PHOTON TECHNOLOGY INTERNATIONAL, INC.
Princeton Corporate Plaza
1 Deer Park Drive, Suite F
Monmouth Junction, New Jersey 08852
November 5, 1998
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 11, 1998, 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 proposal: to elect two members of the Board of Directors to serve for
a three year term or until their successors are elected.
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 proposal 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 4, 1998, 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. 1998 Annual Report
is also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/Charles G. Marianik
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.
================================================================================
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
To Be Held December 11, 1998
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 Friday,
December 11, 1998 at 9:00 A.M., at which time the following matters will be
considered and voted upon:
1. The election of two members to the Board of Directors for a three
year term.
2. Such other business as may properly come before the Annual Meeting
or any adjournment thereof.
Only shareholders of record on November 2, 1998 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,
/s/Ronald J. Kovach
Ronald J. Kovach,
Secretary
November 5, 1998.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
Princeton Corporate Plaza
1 Deer Park Drive, Suite F
Monmouth Junction, 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 Deer Park Drive, Suite F, Monmouth Junction, New Jersey 08852, for use
in connection with the Annual Meeting of Shareholders to be held at 9:00 A.M. on
December 11, 1998 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 7, 1998. 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.
2
<PAGE>
Record Date, Voting and Share Ownership
Holders of record of common stock at the close of business on November 2, 1998
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
As of the close of business on November 2, 1998, there were 1,167,356 shares of
the Company's common stock ("Common Stock") outstanding and entitled to vote
held by 148 shareholders of record.
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 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.
3
<PAGE>
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 six. The Board of Directors is divided into three
classes and there are currently eight directors on the Board. The Board has
selected the two Class II directors, Ronald J. Kovach and Charles G. Marianik,
for nomination at the 1998 Annual Meeting for a term expiring in 2001. The one
Class I director, James F. Mrazek, was elected at the 1997 Annual Meeting for a
term which will expire in 2000. The three Class III directors, Franklin J. Iris,
Robert E. Curry and M. Grant Brown, were elected at the 1996 Annual Meeting for
terms which will expire in 1999.
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.
CLASS II - TO BE ELECTED AT THE 1998 ANNUAL MEETING
FOR A TERM EXPIRING IN 2001
Charles G. Marianik, 52. 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. He received a B.Sc. in 1971 and an
M.B.A. in 1976 from the University of Western Ontario.
Ronald J. Kovach, 58. Mr. Kovach served as Senior Vice-President of the Company
since joining the Company in 1985 until 1993. He was elected Executive
Vice-President in 1993. Mr. Kovach has been the Secretary and a member of the
Board of the Company since 1988. He received his degree in Engineering
Technology from the Western Ontario Institute of Technology in 1966.
The Board of Directors recommends a vote IN FAVOR OF
the above nominees.
4
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS I - PRESENT TERM EXPIRING IN 2000
James F. Mrazek, 58. Mr. Mrazek became a member of the Board of Directors in
1986. He recently joined the Four Corners Venture Fund and holds the position of
President and Managing General Partner. From 1990, Mr. Mrazek was the President
of Carnegie Venture Resources, a consulting and venture capital firm.
Previously, he was Chairman and a founding General Partner of the Edison Venture
Fund after holding senior executive positions with Johnson & Johnson. Mr. Mrazek
serves on the board of directors of Sepracor, Inc, Laser Institutes of America,
Inc. and XyloMed, Inc. He received a B.A. degree from St. Lawrence University in
1962 and an M.B.A. degree from Cornell University in 1964.
CLASS III - PRESENT TERM EXPIRING IN 1999
Franklin J. Iris, 68. Mr. Iris became a member of the Board of Directors 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 Enzamatics, a medical diagnostics company, from
1994 to 1995. Mr. Iris currently serves on the board of directors of several
privately-held health care companies and is also on the board of Cytyc
Corporation, a publicly-held diagnostic company. He received his B.S. degree
from Fairfield University in 1953.
M. Grant Brown, 49. Mr. Brown was appointed to the Board of Directors in 1995.
Mr. Brown's appointment as Director satisfied a condition of the financing
agreement between Covington Capital Corporation and the Company. Mr. Brown is a
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 an M.B.A. degree in
1979 from McMaster University.
Robert E. Curry, Ph.D., 52. Dr. Curry was appointed to the Board of Directors 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 is 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 board of directors of
AutoCyte, Inc., Biocircuits and Diatide, Inc. He 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.
