SCAN-GRAPHICS, INC.
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 25, 1997
To the Shareholders of
Scan-Graphics, Inc.
The Annual Meeting of Shareholders of Scan-Graphics, Inc. (the "Company")
will be held at The Wings Club, 52 Vanderbilt Avenue, 18th Floor, New York, New
York, on June 25, 1997 at 11:00 A.M. (Local Time), for the following purposes:
1. To elect 7 directors to serve for the ensuing year;
2. To approve the adoption of amendments to the 1992 Long-Term
Incentive Plan; and
3. To ratify the appointment of BDO Seidman, LLP as independent
auditors of the Company for the current year; and
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
Only shareholders of record on April 30, 1997 are entitled to notice of and
to vote at the meeting.
By Order of the Board of Directors
MICHAEL A. MULSHINE
Secretary
May 23, 1997
YOU ARE CORDIALLY INVITED AND URGED TO ATTEND THE ANNUAL MEETING IN PERSON.
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR
PROXY ON THE ENCLOSED CARD WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON.
SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON
IF THEY DESIRE.
<PAGE>
Scan-Graphics, Inc.
700 Abbott Drive
Broomall, Pennsylvania 19008-4373
Telephone (215) 328-1040
PROXY STATEMENT
This Proxy Statement, the foregoing notice and the enclosed proxy are being
sent to shareholders on or about May 23, 1997, in connection with the
solicitation of proxies for use by the Board of Directors of Scan-Graphics, Inc.
(the "Company"), Broomall, Pennsylvania, at the Annual Meeting of Shareholders
of the Company (the "Meeting") which will be held at The Wings Club, 52
Vanderbilt Avenue, 18th Floor, New York, New York, on, June 25, 1997 at 11:00
A.M. (Local Time), for the purposes set forth in the foregoing Notice of Annual
Meeting, and any adjournment or postponement thereof.
Record Date and Outstanding Stock
The record date for determining those shareholders entitled to vote at the
Annual Meeting was April 30, 1997. At that date, the Company had outstanding,
500,000 shares of Class A Convertible Preferred Stock Series A, par value $2.00
per share ("Class A Series A Stock"), 125,000 shares of Class A Convertible
Preferred Stock Series C, par value $10.00 per share ("Class A Series C Stock"),
and 15,702,387 shares of Common Stock, par value $0.001 per share ("Common
Stock").
Proxies
Solicitation. Solicitation of proxies is being made by management at the
direction of the Company's Board of Directors, without additional compensation,
through the mail, in person or by telegraph or telephone. The cost will be borne
by the Company. In addition, the Company will request brokers and other
custodians, nominees and fiduciaries to forward proxy soliciting material to the
beneficial owners of shares held of record by such persons, and the Company will
reimburse them for their expenses in so doing.
Revocation. The execution of a proxy does not affect the right to vote in
person at the meeting, and a proxy may be revoked by the person giving it prior
to the exercise of the powers conferred by it. A shareholder may revoke a proxy
by communicating in writing to the Secretary of the Company at the address
indicated above or by executing and delivering a proxy bearing a later date. In
addition, persons attending the meeting in person may withdraw their proxies.
Unless proxy is revoked or withdrawn, the shares represented thereby will be
voted or the votes withheld at the Annual Meeting or at any adjournments thereof
in the manner described in this Proxy Statement.
Signatures in Certain Cases. If a shareholder is a Corporation, the
enclosed proxy should be signed in its corporate name by an authorized officer
and his or her title should be indicated. If stock is registered in the name of
two or more trustees or other persons, the proxy must be signed by a majority of
them. If stock is registered in the name of a decedent, the proxy should be
signed by an executor or administrator, and his or her title as such should
follow the signature.
Quorum and Voting
The presence, in person or by proxy, of shareholders entitled to cast a
majority of the votes which all shareholders are entitled to cast on each matter
to be voted upon at the meeting is necessary for a quorum. The favorable vote of
a majority of the votes cast at the Meeting by the Class A Series A Stock, Class
A Series C Stock and the Common Stock, voting as a single class, is required for
approval for all business which will come before the meeting except for the
election of directors, who will be elected by at least a plurality of the votes
cast at the election.
1
<PAGE>
Under the Pennsylvania Business Corporation Law, if a shareholder
(including a nominee, broker or other record owner) either records the fact of
abstention, in person or by proxy, or fails to vote in person and does not
return a duly executed Proxy Card, such action would not be considered a "vote
cast," and would have no effect on the outcome of the vote with respect to
voting matters. If a shareholder returns a duly executed Proxy Card but has made
no specifications with respect to voting matters, the persons named as proxy
agents intend (unless instructed otherwise by the shareholder) to vote for each
of the nominees for director named in this Proxy Statement, for the adoption of
the amendments to the 1992 Long-Term Incentive Plan, for the ratification of BDO
Seidman LLP as independent auditors of the Company for the current year, and to
use their discretion in any other matters that may properly come before the
Meeting.
Holders of Class A Series A Stock and Common Stock of record at the close
of Business on April 30, 1997, will be entitled to one vote per share, and the
holders of Class A Series C Stock of record at the close of Business on April
30, 1997 will be entitled to 20 votes per share, on all business of the meeting.
Shareholders do not have the right to cumulate their votes for the election of
directors.
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth information regarding the ownership of the
Company's voting securities on April 30, 1997, assuming conversion of Class A
Series A Stock into one share of Common Stock, assuming conversion of Class A
Series C Stock, into 20 shares of Common Stock and including options and
warrants by (i) each person known by the Company to be the beneficial owner of
more than five percent of any class of its voting securities, (ii) each Director
and Executive Officer, and (iii) all Directors and Executive Officers as a
group. Percentages less than 1% are not shown.
Amount & Nature of Percentage of
Beneficial Owner Beneficial Ownership Outstanding Shares
- ---------------- -------------------- ------------------
Andrew E. Trolio 3,106,500 (1) 16.24%
Laurence L. Osterwise 100,000 --
William C. Hubbard 199,000 1.05%
Michael A. Mulshine 772,407 (3) 4.02%
David S. Hirsch 253,067 (2) 1.35%
James C. Sargent 135,067 (4) --
R. Barry Borden 31,780 --
Jack A. Pellicci 12,260 --
All Directors and
Executive Officers
as a group (8 persons) 4,610,082 23.00%
(1) Includes 377,500 shares of Common Stock held by Mr. Trolio's wife, as to
all of which shares Mr. Trolio disclaims beneficial ownership. Includes
500,000 shares of Class A Series A Stock owned by Mr. Trolio, representing
100% of such shares outstanding. Includes 400,000 shares issuable upon
conversion of Class A Series C Stock.
(2) Includes 50,000 shares of issuable upon conversion of Class A Series C
Stock.
(3) Includes 17,930 shares of Common Stock held jointly by Mr. Mulshine and his
wife. Includes 10,000 shares issuable upon conversion of Class A Series C
Stock.
(4) Includes 20,000 shares of issuable upon conversion of Class A Series C
Stock.
2
<PAGE>
The foregoing table also includes shares which the following directors and
executive officers have the right to acquire within sixty days upon the exercise
of options and warrants: Mr. L. L. Osterwise, 100,000 options; Mr. A. E. Trolio,
329,000 options, 100,000 warrants; Mr. Hubbard, 15,000 options, 81,000 warrants;
Mr. Borden, 31,780 options; Mr. Hirsch 27,845 options; Mr. Mulshine, 27,845
options, 497,333 warrants; Mr. Pellicci, 12,260 options; Mr. Sargent, 85,067
options. The information contained in the following table is included in the
preceding beneficial ownership table where applicable.
The following table presents information provided to the Company as to the
beneficial ownership of the Company's Class A Series A Stock as of April 30,
1997.
Amount & Nature of Percentage of
Beneficial Owner Beneficial Ownership Outstanding Shares
- ---------------- -------------------- ------------------
Andrew E. Trolio (1) 500,000 100.00
(1) Includes 220,000 shares owned by Lin-Lea Corporation, a company owned by
Andrew E. Trolio.
The following table presents information provided to the Company as to
the beneficial ownership of the Company's Class A Series C Stock as of April 30,
1997.
Amount & Nature of Percentage of
Beneficial Owner Beneficial Ownership Outstanding Shares
- ---------------- -------------------- ------------------
Andrew E. Trolio 20,000 16.00
Howard L. Morgan 1,000 .80
James C. Sargent 1,000 .80
David S. Hirsch 2,500 2.00
Michael A. Mulshine 500 .40
William W. & Sheryl S. Rider 4,000 3.20
David Green 4,000 3.20
George Hooper 5,000 4.00
Thomas Marquez 30,000 24.00
Richard N. Mercurio, Trustee 10,000 8.00
Marquez Family Trust
Richard N. Mercurio, Trustee 10,000 8.00
Meredith Ann Marquez,
Present Interest Trust
Paul Becker 1,000 .80
William Ritger 6,000 4.80
John Strauss 30,000 24.00
-------- -------
125,000 100.00
3
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
At the Meeting, the Shareholders will elect seven directors, each to
hold office until the 1998 Annual Meeting of Shareholders and until a successor
has been elected and qualified.
The Board of Directors has nominated for election the seven persons
designated below as the Company's directors. All nominees have consented to be
named and to serve if elected. If a nominee, at the time of his election, is
unable or unwilling to serve, and as a result another nominee is designated, the
persons named in the enclosed proxy or their substitute will have discretionary
authority to vote or to refrain from voting for the other nominee in accordance
with their judgment. Unless contrary instructions are given, the shares
represented by the enclosed proxy will be voted "FOR" the election of Andrew E.
Trolio, Laurence L. Osterwise, Michael A. Mulshine, R. Barry Borden, David S.
Hirsch, Jack A. Pellicci and James C. Sargent.
The Board of Directors recommends
a vote FOR each of the nominees for director.
NOMINEES
<TABLE>
<CAPTION>
Position
Name Age Since Position with the Company
- ---- --- ----- -------------------------
<S> <C> <C> <C>
Andrew E. Trolio 67 1972 Chairman of the Board and Director (2)
Laurence L. Osterwise 49 1996 Chief Executive Officer and Director
Michael A. Mulshine 57 1985 Secretary and Director(2)
R. Barry Borden 57 1996 Director (1) (2)
David S. Hirsch 61 1992 Director (1)(2)
Jack A. Pellicci 49 1996 Director
James C. Sargent 79 1992 Director
</TABLE>
(1) Member of the Company's Compensation Committee.
(2) Member of the Company's Audit Committee. Directors Borden, Hirsch and
Mulshine were appointed as members of the Audit Committee by resolution of
the Board of Directors on April 23, 1997.
