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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Photon Technology International, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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PHOTON TECHNOLOGY INTERNATIONAL, INC.
PRINCETON CORPORATE PLAZA
1 DEERPARK DRIVE, SUITE F
SOUTH BRUNSWICK, NEW JERSEY 08852
NOVEMBER 4, 1996
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
("Annual Meeting") of Photon Technology International, Inc. (the "Company")
which will be held at 9:00 a.m. on December 9, 1996, at the Marriott Residence
Inn, State Room. 4225 Route 1, Princeton, New Jersey 08852.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (i) to elect three members of the Board of Directors to
serve for a three-year term or until their successors are elected and (ii) to
approve and adopt the Amendment to the Company's Stock Option Plan.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote IN FAVOR OF
each such proposal.
After reading the Proxy Statement, please mark, date, sign and return by no
later than December 1, 1996, the enclosed proxy card in the accompanying reply
envelope. If you decide to attend the Annual Meeting, please notify the
Secretary of the Company in writing prior to the voting of the proxy that you
wish to vote in person and your proxy will not be voted. YOUR SHARES CANNOT BE
VOTED UNLESS YOU MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY, OR ATTEND THE
ANNUAL MEETING IN PERSON.
A copy of the Photon Technology International, Inc. 1996 Annual Report is
also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
Charles G. Marianik,
Chairman of the Board, President and
Chief Executive Officer
IMPORTANT
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID RETURN ENVELOPE SO THAT IF YOU ARE UNABLE TO ATTEND
THE ANNUAL MEETING YOUR SHARES MAY BE VOTED.
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PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 9, 1996
TO THE SHAREHOLDERS OF PHOTON TECHNOLOGY INTERNATIONAL, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of PHOTON
TECHNOLOGY INTERNATIONAL, INC. (the "Company") will be held at the Marriott
Residence Inn, State Room, 4225 Route 1, Princeton, New Jersey, on Monday,
December 9, 1996 at 9:00 A.M., at which time the following matters will be
considered and voted upon:
1. The election of three members to the Board of Directors for a three-year
term.
2. The approval of an amendment to the Company's Stock Option Plan.
3. Such other business as may properly come before the Annual Meeting or any
adjournment thereof.
Only shareholders of record on November 1, 1996 will be entitled to receive
notice of and to vote at the Annual Meeting of Shareholders or any adjournment
thereof. A list of the shareholders entitled to vote at the Annual Meeting
will be available for shareholder review during the Annual Meeting.
All shareholders are urged to attend the meeting in person or by proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
URGED TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE AT YOUR EARLIEST CONVENIENCE. THE PROXY IS REVOCABLE
AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE
MEETING.
By Order of the Board of Directors,
Ronald J. Kovach,
Secretary
November 4, 1996
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PHOTON TECHNOLOGY INTERNATIONAL, INC.
PRINCETON CORPORATE PLAZA
1 DEERPARK DRIVE, SUITE F
SOUTH BRUNSWICK, NEW JERSEY 08852
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
SOLICITATION OF PROXIES
The enclosed proxy ("Proxy") is solicited by and on behalf of the Board of
Directors (the "Board") of Photon Technology International, Inc. (the
"Company" or "Photon") whose principal executive office is located at
Princeton Corporate Plaza, 1 Deerpark Drive, Suite F, South Brunswick, New
Jersey 08852, for use in connection with the Annual Meeting of Shareholders to
be held at 9:00 A.M. on December 9, 1996 at the Marriott Residence Inn, State
Room, 4225 Route 1, Princeton, New Jersey, and at any adjournment thereof.
The matters to be considered and acted upon at the Annual Meeting are
referred to in the preceding Notice and are more fully discussed below.
Whether or not you plan to attend the Annual Meeting in person, please mark,
date, sign and return the enclosed Proxy as promptly as possible in the
postage prepaid envelope to ensure that your shares will be voted at the
Annual Meeting. All shares represented by Proxies, which are returned properly
signed and not subsequently revoked, will be voted at the Annual Meeting in
accordance with the instructions specified therein or, if no instruction is
indicated, will be voted in favor of the proposals set forth in the Notice
attached hereto. This Proxy Statement and the accompanying Proxy are being
mailed to shareholders on or about November 4, 1996. The Bylaws of the Company
require that the holders of a majority of the total number of shares entitled
to vote be represented in person or by proxy in order for the business of the
meeting to be transacted.
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials furnished to shareholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward the solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or agents
of the Company. No compensation will be paid to these individuals for any such
services. Except as described above, the Company does not presently intend to
solicit Proxies other than by mail.
RECORD DATE, VOTING AND SHARE OWNERSHIP
Holders of record of common stock at the close of business on November 1,
1996 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. As of the close of business on November 1, 1996, there were 1,157,786
shares of the Company's common stock ("Common Stock") outstanding and entitled
to vote held by 192 shareholders of record. Unless expressly stated otherwise,
all share numbers in this Proxy Statement reflect the 3-for-1 reverse split of
the Common Stock which was effected on July 21, 1996 (the "Reverse Split").
Each holder of Common Stock is entitled to one vote for each share held as
of the Record Date. With regard to the election of directors, New Jersey law
provides that each shareholder may cumulate votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by
the number of votes to which his or her shares are entitled, or if the
certificate of incorporation of the Company so provides, distribute his or her
votes on the same principle among as many candidates as he or she deems fit.
The Certificate of
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Incorporation of Photon provides for cumulative voting. The candidates
receiving the highest number of affirmative votes of shares entitled to be
voted for them up to the number of directors to be elected by such shares
shall be elected; votes against the director and abstentions shall have no
legal effect. The other matters submitted for shareholder approval at this
Annual Meeting will be decided by the affirmative vote of a majority of shares
present in person or represented by proxy and entitled to vote on each such
matter. Abstentions with respect to any such other matters are treated as
shares present or represented and entitled to vote on that matter and thus
have the same effect as negative votes. If shares are not voted with respect
to any matter by the broker who is the record holder of the shares, or if
shares are not voted in other circumstances in which proxy authority is
defective or has been withheld with respect to any matter, these non-voted
shares are not deemed to be present or represented and entitled to vote for
purposes of determining whether shareholder approval of that matter has been
obtained.
Under the Company's Bylaws and the New Jersey Business Corporation Act, the
presence at the Annual Meeting, in person or by proxy, of the holders of
shares of Common Stock entitled to cast a majority of the votes at the meeting
shall constitute a quorum. All valid Proxies will be counted towards the
presence of a quorum, notwithstanding directions thereon to withhold votes. In
the absence of a quorum at the Annual Meeting, either in person or by proxy,
the Meeting may be adjourned from time to time without notice other than
announcement at the Annual Meeting until a quorum shall be formed.
