SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section240.14a-12
LARSON DAVIS INCORPORATED
-------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filling Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2),
or Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined).
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------
2) Form, Schedule, or Registration Statement No.:
-----
3) Filing Party:
------------------
4) Date Filed:
--------------------
LARSONoDAVIS INCORPORAT
1681 WEST 820 NORTH
PROVO, UTAH 84601
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 26, 1998
TO THE SHAREHOLDERS OF LARSONoDAVIS INCORPORATED:
The 1998 annual meeting of the shareholders (the "Annual Meeting") of
LarsonoDavis Incorporated (the "Company") will be held at the Olympus Hotel, 161
West 600 South, Salt Lake City, Utah 84101, on June 26, 1998. The Annual
Meeting will convene at 9:00 a.m., local time, to consider and take action on
the following proposals:
(1) To elect four directors to serve until the expiration of their
respective terms and until their respective successors are elected and
qualified; and
(2) To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
ONLY OWNERS OF RECORD OF THE 12,537,204 SHARES OF THE COMPANY'S COMMON
STOCK AND OF THE 3,500 SHARES OF THE COMPANY'S 1998 SERIES A PREFERRED STOCK
ISSUED AND OUTSTANDING AS OF THE CLOSE OF BUSINESS ON MAY 18, 1998 (THE "RECORD
DATE"), WILL BE ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING. THE
COMMON STOCK AND THE 1998 SERIES A PREFERRED STOCK WILL VOTE JOINTLY AS A SINGLE
CLASS. EACH SHARE OF COMMON STOCK IS ENTITLED TO ONE (1) VOTE AND EACH SHARE OF
THE 1998 SERIES A PREFERRED STOCK IS ENTITLED TO TWO HUNDRED SEVENTY EIGHT (278)
VOTES.
HOLDERS OF AT LEAST ONE-THIRD OF THE TOTAL VOTING INTEREST FOR SHARES OF
COMMON AND PREFERRED STOCK OUTSTANDING AND ENTITLED TO VOTE ON THE RECORD DATE
MUST BE REPRESENTED AT THE ANNUAL MEETING TO CONSTITUTE A QUORUM FOR CONDUCTING
BUSINESS.
THE ATTENDANCE AT AND/OR VOTE OF EACH SHAREHOLDER AT THE ANNUAL MEETING IS
IMPORTANT, AND EACH SHAREHOLDER IS ENCOURAGED TO ATTEND.
LARSONoDAVIS INCORPORATED
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Craig E. Allen
Craig E. Allen, Secretary
Provo, Utah
Dated: May 27, 1998
IMPORTANT
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
FILL IN, SIGN, DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE SELF-
ADDRESSED, STAMPED ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
SPECIAL REQUEST
If your shares are held in the name of a brokerage firm, nominee, or other
institution, only it can vote your shares. Please contact promptly the person
responsible for your account and give instructions for your shares to be voted.
LARSONoDAVIS INCORPORATED
1681 WEST 820 NORTH
PROVO, UTAH 84601
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the management of LarsonoDavis Incorporated (the
"Company"), to be voted at the annual meeting of shareholders to be held at the
Olympus Hotel, 161 West 600 South, Salt Lake City, Utah 84101, on June 26, 1998,
at 9:00 a.m., local time, or at any adjournment thereof (the "Annual Meeting").
The enclosed proxy, when properly executed and returned in a timely manner, will
be voted at the Annual Meeting in accordance with the directions set forth
thereon. If no instructions are indicated on the enclosed proxy, at the Annual
Meeting the proxy will be voted:
(1) FOR the election of the four nominees of management set forth herein
as directors of the Company, to serve as directors until the
expiration of their respective terms and until their successors are
elected and qualified; and
(2) IN accordance with the best judgment of the persons acting as proxies
on any other matters presented for a vote.
The enclosed proxy, even though executed and returned to the Company, may
be revoked at any time before it is voted, either by giving a written notice,
mailed or delivered to the secretary of the Company, by submitting a new proxy
bearing a later date, or by voting in person at the Annual Meeting. If the
proxy is returned to the Company without specific direction, the proxy will be
voted in accordance with the board of directors' recommendations as set forth
above.
The entire expense of this proxy solicitation will be borne by the Company.
In addition to this solicitation, officers, directors, and regular employees of
the Company, who will receive no extra compensation for such services, may
solicit proxies by mail, by telephone, or in person. This proxy statement and
form of proxy were first mailed to stockholders on or about May 27, 1998.
Only holders of the Company's 12,537,204 shares of common stock, par value
$0.001 (the "Common Stock"), and of the Company's 3,500 shares of 1998 Series A
Preferred Stock, par value $0.001 (the "Preferred Stock"), issued and
outstanding as of the close of business on May 18, 1998 (the "Record Date"),
will be entitled to vote at the Annual Meeting. The shares of Common and
Preferred Stock will be voted jointly as a single class. Each share of Common
Stock is entitled to one vote and each share of Preferred Stock is entitled to
two hundred seventy eight votes. Holders of at least one-third of the total
voting interest for shares of Common Stock and Preferred Stock outstanding on
the Record Date and entitled to vote must be represented at the Annual Meeting
to constitute a quorum for conducting business.