Background
The business experience, principal occupation and employment of the
nominees have been as follows:
Andrew E. Trolio is Chairman of the Board and a Director of the Company. He
founded the Company in 1972. From 1961 to 1971 he was President, Director and
Founder of KDI Adtrol, Inc., a company which manufactured photo-optical
recording and reading devices for motion picture cameras. He is also credited
with several patents as inventor or co-inventor. Mr. Trolio is a Trustee
Emeritus of Cabrini College. Mr. Trolio has served as Chairman of the Finance
and Audit Committee and is currently a Fellow of the International Society of
Optical Engineers. Mr. Trolio received an Honorary Doctor of Science degree from
Cabrini College in 1997.
Laurence L. Osterwise was appointed Chief Executive Officer, President and
a Director of the Company by action of the Board of Directors on April 23, 1997.
Mr. Osterwise began his employment with the Company on November 1, 1996, as its
Chief Operating Officer and President of Sedona GeoServices, Inc., a subsidiary.
He was most recently President of the $1.5+ billion Communications Division of
General Instruments Corporation. Prior to joining General Instruments
Corporation, Mr. Osterwise spent 25 years with IBM Corporation, where he held
positions as President of Production Industries, U.S. Vice President and
Corporate Director of Market Driven Quality, and IBM Rochester General Manager
and Director of Application Business Systems. Under his leadership, IBM
Rochester was awarded the Malcomb Baldridge National Quality Award. Mr.
Osterwise received a BS in Mathematics from Duke University in 1969 and a MS in
Computer Sciences from Syracuse University in 1973.
4
<PAGE>
Michael A. Mulshine has been a Director and Secretary of the Company since
May 1985 and has been associated with the Company on a management consulting
basis since 1979. He has been the President of Osprey Partners, a management
consulting firm, since 1977. In addition, he is a Director of Environmental
Tectonics Corporation, an AMEX traded company, and a Director of Vasco Corp., an
OTC traded company. Mr. Mulshine received a BSEE degree from the Newark College
of Engineering in 1961.
R. Barry Borden, a Director of the Company since June 1996, has founded and
managed businesses in the computer hardware and software industry for the past
30 years. During 1996, he served as Chairman and CEO of Mergent International, a
supplier of software for data security on PC Desktops and enterprise wide
networks. Since 1984, Mr. Borden has been President of LMA Group Inc., a general
management consulting firm. From 1968 to 1980, Mr. Borden was the founder,
President and CEO of Delta Data Systems, a CRT Terminal manufacturer, and from
1981 to 1984 he was the founder, Chairman and CEO of Franklin Computer Corp., a
manufacturer of microcomputers. In 1989 he served as President and CEO of
Cricket Software, Inc., a supplier of graphics software. Mr. Borden received a
BSEE degree from the University of Pennsylvania in 1961.
David S. Hirsch, a Director of the Company since January 1992, retired in
1991 from Schroder Wertheim & Co., Incorporated and its predecessor firms where
he was a principal. Mr. Hirsch is a director of Numar Corporation and he also
serves as a Trustee of the Jewish Museum and the Orchestra of St. Luke's. He
received a BA degree from Cornell University in 1957 and a MBA degree from
Harvard University in 1959.
Jack A. Pellicci, a Director of the Company since October 1996, is Oracle
Corporation's Vice President of Strategy, Solutions and Marketing. Mr. Pellicci,
a retired Brigadier General and graduate of the U.S. Military Academy at West
Point, joined Oracle in 1992 after 30 years in the U.S. Army, where he was the
Commanding General of the Personnel Information Systems Command. Mr. Pellicci is
a member of the Board of Directors of the Open GIS Consortium (OGC), an
organization of over 70 commercial, governmental, and educational entities
dedicated to open systems approaches to geoprocessing. He is the Vice Chairman
of the High Performance Computing and Communications Consortium (HPCCC). In
addition, he serves as Co-Chairman of the Armed Forces Communications and
Electronics Association (AFCEA) International Technical Committee and is on the
Board of Directors of AFCEA's Washington, DC Chapter.
James C. Sargent, a Director of the Company since January 1992, is Counsel
to the law firm of Opton, Handler, Gottleib, Feiler & Katz. He was previously a
partner and counsel to Whitman & Ransom. He was Regional Administrator of the
New York Office of the Securities and Exchange Commission from 1955 to 1956, and
Commissioner of the New York Regional Office of the Securities and Exchange
Commission from 1956 to 1960.
Board and Committee Meetings
The Board of Directors held six meetings in 1996. During 1996 each
incumbent director attended at least 75% of the aggregate of (1) the total
number of meetings of the Board during the period for which such incumbent was a
director, and (2) the total number of meetings held by all committees on which
such incumbent served.
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee is responsible for developing and executing plans for
the compensation of the executive officers, including the CEO of the Company.
Additionally, the Compensation Committee administers the Scan-Graphics, Inc.
1992 Long-Term Incentive Plan, including the determination, subject to the plan
provisions, of the individuals eligible to receive awards, the individuals to
whom awards should be granted, the nature of the awards to be granted, the
number of awards to be granted, and the exercise price, vesting schedule and
term and all other conditions and terms of the awards to be granted. This
committee met six times during 1996. The Audit Committee meets with the
Company's independent certified public accountants to review the scope and
results of auditing procedures and the Company's accounting procedures and
controls. This committee met four times during 1996.
5
<PAGE>
Compensation of Directors
Directors who are not employees of the Company are eligible under the
Scan-Graphics, Inc. 1992 Long-Term Incentive Plan (the "Plan") to receive annual
grants of options on the first business day of January. The size of the annual
grant is determined by dividing $50,000 by the fair market value of a share of
Common Stock on the date of the option grant. Fair market value is the mean of
the highest and lowest quoted bid prices of the Common Stock as furnished by the
National Association of Security Dealers, Inc. Automated Quotation ("NASDAQ")
System. The maximum number of options granted in any one year to a Director
under the plan is 25,000. The non-employee directors were issued the following
option grants in January 1997 for service to the board in 1996: Messrs. Hirsch,
Mulshine and Sargent, 13,559 shares; Mr. Borden, 6,780 shares; Mr. Pellicci,
2,260 shares.
The Board of Directors has recommended adoption of certain amendments to
the 1992 Long-Term Incentive Plan. If the amended Plan is approved, the method
of determination of option grants to non-employee directors will change to the
following: on the first business day of January 1998 and on the first business
day of January in each succeeding year, each non-employee director of the
Company shall receive as compensation for service to the board, a grant of an
option to purchase the Common Stock of the Company, at the then current Fair
Market Value as determined in accordance with the Plan, as follows: a 15,000
share option grant for service to the board during the preceding year; plus, a
2,500 share option grant for serving as the Chairman of the Board or a Committee
of the Board of Directors during the preceding year. However, if an Eligible
Director shall become eligible for an option grant after the first regularly
scheduled meeting of the board during any calendar year, the Compensation
Committee shall determine the size of such option grant by multiplying 15,000
shares (and/or 2,500 shares) by a fraction which is determined by dividing the
number of regularly scheduled board meetings remaining in the calendar year by
six.
In addition, any new director who is elected to the board after this
amended Plan is approved, will be granted a 25,000 share option to purchase the
Common Stock of the Company, at the then current Fair Market Value as determined
in accordance with the Plan. The shares underlying this option will vest at the
rate of 5,000 shares per year for five years, on the anniversary date of his
election to the board.
Further, subject to approval of the amended Plan, on or before January 31,
1998 and on or before January 31 in each succeeding year, each non-employee
director will receive an annual retainer of $5,000 as cash compensation for his
services as a director for the preceding year. Also, upon approval of the
amended Plan, each non-employee director will receive $500 for each attendance
at board and committee meetings, with multiple meetings held on the same day to
count as one. These amounts shall be subject to annual review and possible
adjustment at the discretion of the Board of Directors.
For more detailed discussion of this item see "APPROVAL OF ADOPTION OF
AMENDMENTS TO THE 1992 LONG-TERM PLAN."
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation
The following table provides information concerning the annual and
long-term compensation of the chief executive officer and each other executive
officer of the Company for services rendered in all capacities during fiscal
years 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation (1)(2)
------------------- ------------ -------------------
Stock Option/
Name and Bonus/ Warrant
Principal Position Year Salary Commission Awards (Shares)
- ------------------ ---- ------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Andrew E. Trolio 1996 $188,500 74,000 $32,040
Chairman of the Board 1995 $115,284 55,000 $ 8,445
1994 $ 90,000 150,000 $ 3,650
Laurence L. Osterwise 1996 $ 28,385 300,000 $ --
Chief Executive Officer
and President
William C. Hubbard 1996 $ 70,000 $25,157 65,000 $ --
Executive 1995 $ 40,923 144,000 $ --
Vice President 1994 $ -- -- $ --
Michael A. Mulshine 1996 $ (3) 404,286 $ --
Corporate Secretary 1995 $ -- 75,000 $ --
1994 $ -- 60,000 $ --
</TABLE>
- -------------------
(1) In fiscal year 1996, no executive officer other than Mr. Trolio received
perquisites or other personal benefits, securities or property which
exceeded the lesser of $50,000 or 10% of such executive officer's salary
and bonus.
(2) The amounts disclosed in this column represent premiums paid by the Company
for an insurance annuity. As of December 31, 1996, this insurance policy
had a cash surrender value of $24,479 to Mr. Trolio.
(3) See "Certain Relationships and Related Transactions" for a summary of
consulting fees.
Certain Employment Agreements
On January 1, 1991, the Company entered into an Employment Agreement with
Andrew E. Trolio, who until April 23, 1997, was President, Chief Executive
Officer and Chairman of the Board of the Company (the "Chairman Agreement"), and
who is currently the Chairman of the Board of Directors. The Chairman Agreement
has a term of three years and continues thereafter on a year-to-year basis.
Compensation during this period will be $150,000 as a base annual salary plus
additional compensation as directed by the Board of Directors. In the event of
termination of employment, The Company is obligated to retain Mr. Trolio as a
part time consultant at the rate of 40% of the annual compensation at the time
of termination. The term of the part time consultant arrangement will be equal
to one-half the number of years the employee has served as a full time employee.
In the event of a change in control of the Company, and/or in the event of
termination, the Company is obligated to pay Mr. Trolio an immediate lump sum
severance payment equal to two year's annual salary and deferred compensation,
if any. In addition, upon termination of employment by the Company, the Company
will, if Mr. Trolio desires, purchase all outstanding options and warrants
previously granted to him at a cash purchase price equal to the amount of the
aggregate fair market value of the shares, less the aggregate exercise price for
such shares. If such termination had occurred on December 31, 1996, the Company
would
7
<PAGE>
have been obligated to pay Mr. Trolio $1,330,594. The termination
remuneration described above is not payable in the event of termination for
cause.