REVOCATION OF PROXY
Any shareholder giving a Proxy pursuant to this solicitation may revoke such
Proxy by giving written notice of revocation to the Secretary of the Company
prior to the vote of such Proxy by filing another Proxy with the Secretary at
any time prior to its exercise or by attending the Annual Meeting and voting
in person.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Bylaws of the Company provide for a Board with a minimum of six
directors and a maximum of nine directors. The number of directors as of the
date of the Annual Meeting is fixed at seven. The Board of Directors is
divided into three classes and there are currently seven directors on the
Board. The Board has selected the three Class III directors, Franklin J. Iris,
Robert E. Curry and M. Grant Brown, for nomination at the 1996 Annual Meeting
for terms expiring in 1999. The one Class I Director, James F. Mrazek, was
elected at the 1994 Annual Meeting for a term which will expire in 1997. The
three Class II directors, Ronald J. Kovach, Charles G. Marianik and Louis
Balogh, were elected at the 1995 Annual Meeting for a term which will expire
in 1998.
Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unavailable to
serve. Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them IN FAVOR OF the nominees named above. If any nominee listed
above should decline or be unable to serve, the Proxies will be voted for a
substitute nominee designated by the Board. As of the date of this Proxy
Statement, the Board is not aware of any nominee who is unable or will decline
to serve as a director. Each nominee is currently a member of the Board.
Set forth below are the names and ages of the nominees and directors, the
principal occupation of each nominee and director at present and for the last
five years, certain directorships held by each and the year in which each
became a director of the Company.
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CLASS III--TO BE ELECTED AT THE 1996 ANNUAL MEETING
FOR A TERM EXPIRING IN 1999
Franklin J. Iris, 66. Mr. Iris became a member of the Board in 1987 and has
been the President of Iris and Associates since 1986. His firm provides
investment consulting services for venture capital and emerging growth
companies in the medical industry. He was a group president of the clinical
laboratory business of Becton Dickinson and Company from 1973 to 1985 and was
the Chairman and Chief Executive Officer of Emzamatics, a medical diagnostics
company, from 1994 to 1995. He currently serves on the board of directors of
several health care companies and institutions. Mr. Iris received his B.S.
degree from Fairfield University in 1953.
M. Grant Brown, 47. Mr. Brown was appointed to the Board in December 1995.
Mr. Brown's appointment as Director satisfied a condition of the financing
agreement between Covington Capital Corporation and the Company. Mr. Brown is
the founding partner of Covington Capital Corporation, a venture capital
company, started in 1994 and Manager of the C.I. Covington Fund, Inc. He was
Vice Chairman of Canadian Corporation Funding LTC, a merchant bank, from 1984
to 1994. Mr. Brown received an Engineering degree in 1971 and M.B.A. degree in
1979 from McMaster University.
Robert E. Curry, Ph.D., 49. Dr. Curry was appointed to the Board in April
1996. Dr. Curry previously served on the Board from December 1991 to July
1992, but resigned due to conflicting professional obligations at that time.
Dr. Curry has been a General Partner of the Sprout Group, a venture capital
company, since 1991 and responsible for M.L. Technology Venture, L.P.
("MLTV"), an investor in the Company. Dr. Curry was President of Merrill Lynch
R&D Management Inc. and President of Merrill Lynch Venture Capital, Inc., a
predecessor of MLTV, from 1990 to 1991. Dr. Curry also serves on the Boards of
Biocircuits, Connective Therapeutics and Diatide, Inc. Dr. Curry received a
B.S. degree from the University of Illinois in 1968 and a Masters degree in
1972 and a Ph.D. degree in 1974 from Purdue University.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE NOMINEES LISTED
ABOVE.
DIRECTORS CONTINUING IN OFFICE
CLASS I--PRESENT TERM EXPIRING IN 1997
James F. Mrazek, 55. Mr. Mrazek became a member of the Board of Directors in
1986. Mr. Mrazek recently formed Four Corners Venture Fund and holds the
position of President. Mr. Mrazek had been the President of Carnegie Venture
Resources, a consulting and venture capital firm, since 1990. Mr. Mrazek was a
general partner of Edison Partners, L.P. from 1986 to 1990. Mr. Mrazek serves
on the board of directors of Xylomed, Inc. and Sepracor, Inc. Mr. Mrazek
received a B.A. degree in Government from St. Lawrence University in 1962 and
an M.B.A. degree from Cornell University in 1964.
CLASS II--PRESENT TERM EXPIRING IN 1998
Charles G. Marianik, 50. Mr. Marianik has acted as Chairman of the Board and
Chief Executive Officer of the Company since the Company was formed in 1983.
Mr. Marianik held the office of President from November 1983 until December
1991 and was re-elected President in December of 1992. Mr. Marianik received a
B.Sc. in 1971 and an M.B.A. in 1976 from the University of Western Ontario.
Ronald J. Kovach, 55. Mr. Kovach has served as Senior Vice President of the
Company since joining the Company in 1985. Mr. Kovach has been the Secretary
and a member of the Board of the Company since 1988. Mr. Kovach received his
degree in Engineering Technology from the Western Ontario Institute of
Technology in 1966.
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Louis Balogh, M.D., 49. Dr. Balogh is currently a practicing physician
specializing in pediatrics and first became a director of the Company in 1989.
Dr. Balogh was the Chief of Pediatrics of York County Hospital in New Market,
Ontario, Canada from 1989 to 1994 and the Chairman of the Board of the Blue
Hill Academy, Children's Mental Health Center from 1984 to 1992. Dr. Balogh
was the Director of the Children's Aid Society from 1981 to 1987, Director of
York County Hospital from 1986 to 1987 and President of the Medical Staff of
York County Hospital from 1985 to 1987. Dr. Balogh received his degree in
medicine from the University of Western Ontario in 1972 and a specialist
degree in pediatrics from McMaster University in 1978.
BOARD MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board held four meetings during the fiscal year ended June 30, 1996. All
directors attended at least 75% of the aggregate number of meetings of the
Board and of the committees on which such directors serve. The Board of
Directors has appointed an Audit Committee and a Compensation Committee. The
Company does not have a Nominating Committee of its Board of Directors.
The Audit Committee of the Board held one meeting during fiscal year 1996 to
review and discuss the annual audit and general financial and internal control
matters. During fiscal year 1996, the Audit Committee consisted of Mr. Iris,
Chairman, and Dr. Balogh.
The Compensation Committee of the Board held one meeting during fiscal year
1996 to discuss general compensation matters. During fiscal year 1996, the
Compensation Committee consisted of Mr. Mrazek, Chairman, and Dr. Balogh.
DIRECTOR REMUNERATION
Directors have not been paid a fee for serving on the Board or any
committees of the Board with the exception of Mr. Brown who receives a per
meeting fee of $750 (Canadian Dollars) as part of the financing agreement with
Covington Capital Corporation. Directors are reimbursed for expenses related
to attending Board or committee meetings and annually are granted non-
qualified stock options to purchase the Company's common stock under the
automatic option grant program of the Company's Stock Option Plan, as amended.
