NUMEREX CORP.
Rose Tree Corporate Center II
1400 North Providence Road
Suite 5500
Media, PA 19063
Dear Shareholders:
The Annual Meeting of Shareholders of Numerex Corp. will be held at 10:00
a.m. on February 27, 1997 at Doubletree Guest Suites, 4101 Island Avenue,
Philadelphia, Pennsylvania 19153.
The items to be voted on at this meeting are listed in the attached proxy
statement.
Enclosed is a form of proxy for your use. We urge you to vote by signing
the proxy, even though you plan to attend the meeting, and mailing it to us in
the accompanying stamped envelope. Be sure it is signed exactly as the name or
names appear on the proxy.
A copy of our Annual Report for 1996 is enclosed.
Sincerely yours,
John J. Reis
President and Chief
Executive Officer
January 27, 1997
Enclosures
<PAGE>
NUMEREX CORP.
---------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1997
---------------------------
TO OUR SHAREHOLDERS:
Notice is hereby given that the annual meeting of shareholders of NUMEREX
CORP. (the "Company") will be held on February 27, 1997, at 10:00 A.M.
(prevailing time), at Doubletree Guest Suites, 4101 Island Avenue, Philadelphia,
Pennsylvania 19153, for the following purposes:
1. To elect a Board of Directors consisting of seven persons to serve
until the next annual meeting of shareholders and until their
respective successors shall have been duly elected and qualified;
2. To consider and act upon a proposal to increase the number of shares
of Common Stock for issuance under the Company's Employee Stock
Option Plan; and
3. To transact such other business as may properly come before this
meeting or any postponement or adjournment thereof.
The Board of Directors has fixed January 24, 1997 as the record date for
the determination of shareholders entitled to vote at the annual meeting. Only
shareholders of record at the close of business on that date will be entitled to
notice of, and to vote at, the annual meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE; NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
January 27, 1997 By Order of the Board of Directors
John J. Reis, President and Chief Executive Officer
<PAGE>
NUMEREX CORP.
----------------------------
PROXY STATEMENT
----------------------------
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Numerex Corp. (the "Company") for use at the annual meeting
("Annual Meeting") of shareholders to be held on February 27, 1997, at 10:00
A.M. (prevailing time) at Doubletree Guest Suites, 4101 Island Road,
Philadelphia, Pennsylvania 19153, and at any postponement or adjournment
thereof. The approximate date on which this Proxy Statement and the accompanying
form of proxy will first be sent or given to shareholders is January 27, 1997.
Sending in a signed proxy will not affect a shareholder's right to attend
the annual meeting and vote in person since the proxy is revocable. Any
shareholder giving a proxy has the power to revoke it by, among other methods,
giving written notice to the Secretary of the Company at any time before the
proxy is exercised.
The expense of the proxy solicitation will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited in person or by
telephone, telegraph or teletype by directors, officers or employees of the
Company without additional compensation. Upon request by record holders of the
Company's Class A Common Stock, no par value (the "Common Stock"), who are
brokers, dealers, banks or voting trustees, or their nominees, the Company is
required to pay the reasonable expenses incurred by such record holders for
mailing proxy material and annual shareholder reports to any beneficial owners
of Common Stock.
A form of proxy is enclosed. If properly executed and received in time for
voting, and not revoked, the enclosed proxy will be voted as indicated in
accordance with the instructions thereon. If no directions to the contrary are
indicated, the persons named in the enclosed proxy will vote all shares of the
Company's Common Stock for election of all nominees for directorships
hereinafter named.
The enclosed proxy confers discretionary authority to vote with respect to
any and all of the following matters that may come before the meeting: (i)
matters which the Company does not know, a reasonable time before the proxy
solicitation, are to be presented at the meeting; (ii) approval of the minutes
of a prior meeting of shareholders, if such approval does not amount to
ratification of the action taken at the meeting; (iii) the election of any
person to any office for which a bona fide nominee is unable to serve or for
good cause will not serve; (iv) any proposal omitted from this Proxy Statement
and form of proxy pursuant to Rules 14a-8 or 14a-9 under the Securities Exchange
Act of 1934, as amended; and (v) matters incident to the conduct of the meeting.
In connection with such matters, the persons named in the enclosed form of proxy
will vote in accordance with their best judgment.
<PAGE>
The Company is not currently aware of any matters which will be brought
before the annual meeting (other than procedural matters) which are not referred
to in the enclosed notice of the annual meeting.
The Company had 11,202,492 shares of Common Stock outstanding at the close
of business on January 24, 1997, the record date (the "Record Date"). The
presence, in person or by proxy, of holders of a majority of all of the shares
of stock entitled to vote constitutes a quorum. Each share of Common Stock
outstanding is entitled to one vote on each matter which may be brought before
the annual meeting. Directors shall be elected by a plurality of the votes
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. In all matters other than the election of directors,
the affirmative vote of the majority of shares present in person or represented
by proxy at the Annual Meeting and entitled to vote on the matter shall be the
act of the shareholders. Under the Pennsylvania Business Corporation Law, an
abstention, notwithstanding the authority to vote or broker non-vote will not
have the same legal affect as an "against" vote and will not be counted in
determining whether the proposal has received the required shareholder vote.
As used in this Proxy Statement, "fiscal 1994" means the Company's fiscal
year ended October 31, 1994, "fiscal 1995" means the Company's fiscal year ended
October 31, 1995 and "fiscal 1996" means the Company's fiscal year ended October
31, 1996. All share information set forth herein has been adjusted to reflect a
five-for-two stock split paid in October 1994.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of January 24, 1997, by
(i) each person known by the Company to be the beneficial owner of five percent
or more of the Common Stock, (ii) each director of the Company, (iii) each
executive officer of the Company named in the Summary Compensation Table which
follows, and (iv) all directors and executive officers of the Company as a
group. Except as otherwise indicated below, the beneficial owners of the Common
Stock listed below have sole investment and voting power with respect to such
shares.
-2-
<PAGE>
Shares Beneficially Owned(1)
-------------------------------------
Name of Beneficial Owner
or Identity of Group Number Percent
- --------------------------------- ---------------- ---------------
Gwynedd Resources, Ltd.
900 Market Street
Suite 200 3,337,480(2) 29.8%
Wilmington, DE 19801
Elizabeth Baxavanis, Trustee
Dominion Holdings #5
Revocable Trust for the
Benefit of Maria E. Nicolaides
900 Market Street
Suite 200
Wilmington, DE 19801 3,337,480(3) 29.8%
Maria E. Nicolaides
4193 Las Palmas Way
Sarasota, FL 34238 3,337,480(4) 29.8%
Douglas Holsclaw, MD
42 Llanberries Road
Bala Cynwyd, PA 19004 752,382(5) 6.7%
Kenneth F. Manser
Bronzebase Limited
Great Western House
Station Road
Reading, Berkshire RG11SX 1,334,658 11.9%
George Benson(6) 2,500(7) *
Matthew J. Flanigan(6) 4,200(7) *
Frederick C. Shay(6) 38,000(8) *
Gordon T. Ray(6) 2,500(7) *
John J. Reis(6) --(9) --
Andrew J. Ryan(10) --(10) --
Donald M. Hooton(6) 12,150(11) *
Charles L. McNew(6) 30,000(12) *
Peter I. Pritchett(6) 105,468 *
All Directors and Executive Officer
as a group(10 persons) 1,529,073(13) 13.6%
- ----------
*less than 1%
-3-
<PAGE>
(1) The shares "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include shares owned by or for, among other things, the wife, minor
children or certain other relatives of such individual, as well as other
shares as to which the individual has or shares voting or investment power
or has the right to acquire within 60 days after January 24, 1997.
(2) The shareholders of Gwynedd Resources, Ltd. ("Gwynedd") include various
trusts for the benefit of Maria E. Nicolaides and her children (for which
Mrs. Baxavanis is trustee), Dr. Holsclaw and Mr. Hooton. Gwynedd has the
same shareholders as Dominion Group Limited, a Member Company of Dominion
Holdings. See "Certain Relationships and Related Transactions." See
footnotes (3), (4), (5), (10) and (11).