On November 1, 1996, the Company entered into an Employment Agreement with
Laurence L. Osterwise, its Chief Executive Officer and President (the "CEO
Agreement"). The CEO Agreement has a term of three years and two months and
continues thereafter on a year-to-year basis. Compensation during this period
will be $180,000 through December 31, 1997, $225,000 through December 31, 1998,
and $250,000 through December 31, 1999, as base annual salary plus additional
compensation as directed by the Board of Directors. In the event the Company is
acquired during the life of the CEO Agreement or any renewal term thereof, and
the acquirer chooses to terminate Mr. Osterwise, or fails to renew the CEO
Agreement for at least one year, the Company is obligated to pay Mr. Osterwise a
severance payment equal to one year's annual salary, plus an amount equal to the
accrued deferred compensation, plus bonuses and commissions earned and unpaid,
if any. In addition, upon termination of employment by the Company, Mr.
Osterwise shall be deemed to have vested in any stock options to purchase
shares, and in such event, Mr. Osterwise may exercise his right to purchase any
vested options at any time within one year of termination. If such termination
had occurred on December 31, 1996, the Company would have been obligated to Mr.
Osterwise for $180,000. The termination remuneration described above is not
payable in the event of termination for cause.
Option/Warrant Grants
The following table provides, as to the executive officers of the Company,
additional information concerning grants of stock options during fiscal year
1996. No stock appreciation rights have been granted by the Company.
<TABLE>
<CAPTION>
Percentage
of Total Potential Realizable
Options/ Value at Assumed
Warrants Annual Rate of
Option/ Granted to Exercise Stock Price
Warrant Employees in Price Expiration Appreciation for
Name Grants Fiscal year 1996 (per share) Date Option/Warrant Terms
- --------------------- ---------- ---------------- ----------- ---------- ----------------------------
5% ($) 10% ($)
----------------------------
<S> <C> <C> <C> <C> <C> <C>
Andrew E. Trolio 24,000 1.9% $3.00 11/24/06 $ 45,280 $114,749
50,000 4.1% $2.00 03/31/01 $ 27,628 $ 61,051
Laurence L. Osterwise 300,000 24.4% $3.00 12/31/01 $248,653 $549,459
William C. Hubbard 15,000 1.2% $2.00 12/31/01 $ 8,288 $ 18,315
50,000 4.1% $3.00 03/31/01 $ 41,442 $ 91,577
Michael A. Mulshine 100,000 8.1% $3.00 04/30/01 $ 82,884 $183,153
50,000 4.1% $3.00 04/30/01 $ 41,442 $ 91,577
60,000 4.9% $3.00 12/31/00 $ 38,791 $ 83,538
60,000 4.9% $3.00 03/23/01 $ 49,731 $109,892
60,000 4.9% $3.00 03/23/01 $ 38,791 $ 83,538
60,000 4.9% $4.00 03/23/01 -- $ 49,892
14,286 1.2% $3.50 12/31/00 $ 3,814 $ 30,526
</TABLE>
8
<PAGE>
Option Exercises and Fiscal Year-End Values
The following table provides, as to the Chief Executive Officer and each
other executive officer of the Company, information concerning unexercised stock
options granted in fiscal year 1996 and prior years. No stock appreciation
rights have been granted by the Company.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options/Warrants In-the-Money Options/Warrants
at December 31, 1996 at December 31, 1996(1)
Shares Acquired Value ---------------------------- ------------------------------
Name on Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew E. Trolio 837,500 $1,855,016 379,000 - 0 - $1,004,032 $ - 0 -
Laurence L. Osterwise - 0 - - 0 - 100,000 200,000 $ 65, 625 $131,250
William C. Hubbard - 0 - - 0 - 106,000 10,000 $ 184,000 $ 26,563
Michael A. Mulshine 301,696 $ 551,510 571,319 60,000 $ 765,306 $ 23,098
</TABLE>
(1) Based on the closing price of the Company's Common Stock as reported on the
NASDAQ System on that date ($3.66), net of the option exercise price.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") is responsible for recommending compensation policies
with respect to the Company's executive officers, and for making decisions about
awards under certain of the Company's stock-based compensation plans. Each
member of the Compensation Committee is a "non-employee director" within the
meaning of Rule 16b-3 under the Securities Act of 1934, as amended (the "Act"),
and an "outside director" within the meaning of Section 162(m) of the Internal
Revenue Code. This report addresses the Company's compensation policies for 1996
as they affected the Chief Executive Officer and the Company's other executive
officers, including the Named Executive Officers.
Compensation Policies
The Compensation Committee's executive compensation policies are designed
to provide competitive compensation opportunities, reward executives consistent
with the Company's performance, recognize individual performance and
responsibility, underscore the importance of shareholder value creation, and
assist the Company in attracting and retaining qualified executives. The
principal elements of compensation employed by the Compensation Committee to
meet these objectives are base salaries, annual cash incentives, and long-term
stock-based incentives.
All compensation decisions are determined following a detailed review of
many factors that the Compensation Committee believes are relevant, including
external competitive data, the Company's achievements over the past year, the
individual's contributions to the Company's success, any significant changes in
role or responsibility, and the internal equity of compensation relationships.
In general, the Compensation Committee intends that the overall total
compensation opportunities provided to the executive officers should reflect
competitive compensation for executives with corresponding responsibilities in
comparable firms providing similar products and services. To the extent
determined to be appropriate, the Compensation Committee also considers general
economic conditions, the Company's financial performance, and the individual's
performance in establishing the compensation opportunities for the executive
officers. Total compensation opportunities for the executive officers are
adjusted over time as necessary to meet this objective. Actual compensation
earned by the executive officers reflects both their contributions to the
Company's actual shareholder value creation and the Company's actual financial
performance.
9
<PAGE>
The competitiveness of the Company's total compensation program - including
base salaries, annual cash incentives, and long-term stock-based incentives - is
regularly assessed with the assistance of the Compensation Committee's outside
compensation consultant. Data for external comparisons may be drawn from a
number of sources, including the publicly available disclosures of selected
comparable firms with similar products and national compensation surveys of
information technology firms of similar size.
To present a reasonable comparison of the Company's performance versus its
peers, the Board of Directors in 1997 has determined that it would employ three
indexes in the Comparative Stock Performance section of this Proxy Statement;
(I) the NASDAQ-US Index, (ii) the NASDAQ Computer & Data Processing Index, and
(iii) the S&P 500 Stock Index, since there is no one index that exactly matches
the Company's business. As the Company progresses with its business development
plans, many of the firms in these indexes will be employed in the peer group to
be used by the Compensation Committee to assess the external competitiveness of
compensation levels.
While the targeted total compensation levels for the executive officers are
intended to be competitive, compensation paid in any particular year may be more
or less than the average, depending upon the Company's actual performance.
Base Salary
Base salaries for all executive officers, including the Chief Executive
Officer, are reviewed by the Compensation Committee on an annual basis. In
determining appropriate base salaries, the Compensation Committee considers
external competitiveness, the roles and responsibilities of the individual, the
internal equity of compensation relationships, and the contributions of the
individual to the Company's success.
Annual Cash Incentive Opportunities
The Company believes that executives should be rewarded for their
contributions to the success and profitability of the business and, as such,
approves the annual cash incentive awards. Incentive awards are linked to the
achievement of revenue and net income goals by the Company and/or specific
business units, and the achievement by the executives of certain assigned
objectives. The individual objectives set for executive officers of the Company
are generally objective in nature and include such goals as revenue, profit and
budget objectives, and increased business unit productivity. The Compensation
Committee believes that these arrangements tie the executive's performance
closely to key measures of success of the Company or the executive's business
unit. All executive officers, including the Chief Executive Officer, are
eligible to participate in this program.
Long-Term Stock-Based Incentives
The Compensation Committee also believes that it is essential to link
executive and shareholder interests. As such, from time to time the Compensation
Committee grants stock options to executive officers and other employees under
the Company's 1992 Long-Term Incentive Plan. In determining actual awards, the
Compensation Committee considers the externally competitive market, the
contributions of the individual to the success of the Company, and the need to
retain the individual over time. All executive officers, including the Chief
Executive Officer, are eligible to participate in this program.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to its Named
Executive Officers. Qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. Although no
Named Executive Officer received compensation exceeding this limit in 1996, the
Company has limited the number of shares subject to stock options which may be
granted to Company employees in a manner that complies with the
performance-based requirements of Section 162(m) and has submitted the 1992
Long-Term Incentive Plan to its stockholders to approve the amendments of the
1992 Long-Term Incentive Plan in accordance with Section 162(m). While the
Compensation Committee does not currently intend to qualify its annual incentive
awards as a performance-based plan, it will continue to monitor the impact of
Section 162(m) on the Company.
10
<PAGE>
1996 Compensation
Base salaries paid in 1996, for all executive officers other than the Chief
Executive Officer, reflect the Compensation Committee's review of external
competitiveness, the roles and responsibilities of the individuals, the internal
equity of compensation relationships, and the contributions of the individual.
The Chief Executive Officer's base salary was previously established in
accordance with a multi-year employment agreement (See "Certain Employment
Agreements"). The Compensation Committee believes that the base salary paid the
Chief Executive Officer in 1996 was below the level of base salaries paid to
chief executive officers at comparable firms.
Following the end of fiscal 1996, the Compensation Committee determined
that base salary levels for certain executive officers should be increased to
better reflect competitive practice, and to recognize their contributions to the
success of the Company. The Compensation Committee has recommended and the Board
has approved a base salary of $180,000 for the Chief Executive Officer for 1997.
There were no cash incentives paid to the executive officers, including the
Chief Executive Officer, for 1996.
Stock options awarded in 1996 to all executive officers, including the then
Chief Executive Officer, were based on an assessment of individual contribution,
Company success, and competitive practice, and were intended to help retain the
executives over time and to provide rewards consistent with shareholder returns.
All options were granted in 1996 with an exercise price equal to the fair market
value on the date of the grant. With respect to these grants, no compensation
will be earned unless the share price increases beyond the grant price, thereby
creating shareholder returns.
R. Barry Borden
David S. Hirsch
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Messrs. R.
Barry Borden and David S. Hirsch. No executive officer of the Company has served
as a director or member of the Compensation Committee (or other committee
serving an equivalent function) of any other entity, whose executive officers
served as a director of or member of the Compensation Committee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its principal office and manufacturing facility from
Lin-Lea Corporation, a company which is owned by Andrew E. Trolio. This facility
lease, which was renewed on September 1, 1994 and continues through August 31,
1997, with an option to renew for two years, provides for the payment of an
annual base rental of $96,000 and excess real estate taxes. Rent expense charged
to operations was $96,000 for the year ended December 31, 1996. It is
management's belief that the terms of the facility lease are favorable to the
Company based on the commercially available terms in the business park where the
Company is located. The Company's current lease payments are 11% to 15% below
comparable market rates.
The Company incurred commissions and management consulting expenses in the
amount of $360,439 for the year ended December 31, 1996, to Osprey Partners, a
company owned by Mr. Mulshine. These expenses were incurred in regard to the
private placement of securities and completion of various other management
consulting services. It is management's belief that the levels of compensation
for services provided were favorable to the Company and were reasonably below
market rates for such services.