In the fiscal year ended June 30, 1996 the Company paid an aggregate of $2,700
for director traveling expenses. In addition, each non-employee director re-
elected to the Board at the 1995 Annual Shareholders Meeting received at that
time an option grant to purchase 3,333 shares of Common Stock at an option
price of $3.18 per share under the automatic option grant program in effect
for non-employee directors under the Company's Stock Option Plan. Each option
has a maximum term of ten (10) years measured from the grant date, subject to
earlier termination following the optionee's cessation of Board service. Each
option is immediately exercisable for all of the option shares; however, any
shares purchased under the option will be subject to repurchase by the
Company, at the option exercise price paid per share, upon the optionee's
cessation of Board service prior to vesting in those shares. The shares
subject to each grant will vest in three successive equal annual installments
upon the optionee's completion of each year of Board service over the three-
year period measured from the grant date. However, the option shares will
immediately vest in full upon certain changes in control or ownership of the
Company or upon the optionee's death or disability while serving as a Board
member.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO STOCK OPTION PLAN
On September 20, 1996, the Board of Directors adopted, subject to
shareholder approval, an amendment to the Company's Stock Option Plan (the
"Plan") to (i) increase the number of shares of Common Stock reserved for
issuance under the Plan by an additional 66,667 shares to a maximum of 300,000
shares (post-Reverse Split), (ii) allow Board members who serve as the plan
administrator to receive grants under the discretionary option grant program,
(iii) effect a series of administrative changes to the Plan (including the
shareholder approval
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requirements) in order to take advantage of the new short-swing trading
exemptions for plan transactions which have become effective under recently
amended rules of the Securities and Exchange Commission and (iv) extend the
term of the Plan for an additional five years until June 30, 2004. At the
Annual Meeting, the shareholders will be asked to approve this amendment to
the Plan.
STOCK OPTION PLAN
The Plan, which was originally adopted by the Company in 1987, provides for
the grant of incentive and non-qualified common stock options for officers,
key employees and directors of the Company. The number of authorized shares in
the option pool was initially set at 250,000 shares (pre-Reverse Split) and
was subsequently increased to 500,000 shares (pre-Reverse Split) in June 1990
and to 700,000 shares (pre-Reverse Split) in December 1994. As a result of the
reverse 3-for-1 split of the Company's common stock on July 21, 1996 and the
additional 66,667-share increase authorized by the Board in September 1996,
the number of shares authorized for issuance over the term of the Plan is now
300,000 shares, assuming the shareholders approve this Proposal.
The following is a summary of the principal features of the Plan as most
recently amended. A copy of the actual plan document will be furnished by the
Company to any shareholder upon written request to the Secretary of the
Company at the corporate offices in Monmouth Junction, New Jersey.
The Plan was established primarily to assist the Company in retaining the
services of valued employees, directors and consultants by offering them the
opportunity to acquire an equity interest in the Company and to aid the
Company in attracting those individuals whose services would be essential to
the Company's future success.
The Plan is divided into two separate equity incentive programs: (i) a
discretionary option grant program under which executive officers, key
employees, non-employee directors and consultants may be granted options to
purchase shares of the Company's common stock at the discretion of the plan
administrator; and (ii) an automatic option grant program under which eligible
non-employee directors will automatically receive, at periodic intervals over
their period of Board service, special option grants to purchase shares of the
Company's common stock.
The Plan is administered by a committee (the "Committee") consisting of two
(2) or more non-employee directors appointed by the Board. The Committee as
plan administrator will have the power to interpret the Plan and to make and
amend rules for putting the Plan into effect and administering it. The
Committee has the authority under the discretionary option grant program to
determine (subject to the provisions of the Plan) which eligible participants
are to receive stock option grants, the number of shares of common stock to be
subject to each such grant, the exercise/vesting schedule in effect for the
option and the maximum term for which the option is to remain outstanding. All
grants under the automatic option grant program will be made in strict
compliance with the express provisions of that program and no administrative
discretion will be exercised by the Committee with respect to the grants made
under that program.
The maximum number of shares of the Company's common stock issuable over the
term of the Plan is limited to 300,000 shares (subject to adjustment for stock
dividends, stock splits, and the like). However, the Plan also limits the
maximum number of shares of common stock for which any one participant may be
granted stock options per calendar year to 100,000 shares (subject to
adjustment for stock dividends, stock splits and the like). For purposes of
such limitation, stock options granted prior to September 1, 1994 are not
taken into account.
Executive officers, other key employees, non-employee directors or
consultants in the service of the Company or its subsidiaries are eligible to
be granted options ("Eligible Participants"). As of September 1, 1996, there
were approximately sixteen (16) Eligible Participants (including three
executive officers and three non-employee directors). Options granted under
the Plan may either be incentive stock options under section
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422 of the Code ("ISO") or non-qualified options. No granted option may have a
term in excess of ten (10) years, and each option must have an exercise price
not less than 100% of the fair market value per share of the Company's common
stock on the grant date.
For purposes of establishing the option exercise price and for all other
valuation purposes under the Plan, the fair market value per share of the
Company's common stock on any relevant date under the Plan will be the closing
selling price per share on that date, as such price is reported on the Nasdaq
over-the-counter market. The closing selling price of the common stock on
September 1, 1996 was $3.00 per share (post-Reverse Split).
Payment for shares purchased under the Plan may be made in cash or in shares
of the Company's common stock valued at fair market value on the exercise
date. The option may also be exercised pursuant to a same-day sale program,
pursuant to which a designated brokerage firm will effect the immediate sale
of the shares purchased under the option and pay over to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to cover
the exercise price for the purchased shares plus all applicable withholding
taxes.
No optionee is to have any shareholder rights with respect to the option
shares until the optionee has exercised the option and paid the exercise price
for the purchased shares. Options are not assignable or transferable other
than by will of the laws of inheritance, and during the optionee's lifetime
the option may be exercised only by the optionee. Should an option expire or
terminate for any reason prior to exercise in full, the shares subject to the
portion of the option not so exercised will be available for subsequent grant
under the Plan. No options may be granted under the Plan after June 30, 2004.
Any outstanding options held by the optionee at the time of his or her
cessation of service will not remain exercisable beyond the limited post-
service period (normally not to exceed one year) designated by the Committee
at the time of the option grant. Under no circumstances, however, may any
option be exercised after the specified expiration date of the option term.
Each such option will normally, during such limited period, be exercisable
only to the extent of the number of shares for which the option is exercisable
at the time of the optionee's cessation of service. The optionee will be
deemed to continue in service for so long as such individual performs services
for the Company (or any parent or subsidiary corporation), whether as an
employee, a non-employee director of an independent consultant or advisor.
The Committee has complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options
under the discretionary option grant program may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of
service.
