised by Mr. Avery or Mr.
Avery's legal representative or legatee until the expiration date of such
option. If Mr. Avery's employment is terminated by the Company for cause any
shares of restricted stock that shall have not vested as of the date of such
termination shall either be repurchased by the Company or forfeited by Mr.
Avery, and any such option held by Mr. Avery shall immediately terminate and be
of no further force and effect. All other provisions of the 1995 Avery
Employment Agreement remained in effect.
On May 1, 1997, Mr. Avery resigned as Chairman of the Board and Treasurer
and as a director of the Company. Accordingly, the Amended and Restated Avery
Employment Agreement was terminated on that date.
Avery Consulting Agreement
On May 1, 1997, the Company and Mr. Avery entered into a consulting
agreement (the "Avery Consulting Agreement") pursuant to which Mr. Avery will
perform such consulting, advisory and related services for the Company as may be
reasonably requested by the Company from time to time for a consulting fee of
$10,000 per month for a term of three years, which term may be extended upon
mutual written agreement. Pursuant to the Avery Consulting Agreement, all shares
of restricted stock granted to Mr. Avery shall become fully vested as of the
date of the Avery Consulting Agreement, and all options to purchase stock of the
Company granted to Mr. Avery and held by Mr. Avery as of the date of the Avery
Consulting Agreement shall become fully vested and exercisable until the
expiration of the Avery Consulting Agreement. Pursuant to the Avery Consulting
Agreement, the Company is required to reimburse Mr. Avery for all reasonable
business expenses incurred by Mr. Avery in the performance of his duties. In
addition, the Company has paid all premiums on Mr. Avery's life insurance policy
through November 5, 1997, at which
12
<PAGE> 16
point the policy shall become Mr. Avery's responsibility, the Company shall
assist Mr. Avery in the roll over or withdrawal of his interest in the Company's
Tax Savings and Deposit and Savings Plan and Mr. Avery shall be entitled to
participate in and enjoy the benefit of the Company's retirement plans available
to management as of the date of the Avery Consulting Agreement. Mr. Avery,
however, is not entitled to participate in the health, welfare, retirement and
other fringe benefit plans which the Company makes available to management from
time to time, except at his own expense.
Pursuant to the Avery Consulting Agreement, Mr. Avery may terminate his
consultancy at any time upon 60 days written notice to the Company and the
Company may terminate Mr. Avery's consultancy other than for cause (as defined
in the Avery Consulting Agreement) at any time upon 60 days written notice to
Mr. Avery. If Mr. Avery is terminated for cause, he is entitled to any earned
but unpaid consulting fees at the date of termination. If Mr. Avery dies or
becomes disabled during the term of the Avery Consulting Agreement, Mr. Avery's
consultancy shall immediately terminate. If Mr. Avery's employment is terminated
for reasons other than for cause or due to death or disability, the Company
shall continue to pay Mr. Avery his consulting fees for the duration of the term
of the Avery Consulting Agreement.
Vinciguerra Employment Agreements
On April 1, 1995, 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 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. 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 may
terminate his employment upon 60 days written notice to the Company and the
Company may terminate Mr. Vinciguerra's employment at any time other than for
cause (as defined in the Vinciguerra Employment Agreement) upon notice to Mr.
Vinciguerra. If the Company terminates Mr. Vinciguerra's employment other than
for cause, he 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 and the Company will continue pay Mr. Vinciguerra the
salary and other benefits under the Vinciguerra Employment Agreement to the end
of its term. 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
13
<PAGE> 17
months' base salary at the rate then in effect under the Vinciguerra Employment
Agreement. If Mr. Vinciguerra is terminated for cause, he is entitled to any
earned but unpaid salary at the date of termination and the contribution by the
Company to the cost of Mr. Vinciguerra's participation in the Company's group
medical and dental insurance plans as permissible under applicable law and plan
terms.
On May 17, 1996, the Company and Mr. Vinciguerra entered into an Amended
and Restated Employment Agreement (the "Amended and Restated Vinciguerra
Employment Agreement") which amended and restated the Vinciguerra Employment
Agreement. Pursuant to the Amended and Restated Vinciguerra Employment
Agreement, Mr. Vinciguerra was named as the Chief Executive Officer of the
Company, but is no longer the Chief Operating Officer of the Company. In
addition, pursuant to the Amended and Restated Vinciguerra Employment Agreement,
Mr. Vinciguerra received an option to purchase 50,000 shares of the Company's
Common Stock at an exercise price of $13.00, which option vests and becomes
exercisable ratably over four years beginning on May 17, 1998. If Mr.