During December 1996, 150,000 stock options and 687,500 stock warrants were
exercised for $201,000 and $1,000,000, respectively, by Andrew E. Trolio,
Chairman, in exchange for promissory notes and promissory demand notes. 30,000
stock options and 127,180 stock warrants were exercised for $40,200 and
$263,578, respectively, by Michael A. Mulshine, Corporate Secretary, in exchange
for promissory notes. James C. Sargent, Director, exercised 20,000 stock options
for $36,250 with a promissory note.
11
<PAGE>
All notes bear interest at a rate of 8.25%. The promissory notes, together
with accrued interest, have maturity dates ranging from July 1998 through
January 2003. The loans are secured by the underlying stocks, which are held in
escrow by the Company. The Company intends to collect all amounts under these
notes. The promissory demand notes, totaling $294,750 were paid in full by
Andrew E. Trolio, during February and March 1997.
In January 1997, the Board of Directors approved a Consulting Agreement
with Osprey Partners, a company which is owned by Michael A. Mulshine, under
which Osprey is paid a $5,000 monthly retainer, in consideration of Osprey's
services relative to shareholder and investor relations activities on the
Company's behalf and for management consulting services.
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the period from December 31, 1991 through
December 31, 1996 with the cumulative total return on (I) the "NASDAQ-US Index",
(ii) the NASDAQ "Computer & Data Processing Index", and (iii) the "S&P 500 Stock
Index". The comparisons assume the investment of $100 on December 31, 1991 in
the Company's Common Stock and in each of the indices and, in each case, assumes
reinvestment of all dividends. The Company has not paid any dividends on its
Common Stock and does not intend to do so in the foreseeable future. The
performance graph is not necessarily indicative of future performance.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Scangraphics, Inc. 100.00 84.44 33.33 17.77 97.7 131.11
- ------------------------------------------------------------------------------------------------------------
NASDAQ-US Index 100.00 116.38 133.60 130.60 184.69 227.15
- ------------------------------------------------------------------------------------------------------------
Computer & Data Proc. Index 100.00 107.59 113.87 138.28 210.60 259.97
- ------------------------------------------------------------------------------------------------------------
S&P 500 Stock Index 100.00 107.82 118.46 120.03 165.14 203.06
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC OMITTED]
12
<PAGE>
PROPOSAL II
APPROVAL OF ADOPTION OF AMENDMENTS
TO 1992 LONG-TERM INCENTIVE PLAN
The 1992 Long-Term Incentive Plan (the "Plan") was approved by the
Company's shareholders at the 1992 Annual Meeting. On April 23, 1997, the Board
of Directors approved two amendments to the Plan, both of which are subject to
shareholder approval: 1) an amendment to increase the number of shares of stock
authorized for issuance under the Plan, from 1,000,000 to 3,000,000; and 2) an
amendment to change the formula to calculate the number of options to be granted
to each non-employee director each year. All other terms of the Plan will remain
as approved by the shareholders in 1992.
The 1992 Long-Term Incentive Plan, as approved by the shareholders of the
Company at the 1992 Annual Meeting of Shareholders, is attached hereto as
Appendix A. (All references to the "Stock Option Committee" in the 1992
Long-Term Incentive Plan are hereby replaced with the "Compensation Committee.")
Nature and Purpose of the Plan
The purpose of the Plan is to enable key employees, non-employee directors
and independent contractors of the Company to (i) own shares of stock in the
Company, (ii) to participate in the shareholder value that will be created,
(iii) have a mutuality of interest with other stockholders, and (iv) enable the
Company to continue to attract, retain, and motivate key employees, non-employee
directors and independent contractors of particular merit. The Board of
Directors believes that the Plan will promote continuity of management and
increased incentive and personal interest in the welfare of the Company by those
who are or may become primarily responsible for shaping and carrying out the
long range plans of the Company and attain continuing growth and financial
success. The approximate number of persons currently eligible to participate in
the Plan is 75, including five non-employee directors: Messrs. Borden, Hirsch,
Mulshine, Pellicci, and Sargent.
Options granted under the Plan are authorized to be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986
(the "Code") or "non-qualified stock options" which do not satisfy such
conditions.
Duration and Modification
Unless extended, the Plan will terminate not later than March 11, 2002. The
Board of Directors may at any earlier time terminate the Plan or make such
modifications of the Plan as it may deem advisable. However, except in certain
limited circumstances, the Board of Directors may not, without further approval
by the shareholders, increase the number of shares of Common Stock as to which
options may be granted under the Plan, change the class of people eligible to
participate in the Plan, change the manner of determining option prices which
would result in a decrease in the option prices, or extend the period during
which an option may be granted or exercised.
Administration of the Plan
The Plan is administered by a committee (the "Compensation Committee"). The
Compensation Committee consists of two or more persons appointed by the Board of
Directors, all of whom must be "disinterested persons" within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended.
The members of the Compensation Committee are appointed annually by, and serve
at the pleasure of the Board of Directors. The present members of the
Compensation Committee are David S. Hirsch and R. Barry Borden. The Compensation
Committee has discretion to determine the participants under the Plan, the time
and price at which options will be granted, the period during which options will
be exercisable, the number of shares subject to each option and whether an
option shall be an incentive stock option, a non-qualified option or a
combination thereof, but will not have the discretion to determine any of the
foregoing with respect to options granted to non-employee directors, which
grants are automatic in nature.
13
<PAGE>
If the amended Plan is approved, the method of determination of option
grants to non-employee directors will change to the following: on the first
business day of January 1998 and on the first business day of January in each
succeeding year, each non-employee director of the Company shall receive as
compensation for service to the Board, a grant of an option to purchase the
Common Stock of the Company, at the then current Fair Market Value as determined
in accordance with the Plan, as follows: a 15,000 share option grant for service
to the Board during the preceding year; plus, a 2,500 share option grant for
serving as the Chairman of the Board or a Committee of the Board of Directors
during the preceding year. However, if an Eligible Director shall become
eligible for an option grant after the first regularly scheduled meeting of the
Board during any calendar year, the Compensation Committee shall determine the
size of such option grant by multiplying 15,000 shares (and/or 2,500 shares) by
a fraction which is determined by dividing the number of regularly scheduled
board meetings remaining in the calendar year by six.
In addition, any new director who is elected to the Board after this
amended Plan is approved, will be granted a 25,000 share option (the "New
Director Option") to purchase the Common Stock of the Company, at the then
current Fair Market Value as determined in accordance with the Plan. The shares
underlying this option will vest at the rate of 5,000 shares per year for five
years, on the anniversary date of his election to the Board.
Further, subject to approval of the amended Plan, on or before January 31,
1998 and on or before January 31 in each succeeding year, each non-employee
director will receive an annual retainer of $5,000 as cash compensation for such
director's services for the preceding year. Also, upon approval of the amended
Plan, each non-employee director will receive $500 for each attendance at board
and committee meetings, with multiple meetings held on the same day to count as
one. These amounts shall be subject to annual review and possible adjustment at
the discretion of the Board of Directors.
If unexercised, each option shall expire on the tenth anniversary of the
date of the grant and shall vest and become fully exercisable on the six-month
anniversary of the date of the grant, with the exception that the New Director
Option shall vest over five years. Once vested, options shall remain fully
exercisable until the earlier of: (i) the expiration of their ten-year term;
(ii) two years following the optionee's separation from board service for any
reason; or (iii) one year following the death of the optionee.
If the amended Plan had been in effect for the year 1996, the non-employee
directors would have received options to purchase shares as follows: Mr. Borden
- - 7,500 shares; Mr. Hirsch - 15,000 shares; Mr. Mulshine - 15,000 shares; Mr.
Pellicci - 2,500 shares; and Mr. Sargent - 15,000 shares.
See "Compensation of Executive Officers" and "Compensation of Directors"
for a description of benefits received by Executive Officers and non-employee
directors pursuant to the Plan during the past year.
Description of Option
Under the Plan, the per share exercise price of any option which is an
incentive stock option shall not be less than the fair market value closing bid
of a share of the Common Stock on the date of the grant, and the per share
exercise price of any option which is a non-qualified stock option shall not be
less than 75% of such fair market value. The aggregate fair market value of the
shares of Common Stock for which a participant may be granted incentive stock
options which are exercisable for the first time in any calendar year may not
exceed $100,000. The proposed amendment provides that the per share exercise
price of an option to be granted to a non-employee director shall be the fair
market value closing bid of a share of Common Stock on the date of the grant.
An option granted under the Plan is generally exercisable at such time
or times and subject to such terms and conditions as shall be determined by the
Compensation Committee. An option granted to a non-employee director is
generally exercisable six months after the date of the grant. However, the
Compensation Committee at the time of grant may provide that an option may be
exercisable in whole or in part prior to the time that it would otherwise be
exercisable under the Plan, provided however, that no option may be exercisable
until six months after the date of grant. Upon the exercise of an option, the
option price must be paid in cash, or if the Compensation Committee so
determined at the time of the grant of the option, in shares of Common Stock. An
option may not be granted for a period in excess of ten years from the date of
grant.
14
<PAGE>
The Compensation Committee also has the authority to implement procedures
to allow a broker-dealer selected by an optionee to make payment of all or any
portion of the option price upon exercise of an option, and receive on behalf of
such optionee all or a portion of the shares of Common Stock issuable upon
exercise.
In the event of death, permanent disability or retirement of an optionee,
all options theretofore granted, to the extent exercisable or on such
accelerated basis as the Compensation Committee may determine, shall become
immediately exercisable, and, if not exercised, shall terminate, within one year
of such optionee's death, within three years of such optionee's permanent
disability, or within three years of such optionee's retirement. In all other
cases, in the event an optionee leaves the service of the Company or any of its
subsidiaries, any options previously granted to but not exercised by such
optionee shall terminate. Options granted to non-employee directors remain fully
exercisable until the earlier of the following: two years following the
director's separation from board service for any reason, or one year following
the death of the director. Options are not transferable except upon the death of
the optionee.
The number of shares reserved for issuance under the Plan and the number of
shares covered by each option granted under the Plan will be adjusted in the
event of a stock dividend, reorganization, recapitalization, stock split-up,
combination of shares, sale of assets, merger or consolidation in which the
Company is the surviving corporation, as may be deemed appropriate by the
Compensation Committee.
Stock Appreciation Rights
The Compensation Committee may grant stock appreciation rights to
recipients of options other than non-employee directors, subject to terms set by
the Compensation Committee. Each right will relate to a specific option granted
under the Plan and may be granted simultaneously with, or subsequent to, the
grant of the option. A right will entitle the recipient to elect to receive, as
an alternative to exercising a related option and without payment of cash to the
Company, that number of shares of Common Stock having an aggregate fair market
value equal to the "spread" on the related option. The "spread" is the
difference between the aggregate fair market value, on the date the right is
exercised, of the shares of Common Stock subject to the related option and the
aggregate exercise price of that option. In lieu of paying any such right wholly
in shares of Common Stock, the Compensation Committee may elect to pay the right
totally in cash or partly in shares of Common Stock. A right may be exercised
only during the period in which the related option may be exercised. The number
of shares subject to acquisition through the exercise of an option will be
reduced to the extent such shares are used in calculating the number of shares
or cash to be received pursuant to an exercise of a related right. In addition,
each share subject to an option may be used only once to calculate the number of
shares or cash to be received pursuant to exercise of a related right.
