<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 [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
VIRCO MFG. CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
VIRCO MFG. CORPORATION
2027 HARPERS WAY, TORRANCE, CALIFORNIA 90501
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1997
The Annual Meeting of Stockholders of Virco Mfg. Corporation, a Delaware
corporation, will be held at 2:00 p.m. on Tuesday, June 17, 1997 at 2027 Harpers
Way, Torrance, California, for the following purposes:
1. To elect three directors to serve until the 2000 Annual Meeting of
Stockholders and until their successors are elected and qualified;
2. To approve the adoption of the Virco Mfg. Corporation 1997 Stock
Incentive Plan; and
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on May 6, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting and any adjournments and postponements thereof.
Whether or not you expect to attend the meeting, please date, sign and
return the enclosed proxy. If you attend the meeting, you may vote in person
whether or not you have returned a proxy.
By Order of the Board of Directors
James R. Braam, Secretary
Los Angeles, California
May 16, 1997
<PAGE> 3
VIRCO MFG. CORPORATION
2027 HARPERS WAY, TORRANCE, CALIFORNIA 90501
---------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS, JUNE 17, 1997
---------------
GENERAL INFORMATION
This Proxy Statement is being mailed to stockholders of Virco Mfg.
Corporation, a Delaware corporation (the "Company"), on or about May 16, 1997 in
connection with the solicitation by the Board of Directors of proxies to be used
at the Annual Meeting of Stockholders of the Company to be held on Tuesday, June
17, 1997 at 2:00 p.m. at 2027 Harpers Way, Torrance, California and any and all
adjournments and postponements thereof.
The cost of preparing, assembling and mailing the Notice of Annual Meeting
of Stockholders, Proxy Statement and form of proxy and the solicitation of
proxies will be paid by the Company. Proxies may be solicited in person or by
telephone or telegraph by personnel of the Company who will not receive any
additional compensation for such solicitation. The Company will pay brokers or
other persons holding stock in their names or the names of their nominees for
the expenses of forwarding soliciting material to their principals.
RECORD DATE AND VOTING
The close of business on May 6, 1997 has been fixed as the record date for
the determination of stockholders entitled to notice of and to vote at the
meeting. On that date there were 5,906,296 shares of the Company's Common Stock,
par value $.01 per share, outstanding. All voting rights are vested exclusively
in the holders of the Company's Common Stock. Each share is entitled to one vote
on any matter that may be presented for consideration and action by the
stockholders, except that as to the election of directors, stockholders may
cumulate their votes. Because three directors are to be elected, cumulative
voting means that each stockholder may cast a number of votes equal to three
times the number of shares actually owned. That number of votes may be cast for
one nominee, divided equally among the three nominees or divided among the
nominees in any other manner. The proxy holders will have authority, in their
discretion, to vote cumulatively for less than all of the nominees.
In all matters other than the election of directors, the affirmative vote
of the majority of shares of Common Stock present in person or represented by
proxy at the meeting and entitled to vote on the subject matter would be the act
of the stockholders. Directors will be elected by a plurality of the votes of
the Common Stock present in person or represented by proxy. Abstentions will be
treated as the equivalent of a negative vote for the purpose of determining
whether a proposal has been adopted and will have no effect for the purpose of
determining whether a director has been elected. Broker non-votes are not
counted for the purpose of determining the votes cast on a proposal.
Proxies will be voted for management's nominees for election as directors
unless the stockholder otherwise directs in his proxy. Where the stockholder has
appropriately directed how the proxy is to be voted, it will be voted according
to his direction. Any stockholder has the power to revoke his proxy at any time
before it is voted at the meeting by submitting written notice of revocation to
the Secretary of the Company, or by filing a duly executed proxy bearing a later
date. A proxy will not be voted if the stockholder who executed it is present at
the meeting and elects to vote the shares represented thereby in person.
<PAGE> 4
SECURITY OWNERSHIP
SHARES OWNED BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 14, 1997 (unless
otherwise indicated) relating to the beneficial ownership of the Company's
Common Stock (i) by each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock of the Company, (ii) by each
director or nominee of the Company, (iii) by each executive officer of the
Company named in the Summary Compensation Table below and (iv) by all officers
and directors of the Company as a group. The number of shares beneficially owned
is deemed to include shares of Common Stock in which the persons named have or
share either investment or voting power. Unless otherwise indicated, the mailing
address of each of the persons named is 2027 Harpers Way, Torrance, California
90501.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
------------------------ ------------ -----
<S> <C> <C>
Dimensional Fund Advisors Inc.(2)................................. 451,982 7.6%
Raymond W. Virtue (3)............................................. 98,483 1.7
Director, Vice President
Robert A. Virtue (4).............................................. 204,537 3.5
Chairman of the Board of Directors,
Chief Executive Officer
Douglas A. Virtue................................................. 214,425 3.6
Director, Vice President
Donald S. Friesz.................................................. 58,834 (5)
Director, Vice President Sales and Marketing
George W. Ott..................................................... 2,952 (5)
Director
Donald A. Patrick................................................. 11,337 (5)
Director
John H. Stafford.................................................. 3,002 (5)
Director
Hugh D. Tyler..................................................... 23,101 (5)
Director, Vice President
James R. Wilburn.................................................. 5,205 (5)
Director
James R. Braam.................................................... 19,579 (5)
Vice President Finance, Secretary
All executive officers and directors as a
group (15 persons).............................................. 669,973 11.3
</TABLE>
- ---------------
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, to the knowledge of the Company, the
persons named in this table have sole voting and investment power with
respect to all shares beneficially owned by them. For purposes of this
table, a person is deemed to have "beneficial ownership" as of a given
date of any security that such person has the right to acquire within 60
days after such date. Amounts for Messrs. Raymond Virtue, Robert Virtue,
Douglas Virtue, Friesz, Patrick, Stafford, Ott, Tyler and Braam, and all
executive officers and directors as a group, include 17,569, 29,282,
11,713, 17,569, 1,337, 1,337, 352, 17,569, 17,569 and 114,297, shares
issuable upon exercise of options, respectively.
(2) As of December 31, 1996, according to information provided to the Company.
Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 451,982 shares of the
Company's Common Stock, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust
2
<PAGE> 5
and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, for which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares. The
principal business address of Dimensional is 1299 Ocean Avenue, 11th floor,
Santa Monica, California 90401.
(3) Does not include 279,912 shares owned beneficially by Mr. Raymond Virtue's
adult children as to which Mr. Virtue disclaims beneficial ownership.
(4) Does not include 636,582 shares owned beneficially by Mr. Robert Virtue's
adult children, including Mr. Douglas Virtue, as to which Mr. Robert Virtue
disclaims beneficial ownership.
(5) Less than 1%.
All information with respect to beneficial ownership of the shares referred
to above is based upon filings made by the respective beneficial owners with the
Securities and Exchange Commission or information provided to the Company by
such beneficial owners.
Robert A. Virtue and Raymond W. Virtue are siblings and Douglas Virtue is
Robert Virtue's son. The total number of shares beneficially owned by Mr. Robert
Virtue, Mr. Raymond Virtue, their brother, Richard J. Virtue, their sister,
Nancy Virtue Cutshall, their children and their mother, Mrs. Julian A. Virtue,
aggregate 2,845,166 shares or 47.7% of the total shares of Common Stock
outstanding.
Robert A. Virtue, Richard J. Virtue, Raymond W. Virtue, Nancy Virtue
Cutshall and certain of their respective spouses and children (the
"Stockholders") and the Company have entered into an agreement with respect to
certain shares of the Company's Common Stock received by the Stockholders as
gifts from their father, Julian A. Virtue, including shares received in
subsequent stock dividends in respect of such shares. Under the agreement, each
Stockholder who proposes to sell any of such shares is required to provide the
remaining Stockholders notice of the terms of such proposed sale. Each of the
remaining Stockholders is entitled to purchase any or all of such shares on the
terms set forth in the notice. Any shares not purchased by such remaining
Stockholders may be purchased by the Company on such terms. The agreement also
provides for a similar right of first refusal in the event of the death or
bankruptcy of a Stockholder, except that the purchase price for the shares is to
be based upon the then prevailing sales price of the Company's Common Stock on
the American Stock Exchange.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than 10% of any equity security of
the Company to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish copies of these reports to the
Company. Based solely on a review of the copies of the forms that the Company
received, the Company believes that Forms 4 or 5 were not timely filed (from one
to 50 days late) by (i) Messrs. Patrick, Stafford, Robert Virtue and Wilburn to
report open market stock purchases made in November 1996, September 1996, March
1995 and December 1996, respectively, (ii) Mr. Friesz to report two gift
transfers made in December 1996 and (iii) Mr. Wonder to report a discretionary
transaction of stock held under the Company's 401(k) plan in December 1996.