Vinciguerra's employment is terminated by reason of death or by the Company for
any reason other than for cause (as defined in the Company's 1994 Restricted
Stock Plan or 1995 Stock Option and Incentive Plan, as appropriate), any
restricted stock held by Mr. Vinciguerra shall become fully vested and any
option held by Mr. Vinciguerra shall become fully vested and exercisable and may
thereafter be exercised by Mr. Vinciguerra or Mr. Vinciguerra's legal
representative or legatee until the expiration date of such option. If Mr.
Vinciguerra's employment is terminated by the Company for cause, any shares of
restricted stock that shall have not vested as of the date of such termination
shall either be repurchased by the Company or forfeited by Mr. Vinciguerra, and
any such option held by Mr. Vinciguerra shall immediately terminate and be of no
further force and effect. If Mr. Vinciguerra terminates his employment for any
reason other than death, any shares of restricted stock that shall have not
vested as of the date of such termination shall either be repurchased by the
Company or forfeited by Mr. Vinciguerra and any such option held by Mr.
Vinciguerra may thereafter be exercised, to the extent it was exercisable on the
date of such termination, for a period of three months or until the expiration
date of such option, whichever is longer. All other provisions of the
Vinciguerra Employment Agreement remain in effect.
Ford Employment Agreement
On September 23, 1996, the Company and Mr. Ford entered into an employment
agreement (the "Ford Employment Agreement") that provides for Mr. Ford's
employment as Vice President and Chief Financial Officer of the Company at a
salary of $140,000 per year, subject to annual salary reviews by the
Compensation Committee or the President of the Company, as appropriate. Pursuant
to the Ford Employment Agreement, Mr. Ford received an option to purchase 30,000
shares of the Company's common stock at an exercise price of $9.38, which option
vests and becomes exercisable ratably over four years beginning on September 23,
1997. Pursuant to the Ford Employment Agreement, the Company reimbursed Mr. Ford
for all reasonable moving expenses in connection with Mr. Ford's relocation to
New Hampshire and is required to reimburse Mr. Ford for all reasonable business
expenses incurred by Mr. Ford in the performance of his duties. In addition, Mr.
Ford 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 Ford Employment Agreement, the Company or Mr. Ford may
terminate Mr. Ford's employment at will upon six months written notice if such
notice is given within one year of Mr. Ford's employment or upon one year's
written notice if such notice is given after the first year of Mr. Ford's
employment. If the Company undergoes a change of control (as defined in the Ford
Employment Agreement) and Mr. Ford is terminated by the Company other than for
cause within 12 months after such change of control occurs, Mr. Ford shall be
entitled to receive an amount equal to six months' salary at the rate then in
14
<PAGE> 18
effect if such termination occurs within the first year of Mr. Ford's
employment, and an amount equal to 12 months' salary at the rate then in effect
if such termination occurs after the first year of Mr. Ford's employment. If Mr.
Ford dies or becomes disabled during the term of the Ford Employment Agreement,
Mr. Ford's employment automatically terminates and he is entitled to any earned
but unpaid salary. If Mr. Ford is terminated for cause (as defined in the Ford
Employment Agreement), he is entitled to any earned but unpaid salary at the
date of termination and the contribution by the Company to the cost of Mr.
Ford's participation in the Company's group medical and dental insurance plans
as permissible under applicable law and plan terms.
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.
15
<PAGE> 19
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder 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, 1992. 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.
STOCKHOLDER RETURN PERFORMANCE GRAPH
[DATA FOR GRAPH]
<TABLE>
<S> <C> <C> <C>
DJIT NASDAQ FERO
6/30/1992 100.00 100.00 100.00
6/30/1993 93.60 151.08 77.14
6/30/1994 101.47 152.53 30.00
6/30/1995 144.54 203.60 55.00
6/30/1996 142.97 261.40 77.14
6/30/1997 153.35 317.84 47.86
</TABLE>
16
<PAGE> 20
LEGAL PROCEEDINGS
On February 19, 1993, the Company received an informal inquiry letter from
the Securities and Exchange Commission (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. Throughout the investigation, the Company has
cooperated fully with the SEC's inquiry. In June 1997, the SEC completed its
investigation with respect to the Company and on June 23, 1997, the Company
entered into a Consent and Understanding, whereby it agreed to be permanently
enjoined from violating the federal securities laws. The Company is continuing
to cooperate with the SEC as it completes its investigation with respect to
certain unnamed persons.