In the event the Company is acquired by merger, consolidation or asset sale,
each outstanding option under the discretionary option grant program will
accelerate and become immediately exercisable for all the shares at the time
subject to that option. However, one or more options may be granted under the
Plan which will not accelerate upon such an acquisition of the Company, to the
extent the option is to be assumed by the successor corporation or otherwise
replaced with a comparable option to purchase the shares of such successor
corporation.
Options may also be granted under the Plan that will accelerate and become
immediately exercisable for all of the shares at the time subject to those
options, should there occur certain changes in the ownership of more than
twenty percent (20%) of the Company's outstanding voting securities or in the
majority of the Board members as a result of any tender for the Company's
outstanding voting securities, merger or other business combination, or proxy
contest for the election of Board members.
Under the automatic option grant program each individual who was serving as
a non-employee Board member on the date of the 1994 Annual Shareholders
Meeting, whether or not that individual was standing for re-election at such
Annual Meeting, was automatically granted on that date a stock option for
3,333 shares of common stock at an exercise price per share equal to the
closing selling price per share of the common stock on
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that date, as reported on the Nasdaq over-the-counter market. A similar 3,333-
share option grant will be made to each individual who first becomes a non-
employee Board member after the date of the 1994 Annual Shareholders Meeting,
whether through election by the shareholders or appointment by the Board,
provided such individual is not otherwise affiliated with any entity which is
the beneficial owner, directly or through currently exercisable stock options,
of securities possessing more than ten percent (10%) of the total combined
voting power of the Company's outstanding securities. In addition, on the date
of each subsequent Annual Shareholders Meeting, beginning with the 1995 Annual
Meeting, each individual who was eligible to receive an initial automatic
option grant when he or she first joined the Board and who is to continue to
serve as a non-employee Board member, whether or not that individual is
standing for reelection at that Annual Meeting, will automatically be granted
a stock option to purchase an additional 3,333 shares of Common Stock,
provided such individual has served as a non-employee Board member for at
least six (6) months. There will be no limit on the number of such additional
3,333-share option grants any one non-employee Board member may receive over
his or her period of Board service. In no event, however, will any automatic
option grant be made to any non-employee Board member who has previously been
in the Company's employ.
Each option granted under the automatic option grant program will be subject
to the following terms and conditions:
--The exercise price per share will be equal to 100% of the fair market
value per share of common stock on the automatic grant date.
--Each option will have a maximum term of ten years measured from the
grant date.
--Each option will be immediately exercisable for all the option shares,
but any purchased shares will be subject to repurchase by the Company at
the exercise price paid per share upon the optionee's cessation of Board
service prior to vesting in such shares.
--The shares subject to each automatic grant will vest (and the Company's
repurchase rights will lapse) in three successive equal annual installments
over the optionee's period of Board service, with the first such
installment to vest upon the completion of one year of Board service
measured from the automatic grant date.
--The option will remain exercisable for a six-month period following the
optionee's cessation of Board service for any reason other than death or
permanent disability. Should the optionee die within such six-month period,
then each such option will remain exercisable for a twelve-month period
following such optionee's death and may be exercised by the personal
representative of the optionee's estate of the person to whom the grant is
transferred by the optionee's will or the laws of inheritance. In no event,
however, may the option be exercised after the expiration date of the
option term. During the applicable exercise period, the option may not be
exercised for more than the number of shares (if any) in which the optionee
is vested at the time of cessation of Board service.
--Should the optionee die or become permanently disabled while in service
as a Board member, then the shares subject to each automatic option grant
held by that individual optionee will immediately vest in full, and those
vested shares may be purchased at any time within the twelve-month period
following the date of the optionee's cessation of Board service.
--The shares subject to each automatic option grant will immediately vest
upon an acquisition of the Company by merger or asset sale or upon a
hostile take-over of the Company effected through a tender offer for more
than 50% of the Company's outstanding voting stock or a change in the
majority of the Board as a result of one or more contested elections for
Board membership.
--The remaining terms and conditions of the option will in general
conform to the terms described above for the option grants made under the
discretionary option grant program and will be incorporated into the option
agreement evidencing the automatic grant.
7
<PAGE>
The Plan may be amended by the Board, but certain amendments may require
shareholder approval under applicable laws or regulations.
In the event any change is made to the outstanding shares of the Company's
common stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate
structure effected without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities for which
any one person may be granted stock options under the Plan per calendar year,
(iii) the number and/or class of securities for which grants are subsequently
to be made under the Automatic Option Grant Program to new and continuing non-
employee Board members and (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder.
The rules governing the tax treatment of options and stock acquired upon the
exercise of options are quite technical and, therefore, the description of
federal tax consequences set forth below is necessarily general in nature and
does not purport to be complete. In addition, statutory provisions are subject
to change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the tax consequences under applicable state
and local income tax laws may not be the same as under the federal income tax
laws.
An optionee recognizes no taxable income and the Company is not entitled to
a deduction upon grant or exercise of an ISO. Any gain or loss realized at the
time of the sale of the shares acquired upon exercise of the ISO will be
treated as long-term capital gain or loss, provided the holder of the ISO
complies with two separate holding period requirements. The Company will not
be entitled to take a deduction as a result of any such sale. Pursuant to the
holding period requirements, shares acquired upon exercise of an ISO may not
be disposed of (i) within two years after the date of grant, or (ii) within
one year after the date of exercise. If the optionee disposes of such shares
before complying with the required holding periods, the optionee will
recognize ordinary income equal to the excess of the fair market value of the
shares on the exercise date over the exercise price paid for those shares and
the Company will be entitled to a corresponding deduction.
An optionee recognizes no taxable income and the Company is not entitled to
a deduction when a non-qualified option is granted. Upon exercise of a non-
qualified option, an optionee will realize ordinary income in an amount equal
to the excess of the fair market value of the shares over the exercise price,
and the Company will be entitled to a corresponding deduction. Upon sale of
the option shares, the optionee will realize short-term or long-term capital
gain or loss, depending upon whether the shares have been held for more than
one year, equal to the difference between the sale price of the shares and the
fair market value of the shares on the date that the optionee recognized
income with respect to the option exercise.
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of ISO shares or exercises of non-
qualified options will qualify as performance-based compensation for purposes
of Internal Revenue Code Section 162(m) and will not have to be taken into
account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of
the Company. Accordingly, all compensation deemed paid with respect to those
options will remain deductible by the Company without limitation under Code
Section 162(m).
OPTION GRANTS
During the period from July 1, 1995 to June 30, 1996, the only options
granted under the Plan were as follows: (i) incentive stock options were
issued to the three executive officers and (ii) non-qualified stock options
were issued to three non-employee Board members under the automatic option
grant program of the Plan. The incentive stock options were granted on
December 8, 1995 to Mr. Marianik for 13,721 shares with an exercise price of
$3.51 per share (110% of fair market value), to Mr. Kovach for 5,843 shares
with an exercise price of $3.18 per share, and to Mr. Looney for 5,546 shares
with an exercise price of $3.18 per share.