All properly executed and returned proxies as well as shares represented in
person at the Annual Meeting will be counted for purposes of determining if a
quorum is present, whether the proxies are instructed to abstain from voting or
consist of broker non-votes. Under Nevada corporate law and the Company's
articles of incorporation and bylaws, the election of directors requires a vote
by a plurality of the shares present at the Annual Meeting. All other matters,
except certain specified extraordinary matters, are considered approved by the
shareholders if approved by at least a majority of the shares constituting a
quorum at a meeting of the shareholders. Therefore, abstentions and broker non-
votes have the same legal effect as a vote against a proposal other than the
election of directors.
PROPOSAL TO ELECT DIRECTORS
General
The Company's articles of incorporation provide that the board of directors
shall be divided into three classes, with each class as equal in number as
practicable. One class is to be elected each year for a three-year term. Due
to the resignation of prior directors, all four of the recently appointed
directors of the Company will be elected at the Annual Meeting. In order to
apportion the directors into classes as equal in number as possible, one
director will be elected to serve a one-year term, two directors will be elected
to each serve a two-year term, and one director will be elected to serve a
three-year term. The board of directors has nominated Jeffrey S. Cohen to serve
for a term expiring at the annual meeting to be held in 1999, Sir Colin Dollery
and Stanley Friedman each to serve for a term expiring at the annual meeting to
be held in 2000, and Andrew C. Bebbington to serve for a term expiring at the
annual meeting to be held in 2001, in each case until their respective
successors shall have been elected and qualified. The officers of the Company
are elected at the annual meeting of the board of directors to hold office at
the pleasure of the board, subject to their employment agreements.
It is intended that votes will be cast, pursuant to authority granted by
the enclosed proxy, for the election of the nominees named below as directors of
the Company, except as otherwise specified in the proxy. In the event any
nominee shall be unable to serve, votes will be cast, pursuant to authority
granted by the enclosed proxy, for such person as may be designated by the board
of directors. Biographical information follows for the persons nominated. The
information concerning the nominees has been furnished by them to the Company.
Directors, Nominees, and Executive Officers
The board of directors' nominees for election as directors of the Company
at the Annual Meeting are Andrew C. Bebbington, Jeffrey S. Cohen, Sir Colin
Dollery, and Stanley Friedman. The following table sets forth certain
information concerning the nominees and the executive officers of the Company.
There is no family relationship among the officers and directors of the Company.
<TABLE>
<CAPTION>
Year
---------------------
Director Term to Business Experience During Past
Name Age Since Expire(1) Five Years and Other Information
- --------------------- --- -------- --------- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Andrew C. Bebbington 37 1997 2001 President and a Director of the Company. Mr. Bebbington, was
appointed as a director and president of the Company in
November 1997. Mr. Bebbington was formerly president of
Neslab Instruments Inc. for a period of six years, as well as
serving on the board of directors of Life Sciences
International PLC until its purchase by Thermo Electron, Inc.,
in March 1997. Prior to this position, Mr. Bebbington served
as business development director of Life Sciences for a period
of four years during which time he was responsible for
coordinating Life Sciences' rapid expansion through
acquisition. Mr. Bebbington is a graduate of the London
School of Economics and a Chartered Accountant.
Jeffrey S. Cohen 38 1998 1999 Chief Operating Officer and a Director. Mr. Cohen was
appointed as a director of the Company and to serve as chief
operating officer of the Company in February 1998. Mr. Cohen
was formerly a vice-president at Orion Research, a subsidiary
of Thermedics Corporation, itself a subsidiary of Thermo
Electron Inc. Prior to this position, Mr. Cohen held a
variety of positions encompassing senior management roles in
engineering, operations, and marketing for several different
organizations. He holds a masters degree from the University
of Lowell in computer engineering, and an undergraduate degree
in microbiology from The University of Massachusetts at
Amherst. He also holds an MBA from Northeastern University.
Sir Colin Dollery 67 1998 2000 Director of the Company. Sir Colin Dollery currently serves
as a senior consultant to the research and development group
at SmithKline Beecham PLC. Prior to this, he served as
Chairman of Clinical and Biopharmaceutical Consultancy Ltd.,
served as a non-executive director of Life Sciences
International PLC, and has been employed by Merck & Company as
well as by Zeneca Pharmaceuticals PLC in various senior
advisory roles, reporting to the Board of Directors. A former
Professor and Chairman of the Department of Clinical
Pharmacology at the Royal Postgraduate Medical School, he
holds the title of Professor Emeritus at the University of
London and holds a number of advanced degrees.