These transactions were subsequently reported on Forms 4 or 5, thereby
correcting the oversight.
ELECTION OF DIRECTORS
The Certificate of Incorporation of the Company provides for the division
of the Board of Directors into three classes as nearly equal in number as
possible. In accordance with the Certificate of Incorporation, the Board of
Directors has nominated Donald A. Patrick, Raymond W. Virtue and Robert A.
Virtue (each of whom is currently a director) to serve as directors in Class III
of the Board of Directors with a term expiring in 2000.
3
<PAGE> 6
It is intended that the proxies solicited by this Proxy Statement will be
voted in favor of the election of Messrs. Patrick, Raymond W. Virtue and Robert
A. Virtue, unless authority to do so is withheld. Should any of such nominees be
unable to serve as a director or should any additional vacancy occur before the
election (which events are not anticipated), proxies may be voted for a
substitute nominee selected by the Board of Directors or the authorized number
of directors may be reduced. If for any reason the authorized number of
directors is reduced, the proxies will be voted, in the absence of instructions
to the contrary, for the election of the remaining nominees named in this Proxy
Statement. In the event that any person other than the nominees named below
should be nominated for election as a director, the proxies may be voted
cumulatively for less than all of the nominees.
The following table sets forth certain information with respect to each of
the three nominees, as well as each of the six continuing directors.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- -----
<S> <C> <C> <C>
NOMINEES FOR DIRECTORS WHOSE
TERMS EXPIRE IN 2000:
Donald A. Patrick 72 President and a founder of Diversified Business 1983
Resources (mergers, acquisitions and business consultants) since 1988
Raymond W. Virtue 55 Vice President of the Company since June 1983; previously President of Delkay 1983
Plastics Corp. (a former wholly-owned subsidiary of the Company)
Robert A. Virtue 64 Chairman of the Board and Chief Executive Officer 1956
of the Company since 1990; President of the Company since August 1982
CONTINUING DIRECTORS WHOSE
TERMS EXPIRE IN 1998:
George W. Ott 65 President and Founder of Ott and Hansen since 1976 1994
John H. Stafford 76 Retired since 1983; director of Mossimo, Inc. since October 1996; previously 1985
Partner of Main Hurdman, a predecessor of KPMG Peat Marwick (certified public
accountants)
Douglas A. Virtue 38 Vice President, General Manager of the Los Angeles Division of the Company 1992
since April 1992; previously Marketing Services Manager (1989-1992), Contract
Administrator (1988) and in production control of the Company (1985-1988)
CONTINUING DIRECTORS WHOSE
TERMS EXPIRE IN 1999:
James R. Wilburn 64 Inaugural Dean of the School of Public Policy, Pepperdine University, since 1986
September 1996; previously Dean of the School of Business and Management,
Pepperdine University (1982-1994); Professor of Business Strategy, Pepperdine
University (1994-1996)
Hugh D. Tyler 55 Vice President of the Company since 1988; 1988
General Manager of the Conway Division since 1988; previously Controller of
the Conway Division
Donald S. Friesz 68 Vice President Sales and Marketing from 1982 to February 1996 1992
</TABLE>
Each director of the Company serving in 1996 attended at least 75% of the
1996 meetings of the Board of Directors and each committee on which he served.
Directors who are also officers of the Company or its subsidiaries receive no
additional compensation for their services as directors. Other directors
received a retainer of $2,500 per quarter and a fee of $500 for each meeting of
the Board of Directors or Audit Committee attended. The Board of Directors held
six meetings in 1996. At the February 1997 meeting of the Board of Directors,
the annual retainer was increased to $12,000 effective May 1, 1997 and $15,000
4
<PAGE> 7
effective February 1, 1998. The fee for each regular meeting attended was
increased to $1,000 effective April 1997.
The Company's 1993 Stock Incentive Plan provides that, on the first
business day after the date of the annual meeting of stockholders of the
Company, each nonemployee director will automatically be granted an option to
purchase 500 shares of Common Stock (a "Nonemployee Director Option").
Nonemployee Director Options become exercisable with respect to 20% of the
shares subject to such option on each anniversary of the grant date with full
vesting occurring on the fifth anniversary date, subject to certain provisions
which may accelerate the vesting of Nonemployee Director Options. In 1996,
Messrs. Ott, Patrick, Stafford and Wilburn each received options to purchase 500
shares of Common Stock (550 shares after adjusting for a stock dividend paid in
1996) at $9.21 per share.
The Board of Directors has an Audit Committee that in 1996 was composed of
Messrs. Ott, Patrick, Stafford and Wilburn. The Audit Committee held one meeting
in 1996. The functions of the Audit Committee include reviewing the financial
statements of the Company, the scope of the annual audit by the Company's
independent auditors and the audit reports rendered by such independent
auditors. The Audit Committee may also examine and consider other appropriate
matters.
The Board of Directors has a Compensation Committee that in 1996 was
composed of Messrs. Ott, Patrick, Stafford and Wilburn. The function of this
Committee is to make recommendations to the Board regarding changes in salaries
and benefits. The Compensation Committee held one meeting in 1996.
The Company does not have a nominating committee. The Board of Directors
performs the functions which might otherwise be performed by such a committee.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for services rendered in
all capacities to the Company and its subsidiaries during the years indicated
for the Chief Executive Officer and the other four most highly compensated
officers of the Company:
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-------------------- ALL OTHER
NAME AND TITLE YEAR SALARY(1) BONUS COMPENSATION(2)
- -------------- ---- --------- ----- ---------------
<S> <C> <C> <C> <C>
Robert A. Virtue 1996 $306,039 $163,770 $58,100
Chairman of the Board and Chief 1995 293,258 100,700 58,600
Executive Officer 1994 251,010 105,750 58,600
Hugh D. Tyler 1996 161,678 74,675 12,300
Vice President and General 1995 150,035 31,900 12,300
Manager - Conway Division 1994 134,249 45,500 12,300
James R. Braam 1996 150,368 74,675 15,700
Vice President, Finance 1995 145,098 40,600 17,100
1994 143,348 58,500 17,100
Raymond W. Virtue 1996 147,989 66,178 42,600
Vice President - Purchasing 1995 145,019 35,980 41,300
1994 118,437 51,750 41,300
Matthew G. Tarnay 1996 131,708 64,375 6,500
Vice President - Engineering 1995 125,392 35,000 6,500
1994 115,809 51,750 6,500
</TABLE>
- ---------------
(1) Excludes compensation in the form of other personal benefits, which, for
each of the executive officers, did not exceed the lesser of $50,000 or 10%
of the total of annual salary and bonus reported for each year.
(2) For 1996, consists of (i) $14,400, $12,300, $15,700, $6,700 and $6,500,
representing the value of Company-paid split-dollar premiums under the
Management Employees Life Insurance Plan, and (ii) $43,700, $0, $0, $35,900
and $0, representing the value of Company-paid split-dollar premiums under
the Executive Survivorship Life Insurance Plan, for insurance policies on
the lives of each of Messrs. Robert Virtue, Tyler, Braam, Raymond Virtue
and Tarnay (and, if applicable, their spouses), respectively. See
"Management Employees Life Insurance Plan" and "Executive Survivorship Life
Insurance Plan." The foregoing amounts represent the actuarial value of the
benefit to the executive officers of the current year's insurance premium
paid by the Company in excess of that required to fund the death benefits
under the policies.
6
<PAGE> 9
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
Shown below is information relating to the exercise of stock options during
1996 for each executive officer of the Company named in the Summary Compensation
Table above:
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)
---- ----------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Robert A. Virtue -- -- 21,962/14,641 $224,557/149,705
Hugh D. Tyler -- -- 13,177/8,785 134,734/89,823
James R. Braam -- -- 13,177/8,785 134,734/89,823
Raymond W. Virtue -- -- 13,177/8,785 134,734/89,823
Matthew G. Tarnay -- -- 13,177/8,785 134,734/89,823
</TABLE>
- ----------------
(1) Calculated using closing price on January 31, 1997 of $14.75.