(3) Represents the shares of Common Stock owned by Gwynedd. Trusts for the
benefit of Maria E. Nicolaides and her children, of which Mrs. Baxavanis,
Maria E. Nicolaides' mother-in-law, is trustee, own approximately 89.4%
and 0.9%, respectively, of the outstanding stock of Gwynedd. Mrs.
Baxavanis disclaims beneficial ownership of all shares of Common Stock
owned by Gwynedd. See footnote (4) below.
(4) Represents the shares of Common Stock owned by Gwynedd. Trusts for the
benefit of Maria E. Nicolaides and her children, of which Mrs. Baxavanis,
Maria E. Nicolaides' mother-in-law, is trustee, own approximately 89.4%
and 0.9%, respectively, of the outstanding stock of Gwynedd. Maria E.
Nicolaides disclaims beneficial ownership of 673,169 shares of Common
Stock owned by Gwynedd which may be deemed to be beneficially owned by the
other shareholders of Gwynedd, including trusts for the benefit of her
children. See footnote (3) above.
(5) Does not include any shares of Common Stock owned by Gwynedd. Dr. Holsclaw
is the owner of approximately 9.3% of the outstanding stock of Gwynedd.
(6) The address of such person is c/o Numerex Corp., Rose Tree Corporate
Center II, 1400 North Providence Road, Suite 5500, Media, PA 19063.
(7) Represents options to purchase Common Stock under the Non-Employee
Director Stock Option Plan (the "Director Plan").
(8) Includes options to purchase 32,000 shares of Common Stock under the
Employee Stock Option Plan (the "Employee Plan").
(9) Does not include options to purchase 125,000 shares of Common Stock under
the Employee Plan which are not currently exercisable.
(10) Mr. Ryan disclaims beneficial ownership of the 3,337,480 shares of Common
Stock owned by Gwynedd. Mr. Ryan's address is: Salisbury & Ryan, 1325
Avenue of the Americas, Seventh Floor, New York, NY 10019-6026.
(11) Does not include any shares of Common Stock owned by Gwynedd or 400 shares
of Common Stock owned by his wife, as to which beneficial ownership is
disclaimed, but includes an option to purchase 9,000 shares of Common
Stock under the Employee Plan. Mr. Hooton is the owner of approximately
0.5% of the outstanding stock of Gwynedd.
(12) Includes options to purchase 29,000 shares of Common Stock under the
Employee Plan.
(13) Includes options to purchase 79,200 shares of Common Stock under the
Employee Plan and the Director Plan.
-4-
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall
consist of not less than three nor more than ten directors and that the number
of directors to be elected, subject to the foregoing limits, shall be determined
from time to time by the Board of Directors. The Board has set the number of
directors at seven. At the Annual Meeting seven directors, who will constitute
the Company's entire Board of Directors, are to be elected to hold office until
the next annual meeting and until their respective successors have been duly
elected and qualified. The Board has designated the persons listed below to be
nominees for election as directors. The Company has no reason to believe that
any of the nominees will be unavailable for election; however, should any
nominee become unavailable for any reason, the Board of Directors may designate
a substitute nominee. The proxy agents intend (unless authority has been
withheld) to vote for the election of the Company's nominees.
All of the nominees currently serve as directors of the Company and have
consented to being named in this Proxy Statement and to serve if elected.
The bylaws of the Company require that nominations by shareholders for
directors to be elected, or proposals by shareholders to be considered, at an
annual meeting of shareholders and which have not been previously approved by
the Board of Directors must be submitted to the Secretary of the Company in
writing, either by personal delivery, nationally-recognized express mail or
United States mail, postage prepaid, not later than the latest date upon which
shareholder proposals must be submitted to the Company for inclusion in the
Company's proxy statement relating to such meeting pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended, or other applicable rules or
regulations under the federal securities laws or, if no such rules apply, at
least ninety (90) days prior to the date one year from the date of the
immediately preceding annual meeting of shareholders. Each such nomination or
proposal shall set forth: (i) the name and address of the shareholder making the
nomination or proposal and the person or persons nominated, or the subject
matter of the proposal submitted; (ii) a representation that the shareholder is
a holder of record of capital stock of the Company entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to vote for
the person or persons nominated, or the proposal submitted; (iii) a description
of all arrangements and understandings between the shareholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination was made, or the proposal was submitted, by the
shareholder; (iv) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated by the Board of Directors; and (v) the consent of each
nominee to serve as a director of the Company if so elected. All late
nominations and proposals will be rejected.
-5-
<PAGE>
Information as to Directors and Nominees
The following table contains information with respect to the nominees for
Directors.
Name Age Position Director Since
- --------------------------------------------------------------------------------
George Benson(2)(3) 62 Director 1995
Matthew J. Flanigan(1)(2) 51 Director 1994
Kenneth F. Manser 63 Chairman of the 1994
Board of Directors;
Managing Director
of the Company's
subsidiary, Versus
Technology Limited
Gordon T. Ray(1)(3) 68 Director 1995
John J. Reis 54 Director, President 1996
and Chief Executive
Officer
Andrew J. Ryan 37 Director 1996
Frederick C. Shay 51 Director; President 1994
of the Company's
subsidiary, DCX Systems,
Inc.
- ----------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Employee Stock Option Plan Committee
George Benson has served as a Director of the Company since June 1995. Mr.
Benson has served as Chairman and Chief Executive Officer of Wisconsin Wireless
Communications Corporation since September, 1992 and Senior Vice President of
Mitel, Inc., a public telecommunications company, from September, 1990 until
September, 1992.
Matthew J. Flanigan has served as a Director of the Company since July
1994. Mr. Flanigan has been the President of the Telecommunication Industry
Association, a trade association for telecommunication companies, since April
1994. From March 1987 to January 1994, he served as President of Cognitronics
Corporation, a telecommunications manufacturer.
-6-
<PAGE>
Kenneth F. Manser has been the Managing Director of the Company's
subsidiary, Versus Technology Limited, since December 1990 and a Director of the
Company since February 1994. Prior thereto, since 1987, he was sales manager of
the Telecommunications Group of Base Ten Systems, Inc., a defense electronic
systems manufacturer.
Gordon T. Ray has served as a Director of the Company since October 1995.
Mr. Ray has served as President of Global Information, Ltd., a technology
marketing consulting company, from September 1993 to present and for more than
five years prior thereto he served as Executive Vice President of NEC America,
an equipment manufacturing company. Mr. Ray is also a director of the
Telecommunication Industry Association and a member of the board of governors of
the Electronic Industries Association, trade associations for telecommunication
and electronics companies, respectively.
John J. Reis has been the President, Chief Executive Officer and Director
of the Company since June 1996. From 1989 to 1996 Mr. Reis served as President
and Chief Executive Officer of MAXM Systems Corporation, a provider of
automation software for network and systems management.
Andrew J. Ryan has served as a director of the Company since May 1996. Mr.
Ryan has practiced law with the law firm of Salisbury & Ryan from August 1994 to
present, from March 1993 to August 1994 with the law firm of Pepper Hamilton &
Scheetz and from December 1987 to March 1993 with the law firm of Lord Day &
Lord. Mr. Ryan replaced Richard L. Mooers as Gwynedd's designee on the Board in
May 1996. See "Arrangements with Respect to the Board of Directors" and "Certain
Relationships and Related Transactions."
Frederick C. Shay has been a Director of the Company since February 1994,
and the President of the Company's subsidiary, DCX Systems, Inc. since November
1994. In addition, he has served as acting President and acting Chief Executive
Officer of the Company from June, 1995 to June, 1996. From January 1992 until
joining the Company, Mr. Shay provided business development consulting services
to electronics related companies, including providing consulting services to the
Company during 1994. From 1971 to 1991, Mr. Shay held various management
positions with BellSouth Corporation or its predecessor, including Sales Vice
President from 1989 to 1991.
Board of Directors, Committees and Attendance at Meetings
During fiscal 1996, the Board of Directors of the Company held 11
meetings. Each director attended 75% or more of the meetings of the Board and
committees of which they were members during fiscal 1996.
During fiscal 1996, the Audit Committee held three meetings. The purpose
of the Audit Committee is to review all recommendations made by the Company's
independent public accountants with respect to the accounting methods used and
the system of internal control followed by the Company and to advise the Board
of Directors with respect thereto.