Restricted Stock Awards
The Compensation Committee may award shares of Common Stock under the Plan
to eligible employees as restricted stock grants, subject to terms set by the
Compensation Committee. Although such employees will have the right to vote
these shares from the date of grant, they will not ordinarily have the right to
sell or otherwise transfer the shares or to receive certificates representing
the shares or the dividends payable with respect to the shares until they have
remained in the employ of the Company or any of its subsidiaries for a period as
may be determined by the Compensation Committee. Unless otherwise expressly
provided by the Compensation Committee for hardship or other special
circumstances, termination for any reason during the restricted period will
result in forfeiture of the employee's right to receive the granted shares and
the accumulated dividends.
Long Term Performance Awards
The Compensation Committee may grant long term performance awards that are
valued in whole or in part by reference to the value of common stock. The terms
and conditions of such awards, including the performance objectives and periods,
and the employees who receive such awards shall be determined by the
Compensation Committee at its discretion.
15
<PAGE>
Change of Control
Upon a Change of Control (as defined in the Plan), all options become
immediately and fully exercisable and may be exercised upon or after the Change
of Control.
Upon a Change of Control, all restrictions imposed on each participant's
restricted stock immediately lapse as if fully satisfied for the entire
restricted period and the participant has a right to receive unrestricted share
certificates representing the full number of shares of Common Stock covered by
the grant.
The value of all outstanding options, stock appreciation rights, and
restricted grants shall, unless otherwise determined by the Compensation
Committee at or after grant, be cashed out on the basis of the "Change of
Control Price" as defined in the Plan.
Upon a Change of Control, a participant's long term performance awards,
including any portion relating to any performance periods not yet completed,
become immediately and fully vested and paid based on the pro-rated target
results for the performance period in question.
Securities Subject to the Plan
As of April 30, 1997, 289,444 shares have been issued pursuant to the Plan,
1,886,249 options to purchase have been granted (adjusted to reflect canceled
grants), and 886,249 options to purchase shares have been granted subject to
shareholder approval of the amendment to increase the number of shares of stock
authorized for issuance under the Plan. Upon approval of the amended Plan,
Treasury Shares or authorized but unissued shares of the Common Stock may be
utilized to satisfy share requirements for options exercised under the Plan. The
shares related to the unexercised or undistributed portion of any terminated,
expired, or forfeited award for which no material benefit was received by an
optionee shall also be made available for distribution in connection with future
grants under the Plan.
The market value of the Common Stock, as of April 30, 1997, was $3.00 per
share.
Federal Income Tax Consequences of Issuance and Exercise of Options
The following discussion of the federal income tax consequences of the
grant and exercise of options under the Plan, and the sale of Common Stock
acquired as a result thereof, is based on an analysis of the Code, as currently
in effect, existing laws, judicial decisions and administrative rulings and
regulations, all of which are subject to change. In addition to being subject to
federal tax consequences described below, an optionee may also be subject to
state and/or local income tax consequences in the jurisdiction in which he works
and/or resides.
Non-Qualified Stock Options
No income will be recognized by an optionee at the time a non-qualified
stock option is granted.
Ordinary income (wages, subject to withholding) will be recognized by an
optionee at the time a non-qualified option is exercised, and the amount of such
income will be equal to the excess of the fair market value of the underlying
Common Stock on the exercise date over the option price. Suitable arrangements
are required to be made at that time to collect and pay over applicable
withholding tax from the optionees.
The Company generally will be entitled to a deduction for federal income
tax purposes in the same amount as the amount included in ordinary income by the
optionee with respect to his non-qualified stock option.
Capital gain or loss on a subsequent sale or other disposition of the
shares acquired upon the exercise of a non-qualified stock option will be
measured by the difference between the amount realized on the disposition and
the tax basis of such shares. The tax basis of the shares acquired upon the
exercise of an option will be equal to the sum of the exercise price of such
option and the amount included in income with respect to such option.
16
<PAGE>
If an optionee makes payment of the option price by delivering shares of
Common Stock, the optionee generally will not recognize any gain as a result of
such delivery, but the amount of gain, if any, which is not so recognized will
be excluded from his basis in the new shares received.
Incentive Stock Options
In general, neither the grant nor exercise of an incentive stock option
will result in taxable income to an optionee or a deduction to the Company.
However, the exercise of an option will give rise to an item of tax preference
to the optionee for purposes of the alternative minimum tax in an amount equal
to the excess of the fair market value of the stock acquired upon the exercise
of the option over the option price.
The sale of the Common Stock received upon the exercise of an incentive
stock option which satisfies the holding period rules will result in the entire
gain being treated as a capital gain to the optionee; the Company will not be
entitled to a tax deduction with respect to such exercise or sale. To receive
incentive stock option treatment as to the shares acquired upon the exercise of
an incentive stock option, an optionee must neither dispose of such shares
within two years after the option is granted nor within one year after the
exercise of the option. In addition, the optionee generally must be an employee
of the Company (or of a subsidiary of the Company) at all times between the date
of grant and the date three months before exercise of the option.
If the holding period rules are not satisfied, the portion of any gain
recognized on the disposition of the shares acquired upon the exercise of an
incentive stock option is equal to the lesser of (a) the fair market value of
the shares on the date of exercise minus the option price or (b) the amount
realized on the disposition minus the option price, will be treated as ordinary
income, with any remaining gain being treated as capital gain. The Company
generally will be entitled to a deduction equal to the amount of such ordinary
income.
If an optionee makes payment of the option price by delivering shares of
Common Stock, the optionee generally will not recognize any gain as a result of
such delivery, but the amount of gain, if any, which is not so recognized will
be excluded from his basis in the new shares acquired. However, the use in the
exercise of an incentive stock option by an optionee of shares previously
acquired pursuant to the exercise of an incentive stock option will be treated
as taxable disposition if the transferred shares have not been held by the
optionee for the requisite holding period.
Stock Appreciation Rights
Ordinary income will be recognized by a participant upon the exercise of a
stock appreciation right, in an amount equal of the cash received or the fair
market value of the shares received on the exercise date.
Restricted Stock Grants
Participants holding restricted stock will recognize ordinary income in the
year in which the restrictions lapse, in the amount of the fair market value of
the shares as of the date of lapse of the restrictions, unless the participant
elects to include the fair market value of the shares as of the date of grant in
ordinary income at that time.
Long Term Performance Awards
Ordinary income will be recognized by a participant in the year in which
Common Stock for long term performance awards is received, in an amount equal to
the fair market value of the Common Stock on the date of receipt.
* * *
The Board of Directors recommends a vote FOR the adoption of the amendments
to the 1992 Long-Term Incentive Plan.
17
<PAGE>
PROPOSAL III
RATIFICATION OF INDEPENDENT AUDITORS
BDO Seidman, LLP, has served as the Company's independent certified public
accountants since 1989 and subject to ratification by the shareholders, is
expected to continue to serve in such capacity for the current year. A
representative of the firm will be available by telephone at the Meeting to
respond to appropriate shareholders' questions.
The Board of Directors recommends a vote FOR the ratification of the
appointment of BDO Seidman, LLP as Independent Auditors for 1997.
COST OF SOLICITATION OF PROXIES
The Company will bear the cost of soliciting proxies for the Meeting,
including the cost of preparing, assembling and mailing proxy materials, the
handling and tabulation of proxies received and charges of brokerage houses and
other institutions, nominees and fiduciaries in forwarding such materials to
beneficial owners. In addition to the mailing of the proxy material, such
solicitation may be made in person or by telephone or facsimile by directors,
officers or regular employees of the Company, or by a professional proxy
solicitation organization engaged by the Company.
OTHER MATTERS
Management is not aware of any other matters to be presented for action at
the Meeting or any adjournment thereof. However, if any other matters come
before the Meeting, it is intended that shares represented by Proxy will be
voted in accordance with the judgment of the persons voting them.
SHAREHOLDER PROPOSAL
Any shareholder who, in accordance with and subject to the provisions of
the rules of the Securities and Exchange Commission and applicable laws of the
Commonwealth of Pennsylvania, wishes to submit a proposal for inclusion in the
Company's Proxy Statement for its 1998 Annual Meeting of Shareholders, must
deliver such proposal, in writing, to the attention of the Secretary of the
Company at the Company's principal executive offices at 700 Abbott Drive,
Broomall, Pennsylvania 19008, not later than January 24, 1998.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's 1996 Annual Report to Shareholders, which includes
the Company's Annual Report on Form 10-K (including the financial statements and
schedules thereto), is being transmitted herewith, but does not form a part of
the proxy solicitation materials.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED BY THIS PROXY
STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES
THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR ITS MOST
RECENT FISCAL YEAR. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO MICHAEL A.
MULSHINE, SECRETARY, AT 700 ABBOTT DRIVE, BROOMALL, PA 19008.
18
<PAGE>
APPENDIX A
SCAN-GRAPHICS, INC.
1992 LONG-TERM INCENTIVE PLAN
SECTION 1. Purpose; Definitions.
The name of this plan is the Scan-Graphics, Inc. 1992 Long-Term Incentive
Plan (the "Plan"). The purpose of the Plan is to enable key employees, Eligible
Directors (as hereinafter defined) and Eligible Independent Contractors (as
hereinafter defined) of Scan-Graphics, Inc.("the Company") to (i) own shares of
stock in the Company, (ii) participate in the shareholder value which has been
created, (iii) have a mutuality of interest with other shareholders and (iv)
enable the Company to attract, retain and motivate key employees, non-employee
directors, and independent contractors of particular merit.
For the purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's
willful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
d. "Committee" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be in office, then the functions of
the Committee specified in the Plan shall be exercised by the Board.
e. "Company" means Scan-Graphics, Inc., its subsidiaries or any successor
organization.
f. "Disability" means permanent and total disability within the meaning
of Section 22(e)(3) of the Code.
g. "Disinterested Person" shall have the meaning set forth in Rule 16b 3
as promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
h. "Early Retirement" means retirement, with consent of the Committee at
the time of retirement, from active employment with the Company
pursuant to the early retirement procedures of the Company.
i. "Eligible Directors" means a person who is an incumbent, non-employee
member of the Board, including those who are members of the Committee,
at the time the Plan is initially approved by the shareholders or who
is elected a non-employee member of the Board subsequent to that date.