8
<PAGE>
On December 8, 1995 the three non-employee Board members, Mr. Mrazek,
Mr. Iris and Mr. Balogh, each received non-qualified options to purchase 3,333
shares of Common Stock at an option exercise price of $3.18 per share under
the automatic option grant program.
No options have been granted on the basis of the share increase for which
the shareholder approval is sought as part of this Proposal No. 2.
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1996 Meeting is
required for approval of this Proposal No. 2. If such approval is not
obtained, then any options granted on the basis of the share increase which
forms part of such proposal will terminate without ever becoming exercisable
for any of the option shares, and no further option grants will be made on the
basis of such increase; however, option grants may continue to be made under
the Plan until all shares previously approved by the shareholders for issuance
under the Plan have been issued.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE AMENDMENT TO THE
STOCK OPTION PLAN.
9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for fiscal years ending June 30, 1996, 1995
and 1994, certain summary information regarding the compensation earned by the
Company's Chief Executive Officer and each of the Company's most highly
compensated executive officers whose aggregate annual salary and bonus for
fiscal year 1996 exceeded $100,000 (the "Named Executive Officers") with
respect to services rendered by such persons to the Company and its
subsidiaries. No individual who would otherwise have been included in such
table on the basis of salary and bonus for the 1996 fiscal year resigned or
terminated employment during that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL FISCAL BONUS OTHER ANNUAL OPTIONS ALL OTHER
POSITION YEAR SALARY($)(1) ($)(2) COMPENSATION(3) (#)(4) COMPENSATION(5)
------------------ ------ ------------ -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles G. Marianik 1996 $180,927 -- $32,548 13,721 $35,983
Chairman of the Board 1995 $167,497 $ 10,000 $20,856 8,137 $21,734
of Directors, Chief 1994 $162,750 $(10,000) $37,043 -- $ 4,825
Executive Officer and
President
Ronald J. Kovach 1996 $118,279 -- $ 8,961 5,843 $ 5,819
Secretary, and Senior 1995 $108,063 $ 10,000 $ 6,914 5,775 $ 4,224
Vice President--Technol-
ogy 1994 $105,000 $(10,000) $ 6,435 -- $ 650
William D. Looney 1996 $112,365 -- $11,252 5,546 $ 5,776
Vice President, 1995 $102,649 $ 10,000 $11,897 5,546 $ 5,570
Controller and Treasurer 1994 $ 99,750 $(10,000) $14,264 -- $ 1,225
</TABLE>
- --------
(1) The amounts shown include compensation earned, accrued and/or paid in the
given fiscal year. Mr. Marianik's compensation includes a salary accrual
of $48,825 which was not paid in fiscal year 1995 due to cash flow
considerations. It is intended that such sum will be paid in fiscal year
1996.
(2) On June 18, 1993, the Compensation Committee approved bonuses related to
fiscal 1993 performance for each of the Named Executive Officers. These
amounts were not paid in fiscal 1993 due to cash flow considerations and
the accrued bonus amounts were reversed in fiscal 1994. On October 28,
1994, the Company issued to Mr. Marianik, Mr. Kovach, and Mr. Looney
treasury stock in lieu of a cash bonus approved for fiscal 1994. Mr.
Marianik, Mr. Kovach, and Mr. Looney each received 8,000 fully vested
shares of Common Stock valued at $1.25 per share, the fair market value on
the date of issuance. These share numbers do not reflect the Company's
recent 3-for-1 Reverse Split.
(3) These amounts reflect personal benefits received by each Named Executive
Officer during the 1996 fiscal year. Personal benefits include payments
made on behalf of those individuals for (a) use of automobiles: $950 for
Mr. Marianik, $2,717 for Mr. Kovach and $4,078 for Mr. Looney, (b)
disability insurance premiums: $1,666 for Mr. Marianik, $1,365 for Mr.
Kovach and $1,077 for Mr. Looney, (c) medical expenses not otherwise
covered by the Company's group plan insurance policy: $2,994 for
Mr. Marianik and $214 for Mr. Looney and (d) all income taxes attributed
to these individuals and paid by the Company as a result of their receipt
of these personal benefits: $26,938 for Mr. Marianik, $4,879 for Mr.
Kovach and $5,883 for Mr. Looney.
(4) On December 8, 1995, the Compensation Committee of the Board of Directors
granted that number of options to purchase shares of Common Stock under
the Option Plan to each Named Executive Officer equal to fifteen percent
(15%) of the gross annual base pay of each respective Named Executive
Officer. These share amounts have been adjusted to reflect the Reverse
Split.
(5) These amounts reflect supplemental term life insurance premiums for each
named officer which includes a premium of $2,946 for Mr. Marianik, $1,320
for Mr. Looney and $703 for Mr. Kovach. For Mr. Marianik, these amounts
also include the premiums of $33,037 for fiscal year 1996 which was paid
with respect to a permanent-whole life insurance policy, having an
accumulated cash value of $93,973 at June 30, 1996. For Mr. Kovach, these
amounts also include a premium of $5,116 which was paid with respect to a
permanent-whole life policy with an accumulated cash value of $4,635. For
Mr. Looney, these amounts include a premium of $4,456 with respect to a
permanent-whole life policy with an accumulated cash value of $2,554.
10
<PAGE>
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers for the fiscal year ended June
30, 1996. No stock appreciation rights were granted to these individuals
during such year.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
INDIVIDUAL GRANTS(1) ANNUAL RATES
------------------------------- OF STOCK
% OF TOTAL PRICE
NUMBER OF OPTIONS APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -------------
NAME GRANTED(#)(1) YEAR ($/SH)(2) DATE 5%($) 10%(S)
---- ------------- ---------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Charles G. Marianik..... 13,721 55% $3.51 12/07/00 13,306 29,403
Ronald J. Kovach........ 5,843 23% $3.18 12/07/05 11,685 29,613
William D. Looney....... 5,546 22% $3.18 12/07/05 11,091 28,108
</TABLE>
- --------
(1) All options granted to Named Executive Officers are incentive stock
options under the federal tax laws and were granted on December 8, 1995.
Pursuant to the option agreements evidencing these options, the options
were to become exercisable and vest in three (3) successive equal annual
installments upon the optionee's completion of each year of service with
the Company over the three (3)-year period measured from the grant date.
However, the purchase by MLTV of 1,000,000 shares (pre-Reverse Split) of
the Company's Common Stock on December 8, 1995 caused a change in the
ownership of more than twenty percent (20%) of the Company's outstanding
voting securities and, as a result, each option became fully exercisable
for all of the option shares under the term of each option agreement. The
options granted to Messrs. Kovach and Looney each have a maximum term of
ten (10) years, subject to earlier termination in the event of the
optionee's cessation of employment with the Company. The option granted to
Mr. Marianik has a maximum term of five (5) years.
(2) The exercise price may be paid in cash or in shares of the Company's
common stock. Alternatively, the option may be exercised through a same-
day sale program with no cash outlay required of the optionee.