5
<PAGE>
Board Meetings and Committees of the Board of Directors
The Board held five meetings during the fiscal year ended June 30, 1998. 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 1998 to
review and discuss the annual audit and general financial and internal control
matters. During fiscal year 1998, the Audit Committee consisted of Mr. Iris,
Chairman and Dr. Balogh.
The Compensation Committee of the Board held one meeting during fiscal year 1998
to discuss general compensation matters. During fiscal year 1998, the
Compensation Committee consisted of Mr. Mrazek, Chairman and Dr. Curry.
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,
1998, the Company paid an aggregate of $8,081 for director traveling expenses .
In addition, each non-employee director re-elected to the Board at the 1997
Annual Shareholders Meeting received at that time an option grant to purchase
3,333 shares of Common Stock at an option price of $7.50 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. 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.
EXECUTIVE COMPENSATION
The following table sets forth, for fiscal years ending June 30, 1998, 1997 and
1996, certain 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 1998
exceeded $100,000 (the "Named Executive Officers") with respect to services
rendered by such persons to the Company and its subsidiaries. No individual who
would otherwise have been included in such table on the basis of salary and
bonus for the 1998 fiscal year resigned or terminated employment during that
fiscal year.
6
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
---------------------------------------------- -----------------------------
NAME AND Other Securities
PRINCIPAL Fiscal Annual Underlying All Other
POSITION Year Salary($) Compensation(1) Options Compensation(2)
- -------- ---- --------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Charles G. Marianik 1998 $196,927 $32,907 --- $37,389
Chairman, Chief 1997 $185,536 $28,666 24,000 $35,983
Executive Officer 1996 $180,927 $32,548 13,721 $35,983
and President
Ronald J. Kovach 1998 $128,593 $18,445 --- $ 6,202
Executive Vice 1997 $105,863 $ 6,016 12,000 $ 5,819
President-Technology 1996 $118,279 $8,961 5,843 $ 5,819
Howard D. Zumbrun(3) 1998 $88,378 $10,526 7,000 ---
Vice President and
Chief Financial
Officer
William D. Looney(3) 1997 $ 58,665 $ 3,128 ---- $ 3,369
Vice President, 1996 $112,365 $11,252 5,546 $ 5,776
Controller and
Treasurer
</TABLE>
- -------------------
(1) These amounts reflect personal benefits received by each Named
Executive Officer during the 1998 fiscal year. These personal benefits
include payments made on behalf of those individuals for (a) disability
insurance premiums, which include $1,718 for Mr. Marianik, $1,471 for
Mr. Kovach; (b) medical expenses not otherwise covered by the group
plan, which include $3,570 for Mr. Zumbrun; (c) auto allowance, which
includes $2,538 for Mr. Marianik, $9,342 for Mr. Kovach and $5,613 for
Mr. Zumbrun, and (d) all income taxes attributed to insurance and
personal benefits and paid by the Company as a result of their receipt
of these personal benefits, which include approximately $28,651 for Mr.
Marianik, approximately $7,632 for Mr. Kovach and approximately $1,343
for Mr. Zumbrun.
(2) These amounts reflect supplemental term life insurance premiums for
each Named Executive Officer which includes for the 1998 fiscal year a
premium of $4,352 for Mr. Marianik and $1,086 for Mr. Kovach. For Mr.
Marianik, these amounts also include the premiums of $33,037 for each
fiscal year paid on a permanent-whole life insurance policy. For Mr.
Kovach, these amounts also include a premium of $5,116 for a
permanent-whole life policy.
(3) Mr. William D. Looney passed away in January 1997. Mr. Howard D.
Zumbrun became Vice President and Chief Financial Officer on September
15, 1997.
7
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants made
to each of the Named Executive Officers for the fiscal year ended June 30, 1998.
No stock appreciation rights were granted to these individuals during such year.
<TABLE>
<CAPTION>
Individual Grants(1)
--------------------
Number of
Securities
Underlying % of Total
Options Options Granted Exercise
Granted to Employees in Price Expiration
Name (1) Fiscal Year ($/Sh)(2) Date
---- ---------------- -------------- ---------- -------
<S> <C> <C> <C> <C>
Howard D. Zumbrun 7,000 100% $7.00 11/30/07
</TABLE>
- -------------------
(1) All options granted to Named Executive Officer are incentive stock
options under the federal tax laws and were granted on December 1,
1997. Pursuant to the option agreement evidencing these options, the
options were to become exercisable in three (3) successive equal annual
installments, with the first such installment to vest at the grant
date.
(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.