Stanley Friedman 70 1998 2000 Director of the Company. Mr. Friedman has had extensive
experience in high technology corporations. He served at ITT
Corporation for 15 years, retiring as a Corporate Vice-
President and Group Executive. Previous executive positions
included Vice-President and Division General Manager with
Lockheed Electronics, a division of Lockheed Aircraft
Corporation, as well as management positions with RCA Corp.
An electrical engineering graduate of Worcester Polytechnic
Institute, he holds an advanced engineering degree from Purdue
University in addition to being a Sloan Fellow at Stanford
University. He is currently a director of Spaulding
Composites, Inc., a manufacturer of industrial materials.
Craig E. Allen 46 (2) (2) Chief financial officer of the Company. Mr. Allen was
formerly controller of CUSA Technologies, Inc., from September
1994 to December 1996. Prior to that, Mr. Allen was a senior
audit manager with the accounting firm of Grant Thornton LLP
where he had been employed since 1978. Mr. Allen is a
certified public accountant and received a masters degree in
accounting from Brigham Young University in 1978.
</TABLE>
[FN]
(1) The year given for the expiration of the term of each director gives
effect to the election of such director to the term as proposed herein.
(2) Mr. Allen is the chief financial officer of the Company. Mr. Allen was
appointed to that position in December 1996, and serves at the pleasure of
the board of directors, although he has a written employment agreement
which has a term of five years.
Vote Required
Directors are elected by the affirmative vote of the holders of a plurality
of the shares of Common and Preferred Stock voted at the Annual Meeting. That
is, directors receiving the largest number of votes will be elected to fill the
open positions. Abstentions and broker non-votes will not be counted in the
election of directors.
The board of directors recommends a vote "FOR" the election of the nominees
of management set forth herein as directors of the Company, to serve in such
capacities until the expiration of their term and until their successors are
elected and qualified. In the absence of contrary instructions, proxies will be
voted in favor of each of the nominees.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 18, 1998, the number of shares of
the Company's common stock, par value $0.001, held of record or beneficially by
each person who held of record or was known by the Company to own beneficially,
more than 5% of the Company's common stock, and the name and shareholdings of
each director and named executive officer and of all executive officers and
directors as a group.
<TABLE>
<CAPTION>
Amount and Nature of Ownership
--------------------------------------
Sole Voting and Percent of
Name of Person or Group Investment Power(1) Class(2)(3)
- --------------------------------- ------------------- -----------
<S> <C> <C> <C>
Principal Shareholders:
Larry J. Davis(4) Common Stock 684,157 5.5%
10455 North Edinburgh Options 220,000 1.7%
Highland, Utah 84003 -------
Total 904,157 7.1%
Mellon Bank Corporation(5) Common Stock 775,000 6.2%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Named Executive Officers
and Directors:
Andrew C. Bebbington(6) Common Stock 0 0.0%
Options 1,000,000 7.4%
---------
Total 1,000,000 7.4%
Jeffrey S. Cohen(7) Common Stock 1,000 0.0%
Options 300,000 2.3%
-------
Total 301,000 2.3%
Sir Colin Dollery(8) Common Stock 0 0.0%
Options 30,000 0.2%
------
Total 30,000 0.2%
Stanley Friedman(9) Common Stock 0 0.0%
Options 30,000 0.2%
------
Total 30,000 0.2%
All Officers and Directors Common Stock 6,577 0.1%
as a Group (5 Persons) Options 1,375,000 9.9%
---------
Total 1,381,577 9.9%
</TABLE>
[FN]
(1) Except as otherwise indicated, to the best knowledge of the Company, all
stock is owned beneficially and of record, and each shareholder has sole
voting and investment power.
(2) The percentages shown are based on 12,537,204 shares of common stock of
the Company issued and outstanding as of May 18, 1998.
(3) The percentage ownership for the options held by the indicated individuals
is based on an adjusted total of issued and outstanding shares giving
effect only to the exercise of each individual's options.
(4) Mr. Davis was a co-founder of the Company and a prior executive officer
and director. Mr. Davis resigned from these positions in November 1997.
Mr. Davis is currently an employee of the Company.
(5) These shares are held by Mellon Bank Corporation and its subsidiaries,
Mellon Bank, N.A. and The Dreyfus Corporation. The number of shares owned
reflects the holdings of these entities as of January 20, 1998, the latest
date for which the Company has information.
(6) The options held by Mr. Bebbington were granted to him in connection with
his agreement to assume the positions of chief executive officer and a
director of the Company. Options with respect to 250,000 shares are
currently vested. The remainder will vest with respect to 250,000 shares
on each of December 31, 1998, 1999, and 2000. The exercise price of the
options ranges from $3.60 per share to $6.50 per share.