During fiscal 1996, the Compensation Committee held two meetings. The
Compensation Committee makes recommendations to the Board with respect to the
compensation of the officers and key employees. See "Executive Compensation -
Report of the Compensation Committee."
-7-
<PAGE>
Arrangements with Respect to the Board of Directors
The Company has entered into an agreement providing Gwynedd the right to
designate one director to the Board. Additionally, in the event that the Board
consists of more than seven directors, Gwynedd, at its option, may designate one
additional director. Any designee's appointment will be subject to the exercise
by the Board of Directors of its fiduciary duties and the approval of the
Company's shareholders upon the expiration of any appointed term at the next
annual meeting of shareholders. Gwynedd's right to designate directors will
cease at such time as Gwynedd's equity interest in the Company drops below ten
percent of the outstanding shares of the Company's Common Stock. Mr. Ryan
currently serves as Gwynedd's designee.
Director Compensation
Each director of the Company who is not also an employee of the Company or
a Gwynedd designated director receives an annual fee of $8,000 and a fee of $250
for each meeting (except telephonic meetings, in which case the fee is $125) of
the Board or a committee thereof attended plus reimbursement of expenses
incurred in attending meetings. No additional fee is paid for committee meetings
held the same day as Board meetings.
Directors who are not employees or a Gwynedd designated director are
entitled to receive options under the Company's Non-Employee Director Stock
Option Plan. See "Executive Compensation - Stock Option Plans."
Litigation Settlement
In July and August 1995, the Company received complaints in three separate
purported lawsuits. The complaints, which were consolidated into a single
amended complaint, sought class action status and alleged violations arising
under certain federal securities laws for alleged material misstatements and
omissions in the prospectus associated with the Company's 1995 public offering.
The Company and the individual defendants believe the allegations are untrue and
without merit. The complaint was filed against certain of the Company's
directors and executive officers, principal shareholder and underwriters. The
complaint sought rescission and/or damages against all defendants, including the
awarding of costs and disbursements. The defendants filed a Motion to Dismiss
and in January 1996, the defendants' Motion to Dismiss was granted and the case
was dismissed. In February 1996, the plaintiffs appealed the Order of the U.S.
District Court to the United States Court of Appeals, where it is pending. A
settlement, effective October 24, 1996 and subject to final court approval, was
reached among the parties and preliminarily approved by the court. Given the
preliminary court approval, certain defendants paid $2.1 million to a settlement
fund, which after payment of certain costs and expenses, and subject to final
court approval at a hearing set for February 14, 1997, will be paid to a class.
Numerex's contribution to the settlement fund was $1,033,340.
EXECUTIVE COMPENSATION
Under rules established by the Securities and Exchange Commission ("SEC"),
the Company is required to provide certain data and information with respect to
the compensation and benefits provided to the Company's Chief Executive Officer
and other executive officers of the Company. The disclosure requirements for the
Chief Executive Officer and other executive officers include the
-8-
<PAGE>
use of tables and a report explaining the rationale and considerations that led
to fundamental compensation decisions affecting those individuals. In
fulfillment of this requirement, the Compensation Committee of the Company (the
"Committee"), at the direction of the Board of Directors, has prepared the
following report for inclusion in this proxy statement.
Report of the Compensation Committee
Overview and Philosophy
The Committee is currently comprised of Matthew J. Flanigan, as Chairman,
and George Benson. The Committee's responsibilities include reviewing and making
recommendations to the Board of Directors regarding the compensation of the
Chief Executive Officer and approving the compensation paid to the Company's
other executives. For the 1997 fiscal year the Company has instituted an
incentive compensation program for senior employees. The Committee also
considers and recommends to the Employee Stock Option Plan Committee awards of
options to purchase shares of Common Stock pursuant to the Company's Employee
Stock Option Plan.
The compensation structure is aimed at establishing levels of compensation
sufficient to attract and retain qualified executive talent. To do so, the
Company seeks to provide a total compensation package that is comparable to that
offered by other companies of similar size, complexity and financial
performance. The compensation program also seeks to align the interests of
management with those of the Company's shareholders through the use of stock
based forms of compensation, including compensation through stock option grants.
Compensation Program Elements
The executive officer compensation program consists of a base salary,
incentive compensation in the form of cash bonuses, long-term incentive
compensation in the form of options to purchase Common Stock under the Employee
Stock Option Plan, bonus and miscellaneous fringe benefits, including group
benefits generally available to employees of the Company.
Base Salary. The Company's salary levels are intended to be consistent
with the competitive practices of comparable companies and each executive
officer's level of responsibility. Salary increases are intended to reflect the
overall financial performance of the Company as well as the specific
contributions of the individual executive officer.
Stock Options. Grants of options under the Company's Employee Stock Option
Plan are made at the Employee Plan Committee's discretion based on the level and
importance of the management position to the overall long term success of the
Company and the contribution of the executive officer. Grants are intended to
motivate the executive officers to build shareholder value and to relate a
significant portion of the executive's compensation directly to the financial
performance of the Company.
Incentive Compensation. The Company instituted an incentive compensation
program for fiscal 1997 for executive level employees whereby they can receive
cash bonuses up to approximately 25% of base salary, based upon the achievement
of revenue and operating income objectives pursuant to the Company's business
plan. Additional incentive compensation will be paid for over-achievement of
objectives.
-9-
<PAGE>
Other Benefits. In addition to the items of compensation described above,
the Company provides medical, life insurance and a 401(k) plan to its executive
officers that are generally available to Company employees. The Company also
provides certain executive officers with a company car. The amount of these
benefits, as determined in accordance with the rules of the Securities and
Exchange Commission relating to executive compensation, did not exceed the
lesser of $50,000 or 10% of any such executive officer's salary for fiscal 1996.
Compensation of the Chief Executive Officer
Effective June 3, 1996, the Board of Directors entered into an employment
agreement with John J. Reis, pursuant to which Mr. Reis will serve as President,
Chief Executive Officer and a Director of the Company. Pursuant to the
agreement, Mr. Reis is to receive an annual salary of $225,000, increased to
$250,000, effective January 1, 1997, plus a cash bonus equal to $50,000, $25,000
of which is to be pro-rated on a monthly basis over the first six months of his
employment, while the remaining $25,000 shall be awarded at the discretion of
the Board of Directors. As part of this agreement, Mr. Reis was granted stock
options to purchase, in the aggregate, 125,000 shares of Company Common Stock,
exercisable as follows: (i) 50,000, at such time as the closing price of Numerex
Common Stock equals or exceeds $10.00 per share for a period of sixty (60)
consecutive days; (ii) 25,000, at such time as the closing price of Numerex
Common Stock equals or exceeds $12.50 per share for a period of sixty (60)
consecutive days; and (iii) 50,000, at such time as the closing price of Numerex
Common Stock equals or exceeds $15.00 per share for a period of sixty (60)
consecutive days. See "Employment and Related Agreements."
This compensation was based upon the Company's belief that the background
and skills brought to the Company by Mr. Reis are important to the Company's
achievement of its long range strategic goals.
Prior to the appointment of Mr. Reis, from June 1995 to June 1996, Mr.
Shay served as acting President and acting Chief Executive Officer of the
Company and received a base salary of $175,000. Subsequent to the hiring of Mr.
Reis, Mr. Shay's salary was reduced to $135,000, effective July 1, 1996. Mr.
Shay's compensation was based upon the enhanced duties and responsibility placed
upon him resulting from the retirement of his predecessor.
Policy with Respect to Section 162(m) of the Internal Revenue Code
Generally, Section 162(m) of the Internal Revenue Code, and the proposed
regulations promulgated thereunder (collectively, "Section 162(m)"), denies a
deduction to any publicly held corporation, such as the Company, for certain
compensation exceeding $1,000,000 paid to the chief executive officer and the
four other highest paid executive officers during any taxable year, excluding,
among other things, certain performance-based compensation. The Compensation
Committee intends to evaluate the level of compensation and the importance to
the Company of qualifying for the performance-based exclusion with respect to
options having an exercise price of not less than the fair market value of the
Common Stock on the date of grant. The Compensation Committee will also
continually evaluate to what extent Section 162(m) will apply to its other
compensation programs.
The Compensation Committee: Matthew J. Flanigan and George Benson.