EMPLOYEES RETIREMENT PLAN
The Employees Retirement Plan of the Company is a non-contributory, defined
benefit retirement plan governed by the Employee Retirement Income Security Act
of 1974. With limited exceptions, all employees of the Company and its
participating subsidiaries (including executive officers) are eligible to
participate provided they meet certain service requirements. Benefits are paid
to or on behalf of each participant upon retirement, normally at age 65, and
under certain circumstances upon death. Benefits under the Plan are credited to
the employee each year based upon years of service and remuneration during such
year of service.
Retirement benefits vest partially after three years of service and fully
after seven years of service, or upon the participant's sixty-fifth birthday.
Benefits payable under the Plan are adjusted to reflect the form of payment
elected by the participant. The following table shows the annual pension
benefits for retirement at age 65 which would be payable to retiring employees
with representative earnings and years of service:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ASSUMED YEARS OF SERVICE(1)(2)
AVERAGE -------------------------------------------
COMPENSATION(3) 10 20 30
--------------- ------------ ----------- ----------
<S> <C> <C> <C>
$ 25,000.......................................................... $2,260 $4,520 $6,780
50,000.......................................................... 4,760 9,520 14,280
75,000.......................................................... 7,260 14,520 21,780
100,000.......................................................... 9,760 19,520 29,280
125,000.......................................................... 12,260 24,520 36,780
150,000.......................................................... 14,760 29,520 44,280
175,000.......................................................... 15,760 31,519 47,279
</TABLE>
- ---------------
(1) Represents annual retirement benefits payable at normal retirement age. To
the extent a participant's service was rendered prior to February 1, 1964,
the effective date of the Plan, actual benefits will be slightly lower than
the benefits shown in the table.
(2) The benefits shown are for straight-life annuity payments and are not
subject to deduction for Social Security or other offset amounts;
alternative forms of benefit payments are available under the Plan.
(3) Assumed average compensation is based upon regular base compensation before
deduction for taxes or group insurance averaged for each year in the Plan.
7
<PAGE> 10
Messrs. Robert Virtue, Tyler, Braam, Raymond Virtue and Tarnay have 39, 27,
14, 33 and 3 credited years of service and $69,000, $63,000, $115,000, $57,000
and $138,000 of assumed average compensation, respectively, under the Plan.
VIRCO IMPORTANT PERFORMERS PLAN
In August 1985, the Board of Directors adopted the Virco Important
Performers Plan, which is an unqualified plan providing additional retirement
and death benefits for certain employees identified by the Board of Directors or
the committee administering the Plan as contributing materially to the continued
growth, development and future business of the Company. On December 7, 1993, the
Plan was amended to provide that each officer or employee whose annual salary
exceeds $66,000 will be a participant in the Plan. Benefits under the Plan are
payable to or on behalf of each participant upon retirement, normally at age 65,
or upon death prior to retirement. The Company is funding its obligations under
the Plan through the purchase of life insurance policies on the participants.
Vesting for each participant begins at the later date of such participant's
fiftieth birthday or his birthday in the year he enters the Plan. Vesting occurs
at 10% for each full year subsequent to such date. Under the Plan, each
participant will receive a benefit payable at retirement equal to 50% of the
average base salary during the last five years offset by the monthly benefit
accrued under the Employees Retirement Plan. Participants with fewer than ten
years of participation who retire after reaching age 60 will be entitled to
reduced pro rata benefits based on the number of years they have participated in
the Plan. In the event of the death of a participant prior to retirement, death
benefits are payable for a fifteen-year period to the deceased participant's
beneficiaries.
The estimated annual benefits payable upon retirement at age 65 for Messrs.
Robert Virtue, Tyler, Braam, Raymond Virtue and Tarnay are $95,000, $43,000,
$53,000, $36,000 and $43,000, assuming that the current compensation of each
executive officer remains constant until retirement.
MANAGEMENT EMPLOYEES LIFE INSURANCE PLAN
In August 1985, the Board of Directors adopted the Management Employees
Life Insurance Plan, which provides for the Company to obtain life insurance
policies on management employees selected by the Board. Currently, all officers
and employees earning an annual salary exceeding $33,300 are entitled to
participate in the Plan. Employees whose salaries exceed $33,300 but are less
than $66,000 may elect to receive $50,000 under the Plan. Employees whose
salaries exceed $66,000 may elect coverage under the Plan of up to $100,000 in
increments of $50,000. Officers may elect coverage under the Plan of up to
$300,000 in increments of $50,000.
The premiums for the policies are paid partially by the participants
pursuant to the formula set forth in the Plan, with the Company paying the
remaining portion. The Company retains an interest in the death benefit payable
under the policy for each participant in an amount equal to the aggregate amount
of premium payments made by the Company with respect to such participant's
policy. The remainder of the death benefit is payable to the participant's
beneficiaries. Upon the first to occur of reaching the age of 65, actual
retirement or termination of employment, each participant is entitled to have
the Company assign the policy to the participant or his designee, provided that
the participant first reimburses the Company for all premiums previously paid by
the Company for the policy.
EXECUTIVE SURVIVORSHIP LIFE INSURANCE PLAN
In August 1985, the Board of Directors adopted the Executive Survivorship
Life Insurance Plan, which provides special life insurance benefits to a group
of management employees selected by the Board. Under this Plan, the Company
maintains insurance policies on the lives of the participants and their spouses.
Robert A. Virtue and Raymond W. Virtue are currently the only executive officers
participating in the
8
<PAGE> 11
Plan. The amount of each of the insurance policies maintained by the Company
under the Plan on the lives of Robert A. Virtue and Raymond W. Virtue and their
current or former spouses is $1,250,000. In 1985, the Company also purchased
$1,250,000 of insurance under the Plan on the lives of Richard Cutshall, who was
then a management employee of the Company, and his spouse Nancy Virtue Cutshall,
who is the beneficial owner of 4.7% of the Company's outstanding shares. In
connection with their divorce in 1987, Mr. Cutshall, who is now deceased,
transferred his interest in such insurance to Mrs. Cutshall. As a result of such
transaction, the policy previously maintained on the life of Mr. Cutshall was
terminated and a $2,500,000 policy is now maintained under the Plan on the life
of Mrs. Cutshall.
The premiums for the policies are paid partially by the participants
pursuant to a formula set forth in the Plan, with the Company paying the
remaining amount. The Company retains an interest in the death benefit payable
under the policy of each participant and spouse in an amount equal to the
aggregate amount of premium payments made by the Company with respect to the
policy of such participant or spouse. The remainder of the death benefit is
payable to the designated beneficiaries of the deceased participant or spouse.
Upon the first to occur of the participant's reaching age 65, retiring or
ceasing to be an employee of the Company for any reason other than death, the
participant or his designee is required to purchase the Company's interest in
the participant's policy and the spouse or the spouse's designee is similarly
required to purchase the Company's interest in the spouse's policy. The amount
to be paid to the Company upon such purchase is the aggregate amount of the
Company's previous premium payments on such policy. In the event a participant
in the Plan dies before reaching age 65 and while an employee of the Company,
the Company remains obligated to maintain the insurance policy under the Plan on
the life of such participant's spouse.
WIDOW'S SALARY CONTINUATION PLAN
In August 1985, the Board of Directors approved the Widow's Salary
Continuation Plan, which provides for surviving widow benefits to be paid by the
Company upon the deaths of Messrs. Julian A. Virtue and Donald Heyl, the former
President of the Company. The widow of Mr. Virtue is currently receiving $5,000
per month under the Plan. In 1996, the Company paid $60,000 to Mrs. Virtue. Upon
the death of Mr. Heyl, his surviving widow will receive $60,000 annually during
her lifetime. The Company is funding its obligation to Mr. Heyl under this Plan
through the purchase of life insurance on the life of Mr. Heyl.
CERTAIN TRANSACTIONS
In 1989 the Company loaned $75,000 to Larry O. Wonder, the Company's Vice
President, Education Sales Group. The loan is secured by a second trust deed on
Mr. Wonder's home and accrues interest at a rate equal to the Wells Fargo prime
interest rate. As of January 1997, the outstanding balance on the loan including
accrued interest is $129,754. Subsequent to January 31, 1997, Mr. Wonder paid
$20,000 toward the outstanding balance of the loan.