(7) The options held by Mr. Cohen were granted to him in connection with his
agreement to become the chief operating officer and a director of the
Company. Initially, the options were granted at an exercise price of
$2.99 per share and vested 25% of the grant date and 25% on each of
December 31, 1998, 1999, and 2000, although the vesting of options to
acquire 112,500 of these shares was dependent on the achievement of
certain performance criteria established by the Company in the future.
Subsequent thereto, the option was amended such that the exercise price
ranges from $3.00 to $5.50, the performance criteria were eliminated, and
the option vests in equal increments on the date of grant and on December
31, 1998, 1999, and 2000.
(8) The option held by Mr. Dollery was granted to him in connection with his
joining the board of directors. The option vests with respect to 15,000
shares annually and no shares are currently vested. The option has an
exercise price of $2.9375 per share.
(9) The option held by Mr. Friedman was granted to him in connection with his
joining the board of directors. The option vests with respect to 15,000
shares annually and no shares are currently vested. The option has an
exercise price of $2.9375 per share.
1998 SERIES A PREFERRED STOCK
In February 1998, the Company designated and issued its 1998 Series A
Preferred Stock consisting of 3,500 shares, par value $0.001 per share. The
following table sets forth, as of May 18, 1998, the number of shares of the 1998
Series A Preferred Stock held of record or beneficially by each person who held
of record or was known by the Company to own beneficially, more than 5% of the
Company's 1998 Series A Preferred Stock. None of such shareholders would hold
5% or more the Company's common stock if the 1998 Series A Preferred Stock was
converted based on its terms and the closing price for the Company's common
stock of $2.47 on May 18, 1998.
<TABLE>
<CAPTION>
Amount and Nature of Ownership
--------------------------------------
Sole Voting and Percent of
Name of Person or Group Investment Power(1) Class(2)
- ----------------------- ------------------- ----------
<S> <C> <C> <C>
Principal Shareholders:
The Ace Foundation Preferred Stock 595 17.0%
$4.50 Warrants 119,000
BHSY Special Projects Preferred Stock 306.25 8.8%
$4.50 Warrants 61,250
Charles Kushner Preferred Stock 490 14.0%
$4.50 Warrants 98,000
Murray Kushner Preferred Stock 280 8.0%
$4.50 Warrants 56,000
Jules Norducht Preferred Stock 350 10.0%
$4.50 Warrants 70,000
Common Stock 20,000
Wayne Saker Preferred Stock 245 7.0%
$4.50 Warrants 49,000
Richard Stadmaur Preferred Stock 210 6.0%
$4.50 Warrants 42,000
</TABLE>
[FN]
(1) Except as otherwise indicated, to the best knowledge of the Company, all
stock is owned beneficially and of record, and each shareholder has sole
voting and investment power.
(2) The percentages shown are based on 3,500 shares of preferred stock of the
Company issued and outstanding as of May 18, 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of equity securities of the Company. Officers, directors,
and greater than 10% shareholders are required to furnish the Company with
copies of all Section 16(a) forms they file.
The report on Form 4 for the month of December 1997 of Nathan West, the
Company's controller, reporting the award of 480 shares of common stock was
filed late. William E. Hosker, a former director, was late in filing a report
for the month of October 1997, regarding the grant of shares to him for
consulting services. Brian G. Larson, the former chief executive officer of the
Company, did not file a report for the month of August 1997 regarding the
exercise of certain compensatory options held by him.
Other than the foregoing, the Company believes that all reports required by
Section 16(a) for transactions in the year ended December 31, 1997, were timely
filed.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company and its
subsidiaries for the year ended December 31, 1997, the six months ended December
31, 1996, and the fiscal years ended June 30, 1996 and 1995, to the chief
executive officer of the Company and the other executive officers of the Company
who received compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------
Annual Compensation Awards Payoffs
----------------------------- ------------------------ -------
Other
Annual All Other
Compen- Restricted LTIP Compen-
Name and sation Stock Options/ Payouts sation
Principal Position Year Salary($) Bonus($) ($)(1) Awards($) SARs(#) ($) ($)
- ------------------------ ----------- --------- -------- -------- ---------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew C. Bebbington, 12/31/97(2) $ 31,250 $ 0 $ 575 $ 0 1,000,000 $ 0 $ 0
CEO and Chairman
of the Board
Brian G. Larson, 12/31/97 $196,001 $ 0 $18,416 $ 0 0 $ 0 $1,165,643(5)
Former CEO and 12/31/96(3) $106,909 $ 0 $ 9,442 $ 0 0 $ 0 $ 0
Chairman of the Board 06/30/96 $198,779 $ 0 $ 4,500 $ 0 500,000(4) $ 0 $ 0
06/30/95 $181,116 $ 0 $ 4,500 $ 0 30,000 $ 0 $ 0
Larry J. Davis, 12/31/97 $211,687 $ 0 $14,896 $ 0 0 $ 0 $ 73,143(5)
Former Vice-President 12/31/96(3) $106,909 $ 0 $ 9,218 $ 0 0 $ 0 $ 0
06/30/96 $198,779 $ 0 $ 4,500 $ 0 500,000(4) $ 0 $ 0
06/30/95 $181,116 $ 0 $ 4,500 $ 0 30,000 $ 0 $ 0
Dan J. Johnson, 12/31/97 $147,008 $ 0 $15,671 $ 0 0 $ 0 $ 112,350(5)
Former Vice-President 12/31/96(3) $ 80,253 $ 0 $ 6,085 $ 0 0 $ 0 $ 0
and Secretary/Treasurer 06/30/96 $160,407 $ 0 $ 4,500 $ 0 425,000(4) $ 0 $ 0
06/30/95 $129,566 $ 0 $ 4,500 $ 0 30,000 $ 0 $ 0
</TABLE>
[FN]
(1) These amounts reflect the benefit to the named executive officers of
automobiles provided to such officers by the Company and amounts paid by
the Company for health, disability, and life insurance.