-10-
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid to the Chief
Executive Officer of the Company, and the four most highly compensated executive
officers of the Company and its subsidiaries whose salary and bonus exceeded
$100,000 for services rendered in all capacities to the Company and its
subsidiaries, during the Company's fiscal years ended October 31, 1996, 1995 and
1994, except for the Chief Executive Officer.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------------ ---------------------
Other Annual Securities Underlying All Other
Name and Principal Position Fiscal Year Salary Bonus Compensation Options Compensation
- --------------------------- ----------- -------- ------- ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
John J. Reis 1996(1) $ 93,750 $20,833 -- 100,000 --
President and Chief 1995 -- -- -- -- --
Executive Officer 1994 -- -- -- -- --
Donald M. Hooton 1996 $120,000 -- -- 25,000 $ 3,150
Vice President - 1995(2) 85,000 -- -- 10,000 --
Sales and Marketing 1994 -- -- -- -- --
Kenneth F. Manser, 1996(3) $147,307 -- -- -- $27,988
Chairman of the Board of 1995(3) 150,898 $15,884 -- -- 22,693(4)
the Company and Managing 1994(3) 44,875 15,250 -- -- 15,860(4)
Director of Versus
Technology Limited
Charles L. McNew, Vice 1996 $123,500 -- -- 25,000 $ 3,708
President and Chief Financial 1995 105,000 $25,000 -- 30,000 3,450
Officer 1994(5) 27,981 -- -- 20,000 --
Peter I. Pritchett, Managing 1996(6) $113,495 -- -- -- $12,281
Director of European 1995(6) 114,127 $14,296 -- -- 10,687
Operations and Digital Audio 1994(6) 72,667 -- -- -- 8,090
Limited
Frederick C. Shay 1996(7) $161,667 -- -- 40,000 $ 4,445
President of DCX Systems, 1995(7) 138,833 $22,500 -- 30,000 4,150
Inc. 1994 7,500 -- -- 20,000 --
</TABLE>
-11-
<PAGE>
- ----------
(1) Mr. Reis became President and Chief Executive Officer of the Company in
June 1996 at a base salary of $225,000, which was increased to $250,000 on
January 1, 1997. See "Employment and Related Agreements".
(2) Mr. Hooton has served as Vice President - Sales and Marketing since
February 1995.
(3) Mr. Manser's salary, bonus and other compensation for fiscal 1994, 1995
and 1996 were (pound)95,000, (pound)10,000 and (pound)10,400;
(pound)95,000, (pound)10,000 and (pound)14,287; and (pound)95,000,
(pound)-0- and (pound)18,050, respectively, which have been converted into
dollars at the exchange rate of $1.5250 for fiscal 1994, $1.5884 for
fiscal 1995, and $1.5506 for fiscal 1996, respectively, per (pound)100
based on the average of the noon buying rates in New York City on the last
day of each month during fiscal 1994, 1995 and 1996, respectively, for
cable transfers as certified for customs purposes by the Federal Reserve
Bank of New York.
(4) Represents private health insurance premium payments and amounts
contributed to Mr. Manser's account under a Limited Pension and Death
Benefits Plan. See "Limited Pension and Death Benefits Plan."
(5) Mr. McNew became Vice President and Chief Financial Officer in July 1994.
(6) Mr. Pritchett became Managing Director of Digital Audio Limited ("DA
Systems"), a subsidiary of the Company, upon its acquisition by the
Company in July 1994. Mr. Pritchett's salary, bonus and other compensation
for fiscal 1994, 1995 and 1996 were (pound)47,650, (pound)0 and
(pound)5,305; (pound)71,850, (pound)9,000 and (pound)6,730; and
(pound)73,194, (pound)-0- and (pound)7,920, respectively, which have been
converted into dollars at the exchange rate of 1.5250 for fiscal 1994,
1.5884 for fiscal 1995 and 1.5506 for fiscal 1996, respectively, per
(pound)100 based on the average of the noon buying rates in New York City
on the last day of each month during fiscal 1994, 1995 and 1996,
respectively, for cable transfers as certified for customs purposes by the
Federal Reserve Bank of New York.
(7) Since June 1996 Mr. Shay has served as President of the Company's
subsidiary, DCX Systems, Inc. Mr. Shay served as acting President and
acting Chief Executive Officer of the Company from June 1995 to June 1996
at a base salary of $175,000. From November 1, 1995 through June 30, 1995,
Mr. Shay served as Vice President of the Company and has served as
President of DCX Systems, Inc. since November 1, 1995. Accordingly, Mr.
Shay's annual compensation includes amounts paid under various capacities.
Employment and Related Agreements
In June 1996, the Company entered into a one year employment agreement,
which may be extended by mutual agreement, with Mr. Reis pursuant to which he
will serve as President, Chief Executive Officer and a Director of the Company.
For all services rendered Mr. Reis will receive an annual salary of $225,000
(increased to $250,000 effective January 1, 1997), or such higher salary as may
be negotiated from time to time by Numerex and Mr. Reis, plus a bonus equal to
$50,000, $25,000 of which shall be pro-rated over the first six months of his
employment, while the remaining $25,000 shall be awarded at the discretion of
the Board of Directors. Mr. Reis will also be reimbursed for business travel and
other business expenses. Additionally, Mr. Reis received options to purchase, in
the aggregate,
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125,000 shares of Numerex Common Stock, at exercise prices equal to the fair
market value of the Company Common Stock in the dates of grant. The options are
exercisable as follows: (i) 50,000, at such time as the closing price of the
Company's Common Stock equals or exceeds $10.00 per share for a period of 60
consecutive days; (ii) 25,000, at such time as the closing price of the
Company's Common Stock equals or exceeds $12.50 per share for a period of 60
consecutive days; and (iii) 50,000, at such time as the closing price of the
Company's Common Stock equals or exceeds $15.00 per share for a period of 60
consecutive days. Mr. Reis is also entitled to benefits under Company employee
benefit plans and programs in which other executives of the Company are eligible
to participate. Mr. Reis is entitled to four weeks of annual vacation. The
Company may terminate this agreement "for cause" (as defined therein) in which
case Mr. Reis shall have no right to receive compensation or other benefits for
any period after such termination. In the event of termination for "good reason"
(as defined therein), which includes a merger, consolidation or reorganization,
sale of all or substantially all of the assets or any similar event, a "change
in control" (as defined therein), or for termination without cause, Mr. Reis
shall receive his base salary plus bonus for the most recently completed year of
employment, payment of which shall be made at the time provided for in the
agreement as though employment had not been terminated. This payment would be in
lieu of the base annual salary and bonus compensation he would otherwise
receive. The agreement also requires certain payments by the Company in the
event of disability or partial disability. The agreement also contains
non-competition, non-disclosure and confidentiality provisions, certain of which
extend beyond the term of the agreement.
In November 1993, the Company entered into an employment agreement with
Kenneth F. Manser, pursuant to which Mr. Manser has served as Managing Director
of Versus Technology Limited for two years, which ended in November 1995,
subject to automatic one year extensions unless notice of termination is given
by either party at least 90 days prior to the end of the then current term. The
employment agreement has been automatically extended. Mr. Manser's salary is
(pound)95,000 per year, or such higher rate as may from time to time be agreed.
In the event of Mr. Manser's death during the term of the agreement, his wife
will be entitled to receive a lump-sum payment equal to six months salary at his
then current rate. Versus Technology Limited provides Mr. Manser with an
automobile, which may be used for business and private use, private health
insurance coverage for Mr. Manser and his wife, and pension and life insurance
arrangements as shall from time to time be agreed upon. The agreement may be
terminated due to Mr. Manser's long-term disability, serious breach of the
agreement, grossly negligent conduct or personal bankruptcy. Mr. Manser is
prohibited from disclosing or using confidential information during and after
the term of his agreement and from soliciting business from the Company's
customers for a period of one year after the termination of his employment.
In July 1994, the Company entered into an employment agreement with Peter
I. Pritchett pursuant to which Mr. Pritchett will act as Managing Director of DA
Systems until terminated by DA Systems on not less than 12 months notice or by
Mr. Pritchett on not less than six months notice. Mr. Pritchett's current salary
is (pound)80,000 per year. DA Systems is also obligated to make contributions
equal to 10% of Mr. Pritchett's annual gross salary into a personal pension
plan, as well as to provide Mr. Pritchett medical insurance and group life
insurance. The agreement may be terminated due to Mr. Pritchett's long-term
disability, serious breach of contract, gross misconduct or personal bankruptcy.