<PAGE>
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,
1998. None of the Named Executive Officers exercised any stock options in 1998.
No stock appreciation rights were exercised during such year or were outstanding
at the end of that year.
<TABLE>
<CAPTION>
Value of Exercisable/
Number of Securities Unexercisable In-the-
Underlying Unexercised Money Options
Options at June 30, 1998 at June 30, 1998 (1)
------------------------ --------------------
Exercisable(1) Unexercisable Exercisable Unexercisable
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles G. Marianik 37,858 8,000 $-0- $-0-
Ronald J. Kovach 32,951 4,000 $-0- $-0-
Howard D. Zumbrun 2,333 4,667 $-0- $-0-
</TABLE>
- -------------------
(1) Equal to the fair market value of securities underlying the option at
fiscal year end ($2.875 per share) minus the exercise price payable for
those securities.
8
<PAGE>
Employment Agreements, Termination of Employment and
Change-In-Control Agreements
On June 27, 1997, the employment agreement between the Company and Mr. Marianik
was automatically extended for two years in accordance with the terms of the
contract. This employment agreement entitled Mr. Marianik to a base salary of
$215,000 in 1998. Mr. Marianik voluntarily reduced his salary in May of 1998 to
$165,000. 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 (2) 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 Named 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 per cent (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 333,333 shares of the Company's
Common Stock resulting in a change in ownership of more than twenty per cent
(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. Robert Curry. Neither of these individuals was
at any time during the 1998 fiscal year or at any other time an officer or
employee of the Company.
No Named 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.
9
<PAGE>
REPORT OF COMPENSATION COMMITTEE
Decisions on compensation matters relating to the Company's Chief Executive
Officer, Charles G. Marianik, and the Company's other Named Executive Officer
are generally made by the Compensation Committee of the Board. The Compensation
Committee currently consists of Mr. Mrazek and Dr. Curry, 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 Named Executive Officers of the Company for the fiscal year ended June
30, 1998.
General Compensation Policy. The Compensation Committee's overall policy is to
offer the Company's Named Executive Officers competitive compensation
opportunities based upon the officer's personal performance, the performance of
the Company and the officer's contributions 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 Named 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 Named 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 in establishing the components of each Named
Executive Officer's compensation package for the 1998 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.
o 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.
There were no annual incentive compensations established for fiscal
1999, due to cash-flow considerations.
o Stock-Based Incentive Compensation. The Compensation Committee
approves periodic grants of stock options to each of the Company's Named
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
10
<PAGE>
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 Named
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 (3) year period.
o 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 1999
compensation at the December 1998 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 1998
fiscal year.
o 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 Named 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 Named 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 Named Executive Officers
for the fiscal 1998 year did not exceed the $1 million limit per officer, nor is
the cash compensation to be paid to the Company's Named Executive Officers for
the 1998 fiscal period expected to reach that level. Because it is very unlikely
that the cash compensation payable to any of the Company's Named Executive
Officers in the foreseeable future will approach the $1 million limitation, the
Committee has decided not
11
<PAGE>
to take any action at this time to limit or restructure the elements of cash
compensation payable to the Company's Named Executive Officers. The Committee
will reconsider this decision should the individual compensation of any Named
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. Robert Curry
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of September 1, 1998, information with respect
to (a) each person (including any "group" as that term is used in section
13(d)(3) of the Securities Exchange Act of 1934) who is known to the Company to
be the beneficial owner of more than five percent (5%) of the outstanding Common
Stock of the Company and (b) the number and percentage of the Company's Common
Stock owned by (i) each of the directors and the executive officers named on the
Summary Compensation Table above and (ii) all directors and executive officers
of the Company as a group. The Company believes that, unless otherwise
indicated, each of the shareholders has sole voting and investment power with
respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Name of Number of Percent of Class
Beneficial Owner(1) Shares Owned Outstanding (9)
- ------------------- ------------ ---------------
<S> <C> <C>
M.L. Technology Ventures, L.P. (7)
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025 396,825 24.5%
Charles G. Marianik(2)
Princeton Corporate Plaza
1 Deer Park Drive, Suite F
Monmouth Junction, NJ 08852 320,097 19.8%
Covington Capital Corporation (8)
1 First Canadian Place
100 King Street West
Suite 2620, P.O. Box 165
Toronto, Ontario M5X 1C9 266,333 16.5%
Edison Venture Fund, L.P.