(2) Mr. Bebbington accepted the positions of chief executive officer and a
member of the board of directors effective November 17, 1997. Mr.
Bebbington was not previously an employee of the Company. The foregoing
table reflects amounts paid, awarded, or accrued for Mr. Bebbington from
November 17, 1997, to December 31, 1997.
(3) This reflects amounts paid, awarded, or accrued for the six month
transition period ended December 31, 1996.
(4) These options were cancelled in November 1997 pursuant to the provisions
of the termination agreements entered into between the former executive
officers and the Company.
(5) These amounts reflect the value of termination payments to former officers
and directors, including the value of common stock received, plus severance
and accrued vacation paid in 1997.
The following table sets forth the information concerning the options
granted to the named executive officers during the year ended December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual
Individual Grants Rates of Stock Appreciation for Option Term
- -------------------------------------------------------------------------- --------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees During Base Price Expiration 5% 10%
Name Granted (#) Fiscal Year ($/share) Date ($) ($)
- -------------------- -------------------- ---------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Andrew C. Bebbington 1,000,000 83.2% $5.75(1) (2) $2,157,591 $4,994,417
</TABLE>
[FN]
(1) The option was granted at $5.75 per share but was exercisable with respect
to 500,000 shares at the lower of the grant price or 80% of the trading
price (but not less than $3.60 per share). Subsequent to December 31,
1997, this option was terminated in favor of an option to purchase
1,000,000 shares of common stock, of which the right to exercise is
immediately vested with respect to 250,000 shares at $3.60 per share;
the right to exercise will vest with respect to 83,333 shares on each
of December 31, 1998, 1999, and 2000, at $3.60 per share; and the right
to exercise will vest with respect to 166,667 shares on each of December
31, 1998, 1999, and 2000, at $4.50 per share, $5.50 per share, and $6.50
per share, respectively.
(2) The option expires with respect to each block of stock five years
subsequent to the vesting of the right to exercise such block of stock.
The right to exercise vested with respect to 250,000 shares on November
17, 1997, and will vest with respect to 250,000 shares on each of
December 31, 1998, 1999, and 2000.
The following table sets forth the information concerning the options
exercised by the named executive officers during the year ended December 31,
1997, and the value of unexercised options as of December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-t(e)Money
Options/SARs at Options/SARs at
FY End (#) FY End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- --------------- --------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Brian G. Larson 220,000 $1,975,000 30,000/0 $0/$0
Larry J. Davis 30,000 $288,750 220,000/0 $119,438/$0
Dan J. Johnson 30,000 $262,500 246,365/0 $181,536/$0
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with its chief executive
officer (CEO) and chief operating officer (COO) as of November 1997 and February
1998, respectively. These agreements have initial terms that expire December
31, 2000, and February 2, 1999, respectively, but renew automatically so there
is always an unexpired one-year term. The employment agreements require
devotion of the full business time of the executive to the Company, prohibit the
executive from competing in any fashion with the Company during the term of the
agreement and for one year subsequent to termination, and prohibit disclosure or
use by the executive of trade secrets or other confidential information of the
Company for a period of three years subsequent to termination.
The employment agreements provide for annual compensation of $250,000 and
$140,000 for the CEO and COO, respectively, plus certain guaranteed bonuses for
1998 only. Under the terms of the employment agreements, the salary for Mr.
Cohen is subject to an annual increase as may be determined by the board of
directors or the compensation committee of the Company. Bonuses in future years
may be paid at the discretion of the board of directors or compensation
committee based on performance.
In connection with the execution of the employment agreements, the CEO was
granted options to acquire 1,000,000 shares of common stock with an exercise
price of between $3.60 and $6.50 per share. The COO was granted options to
acquire 300,000 shares of common stock with exercise prices of $3.00 to $5.50
per share. The right to exercise such options vest in the executive with
respect to 25% of the shares as of the date of grant and an additional 25% each
year thereafter. The options expire, if not previously exercised, five years
after vesting.