Mr. Pritchett is prohibited from disclosing or using confidential information
during and after the term of his agreement and from soliciting business from the
Company's customers for a period of one year after the termination of his
employment. Mr. Pritchett also agreed not to sell or otherwise dispose of any of
the Company's Common Stock received by him in connection with the acquisition of
DA Systems by the Company until July 1996.
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<PAGE>
In May 1996, Numerex entered into severance agreements with Messrs. Shay,
McNew and Hooton, which terminate at the earlier of (i) death or permanent
disability, (ii) termination by the Company for cause, (iii) mutual agreement,
(iv) termination by resignation or otherwise; or (v) one year from the date of
the agreement, and year to year thereafter unless appropriate notice is given.
The agreements generally provide that if employment is terminated during the
term by reason of a merger or similar transaction, a "change in control" (as
defined therein), change to a less responsible position, termination of employee
(except for cause), employee shall receive, for a period of six months following
termination 50% of his annual base salary. In addition, employee shall be
entitled to receive, for a period of six months following the termination date,
reimbursement of all reasonable expenses incurred in connection with his search
for new employment, not to exceed 20% of base annual salary, or, at employee's
option, a lump sum payment of $10,000. For a period of one year following the
termination date employee shall be entitled to all Company non-discriminatory
benefits, such as medical care and life insurance benefits. The agreements also
contain certain provisions preventing the employee from disclosing confidential
information and not competing with the Company.
Stock Option Plans
In May 1994, the shareholders approved the Company's Employee Stock Option
Plan (the "Employee Plan") and the Non-Employee Director Stock Option Plan (the
"Director Plan" and, together with the Employee Plan, the "Plans"). In December
1994, the Plans were amended by the Board of Directors, and approved by the
shareholders in February 1995 to, among other things, permit options under the
Plans to be granted only with respect to Class A Common Stock and not with
respect to Class B Common Stock. In addition, the Employee Plan was amended to
increase the total number of shares for which options may be granted from
125,000 shares of Common Stock to 447,500 shares of Common Stock and to limit
the maximum number of shares of Common Stock for which options may be granted
under the Employee Plan to any one employee during any fiscal year of the
Company to 100,000 shares. In December 1996, the Employee Plan was amended by
the Board of Directors, subject to shareholder approval, to increase the total
number of shares under the Employee Plan for which options may be granted from
447,500 shares of Common Stock to 747,500.
Employee Plan. All officers and key employees of the Company or any of its
current or future parents or subsidiaries are eligible to receive options under
the Employee Plan. In fiscal 1996, the Company granted options to purchase an
aggregate of 207,000 shares under the Employee Plan. Of these options, 21,400
are currently exercisable and the remaining options will become exercisable
starting in 1997. See Proposal Two "Approval of Amendment to the Employee Stock
Option Plan" for a description of the provisions of the plan.
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The following table sets forth certain information concerning stock
options granted under the Employee Plan during the fiscal year ended October 31,
1996 to the executive officers of the Company named in the Summary Compensation
Table:
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual
Rates of Stock Price
Appreciation For
Individual Grants Option Term (1)
----------------------------------------------------- ------------------------
Number of
Securities Percent of Total
Underlying Options Granted
Options to Employees In Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
- ------------------- ---------- ---------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald M. Hooton 25,000 12.1% $5.75 5/14/2006 90,404 229,100
Charles L. McNew 25,000 12.1% $5.75 5/14/2006 90,404 229,100
Kenneth F. Manser -- -- -- -- -- --
Peter I. Pritchett -- -- -- -- -- --
John J. Reis 100,000 48.3% $6.125 6/3/2006 385,198 976,167
Frederick C. Shay 40,000 19.3% $5.75 5/14/2006 144,646 366,561
</TABLE>
- ----------
(1) Shows the difference between the market value of the Common Stock for
which the option may be exercised, assuming that the market value of the
Common Stock appreciates in value from the date of grant to the end of the
ten-year option term at annualized rates of 5% and 10%, respectively, less
the exercise price of the option.
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<PAGE>
The following table sets forth certain information concerning the number
of unexercised options and the value of unexercised options at the end of the
fiscal year ended October 31, 1996 held by the executive officers of the Company
named in the Summary Compensation Table. No options were exercised by such
executive officers in fiscal 1996.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND OCTOBER 31, 1996 OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at October 31, 1996 October 31, 1996(1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ----------- ------------- ----------- -------------
Donald M. Hooton 9,000 26,000 $-0- $-0-
Charles L. McNew 29,000 46,000 $-0- $-0-
Kenneth F. Manser -- -- -- --
Peter I. Pritchett -- -- -- --
John J. Reis -- 100,000 $-0- $-0-
Frederick C. Shay 32,000 58,000 $-0- $-0-
- ----------
(1) Because the option exercise price per share exceeded the last sale
price of the Common Stock on October 31, 1996 on the Nasdaq National
Market, there were no in-the-money options.
Director Plan. Under the Director Plan, each director who is not also an
employee of the Company or a Gwynedd designated director automatically is
granted options under the Director Plan. The Director Plan is administered by
the Board of Directors of the Company, including non-employee directors, who may
modify, amend, suspend or terminate the plan, provided that such action may not
affect outstanding options and provided further that provisions concerning the
number of shares with respect to which options are to be granted, the option
exercise price and the class of persons eligible to participate, may not be
amended more than once every six months except in certain circumstances.
Pursuant to the Director Plan, options may be granted for an aggregate of
62,500 shares of Common Stock. Options granted under the Director Plan are not
incentive stock options under Section 422 of the Code. Options under the
Director Plan are granted at the fair market value of the common stock on the
date of grant and are exercisable beginning one year after the date of grant.
Each person who was not a director of the Company for at least one year as
of April 1, 1995, and was not an employee of the Company or any subsidiary, or a
Gwynedd designated director, and who on or after April 1, 1995 was elected as a
director of the Company at any annual or special meeting of shareholders of the
Company, shall, as of the date of such election, automatically be granted an
option to purchase 2,500 shares of the Common Stock. On each anniversary of the
initial option granted hereunder and provided a person described above continues
to be a director who is not also an employee of the Company or any subsidiary,
or a Gwynedd designed director, on such anniversary, such person shall
automatically be granted an option to purchase 2,500 shares of the Common Stock,
or such lower number of shares as shall be equal to the number of shares as
shall then be available (if any) for grant under this Director Plan divided by
the number of persons who are to receive an option on such anniversary.
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<PAGE>
Pursuant to the Director Plan, during fiscal 1996 Messrs. Benson, Ray and
Flanigan received options to purchase 2,500, 2,500 and 4,200 shares of Company
Common Stock, respectively.
Limited Pension and Death Benefits Plan
Mr. Manser, as a full-time employee of Versus Technology Limited, a
subsidiary of the Company, participates in the Limited Pension and Death
Benefits Plan (the "Versus Technology Plan") maintained for employees of Versus
Technology Limited. Under the Versus Technology Plan, a participant who retires
at the normal retirement age of 65 will be entitled to receive an annual pension
equal to 1/60th of such participant's "final pensionable earnings" for each
complete year of pensionable service (subject to a maximum of 40 years). Final
pensionable earnings are the average of a participant's highest three
consecutive annual earnings from Versus Technology Limited in the last ten years
before the normal retirement date, except that if a participant retires or
leaves the Versus Technology Limited Plan more than ten years before the normal
retirement date, a participant's final pensionable earnings will be equal to
such participant's last annual earnings from Versus Technology Limited.
Participants are required to contribute five percent of annual earnings towards
the cost of their pension benefits. Assuming that Mr. Manser retired at age 65
and that his final pensionable earnings were equal to (pound)95,000 (his current
base annual salary), Mr. Manser would be entitled to receive an annual pension
of approximately (pound)17,500.