1-A
<PAGE>
j. "Reliable Independent Contractor" means an independent contractor
hired by Company to provide consulting services on a regular basis for
the Company at or after the time the Plan is initially approved by the
shareholders.
k. "Fair Market Values" means, as of any given date, the mean of the
highest and lowest quoted bid prices of the Stock as furnished by the
National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System or, if either no such sale is reported by NASDAQ on
such date or the Stock is not publicly traded on or as of such date,
the fair market value of the Stock as determined by the Committee in
good faith based on the best available facts and circumstances at the
time.
l. "Incentive Stock Options" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
m. "Insider" means a Participant who is subject to the requirements of
the Rules (as defined below).
n. "Long-Term Performance Award" or "Long-Term Award" means an award made
pursuant to Section 8 below that is payable in cash and or Stock
(including Restricted Stock) in accordance with the terms of the
grant, based on Company, business unit and/or individual performance
over a period of at least two years.
o. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
p. "Normal Retirement" means retirement from active employment with the
Company and any Affiliate (as defined in Section 9) pursuant to the
normal retirement procedures of the Company.
q. "Participant" means an employee, Eligible Director, or Eligible
Independent Contractor to whom an Award is granted pursuant to the
Plan.
r. "Plan" means the Scan-Graphics, Inc. 1992 Long-Term Incentive Plan, as
hereinafter amended from time to time.
s. "Restricted Stock" means an award of shares of Stock that is subject
to restrictions pursuant to Section 7 below.
t. "Retirement" means Normal or Early Retirement.
u. "Rules" means the regulations promulgated under Section 16 of the
Exchange Act.
v. "Securities Brokers" means the registered securities broker acceptable
to the Company who agrees to effect the cashless exercise of an Option
pursuant to Section 5(m) hereof.
w. "Stock" means the Common Stock $.001 par value per share, of the
Company.
x. "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Company all (or a
portion) of a Stock Option in exchange for an amount equal to the
difference between (i) the Fair Market Value, as of the date such
Stock Option (or such portion thereof) is surrendered, of the shares
of Stock covered by such Stock Option (or such portion thereof), and
(ii) the aggregate exercise price of such Stock Option (or such
portion thereof).
2-A
<PAGE>
y. "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock, if the Committee so determines)
granted pursuant to Section 5 below.
In addition, the terms "Change-in-Control," "Potential Change-in-Control"
and "Change-in-Control Price" shall have meanings set forth, respectively, in
Sections 9(b), (c) and (d) below.
SECTION 2. Administration
The Plan shall be administered by a Committee of not less than two
Disinterested Persons, who shall be appointed by the Board of Directors of the
Company and who shall serve at the pleasure of the Board.
The Committee shall have the authority to grant pursuant to the terms of
the Plan: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted
Stock and/or (iv) Long-Term Performance Awards to key employees and officers;
(i) Stock Options and/or (ii) Stock Appreciation Rights to Eligible Independent
Contractors and unless the Plan is amended pursuant to a vote of the
shareholders of the Company, only grants of stock options made by the Company
pursuant to Section 5(n) hereof to Eligible Directors.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company to whom
Stock Options, Stock Appreciation Rights, Restricted Stock and
Long-Term Performance Awards may from time to time be granted
hereunder and Eligible Independent Contractors to whom Stock Options
and Stock Appreciation Rights may from time to time be granted
hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock and Long-Term Performance Awards, or any combination thereof,
are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such award
granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder: including, but
not limited to, the share price and any restriction or limitation,
or any vesting acceleration or forfeiture waiver regarding any Stock
Option or other award and/or the shares of Stock relating thereto,
based on such factors as the Committee shall determine, in its sole
discretion;
(v) to determine whether and under what circumstances a Stock Option may
be settled in cash or stock, including Restricted Stock under Section
5(1);
(vi) to determine whether and under what circumstances a Stock Option may
be exercised without a payment of cash under Section 5(m); and
(vii) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this
Plan shall be deferred either automatically or at the election of the
Participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
3-A
<PAGE>
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
Participants.
SECTION 3. Stock Subject to the Plan
(a) Stock Subject to Plan. Awards of stock under the Plan shall be made
from Stock which is either authorized and unissued or held in the
treasury of the Company. The maximum number of shares of Stock
authorized for issuance under the Plan, subject to adjustment in
accordance with paragraph 3(d) below, shall be up to 1,000,000 shares
in the aggregate, or such other number of shares as are subsequently
approved by the Company's shareholders.
(b) Computation of Stock Available for the Plan. For the purpose of
computing the total number of shares of Stock available for
distribution in connection with the exercise of options awarded under
the Plan, there shall be debited against the total number of shares
determined to be available pursuant to paragraphs (a), and (c) of this
Section 3 the maximum number of shares of Stock subject to issuance
upon exercise of options or other stock based awards made under the
Plan.
(c) Unused, Forfeited and Reacquired Shares. The shares related to the
unexercised or undistributed portion of any terminated, expired or
forfeited award for which no material benefit was received by a
Participant (i.e. dividends) also shall be made available for
distribution in connection with future awards under the Plan to the
extent permitted to receive exemptive relief pursuant to the Rules.
(d) Other Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, or other change in
corporate structure affecting the Stock, such substitution or
adjustment shall be made in the aggregate number of shares reserved
for issuance under the Plan, and in the number and option price of
shares subject to outstanding Options granted under the Plan, as may
be determined to be appropriate by the Committee in its sole
discretion, provided that the number of shares subject to any award
shall always be a whole number. Such adjusted option price shall also
be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right associated with any Stock
Option.
SECTION 4. Eligibility
Officers, other key employees and Eligible Independent Contractors, who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company are eligible to be granted awards under the Plan.
Eligible Directors, including members of the Committee, shall be eligible for
grants under the Plan pursuant to the terms of Section 5(n) below.
SECTION 5. Stock Options
Stock Options may be granted alone, in addition to or in tandem with other
awards granted under the Plan. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
4-A
<PAGE>
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in
each case with or without Stock Appreciation Rights). To the extent that any
Stock Option does not qualify as an Incentive Stock Option, it shall constitute
a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify the Plan under Section 422 of the Code, or, without the consent
of the optionee(s) affected, to disqualify any Incentive Stock Option under such
Section 422.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant
but shall be not less than 100% of the Fair Market Value of the Stock
at the time of grant for Incentive Stock Options and 75% of the Fair
Market Value of the Stock at the time of grant for Non-Qualified
Options; provided, however that Non-Qualified Options issued in
exchange for options held by employees of an acquired company or a
division or subsidiary thereof may, at the Committee's discretion, be
issued at not less than 50% of the Fair Market Value of the Stock at
the time of grant.
Any Incentive Stock Option granted to any optionee who, at the time
the option is granted, owns more than 10% of the voting power of all
classes of stock of the Company or of a Parent or Subsidiary
corporation, shall have an exercise price no less than 110% of Fair
Market Value per share on date of the grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more
than ten years after the date the Option is granted and no
Non-Qualified Stock Option shall be exercisable more than ten years
and one day after the date the Option is granted. However, any option
granted to any optionee who, at the time the option is granted owns
more than 10% of the voting power of all classes of Stock of the
Company or of a Parent or Subsidiary corporation may not have a term
of more than five years. No option may be exercised by any person
after expiration of the term of the option.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined
by the Committee at or after grant, provided, however, that, except as
provided in Section 5(g) and Section 9, unless otherwise determined by
the Committee at or after grant, no Stock Option shall be exercisable
during the six months following the date of the granting of the
Option. If the Committee provides, in its discretion, that any Stock
Option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time at or after grant in
whole or in part, based on such factors as the Committee shall
determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever Installment exercise
provisions apply under Section 5(c), Stock Options may be exercised in
whole or in part at any time and from time to time during the option
period, by giving written notice of exercise to the Company specifying
the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price, either by certified or bank check, or such other instrument as
the Committee may accept. As determined by the Committee, in its sole
discretion, at or after grant, payment in full or in part may also be
made
5-A
<PAGE>
in the form of unrestricted Stock already owned by the optionee or, in
the case of the exercise of a Non-Qualified Stock Option, of
Restricted Stock subject to an award hereunder (based, in each case,
on the Fair Market Value of the Stock on the date the option is
exercised, as determined by the Committee), provided, however, that,
in the case of an Incentive Stock Option, the right to make a payment
in the form of already owned shares may be authorized only at the time
the option is granted.
If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock,
such Restricted Stock (and any replacement shares relating thereto)
shall remain (or be) restricted in accordance with the original terms
of the Restricted Stock award in question, and any additional Stock
received upon the exercise shall be subject to the same forfeiture
restrictions, unless otherwise determined by the Committee, in its
sole discretion, at or after grant.
If payment of the Option exercise price of a Non-Qualified Option is
made in whole or in part in the form of unrestricted stock already
owned by the Participant, the Company may require that the stock has
been owned by the Participant for a period of time so that such
payment would not result in a change to the Company's earnings as a
result of the exercise. Such provision may be used by the Company to
prevent a pyramid exercise.
No shares of Stock shall be issued until full payment therefor has
been made. An optionee shall generally have the rights to dividends or
other rights of a shareholder with respect to shares subject to the
Option when the optionee has given written notice of exercise, has
paid in full for such shares, and, if requested, has given the
representation described in Section 12(a).
(e) Replacement Options. If an Option granted pursuant to the Plan may be
exercised by an optionee by means of a stock-for-stock swap method of
exercise as provided in 5(d) above, then the Committee may, in its
sole discretion and at the time of the original option grant,
authorize the Participant to automatically receive a replacement
Option pursuant to this part of the Plan.
This replacement option shall cover a number of shares determined by
the Committee, but in no event more than the number of shares equal to
the difference between the number of shares of the original option
exercised and the net shares received by the Participant from such
exercise. The exercise price of the replacement option shall equal the
then current Fair Market Value, and with a term extending to the
expiration date of the original Option.
The Committee shall have the right, in its sole discretion and at any
time, to discontinue the automatic grant of replacement options if it
determines the continuance of such grants to no longer be in the best
interest of the Company.
(f) Non-Transferability of Options. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(g) Termination by Reason of Death. Subject to Section 3(k), if an
optionee's employment by the Company terminates by reason of death,
any Stock Option held by such optionee may thereafter by exercised, to
the extent then exercisable or on such accelerated basis as the
Committee may determine at or after grant, by the legal representative
of the estate or by the legatee of the optionee under the will of the
optionee, for a period of one year (or such shorter period as the
Committee may specify at grant) from the date of such death or until
the expiration of the stated term of such Stock Option, whichever
period is the shorter.
6-A
<PAGE>
(h) Termination by Reason of Disability. Subject to Section 5(k), if an
optionee's employment by the Company terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine at or after grant, for a period of three years (or such
shorter period as the Committee may specify at grant) from the date of
such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided,
however, that, if the optionee dies within such three-year period (or
such shorter period as the Committee shall specify at grant), any
unexercised Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of
death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Non-Qualified Stock Option.