In the event that the executive is disabled or dies during the term of his
employment agreement, he is entitled to the better of (i) the benefits under any
disability policy maintained by the Company; or (ii) his base salary for a
period of 90 days.
The employment agreements can be terminated by the Company for cause by
showing that the executive has materially breached the terms of the employment
agreement, that the executive, in the reasonable determination of the board of
directors, has been grossly negligent or engaged in material willful or gross
misconduct in the performance of his duties, or that the executive has committed
or been convicted of fraud, embezzlement, theft, dishonesty, or other criminal
conduct against the Company. On the sale or transfer of all or substantially
all of the assets of the Company, the merger of the Company into another entity,
the termination of the business of the Company, a change in control of the
Company, or the continued breach by the Company of the employment agreement
after 20 days written notice, the executive has the right to terminate the
employment agreement. In the event of a termination of the employment agreement
other than by the Company for cause, the executive will receive an amount equal
to the amount of salary that would otherwise accrue to executive during the
remaining employment period, except that in the case of the CEO, the amount will
not be less than his base salary for a one-year period. In addition, the
options held by the executive that had not previously vested, except the options
with respect to the last 250,000 shares, would immediately vest and become
exercisable.
The Company agrees to indemnify the executives and hold them harmless from
liability for acts or decisions made by the executive in connection with
providing services to the Company to the greatest extent permitted by law. The
Company has an obligation to use its best efforts to obtain officer's and
director's insurance covering the executive. Each of the executives agree to
indemnify the Company and hold it harmless from liabilities arising from their
acts or omissions in violation of their duties under the employment agreements
that constitute fraud, gross negligence, or willful and knowing violations.
COMPENSATION OF DIRECTORS
The Company compensates its outside directors for service on the board of
directors by payment of a monthly fee of $1,000, payment of $2,000 for each
board meeting attended, and reimbursement of expenses incurred in attending
board meetings. The Company does not separately compensate its board members
who are also employees of the Company for their service on the board. The
Company adopted its 1996 Director Stock Option Plan pursuant to which directors
may be granted options to acquire shares of common stock. In connection with
the appointment of Mr. Friedman and Sir Dollery as directors of the Company,
each was granted an option to acquire 30,000 shares of common stock of the
Company at an exercise price of $2.9375 per share. The right to exercise these
options vests 50% per year for each of the next two years. The exercise price
of these options was fixed at the closing price of the Company's common stock on
April 30, 1998, the day immediately preceding their appointment to the board of
directors of the Company. Gerald Seelig, a former director of the Company,
holds an option to acquire 100,000 shares at $7.00 per share under this plan.
In March 1998, the Company granted an option to Mr. Hosker to acquire 30,000
shares of common stock at $3.00 per share, of which 22,500 shares were
immediately vested and in turn, Mr. Hosker surrendered a prior option to acquire
200,000 shares at $7.00 per share. As a result of the relinquishment of their
board positions, the options held by Messrs. Hosker and Seelig will expire on
April 30, 1999 if not previously exercised.
In 1997, the board of directors appointed Mr. Hosker to act on behalf of
the board in pursuing potential strategic relationships with companies in the
petrochemical and chemical industries. This required a significant time
commitment from Mr. Hosker over a period of several months. The board
compensated Mr. Hosker for his time by delivering 15,135 shares of the Company's
common stock with a then current value of $95,540.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Company does not have a compensation committee. Consequently, the
entire board, other than the particular individual executive officer involved,
participates in the setting of compensation for senior management. Prior to
November 14, 1997, when they resigned from all positions with the Company, the
executive officers who also served as directors were Brian G. Larson, Larry J.
Davis, and Dan J. Johnson. On November 17, 1997, Andrew C. Bebbington became
the Company's chief executive officer and was appointed to the board of
directors. Recently, Jeffrey S. Cohen has been hired as the Company's chief
operating officer and appointed as a member of the board.
Subsequent to their termination as employees of the Company, Mr. Larson and
Mr. Johnson exercised options to acquire 30,000 shares and 246,365 shares of
common stock, respectively. Mr. Larson delivered a promissory note to the
Company in the principal amount of $109,313 in connection with the exercise of
his options and Mr. Johnson delivered a promissory note in the principal amount
of $616,878 in connection with the exercise of his options. Mr. Johnson had
also earlier delivered a promissory note in the principal amount of $69,375 in
connection with his exercise of an option to acquire 30,000 shares in June 1997.
Each of the notes provide for interest of 8% to 8.5% per annum and payment in
three annual installments of interest and one-third of the principal amount.
Mr. Larson and Mr. Johnson also agreed to reimburse the Company for an
aggregate of $247,766 in trust fund deposits made on their behalf with the
Internal Revenue Service in connection with 200,000 shares of common stock
issued to them pursuant to their termination agreements. The Company has
withheld delivery of 68,352 shares of common stock to secure this obligation.