During 1994 the Company entered into a consulting arrangement with
Diversified Business Resources, Inc. ("Diversified"), a consulting firm which is
owned by Donald A. Patrick, who is a Director. During 1996 the Company paid
$83,000 to Diversified in connection with the Company's relocation of its
offices and facilities to Torrance, California, the Company's data processing
committee, and the investigation of the possible sale of the Company's factory
in Mexico.
During the last fiscal year, the Virco Mfg. Corporation Employee Stock
Ownership Plan purchased an aggregate of 2,600 and 1,000 shares of the Company's
Common Stock from Suzanne Cutshall and Cynthia O'Reilly, daughters of Nancy
Virtue Cutshall, respectively, for an aggregate purchase price of $33,329 and
$14,476, respectively. The price per share for the purchases was calculated by
the trustee of the plan using the average closing price of the Common Stock for
the 10 consecutive trading days prior to the purchase in which 1,000 or more
shares were traded, discounted by 5%.
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PROPOSAL TO APPROVE THE 1997 STOCK INCENTIVE PLAN
The Board of Directors has proposed that the stockholders approve the 1997
Stock Incentive Plan of Virco Mfg. Corporation (the "1997 Plan"). The following
summary of the 1997 Plan is qualified in its entirety by reference to the full
text of the 1997 Plan, a copy of which is attached as Appendix A to this Proxy
Statement.
GENERAL
The purpose of the 1997 Plan is to enable the Company and its subsidiaries
to enable the Company and its subsidiaries to attract, retain and motivate its
employees by providing for or increasing the proprietary interests of such
employees in the Company, and to enable the Company to attract, retain and
motivate its non-employee directors and further align their interest with those
of the shareholders of the Company by providing for or increasing the
proprietary interest of such directors in the Company. Every employee and
director of the Company or any of its subsidiaries is eligible to be considered
for the grant of awards under the 1997 Plan (an "Eligible Person") although only
employees are eligible for awards intended to qualify as incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). The maximum number of shares of Common Stock that may be
issued pursuant to stock options and other awards granted under the 1997 Plan is
300,000, subject to certain adjustments to prevent dilution.
Unless otherwise provided by the Board of Directors (the "Board"), the
1997 Plan will be administered by a committee of two or more directors appointed
by the Board (the "Committee"). Subject to the provisions of the 1997 Plan, the
Committee will have full and final authority to select the Eligible Person to
whom awards will be granted thereunder, to grant such awards and to determine
the terms and conditions of such awards and the number of shares to be issued
pursuant thereto.
AWARDS
The 1997 Plan authorizes the Committee to enter into any type of
arrangement with an Eligible Person that, by its terms, involves or might
involve the issuance of (1) Common Stock, (2) an option, warrant, convertible
security, stock appreciation right or similar right with an exercise or
conversion privilege at a price related to the Common Stock or (3) any other
security or benefit with a value derived from the value of the Common Stock. The
maximum number of shares of Common Stock subject to awards granted during any
calendar year to any one Eligible Person (including the number of shares
involved in Awards having a value derived from the value of the Shares) shall
not exceed 150,000, subject to adjustment, as provided in the Plan. For federal
income tax purposes, the maximum compensation payable to employees pursuant to
the Plan, during the term of the Plan and awards granted thereunder, is equal to
the number of shares of Common Stock with respect to which awards may be issued
thereunder, multiplied by the value of such shares on the date such compensation
is measured (which, in the case of Nonqualified Options (defined below), will
generally be the date of exercise of the options).
Awards to Eligible Persons under the 1997 Plan are not restricted to any
specified form or structure and may include arrangements such as sales, bonuses
and other transfers of stock, restricted stock, stock options, reload stock
options, stock purchase warrants, other rights to acquire stock, securities
convertible into or redeemable for stock, stock appreciation rights, limited
stock appreciation rights, phantom stock, dividend equivalents, performance
units or performance shares. An award may consist of one such arrangement or two
or more such arrangements in tandem or in the alternative.
An award granted under the 1997 Plan to an Eligible Person may include a
provision conditioning or accelerating the receipt of benefits, either
automatically or in the discretion of the Committee, upon the occurrence of
specified events, such as a change in control of the Company, an acquisition of
a specified percentage of the voting power of the Company or a dissolution,
liquidation, merger, reclassification, sale of substantially all of the property
and assets of the Company or other significant corporate transaction.
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<PAGE> 13
Any stock option granted to an Eligible Person may be a tax-benefited incentive
stock option or a nonqualified stock option that is not tax-benefited. See
"Federal Income Tax Treatment" below.
An award to an Eligible Person under the 1997 Plan may permit the Eligible
Person to pay all or part of the purchase price of the shares or other property
issuable pursuant thereto, and/or to pay all or part of such Eligible Person's
tax withholding obligations with respect to such issuance, by delivering
previously owned shares of capital stock of the Company or other property or by
reducing the amount of shares or other property otherwise issuable pursuant to
the award. If an option granted to an Eligible Person under the 1997 Plan
permits the Eligible Person to pay for the shares issuable pursuant thereto with
previously owned shares, the Eligible Person will be able to exercise the option
in successive transactions, starting with a relatively small number of shares
and, by a series of exercises using shares acquired from each such transaction
to pay the purchase price of the shares acquired in the following transaction,
to exercise an option for a larger number of shares with no more investment than
the original share or shares delivered.
PLAN DURATION
The 1997 Plan became effective upon its adoption by the Board on April
15, 1997 (the "Effective Date"), but no shares of Common Stock may be issued or
sold under the 1997 Plan until it has been approved by the Company's
stockholders. Awards may not be granted under the 1997 Plan after the tenth
anniversary of the Effective Date. Although any award that was duly granted on
or prior to such date may thereafter be exercised or settled in accordance with
its terms, no shares of Common Stock may be issued pursuant to any award after
the twentieth anniversary of the Effective Date.
AMENDMENTS
The Board may amend, alter or discontinue the 1997 Plan or any agreement
evidencing an award made under the 1997 Plan, but no amendment or alteration
shall be made that would impair the rights of any award holder, without such
holder's consent, under any award theretofore granted, provided that no such
consent shall be required if the Committee determines in its sole discretion and
prior to the date of any change of control (as defined, if applicable, in the
agreement evidencing such award) that such amendment or alteration is not
reasonably likely to significantly diminish the benefits provided under such
award, or that any such diminishment has been adequately compensated. The
Committee may determine whether or not any amendment to a previously granted
award is, for purposes of the 1997 Plan, deemed to be a cancellation and new
grant of the award. Notwithstanding the foregoing, if an amendment to the 1997
Plan would affect the ability of awards granted under the 1997 Plan to comply
with any law, rule or regulation (including any rule of a self-regulatory
organization), and if the Committee determines that it is necessary or desirable
for any awards theretofore or thereafter granted that are intended to comply
with any such provision to so comply, the amendment shall be approved by the
Company's stockholders to the extent required for such awards to continue to
comply with such law, rule or regulation.
EFFECT OF SECTION 16(B) OF THE EXCHANGE ACT
The acquisition and disposition of shares of Common Stock, options,
restricted stock and stock appreciation rights by executive officers, directors
and more than 10% stockholders of the Company ("Insiders") pursuant to awards
granted or sold to them under the 1997 Plan must be reported on forms filed with
the Securities and Exchange Commission, the American Stock Exchange and the
Company pursuant to Section 16(a) of the Exchange Act. In addition, the exercise
of options and stock appreciation rights must also be reported pursuant to
Section 16(a). Absent an exemption, such reports must be filed within ten days
of the end of the month in which the reportable transaction occurs. Such
transactions may be subject to the provisions of Section 16(b), under which a
purchase of shares of Common Stock within six months before or after a sale of
shares of Common Stock can result in recovery by the Company of all or a portion
of any amount by which the sale proceeds exceed the purchase price. Rules
adopted under Section 16(b) may exempt certain transactions from the foregoing
reporting or liability obligations. Among other exemptions, Rule 16b-3 exempts
certain transactions from the liability provisions of
11
<PAGE> 14
Section 16(b) and permits deferred reporting under Section 16(a) if transactions
are approved in advance by the Company's Board of Directors or by a committee of
the Board that meets certain conditions, or if the award is held for six months
after grant. Insiders should consult their counsel or the Company's counsel
regarding the applicability and consequences of Section 16(a) and 16(b) prior to
engaging in any transaction in Common Stock, options, restricted stock or stock
appreciation rights.