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 1, 1997 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...................................... 366,000(3) 5.92%
60 State Street
Boston, MA 02114
Paul F. Avery, Jr...................................................... 178,000(4) 2.88%
Salvatore J. Vinciguerra............................................... 120,000(5) 1.94%
Alvan F. Chorney....................................................... 12,500(6) *
William B. Ford........................................................ 4,000 *
Thomas J. Uhlig........................................................ 13,750(7) *
Howard F. Nichols...................................................... 19,725(8) *
Dean Kamen............................................................. 12,850(9) *
Robert P. Rittereiser.................................................. 12,850(10) *
Stephen B. Hazard...................................................... 9,000(11) *
Dennis R. Stone........................................................ 11,100(12) *
All directors and executive officers as a group (10 persons)........... 393,775(13) 6.37%
</TABLE>
- ---------------
* Less than 1%.
17
<PAGE> 21
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended. 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 of Common Stock owned, if any, by spouses and relatives living in
the same home as to which beneficial ownership may be disclaimed. The
amounts set forth above as beneficially owned also include shares of Common
Stock which such persons had the right to acquire within 60 days of October
1, 1997 pursuant to stock options.
(2) Percentages are calculated on the basis of 6,185,996 shares of Common Stock
outstanding as of October 1, 1997, together with applicable stock options
for each stockholder.
(3) Based on a Schedule 13G filed with the SEC on January 14, 1997 and other
information available to the Company. Pioneering Management Corporation has
sole voting power with respect to all 366,000 shares.
(4) Includes 130,000 shares of Common Stock which Mr. Avery may acquire upon
the exercise of stock options, within 60 days of October 1, 1997.
(5) Includes 25,000 shares of restricted stock which are subject to vesting and
certain other restrictions pursuant to the 1994 Restricted Stock Plan. Also
includes 25,000 shares of Common Stock which Mr. Vinciguerra may acquire
upon the exercise of stock options, within 60 days of October 1, 1997.
(6) Includes 12,500 shares of Common Stock which Mr. Chorney may acquire upon
the exercise of stock options, within 60 days of October 1, 1997.
(7) Includes 5,000 shares of restricted stock which are subject to vesting and
certain other restrictions pursuant to the 1994 Restricted Stock Plan. Also
includes 3,750 shares of Common Stock which Mr. Uhlig may acquire upon the
exercise of stock options, within 60 days of October 1, 1997.
(8) Includes 14,350 shares of Common Stock which Mr. Nichols may acquire upon
the exercise of stock options, within 60 days of October 1, 1997.
(9) Includes 12,100 shares of Common Stock which Mr. Kamen may acquire upon the
exercise of stock options, within 60 days of October 1, 1997.
(10) Includes 12,100 shares of Common Stock which Mr. Rittereiser may acquire
upon the exercise of stock options, within 60 days of October 1, 1997.
(11) Includes 6,000 shares of Common Stock which Mr. Hazard may acquire upon the
exercise of stock options within 60 days of October 1, 1997.
(12) Includes 6,000 shares of Common Stock which Mr. Stone may acquire upon the
exercise of stock options within 60 days of October 1, 1997.
(13) Includes 30,000 shares of restricted stock which are subject to vesting and
certain other restrictions pursuant to the 1994 Restricted Stock Plan and
221,800 shares of Common Stock which may be acquired by such persons upon
the exercise of stock options, within 60 days of October 1, 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's Directors, executive officers and beneficial owners of more
than 10% of its Common Stock are required under Section 16(a) of the Securities
Exchange Act of 1934, as amended, 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
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representations that no other reports were required, the Company believes that
during fiscal 1997 no person who was a Director, executive 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), except in the case of
certain reports of Messrs. Hazard, Stone, Nichols, Rittereiser and Kamen, which
were inadvertently filed late.
MARKET VALUE
On October 1, 1997, the closing sale price of a share of the Company's
Common Stock on the Nasdaq National Market was $7 11/16.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1998 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 24, 1998 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 "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 selected the firm of Ernst & Young LLP,
independent auditors, as the auditors of the financial statements of the Company
and its subsidiaries for its current fiscal year ending June 27, 1998. A member
of Ernst & Young LLP 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 28, 1997.
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.
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PROXY CARD
FERROFLUIDICS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 1997
The undersigned hereby constitute(s) and appoint(s) Salvatore J. Vinciguerra and
William B. Ford, 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 15,
1997 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 Tuesday, November 18, 1997, 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. 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 1997 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.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
FERROFLUIDICS CORPORATION
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
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.
<PAGE> 24
PLEASE MARK VOTES AS IN
THIS EXAMPLE [X]
FOR WITHHOLD
PROPOSAL 1. Election of Class II Directors for a [ ] [ ]
three-year term.
Nominees: Howard F. Nichols and Robert P. Rittereiser
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(s).
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.
Date:
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Shareholder(s) signature(s):
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HAS YOUR ADDRESS CHANGED?
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