Board Meetings
The board of directors met five times in 1997. All directors attended the
meetings either in person or by telephone.
The Company has an audit committee presently consisting of Sir Colin
Dollery and Stanley Friedman. This committee did not hold a meeting in 1997.
Report on Executive Compensation
Management compensation is overseen by the board of directors of the
Company, which consists of two members of senior management and two outside
directors who are not employees of the Company.
Compensation Philosophy. The board of directors recognizes the need to
attract and retain qualified executives with appropriate experience and
technical capabilities. The Company operates in the high-technology
instrumentation field, which is a fast moving, dynamic, and competitive market
place. Compensation programs reflect this challenging environment and are made
up of three critical elements; a competitive base-line salary, a bonus program
dependent on the achievement of pre-determined profit targets, and a medium- to
long-term incentive program based on the increase of shareholder value over
time.
Chief Executive Compensation. The Company has entered into a three year
employment contract with Mr. Bebbington. His compensation for 1997 represented
only his base salary for the period from November 17, 1997. His salary for 1998
is $250,000. Mr. Bebbington's salary was set after consultation with an
independent firm specializing in placing employees, who were engaged to provide
advice to the board of directors as part of the executive search for a
replacement CEO in 1997. This base salary is fixed for three years.
Bonus and Stock Option Compensation. For 1998 only, Mr. Bebbington is
entitled to a guaranteed bonus of $100,000 and Mr. Cohen is entitled to a
guaranteed bonus of $45,000 and a variable bonus of $15,000 subject to the
Company achieving profitability in 1998. In future years, these bonuses will
become variable based on pre-determined objectives set by the board of directors
around achievement of budget goals. These arrangements for 1998 were entered
into as part of the overall package to induce Messrs. Bebbington and Cohen to
relocate to Utah from the Eastern United States.
Options to acquire 1,000,000 shares of common stock have been granted to
Mr. Bebbington at exercise prices of $3.60, $4.50, $5.50, and $6.50, with
vesting in equal increments on the date of grant and on December 31, 1998, 1999,
and 2000. Options to acquire 300,000 shares of common stock have been granted
to Mr. Cohen, of which 187,500 are exercisable at $3.00, 37,500 at $3.60, 37,500
at $4.50, and 37,500 at $5.50, with vesting in equal increments on the date of
grant and on December 31, 1998, 1999, and 2000.
Review of Performance. Messrs. Bebbington and Cohen were recruited to turn
the Company around from heavy losses in 1997. Their immediate focus is to
reduce the level of losses and bring the Company to profitability in the current
year by commercializing the available technology in the Company. The first
quarter of 1998 has already shown progress towards that goal and the board of
directors is encouraged by the progress made, given extremely difficult
circumstances. The board of directors believes the compensation of the
executive officers is fair and reasonable for both the officers and the
shareholders of the Company.
Board of Directors:
Andrew C. Bebbington
Jeffrey S. Cohen
Sir Colin Dollery
Stanley Friedman
Performance Graph
The following performance graph compares the performance of the Company's
common stock to the Total Returns Index for the Nasdaq Stock Market (U. S.
Companies) and an industry peer group. The industry peer group, selected by the
Company, is comprised of 127 U. S. companies whose stock is traded on Nasdaq and
which are included in Standard Industrial Code Classification No. 382 entitled
"Measuring and Controlling Devices." The graph assumes that $100 was invested
on June 30, 1993, in the Company's stock and the indices. It is also assumed
that dividends were reinvested when paid. The Company's fiscal year formerly
ended on June 30, but was changed to December 31, effective December 31, 1996.
<TABLE>
<CAPTION>
Comparison of Cumulative Total Return
[Graphical representation of the performance of the Company's stock as compared
to the Total Returns Index for the Nasdaq Stock Market and an industry peer
group selected by the Company with the following data points.]
6/30/93 6/30/94 6/30/95 6/30/96 12/31/96 12/31/97
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Company 100 125 115 329 392 106
Nasdaq Stock Market Total Return Index 100 101 135 173 188 231
Industry Peer Group (SIC code 382) 100 103 173 226 244 279
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, the Company engaged William E. Hosker, a former director of
the Company, to represent the board in connection with the identification of
industry partners. Mr. Hosker was issued 15,135 shares of common stock valued
at $95,540 in connection with this engagement.
INDEPENDENT PUBLIC ACCOUNTANTS
In January 1996, the Company changed its accountants from Peterson, Siler &
Stevenson (currently known as Pritchett Siler & Hardy, P.C.) to Grant Thornton
LLP. This change was approved by the board of directors of the Company. It is
anticipated that Grant Thornton LLP will continue to act as the Company's
independent public accountants for the 1998 fiscal year.