FEDERAL INCOME TAX TREATMENT
The following is a brief description of the federal income tax treatment
that will generally apply to awards made under the 1997 Plan, based on federal
income tax laws in effect on the date hereof. The exact federal income tax
treatment of awards will depend on the specific nature of the award. Such an
award may, depending on the conditions applicable to the award, be taxable as an
option, as restricted or unrestricted stock, as a cash payment or otherwise.
Because the following is only a brief summary of the general federal income tax
rules, recipients of awards should not rely thereon for individual tax advice,
as each taxpayer's situation and the consequences of any particular transaction
will vary depending upon the specific facts and circumstances involved.
Incentive Options. Pursuant to the 1997 Plan, employees may be
granted Incentive Options. Generally, the optionee is not taxed on the grant or
the exercise of an Incentive Option. However, the optionee's "alternative
minimum taxable income" for the year of exercise will be increased by the excess
of the fair market value of the shares acquired upon the exercise of an
Incentive Option ("ISO Shares") over the exercise price, and thus exercise of an
Incentive Option may subject the optionee to the "alternative minimum tax" in
the year of exercise.
If the optionee sells the ISO Shares at any time within (a) one year
after the date of transfer of ISO Shares to the optionee pursuant to the
exercise of the Incentive Option or (b) two years after the date of grant of the
Incentive Option (a "Disqualifying Disposition"), then, at the time of such
Disqualifying Disposition (1) the optionee will recognize capital gain equal to
the excess, if any, of the sales price over the fair market value of the ISO
Shares on the date of exercise, (2) the optionee will recognize ordinary income
equal to the excess, if any, of the lesser of the sales price or the fair market
value of the ISO Shares on the date of exercise, over the exercise price of such
Incentive Option, and (3) the optionee will recognize capital loss equal to the
excess, if any, of the exercise price of such Incentive Option over the sales
price of the ISO Shares. If the optionee sells the ISO Shares at any time after
the one-year and two-year periods described above, then the optionee will
recognize capital gain or loss equal to the difference between the sales price
and the exercise price of such Incentive Option, and the Company will not be
entitled to any deduction.
Nonqualified Options. The grant of an option or other similar right to
acquire stock that does not qualify for treatment as an Incentive Option (a
"Nonqualified Option") is generally not a taxable event for the optionee. Upon
exercise of the option, the optionee will generally recognize ordinary income in
an amount equal to the excess of the fair market value of the stock acquired
upon exercise (determined as of the date of the exercise) over the exercise
price of such option, and the Company will be entitled to a tax deduction equal
to such amount. Any gain or loss to the optionee on the disposition of the
shares acquired pursuant to the exercise of such an option will be long-term or
short-term capital gain or loss depending upon whether the stock was held for
more than one year. See "Special Rules for Awards Granted to Insiders," below.
Special Rules for Awards Granted to Insiders. Special rules will apply if
the optionee is subject to Section 16 of the Securities Exchange Act of 1934 and
during any period of time (the "Section 16(b) Period") a sale of the stock
acquired upon exercise of the option could subject such optionee to suit under
Section 16. In such case, the optionee will not recognize ordinary income and
the Company will not be entitled to a deduction until the expiration of the
Section 16(b) Period. Upon such expiration, the optionee will recognize ordinary
income, and the Company will be entitled to a deduction, equal to the excess of
the fair market value of the stock (determined as of the expiration of the
Section 16(b) Period) over the option
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<PAGE> 15
exercise price. Such an optionee may elect within 30 days of exercise under Code
Section 83(b) (an "83(b) Election") to recognize ordinary income on the date of
exercise, in which case the Company would be entitled to a deduction at that
time equal to the amount of the ordinary income recognized.
Restricted Stock. Awards under the 1997 Plan may also include stock sales,
stock bonuses or other grants of stock. Unless the recipient makes an 83(b)
Election as discussed above within 30 days after the receipt of the restricted
shares, the recipient generally will not be taxed on the receipt of restricted
shares until the restrictions on such shares expire or are removed. When the
restrictions expire or are removed, the recipient will recognize ordinary income
(and the Company will be entitled to a deduction) in an amount equal to the
excess of the fair market value of the shares at that time over the purchase
price. However, if the recipient makes an 83(b) Election within 30 days of the
receipt of restricted shares, he or she will recognize ordinary income (and the
Company will be entitled to a deduction) at that time equal to the excess of the
fair market value of the shares on the date of receipt over the purchase price.
In the case of an Insider (as defined above), the timing of income recognition
(including the date used to compute the fair market value of shares) with
respect to restricted shares may be deferred until the expiration of the Section
16(b) Period, as described above in "Special Rules for Awards Granted to
Insiders, " unless the Insider makes a valid 83(b) Election.
Miscellaneous Tax Issues. Awards may be granted under the 1997 Plan that
do not fall clearly into the categories described above. The federal income tax
treatment of these awards will depend upon the specific terms of such awards.
Generally, the Company will be required to make arrangements for withholding
applicable taxes with respect to any ordinary income recognized by a participant
in connection with awards made under the 1997 Plan.
With certain exceptions, an individual may not deduct investment-related
interest to the extent such interest exceeds the individual's net investment
income for the year. Investment interest generally includes interest paid on
indebtedness incurred to purchase shares of Common Stock. Interest disallowed
under this rule may be carried forward to and deducted in later years, subject
to the same limitations.
Special rules will apply in cases where a recipient of an award pays the
exercise or purchase price of the award or applicable withholding tax
obligations under the 1997 Plan by delivering previously owned shares of Common
Stock or by reducing the amount of shares otherwise issuable pursuant to the
award. The surrender or withholding of such shares will in certain circumstances
result in the recognition of income with respect to such shares.
The terms of the agreements pursuant to which specific awards are made to
Eligible Persons under the 1997 Plan may provide for accelerated vesting or
payment of an award in connection with a change in ownership or control of the
Company. In that event and depending upon the individual circumstances of the
recipient, certain amounts with respect to such awards may constitute "excess
parachute payments" under the "golden parachute" provisions of the Code.
Pursuant to these provisions, a recipient will be subject to a 20% excise tax on
any "excess parachute payments" and the Company will be denied any deduction
with respect to such payment.
In general, Section 162(m) of the Code imposes a $1,000,000 limit on the
amount of compensation that may be deducted by the Company in any tax year with
respect to the Chief Executive Officer of the Company and its other four most
highly compensated employees, including any compensation relating to an award
under the Plan. To limit the amount of compensation relating to an award under
the Plan that is subject to the $1,000,000 limit of Code Section 162(m), the
Plan provides that no one Eligible Person shall be granted any awards with
respect to more than 150,000 shares of the Company's Common Stock in any one
calendar year. Furthermore, the Committee may determine the terms and conditions
of every award, which terms and conditions may include provisions required in
order for such award to qualify as "performance-based compensation" under Code
Section 162(m). The Committee may establish the performance criteria and level
of achievement versus these criteria that shall determine the target and maximum
amount payable under an award, which criteria may be based on financial
performance and/or
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<PAGE> 16
personal performance evaluations. The performance criteria for any award that is
intended by the Committee to satisfy the requirements for "performance-based
compensation" under Code Section 162(m) shall be a measure based on one or more
pre-established, objective performance goals selected by the Committee and
specified no later than 90 days after the commencement of the period of service
to which the performance goals relate or the time the award is granted. The
Committee shall certify the extent to which any qualifying performance criteria
have been satisfied prior to payment or settlement of any award that is intended
by the Committee to satisfy the requirements for "performance-based
compensation" under Code Section 162(m). For this purpose, a pre-established,
objective performance goal may include one or more of the following performance
criteria: (i) cash flow, (ii) earnings per share (including earnings before
interest, taxes and amortization), (iii) return on equity, (iv) total
stockholder return, (v) return on capital, (vi) return on assets or net assets,
(vii) revenue, (viii) income or net income, (ix) operating income or net
operating income, (x) operating profit or net operating profit, (xi) operating
margin, (xii) return on operating revenue, and (xiii) market share.