(3) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the 5-year or 10-year option term will be at the assumed
5% or 10% annual rates of compounded stock price appreciation or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the
option grants made to the executive officers.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the number and value of
unexercised options held by each of the Named Executive Officers as of June
30, 1996. None of the Named Executive Officers exercised any stock options in
1996. No stock appreciation rights were exercised during such year or were
outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS
JUNE 30, 1996 AT JUNE 30, 1996(2)
---------------------------- -------------------------
EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles G. Marianik...... 105,576 0 $-0- $-0-
Ronald J. Kovach......... 74,853 0 $-0- $-0-
William D. Looney........ 93,096 0 $-0- $-0-
</TABLE>
- --------
(1) As a result of the purchase by MLTV of 1,000,000 shares (pre-Reverse
Split) of common stock on December 8, 1995, each of the options became
fully exercisable for all of the shares subject to each such option.
(2) Equal to the fair market value of securities underlying the option at
fiscal year end ($3.00 per share) minus the exercise price payable for
those securities.
11
<PAGE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
AGREEMENTS
On June 30, 1996, the employment agreement between the Company and Mr.
Marianik was automatically extended for one year in accordance with the terms
of the contract. This employment agreement entitles Mr. Marianik to a base
salary of $192,452 in 1997 but Mr. Marianik agreed to a 20% reduction in his
base compensation to $153,961 for cost reduction and cash flow considerations.
Under such agreement, Mr. Marianik is to be employed by the Company in an
executive capacity as Chairman of the Board, Chief Executive Officer and
President, or in a position substantially similar thereto. In the case of (i)
a change in control, sale or merger of the Company, (ii) the termination of
his employment without cause, or (iii) a substantial change in his position
with the Company, Mr. Marianik will be entitled to receive a minimum of two
years of salary continuation (including bonuses), as well as to retain certain
employee benefits, including an automobile and a life insurance policy, paid
in full by the Company. There are no other employment agreements with any
other Named Executive Officer.
Pursuant to the express provisions of the Stock Option Plan, the outstanding
options under the Plan held by the Chief Executive Officer and the Company's
other executive officers will immediately accelerate in full and become
exercisable for all of the shares at the time subject to that option in the
event the Company is acquired by merger, consolidation or asset sale, unless
the option is to be assumed by the successor corporation or otherwise replaced
with a comparable option to purchase the shares of such successor corporation.
Pursuant to the terms of the option agreements evidencing the outstanding
options, the options will also accelerate and become immediately exercisable
for all of the shares at the time subject to those options, should there occur
certain changes in the ownership of more than twenty percent (20%) of the
Company's outstanding voting securities or in the majority of the Board
members as a result of any tender for the Company's outstanding voting
securities, merger or other business combination, or proxy contest for the
election of Board members. On December 8, 1995, MLTV purchased 1,000,000
shares (pre-Reverse Split) of the Company's common stock resulting in a change
in ownership of more than 20% of the Company's outstanding securities and the
acceleration of the exercisability of all of the then outstanding options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors is comprised
of James Mrazek, Chairman, and Dr. Louis Balogh. Neither of these individuals
was at any time during the 1996 fiscal year or at any other time an officer or
employee of the Company.
No executive officer of the Company served on the Board of Directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
REPORT OF COMPENSATION COMMITTEE
Decisions on compensation matters relating to the Company's Chief Executive
Officer, Charles G. Marianik, and the Company's other executive officers are
generally made by the Compensation Committee of the Board. The Compensation
Committee currently consists of Mr. Mrazek and Dr. Balogh, two of the
Company's non-employee directors. The Compensation Committee approves
employment contracts, base compensation, bonuses and other forms of incentive
compensation and non-cash compensation. The Compensation Committee also has
exclusive responsibility for the administration of the Company's Stock Option
Plan under which option grants are made to executive officers and other key
employees. The Compensation Committee has furnished the following report on
the compensation for the executive officers of the Company for the fiscal year
ended June 30, 1996.
12
<PAGE>
General Compensation Policy. The Compensation Committee's overall policy is
to offer the Company's executive officers competitive compensation
opportunities based upon the officer's personal performance, the performance
of the Company and the officer's contribution to the Company's performance.
The Compensation Committee believes that this policy will enable the Company
to attract and retain qualified key executive officers. The Compensation
Committee's primary objective is to tie a substantial portion of each
officer's compensation to the achievement of corporate and individual
performance objectives. Accordingly, each executive officer's compensation
package is generally comprised of three elements: (i) base salary that
reflects individual performance and is designed primarily to be competitive
with salary levels in the industry; (ii) annual variable performance awards
tied to the achievement of individual and corporate performance goals
established by the Compensation Committee; and (iii) stock-based incentive
awards designed to strengthen the mutuality of interests between the executive
officers and the Company's shareholders. Generally, as each officer's level of
responsibility increases a greater portion of his or her total compensation
will be tied to Company performance and stock price appreciation rather than
base salary.
FACTORS. The primary factors considered in establishing the components of
each executive officer's compensation package for the 1996 fiscal year are
summarized below. The Compensation Committee may, in its discretion, apply
entirely different factors, such as different measures of strategic
performance, for future fiscal years.
. Base Salary. The base salary for each officer is set on the basis of
personal performance, the salary levels in effect for comparable positions
with the Company's principal competitors and internal comparability
considerations. In addition, the Company reviews salary surveys for officers
of companies in comparable industries and geographic locations to the Company.
In consideration of the Company's need to reduce costs and conserve cash, on
May 15, 1996, certain executive officers agreed to a reduction in their annual
rate of base salary as follows: Mr. Marianik, 20% or $38,461, Mr. Kovach, 10%
or $12,416 and Mr. Looney, 10% or $11,795. These reductions resulted in the
following reductions in the base salary otherwise payable to those individuals
for the balance of fiscal 1996: $4,811 for Mr. Marianik, $1,552 for Mr. Kovach
and $1,474 for Mr. Looney.
. Annual Incentive Compensation. An annual bonus, set as a targeted
percentage of salary, may be earned by each executive officer on the basis of
the Company's achievement of corporate performance objectives established by
the Compensation Committee at the start of each fiscal year. For the fiscal
year ended June 30, 1996, the performance targets were based upon the
Company's achievement of sales and income milestones.
No cash bonuses were paid in 1996 due to cash flow considerations.
. Stock-Based Incentive Compensation. The Compensation Committee approves
periodic grants of stock options to each of the Company's executive officers
under the Plan. Generally, the size of each grant is set at a level that the
Compensation Committee deems appropriate to create a meaningful opportunity
for stock ownership based upon the individual's current position with the
Company and the base salary for that position. The Compensation Committee also
takes into consideration comparable awards made to officers in similar
positions in the industry as reflected in surveys, as well as the individual's
potential for future responsibility and promotion, the officer's performance
in the most recent fiscal year and the number of unvested options held by the
officer at the time of the new grant. The relative weight given to each of
these factors varies from officer to officer at the Compensation Committee's
discretion.