(i) Termination by Reason of Retirement. Subject to Section 5(k), if an
optionee's employment by the Company terminates by reason of Normal or
Early Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was
exercisable at the time of such Retirement or on such accelerated
basis as the Committee may determine at or after grant, for a period
of three years (or such shorter period as Committee may specify at
grant) from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period
is the shorter; provided, however, that, if the optionee dies within
such three-year period, any unexercised Stock Option held by such
optionee shall thereafter be exercisable, to the extent to which it
was exercisable at the time of death, for a period of twelve months
from the date of such death or until the expiration of the stated term
of such Stock Option, whichever period is the shorter. In the event of
termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, option will
thereafter be treated as a Non-Qualified Stock Option.
(j) Other Termination. Unless otherwise determined by the Committee at or
after grant, if an optionee's employment by the Company terminates for
any reason other than death, Disability or Normal or Early Retirement,
the Stock Option shall thereupon terminate, except that such Stock
Option may be exercised for the lesser of three months or the balance
of such Stock Option's term if the optionee is involuntarily
terminated by the Company without Cause.
(k) Incentive Stock Option Limitations. To the extent required for
"incentive stock option" status under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of
the Stock with respect to which Incentive Stock Options granted after
1986 are exercisable for the first time by the optionee during any
calendar year under the Plan and/or any other stock option plan of the
Company (within the meaning of Section 425 of the Code) after 1986
shall not exceed $100,000.
To the extent (if any) permitted under Section 422 of the Code, if (i)
a Participant's employment with the Company is terminated by reason of
death, Disability or Retirement and (ii) the portion of any Incentive
Stock Option that is otherwise exercisable during the post-termination
period specified under Section 5(g), (h) or (i), applied without
regard to this Section 5(k), is greater than the portion of such
option that is exercisable as an "incentive stock option" during such
post-termination period under Section 422, such post-termination
period shall automatically be extended (but not beyond the original
option term) to the extent necessary to permit the optionee to
exercise such Incentive Stock Option. The Committee is
7-A
<PAGE>
also authorized to provide at grant for a similar extension of the
post-termination exercise period in the event of a Change-in-Control.
(l) Cash-out of Option: Settlement of Spread Value in Restricted Stock. On
receipt of written notice to exercise, the Committee may, in it's sole
discretion, elect to cash out an or part of the portion of the
option(s) to be exercised by paying the optionee an amount, in cash or
Stock, equal to the excess of the Fair Market Value of the Stock over
the option price (the "Spread Value") on the effective date of such
cash-out.
In addition, if the option agreement so provides at grant or is
amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the
shares to be issued with respect to the Spread Value of an exercised
option take the form of Restricted Stock, which shall be valued on the
date of exercise on the basis of the Fair Market Value of such
Restricted Stock determined without regard to the forfeiture
restrictions involved.
(m) Cashless Exercise. To the extent permitted under the applicable laws
and regulations, at the request of the Participant, and with the
consent of the Committee, the Company agrees to cooperate in a
"cashless exercise" of an Option. The cashless exercise shall be
effected by the Participant delivering to the Securities Broker
instructions to see a sufficient number of shares of Common Stock to
cover the costs and expenses associated therewith. The Committee may
permit a Participant to pay any applicable withholding taxes by
delivering a sufficient number of previously-owned shares of Common
Stock to the Company to satisfy such taxes or upon Participant's
request, by having the Company withhold the number of shares of Common
Stock obtainable on the exercise of an Option which when valued at
Fair Market Value (determined as of the day preceding the date of
exercise) is equivalent to the minimum required withholding taxes due.
(n) Option Grants to Eligible Directors. Notwithstanding any other
provision of this Plan, any grant of an option under this Section 5 to
an Eligible Director shall be subject to the following provisions:
On March 11, 1992, and on the first business day of January of each
year thereafter, the Committee will determine grants of options to
Eligible Directors. The size of any grant made by the Committee shall
be determined by dividing $50,000 by the Fair Market Value of a share
of the Stock on the date of the option grant. However, if an Eligible
Director shall become eligible for an option grant under this Section
5(n) after the first regularly scheduled meeting of the Board during
any calendar year, the Committee shall determine the size of such
option grant by multiplying $50,000 by a fraction which is determined
by dividing the number of regularly scheduled Board meetings remaining
in the calendar year by six and dividing the product of such numbers
by the Fair Market Value of a share of Stock on the date of the option
grant.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with an or part of any Stock Option granted under the Plan
except those stock options granted to Eligible Directors pursuant to
Section 5(n). In the case of a Non-Qualified Stock Option, such rights
may be granted either at or after the time of the grant of such Stock
Option. In the case of an Incentive Stock Option, such rights may be
granted only at the time of the grant of such Stock Option.
8-A
<PAGE>
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock
Option, except that, unless otherwise determined by the Committee, in
its sole discretion, at the time of grant, a Stock Appreciation Right
granted with respect to less than the full number of shares covered by
a related Stock Option shall not be reduced until the number of shares
covered by an exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with Section 6(b), by surrendering the applicable portion
of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the
manner prescribed in Section 6(b). Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to
the extent the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the
Plan, as shall be determined from time to time by the Committee,
including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they
relate, if any, shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the Plan; provided,
however, that any Stock Appreciation Right granted subsequent to
the grant of the related Stock Option shall not be exercisable
during the first six months of its term, except that this special
limitation shall not apply in the event of death or Disability of
the optionee prior to the expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount
in cash and/or shares of Stock equal in value to the excess of
the Fair Market Value of one share of Stock over the option price
per share specified in the related Stock Option, multiplied by
the number of shares in respect of which the Stock Appreciation
Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable
under Section 5(f) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of
shares of Stock to be issued under the Plan, but only to the
extent of the number of shares issued under the Stock
Appreciation Right at the time of exercise based on the value of
the Stock Appreciation Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the
market price of the Stock subject to the Incentive Stock Option
exceeds the exercise price of such Stock Option.
(vi) In its sole discretion, the Committee may provide, at the time of
grant of a Stock Appreciation Right under this Section 6, that
such Stock Appreciation Right can be exercised only in the event
of a Change-in-Control and/or a Potential Change-in Control,
subject to such terms and conditions as the Committee may specify
at grant.
9-A
<PAGE>
(vii) The Committee, in its sole discretion, may also provide that, in
the event of a Change-in-Control and/or a Potential
Change-in-Control, the amount to be paid upon the exercise of a
Stock Appreciation Right shall be based on the Change-in-Control
Price, subject to such terms and conditions as the Committee may
specify at grant.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan The Committee
shall determine the officers and key employees of the Company to whom,
and the time or times at which, grants of Restricted Stock will be
made, the number of shares to be awarded, the price (if any) to be
paid by the recipient of Restricted Stock (subject to Section 7(b)),
the time or times within which such awards may be subject to
forfeiture, and all other conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the
Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with
respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a Restricted
Stock award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing
the award and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms and
conditions of such award.
(i) The purchase price for shares of Restricted Stock shall be equal
to or less than their par value and may be zero.
(ii) Awards of Restricted Stock must be accepted within a period of 60
days (or such shorter period as the Committee may specify at
grant) after the award date, by executing a Restricted Stock
Award Agreement and paying whatever price (if any) is required
under Section 7(b)(i).
(iii) Each Participant receiving a Restricted Stock award shall be
issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in the
name of such Participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable
to such award, substantially in the following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Scan-Graphics, Inc.
1992 Long-Term Incentive Plan and an Agreement entered into
between the registered owner and Scan-Graphics, Inc. Copies
of such Plan and Agreement are on file at the offices of
Scan-Graphics, Inc., 700 Abbott Drive, Broomall, PA 19008."
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until
the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award, the Participant shall
have delivered a stock power, endorsed in blank, relating to the
Stock covered by such award.
10-A
<PAGE>
(c) Restrictions Conditions. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of
such award (the Restriction Periods), the Participant shall not
be permitted to sell, transfer, pledge, assign or otherwise
encumber shares of Restricted Stock awarded under the Plan.
Within these limits, the Committee, in its sole discretion, may
provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole or in part,
based on service, performance and/or such other factors or
criteria as the Committee may determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section 7(c)(i),
the Participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a shareholder of the
Company, including the right to vote the shares, and the right to
receive any cash dividends. The Committee, in its sole
discretion, as determined at the time of award, may permit or
require the payment of cash dividends to be deferred and, if the
Committee so determines, reinvested in additional Restricted
Stock to the extent shares are available under Section 3.
(iii) Subject to the applicable provisions of the award agreement and
this Section 7, upon termination of a Participant's employment
with the Company for any reason during the Restriction Period,
all shares still subject to restriction shall be forfeited by the
Participant.
(iv) In the event of hardship or other special circumstances of a
Participant whose employment with the Company is involuntarily
terminated (other than for Cause), the Committee may, in it sole
discretion, waive in whole or in part any or all remaining
restrictions with respect to such Participant's shares of
Restricted Stock, based on such factors as the Committee may deem
appropriate.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction
Period, the certificates for such shares shall be delivered to
the Participant promptly.
SECTION 8. Long Term Performance Awards
(a) Awards and Administration. Long Term Performance Awards may be awarded
to officers or key employees of the Company either alone or in
addition to other awards granted under the Plan. The Committee shall
determine the nature, length and starting date of the performance
period (the "Performance Period") for each Long Term Performance
Award, which shall be at least two years (subject to Section 9 below),
and shall determine the performance objectives to be used in valuing
Long Term Performance Awards and determining the extent to which such
Long Term Performance Awards have been earned. Performance objectives
may vary from Participant to Participant and between groups of
Participants and shall be based upon such Company, business unit
and/or individual performance factors and criteria as the Committee
may deem appropriate, including, but not limited to, earnings per
share or return on equity. Performance Periods may overlap and
Participants may participate simultaneously with respect to Long Term
Performance Awards that are subject to different Performance Periods
and/or different performance factors and criteria.
11-A
<PAGE>
At the beginning of each Performance Period, the Committee shall
determine for each Long Term Performance Award subject to such
Performance period the range of dollar values or number of shares of
Stock to be awarded to the Participant at the end of the performance
Period if and to the extent that the relevant measure(s) of
performance for such Long Term Performance Award is (are) met. Such
dollar values or number of shares of Stock may be fixed or may vary in
accordance with such performance and/or other criteria as may be
specified by the Committee, in its sole discretion.
(b) Adjustment of Awards. In the event of special or unusual events or
circumstances affecting the application of one or more performance
objectives to a Long Term Performance Award, the Committee may revise
the performance objectives and/or underlying factors and criteria
applicable to the Long Term Performance Awards affected, to the extent
deemed appropriate by the Committee, in its sole discretion, to avoid
unintended windfalls or hardship.
(c) Termination of Employment. Subject to Section 9 below and unless
otherwise provided in the applicable award agreement(s), if a
Participant terminates employment with the Company during a
Performance Period because of death, Disability or Retirement, such
Participant shall be entitled to a payment with respect to each
outstanding Long Term Performance Award at the end of the applicable
Performance Period:
(i) based, to the extent relevant under the terms of the award, upon
the Participant's performance for the portion of such Performance
Period ending on the date of termination and the performance of
the applicable business unit(s) for the entire Performance
Period, and
(ii) prorated, where deemed appropriate by the Committee, for the
portion of the Performance Period during which the Participant
was employed by the Company, all as determined by the Committee,
in its sole discretion.