Incentive Compensation
The Company has implemented an incentive compensation program for fiscal
1997 for executive level employees based upon the business plan attainment. The
amount of incentive compensation will approximate 25% of the executive's base
salary if certain revenue and operating income objectives are achieved pursuant
to the Company's business plan. One-half of the incentive compensation can be
earned and paid, based upon quarterly performance, while the other half will be
earned and paid, based upon annual performance. Additional incentive
compensation will be paid for over-achievement of objectives. To be eligible to
receive incentive compensation the employee must be in the Company's employ on
the date of distribution. The Company reserves the right to make modifications
to the incentive compensation program.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Matthew Flanigan and Richard Mooers served as members of the Compensation
Committee until May 1996, at which time George Benson replaced Richard Mooers,
who ceased serving as a director of the Company. While serving as a Compensation
Committee member Mr. Mooers also served as a director and officer of each of
Gwynedd and Dominion, as hereinafter defined. See "Certain Relationships and
Related Transactions" for a description of various transactions and arrangements
between the Company, Gwynedd and Dominion.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into various transactions and arrangements with
Dominion Group Limited, a Member Company of Dominion Holdings or a corporation
which previously carried on certain activities of such entity (collectively,
"Dominion"). Dominion is an investment and merchant banking firm which has
provided financial advisory and investment banking services to the Company.
Gwynedd owns approximately 29.8% of the outstanding Common Stock of the Company.
The shareholders of Dominion
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<PAGE>
are also shareholders of Gwynedd. Richard L. Mooers who served as a director of
the Company until May, 1996 also served as a director and officer of each of
Gwynedd and Dominion through March 1996. See "Security Ownership of Management
and Certain Beneficial Owners." Gwynedd has the right to designate one member of
the Company's Board of Directors (two members if the Board consists of more than
seven directors) as long as Gwynedd owns at least ten percent of the outstanding
Common Stock. Mr. Mooers was replaced by Mr. Ryan as Gwynedd's designee. See
"Proposal One - Election of Directors - Arrangements with Respect to the Board
of Directors."
In July 1992, Dominion was engaged as the Company's financial advisor and
investment banker. Dominion has provided investment banking and other services
which have included evaluating financing alternatives, developing new joint
venture and licensing relationships, accounting and computer related services.
Certain of these services were provided at a time when the management of the
Company lacked depth and required outside assistance.
Pursuant to a letter agreement between Dominion and the Company effective
January 1, 1995 which terminated December 31, 1996, Dominion provided financial
advisory services to the Company, including the evaluation of debt and equity
financing alternatives; development of new joint venture and licensing
relationships and assistance in the structuring thereof; technical writing,
computer and other related services; identification of investment opportunities
for the Company in the security and telecommunications areas; and such other
services as may be agreed from time to time. The Company paid to Dominion a fee
$20,000 per month and reimbursed Dominion for certain expenses during the term
of the agreement. In addition, the agreement provided that the Company would pay
Dominion a negotiated finder's fee, comparable to that which the Company would
pay to an unaffiliated party, for any transaction resulting from an investment
opportunity identified by Dominion, although none was paid. Dominion received
fees and expense reimbursement (including reimbursements of legal and accounting
fees incurred by Dominion for services rendered to the Company or its
subsidiaries) of $469,942 and $54,730, respectively, for the fiscal year ended
October 31, 1995, and fees and expense reimbursement of $240,000 and $88,038,
respectively, for the fiscal year ended October 31, 1996. The Company believes
that these arrangements with Dominion were on terms no less favorable to the
Company than those which could have been obtained from an unaffiliated party for
substantially similar services.
The agreement also provided that, in any transactions involving Dominion
and the Company which required approval of the Company's board of directors, any
officer, director or shareholder of Dominion who was also a director of the
Company (or any director of the Company designated by Dominion or Gwynedd) had
to abstain from voting on such transaction. If such transaction required Company
shareholder approval, Gwynedd was obligated to vote its shares in the same
proportion as those shareholders of the Company unrelated to Dominion or Gwynedd
vote their shares. If such transaction involved the acquisition of an entity, or
the acquisition of assets, in which Dominion owned in excess of 25% of the
outstanding equity of such entity or assets, the Company was required to obtain
a fairness opinion from an independent investment banking firm with regard to
such acquisition.
From November 1994 to May 1995 the Company subleased its principal office
in Media, Pennsylvania from Dominion on a month-to-month basis. The rent was
$1,100 per month. The Company believes that the terms of such sublease were no
less favorable to the Company than those generally available from an
unaffiliated party.
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<PAGE>
During fiscal 1995 the Company's subsidiary, DA Systems, manufactured
certain products for CellTel Data Services, Inc. ("CellTel"), a company in which
Dominion owns a controlling interest. Sales to CellTel approximated $368,500
during fiscal 1995. In October 1996 Numerex invested $375,000 in return for an
initial 10% equity interest in CellTel. These funds were used by CellTel to
repay the account receivable relating to the 1995 product sales. In 1999 Numerex
has the right to put its initial equity interest to Dominion and Dominion can
call this interest for $500,000. In addition, in 1999, if the above-referenced
call is not exercised by Numerex, it may acquire an additional 10% interest in
CellTel for $1.00. The Company believes that the terms related to the
manufacture and sale of products to CellTel and its investment in CellTel are no
less favorable to the Company than those generally available from an
unaffiliated party.
On December 15, 1992, Dominion received an assignment of a $357,500
interest in an outstanding term loan to Versus Technology Limited. The balance
of the loan was payable in equal monthly installments of principal and interest
through December 31, 1995. The interest rate on the unpaid principal balance of
the loan was 9.5%. The highest outstanding balance on the loan during fiscal
1995 was $136,000. The loan was repaid in January 1995. The Company believes
that the terms of the term loan were at least as favorable as those Versus
Technology Limited could have obtained from an unaffiliated party.
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of the cumulative total return for
the Company's Common Stock, the Nasdaq Composite Index and the Nasdaq Industrial
Index, assuming an investment of $100 in each on March 3, 1994, the date that
the Company's Common Stock was first traded on the Nasdaq SmallCap Market, and,
in the case of the Indexes, the reinvestment of all dividends.
[STOCK PERFORMANCE GRAPH]
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<PAGE>
PROPOSAL TWO
APPROVAL OF AMENDMENT TO
THE EMPLOYEE STOCK OPTION PLAN
In May 1994, the shareholders approved the Company's Employee Stock Option
Plan (the "Employee Plan") and the Non-Employee Director Stock Option Plan (the
"Director Plan"). In December 1994, the Plans were amended by the Board of
Directors, and approved by the shareholders in February 1995 to, among other
things, permit options under the Plans to be granted only with respect to Class
A Common Stock and not with respect to Class B Common Stock. In addition, the
Employee Plan was amended to increase the total number of shares for which
options may be granted from 125,000 shares of Common Stock to 447,500 shares of
Common Stock and to limit the maximum number of shares of Common Stock for which
options may be granted under the Employee Plan to any one employee during any
fiscal year of the Company to 100,000 shares. In December 1996, the Employee
Plan was amended by the Board of Directors, subject to shareholder approval, to
increase the total number of shares under the Employee Plan for which options
may be granted from 447,500 shares of Common Stock to 747,500.
The Board of Directors recommends that the amendment to the Employee Plan
be approved because it believes that the Plan, as amended, will advance the
interests of the Company and its shareholders by strengthening the Company's
ability to attract, retain and motivate officers and key employees.
Set forth below is a summary of the provisions of the Employee Plan. This
summary is qualified in its entirety by the detailed provisions of the text of
the Employee Plan.
Purpose
The purpose of the Employee Plan is to provide additional incentive to
employees of the Company by encouraging them to invest in the Company's Common
Stock and thereby acquire a proprietary interest in the Company and an increased
personal interest in the Company's continued success and progress.
Administration
The Employee Plan is administered by an Option Committee ("Committee")
which is appointed by the Board of Directors and consists only of Directors who
are not eligible to receive options under the Employee Plan. The Committee
determines, among other things, which officers and key employees receive an
option or options under the Employee Plan, the type of option (incentive stock
options or non-qualified stock options, or both) to be granted, the number of
shares subject to each option, the rate of option exercisability, and, subject
to certain other provisions to be discussed below, the option price and duration
of the option.
The Committee may, in its discretion, modify or amend any of the option
terms hereafter described, provided that if an incentive option is granted under
the Plan, the option as modified or amended continues to be an incentive stock
option.