BOARD RECOMMENDATION
The Board of Directors believes that it is in the best interests of
the Company and its stockholders to adopt the 1997 Plan in order to attract,
retain and motivate qualified employees and to align further the interests of
non-employee directors with those of the Company's stockholders generally. A
majority of the votes cast at the Annual Meeting is necessary for the approval
of this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE 1997 STOCK INCENTIVE PLAN.
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<PAGE> 17
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
developing the Company's executive compensation policies and making
recommendations to the Board of Directors with respect to these policies. In
addition, the Committee makes annual recommendations to the Board of Directors
concerning the compensation paid to the Chief Executive Officer and to each of
the other executive officers of the Company.
EXECUTIVE COMPENSATION POLICY
The goals of the Company's executive compensation policy are to attract and
retain qualified executives and to ensure that their efforts are directed toward
the long-term interests of the Company and its stockholders. The Company is
striving to generally position executive salaries at median competitive levels
and to rely on variable, performance-based bonuses to play a significant role in
determining total compensation. In addition, by establishing the 1993 Stock
Incentive Plan, the Company further linked executive and stockholder interests.
The Compensation Committee annually reviews salaries, bonuses and other
aspects of executive compensation. In general, the purpose of such annual
reviews is to ensure that the Company's overall executive compensation program
remains competitive with comparable businesses and that total executive pay
reflects both the individual's performance as well as the overall performance of
the Company.
BASE SALARY
Each year, the performance of executives is reviewed and, based upon an
assessment of individual performance and the Company's performance, a
corresponding salary increase may be awarded. In 1996 based on a comparison of
the Company's executive compensation levels and plans with those of other
companies in the furniture manufacturing business, the Compensation Committee
concluded that the Company's executive salaries had to be adjusted to keep pace
with those of comparable companies. As a result, the salary increases awarded to
the Company's Chief Executive Officer and other executive officers in 1996
reflected primarily the Compensation Committee's determination to adjust
salaries to perceived competitive levels, as well as the Compensation
Committee's evaluation of the overall performance of the Company and the
performance of each executive officer.
The salary of Mr. Robert A. Virtue, the Company's Chief Executive Officer,
was determined on the foregoing basis. In addition to consideration of the
salary levels of the chief executive officer of other furniture manufacturers,
the Board considered the Company's operating results in 1995 the Company's stock
performance, the effect of the general economy on the Company's performance and
the success of the Company in addressing certain goals.
BONUSES
Early each year the Board of Directors considers and approves an annual
profit plan for the Company, which establishes a target level of overall Company
profits, excluding certain non-recurring items. The bonuses payable to the Chief
Executive Officer and the other executive officers are tied to the Company's
actual performance relative to the annual profit plan. However, bonuses of
divisional general managers are based upon divisional operating results. In
1996, the Chief Executive Officer was eligible to receive a bonus equal to 45%
of his salary and each of the executive officers was eligible to receive a bonus
equal to 35% of his salary if the annual profit plan target level or target
divisional operating results, as applicable, had been achieved. In general, the
amount of the bonus paid was subject to a 2% adjustment for each $100,000
difference between the actual profits and the plan's targeted profit level or,
for divisional general managers, a similar formula to adjust for the difference
between the actual results and the targeted results.
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THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
George W. Ott John H. Stafford
Donald A. Patrick James R. Wilburn
The report of the Compensation Committee of the Board of Directors shall
not be deemed incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
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STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The stock performance graph set forth below illustrates the Company's
performance in total stockholder return over the period February 1, 1992 through
January 31, 1997 relative to the following external indices: (a) the American
Stock Exchange market value index ("AMEX Market Index") and (b) a peer group.1
Each line on the stock performance graph assumes that $100.00 was invested in
the Common Stock and the respective indices on February 1, 1992. The graph then
tracks the value of these investments, assuming reinvestment of dividends,
through January 31, 1997.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, AMEX MARKET INDEX AND PEER GROUP
[NSERT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
VIRCO MFG. CORPORATION $100.00 85.59 113.22 141.50 167.58 296.49
PEER GROUP $100.00 120.81 146.41 120.45 154.06 228.47
AMEX MARKET INDEX $100.00 98.21 117.27 102.35 131.19 141.19
</TABLE>
- ---------------
1 The peer group comprises all companies identified by Media General
Financial Services as being within the "other business and institutional
equipment" industry group, as follows: Educational Development
Corporation, Geographics, Inc., Hon Industries Inc., Kimball
International, Inc., Lear Seating Corp., Miller Herman, Inc., Mity-Lite,
Inc., Norwood Promotional Products, Inc., Open Plan Systems, Inc.,
Plasti-Line, Inc., Tab Products Co., Winsloew Furniture, Inc. and the
Company.
The cumulative total return shown on the stock performance graph indicates
historical results only and is not necessarily indicative of future results.
17
<PAGE> 20
RELATIONSHIP WITH INDEPENDENT AUDITORS
Ernst & Young, upon the recommendation of the Audit Committee of the Board
of Directors of the Company, continues as the accounting firm selected by the
Board of Directors to examine the accounts of the Company for the current year.
Representatives of Ernst & Young will be present at the Annual Meeting, will
have an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
OTHER MATTERS
Proposals of stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company by February 17, 1998,
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
The Board of Directors does not know of any matters to be presented at the
1997 Annual Meeting other than as stated herein. If other matters do properly
come before the Annual Meeting, the persons named on the accompanying proxy card
will vote the proxies in accordance with their judgment in such matters.
The Annual Report to the Stockholders of the Company for the fiscal year
ended January 31, 1997, including financial statements, is being mailed to
stockholders concurrently herewith.
THE COMPANY WILL ALSO PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND RELATED SCHEDULES, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION UPON REQUEST IN WRITING FROM ANY PERSON WHO
WAS HOLDER OF RECORD, OR WHO REPRESENTS IN GOOD FAITH HE WAS A BENEFICIAL OWNER,
OF COMMON STOCK OF THE COMPANY ON MAY 6, 1997. ANY SUCH REQUEST SHALL BE
ADDRESSED TO THE COMPANY AT 2027 HARPERS WAY, TORRANCE, CALIFORNIA 90501,
ATTENTION: CORPORATE SECRETARY.
Stockholders are urged to date and sign the enclosed proxy and return it
promptly in the enclosed envelope.
By Order of the Board of Directors
James R. Braam, Secretary
Los Angeles, California
May 16, 1997
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<PAGE> 21
APPENDIX A
VIRCO MFG. CORPORATION
1997 STOCK INCENTIVE PLAN
Section 1. PURPOSE OF PLAN
The purpose of this 1997 Stock Incentive Plan ("Plan")
of Virco Mfg. Corporation, a Delaware corporation (the "Company"), is to enable
the Company and its subsidiaries to attract, retain and motivate their employees
by providing for or increasing the proprietary interests of such employees in
the Company, and to enable the Company to attract, retain and motivate its
non-employee directors and further align their interest with those of the
shareholders of the Company by providing for or increasing the proprietary
interest of such directors in the Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Any person who is an employee or director of the Company
or any of its subsidiaries or affiliates (an "Eligible Person") shall be
eligible to be considered for the grant of Awards (as hereinafter defined)
hereunder.
Section 3. AWARDS
(a) The Committee (as hereinafter defined), on behalf of
the Company, is authorized under this Plan to enter into any type of arrangement
with an Eligible Person that is not inconsistent with the provisions of this
Plan and that, by its terms, involves or might involve the issuance of (i)
shares of Common Stock, par value $0.01 per share, of the Company or of any
other class of security of the Company that is convertible into shares of the
Company's Common Stock ("Shares") or (ii) a right or interest with an exercise
or conversion privilege at a price related to the Shares or with a value derived
from the value of the Shares, which right or interest may, but need not,
constitute a "Derivative Security," as such term is defined in Rule 16a-1
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as such Rule may be amended from time to time. The entering into of any
such arrangement is referred to herein as the "grant" of an "Award."
(b) Awards are not restricted to any specified form or
structure and may include, without limitation, sales or bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares, and an
Award may consist of one such security or benefit, or two or more of them in
tandem or in the alternative. The terms upon which an Award is granted shall be
evidenced by a written agreement executed by the Company and the Eligible Person
to whom such Award is granted.
(c) Subject to paragraph (d)(ii) below, Awards may be
issued, and Shares may be issued pursuant to an Award, for any lawful
consideration as determined by the Committee, including, without limitation,
services rendered by the Eligible Person.