However, the Committee may provide for an earlier payment in
settlement of such award in such amount and under such terms and
conditions as the Committee deems appropriate.
Subject to Section 9 below, if a Participant terminates employment
with the Company during a Performance Period for any other reason,
then such Participant shall not be entitled to any payment with
respect to the Long Term Performance Awards subject to such
Performance Period, unless the Committee shall otherwise determine, in
its sole discretion.
(d) Form of Payment. The earned portion of a Long Term-Performance Award
may be paid currently or on a deferred basis with such interest or
earnings equivalent as may be determined by the Committee, in its sole
discretion. Payment shall be made in the form of cash or whole shares
of Stock, including Restricted Stock, either in a lump sum payment or
in annual installments commencing as soon as practicable after the end
of the relevant Performance Period, all as the Committee shall
determine at or after grant. If and to the extent a Long Term
Performance Award is payable in Stock and the full amount of such
value is not paid in Stock, then the shares of Stock representing the
portion of the value of the Long Term Performance Award not paid in
Stock shall again become available for award under the Plan.
12-A
<PAGE>
SECTION 9. Change in Control Provisions
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section 9(b), unless
otherwise determined by the Committee or the Board at or after
grant, but prior to the occurrence of such Change in Control, or
(2) a "Potential Change in Control" as defined in Section 9(c), but
only if and to the extent so determined by the Committee the
Board at or after grant (subject to any right of approval
expressly reserved by the Committee or the Board at the time of
such determination),
the following acceleration and valuation provisions shall apply:
(i) Any Stock Appreciation Rights outstanding for at least six months
and any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully vested and exercisable.
(ii) The restrictions applicable to any Restricted Stock awards under
the Plan shall lapse and such shares and awards shall be deemed
fully vested.
(iii) The value of all outstanding Stock Options, Stock Appreciation
Rights and Restricted Stock awards shall unless otherwise
determined by the Committee at or after grant, be cashed out on
the basis of the "Change in Control Price" as defined in Section
9(d) as of the date such Change in Control or such Potential
Change in Control is determined to have occurred or such other
date as the Committee may determine prior to the Change in
Control.
(iv) Any outstanding Long Term Performance Awards shall be vested and
paid out based on the prorated target results for the Performance
Periods in question, unless the Committee provides at or after
grant and prior to the Change in Control event, for a different
payment.
(b) Definition of Change in Controls. For purposes of Section 9(a), a
"Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act, other than the Company or an Affiliate
of the Company (as defined in Rule 12b-2 under the Securities
Exchange Act) or any Company employee benefit plan (including any
trustee of such plan acting as trustee) is or becomes the
"beneficial owner" (as defined in Rule 1 3d-3 under the Exchange
Act), directly or indirectly of securities of the Company
representing 20 percent or more of the combined voting power of
the Company's then outstanding securities without the consent of
a majority of the Board;
(ii) The occurrence of any transactions or event relating to the
Company required to be described pursuant to the requirements of
Item 5(f) of Schedule 13A of the Exchange Act;
(iii) When, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of
such period, constitute the Board of Directors of the Company
cease for any reason other than death to constitute at least a
two-thirds majority thereof, provided, however, that a director
who was not a director
13-A
<PAGE>
at the beginning of such period shall be deemed to have satisfied
the two year requirement if such director was elected by, or on
the recommendation of, at least two-thirds of the directors who
were directors at the beginning of such period (either actually
or by prior operation of this Section 9(b) (iii); or
(iv) The occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the
Company through purchase of assets, or by merger, or otherwise.
(c) Definition of Potential Change in Control. For purposes of Section
9(a), a "Potential Change in Control" means the happening of any one
of the following:
(i) The entering into an agreement by the Company, the consummation
of which would result in a Change in Control of the Company as
defined in Section 9(b); or
(ii) The acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group other than the Company or any
Company employee benefit plan (including any trustee of such plan
acting as such trustee) of securities of the Company representing
five percent or more of the combined voting power of the
Company's outstanding securities and the adoption by the Board of
Directors of a resolution to the effect that a Potential Change
in Control of the Company has occurred for the purposes of this
Plan.
(d) Change in Control Price. For purposes of this Section 9, "Change in
Control Price" means the highest bid price per share paid in any
transaction as furnished by NASDAQ or the highest price paid or
offered in any bona fide transaction related to a potential or actual
change in control of the Company at any time during the preceding
sixty day period as determined by the Committee except that, in the
case of Incentive Stock Options and Stock Appreciation Rights relating
to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Committee decides to
cash out such options.
(e) Compliance with Section 280G. No payment shall be made under this
Section 9 which, when aggregated with other payments made to the
employee, would, as determined by such person(s) as the Committee
shall irrevocably designate at or prior to a Change in Control or
Potential Change in Control, result in an excess parachute payment for
which the Company, would not receive a Federal income tax deduction by
reason of Section 280G of the Code.
SECTION 10. Amendments and Termination
The Board may amend, alter, or discontinue the Plan at any time and from
time to time, but no amendment, alteration, or discontinuation shall be made
which would impair the rights of an optionee or Participant under a Stock
Option, Stock Appreciation Right, Restricted Stock or Long Term Performance
Award theretofore granted, without the optionee's or Participant's consent, or
which, without the approval of the Company's stockholders, would:
(a) except as expressly provided in this Plan, increase the total number
of shares reserved for the purpose of the Plan;
(b) decrease the option price of (i) any Stock Option to less than 100% of
the Fair Market Value on the date of grant, or (ii) change the pricing
terms of Section 9(a);
14-A
<PAGE>
(c) change the employees or class of employees eligible to participate in
the Plan, or
(d) extend the maximum option period under Section 5(b) of the Plan.
Except for awards made to Eligible Directors pursuant to Section 5(n), the
Committee may amend the terms of any Stock Option or other award theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without the holder's
consent. Except for awards made to Eligible Directors pursuant to Section 5(n),
the Committee may also substitute new Stock Options for previously granted Stock
Options, including previously granted Stock Options having higher option prices.
Subject to the above provisions, the Board shall have broad authority to
amend the Plan to take into account changes in applicable tax laws and
accounting rules, as well as other developments.
SECTION 11. Unfunded Status of Plan
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or optionee by the Company, nothing contained herein shall give any
such Participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder; provided, however, that, unless the Committee otherwise determines
with the consent of the affected Participant, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the Plan.
SECTION 12. General Provisions
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent to and agree with the Company
in writing that the optionee or Participant is acquiring the shares
without a view to distribution thereof. The certificates for such
shares may included any legend which the Committee deems appropriate
to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock-transfer orders and
other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Exchange Act, any
stock exchange upon which the Stock is then listed, and any applicable
Federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) The adoption of the Plan shall not confer upon any Participant any
right to continued employment with the Company, as the case may be,
nor shall it interfere in any way with the right of the Company to
terminate the employment of any of its employees, directors, or
independent contractors at any time.
15-A
<PAGE>
(d) No later than the date as of which an amount first becomes includible
in the gross income of the Participant for Federal income tax purposes
with respect to any award under the Plan, the Participant who is an
officer or key employee of the Company, shall pay to the Company, or
make arrangements satisfactory to the Committee regarding the payment
of, any Federal, state, or local taxes of any kind required by law to
be withheld with respect to such amount. Unless otherwise determined
by the Committee, the minimum required withholding obligations may be
settled with Stock, including Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements and the Company shall to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind
otherwise due to the Participant.
(e) At the time of grant, the Committee may provide in connection with any
grant made under this Plan that the shares of Stock received as a
result of such grant shall be subject to a right of first refusal,
pursuant to which the Participant shall be required to offer to the
Company any shares that the Participant wishes to sell, with the price
being the then Fair Market Value of the Stock, subject to such other
terms and conditions as the Committee specify at the time of grant.
(f) The reinvestment of dividends in additional Restricted Stock (or in
other types of Plan awards) at the time of any dividend payment shall
only be permissible if sufficient shares of Stock are available under
Section 3 for such reinvestment (taking into account then outstanding
Stock Options and other Plan awards).
(g) The Committee shall establish such procedures as it deems appropriate
for a Participant to designate a beneficiary to whom any amounts
payable in the event of the Participant's death are to be paid.
SECTION 13. Effective Date of Plan
The Plan shall be effective as of March 11, 1992, subject to the approval
of the Company's shareholders.
SECTION 14. Term of Plan
No Stock Option, Stock Appreciation Right, Restricted Stock or Long Term
Performance Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the date of stockholder approval, but awards granted prior to
such tenth anniversary may extend beyond that date.
16-A
<PAGE>
Scangraphics, Inc.
Proxy for Annual Meeting of Shareholders June 25, 1997
The undersigned hereby appoints ANDREW E. TROLIO and MICHAEL A. MULSHINE,
or either of them acting in the absence of the other, with full power of
substitution, the proxy or proxies of the undersigned to attend the annual
meeting of shareholders of Scangraphics, Inc., to be held on Wednesday, June 25,
1997, and at any adjournments thereof, to vote the shares of stock that the
signer would be entitled to vote if personally present as indicated below and on
the reverse side hereof and on any other matters brought before the meeting, all
as set forth in the May 23, 1997 proxy statement, receipt of which is hereby
acknowledged.
Please date, sign and return promptly.
This proxy is solicited on behalf of the Board of Directors of
Scangraphics, Inc.
1. ELECTION OF DIRECTORS: Nominees: Andrew E. Trolio, R. Barry Borden, David
S. Hirsch, Michael A. Mulshine, Laurence L. Osterwise, Jack A. Pellicci and
James C. Sargent.
| | FOR all nominees.
| | WITHHOLD authority for all nominees.
| | WITHHOLD authority for the following nominee(s)
and vote FOR all other nominees.
- -------------------------------------------------------------------------------
The Board of Directors recommends that you vote FOR all nominees.
2. Approval of adoption of amendments to the 1992 Long-Term Incentive Plan.
| | FOR | | AGAINST | | ABSTAIN
<PAGE>
3. To ratifiy the appointment of BDO Seidman, LLP as Independent Auditors of
the Company for the current year.
| | FOR | | AGAINST | | ABSTAIN
Your signature(s) on this proxy form should be exactly as your name and/or names
appear on this proxy. If the stock is held jointly, each holder should sign. If
signing is by an attorney, executor, administrator, trustee or guardian, please
give full title.
Dated:_________________________1997
-------------------------------
Signature
-------------------------------
Signature
The shares represented by this proxy will be voted as directed by the
shareholder. If no direction is given when the fully executed proxy is returned,
such shares will be voted in accordance with the recommendations of the Board of
Directors FOR all nominees, FOR proposal 2 and FOR proposal 3.