The option grants are designed to align the interests of the executive
officer with those of the shareholders and to provide each officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Each option grant allows the officer to
acquire shares of the Common Stock at a fixed price per share (the market
price on the grant date) over specified periods of time (up to ten years). The
options typically become exercisable over a three-year period.
13
<PAGE>
In lieu of performance bonuses for fiscal year 1995, Mr. Marianik, Mr.
Kovach and Mr. Looney each received incentive stock options in fiscal year
1996 equal to fifteen percent (15%) of their respective gross annual pay.
Accordingly, options to purchase 13,721, 5,843 and 5,546 shares of Common
Stock were granted to Mr. Marianik, Mr. Kovach and Mr. Looney, respectively.
. Other Compensation. Executive compensation also includes benefits paid by
the Company on behalf of each officer. These incremental benefits exceed the
standard employee benefits package and include disability insurance, medical
expenses, use of automobiles, permanent whole life and supplemental life
insurance and income taxes attributed to these paid benefits included in
compensation. These benefits are common forms of non-cash compensation and are
included to enhance the overall compensation package.
The Compensation Committee will meet to discuss fiscal year 1997
compensation at the December 1996 meeting of the Board of Directors following
the Annual Meeting.
The compensation paid to the President and Chief Executive Officer of the
Company for the last fiscal year was based upon the criteria set forth above.
Mr. Marianik's employment contract was automatically renewed for the 1996
fiscal year. Although the agreement entitled Mr. Marianik to an annual base
salary of $192,452 in 1997, Mr. Marianik agreed to a 20% reduction in his rate
of base compensation to $153,961 for cost reduction and cash flow
considerations. Mr. Kovach and Mr. Looney agreed to a 10% reduction in their
rate of base compensation.
. Compliance with Internal Revenue Code Section 162(m). As a result of
Section 162(m) of the Internal Revenue Code, which was enacted into law in
1993, the Company may not take a federal income tax deduction for compensation
paid to certain executive officers to the extent such compensation exceeds $1
million per officer in any one fiscal year. This limitation is in effect for
each fiscal year of the Company beginning after December 31, 1993 and applies
to all compensation paid to the covered executive officers which is not
considered to be performance-based. Compensation which does qualify as
performance-based compensation will not have to be taken into account for
purposes of this limitation. At the 1994 Annual Meeting, the Company obtained
shareholder approval for certain amendments to the Company's Stock Option Plan
which were designed to assure that any compensation deemed paid in connection
with the exercise of stock options granted under that plan would qualify as
performance-based compensation.
The cash compensation paid to the Company's executive officers for the
fiscal 1996 year did not exceed the $1 million limit per officer, nor is the
cash compensation to be paid to the Company's executive officers for the 1997
fiscal year expected to reach that level. Because it is very unlikely that the
cash compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limitation, the Committee has
decided not to take any action at this time to limit or restructure the
elements of cash compensation payable to the Company's executive officers. The
Committee will reconsider this decision should the individual compensation of
any executive officer ever approach the $1 million level.
The foregoing report has been submitted by the undersigned in our capacity
as members of the compensation Committee of the Company's Board of Directors.
Mr. James Mrazek, Chairman
Dr. Louis Balogh
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of September 1, 1996, the number and
percentage of shares of the Company's Common Stock owned (as defined in Rule
13d-3 adopted under the Securities Exchange Act of 1934) by (a) each person
known by the Company to own beneficially more than five percent of any class
of voting security of the Company, (b) each of the directors and nominees for
director, (c) officers named in the Summary Compensation Table set forth below
and (d) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PRE-REVERSE POST-REVERSE SPLIT
NAME OF BENEFICIAL SPLIT NUMBER OF NUMBER OF SHARES PERCENT OF
OWNER(1) SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED CLASS OUTSTANDING
- ------------------ ------------------------- ------------------ -----------------
<S> <C> <C> <C>
ML Technology Ventures, L.P. 1,190,476 396,476 34.4%
3000 Sand Hill Road
Building 3, Suite 245
Menlo Park, CA 94025
Charles G. Marianik(2) 952,294 317,431 26.7%
Chairman of the Board,
President and Chief Executive Officer
Covington Capital Corporation(3) 650,000 216,667 15.8%
1 First Canadian Place
100 King Street West
Suite 2620, P.O. Box 165
Toronto, Ontario M5X 1C9
Edison Venture Fund, L.P. 337,000 112,333 9.7%
Princeton Pike Corporate Center
997 Lenox Drive #3
Lawrenceville, NJ 08648
Michael Winderbaum 240,000 80,000 6.9%
120 North LaSalle St,
Ste 2900
Chicago, IL 60602
Ronald Kovach(4) 151,853 50,618 4.3%
Senior Vice President
and Director
William D. Looney(5) 129,950 43,317 3.7%
Vice President, Controller
and Treasurer
Franklin J. Iris(6) 82,047 27,349 2.3%
Director
Louis Balogh(7) 64,100 21,367 1.8%
Director
James F. Mrazek(8) 66,000 22,000 1.9%
Director
All Directors and Executive Officers 1,446,244 482,081 36.9%
as a Group (6 persons)(9)
</TABLE>
15
<PAGE>
- --------
(1) Except as otherwise indicated, each of the persons included in the table
has sole voting and investment power over the shares owned.
(2) Includes 105,576 shares (35,129 shares post-Reverse Split) which may be
acquired within sixty days of November 4, 1996 pursuant to the exercise of
stock options.
(3) All of these shares represent shares which may be acquired within sixty
days of November 4, 1996 pursuant to the exercise of stock options.
(4) Includes 74,853 shares (24,951 shares post-Reverse Split) which may be
acquired within sixty days of November 4, 1996 pursuant to the exercise of
stock options.
(5) Includes 93,096 shares (31,032 shares post-Reverse Split) which may be
acquired within sixty days of November 4, 1996 pursuant to the exercise of
stock options.
(6) Includes 63,000 shares (21,000 shares post-Reverse Split) which may be
acquired within sixty days of November 4, 1996 pursuant to the exercise of
stock options.
(7) Includes 63,000 shares (21,000 shares post-Reverse Split) which may be
acquired within sixty days of November 4, 1996 pursuant to the exercise of
stock options.
(8) Includes 55,000 shares (18,333 shares post-Reverse Split) which may be
acquired within sixty days of November 4, 1996 pursuant to the exercise of
stock options.
(9) Includes 454,525 shares (151,508 shares post-Reverse Split) which may be
acquired within sixty days of November 4, 1996 pursuant to the exercise of
stock options.