(d) Subject to the provisions of this Plan, the
Committee, in its sole and absolute discretion, shall determine all of the terms
and conditions of each Award granted under this Plan, which terms and conditions
may (but need not) include, among other things:
(i) provisions permitting the Committee to
allow or require the recipient of such Award, including any Eligible
Person who is a director or officer of the Company, or permitting any
such recipient the right, to pay the purchase price of the Shares or
other property issuable pursuant to such Award, and/or such recipient's
tax withholding obligation with respect to such issuance, in whole or in
part, by any one or more of the following means:
(A) the delivery of cash;
A-1
<PAGE> 22
(B) the delivery of other property deemed
acceptable by the Committee;
(C) the delivery of previously owned
shares of capital stock of the Company (including "pyramiding") or other
property;
(D) a reduction in the amount of Shares or
other property otherwise issuable pursuant to such Award; or
(E) the delivery of a promissory note of
the Eligible Person or of a third party, the terms and conditions of
which shall be determined by the Committee;
(ii) provisions specifying the exercise or
settlement price for any option, stock appreciation right or similar
Award, or specifying the method by which such price is determined,
provided that the exercise or settlement price per Share of any option,
stock appreciation right or similar Award that is intended to qualify as
"performance-based compensation" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") shall be not less
than the fair market value of a Share on the date such Award is granted;
(iii) provisions relating to the
exercisability and/or vesting of Awards, lapse and non-lapse
restrictions upon the Shares obtained or obtainable under Awards or
under the Plan and the termination, expiration and/or forfeiture of
Awards;
(iv) provisions conditioning or accelerating
the grant of an Award or the receipt of benefits pursuant to such Award,
either automatically or in the discretion of the Committee, upon the
occurrence of specified events, including, without limitation, the
achievement of performance goals, the exercise or settlement of a
previous Award, the satisfaction of an event or condition within the
control of the recipient of the Award or within the control of others, a
change of control of the Company, an acquisition of a specified
percentage of the voting power of the Company, the dissolution or
liquidation of the Company, a sale of substantially all of the property
and assets of the Company or an event of the type described in Section 7
hereof;
(v) provisions required in order for such
Award to qualify (A) as an incentive stock option under Section 422 of
the Code (an "Incentive Stock Option"), (B) as "performance based
compensation" under Section 162(m) of the Code, and/or (C) for an
exemption from Section 16 of the Exchange Act; and/or
(vi) provisions restricting the
transferability of Awards or Shares issued under Awards.
(e) Unless otherwise provided by the Committee in the
written agreement evidencing an Award, the terms of any stock option granted
under the Plan shall provide:
(i) that the exercise price thereof shall not
be less than 100% of the market value of a share of Common Stock on the
date the option is granted;
(ii) that the term of such option shall be ten
years from the date of grant;
(iii) that if the Eligible Person to whom such
option was granted (the "Participant") ceases to be an Eligible Person
for any reason other than death or disability, the option shall not
thereafter become exercisable to an extent more favorable than it could
have been exercised on the date the Participant's status as an Eligible
Person ceased, and that on the death or disability of a Participant the
option shall become fully exercisable;
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(iv) that the option shall expire thirty (30)
days after the Participant ceases to be an Eligible Person for any
reason other than death or disability and shall expire three (3) months
after the Participant's death or disability; and
(v) that the option shall not be assignable or
otherwise transferable except by will or by the laws of descent and
distribution or pursuant to a domestic relations order, and during the
lifetime of the Participant, the option shall be exercisable only by the
Participant or the transferee under a domestic relations order.
(f) The Committee may establish the performance criteria
and level of achievement versus these criteria that shall determine the target
and maximum amount payable under an Award, which criteria may be based on
financial performance and/or personal performance evaluations. Notwithstanding
anything to the contrary herein, the performance criteria for any Award that is
intended by the Committee to satisfy the requirements for "performance-based
compensation" under Code Section 162(m) shall be a measure based on one or more
Qualifying Performance Criteria (as defined below) selected by the Committee and
specified no later than 90 days after the commencement of the period of service
to which the Qualifying Performance Criteria relates or the time the Award is
granted. The Committee shall certify the extent to which any Qualifying
Performance Criteria have been satisfied prior to payment or settlement of any
Award that is intended by the Committee to satisfy the requirements for
"performance-based compensation" under Code Section 162(m). For purposes of this
Plan, the term "Qualifying Performance Criteria" shall mean any one or more of
the following performance criteria, either individually, alternatively or in any
combination, applied to either the Company as a whole or to a business unit or
subsidiary, either individually, alternatively or in any combination, and
measured either on an absolute basis or relative to a pre-established target, to
previous years' results or to a designated comparison group, in each case as
specified by the Committee in the Award: (i) cash flow, (ii) earnings per share
(including earnings before interest, taxes and amortization), (iii) return on
equity, (iv) total stockholder return, (v) return on capital, (vi) return on
assets or net assets, (vii) revenue, (viii) income or net income, (ix) operating
income or net operating income, (x) operating profit or net operating profit,
(xi) operating margin, (xii) return on operating revenue, and (xiii) market
share.
Section 4. STOCK SUBJECT TO PLAN
(a) Subject to adjustment as provided in Section 7
hereof, at any time, the aggregate number of Shares issued and issuable pursuant
to all Awards (including all Incentive Stock Options) granted under this Plan
shall not exceed 300,000. Such maximum number does not include the number of
Shares subject to the unexercised portion of any Incentive Stock Option granted
under this Plan that expires or is terminated.
(b) Subject to adjustment as provided in Section 7
hereof, the aggregate number of Shares subject to Awards granted during any
calendar year to any one Eligible Person (including the number of shares
involved in Awards having a value derived from the value of Shares) shall not
exceed 150,000.
(c) The aggregate number of Shares issued under this
Plan at any time shall equal only the number of shares actually issued upon
exercise or settlement of an Award and not settled in cash or returned to the
Company upon forfeiture of an Award or in payment or satisfaction of the
purchase price, exercise price or tax withholding obligation of an Award.
Section 5. NATURE AND DURATION OF PLAN
(a) This Plan is intended to constitute an unfunded
arrangement for a select group of management or other key employees.
(b) No Awards shall be made under this Plan after the
tenth anniversary of the Effective Date of the Plan (as provided in Section 9).
Although Shares may be issued after the tenth anniversary of the Effective Date
pursuant to Awards made prior to such date, no Shares shall be issued under this
Plan after the twentieth anniversary of the Effective Date.
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Section 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by one or more
committees (any such committee, the "Committee") of the Board of Directors (the
"Board"). If no persons are designated by the Board to serve on the Committee,
the Plan shall be administered by the Board and all references herein to the
Committee shall refer to the Board. The Board shall have the discretion to
appoint, add, remove or replace members of the Committee, and shall have the
sole authority to fill vacancies on the Committee. Unless otherwise provided by
the Board: (i) with respect to any Award for which such is necessary and desired
for such Award to be exempted by Rule 16b-3 of the Exchange Act, the Committee
shall consist of the Board of Directors or of two or more directors each of whom
is a "non-employee director" (as such term is defined in Rule 16b-3 promulgated
under the Exchange Act, as such Rule may be amended from time to time), (ii)
with respect to any Award that is intended to qualify as "performance based
compensation" under Section 162(m) of the Code, the Committee shall consist of
two or more directors, each of whom is an "outside director" (as such term is
defined under Section 162(m) of the Code), and (iii) with respect to any other
Award, the Committee shall consist of one or more directors (any of whom also
may be an employee who has been granted or is eligible to be granted Awards
under the Plan).
(b) Subject to the provisions of this Plan, the
Committee shall be authorized and empowered to do all things necessary or
desirable in connection with the administration of this Plan with respect to the
Awards over which such Committee has authority, including, without limitation,
the following:
(i) adopt, amend and rescind rules and
regulations relating to this Plan;
(ii) determine which persons are Eligible
Persons and to which of such Eligible Persons, if any, and when Awards
shall be granted hereunder;
(iii) grant Awards to Eligible Persons and
determine the terms and conditions thereof, including the number of
Shares subject thereto and the circumstances under which Awards become
exercisable or vested or are forfeited or expire, which terms may but
need not be conditioned upon the passage of time, continued employment,
the satisfaction of performance criteria, the occurrence of certain
events (including events that the Board or the Committee determine
constitute a change of control), or other factors;
(iv) at any time cancel an Award, with or
without the consent of the holder thereof, and grant a new Award to such
holder in lieu thereof, which new Award may be the same or a different
type of Award, may be for a greater or lesser number of Shares, may have
a higher or lower exercise or settlement price and otherwise may have
similar or dissimilar terms to the canceled Award;
(v) determine whether, and the extent to which
adjustments are required pursuant to Section 7 hereof; and
(vi) interpret and construe any terms and
conditions of, and define any terms used in, this Plan, any rules and
regulations under the Plan and/or any Award granted under this Plan.