Princeton Pike Corporation Center
997 Lenox Drive #3
Lawrenceville, NJ 08648 112,333 6.9%
Michael Winderbaum
120 N. LaSalle, Ste. 2900
Chicago, IL 60602 111,285 6.9%
Ronald Kovach(3) 59,328 3.7%
Franklin J. Iris(4) 28,459 1.8%
Louis Balogh(5) 22,477 1.4%
James F. Mrazek(5) 23,111 1.4%
Howard D. Zumbrun(6) 3,570 .2%
All Directors and Executive
Officers as a Group (7 persons)(8) 1,120,200 69.3%
</TABLE>
13
<PAGE>
- -------------------
(1) For purposes of this table, a beneficial owner is one who, directly or
indirectly, has or shares with others (a) the power to vote or direct
the voting of the Common Stock or (b) investment power with respect to
the common stock which includes the power to dispose or direct the
disposition of the common stock.
(2) Includes 37,858 shares which may be acquired within sixty days of
September 1, 1998 pursuant to the exercise of stock options.
(3) Includes 32,951 shares which may be acquired within sixty days of
September 1, 1998 pursuant to the exercise of stock options.
(4) Includes 20,999 shares which may be acquired within sixty days of
September 1, 1998 pursuant to the exercise of stock options.
(5) Includes 19,444 shares which may be acquired within sixty days of
September 1, 1998 pursuant to the exercise of stock options.
(6) Includes 2,333 shares which may be acquired within sixty days of
September 1, 1998 pursuant to the exercise of stock options.
(7) ML Technology Ventures, LP is represented on the Board of Directors by
Dr. Robert Curry. These shares were therefore included as part of the
Directors and Executive Officers Group.
(8) Includes 266,333 shares which may be acquired within sixty days of
September 1, 1998 pursuant to the exercise of stock options. Covington
Capital Corporation is represented on the Board of Directors by Mr.
Grant Brown. These shares were therefore included as part of the
Directors and Executive Officers Group.
(9) In calculation of percentages, there were 1,167,356 outstanding shares
plus 449,138 options that could be exercised within sixty days of
September 1, 1998. On this basis, for purposes of calculations, the
number of shares used is 1,616,494.
There are no arrangements known to the Company the operation of which may, at a
subsequent date, result in a change in control of the Company.
Certain Relationships and Related Transactions
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.
On December 3, 1997, Mr. William E. Aziz, of Covington Capital Corporation, was
appointed to the Board of Directors of the Company.
On December 8, 1995, ML Technology Ventures, L.P. and Charles Marianik,
President of the Company, entered into a voting agreement providing that neither
party shall vote any of its shares in
14
<PAGE>
favor of a sale of the Company or merger or consolidation without first
consulting with and obtaining the written consent of the other party.
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, 1999 to be considered for inclusion in the Company's 1999 proxy
materials.
Other Business
The 1998 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 1999 fiscal year at the December 1998 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 10% of the Company's
Common Stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("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 it, and
written representations from reporting persons for the 1998 fiscal year that no
Forms 5 were required for those persons by the 1998 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, 1998
were met in a timely manner.
15
<PAGE>
ANNUAL REPORT
The Company's Annual Report to the shareholders for the fiscal year ended June
30, 1998, which contains consolidated financial statements reflecting the
financial position of the Company as of June 30, 1998, the results of operations
for the two years ended June 30, 1998 and 1997 and a consolidated statement of
cash flows for the years ended June 30, 1998 and 1997, 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.
FORM 10-KSB
THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-KSB 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 DEER PARK DRIVE, SUITE F, MONMOUTH JUNCTION,
NEW JERSEY 08852.
By Order of the Board of Directors,
/s/Ronald J. Kovach
Ronald J. Kovach, Secretary
November 5, 1998
16
<PAGE>
P R O X Y
PHOTON TECHNOLOGY INTERNATIONAL, INC.
Annual Meeting of Shareholders -- December 11, 1998
Solicited on Behalf of the Board of Directors
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 2, 1998 at the Annual Meeting of Shareholders to be held on December
11, 1998, or any adjournment thereof.
1. Election of directors for a three-year term:
Ronald J. Kovach, Charles G. Marianik
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.
PLEASE SIGN AND DATE PROXY ON REVERSE SIDE (over)
<PAGE>
[ X ] Please mark your
votes as in this
example.
FOR AGAINST WITHHELD
1. [ ] [ ] [ ]
Election of directors for a three year term:
Ronald J. Kovach, Charles G. Marianik
For, except vote withheld from the following nominees:
- --------------------------------------------------------------------------------
2.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting.
Signature(s) of Shareholder(s): ________________________________________________
Dated: ________________________________ , 1998
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.