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<PAGE>
Aggregate Number of Shares
The aggregate number of shares which may be issued upon the exercise of
options under the Employee Plan, if this proposal is approved by shareholders,
is 747,500 shares of Common Stock. In the event of any change in the
capitalization of the Company, such as by stock dividend, stock split or what
the Board of Directors deems in its sole discretion to be similar circumstances,
the aggregate number and kind of shares which may be issued under the Employee
Plan will be appropriately adjusted in a manner determined in the sole
discretion of the Board of Directors. Reacquired shares of the Company's Common
Stock, as well as unissued shares, may be used for the purpose of the Employee
Plan. Common Stock of the Company subject to options which have terminated
unexercised, either in whole or in part, will be available for future options
granted under the Plan.
Option Price
The option price for options issued under the Employee Plan must be at
least equal to 100% of the fair market value of the Common Stock as of the date
the option is granted. The fair market value on a particular day shall mean the
last reported sale price of a share of the Company's Common Stock on any stock
exchange on which such stock is then listed or admitted to trading, or on the
NASDAQ National Market System or NASDAQ, on such date, or if no sale took place
on such day, the last day on which a sale took place, or if the Common Stock is
not then quoted on the NASDAQ National Market System or NASDAQ, or listed or
admitted to trading on any stock exchange, the average of the bid and ask prices
in the over-the-counter market on such date, or if none of the foregoing, a
price determined by the Committee.
Payment
Payment of the option price on exercise of options granted under the
Employee Plan may be made in (a) cash, (b) (unless prohibited by the Board of
Directors) the Company Common Stock which will be valued by the Secretary of the
Company at its fair market value or (c) (unless prohibited by the Board of
Directors) any combination of cash and Common Stock of the Company valued as
provided in clause (b).
Under the terms of the Employee Plan, the Board has interpreted the
provision of the Employee Plan which allows payment of the option price in
Common Stock of the Company to permit the "pyramiding" of shares in successive
exercises. Thus, an optionee could initially exercise an option in part,
acquiring a small number of shares of Common Stock, and immediately thereafter
effect further exercises of the option, using the Common Stock acquired upon
earlier exercises to pay for an increasingly greater number of shares received
on each successive exercise. This procedure could permit an optionee to pay the
option price by using a single share of Common Stock or a small number of shares
of Common Stock and to acquire a number of shares of Common Stock having an
aggregate fair market value equal to the excess of (a) the fair market value (as
determined above) of all shares to which the option relates over (b) the
aggregate exercise price under the option.
Exercisability
The Committee may determine the rate of option exercisability. In the
event of "change in control" of the Company, as defined in the Employee Plan,
each optionee may exercise the total number
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of shares then subject to the option. Consequently, the Employee Plan may be
deemed to have certain "anti-takeover" effects.
Option Expiration and Termination
Unless terminated earlier by the option's terms, incentive stock options
expire ten years after the date they are granted and non-qualified stock options
expire ten years and thirty days after the date they are granted.
Options terminate three months after the date on which employment is
terminated (whether such termination be voluntary or involuntary), other than by
reason of death or disability. The option terminates one year from the date of
termination due to death or disability (but not later than the scheduled
termination date).
Non-Transferability
Options granted pursuant to the Plan are not transferable, except by will
or the laws of descent and distribution in the event of death. During an
optionee's lifetime, the option is exercisable only by the optionee, including,
for this purpose, the optionee's legal guardian or custodian in the event of
disability.
Amendment or Termination; Plan Expiration
The Company's Board of Directors has the right at any time, and from time
to time, to modify, amend, suspend or terminate the Employee Plan, without
shareholder approval, except to the extent that shareholder approval of the
Employee Plan modification amendment is required by the Internal Revenue Code of
1986, as amended, to permit the granting of incentive stock options under the
Employee Plan. Any such action will not affect options previously granted. If
the Board of Directors voluntarily submits a proposed modification, amendment,
suspension or termination for shareholder approval, such submission will not
require any future modifications, amendments, suspensions or terminations
(whether or not relating to the same provision or subject matter) to be
similarly submitted for shareholder approval.
Federal Income Tax Consequences
THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION OF
THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE EMPLOYEE PLAN AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"), AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE
PROVISIONS OF THE CODE DESCRIBED IN THIS SECTION INCLUDE CURRENT TAX LAW ONLY
AND DO NOT REFLECT ANY PROPOSALS TO REVISE CURRENT TAX LAW.
Incentive Stock Options
Generally, under the Code, an optionee will not realize taxable income by
reason of the grant or the exercise of an incentive stock option intended to
qualify under Section 422 of the Code ("Incentive Option") (see, however,
discussion of Alternative Minimum Tax below). If an optionee exercises an
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Incentive Option and does not dispose of the shares until the later of (i) two
years from the date the option was granted and (ii) one year from the date of
exercise, the entire gain, if any, realized upon disposition of such shares will
be taxable to the optionee as long-term capital gain, and the Company will not
be entitled to any deduction. If an optionee disposes of the shares within the
period of two years from the date of grant or one year from the date of exercise
(a "disqualifying disposition"), the optionee generally will realize ordinary
income in the year of disposition and the Company will receive a corresponding
deduction, in an amount equal to the excess of (1) the lesser of (a) the amount,
if any, realized on the disposition and (b) the fair market value of the shares
on the date the option was exercised (or such later date, if applicable, as
described below in "Non-Qualified Options", if the optionee is a 16(b) Person
who has not made an 83(b) Election as such terms are defined in "Non-Qualified
Options" below) over (2) the option price. Any additional gain realized on the
disposition will be long-term or short-term capital gain and any loss will be
long-term or short-term capital loss. The optionee will be considered to have
disposed of a share if he sells, exchanges, makes a gift of or transfers legal
title to the share (except transfers, among others, by pledge, on death or to
spouses). If the disposition is by sale or exchange, the optionee's tax basis
will equal the amount paid for the share plus any ordinary income realized as a
result of the disqualifying disposition.
The exercise of an Incentive Option may subject the optionee to the
alternative minimum tax. The amount by which the fair market value of the shares
purchased at the time of the exercise (or such later date, if applicable, as
described above in "Non-Qualified Options", if the optionee is a 16(b) Person
who has not made an 83(b) Election) exceeds the option exercise price is an
adjustment for purposes of computing the so-called alternative minimum tax. In
the event of a disqualifying disposition of the shares in the same taxable year
as exercise of the Incentive Option, no adjustment is then required for purposes
of the alternative minimum tax, but regular income tax, as described above, may
result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of his
Incentive Option generally will not recognize gain or loss on his surrender of
such shares. The surrender of shares previously acquired upon exercise of an
Incentive Option in payment of the exercise price of another Incentive Option,
is, however, a "disposition" of such stock. If the incentive stock option
holding period requirements described above have not been satisfied with respect
to such stock, such disposition will be a disqualifying disposition that may
cause the optionee to recognize ordinary income as discussed above.
Under the Code, all of the shares received by an optionee upon exercise of
an Incentive Option by surrendering shares will be subject to the incentive
stock option holding period requirements. Of those shares, a number of shares
(the "Exchange Shares") equal to the number of shares surrendered by the
optionee will have the same tax basis for capital gains purposes (increased by
any ordinary income recognized as a result of any disqualifying disposition of
the surrendered shares if they were incentive stock option shares) and the same
capital gains holding period as the shares surrendered. For purposes of
determining ordinary income upon a subsequent disqualifying disposition of the
Exchange Shares, the amount paid for such shares will be deemed to be the fair
market value of the shares surrendered. The balance of the shares received by
the optionee will have a tax basis (and a deemed purchase price) of zero and a
capital gains holding period beginning on the date of exercise. The Incentive
Stock Option holding period for all shares will be the same as if the option had
been exercised for cash.
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Non-Qualified Options
Generally, there will be no federal income tax consequences to either the
optionee or the Company on the grant of a stock option not intended to qualify
under Section 422 of the Code (a "Non-Qualified Option"). On the exercise of a
Non-Qualified Option, the optionee (except as described below) has taxable
ordinary income equal to the excess of the fair market value of the shares
acquired on the exercise date over the option price of the shares. The Company
will be entitled to a federal income tax deduction in an amount equal to such
excess, provided that the Company complies with applicable withholding rules.