All decisions, determinations, and interpretations of the Committee shall be
final and conclusive upon any Eligible Person to whom an Award has been granted
and to any other person holding an Award.
(c) The Committee may, in the terms of an Award or
otherwise, temporarily suspend the exercisability of an Award and/or the
issuance of Shares under an Award if the Committee determines that securities
law or other considerations so warrant.
Section 7. ADJUSTMENTS
If the outstanding securities of the class then subject
to this Plan are increased, decreased or exchanged for or converted into cash,
property or a different number or kind of shares or securities, or if cash,
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property or shares or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, dividend
(other than a regular, quarterly cash dividend) or other distribution, stock
split, reverse stock split, spin-off or the like, or if substantially all of the
property and assets of the Company are sold, then, unless the terms of such
transaction shall provide otherwise, the Committee shall make appropriate and
proportionate adjustments in (a) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Incentive
Stock Options and other Awards theretofore granted under this Plan, (b) the
maximum number and type of shares or other securities that may be issued
pursuant to Incentive Stock Options and other Awards thereafter granted under
this Plan and (c) the maximum number of Common Shares for which options may be
granted during any one calendar year; provided, however, that no adjustment
shall be made to the number of Common Shares that may be acquired pursuant to
outstanding Incentive Stock Options or the maximum number of Common Shares with
respect to which Incentive Stock Options may be granted under this Plan to the
extent such adjustment would result in such options being treated as other than
Incentive Stock Options; provided, further, that no such adjustment shall be
made to the extent the Committee determines that such adjustment would result in
the disallowance of a federal income tax deduction for compensation attributable
to Awards hereunder by causing such compensation to be other than
performance-based compensation (as defined under Section 162(m) of the Code).
Section 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend, alter or discontinue the Plan or
any agreement evidencing an Award made under the Plan, but no amendment or
alteration shall be made that would impair the rights of any Award holder,
without such holder's consent, under any Award theretofore granted, provided
that no such consent shall be required if the Committee determines in its sole
discretion and prior to the date of any change of control (as defined, if
applicable, in the agreement evidencing such Award) that such amendment or
alteration is not reasonably likely to significantly diminish the benefits
provided under such Award, or that any such diminishment has been adequately
compensated. The Committee may determine whether or not any amendment to a
previously granted Award is, for purposes of the Plan, deemed to be a
cancellation and new grant of the Award. Notwithstanding the foregoing, if an
amendment to the Plan would affect the ability of Awards granted under the Plan
to comply with any law, rule or regulation (including any rule of a
self-regulatory organization), and if the Committee determines that it is
necessary or desirable for any Awards theretofore or thereafter granted that are
intended to comply with any such provision to so comply, the amendment shall be
approved by the Company's stockholders to the extent required for such Awards to
continue to comply with such law, rule or regulation.
Section 9. EFFECTIVE DATE OF PLAN
The Effective Date of this Plan shall be the date upon
which it was approved by the Board, provided, however, that no Shares may
be issued or sold under this Plan until it has been approved by the affirmative
votes of the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at the Company's annual meeting of
stockholders in accordance with the laws of the State of Delaware.
Section 10. COMPLIANCE WITH OTHER LAWS AND REGULATIONS
The Plan, the grant and exercise of Awards thereunder,
and the obligation of the Company to sell and deliver shares under such
Awards, shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any governmental or regulatory agency as
may be required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification of such shares under any federal or state law or
issuance of any ruling or regulation of any government body that the Company
shall, in its sole discretion, determine to be necessary or advisable.
Section 11. NO RIGHT TO COMPANY EMPLOYMENT
Nothing in this Plan or as a result of any Award granted
pursuant to this Plan shall confer on any individual any right to continue
in the employ of the Company or interfere in any way with the right of the
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<PAGE> 26
Company to terminate an individual's employment at any time. The agreement
evidencing an Award may contain such provisions as the Committee may approve
with respect to the effect of approved leaves of absence.
Section 12. LIABILITY OF COMPANY
The Company and any affiliate that is in existence or
hereafter comes into existence shall not be liable to an Eligible Person or
other persons as to:
(a) The Non-Issuance of Shares. The non-issuance or sale
of shares as to which the Company has been unable to obtain from any regulatory
body having jurisdiction the authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any shares hereunder; and
(b) Tax Consequences. Any tax consequence expected, but
not realized, by any Eligible Person or other person due to the issuance,
exercise, settlement, cancellation or other transaction involving any Award
granted hereunder.
Section 13. GOVERNING LAW
This Plan and any Awards and agreements hereunder shall
be interpreted and construed in accordance with the laws of the State of
Delaware and applicable federal law.
Section 14. FAIR MARKET VALUE
For purposes of this Plan, unless provided otherwise in
the grant of such Award, "Fair Market Value" shall mean the fair market
value of the Shares. If the Shares are not publicly traded, fair market value
shall be determined by the Board or the Committee and may be computed by any
method which the Board or the Committee in good faith believes will reflect the
fair market value of the Shares on the date of such determination. If the Shares
are publicly traded, fair market value shall be the closing sale price per
Share, if the Shares are listed on a national securities exchange or on the
NASDAQ National Market, or if the Shares are not then so listed, the closing bid
price per Share, on the day in question (or, if such day is not a trading day or
if no sales of Shares were made on such day, on the nearest preceding trading
day on which sales of Shares were made), as reported in The Wall Street Journal,
or, if trading in the Shares is not then reported in The Wall Street Journal, at
such closing sale or bid price as may then appear in what the Board or the
Committee in its judgment then deems to be the most nearly comparable listing or
reporting service.
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PROXY PROXY
VIRCO MFG. CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 17, 1997
The undersigned hereby appoints ROBERT A. VIRTUE, DOUGLAS A. VIRTUE and
JAMES R. BRAAM, and each of them, with full power of substitution in each, as
proxies of the undersigned to attend and vote, as designated on the reverse
side, all shares of Virco Mfg. Corporation, a Delaware corporation (the
"Company"), which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders to be held June 17, 1997 and any adjournment or postponement
thereof:
Please date, sign on reverse side and return in accompanying envelope.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 28
<TABLE>
<CAPTION>
1. Election of Directors: Donald A. Patrick, Raymond W. Virtue and Robert A. Virtus
<S> <C> <C>
FOR
All nominees WITHHOLD
listed (except AUTHORITY (INSTRUCTION: To withhold authority to vote for any
as marked) to vote for all individual nominee, write nominee's name on the space
to the contrary nominees listed provided below)
[ ] [ ] WITHHOLD
AUTHORITY
FOR to vote for
1997 Stock 1997 Stock
Incentive Plan Incentive Plan ------------------------------------------------------
2. Approval of adoption of the Virco Mfg. [ ] [ ]
Corporation 1997 Stock Incentive Plan:
3. In their discretion, the Proxies are ANY PREVIOUS PROXY EXECUTED BY THE
authorized to vote upon such other UNDERSIGNED IS HERE BY REVOKED
business as may properly come before
the meeting. Receipt of the notice of the meeting,
the proxy statement and the annual
report of the Company for the year
ended January 31, 1997, is hereby
acknowledged.
THIS PROXY WILL BE VOTED AS DIRECTED
ABOVE. IN THE ABSENCE OF ANY
DIRECTION, THIS PROXY WILL BE VOTED
FOR THE ELECTION AS DIRECTORS OF ALL
OF THE NOMINEES NAMED, AND IN THE
DISCRETION OF THE PROXIES ON SUCH
OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING.
</TABLE>
Signatures(s) Date , 1997
---------------------------------------------- ---------
Note: Please sign exactly as addressed hereon. If the stock is jointly held
each owner must sign. Executor, administrators, trustees, guardians and
attorneys should so indicate when signing. Attorneys should submit powers of
attorney.
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FOLD AND DETACH HERE