There are no arrangements known to the Company the operation of which may,
at a subsequent date, result in a change in control of Photon.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the start-up financing for the German Subsidiary, Mr. Oliver
Clasas, a private individual, former shareholder of the German Subsidiary, and
currently a minority shareholder of the Company, gave the Company a four (4)
year term loan for 400,000 DM ($291,000 US). The loan was made to the
subsidiary on October 1, 1994. The Company began making payments of principal
and interest of 10,000 DM per month at the end of April 1995. Interest accrues
from October 1 through the start date of the payments at an interest rate of
5.25% plus the prevailing German bank discount rate (i.e. 4.5%). The loan has
clauses which would allow both slower and/or faster payments contingent upon
the cash flow of the German Subsidiary's operations. As of June 30, 1996, the
principal amount of $353,000 DM ($231,000 US) was outstanding. A portion of
this outstanding amount ($47,000 US) has been classified as a current
liability and represents an estimated twelve payments of principal. The
balance ($184,000 US) has been reported as a long term debt. Payments on a
monthly basis are contingent upon cash flow considerations and upon agreement
with the individual.
On October 31, 1995, the Company entered into a Debenture agreement for $1.5
million Canadian dollars ($1.1 million US) through C.I.-C.P.A Business
Ventures Fund, Inc. a capital fund of Covington Capital Corporation
("Covington Capital") (the "Covington Agreement"). This subordinated debt has
a term of five (5) years at an interest rate of 12% per annum. Interest
payments are payable only in the first twelve (12) months. As of June 30,
1996, the Company had made interest payments totaling approximately $119,000
Canadian dollars ($87,000 US). This Covington Agreement includes a first
option to purchase 83,333 shares of the Company's common stock at a purchase
price of $3.75 per share for a term of five (5) years and a second option to
purchase 133,333 shares of the Company's common stock at purchase price of
$7.50 per share until October 1996. After October 31, 1996 the purchase price
increases to $9.75 per share. The Option terminates on October 1, 1997. This
debt is classified primarily as long term debt with principal payments of
$31,500 due in fiscal 1997 recorded as current debt. The balance outstanding
as of June 30, 1996 was $1,100,000 ($1.5 million Canadian dollars). Payments
of principal will commence on November 30, 1996 in the amount of $6,250
Canadian dollars ($4,500 US) per month for a period of forty-eight (48) months
with the balance due at the end of the term. This financing was an important
source of funds during fiscal 1996 which provided for investment
16
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to expand sales territory coverage through addition of personnel, increase
marketing support and continue research and development efforts in both
hardware and software for new products and product cost reductions. There has
been no exercise of options through June 30, 1996. As part of the Covington
Agreement, Mr. Grant Brown was appointed to the Board of Directors of the
Company on December 8, 1995.
On April 4, 1996, Dr. Robert Curry, a General Partner of the Sprout Group
and President of MLTV, was appointed to the Board of Directors of the Company.
OTHER MATTERS
SHAREHOLDER PROPOSALS
Individual shareholders of the Company may be entitled to submit proposals
which they believe should be voted upon by the shareholders. The Securities
and Exchange Commission ("SEC") has adopted Regulations which govern the
inclusion of such proposals in annual proxy materials in compliance with
Section 16(a) of the Securities Exchange Act of 1934. All such proposals must
be submitted to the Secretary of the Company at the Company's principal
executive office no later than July 13, 1997 to be considered for inclusion in
the Company's 1997 proxy materials.
OTHER BUSINESS
The 1996 Annual Meeting of Shareholders is called for the purposes set forth
in the Notice. The Board does not know of any matter for action by
shareholders at such meeting other than the matters described in the Notice.
However, the enclosed Proxy will confer discretionary authority with respect
to matters which are not known at the date of printing hereof and which may
properly come before the meeting. It is the intention of the persons named in
the proxy to vote in accordance with their judgment on any such matter.
Ernst & Young has served as the Company's independent auditors since 1983.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting of Shareholders, where they will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions. The Board intends to select the Company's auditors for
the 1997 fiscal year at the December 1996 meeting of the Board of Directors.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than then 10% of the
Company's Common Stock, to file reports of ownership and changes in ownership
with the SEC. Officers, directors and greater than 10% shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by, and
written representations from, reporting persons for the 1996 fiscal year that
no Forms 5 were required for those persons by the 1996 fiscal year, the
Company believes that all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners during the fiscal year ended
June 30, 1996 were met in a timely manner.
ANNUAL REPORT
The Company's Annual Report to the shareholders for the fiscal year ended
June 30, 1996, which contains consolidated financial statements reflecting the
financial position of the Company as of June 30, 1996 and 1995, the results of
operations for the three years ended June 30, 1996, 1995 and 1994 and a
consolidated statement of cash flows for the years ended June 30, 1996, 1995
and 1994 is being mailed concurrently with the mailing of this Proxy
Statement. The Annual Report is not incorporated into this Proxy Statement and
is not considered proxy soliciting material.
17
<PAGE>
FORM 10-K
THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-K WITH THE SEC. SHAREHOLDERS
MAY OBTAIN A COPY OF THIS REPORT, INCLUDING FINANCIAL STATEMENTS, SCHEDULES AND
A LIST OF EXHIBITS, WITHOUT CHARGE, BY WRITING TO INVESTOR RELATIONS, PHOTON
TECHNOLOGY INTERNATIONAL, INC., 1 DEERPARK DRIVE, SUITE F, SOUTH BRUNSWICK,
NEW JERSEY 08852.
By Order of the Board of Directors,
Ronald J. Kovach, Secretary
November 4, 1996
18
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PHOTON TECHNOLOGY INTERNATIONAL, INC.
ANNUAL MEETING OF SHAREHOLDERS--DECEMBER 9, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
R
O
X
Y
The undersigned hereby appoints Charles G. Marianik and Ronald J. Kovach as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of Common
Stock of Photon Technology International, Inc. held by the undersigned on
November 1, 1996 at the Annual Meeting of Shareholders to be held on December 9,
1996, or any adjournment thereof.
1. Election of directors for a three-year term:
FRANKLIN J. IRIS, M. GRANT BROWN, ROBERT E. CURRY
2. Approval of the Amendment to the Company's Employee Stock Option Plan.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ON THE REVERSE
SIDE, BUT IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND
PROPOSAL 2.
PLEASE SIGN AND DATE PROXY ON REVERSE SIDE (OVER)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[X] Please mark
your votes
as in this
example.
1. Election of directors for FOR AGAINST WITHHELD 2. Amendment to Stock FOR AGAINST WITHHELD
a three-year term: [ ] [ ] [ ] Option Plan [ ] [ ] [ ]
3. In their discretion, the Proxies are authorized
to vote upon such other business as may properly
come before the meeting
For, except vote withheld from the following nominees:
_____________________________________________________
Signature(s) of Shareholder(s): _____________________________________________ Dated: _________________, 1996
NOTE: Please sign exactly as your names appear on this Proxy. Joint owners should each sign personally. When signing
as attorney, executor, administrator, guardian, custodian, or corporate official, sign name and title.
</TABLE>