The report of Peterson, Siler & Stevenson on the Company's financial
statements as of June 30, 1995, and the two years then ended did not contain an
adverse opinion, or a disclaimer of opinion, nor was its report qualified or
modified as to uncertainty, audit scope, or accounting principles, other than a
limitation as to the representation of the financials on a going concern basis.
During the engagement of Peterson, Siler & Stevenson, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which disagreements, if not
resolved to the satisfaction of Peterson, Siler & Stevenson, would have caused
it to make reference to the subject matter of the disagreements in connection
with its reports.
The Company was not advised by Peterson, Siler & Stevenson that internal
controls necessary for the Company to develop reliable financial statements did
not exist nor that information came to its attention that led it to no longer be
able to rely on management's representations or that made it unwilling to be
associated with the financial statements prepared by management. The Company
was not advised by Peterson, Siler & Stevenson of the need to expand
significantly the scope of the Company's audit, nor was the Company advised that
any information came to the attention of Peterson, Siler & Stevenson that on
further investigation may (i) materially impact the fairness or reliability of
either a previously issued audit report or the underlying financial statements,
or the financial statements issued or to be issued covering the fiscal period
subsequent to the date of the most recent financial statements covered by an
audit report, or (ii) cause Peterson, Siler & Stevenson to be unwilling to rely
on management's representations or be associated with the Company's financial
statements. The Company provided its former auditors, Peterson, Siler &
Stevenson with a copy of the foregoing disclosures. The Company has filed a
concurrence of the former auditors with the foregoing statements as an exhibit
to its reports filed with the Securities and Exchange Commission.
The Company did not consult Grant Thornton LLP prior to its appointment
regarding the application of accounting principles to a specific completed or
contemplated transaction, the type of audit opinion, or other accounting advice
that was considered by the Company in reaching a decision as to an accounting,
auditing, or financial reporting issue.
The Company and its current auditors have not disagreed on any items of
accounting treatment or financial disclosure.
SHAREHOLDER PROPOSALS
No proposals have been submitted by shareholders of the Company for
consideration at the Annual Meeting. It is anticipated that the next annual
meeting of shareholders will be held during June 1999. Shareholders may present
proposals for inclusion in the proxy statement to be mailed in connection with
the 1999 annual meeting of shareholders of the Company, provided such proposals
are received by the Company no later than February 1, 1999, and are otherwise in
compliance with applicable laws and regulations and the governing provisions of
the articles of incorporation and bylaws of the Company.
OTHER MATTERS
Management does not know of any business other than that referred to in the
Notice which may be considered at the Annual Meeting. If any other matters
should properly come before the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the proxies held by them
in accordance with their best judgment.
In order to assure the presence of the necessary quorum and to vote on the
matters to come before the Annual Meeting, please indicate your choices on the
enclosed proxy and date, sign, and return it promptly in the envelope provided.
The signing of a proxy by no means prevents your attending and voting at the
Annual Meeting.
By Order of the Board of Directors
LARSON DAVIS INCORPORATED
/s/ Craig E. Allen
Craig E. Allen, Secretary
Provo, Utah
May 27, 1998
PROXY
LARSONoDAVIS INCORPORATED
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Andrew Bebbington and Craig Allen proxies, with
full power of substitution, to vote the shares of common stock of LarsonoDavis
Incorporated (the "Company"), which the undersigned is entitled to vote at the
Annual Meeting of shareholders of the Company ("Annual Meeting") to be held at
the Olympus Hotel, 161 West 600 South, Salt Lake City, Utah 84101, on June 26,
1998, at 9:00 a.m., local time, or any adjournment(s) thereof, such proxies
being directed to vote as specified below. If no instructions are specified,
this proxy will be voted "FOR" all nominees in accordance with the
recommendation of the board of directors.
1. To elect the four nominees to serve as directors of the Company.
/ / FOR all four nominees
/ / WITHHOLD AUTHORITY for all four nominees
/ / FOR all four nominees, except WITHHOLD AUTHORITY for the
nominee(s) whose name(s) is (are) lined through
Nominees: Andrew C. Bebbington, Jeffrey S. Cohen,
Sir Colin Dollery, and Stanley Friedman
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
FOR / / AGAINST / / WITHHOLD AUTHORITY / /
The nominees for directors have been proposed by the board of directors and the
board of directors recommends that the shareholders vote "FOR" all nominees. To
vote in accordance with the Board of Directors' recommendations, sign below.
The "FOR" box may, but need not, be checked. To withhold authority for the
proxies to vote for any of the nominees, check the appropriate box and line
through the name of the nominee(s) for whom you wish to withhold your vote.
PLEASE PRINT YOUR NAME AND SIGN EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF
THE COMPANY. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN.
Dated:
Signature
Signature (if held jointly)
PLEASE MARK, SIGN, DATE, AND
RETURN THIS PROXY TO:
PROGRESSIVE TRANSFER COMPANY
P.O. BOX 17561
SALT LAKE CITY, UTAH 84117