However, special rules apply where stock is registered under the Exchange Act
and the optionee is an officer, director or 10% or greater shareholder of the
Company subject to potential liability under Section 16(b) of the Exchange Act
for so-called "short-swing" profits (a "16(b) Person") in connection with
certain purchases and sales, or sales and purchases, of the Company's stock
within a period of six months.
Under SEC rules promulgated under Section 16(b) of the Exchange Act, the
grant of an option, not its exercise, is treated as a "purchase" for Section
16(b) purposes. If such grant is made pursuant to a plan qualifying under the
SEC rules and six months elapse between the grant of the option and the sale of
the shares received upon the exercise thereof, such grant will be exempt from
Section 16(b). With respect to the exercise of a Non-Qualified Option, if a
16(b) Person has not purchased or acquired shares of Common Stock within the six
month period prior to the exercise date (other than purchases or acquisitions
exempt from Section 16(b)), the 16(b) Person will be required to recognize
ordinary income (i) six months after the date of grant (in the event of exercise
within six months of the date of grant) or (ii) the date of exercise (in the
event of exercise after six months from the date of grant). The timing of income
recognition with respect to a 16(b) Person who exercises a Non-Qualified Option
within six months of a prior non-exempt purchase or acquisition of Common Stock
is uncertain. It is possible that the Internal Revenue Service will take the
position that, despite the prior non-exempt purchase or acquisition, the 16(b)
Person recognizes income on the date of exercise rather than the date which is
six months following the date of such prior non-exempt purchase or acquisition.
A 16(b) Person can be certain of recognizing income on the exercise date by
making an election not later than 30 days following the exercise date to have
the income determined as of the date of exercise (an "83(b) Election"), in which
case the Company's deduction will also be determined as of the exercise date.
Upon the sale of stock acquired by exercise of a Non-Qualified Option,
optionees will realize long-term or short-term capital gain or loss depending
upon their holding period for such stock. Under current law, net capital gains
(net long term capital gain less net short term capital loss) is subject to a
maximum rate of 28%. Capital losses are deductible only to the extent of capital
gains for the year plus $3,000 for individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Option will not recognize gain or loss with respect to the shares
so delivered unless such shares were acquired pursuant to the exercise of an
Incentive Option and the delivery of such shares is a disqualifying disposition.
See "Federal Income Tax Consequences - Incentive Stock Options". The optionee
will recognize ordinary income on the exercise of the Non-Qualified Option as
described above. Of the shares received in such an exchange, that number of
shares equal to the number of shares surrendered will have the same tax basis
and capital gains holding period as the shares surrendered. The balance of the
shares received will have a tax basis equal to their fair market value on the
date of exercise and the
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<PAGE>
capital gains holding period will begin on the date of exercise (or such later
date, as described above, if the optionee is a 16(b) Person who has not made an
83(b) Election, and such later date is applicable).
Section 162(m)
Generally, Section 162(m), denies a deduction to any publicly held
corporation, such as the Company, for certain compensation exceeding $1,000,000
paid to the chief executive officer and the other four highest paid executive
officers during any taxable year. Although ordinary income that is realized upon
the exercise of a Non-Qualified Option or the disqualifying disposition of
shares acquired pursuant to the exercise of an Incentive Option is potentially
subject to the limitation imposed under Section 162(m), Section 162(m) and the
regulations thereunder provide that compensation attributable to the stock
options granted under the Employee Plan having an exercise price of not less
than the fair market value of the Common Stock on the date of grant may qualify
for the performance-based exclusion in Section 162(m). If the stock options
qualify for the performance-based exclusion, the compensation received upon
their exercise would not be subject to the deduction limit set forth in Section
162(m). The Company believes that, assuming shareholder approval of the proposed
amendment to the Employee Plan set forth herein and satisfaction of certain
other conditions set forth in Section 162(m), the compensation attributable to
the stock options granted under the Employee Plan will meet the
performance-based exclusion under Section 162(m) and therefore the deduction
limitation will be inapplicable to options to be issued under the Employee Plan.
Whether certain of the options granted will qualify for the performance-based
exclusion will depend on the final regulations adopted for Section 162(m).
Option Grants
Except as provided herein, no determinations have been made as to the
number of options, if any, to be granted in the fiscal year ending October 31,
1997 or as to how the proposed additional option shares will be allocated among
any particular officers or key employees. To date, options to acquire 401,500
shares of Common Stock have been granted under the Employee Plan. Information
concerning options granted in the fiscal year ended October 31, 1996 under the
Employee Plan to the persons named in the Summary Compensation Table is set
forth under "Executive Compensation - Stock Option Plans - Option Grants in
Fiscal 1996." In fiscal 1996, the Option Committee granted options under the
Employee Plan to purchase 190,000 shares to all executive officers of the
Company as a group and 17,000 shares to all employees of the Company, other than
executive officers and directors, as a group. There would not have been any
material difference in the amount of these grants had they been made under the
Employee Plan if the proposed amendment had already been approved.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended
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<PAGE>
October 31, 1996, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than 10% beneficial owners were
complied with, except that the initial ownership report on Form 3 of Mr. Reis
which showed no beneficial ownership was filed late.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP has acted as the Company's independent public
accountant for the fiscal year ended October 31, 1996. A representative of
Deloitte & Touche LLP is expected to be present at the annual meeting of
shareholders and to have the opportunity to make a statement, if he desires to
do so, and is expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Shareholder proposals regarding the 1998 Annual Meeting must be submitted
to the Company by September 30, 1997.
ANNUAL REPORT
This Proxy Statement is accompanied by the Annual Report to Shareholders
of the Company for the year ended October 31, 1996.
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996 REQUIRED TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHOUT CHARGE, EXCEPT FOR
EXHIBITS TO THE REPORT, BY SENDING A WRITTEN REQUEST THEREFOR TO: ROSE TREE
CORPORATE CENTER II, SUITE 5500, 1400 N. PROVIDENCE ROAD, MEDIA,
PENNSYLVANIA 19063.
By Order of the Board of Directors
Charles L. McNew, Secretary
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<PAGE>
Proxy for Annual Meeting of Shareholders
February 27, 1997
Solicited on behalf of the Board of Directors
The undersigned hereby constitutes and appoints John J. Reis and Frederick
C. Shay, and each of them, as attorneys-in-fact and proxies of the undersigned,
with full power of substitution for and in the name, place and stead of the
undersigned to appear at the Annual Meeting of Shareholders of Numerex Corp.
("Numerex"), to be held on the 27th day of February, 1997, and at any
postponement or adjournment thereof, and to vote all of the shares of Common
Stock of Numerex which the undersigned is entitled to vote, with all the powers
and authority the undersigned would possess if personally present.
The undersigned directs that this proxy be voted as indicated below.
The proxy agents present and acting in person or by their substitute (or,
if only one is present and acting, then that one) may exercise all the powers
conferred by this proxy. Discretionary authority is conferred by this proxy as
to certain matters described in the Company's Proxy Statement.
(To be Completed and Signed on Reverse Side)
<PAGE>
1. For |_| the election of George Benson, Matthew J. Flanigan, Kenneth F.
Manser, Gordon T. Ray, John J. Reis, Andrew J. Ryan and Frederick C. Shay,
as Directors of the Company, as more fully described in the accompanying
Proxy Statement (to withhold authority to vote for all directors, check
this box:
|_|
To withhold authority to vote for any individual nominee, write that
nominee's name on the space provided below.
_____________________________________________________________________
2. To increase the number of shares of Common Stock for issuance under the
Company's Employee Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To transact such other business as may properly come before this meeting
or any postponement or adjournment thereof.
This proxy, when properly executed, will be voted as directed. If no directions
to the contrary are indicated, the persons named herein intend to vote for the
election of the named nominees for director and for the proposal to increase the
number of shares of Common Stock for issuance under the Company's Employee Stock
Option Plan.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
The undersigned hereby acknowledges receipt of the Company's 1996 Annual
Report to Shareholders, Notice of the Company's 1997 Annual Meeting of
Shareholders and the Proxy Statement relating thereto.
SIGNATURE(S)_______________________________ DATE________________
Note: It would be helpful if you signed your name exactly as it appears hereon,
indicating any official position or representative capacity. If shares are
registered in more than one name, all owners should sign.
